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Previous: LECHTERS INC, 4, 1999-11-10 |
Next: FIRST CITIZENS BANCSHARES INC /DE/, SC 13D/A, 1999-11-10 |
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. ___X___
CALCULATION OF REGISTRATION FEE
Title of Securities |
Amount to be |
Proposed Maximum |
Proposed Maximum |
Amount of |
|
|
Shares |
Per Share |
aggregate offering price |
|
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.
Page 1 of 131
CROSS REFERENCE SHEET
Part I. Information Required in Prospectus PAGE LOCATION IN ITEM THIS S-11 FILING 1 Forepart of Registration Statement and Outside Front Cover Page of Prospectus......................................................I 2 Inside Cover Page of Prospectus.........................................N/A 3 Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.................................................... 9 to 15 4 The Company........................................................16 to 17 5 Business Objectives......................................................17 6 Available Information Concerning IRET....................................17 7 Risk Factors.......................................................18 to 21 8 Compensation Table.................................................21 to 22 9 Conflict of Interest...............................................22 to 24 10 Determination of Offering Price..........................................24 11 Dilution.................................................................24 12 Selling Security Holders................................................N/A 13 Plan of Distribution.....................................................24 14 Use of Proceeds....................................................25 to 27 15 Selected Financial Data.. .............................................. 27 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................27 to 34 17 Financial Results for Three Months Ending July 31, 1999............34 to 37 18 Structure of IRET..................................................37 to 38 19 General Information as to Investors Real Estate Trust..............36 to 37 20 Policy with Respect to Certain Activities..........................38 to 40 21 Investment Policies of Investors Real Estate Trust.................40 to 41 22 Description of Real Estate.........................................41 to 44 23 Shares Available for Future Sale...................................44 to 45 24 Operating Partnership Agreement....................................45 to 48 25 Tax Treatment of IRET and Its Security Holders.....................48 to 58 26 Market Price Of and Dividends on IRET's Shares of Beneficial Interest.........................................................58 to 62 27 Dividend Reinvestment Plan...............................................62 28 Description of IRET's Securities...................................62 to 63 29 Legal Proceedings.......................................................N/A 30 Security Ownership of Certain Beneficial Owners and Management...................................................63 to 64 31 Directors and Executive Officers...................................63 to 64 32 Executive Compensation.............................................64 to 67 33 Certain Relationships and Related Transactions.....................64 to 67 34 Selection, Management and Custody of IRET's Investments..................67 35 Policies with Respect to Certain Transactions......................67 to 68 36 Interests of Named Experts and Counsel...................................68 37 Limitations of Liability.................................................68 38 Disclosure of Commission Position on Indemnification for Securities Act Liabilities..................................................68 to 70 39 Glossary of Terms..................................................71 to 76 40 Financial Statements and Information..............................76 to 112 |
Page 2 of 131
Part II. Information Not Required in Prospectus ITEM 41 Other Expenses of Issuance and Distribution.............................117 42 Sales to Special Parties................................................117 43 Recent Sales of Unregistered Securities.................................117 44 Indemnification of Directors and Officers...............................117 45 Treatment of Proceeds from Stock Being Registered.......................117 46 Financial Statements and Exhibits................................118 to 119 47 Undertakings.....................................................119 to 121 48 Index of Exhibits.......................................................122 49 Security Sales Agreement..........................................123 & 124 50 Opinion RE Legality.....................................................125 51 Opinion RE Tax Matters..................................................126 52 Consent Letter from Pringle & Herigstad, P.C., RE Opinion of Legality...127 53 Consent Letter from Brady Martz & Associates, P.C., RE Financial Information...........................................................128 54 Financial Data Schedule for Investors Real Estate Trust (As Of July 31, 1999).......................................................129 55 Subscription Agreement - Investors Real Estate Trust..............130 & 131 |
Page 3 of 131
Effective Date: ____________, 1999 Prospectus
INVESTORS REAL ESTATE TRUST
12 South Main Street
Minot, ND 58701
(701) 852-1756
For 1,100,000 Shares of Beneficial Interest
$8.40 per Share
The offering price may be higher than the market price of our shares on the day of purchase.
THE OFFERING
PER SHARE
TOTAL
Public Price $8.40 $8,400,000 Selling Commission $ .67 $ 670,000 Proceeds to IRET $7.73 $7,730,000
TRADING SYMBOL
NASDAQ Small Cap Market - IRETS
THE COMPANY
The Trust is a Real Estate Investment Trust formed on July 31, 1970.
IRET owns approximately 6,500 apartment units and 1,300,000 square feet
of commercial property in North Dakota and nine other states.
USE OF PROCEEDS
The proceeds from this offering will be added to the Trust's operating
capital to be used for the construction of residential apartment buildings.
See "Use of Proceeds."
INVESTMENT IN THE SHARES INVOLVES MATERIAL RISKS AND THERE IS NO GUARANTEE OF RETURN ON INVESTMENT. SEE "RISK FACTORS." AMONG SUCH RISKS ARE THE FOLLOWING:
* THE ESTIMATED BOOK VALUE OF TRUST SHARES AFTER THIS OFFERING
WILL BE $4.74. A PURCHASER PAYING $8.40 PER SHARE WILL INCUR
AN IMMEDIATE BOOK VALUE DILUTION OF $3.66 PER SHARE.* ECONOMIC CONDITIONS THAT THE TRUST CANNOT CONTROL MAY HAVE A
NEGATIVE EFFECT ON THE VALUE OF THE TRUST'S INVESTMENTS AND
AMOUNT OF CASH THAT THE TRUST RECEIVES FROM TENANTS.* THE TRUST INTENDS TO BORROW 70% OF THE COST OF REAL ESTATE PURCHASED OF CONSTRUCTED. * THE PUBLIC TRADING MARKET FOR THE SHARES HAS ONLY RECENTLY DEVELOPED, AND THERE IS NO ASSURANCE THAT IT WILL CONTINUE. * TAXATION OF THE TRUST AS A CORPORATION IF IT FAILS TO QUALIFY AS A REIT. * THE TRUST MUST RELY ON THE ADVISOR WITH RESPECT TO ALL INVESTMENT DECISIONS, SUBJECT TO APPROVAL BY THE BOARD OF TRUSTEES. * 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.
* THE ADVISOR AND ITS AFFILIATES ARE OR MAY BE ENGAGED IN OTHER ACTIVITIES THAT MAY RESULT IN POTENTIAL CONFLICTS OF INTEREST.
THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
TABLE OF CONTENTS
PROSPECTUS PAGESUMMARY OF THE OFFERING...................................................9-15 THE COMPANY.................................................................16 BUSINESS OBJECTIVES.........................................................17 Portfolio Mix..........................................................17 Leverage...............................................................17 AVAILABLE INFORMATION CONCERNING IRET.......................................17 Securities and Exchange Commission.....................................17 Reports to Security Holders............................................18 Incorporation by Reference.............................................18 RISK FACTORS................................................................18 Price of Shares Arbitrarily Determined.................................18 Price Exceeds Book Value...............................................18 High Leverage..........................................................18 Failure to Qualify as a Real Estate Investment Trust...................19 Best Efforts Sale......................................................19 Business Environment...................................................19 Risks Related to Mortgage Lending......................................19 Relationship with Advisor..............................................20 Conflict of Interest...................................................20 Environmental Liability................................................20 Competition............................................................21 Liquidity..............................................................21 Front-End Fees.........................................................21 COMPENSATION TABLE..........................................................21 CONFLICTS OF INTEREST.......................................................22 Transactions with Affiliates and Related Parties.......................23 Compensation to the Advisor and Conflicts of Interest..................23 Competition by IRET with Affiliates....................................23 Non-Arm's Length Agreements............................................23 Lack of Separate Representation........................................24 DETERMINATION OF OFFERING PRICE.............................................24 DILUTION....................................................................24 PLAN OF DISTRIBUTION........................................................24 WHO MAY INVEST..............................................................24 USE OF PROCEEDS.............................................................25 SELECTED FINANCIAL DATA - ANNUAL............................................27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................27 General................................................................27 Results of Operations..................................................28 Property Acquisitions..................................................30 Property Dispositions..................................................31 Dividends..............................................................32 Funds From Operations..................................................32 Liquidity and Capital Resources........................................33 Impact of Inflation....................................................34 Economic Conditions....................................................34 Year 2000 Costs........................................................34 FINANCIAL RESULTS FOR THREE MONTH PERIOD ENDED JULY 31, 1999................34 Results From Operations................................................34 Funds From Operations..................................................34 Operating Income.......................................................34 Capital Gains..........................................................35 Property Acquisitions..................................................35 Pending Acquisitions...................................................35 Financial Condition....................................................36 |
Page 6 of 131
GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST.......................36 Organization of IRET...................................................36 Governing Instruments of IRET..........................................36 Independent Trustees...................................................36 Shareholder Meetings...................................................37 STRUCTURE OF IRET...........................................................37 POLICY WITH RESPECT TO CERTAIN ACTIVITIES...................................38 To Issue Senior Securities.............................................38 To Borrow Money........................................................38 To Make Loans To Other Persons.........................................39 Mortgage Loans Receivable..............................................39 To Invest in the Securities of Other Issuers for the Purpose of Exercising Control...............................................39 To Underwrite Securities of Other Issuers..............................39 To Engage in the Purchase and Sale (or Turnover) of Investments........39 To Offer Securities in Exchange for Property...........................39 To Repurchase or Otherwise Reacquire Its Shares or Other Securities....39 To Make Annual and Other Reports to Shareholders.......................39 INVESTMENT POLICIES OF IRET.................................................40 Investments in Real Estate or Interests in Real Estate.................40 Investments in Real Estate Mortgages...................................40 Investments in Other Securities........................................40 Investments in Securities Of or Interests In Persons Primarily Engaged in Real Estate Activities................................41 DESCRIPTION OF REAL ESTATE..................................................41 INVESTMENT PORTFOLIO - INVESTORS REAL ESTATE TRUST AS OF JULY 31, 1999..............................................41 Title..................................................................44 Insurance..............................................................44 Planned Improvements...................................................44 Contracts or Options to Sell...........................................44 Occupancy and Leases...................................................44 SHARES AVAILABLE FOR FUTURE SALE............................................44 OPERATING PARTNERSHIP AGREEMENT.............................................45 Management.............................................................45 Transferability of Interests...........................................45 Capital Contribution...................................................46 Exchange Rights........................................................47 Registration Rights....................................................47 Operations.............................................................47 Distributions..........................................................47 Allocations............................................................48 Term...................................................................48 Fiduciary Duty.........................................................48 Tax Matters............................................................48 TAX TREATMENT OF IRET AND ITS SECURITY HOLDERS..............................48 Federal Income Tax.....................................................48 North Dakota Income Tax................................................50 Taxation of IRET's Shareholders........................................50 Taxation of Tax-Exempt Shareholders....................................50 Tax Considerations for Foreign Investors...............................51 Backup Withholding.....................................................51 State and Local Taxes..................................................51 Other Tax Considerations...............................................52 Tax Aspects of the Operating Partnership...............................52 Classification as a Partnership........................................52 Income Taxation of the Operating Partnership and Its Partners..........53 Partners, Not Partnerships, Subject To Tax.............................53 Partnership Allocations................................................53 Tax Allocations With Respect To Contributed Property...................54 |
Page 7 of 131
Basis in Operating Partnership Interest................................54 Sale of Operating Partnership's Property...............................55 ERISA CONSIDERATIONS........................................................55 Employee Benefit Plan, Tax-Qualified Retirement Plans and IRAS............................................................55 Status of IRET and the Operating Partnership under ERISA..............56 MARKET PRICE OF AND DIVIDENDS ON IRET'S SHARES OF BENEFICIAL INTERESTS......58 Market for the Shares of Beneficial Interest...........................58 Dividend and Share Price History.......................................60 DIVIDEND REINVESTMENT PLAN..................................................62 DESCRIPTION OF IRET'S SECURITIES............................................62 Description of Shares of Beneficial Interest...........................62 Restrictions on Transfer...............................................63 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............64 EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...64 ADVISORY AGREEMENT..........................................................65 Basic Compensation.....................................................65 Additional Compensation................................................66 Limitation.............................................................66 Roger R. Odell.........................................................66 Thomas A. Wentz, Sr....................................................67 SELECTION, MANAGEMENT AND CUSTODY OF IRET'S INVESTMENTS.....................67 Management of IRET's Investments.......................................67 POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS...............................67 INTERESTS OF NAMED EXPERTS & COUNSEL........................................68 LIMITATIONS OF LIABILITY....................................................68 LEGAL MATTERS...............................................................70 EXPERTS.....................................................................70 GLOSSARY OF TERMS...........................................................71 CONSOLIDATED FINANCIAL STATEMENTS - FISCAL YEAR ENDED APRIL 30, 1999 AND 1998 AND INDEPENDENT AUDITOR'S REPPORT....F-1 to F-35 CONSOLIDATED FINANCIAL STATEMENTS - THREE MONTH PERIOD ENDED JULY 31, 1999 (UNAUDITED)....................................F-36 to F-39 |
Page 8 of 131
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE DESCRIPTION OF THE INVESTMENT. YOU SHOULD READ AND EVALUATE ALL OF THIS PROSPECTUS BEFORE YOU PURCHASE OUR SHARES. THE PLACE IN THE PROSPECTUS WHERE YOU CAN FIND MORE INFORMATION ABOUT EACH TOPIC IS IDENTIFIED AT THE END OF EACH PARAGRAPH.
A GLOSSARY OF TERMS IS PROVIDED AT THE END OF THIS DOCUMENT.
RISK FACTORS
An investment in our shares involves risk, including the risk of loss
of your entire investment. See "Risk Factors" for a more complete discussion
of factors that you should consider before purchasing our shares. These
risks include:
* BOOK VALUE
The book value of IRET shares of beneficial interest is substantially less than the purchase price to new shareholders under this Offering. As of July 31, 1999, the book value of the 19,923,692 shares then outstanding was $4.59. Assuming all of the shares registered under this Offering are sold, the estimated resulting book value will be $4.74 per share. Thus, a purchasing shareholder paying $8.40 per share under this Offering will incur an immediate book value dilution of $3.66 per share.* PRICE OF SHARES ARBITRARILY DETERMINED
The price of our shares has been arbitrarily determined by us and is a higher price than the price paid by the current holders of our shares and may be higher than the current market price of the shares.* FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
We intend to continue to qualify as a real estate investment trust under the Internal Revenue Code, but may fail to do so.* BEST EFFORTS SALE
The shares are being sold by the Soliciting Dealers on a "best efforts" basis. The selling agents are only required to use their best efforts to locate purchasers of the shares, but are not obligated to ensure that a minimum number or that even any shares are sold.* BUSINESS ENVIRONMENT
The results of our operations will depend upon the availability of opportunities for the profitable investment and reinvestment of the funds available to us and general economic conditions over which we have no control.* HIGH LEVERAGE
We seek to borrow approximately 70% of the cost of real estate purchased or constructed.* RELATIONSHIP WITH ADVISOR
Our operating expenses, including compensation to the advisor and the trustees, must be met regardless of profitability.* CONFLICTS OF INTEREST
We are subject to various conflicts of interest with the Advisor or Trustees which may negatively impact operations.* 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.
FRONT-END FEES
* COMPETITION
Investments of the types in which we are interested may be purchased on a negotiated basis by many kinds of institutions, including other REITs, mutual savings banks, savings and loan associations, commercial banks, insurance companies and, to a lesser extent, pension funds, credit unions and individuals.* LIQUIDITY
No assurance can be given that a purchaser of our shares under this Offering would be able to resell such shares when desired. Since October 17, 1997, our shares have been listed for trading on the National Association of Securities Dealers Automated Quotation System Small Capitalization Index (NASDAQ), but no assurance can be given that such listing will continue.
Type Minimum Cap Maximum Percentage Selling agent commission 8% of the amount sold -0- $ 672,000 8.00% Legal Fees $15,000 $ 15,000 .179% Advertising, Printing and Promotion Expenses $15,000 $ 30,000 .357% Registration Fees $10,000 $ 10,000 .119% Accounting Fees $ 1,000 $ 1,000 .012% $41,000 $ 728,000 8.667% |
CONFLICTS
The advisory company and the trustees are able to personally invest
in competing real estate and to conduct other business activities which
may be in conflict with our business activities. See "Conflicts of Interest."
IRET will be subject to various conflicts of interest arising from its relationship with the Advisor, (Odell-Wentz & Associates, L.L.C.), and its affiliates. The Advisor, its affiliates and the trustees of IRET are not restricted from engaging for their own accounts in business activities of the type conducted by IRET, and occasions may arise when the interests of IRET would be in conflict with those of one or more of the trustees, the Advisor or their affiliates. Any transactions between IRET and any trustee, the Advisor or any of their affiliates, other than the purchase or sale, in the ordinary course of IRET's business, will require the approval of a majority of the trustees who are not interested in the transaction.The Advisor and its affiliates may receive compensation from IRET for providing various services. See "Compensation Table" and "The Advisory Agreement."
The Advisor is entitled to receive an advisory fee equal to a percentage of the Net Invested Assets of IRET. See "Advisory Agreement." The Advisor also will receive fees in connection with IRET's acquisition or construction of real properties based upon a percentage of the amount paid.
Any trustee or officer may have personal business interests and may engage in personal business activities, which may include the acquisition, syndication, holding, management, development, operation or investment in, for his own account or for the account of others, of interests in entities engaged in the real estate business and any other business.OUR OFFERINGNeither the Advisor nor its affiliates are prohibited from providing the same services to others, including competitors.
All agreements and arrangements, including those relating to compensation, between IRET and the Advisor or any of their affiliates will not be the result of arm's-length negotiations.
IRET, the Advisor and the principals of IRET and Advisor are not represented by separate counsel. IRET is represented by the law firm of Pringle & Herigstad, P.C., which has also acted and will continue to act as counsel to the Advisor and various affiliates of the Advisor with respect to other matters. Thomas A. Wentz, Jr., is a trustee of IRET and a partner in Pringle & Herigstad, P.C. See "Conflicts of Interest."
WHO MAY INVEST
We are offering shares to residents of the following states: North
Dakota, South Dakota, Montana, and Minnesota. Other states may be added
by a supplement to this Prospectus. Special disclaimers and investor qualification
standards may apply to some of the above states. See "Who May Invest."
A BRIEF DESCRIPTION OF OUR COMPANY
We are a North Dakota Real Estate Trust which has been in business
since 1970. We have our only office in Minot, North Dakota, and own a diversified
portfolio of apartment complexes and commercial properties in North Dakota
and 10 other states. We currently own over 6,500 apartment units and 1,300,000
square feet of commercial property the total original investment in real
estate assets exceeds $350,000,000. See "The Company."
CAPITALIZATION
The following shows the amount of assets we owned on July 31, 1999,
as well as the liabilities that we owed and the partnership and shareholder
equity. We also show the total assets that will be owned IF we sell
all of the 1,000,000 shares being offered.
(1) Reflects costs of issue of $728,000 deducted from total sale proceeds of $8,400,000 resulting in the addition of $7,672,000 to total assets.FINANCIAL INFORMATION
SELECTED FINANCIAL DATA - ANNUAL
YEAR ENDED APRIL 30 1999 1998 1997 1996 1995 Consolidated Income Statement Data (Restated) Revenue $ 39,927,262 $ 32,407,545 $ 23,833,982 $ 18,659,665 $ 13,801,123 Operating income 6,401,676 4,691,198 3,499,443 3,617,807 3,560,318 Gain on repossession/ sale of investments 1,947,184 465,499 398,424 994,163 407,512 Minority interest portion of operating partnership income (744,725) (141,788) (18) --- --- Net income 7,604,135 5,014,909 3,897,879 4,611,970 3,967,830 Balance Sheet Data Total real estate investments 280,311,442 213,211,369 177,891,168 122,377,909 84,005,635 Total assets 291,493,311 224,718,514 186,993,943 131,355,638 94,616,744 Shareholders' equity 85,783,294 68,152,626 59,997,619 50,711,920 37,835,654 Consolidated Per Share Data Net income $ .44 $ .32 $ .28 $ .38 $ .38 Gain of repossession/ sale of investments .11 .03 .03 .08 .04 Dividends .47 .42 .39 .37 .34 Tax status of dividend Capital gain 6.3% 2.9% 21.0% 1.6% 11.0% Ordinary income 76.0% 97.1% 79.0% 98.4% 89.0% Return of capital 17.7% 0.0% 0.0% 0.0% 0.0% |
WE ARE A "REAL ESTATE INVESTMENT
TRUST"
The federal income tax code contains special provisions for companies
that wish to operate as real estate investments trusts ("REITS"). A REIT
will not be subject to federal income tax if it complies with tax laws.
We have qualified as a REIT and intend to do so in the future. See "Tax
Treatment of IRET and Its Security Holders."
UPREIT
We are structured as an "Umbrella Real Estate Investment Trust" or
UPREIT. This means that we conduct our business through a limited partnership
-IRET Properties, a North Dakota Limited Partnership. Through our subsidiary,
IRET, Inc., we act as the general partner of the limited partnership and
own approximately 85.3% of the partnership's assets as of September 30,
1999. By operating as an UPREIT, we are able to acquire real estate in
exchange for limited partnership units of IRET Properties which are exchangeable
on a one-for-one basis for our shares, subject to certain restrictions.
See "Operating Partnership Agreement."
EXTERNALLY ADVISED
We have no employees. Instead, our business is conducted through independent
contractors. Our advisor is Odell-Wentz & Associates, LLC, a North
Dakota Limited Liability Company, whose members are Roger R. Odell and
Thomas A. Wentz, Sr. The advisory company receives fees based on the capitalization
of IRET as well as compensation for giving advice with respect to property
purchases based on the purchase price of each property that is acquired.
The independent trustees who serve on the Board of Trustees also receive
compensation. The following is a summary of the compensation paid to the
advisor and the trustees as well as other administrative expenses incurred
during the past five fiscal years. See "Advisory Agreement."
FISCAL YEARS ENDING APRIL 30 1995 1996 1997 1998 1999 Advisor's and Trustees' Compensation $336,142 $458,019 $559,149 $745,907 $927,063 Advisory Investigation Fee 49,836 117,506 177,834 141,465 195,019 Other Administrative Expenses 79,974 162,588 158,627 271,738 320,479 TOTAL FEES $440,969 $465,952 $895,610 $1,159,110 $1,442,56 Fees as Percent of Net Invested Assets of the Trust 0.55% 0.6% 0.5% 0.5% 0.5% |
PROPERTY MANAGEMENT
We hire independent property managers to provide the day-to-day management
of each real estate investment that we own. See "Management of IRET's Investments."
OFFERING PRICE
The offering price of $8.40 has been arbitrarily determined by our
Board of Trustees. The price is higher than the price at which our shares
have traded and have been sold in the past. See "Market Price of and Dividends
on IRET's Shares of Beneficial Interest."
DIVIDENDS
We have paid 113 consecutive quarterly dividends beginning June 30,
1971. Dividends are paid in mid-January, April 1st, July 1st and October
1st of each year. The dividend paid on October 1, 1999, was $.126 per share.
See "Dividend History."
USE OF PROCEEDS
We will use the net proceeds from the sale of shares under this offering
to continue our apartment building program. We are currently building apartments
in Bismarck, Jamestown and Grand Forks, North Dakota, Rochester, Minnesota,
and Billings, Montana. See "Use of Proceeds."
SHAREHOLDER DEMOCRACY RIGHTS
The following is a brief summary of the rights afforded to shareholders
pursuant to the Declaration of Trust:
* SHARES: CERTIFICATES OF BENEFICIAL INTEREST
The units into which the beneficial interest in IRET will be divided shall be designated as SHARES. The certificates evidencing ownership of SHARES in IRET will be designated as Certificates of Beneficial Interest or SHARES and shall be in such form as the TRUSTEES may from time to time prescribe.* SALE OF SHARES
The TRUSTEES may from time to time issue and sell by private or public offering, or exchange SHARES in IRET in such number or for such sums of money, real estate assets, or other considerations, and on such terms as they deem proper. The SHAREHOLDERS shall have no pre-emptive rights.* OFFERING OF SHARES
The TRUSTEES are authorized to cause to be made from time to time offerings of the SHARES of IRET to the public at public offering prices deemed appropriate.* SHARES PURCHASED BY IRET
IRET may repurchase or otherwise acquire its own SHARES on such terms and conditions as the TRUSTEES deem appropriate.
conditions as the TRUSTEES deem appropriate. * TRANSFERABILITY OF SHARES
SHARES in IRET shall be transferable in accordance with the procedure prescribed from time to time in the TRUSTEES' Regulations.* REDEMPTION AND PROHIBITION ON TRANSFER
To insure compliance with the Internal Revenue Code provision that no more than 50% of the outstanding SHARES may be, owned by five or fewer individuals, the TRUSTEES may at any time redeem SHARES from any Shareholder at the fair market value thereof. Also, the TRUSTEE may refuse to transfer SHARES to any PERSON whose acquisition of additional SHARES might, in the opinion of the TRUSTEES, violate the above requirement.
or dissolve or liquidate IRET. * LIABILITY OF SHAREHOLDERS
The SHARES of IRET shall be non-assessable by IRET.* REPORTS
IRET shall cause to be prepared and mailed or delivered to each SHAREHOLDER as of a record date after the end of the fiscal year and each holder of other publicly held securities of IRET within 120 days after the end of the fiscal year to which it relates an annual report.* ACCESS TO RECORDS
Any SHAREHOLDER and any designated representative thereof shall be permitted access to the records of IRET at all reasonable times, and may inspect and copy any of them.* ELECTION OF TRUSTEES
All TRUSTEES shall be elected annually by the vote of the SHAREHOLDERS. Each Shareholder shall be entitled to one vote in PERSON or by proxy for each Share registered in his name for as many PERSONS as there are TRUSTEES to be elected. The candidates receiving the highest respective numbers of votes up to the number of trusteeships to be filled in the election shall be elected.
THIS IS THE END OF THE SUMMARY SECTION.
THE BALANCE OF THIS PAGE HAS BEEN
INTENTIONALLY LEFT BLANK.
Page 15 of 131
THE COMPANY
Investors Real Estate Trust (hereinafter "IRET"), a registered real estate 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. Since February 1, 1997, IRET carries on its activities through IRET Properties, a North Dakota Limited Partnership. See "Structure of IRET."
IRET, pursuant to the requirements of Sections 856-858 of the Internal Revenue Code which govern real estate investment trusts, invests in real estate, real estate equities and real estate mortgages.
IRET has its only office at 12 South Main, Minot, North Dakota 58701, (701) 852-1756, and operates principally within the State of North Dakota, although it has real estate investments in the states of Minnesota, South Dakota, Nebraska, Montana, Georgia, Colorado, Wisconsin, Idaho, Washington, Kansas and Arizona.
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
are as follows:
Fiscal Year Ending 4/30 1999 1998 1997 REVENUE FROM OPERATIONS Real Estate Rentals $38,785,287 $31,694,586 $22,972,368 Interest, Discount & Fees 1,141,975 712,959 861,613 $39,927,262 $32,407,545 $23,833,981 EXPENSE $33,525,586 $27,716,347 $ 20,334,538 NET REAL ESTATE INVESTMENT INCOME $ 6,401,676 $ 4,691,198 $ 3,499,443 GAIN ON SALE OF INVESTMENTS (CAPITAL GAIN) 1,947,184 465,499 398,424 MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME (744,725) (141,788 ) (18) NET INCOME $ 7,604,135 $ 5,014,909 $ 3,897,849 PER SHARE Net Income $ .44 $ .32 $ .28 Dividends Paid $ .47 $ .42 $ .39 |
As indicated above, IRET's principal source of operating revenue is
rental income from real estate properties owned by IRET. A minor amount
of revenue is derived from interest on short-term investments in government
securities and interest on savings deposits. In addition to operating income,
IRET has received capital gain income when real estate properties have
been sold at a price in excess of the depreciated cost of said properties.
Page 16 of 131
IRET has no employees. Its business is conducted through the services of an independent contractor (Odell-Wentz & Associates L.L.C., a North Dakota Limited Liability Company having as its members Roger R. Odell and Thomas A. Wentz, Sr.) which serves as the advisor to IRET. Since the inception of IRET and until January 1, 1986, Roger R. Odell, 12 South Main, Minot, North Dakota, served as advisor to IRET, providing office facilities, administering day-to-day operations of IRET, and advising with respect to investments and investment policy. Effective January 1, 1986, IRET entered into a revised advisory agreement with Mr. Odell and Thomas A. Wentz, Sr., and on January 1, 1994, with Odell-Wentz & Associates, L.L.C.
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 has been the advisor to IRET.
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. From 1962 to August 1, 1998, Mr. Wentz was a practicing attorney with Pringle & Herigstad, P.C. He has been a member of Odell-Wentz & Associates since 1985.
BUSINESS OBJECTIVES
IRET seeks to realize shareholder value by regular increases in the quarter-yearly cash dividends paid to its shareholders and in appreciation in the value of its shares of Beneficial Interest. See "Market Price and Dividends on IRET's Shares of Beneficial Interest" for a description of share prices and dividends during its 29 year history.
PORTFOLIO MIX
IRET's investment strategy is to maintain its real estate investment
portfolio at approximately 75% invested in multi-family apartment complexes
located in North Dakota and surrounding states and the remaining 25% of
real estate owned in commercial property (warehouses, retirement homes,
manufacturing plants, offices, and retail properties) leased to single
tenants for 14 years or longer.
LEVERAGE
An essential ingredient of IRET's investment strategy is to leverage
its equity capital by borrowing up to 70% of the cost of real estate properties
acquired for its portfolio. IRET seeks to acquire real estate that will
yield net operating income in an amount that will exceed the interest rate
payable on the mortgage indebtedness.
AVAILABLE INFORMATION CONCERNING IRET
SECURITIES AND EXCHANGE COMMISSION
IRET is currently a reporting company pursuant to the Securities Exchange
Act of 1934 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 IRET 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 the above location
at prescribed rates.
Page 17 of 131
IRET has filed with the Securities and Exchange Commission a Registration Statement on Form S-11 under the Securities Act of 1933 and the rules and regulations promulgated thereunder, with respect to the Shares of Beneficial Interest offered pursuant to this Prospectus. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial statement schedules thereto. For further information with respect to IRET and the Shares, reference is made to the Registration Statement and such exhibits and financial statement schedules, copies of which may be examined without charge at or obtained upon payment of prescribed fees from, the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the Commission located at 13th Floor, 7 World Trade Center, New York, New York, 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission maintains a Website at http://www.sec.gov. Reports, proxy and information statements and other information regarding registrants that file electronically with the Commission (including IRET) can be obtained from that site.
Statements contained in this Prospectus as to the contents of any contract or other document that is filed as an exhibit to the Registration Statement are not necessarily complete, and each such statement is qualified in its entirety by reference to the full text of such contract or document.
REPORTS TO SECURITY HOLDERS
IRET shall furnish shareholders with annual reports on or about July
25th of each year containing financial statements audited by IRET'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 IRET deems appropriate or as required by law.
INCORPORATION BY REFERENCE
Copies of any document or part thereof incorporated by reference in
this prospectus but not attached is available free of charge upon request
to Timothy P. Mihalick, 12 South Main Street, Minot, ND 58701 (701-852-
1756).
RISK FACTORS
An investment in the shares involves various risks. You should carefully consider the following risks:
PRICE OF SHARES ARBITRARILY DETERMINED
The price of the shares has been arbitrarily determined by IRET and
is a higher price than the price paid by most of the current holders of
IRET'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.
The price may be higher than the price at which IRET shares trade on the
NASDAQ Small-Cap Market.
PRICE EXCEEDS BOOK VALUE
The book value of IRET shares of beneficial interest is substantially
less than the purchase price to new shareholders under this Offering. As
of July 31, 1999, the book value of the 19,923,692 shares then outstanding
was $4.59. Assuming all of the shares registered under this Offering are
sold, the estimated resulting book value will be $4.74 per share. Thus,
a purchasing shareholder paying $8.40 per share under this Offering will
incur an immediate book value dilution of $3.66 per share.
HIGH LEVERAGE
IRET seeks to borrow approximately 70% of the cost of real estate purchased
or constructed. This amount of leverage may expose IRET to cash flow problems
in the event rental income decreases. Such a scenario may require IRET
to sell properties at a loss or default on the mortgage, thus losing the
property through foreclosure.
Page 18 of 131
FAILURE TO QUALIFY AS A REAL ESTATE
INVESTMENT TRUST
IRET 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 IRET believes that it is organized and will continue
to operate in such a manner, no assurance can be given that IRET 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 IRET failed to qualify as a REIT, IRET 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, IRET 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 IRET's shareholders
would be reduced for each of the years involved. Although IRET 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 IRET'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 IRET. In the event fewer than all the Shares are sold during the offering
period (which is 365 days from the date of this document), IRET would have
fewer cash assets to apply toward its business plan. In such event, the
fixed operating expenses of IRET, 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 IRET will depend, among other things,
upon the availability of opportunities for the investment and reinvestment
of the funds of IRET. 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, IRET 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 IRET's investments. In the area in which IRET
operates, the economy is dependent on the areas of agriculture and mineral
development. If these areas do not perform satisfactorily, the ability
of IRET to realize profits from its business of real estate investments
will be adversely affected.
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 IRET to foreclose its mortgage
or engage in negotiations which may involve further outlays to protect
IRET's investment. The mortgages securing IRET's loans may be, in certain
instances, subordinate to mechanics' liens, materialmen's liens, or government
liens and, in instances in which IRET invests in a junior mortgage, to
liens of senior mortgages, and IRET may be required to make payments in
order to maintain the status of the prior lien or to discharge it entirely.
In certain areas, IRET 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 IRET in such cases
may be less than its total investment, with resultant losses to IRET.
Page 19 of 131
Loans made by IRET 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 IRET receives on its loans may not be held to exceed the statutory maximum, in which case IRET may be subjected to the penalties imposed by the statutes.
RELATIONSHIP WITH ADVISOR
Certain operating expenses of IRET, including compensation to the advisor
and trustees, must be met regardless of profitability. The advisor's fee
is computed as a percentage of the investments of IRET. See "Advisory Agreement."
IRET will be dependent upon the Advisor for essentially all aspects of
its business operations. Because the Advisor has experience in the specialized
business segment in which IRET operates, the loss of the Advisor, for any
reason, would likely have a material adverse affect on IRET's operations.
The Advisor may terminate its relationship upon 60 days notice by either
the Advisor or IRET.
CONFLICT OF INTEREST
The Advisor is entitled to receive an advisory fee equal to a percentage
of the Net Invested Assets of IRET. See "Advisory Agreement." The Advisor
also will receive fees in connection with IRET's acquisition or construction
business based upon a percentage of the amount paid.
Any trustee or officer may have personal business interests and may engage in personal business activities, which may include the acquisition, syndication, holding, management, development, operation or investment in, for his own account or for the account of others, interests in entities engaged in the real estate business and any other business. Any trustee or officer may be interested as trustee, officer, director, shareholder, partner, member, advisor or employee, or otherwise have a direct or indirect interest in any entity which may be engaged to render advice or services to IRET, and may receive compensation from such entity as well as compensation as trustee, officer or otherwise hereunder.
Neither the Advisor nor its affiliates are prohibited from providing the same services to others, including competitors. These relationships may produce conflicts in the Advisor's and its affiliates' allocation of time and resources among various projects. The Advisor and its affiliates believe they have sufficient personnel to discharge their responsibilities to IRET. All agreements and arrangements, including those relating to compensation, between IRET and the Advisor or any of their affiliates will not be the result of arm's-length negotiations. However, such conflicts will be resolved by the following factors: (i) IRET intends to be in substantial compliance with the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association, Inc. ("NASAA") which has a specific limitation on certain fees and on the amount of IRET's operating expenses, including compensation to the Advisor during the operating stage of IRET; (ii) the Advisor is aware of other programs being offered in the marketplace and intends to structure its business relationships so as to be competitive with such other programs; (iii) such agreements and arrangements are subject to approval by a majority of IRET's independent trustees. IRET, the Advisor and the principals of IRET and Advisor are not represented by separate counsel. IRET is represented by the law firm of Pringle & Herigstad, P.C., which has also acted and will continue to act as counsel to IRET and various affiliates of the Advisor with respect to other matters.
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 IRET. It is the policy of IRET to obtain a Phase I environmental
survey upon purchasing property and, as of the date of this Prospectus,
IRET is unaware of any environmental liability with respect to properties
in its portfolio.
Page 20 of 131
COMPETITION
Investments of the types in which IRET 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 IRET's areas
of investment. Investments must thus be made by IRET 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 IRET. All these factors, in turn, vary in relation to many
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. IRET cannot predict the effect
which such factors will have on its operations.
LIQUIDITY
No assurance can be given that a purchaser of IRET shares under this
Offering would be able to resell such shares when desired. Effective October
17, 1997, IRET shares of Beneficial Interest have been traded on the National
Association of Securities Dealers Automated Quotation System Small Capitalization
Index (NASDAQ). No assurance can be given that IRET shares will continue
to be traded on such market.
FRONT-END FEES
For the money that is being raised by this offering, there are front-end
fees. A front-end fee is a cost or expense of the offering which must be
paid regardless of the number of shares sold. The Declaration of Trust
caps all front-end fees for organizational or sale purposes at no more
than 15% of the total offering. In the present case, the total front-end
fees will be not more than 9%, which is below the capped amount. The fees
are capped in that under no situation shall they exceed the capped amount:
TYPE MINIMUM CAP MAXIMUM PERCENTAGE Selling agent commission 8% of the amount sold 0 $ 672,000 8.0% Legal Fees $15,000 $ 15,000 .179% Advertising, Printing and Promotion Expenses $15,000 $ 30,000 .357% Registration Fees $10,000 $ 10,000 .119% Accounting Fees $ 1,000 $ 1,000 .012% $41,000 $ 728,000 8.667% |
COMPENSATION TABLE
The following table sets forth the fees and other compensation which IRET is to pay in association with this offering. The total operating expenses of IRET shall not exceed the greater of 2% of its average invested assets or 25% of its net income for any fiscal year. From the inception of IRET in 1970, this requirement has been met.
Page 21 of 131
ITEM OF COMPENSATION RECIPIENT AMOUNT/METHOD Advisory Fee Odell-Wentz & Associates The advisor will earn annually an additional base fee of $53,704 once the net sale proceeds of $7,672,000 are invested. (.7% of net invested assets). Advisor Additional Odell-Wentz & Associates 1/2 of 1% of the 1st Compensation $2,500,000 of value of all acquired assets, except new construction is 1/2 of 1% of the total cost. Upon investment of sale proceeds, the fee will be a minimum of $12,500 to a possible maximum of $38,360. Incentive Fees N/A While authorized by the Restated Declaration of Trust, no incentive fees shall be paid to anyone. This may be changed by a vote of the Trustees at anytime with incentive fees then payable for future transactions as limited by the Restated Declaration of Trust. Broker-Dealer Fees Selling Brokerage Firms (Eight percent or $.67 of each share sold) for a total possible commission of $672,000. Advertising, Printing and Up to $30,000 may be paid as Promotion Expenses compensation for advertising and promotional expenses. Experts' Fees Pringle & Herigstad, P.C. $15,000 for legal fees, plus filing fees, accounting fees and printing costs estimated to be another $16,000. |
CONFLICTS OF INTEREST
IRET will be subject to various conflicts of interest arising from its relationship with the Advisor, (Odell-Wentz & Associates, L.L.C.), and its affiliates. The Advisor, its affiliates and the trustees of IRET are not restricted from engaging for their own accounts in business activities of the type conducted by IRET, and occasions may arise when the interests of IRET would be in conflict with those of one or more of the trustees, the Advisor or their affiliates. These individuals and affiliates have been engaged in the business of real estate for
Pagea 22 of 131
TRANSACTIONS WITH AFFILIATES AND
RELATED PARTIES
The Advisor and its affiliates may receive compensation from IRET for
providing various services. IRET's Board of Trustees (a majority of whom
are independent of the Advisor and its affiliates) will have oversight
responsibility with respect to such services to ensure that such services
are provided on terms no less favorable to IRET than IRET could obtain
from unrelated persons or entities and are consistent with IRET's investment
objectives and policies. See "Compensation Table" and "The Advisory Agreement."
COMPENSATION TO THE ADVISOR AND
CONFLICTS OF INTEREST
The Advisor is entitled to receive an advisory fee equal to a percentage
of the Net Invested Assets of IRET. (See "Advisory Agreement".) The Advisor
also will receive fees in connection with IRET's acquisition or construction
of real properties based upon a percentage of the amount paid. Accordingly,
a conflict of interest could arise since, depending upon the circumstances,
the retention, acquisition or disposition of a particular project could
be advantageous to the Advisor, but detrimental to IRET, or vice-versa.
The decision whether to liquidate IRET or the decision to acquire, retain
or dispose of certain properties and the terms and conditions thereof,
may also create conflicts of interest.
In resolving conflicts of interest, the Board of Trustees has a fiduciary duty to act in the best interests of IRET as a whole. IRET and the Advisor believe that it would not be possible, as a practical matter, to eliminate these potential conflicts of interest. However, the Advisory Agreement must be renewed annually by the affirmative vote of a majority of the independent trustees. Any conflict will be resolved by a majority of the independent trustees, who may not renew the Advisory Agreement if they determine that the Advisor is not satisfactorily performing its duties. In connection with the performance of their fiduciary responsibilities, the existence of such possible conflicts will be only one of the factors for the trustees to consider in determining the appropriate action to be taken by IRET.
COMPETITION BY IRET WITH AFFILIATES
Any trustee or officer may have personal business interests and may
engage in personal business activities, which may include the acquisition,
syndication, holding, management, development, operation or investment
in, for his own account or for the account of others, of interests in entities
engaged in the real estate business and any other business. Any trustee
or officer of IRET may be interested as trustee, officer, director, shareholder,
partner, member, advisor or employee, or otherwise have a direct or indirect
interest in any entity which may be engaged to render advice or services
to IRET, and may receive compensation from such entity as well as compensation
as trustee, officer or otherwise hereunder.
Neither the Advisor nor its affiliates are prohibited from providing the same services to others, including competitors. These relationships may produce conflicts in the Advisor's and its affiliates' allocation of time and resources among various projects. The Advisor and its affiliates believe they have sufficient personnel to discharge their responsibilities to IRET.
NON-ARM'S-LENGTH AGREEMENTS
All agreements and arrangements, including those relating to compensation,
between IRET and the Advisor or any of their affiliates will not be the
result of arm's-length negotiations. However, such conflicts will be resolved
by the following factors: (i) IRET intends to be in substantial compliance
with the Statement of Policy Regarding Real Estate Investment Trusts adopted
by the North American Securities Administrators Association,
Page 23 of 131
LACK OF SEPARATE REPRESENTATION
IRET, the Advisor and the principals of IRET and Advisor are not represented
by separate counsel. IRET is represented by the law firm of Pringle &
Herigstad, P.C., which has also acted and will continue to act as counsel
to the Advisor and various affiliates of the Advisor with respect to other
matters. Thomas A. Wentz, Jr., is a trustee of IRET and, until December
31, 1999, will be a partner in Pringle & Herigstad, P.C.
DETERMINATION OF OFFERING PRICE
The offering price of $8.40 per share has been arbitrarily established by IRET and is higher than the recent market price for said shares. See "Market Price Of and Dividends on IRET's Shares of Beneficial Interest."
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 July 31, 1999, the book value of the 19,923,692 shares then outstanding
was $4.59. Assuming all of the shares registered under this Offering are
sold, the estimated resulting book value will be $4.74 per share. Thus,
a purchasing shareholder paying $8.40 per share under this Offering will
incur an immediate book value dilution of $3.66 per share.
PLAN OF DISTRIBUTION
The shares offered by this Prospectus shall be sold by Broker-Dealers
who are members of the National Association of Securities Dealers and have
entered into a Sales Agreement with IRET.
All shares shall be sold on a "best efforts" basis with no guarantee or requirement that any shares be sold. All sales to purchasers are subject to certain requirements as follows:
For each share sold, the selling Broker-Dealer shall receive a commission of eight percent (approximately $.67 per share). No other compensation or fees other than the percentage commission shall be paid by IRET to said Broker-Dealers. The relationship between the Broker-Dealers and IRET may be terminated by either party at any time for any reason. All Broker-Dealers have the opportunity to sell the entire Offering.
WHO MAY INVEST
In order to purchase shares, an investor must be a resident of one
of the following states: North Dakota, South Dakota, Montana, Minnesota,
Colorado
and such other states as may be added by a supplement to this Prospectus.
In the following states, the following disclaimers apply and the purchaser
must satisfy the following investor qualifications imposed by that state:
Page 24 of 131
MINNESOTAUSE OF PROCEEDS
* Either individually or with a spouse has an annual gross income of at least $60,000 during the previous calendar year, have a net worth of at least $60,000 (exclusive of principal residence and its furnishings and automobile), and are purchasing shares for only the investors own account or retirement plan. * Either individually or with a spouse have a net worth of at least $225,000 (exclusive of the principal residence and its furnishings and automobiles), and are purchasing shares for only the investors own account or retirement plan.
The following table sets forth information concerning the projected use of proceeds from the sale of units, assuming that the entire offering of 1,000,000 shares is old. The figures listed cannot be precisely calculated at the present time and may vary materially from the amounts shown.
Assuming all the offered shares are sold after deduction from the offering
proceeds of all the front-end fees and expenses associated with the offering,
approximately 91 percent of the total sale proceeds raised by this offering
will be invested by IRET in real property or related investments.
DOLLARS PERCENT GROSS OFFERING PROCEEDS 8,400,000 100.0% SELLING COMMISSIONS - 672,000 8.0% LEGAL FEES - 15,000 Less than 1% (.00179) ADVERTISING, PRINTING AND PROMOTION EXPENSES - 30,000 Less than 1% (.00357) REGISTRATION FEES - 10,000 Less than 1% (.00119) ACCOUNTING FEES - 1,000 Less than 1% (.00012) CASH AVAILABLE FOR CONSTRUCTION OF PROPERTIES $7,672,000 91.333% |
As of the date of this Prospectus, IRET is constructing apartment buildings in Bismarck, ND, and Jamestown, ND and plans to construct the additional apartments described below. These apartments are of a design and type previously constructed by IRET during the past four years in Sioux Falls, South Dakota (98 units), Bismarck, North Dakota (183 units), Minot, North Dakota (196 units), Billings, Montana (232 units) and Grand Forks, North Dakota (250 units). The apartments constructed in Sioux Falls, Bismarck, Minot, Billings and Grand Forks have rented at projected rental rates and, in the judgment of management, will produce a satisfactory investment return. IRET intends to continue the construction of this type of apartment building as follows:
Page 25 of 131
APARTMENTS UNDER CONSTRUCTION CITY UNITS ESTIMATED COST Bismarck, ND 67 4,500,000 Jamestown, ND 27 2,200,000 Rochester, MN 219 14,500,000 PLANNED APARTMENT CONSTRUCTION CITY UNITS ESTIMATED COST Sioux Falls, SD 225 $16,500,000 Total - Current and Planned Apartment Construction $37,700,000 |
IRET owns all of the land necessary for the planned apartment construction, but has not arranged for the financing that would be necessary. Thus, no assurance can be given that IRET will successfully complete this construction program.
IRET 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 other than the additions to its portfolio described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Fiscal Year Ended April 30, 1999", and expects to concentrate its efforts and resources on the planned apartment construction projects described above during the next 18 month period.
IRET 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, IRET must distribute at least 95% of its taxable income. However, in computing taxable income, a deduction for depreciation of the buildings owned by IRET is allowed. In the Fiscal year ended April 30, 1999, this depreciation deduction was $5,966,874. The amount of this depreciation may be used by IRET to acquire addition real estate investments.* LOANS
IRET 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 essential to producing a satisfactory return to the shareholders of IRET. (No assurance can be given that the income actually earned on real estate investments made by IRET will be higher than the interest rate paid on IRET's mortgage loans.) As of July 31, 1999, the ratio of mortgage liabilities to total Trust real estate assets was $191,282,163 of mortgage liabilities to $304,790,777 of net real estate owned or 62.8%. Thus, as much as $73,571,270 could be borrowed on the existing portfolio before reaching a debt ratio of 70% (present investment in real estate of $304,790,777, minus mortgages of $191,282,163 equals $113,508,614 divided by 30% = $378,362,047, minus present real estate owned of $304,790,777 equals $73,571,270) (no assurance can be given that this amount of borrowed funds would be available).
* MARKETABLE SECURITIES/CREDIT LINE
IRET maintains an investment in marketable government insured securities ($2,908,156 as of July 31, 1999) which securities are held in brokerage accounts with Smith Barney. The current policy of said broker is to allow IRET to borrow up to 90% of the market value of these securities for short-term needs. Also, IRET may enter into short-term credit line borrowing agreements with banks if the need arises. (As of the date of this Prospectus, IRET has credit lines of $11,500,000.) No assurance can be given that either of these borrowing arrangements would be available to IRET.
YEAR ENDED APRIL 30 1999 1998 1997 1996 1995 Consolidated Income Statement Data (Restated) Revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 $ 18,659,665 $ 13,801,123 Operating income 6,401,676 4,691,198 3,499,443 3,617,807 3,560,318 Gain on repossession/ sale of investments 1,947,184 465,499 398,424 994,163 407,512 Minority interest portion of operating partnership income (744,725) (141,788) (18) --- --- Net income 7,604,135 5,014,909 3,897,849 4,611,970 3,967,830 Balance Sheet Data Total real estate investments $280,311,442 $213,211,369 177,891,168 122,377,909 84,005,635 Total assets 291,493,311 224,718,514 186,993,943 131,355,638 94,616,744 Shareholders' equity 85,783,294 68,152,626 59,997,619 50,711,920 37,835,654 Consolidated Per Share Data Net Income $ .44 $ .32 $ .28 $ .38 $ .38 Gain of repossession/ sale of investments .11 .03 .03 .08 .04 Dividends .47 .42 .39 .37 .34 Tax status of dividend Capital gain 6.3% 2.9% 21% 1.6% 11.0% Ordinary income 76.0% 97.1% 79% 98.4% 89.0% Return of capital 17.7% 0.0% 0.0% 0.0% 0.00% |
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS
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 and is
in the business of owning income-producing real estate investments.
On February 1, 1997, IRET restructured itself as an Umbrella Partnership Real Estate Investment Trust (UPREIT). IRET, through its wholly owned subsidiary, IRET, Inc., is the general partner of IRET Properties, a North Dakota limited partnership (the "Operating Partnership"). All business operations for IRET are conducted through the Operating Partnership. No other material change in IRET's business is contemplated at this time.
This discussion and analysis should be read in conjunction with the attached audited financial statements prepared by Brady Martz & Associates, certified public accountants, which firm has served as the auditor for IRET since its inception.
Certain matters included in this discussion are forward-looking statements within the meaning of federal securities laws. Although IRET believes that the expectations reflected in such forward-looking statements are
Page 27 of 131
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED TO FISCAL YEARS 1998 AND 1997
OVERVIEW
A continuation of stable occupancy rates for IRET's apartment communities
and good results from newly acquired properties resulted in another year
of significant increases in Funds From Operations and earnings for IRET's
29th year, which ended April 30, 1999. Total assets and shareholder equity
also increased materially.
FUNDS FROM OPERATIONS
Funds From Operations of the Operating Partnership (taxable income
increased by non-cash deductions of real estate asset depreciation and
amortization, and reduced by capital gain income and other extraordinary
income items) for Fiscal 1999 increased to $11,778,502 ($.6753 per share),
compared to $9,447,425 ($.6042 per share) for Fiscal 1998 and $7,144,622
($.51 per share) received in Fiscal 1997. These increases in Funds From
Operations resulted primarily from increased revenues from existing and
newly acquired rental properties as detailed below.
NET INCOME
The Operating Partnership's income for Fiscal Year 1999 increased to
$7,604,135 from the $5,014,909 earned in Fiscal 1998 and the $3,897,849
earned in Fiscal 1997. On a per share basis, net income was $.33 per share
in Fiscal 1999, compared to $.29 in Fiscal 1998 and $.25 in Fiscal 1997.
These increases in net income resulted from increased capital gains and rental income, which is detailed below.
REVENUES
Total revenues of the Operating Partnership for Fiscal 1999 were $39,927,262,
compared to $32,407,545 in Fiscal 1998 (an increase of 23%) and $23,833,981
in Fiscal 1997. The increase in revenues received during Fiscal 1999 in
excess of the prior year revenues was $7,519,717. This increase resulted
from:
Rent from 12 properties acquired/ completed in Fiscal 1999 $3,182,170 Rent from 7 properties acquired in Fiscal 1998 in excess of that received in Fiscal 1998 3,245,774 An increase in rental income on existing properties 1,081,995 An decrease in rent on Smith Home Furnishing Building (bankruptcy of tenant) (30,877) A decrease in rent - properties sold during 1999 (388,091) A decrease in interest income 429,016 $7,519,717 |
Page 28 of 131
Rent from 7 properties acquired in Fiscal 1998 $2,658,085 Rent from 11 properties acquired in Fiscal 1997 in excess of that received in Fiscal 1997 5,310,670 An increase in rental income on existing properties 893,976 A increase in rent on Smith Home Furnishing Building (bankruptcy of tenant) 54,021 A decrease in rent - properties sold during 1997 (194,534) An increase in interest income (148,654) ---------- $8,573,564 |
As shown by the above analysis, the Fiscal 1999 and 1998 increases in revenues resulted primarily from the addition of new real estate properties to the operating partnership's portfolio.
Rents received on properties owned at the beginning of Fiscal 1998 increased by $893,976 (2.2%) in Fiscal 1998 and another $1,081,995 (2.1%) in Fiscal 1999, and the occupancy level for those properties increased from 90% during Fiscal 1997 to 94% in Fiscal 1998 and to 95% in Fiscal 1999. Thus, the new properties acquired during Fiscal Years 1998 and 1999 generated most of the new revenues during the past two years.
CAPITAL GAINS
The Operating Partnership realized capital gain income for Fiscal 1999
of $1,947,184.
This compares to $465,499 of capital gain income recognized in Fiscal 1998 and the $398,424 recognized in Fiscal 1997.
IRET will continue to seek to market several of its older and smaller apartment properties.
NET INCOME
The $2,589,226 increase in net taxable income for Fiscal 1999 over
the net income earned in the prior fiscal year resulted from:
An increase in gain from sale of investments $ 1,481,685 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 4,357,772 A increase in interest income 429,016 An increase in interest expense (1,622,877) An increase in depreciation expense (1,174,967) An increase in operating expenses and advisory trustee services (229,897) An increase in amortization expense (48,569) An increase in Minority interest of Operating Partnership Income (602,937) $ 2,589,226 |
Page 29 of 131
An increase in gain from sale of investments $ 67,075 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 5,733,442 A decrease in interest income (148,654) An increase in interest expense (2,840,328) An increase in depreciation expense (1,207,316) An increase in operating expenses and advisory trustee services (299,869) An increase in amortization expense (45,520) An increase in Minority interest of Operating Partnership Income (141,770) $1,117,060 |
RESULTS FROM FULLY STABILIZED PROPERTIES
IRET defines fully stabilized properties as those both owned at the
beginning of the prior Fiscal Year AND having completed the rent-up phase
(90% occupancy). "Same store" results of these properties for Fiscal 1999
and 1998 were as follows:
FISCAL 1999 FISCAL 1998 % INCREASE Scheduled Rent $28,777,572 $28,237,875 1.91% Actual Collected Rent 28,501,453 27,230,777 4.67% Utilities & Maintenance 4,557,793 4,254,657 7.12% Management 2,361,905 2,204,936 7.12% Taxes & Insurance 3,009,579 2,912,047 3.35% Total Operating Expense $ 9,929,277 $ 9,371,640 5.95% "Same Store" Net Operating Income $18,572,176 $17,859,137 3.99% |
PROPERTY ACQUISITIONS
The Operating Partnership added $62,455,508 of real estate investments
to its portfolio during Fiscal 1999, compared to the $39,014,222 added
in the prior year, as detailed below:
FISCAL 1999 PROPERTY ACQUISITIONS
COMMERCIAL Edgewood Vista, Sioux Falls, SD $ 965,000 (Assisted Living) Edgewood Vista, Billings, MT $ 965,000 (Assisted Living) Corner Express, Minot, ND (Convenience Store) $ 1,190,432 Viromed, Eden Prairie, MN (Office/Laboratory) $ 4,826,310 Ameritrade Holdings, Omaha, NE (Office) $ 8,283,977 |
Page 30 of 131
APARTMENTS UNITS COMMUNITY NAME 182 Heritage Manor, Rochester, MN $ 7,371,208 64 Westwood Park, Bismarck, ND 2,025,455 67 **Country Meadows II, Billings, MT 1,321,962 60 Clearwater, Boise, ID 3,786,463 67 **Legacy III, Grand Forks, ND 2,260,345 100 Van Mall Woods, Vancouver, WA 6,021,312 27 **The Meadows by IRET, Jamestown, ND 1,502,301 165 Castle Rock, Billings, MT 5,614,223 67 Cottonwood II, Bismarck, ND 4,645,444 204 Ivy Club, Vancouver, WA 11,676,076 1,003 $62,455,508 |
FISCAL 1998 PROPERTY ACQUISITIONS
COMMERCIAL Edgewood Vista, East Grand Forks, MN (Assisted Living) $ 892,500 Edgewood Vista, Minot, ND $ 6,191,410 (Assisted Living) APARTMENTS UNITS COMMUNITY NAME 125 Jenner Properties-Grand Forks (90), Devils Lake (18) & Dickinson (17), ND $ 2,350,000 108 Kirkwood Manor-Bismarck, ND 3,175,000 248 Magic City Realty Portfolio 5,270,000 67 Country Meadows-Billings, MT 4,496,134 122 Park East Apartments-Fargo, ND 4,900,000 **67 Legacy Apartments (Phase II)- Grand Forks, ND 3,489,937 67 Cottonwood Apartments-Bismarck, ND 4,522,347 64 Chateau Apartments-Minot, ND 2,364,090 *67 Cottonwood Apartments (Phase II) Bismarck, ND 1,362,804 935 Total $39,014,222 |
PROPERTY DISPOSITIONS
Real estate assets sold by the Operating Partnership during Fiscal
1998 and 1999 were as follows:
BOOK VALUE & PROPERTY SOLD SALES PRICE SALES COSTS GAIN (Fiscal 1999) Fairfield Apts., Marshall, MN $ 466,000 $ 385,878 $ 80,122 Superpumper, Emerado, ND $ 297,000 $ 138,854 $ 158,146 Bison Apts., Jamestown, ND $1,760,000 $ 418,101 $1,341,899 |
Page 31 of 131
Park Place Apts., Waseca, MN $ 960,000 $ 593,983 $ 366,017 Installment Sale 1,000 $1,947,184 (Fiscal 1998) Scottsbluff Apts., Scottsbluff, NE $ 940,000 $ 613,862 $ 326,138 Superpumper Bottineau, ND $ 330,000 $ 246,421 $ 83,579 Superpumper New Town, ND $ 250,000 $ 224,486 $ 25,414 Installment & Misc. Sales $ 30,365 $ 465,496 |
DIVIDENDS
The following dividends were paid during Fiscal Years 1997, 1998 and
1999:
DATE 1997 1998 1999 July 1 $.0975 $.10125 $.11 October 1, $.095 $.1030 $.115 January 15,(16th) $.0975 $.105 $.12 April 1, 1999 $.10 $.107 $.1225 $.39 $.41625 $.4675 |
The Fiscal 1999 dividends increased 12.3% over the dividends paid during Fiscal Year 1998 and 19.9% over Fiscal 1997.
FUNDS FROM OPERATIONS
The funds derived during Fiscal 1999 by the Trust from its operations
increased by 25% over the prior year and by 65% from the Fiscal 1997 level
($11,778,502 in Fiscal 1999, versus $9,447,425 in 1998 and $7,144,604 in
1997). On a per share basis, Funds From Operations increased to $.6753
per share from $.6042 in Fiscal 1998 (an increase of 12%) and the $.51
generated in Fiscal 1997. (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 depreciation and amortization of real estate assets,
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):
Page 32 of 131
Fiscal Fiscal Fiscal Fiscal Fiscal ITEM 1999 1998 1997 1996 1995 (Restated) Net Income (GAAP) $7,604,135 $5,014,909 $3,897,849 $4,611,970 $3,967,830 Adjustments Gain from Property Sales (1,947,184) (465,499) (398,424) (994,163) (407,512) Operating Income $ 5,656,951 $4,549,410 $3,499,425 $3,617,807 $3,560,318 Plus Depreciation 5,966,874 4,791,907 3,584,591 2,261,724 1,767,294 Plus Amortization $ 154,677 106,108 60,588 97,900 20,659 Funds from Operations $11,778,502 $ 9,447,425 $7,144,604 $5,977,431 $5,348,271 Dividends Paid $ 8,193,538 $ 6,518,627 $5,508,689 $4,439,034 $3,660,986 $ 3,584,964 $ 2,928,798 $1,635,915 $1,538,397 $1,687,285 |
Management expects that the Funds From Operations (as defined above) will continue to improve during Fiscal 2000 and will continue to exceed dividends paid in the coming year.
LIQUIDITY AND CAPITAL RESOURCES
Important investment and financing events in Fiscal 1999 were:
* The net proceeds from sale of Shares of Beneficial Interest under Best Efforts offerings were $18,387,260; * An additional $6,485,927 of equity capital was contributed to the Operating Partnership in UPREIT transactions for a total increase of equity capital of $24,873,187; * Five property loans were refinanced at a lower interest rate than the old loans. The new loans totaled $11,400,000. The payoff of the old loans was $8,737,840, resulting in refinancing proceeds of $2,662,110. At 4-30-99, the weighted interest rate on the $175,071,069 of mortgage indebtedness owed by IRET was 7.12%. * Nearly $65,000,000 of new real estate investments were acquired by the Operating Partnership.IRET's financial condition at the end of Fiscal 1999 continued at the very strong level of its prior fiscal year. * IRET's shareholder equity increased to $85,783,294 from $68,152,626 on April 30, 1998, a gain of $17,630,668 (26%). Equity capital on April 30, 1997 was $59,997,619. These increases result from the sale of Shares of Beneficial Interest and the reinvestment of dividends in new shares. * Liabilities of the Operating Partnership increased to $191,229,475 from $148,276,615 on April 30, 1998. IRET's liabilities on April 30, 1997, were $126,995,322.
IMPACT OF INFLATION
* Total assets of the Operating Partnership increased to $291,493,311 from $224,718,514 on April 30, 1998. Total assets on April 30, 1997, were $186,993,943. * Cash and marketable securities were $7,412,236 compared to the year earlier figure of $6,389,446 and $6,457,182 on April 30, 1997. * In addition to its cash and marketable securities, IRET Properties has unsecured line of credit agreements with First International Bank & Trust, Bremer Bank and First Western Bank & Trust, all of Minot, North Dakota, of $11,500,000, none of which was in use on April 30, 1999.
ECONOMIC CONDITIONS
Fiscal 1999 saw continued stable economic conditions in the northern
plains states in which IRET operates. Occupancy rates for residential properties
increased slightly from the year earlier level. However, the current economic
outlook for much of IRET's trade area is guarded due to a depressed farm
economy. Continued low commodity prices and uncertain weather will impact
IRET's operating results.
YEAR 2000 COSTS
IRET has requested its principal vendors to inform it of any anticipated
problems associated with the Year 2000 issue for computer hardware and
software. IRET itself does not own or operate computer systems and will
have no direct costs to up-date such systems. However, IRET could be impacted
by computer failures of its third-party vendors. IRET has been informed
by these service providers (including its Advisor - Odell-Wentz & Associates,
LLC) that computer systems are now Year 2000 compliant. IRET does not anticipate
that the Year 2000 problem will have any material cost to it.
FINANCIAL RESULTS FOR
THREE MONTH PERIOD ENDED
JULY 31, 1999
RESULTS FROM OPERATIONS
Investors Real Estate Trust's (NASDAQ: IRETS) First Quarter which ended
on July 31, 1999, produced continued good results. Stable occupancy, rent
increases, lower interest rates and good performances by newly acquired
properties contributed to satisfactory gains in revenues, operating income
and Funds from Operations.
FUNDS FROM OPERATIONS
Funds from Operations for the first three months of Fiscal 2000 increased
to $3,350,071, from $2,603,229 for the same period of the prior fiscal
year, an increase of 29%. On a per share basis, Funds from Operations increased
to 17.2 cents from 15.7 cents in the prior year, an increase of nearly
10%. Funds from Operations is the generally accepted measure of performance
for real Estate Investment Trusts.
OPERATING INCOME
Operating income increased to $1,801,322 for the First Quarter of Fiscal
2000, compared to $1,327,854 earned in the same period of the prior fiscal
year, an increase of 36%.
Page 34 of 131
CAPITAL GAINS
Income from the sale of investments declined to $257,895 from the $366,017
gain in the prior fiscal year. This year's gain resulted from the sale
of four Superpumper convenience stores. We have entered into sales contracts
on smaller apartment properties in Devils Lake and Mandan, ND, and a large
commercial property in Sioux Falls, SD, which should close in the second
quarter.
We are optimistic that the remainder of the current fiscal year will see a continuation of satisfactory operating results. Occupancy rates in our apartment communities continue to be stable. We anticipate good results from the new properties that we are adding to our portfolio.
PROPERTY ACQUISITIONS
The following properties were acquired by IRET during the First Quarter
and are producing income:
| 78-unit Rimrock West Apartment complex Billings, MT | $ 3,750,000 |
| 12-unit Alzheimer Care facilities located in Belgrade, MT, Columbus Island, NE, and Grand Island, NE | 1,400,000 |
| 168-unit Valley Manor Apartment complex, Grand Forks, ND | 4,430,767 |
| 118,397 sq.ft. Maplewood Square retail center (Best Buy a Rainbow Foods as anchor tenants), Rochester, MN | 11,800,000 |
| $21,380,767 |
PENDING ACQUISITIONS
The following are under construction or under purchase contract:
| Great Plains Software office building, Fargo, ND | $15,000,000 |
| 67-unit apartment building
- Cottonwood Lake III,
Bismarck, ND |
4,200,000 |
| 67-unit apartment building w/underground parking (Legacy by IRET), Grand Forks, ND | 4,600,000 |
| 27-unit apartment building (The Meadows by IRET), Jamestown, ND | 1,700,000 |
| 67-unit apartment building (Country Meadows 11), Billings, MT | 4,200,000 |
| 73-unit apartment building as community center (Trail Ridge on 41st by IRET), Rochester, MN | 4,750,000 |
| Edgewood Vista Assisted Living Center, Duluth, MN | 4,800,000 |
| East Grand Forks Convenience Store/Retail Rental East Grand Forks, MN | 1,200,000 |
| 520-unit AMLI apartment portfolio, Topeka, KS | 26,250,000 |
| 270-unit apartment complex
(Thomas brook Apartments),
Lincoln, NE |
9,500,000 |
| 74,500 sq. ft. office building, Eden Prairie, MN | 4,900,000 |
| 1/2 interest in Med Park Strip Center,, Grand Forks, ND | 2,650,000 |
| 83,750,000 |
Page 35 of 131
GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST
ORGANIZATION OF IRET
Investors Real Estate Trust is a registered real estate investment
trust organized and governed under the laws of North Dakota. IRET has qualified
as a real estate investment trust under Sections 856-858 of the Internal
Revenue Code during all years of its existence.
GOVERNING INSTRUMENTS OF IRET
RET was organized on July 31, 1970. IRET will continue, unless sooner
terminated by a majority 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
63 years of age. The existence of IRET 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. IRET has 9 Trustees.
INDEPENDENT TRUSTEES
IRET adheres to NASAA guidelines requiring a majority of the Board
to be composed of independent Trustees. The Glossary at the end of this
document defines independent Trustee. Pursuant to NASAA guidelines, IRET
considers the following Trustees as independent:
Ralph A. Christensen has served as an independent Trustee since 1970. He is a retired rancher. Mr. Christensen is a former Director of First Bank - Minot, N.A. Mr. Christensen has over 25 years experience dealing with multi-family and commercial real property.
John F. Decker has served as an independent Trustee since August 18, 1998. Mr. Decker is an Investment Advisor and Managing Director with Piper, Jaffray, Inc., and resides in Everett, Washington.
Daniel L. Feist has served as an independent Trustee since 1985. Mr. Feist is a general contractor and President of Feist Construction and Realty Inc. Mr. Feist is a former Director of First Bank - Minot, N.A., and N.D. Holdings, Inc., of Minot, ND. Mr. Feist has over 25 years experience dealing with multi-family and commercial real property.
Patrick G. Jones has served as an independent Trustee since 1986. He is the former Manager and Director of the Minot Daily News as well as former President of Central Venture Capital, Inc. Mr. Jones is an active investor. Mr. Jones has over 25 years experience dealing with multi-family and commercial real property.
Jeffrey L. Miller has served as an independent Trustee since 1985. He is the former President of Coca-Cola Bottling Co. of Minot. He is currently President of M & S Concessions, Inc. Mr. Miller is a former Director of First Bank - Minot, N.A. Mr. Miller has over 25 years experience dealing with multi-family and commercial real property.
Stephen L. Stenehjem has served as an independent Trustee since 1999. He is the President and Chief Executive Officer of Watford City BancShares, Inc.; owner of First International Insurance and President and Chairman of First International Bank, Watford City, North Dakota.
Page 36 of 131
IRET considers the following Trustees as not independent:
C. Morris Anderson has served as a Trustee since 1970. He was a partner and founder of Magic City Realty, Ltd., the owner of rental properties now owned by IRET. He is also the President of North Hill Bowl, Inc., a business operating a bowling alley, restaurant and lounge in Minot. Mr. Anderson is a Director of International Inn, Inc., and Norwest Bank - Minot, N.A. Mr. Anderson has over 25 years experience dealing with multi-family and commercial real property.
Timothy P. Mihalick has served as a Trustee since 1999. He is a Vice President and Chief Operating Officer of IRET and its Advisor - Odell-Wentz & Associates, L.L.C.
Thomas A. Wentz, Jr., has served as a Trustee since 1996. He is a partner in IRET's legal counsel, Pringle & Herigstad, P.C. Mr. Wentz is the general partner of WENCO, a North Dakota Limited Partnership, which owns commercial, multi-family and farm real estate.
SHAREHOLDER MEETINGS
The governing provisions of IRET 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 30 days prior written notice.
Special meetings of the shareholders may be called by the chief executive
officer, by a majority of the trustees or by a majority of the Independent
Trustees, and shall be called by an officer of IRET upon written request
of the shareholders holding in the aggregate of not less than 10% of the
outstanding shares of IRET entitled to vote at such meeting. Upon receipt
of a written request, either in person or by mail, stating the purpose
or purposes of the meeting, IRET shall provide all shareholders within
ten days after receipt of said request, written notice, either in person
or by mail, of a meeting and the purpose of such meeting to be held on
a date not less than fifteen nor more than sixty days after the distribution
of such notice, at a time and place specified in the request, or if none
if specified, at a time and place convenient to shareholders. The holders
of a majority of shares in IRET, present in person or by proxy, shall constitute
a quorum at any meeting.
STRUCTURE OF IRET
IRET carries on its activities directly and through subsidiaries and an Operating Partnership. IRET Properties, a North Dakota Limited Partnership, was organized on January 31, 1997, and, since February 1, 1997, is the principle entity through which IRET operates. All assets (except for Qualified REIT Subsidiaries) and liabilities of IRET have been contributed to the Operating Partnership in exchange for a general partnership interest in the Operating Partnership. IRET, INC., a North Dakota corporation, and a wholly owned subsidiary of IRET acts as the general partner of the Operating Partnership. As the sole shareholder of IRET, INC., which in turn is the sole general partner of the Operating Partnership, IRET has the exclusive power under the Operating Partnership Agreement to manage and conduct the business of the Operating Partnership, subject to certain limitations contained in the Operating Partnership Agreement. See "Operating Partnership Agreement."
IRET's interest in the Operating Partnership will entitle it to receive all quarterly or yearly cash distributions from the Operating Partnership and to be allocated its pro-rata share of the profits and losses of the Operating Partnership. IRET owned in excess of 90.54% of the Operating Partnership on April 30, 1999. It is expected that the Operating Partnership will merge with other partnerships or acquire real estate from other persons in exchange for limited partnership units. When certain properties were acquired by IRET, the lender financing the properties required, as a condition of the loan, that the properties be owned by a "single asset entity." Accordingly, IRET has organized four wholly owned subsidiary corporations for the purpose of holding title to
Page 37 of 131
IRET formerly was the general partner and held investment interests
in 7 limited partnerships. They were: Eastgate Properties, Ltd.; Bison
Properties, Ltd.; First Avenue Building, Ltd.; Sweetwater Properties, Ltd.;
Hill Park Properties, Ltd.; Colton Heights, Ltd.; and Chateau Properties,
Ltd. All of the above limited partnerships, except Chateau Properties,
Ltd., were consolidated with IRET for financial reporting purposes. All
of these partnerships have been merged into IRET Properties, with Chateau
on April 1, 1998, and the other six on May 1, 1998.
POLICY WITH RESPECT TO CERTAIN ACTIVITIES
The following information is a statement of IRET's policy as it pertains to the described activities.
TO ISSUE SENIOR SECURITIES
IRET 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 6 1/2% for 6 months; 7% for 1 year; 7 1/2% for 3 years
and 8% for 5 of 35 years). In the event of dissolution of IRET, the
Investment Certificates would be paid in preference to the shares of Beneficial
Interest. As of July 31, 1999, the Investment Certificates outstanding
totaled $112,530,595. The Trust does not plan on issuing other senior securities
in the future.
TO BORROW MONEY
IRET plans to continue to borrow money. IRET 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. IRET intends
to continue borrowing funds in the future. Over the past three fiscal years,
IRET has borrowed funds as follows:
Over the past three fiscal years, IRET has borrowed funds as follows:
Fiscal Fiscal Fiscal 1999 1998 1997 Cost of Property Acquired $62,455,508 $39,014,223 $59,377,674 Net Increase in Mortgages Payable $41,011,095 $18,325,028 $44,035,887 Percent of Acquisition Price Represented by Net Increase in Mortgages Payable 66% 47% 74% |
TO MAKE LOANS TO OTHER PERSONS
As part of IRET'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.
Page 38 of 131
IRET has no present plans to make additional loans of Trust funds, but may do so in the future.
IRET had the following outstanding mortgage loans at the end of its most recent Fiscal Year:
MORTGAGE LOANS RECEIVABLE
Real Estate 4/30/99 Location Security Balance Rate FARGO, ND Great Plains Software Office Complex $9,185,758 9.5% GILBERT, AZ NE1/4-27-2-6 Commercial Land 742,811 8% OTHER MORTGAGES Over $100,000 $ 294,968 8-9% $20,000 to $99,999 387,895 8-9% Less than $20,000 109,782 7-9% TOTAL $10,721,214 Unearned Discounts (1,898) Allowance for Losses (120,314) Deferred Gain (1,000) $10,598,002 ========== |
TO INVEST IN THE SECURITIES OF OTHER
ISSUERS FOR THE PURPOSE OF EXERCISING CONTROL
Other than the formation of its Operating Partnership - IRET Properties
- and its three Qualified REIT Subsidiaries, IRET has not invested in the
securities of other issuers for the purpose of exercising control over
such issuer and has no plans to do so. The decision to do so is vested
solely in the Board of Trustees and may be changed without a vote of the
shareholders.
TO UNDERWRITE SECURITIES OF OTHER
ISSUERS
IRET has no plans to engage in such an activity.
TO ENGAGE IN THE PURCHASE AND SALE
(OR TURNOVER) OF INVESTMENTS
IRET has no plans to engage in such an activity.
TO OFFER SECURITIES IN EXCHANGE
FOR PROPERTY
Commencing on February 1, 1997, IRET operates principally through IRET
Properties, a North Dakota Limited Partnership, of which IRET is the sole
general partner. Such a structure allows IRET to offer Limited Partnership
Units in exchange for real estate. IRET currently has plans to offer Limited
Partnership Units in exchange for real estate on a continuous and ongoing
basis. All exchanges shall be subject to approval by the Board of Trustees
on such terms and conditions which are deemed reasonable by the trustees.
TO REPURCHASE OR OTHERWISE RE-ACQUIRE
ITS SHARES OR OTHER SECURITIES
As a "real estate investment trust" under federal income tax laws,
IRET intends to invest only in real estate assets. IRET is authorized,
but not obligated, to repurchase its own shares and has and may do so from
time to time if the trustees deem such action to be appropriate. See "Determination
of Offering Price."
TO MAKE ANNUAL AND OTHER REPORTS
TO SHAREHOLDERS
IRET is required to provide an annual report to shareholders during
the month of July. The annual report contains a financial statement certified
by an independent public accountant. Provision of the annual report to
Page 39 of 131
INVESTMENT POLICIES OF REGISTRANT
INVESTMENTS IN REAL ESTATE OR INTERESTS
IN REAL ESTATE
IRET currently owns real estate located in 10 states. The company may
invest in real estate or interests in real estate which is located anywhere
in the United States.
IRET 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 IRET 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 IRET's real estate shall be delegated to a management company as it pertains to the day-to-day management. All major operating decisions concerning IRET'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. IRET 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 IRET must not exceed 80%. As of April 30, 1999, the ratio of total liabilities ($191,229,475) to total assets ($291,493,311) was 65.6%.
It is not IRET's policy to acquire assets primarily for possible capital gain. Rather, it is the policy of IRET to acquire assets primarily for income.
IRET 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 IRET has made mortgage loans in the past, it is the current policy
of IRET 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
IRET has purchased and now owns United States guaranteed obligations
and shares of five other real estate investment trusts. 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.
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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
IRET owns shares in five publicly traded REITs, acquired at a cost
of $791,318. No other purchases of such securities are contemplated at
this time.
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, 1999:
COMMERCIAL PROPERTIES FISCAL 1999 STATE PROPERTY SQ. FEET INVESTMENT OCCUPANCY Georgia - Lithia Springs Wedgewood Retirement Center - Assisted Living 29,408 $ 3,971,878 100.00% ------ ----------- ------- GEORGIA TOTALS 29,408 $ 3,971,878 100.00% ====== =========== ======= Idaho - Boise America's Best Furniture - Retail 139,198 $ 5,792.182 28.75% ------- ----------- ------- IDAHO TOTALS 139,198 $ 5,792,182 28.75% ======= =========== ======= Michigan - Kentwood COMP USA - Retail 16,000 $ 2,113,574 100.00% ------ ----------- ------- MICHIGAN TOTALS 16,000 $ 2,113,574 100.00* ====== =========== ======= Minnesota - East Grand Edgewood Vista Forks - Assisted Living 10,778 $ 899,821 100.00% - Eden Prairie Lindberg Building - Office/Whse 40,491 $ 1,455,789 100.00% Viromed - Office/Laboratory 48,700 $ 4,863,634 N/A - Moorhead Pioneer Seed Company - Office/Whse 75,900 $ 653,876 100.00% ------ ----------- ------- MINNESOTA TOTALS 176,319 $ 7,873,122 100.00% ======= =========== ======= Montana - Billings Creekside Office Park - Office 37,318 $ 1,684,918 88.41% Edgewood Vista - Assisted Living 11,971 $ 980,218 100.00% - Missoula Edgewood Vista - Assisted Living 10,314 $ 962,428 100.00% ------ ----------- ------- MONTANA TOTALS 59,603 $ 3,627,565 92.05% ====== =========== ======= Nebraska - Omaha Ameritrade - Office 73,774 $ 8,283,977 100.00% Barnes & Noble - Retail 27,500 $ 3,699,101 100.00% ------ ----------- ------- NEBRASKA TOTALS 101,274 $11,983,078 100.00% ======= =========== ======= |
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North Dakota - Bismarck Lester Chiropractic Clinic - Office 5,400 $ 268,917 100.00% - Fargo Barnes & Noble - Retail 30,000 $ 3,292,012 100.00% Petco - Retail 18,000 $ 1,278,934 100.00% Stone Container - Office/Mfg 151,850 $ 4,998,485 100.00% Great Plains Campus Facility 121,600 $ 408,700* N/A *Additional costs to be incurred. - Grand Forks Carmike Theatre 28,300 $ 2,545,737 100.00% - Minot Walter's (114 South Main St) - Retail 3,500 $ 111,940 100.00% 1st Ave Building - Office 15,900 $ 838,837 73.61% 401 South Main - Office 9,200 $ 609,119 62.62% Arrowhead Shopping Center - Retail/Office 80,000 $ 2,831,164 98.8% Corner C Store - Retail 4,674 $ 1,196,342 N/A Edgewood Vista - Assisted Living 97,821 $ 6,275,931 100.00% 408 1st St. SE 2,000 $ 46,907 100.00% Minot Plaza - Retail 10,020 $ 509,079 100.00% ------- ----------- ------- NORTH DAKOTA TOTALS 578,265 $25,212,104 97.86% ======= =========== ======= South Dakota - Sioux Falls Edgewood Vista - Assisted Living 11,971 $ 974,739 N/A Hutchinson Technology - Office/Mfg 94,176 $ 4,429,026 100.00% ------- ----------- ------- SOUTH DAKOTA TOTALS 106,147 $ 5,403,765 100.00% ======= =========== ======= Other Commercial Prop. Crookston, MN Superpumper - Convenience Store 6,000 $ 428,777 100.00% Grand Forks,ND Superpumper - Convenience Store 7,000 $ 485,007 100.00% Langdon, ND Superpumper - Convenience Store 5,500 $ 239,212 100.00% Sidney, MT Superpumper - Convenience Store 4,000 $ 120,600 100.00% ------ ----------- ------- OTHER COMMERCIAL PROPERTIES 22,500 $ 1,273,596 100.00% ====== =========== ======= FISCAL 1999 SQ. FEET INVESTMENT OCCUPANCY TOTAL COMMERCIAL PROPERTIES 1,228,714 $67,250,863 96.54% =========================== ========= =========== ======= |
APARTMENT FISCAL 1999 STATE COMMUNITIES BY IRET UNITS INVESTMENT OCCUPANCY Colorado - Colorado Springs - Neighborhood by IRET 192 $11,097,183 95.87% - Fort Collins - MiraMont by IRET 210 $14,285,175 97.80% - Pine Cone by IRET 195 $13,216,920 94.20% --- ----------- ------ COLORADO TOTALS 597 $38,599,278 96.03% === =========== ====== Idaho - Boise - Clearwater 60 $ 3,822,199 N/A -- ----------- ----- IDAHO TOTALS 60 $ 3,822,199 N/A == =========== ===== Minnesota |
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- Moorhead - Terrace on the Green 116 $ 2,044,286 96.08% - Rochester - Woodridge 108 $ 6,534,011 99.69% - Heritage Manor 182 $ 7,421,977 N/A - IBM Land - $ 11,871 N/A - St. Cloud - West Stonehill 313 $11,492,684 99.02% - Waite Park - Park Meadows 360 $11,141,014 95.04% --- ----------- ------ MINNESOTA TOTALS 1079 $38,645,843 98.06% ==== =========== ===== Montana - Billings - Castle Rock 165 $ 5,673,197 N/A - Country Meadows 67 $ 6,157,497 98.97% - Rocky Meadows 98 $ 6,672,694 96.54% --- ----------- ------ MONTANA TOTALS 330 $18,503,389 97.12% === =========== ====== North Dakota - Bismarck/Mandan - Cottonwood Lake 134 $ 9,961,391 83.59% - Crestview 152 $ 4,799,607 90.40% - Hill Park 92 $ 3,024,159 91.85% - Kirkwood Manor 108 $ 3,587,282 93.48% - North Pointe 49 49 $ 2,403,175 94.41% - Pleasantview (Man) 18 $ 289,671 95.99% - Westwood Park 64 $ 2,127,861 N/A - Dickinson - 41 East 38 $ 434,579 80.04% - Century 120 $ 2,124,281 89.96% - Oak Manor 27 $ 350,484 98.23% - Fargo - Candlelight 44 $ 899,092 98.77% - Park East 122 $ 4,951,327 97.06% - Sunchase 36 $ 1,020,291 95.23% - Grand Forks - Forest Park 270 $ 7,120,900 97.16% - Jenner Properties 121 $ 2,513,168 90.00% - Legacy 183 $13,818,179 99.54% - Southwinds 164 $ 5,712,354 97.18% - Minot - Chateau 64 $ 2,406,110 92.48% - Colton Heights 18 $ 926,045 95.48% - Dakota Arms 18 $ 614,752 97.42% - Magic City 248 $ 5,428,774 94.17% - South Pointe 196 $10,295,666 96.95% - Southview 24 $ 713,128 86.02% - Virginia 15 $ 231,163 79.56% - Williston - Century 192 $ 3,909,583 78.95% - Other Communities - Beulah Condominiums 26 $ 471,449 49.26% - Bison Properties - Carrington and Cooperstown 35 $ 569,783 93.97% - The Meadows - Jamestown -- $ 1,954,986 N/A - Lonetree Manor - Harvey 12 $ 255,709 86.07% - Parkway - Beulah 36 $ 122,058 56.08% - Sweetwater Properties - Devils Lake & Grafton 114 $ 1,838,691 84.09% --- ----------- ------ NORTH DAKOTA TOTALS 2,740 $94,845,697 92.67% ===== =========== ====== South Dakota - Rapid City - Pointe West 90 $ 3,957,341 90.55% - Sioux Falls - Oakwood Estates 160 $ 5,493,266 93.53% - Oxbow 120 $ 4,989,273 99.44% - Prairie Winds 48 $ 1,987,675 96.80% SOUTH DAKOTA TOTALS 418 $16,427,555 95.07% === =========== ====== Washington - Vancouver - Ivy Club 204 $11,696,668 N/A - Van Mall Woods 100 $ 6,034,347 N/A --- ----------- ----- WASHINGTON TOTALS 304 $17,731,015 N/A === =========== ===== FISCAL 1999 UNITS INVESTMENT OCCUPANCY TOTAL APARTMENTS 5,528 $228,574,976 94.79% ================ ===== ============ ====== |
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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, 1999, IRET had not entered into any contracts or options
to sell any of the above properties, except the four Superpumper properties.
As of October 15, 1999, the following additional properties have been sold
or are under contract to sell:
OCCUPANCY AND LEASES
Hutchinson Technology office/warehouse building - Sioux Falls, SD 18 unit Pleasant view Apartments - Mandan, ND 24 units - Sweetwater apartments - Devils Lake, ND
SHARES AVAILABLE FOR FUTURE SALE
Under its Restated Declaration of Trust, IRET is authorized to issue an unlimited number of its shares of Beneficial Interest. See "Description of Shares of Beneficial Interest."
The shares of Beneficial Interest issued in connection with this offering and three prior registrations of 6,350,000 shares of Beneficial Interest will be freely tradable by persons other than "affiliates" of IRET without restriction under the Securities Act of 1933, as amended, subject to certain limitations on ownership set forth in the Restated Declaration of Trust. See "Description of IRET's Securities Restrictions on Transfer."
Pursuant to the Operating Partnership
Agreement, the Limited Partners (other than IRET) will have exchange rights
which, beginning one year after the acquisition of such limited partnership
units, enabling them to cause the operating partnership to exchange their
limited partnership units for cash or, at the option of the General Partner,
Trust shares of Beneficial Interest on a one-for-one basis. Shares of Beneficial
Interest of IRET, other than those issued under this registration and the
prior registrations which were effective July 9, 1996, March 14, 1997,
and December 15, 1998 respectively, will be
"restricted" securities under the
meaning of Rule 144 of the Securities Act of 1933 and may not be sold in
the absence of registration under the Securities Act of 1933 unless an
exemption from registration is available, including exemptions contained
in Rule 144.
In general, under Rule 144 as currently in effect, if two years have elapsed since the later of the date of acquisition of restricted securities from IRET or any "affiliate"; of IRET, as that term is defined under the Securities Act of 1933, the acquiror or subsequent holder thereof is entitled to sell within any three month period a number of shares that does not exceed the greater of one percent (1%) of the then outstanding shares of Beneficial Interest or the average weekly trading volume of the shares of Beneficial Interest during the four
Page 44 of 131
IRET has agreed under the Operating Partnership Agreement that it will file with the Securities and Exchange Commission a shelf registration on Form S-3 under Rule 415 of the Securities Act or any similar rule adopted by the Commission with respect to any Trust shares of Beneficial Interest that may be issued upon exchange of limited partnership units in the operating partnership, pursuant to Section 8.06 of the Operating Partnership Agreement and to use its best efforts to have such registration statement declared effective under the Securities Act of 1933.
No prediction can be made as to the
effect, if any, that future sales of shares of Beneficial Interest, or
the availability of such shares for future sale, will have on the market
price of the shares of Beneficial Interest prevailing from time to time.
Sales of substantial amounts of shares of Beneficial Interest, or the perception
that such sales could occur, may adversely affect prevailing market prices
of such shares. See "Risk Factors - Liquidity."
OPERATING PARTNERSHIP AGREEMENT
The following summary of the material terms of the Operating Partnership Agreement, and the descriptions of certain provisions thereof set forth elsewhere in this Prospectus, is qualified in its entirety by reference to the Operating Partnership Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership has been
organized as a North Dakota limited partnership pursuant to the terms of
the Agreement of Limited Partnership of the Operating Partnership (the
"Operating Partnership Agreement";). Pursuant to the Operating Partnership
Agreement, the General Partner, as the sole general partner of the Partnership,
has full, exclusive and complete responsibility and discretion in the management
and control of the Operating Partnership, and the Limited Partners have
no authority in their capacity as Limited Partners to transact business
for, or participate in the
management activities or decisions
of, the Operating Partnership except as required by applicable law. However,
any amendment to the Operating Partnership Agreement that would (i) adversely
affect the Exchange Rights (as defined herein), (ii) adversely affect the
Limited Partners' rights to receive cash distributions, (iii) alter the
Operating Partnership's allocations of capital of the Operating Partnership,
requires the consent of Limited Partners (other than the General Partner)
holding more than fifty percent (50%) of the Units held by such partners.
TRANSFERABILITY OF INTERESTS
The General Partner may not voluntarily
withdraw from the Operating Partnership or transfer or assign its interest
in the Operating Partnership unless the transaction in which such withdrawal
or transfer occurs results in the Limited Partners receiving property in
an amount equal to the amount they would have received had they exercised
their Exchange Rights immediately prior to such transaction, or unless
the successor to the General Partners contributes substantially all of
its assets to the Operating Partnership in return for an interest in the
Operating Partnership. With certain limited exceptions, the Limited Partners
may not transfer their interests in the Operating Partnership, in whole
or in part, without the written consent of the General Partner, which consent
the General Partner may withhold in its sole discretion. The General Partner
may not consent to any transfer that would cause the Operating Partnership
to be treated as a corporation for federal income tax purposes.
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The Company may not engage in any transaction resulting in a change of control ("Transaction") unless in connection with the Transaction the Limited Partners receive or have the right to receive cash or other property equal to the product of the number of Shares of Beneficial Interest into which each Unit is then exchangeable and the greatest amount of cash, securities or other property paid in the Transaction to the holder of one Share of Beneficial Interest in consideration of one such Share. If, in connection with the Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than fifty percent (50%) of the outstanding Shares of Beneficial Interest, each holder of Units will receive, or will have the right to elect to receive, the greatest amount of cash, securities, or other property which such holder would have received had it exercised its right to redemption and received Shares of Beneficial Interest in exchange for its OP Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer.
Notwithstanding the foregoing paragraph, IRET may merge, or otherwise combine its assets, with another entity if, immediately after such merger or other combination, substantially all of the assets of the surviving entity, other than Units held by IRET, are contributed to the Operating Partnership as a capital contribution in exchange for Units with a fair market value, as reasonable determined by IRET, equal to the agreed value of the assets so contributed.
In respect of any Transaction described in the preceding two paragraphs, IRET is required to use its commercially reasonable efforts to structure such Transaction to avoid causing the Limited Partners to recognize gain for federal income tax purposes by virtue of the occurrence of or their participation in such Transaction, provided such efforts are consistent with the exercise of the Board of Trustees' fiduciary duty under applicable law.
CAPITAL CONTRIBUTION
All assets of IRET (except its Qualified
REIT Subsidiaries) will be held by the Operating Partnership, including
the proceeds of this Offering. Although the Operating Partnership will
receive the net proceeds of the Offering, IRET and the General Partner
will be deemed to have made a capital contribution to the Operating Partnership
in the amount of the gross proceeds of the Offering and the Operating Partnership
will be deemed simultaneously to have paid the expenses paid or incurred
in connection with the Offering. The Operating Partnership Agreement provides
that if the Operating Partnership requires additional funds at any time
or from time to time in excess of funds available to the Operating Partnership
from borrowing or capital contributions, the General Partner or IRET may
borrow such funds from a financial institution or other lender and lend
such funds to the Operating Partnership on the same terms and conditions
as are applicable to the General Partner's or IRET's, as applicable, borrowing
of such funds. Moreover, the General Partner is authorized to cause the
Operating Partnership to issue partnership interests for less than fair
market value if IRET (i) has concluded in good faith that such issuance
is in the best interest of IRET and the Operating Partnership and (ii)
the General Partner makes a capital contribution in an amount equal to
the proceeds of such issuance. Under the Operating Partnership Agreement,
the General Partner generally is obligated to contribute or cause IRET
to contribute the proceeds of a share offering by IRET as additional capital
to the Operating Partnership. Upon such contribution, the General Partner
or IRET, as applicable, will receive additional Units and the General Partner's
or IRET's, as applicable, percentage interest in the Operating Partnership
will be increased on a proportionate basis based upon the amount of such
additional capital contributions. Conversely, the percentage interests
of the Limited Partners will be decreased on a proportionate basis in the
event of additional capital contributions by the General Partner or IRET.
In addition, if the General Partner or IRET contributes additional capital
to the Operating Partnership, the General Partner will revalue the property
of the Operating Partnership to its fair market value (as determined by
the General Partner) and the capital accounts of the partners will be adjusted
to reflect the manner in which the unrealized gain or loss inherent in
such property (that has not been reflected in the capital accounts previously)
would be allocated among the partners under the terms of the Operating
Partnership Agreement if there were a taxable disposition of such property
for such fair market value on the date of the revaluation.
Page 46 of 131
EXCHANGE RIGHTS
Pursuant to the Operating Partnership
Agreement, the Limited Partners (other than IRET) have exchange rights
("Exchange Rights") that enable them to cause the Operating Partnership
to exchange their Units for cash, or at the option of the General Partner,
Shares of Beneficial Interest on a one-for-one basis. The exchange price
will be paid in cash in the event that the issuance of Shares of Beneficial
Interest to the exchanging Limited Partner would (i) result in any person
owning, directly or indirectly, Shares of Beneficial Interest in excess
of the Ownership Limitation, (ii) result in shares of beneficial interest
of IRET being owned by fewer than 100 persons (determined without reference
to any rules of attribution), (iii) result in IRET being "closely held"
within the meaning of Section 856(h) of the Code, (iv) cause IRET to own,
actually or constructively, 10% or more of the ownership interest in a
tenant of IRET's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, or (v) cause the acquisition
of Shares of Beneficial Interest by such redeeming Limited Partner to be
"integrated" with any other distribution of Shares of Beneficial
Interest for purposes of complying with the Securities Act. The Exchange
Rights may be exercised by the Limited Partners at any time after the first
anniversary of the date of their acquisition, provided that not more than
two exchanges may occur during each calendar year and each Limited Partner
may not exercise the Exchange Right for less than 1,000 Units or, if such
Limited Partner holds less than 1,000 Units, all of the Units held by such
Limited Partner. See "Federal Income Tax Considerations - Tax Aspects of
the Operating Partnership." The number of Shares of Beneficial Interest
issuable upon exercise of the Exchange Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata
share transactions, which otherwise would have the effect of diluting the
ownership interests of the Limited Partners or the shareholders of the
Company.
REGISTRATION RIGHTS
For a description of certain registration
rights held by the Limited Partners, see "Shares Available for Future Sale."
OPERATIONS
The Operating Partnership Agreement
requires that the Operating Partnership be operated in a manner that will
enable IRET to satisfy the requirements for being classified as a REIT
for federal tax purposes, to avoid any federal income or excise tax liability
imposed by the Code, and to ensure that the Operating Partnership will
not be classified as a "publicly traded partnership" for purposes
of Section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred by the Operating Partnership, the Operating Partnership will pay all administrative costs and expenses of IRET and the General Partner (collectively, the "Trust Expenses") and IRET Expenses will be treated as expenses of the Operating Partnership. IRET Expenses generally will include (i) all expenses relating to the operation and continuity of existence of IRET and the General Partner, (ii) all expenses relating to the public offering and registration of securities by IRET, (iii) all expenses associated with the preparation and filing of any periodic reports by IRET under federal, state or local laws or regulations, (iv) all expenses associated with compliance by IRET and the General Partner with laws, rules and regulations promulgated by any regulatory body and (v) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of the Partnership.
DISTRIBUTIONS
The Operating Partnership Agreement
provides that the Operating Partnership shall distribute cash from operations
(including net sale or refinancing proceeds, but excluding net proceeds
from the sale of the Operating Partnership's property in connection with
the liquidation of the Operating Partnership) on a quarterly (or, at the
election of the General Partner, more frequent) basis, in amounts
determined by the General Partner in its sole discretion, to the partners
in accordance with their respective percentage interests in the Operating
Partnership. Upon liquidation of the Operating Partnership, after payment
of, or adequate provision for, debts
Page 47 of 131
ALLOCATIONS
Income, gain and loss of the Operating
Partnership for each fiscal year generally is allocated among the partners
in accordance with their respective interests in the Operating Partnership,
subject to compliance with the provisions of Code Sections 704(b) and 704(c)
and Treasury Regulations promulgated thereunder.
TERM
The Operating Partnership shall
continue until April 30, 2050, or until sooner dissolved upon (i) the bankruptcy,
dissolution or withdrawal of the General Partner (unless the Limited Partners
elect to continue the Operating Partnership), (ii) the sale or other disposition
of all or substantially all the assets of the Operating Partnership, (iii)
the redemption of all limited partnership interests in the Partnership
(other than those held by IRET, if any), or (iv) the election by the General
Partner.
FIDUCIARY DUTY
The Limited Partners have agreed
that in the event of any conflict in the fiduciary duties owed by IRET
to its shareholders and by the General Partner to such Limited Partners,
the General Partner will fulfill its fiduciary duties to such limited partnership
by acting in the best interests of IRET's shareholders.
TAX MATTERS
Pursuant to the Operating Partnership
Agreement, the General Partner is the tax matters partner of the Operating
Partnership and, as such, has authority to handle tax audits and to make
tax elections under the Code on behalf of the Operating Partnership.
TAX TREATMENT OF IRET AND ITS SECURITY HOLDERS
FEDERAL INCOME TAX
Since its organization, IRET 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, IRET must continue to meet the following requirements,
among others:
| (1) | At the end of each fiscal quarter at least 75% of the total assets of IRET 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 IRET, the securities of any one issuer acquired by IRET may not represent more than 5% of the value of IRET's assets or more than 10% of the outstanding voting securities of such issuer. |
Page 48 of 131
| (2) | At least 75% of the gross income of IRET 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 IRET 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. |
| (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. IRET may not hold any property primarily for sale to customers in the ordinary course of its trade or business. |
| (4) | Beneficial ownership of IRET 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, IRET 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, IRET will be taxed as a corporation at corporate income tax rates. IRET will not be entitled to carry back or carry forward any net operating losses.
So long as IRET has met the statutory requirements for taxation as a real estate investment trust, distributions made to IRET'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. IRET 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 IRET, whether ordinary or capital losses.
If, in any taxable year, IRET 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 IRET in computing its taxable income. Such distributions, to the extent made out of IRET'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 IRET, 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 IRET, the contemplated method of operation of IRET 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 IRET, the conduct of its affairs and, with certain limitations, the management and disposition of IRET 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 IRET to meet the requirements of any
Page 49 of 131
NORTH DAKOTA INCOME TAX
In the opinion of counsel for IRET, since IRET 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, IRET will be taxed as a corporation for North Dakota income
tax purposes. IRET will not be entitled to carry back or carry forward
any net operating losses. Distributions to IRET shareholders of capital
gains or taxable income will be subject to the North Dakota income tax.
TAXATION OF IRET'S SHAREHOLDERS
If IRET qualifies as a REIT, and so long as IRET so qualifies, distributions
made to IRET'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 IRET'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. IRET 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 IRET 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 IRET and received by the shareholder on December 31 of such year, despite that the dividend is actually paid by IRET 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 IRET.
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 IRET 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 IRET should not, subject to certain exceptions described below, be
UBTI to a qualified plan, IRA 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.
Page 50 of 131
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 IRET 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 IRET. 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 IRET (rather than by IRET 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 IRET. 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 shares could be changed prospectively
or retroactively by future Treasury Regulations.
BACKUP WITHHOLDING
IRET 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 IRET
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, IRET may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their non-foreign status to IRET.
STATE AND LOCAL TAXES
IRET or its shareholders may be subject to state or local taxation
in the state or local jurisdiction in which IRET's investments or loans
are located or in which the shareholders reside.
Page 51 of 131
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 IRET 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 IRET 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 IRET's ownership interest in the joint venture exceeds
10%, IRET would cease to qualify as a REIT. Furthermore, in such a situation
even if IRET ownership does not exceed 10%, distributions from the joint
venture to IRET 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 IRET to qualify as a REIT for
the taxable year in which such distribution was received and the interest
in the joint venture held by IRET would not qualify as a "real estate asset"
which could make it more difficult for IRET to meet the 75% asset test
described above. Finally, in such a situation IRET would not be able to
deduct its share of losses generated by the joint venture in computing
its taxable income. See "Failure of IRET to Qualify as a Real Estate Investment
Trust" above for a discussion of the effect of IRET's failure to meet such
tests for a taxable year. IRET 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.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax considerations
applicable to IRET's investment in the Operating Partnership. The discussion
does not cover state or local tax laws or any federal tax laws other than
income tax laws.
CLASSIFICATION AS A PARTNERSHIP
IRET will include in its income its distributive share of the Operating
Partnership's income and deduct its distributive share of the Partnership's
losses only if the Partnership is classified for federal income tax purposes
as a partnership rather than as a corporation or an association taxable
as a corporation. An organization formed as a partnership will be treated
as a partnership, rather than as a corporation, for federal income tax
purposes if it (i) has no more than two of the four corporate characteristics
that the Treasury Regulations use to distinguish a partnership from a corporation
for tax purposes and (ii) is not a "publicly traded" partnership. Those
four corporate characteristics are continuity of life, centralization of
management, limited liability, and free transferability of interests. A
publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as a corporation for federal income tax purposes unless
at least 90% of such partnership's gross income for a taxable year consists
of "qualifying income" under Section 7704(d) of the Code, which generally
includes any income that is qualifying income for purposes of the 95% gross
income test applicable to REITs (the "90% Passive-Type Income Exception").
See "Federal Income Tax."
The U.S. Treasury Department recently issued regulations effective for taxable years beginning after December 31, 1995 (the "PTP Regulations") that provide limited safe harbors from the definition of a publicly traded partnership. Pursuant to one of those safe harbors, (the "Private Placement Exclusion"), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (i) all interests in the partnership were issued in a transaction (or transactions) that was not required to be registered under the Securities Act of 1933, and (ii) the partnership does not have more than 100 partners at any time during the partnership's taxable year. In determining the number of partners in a partnership, a person
Page 52 of 131
IRET has not requested, and does not intend to request, a ruling from the Service that the Operating Partnership will be classified as a partnership for federal income tax purposes. Instead, Pringle & Herigstad, P.C., is of the opinion that, based on certain factual assumptions and representations, the Operating Partnership does not possess more than two corporate characteristics and will not be treated as a publicly traded partnership and, thus, will be treated for federal income tax purposes as a partnership and not as a corporation or an association taxable as a corporation, or a publicly traded partnership. Unlike a tax ruling, an opinion of counsel is not binding upon the Service, and no assurance can be given that the Service will not challenge the status of the Operating Partnership as a partnership for federal income tax purposes. If such challenge were sustained by a court, the Operating Partnership would be treated as a corporation for federal income tax purposes, as described below. In addition, the opinion of Pringle & Herigstad, P.C., is based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.
If for any reason the Operating Partnership was taxable as a corporation, rather than a partnership, for federal income tax purposes, IRET would not be able to qualify as a REIT. See "Federal Income Tax Considerations." In addition, any change in the Partnership's status for tax purposes might be treated as a taxable event, in which case IRET might incur a tax liability without any related cash distribution. See "Federal Income Tax Considerations - Requirements for Qualification - Distribution Requirements." Further, items of income and deduction of the Partnership would not pass through to its partners, and its partners would be treated as shareholders for tax purposes. Consequently, the Partnership would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership's taxable income.
INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS
PARTNERS, NOT PARTNERSHIPS, SUBJECT
TO TAX
A partnership is not a taxable entity for federal income tax purposes.
Rather, IRET will be required to take into account is allocable share of
the Operating Partnership's income, gains, losses, deductions, and credits
for any taxable year of the Partnership ending within or with the taxable
year of IRET, without regard to whether IRET has received or will receive
any distribution from the Partnership.
PARTNERSHIP ALLOCATIONS
Although a partnership agreement generally will determine the allocation
of income and losses among partners, such allocations will be disregarded
for tax purposes under section 704(b) of the Code if they do not comply
with the provisions of section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. If an allocation is not recognized for federal
income tax purposes, the item subject to the allocation will be reallocated
in accordance with the partners' interests in the partnership, which will
be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such
item. The Operating Partnership's allocations of taxable income and loss
are intended to comply with the requirements of section704(b) of the Code
and the Treasury Regulations promulgated thereunder.
Page 53 of 131
Under the Operating Partnership Agreement, depreciation or amortization deductions of the Operating Partnership generally will be allocated among the partners in accordance with their respective interests in the Operating Partnership, except to the extent that the Operating Partnership is required under Code section 704(c) to use a method for allocating tax depreciation deductions attributable to the Properties that results in IRET receiving a disproportionately large share of such deductions. In addition, gain on the sale of a Property contributed to the Operating Partnership by a Limited Partner in exchange for Units will be specially allocated to such member to the extent of any "built-in" gain with respect to such Property for federal income tax purposes. Depending on the allocation method elected under Code section 704(c), it is possible that IRET (i) may be allocated lower amounts of depreciation deductions for tax purposes with respect to contributed Properties than would be allocated to IRET if such Properties were to have a tax basis equal to their fair market value at the time of contribution and (ii) may be allocated taxable gain in the event of a sale of such contributed Properties in excess of the economic profit allocated to IRET as a result of such sale. These allocations may cause IRET to recognize taxable income in excess of cash proceeds, which might adversely affect IRET's ability to comply with the REIT distribution requirements, although IRET does not anticipate that this event will occur. The foregoing principles also will affect the calculation of IRET's earnings and profits for purposes of determining which portion of IRET's distributions is taxable as a dividend. The allocations described in this paragraph may result in a higher portion of IRET's distributions being taxed as a dividend than would have occurred had IRET purchased the Properties for cash.
BASIS IN OPERATING PARTNERSHIP INTEREST
IRET's adjusted tax basis in its partnership interest in the Operating
Partnership generally is equal to (i) the amount of cash and the basis
of any other property contributed to the Operating Partnership by IRET,
(ii) increased by (A) its allocable share of the Operating Partnership's
income and (B) its allocable share of indebtedness of the Operating Partnership,
and (iii) reduced, but not below zero, by (A) IRET's allocable share of
the Operating Partnership's loss and (B) the amount of cash distributed
to IRET, including constructive cash distributions resulting from a reduction
in IRET's share of indebtedness of the Operating Partnership.
If the allocation of IRET's distributive share of the Operating Partnership's loss would reduce the adjusted tax basis of IRET's partnership interest in the Operating Partnership below zero, the recognition of such loss will be deferred until such time as the recognition of such loss would not reduce IRET's adjusted tax basis below zero. To the extent that the Operating Partnership's distributions, or any decrease in IRET's share of the indebtedness of the Operating Partnership (such decrease being considered a constructive cash distribution to the partners), would reduce IRET's adjusted tax basis below zero, such distributions (including such constructive distributions) will constitute taxable income to IRET. Such distributions and constructive distributions normally will be characterized as capital gain, and, if IRET's partnership interest in the Operating Partnership has been held for longer than the long-term capital gain holding period, the distributions and constructive distributions will constitute long-term capital gain.
Page 54 of 131
SALE OF THE OPERATING PARTNERSHIP'S
PROPERTY
Generally, any gain realized by the Operating Partnership on the sale
of property held for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or
cost recovery recapture. Any gain recognized by the Operating Partnership
on the disposition of the Properties contributed by a partner (including
IRET) in exchange for Units will be allocated first to such contributing
partner under section 704(c) of the Code to the extent of such contributing
partner's "built-in gain" on those Properties for federal income tax purposes.
The Limited Partners' "built-in gain" on the Properties sold will equal
the excess of the Limited Partners' proportionate share of the book value
of those Properties over the Limited Partners' tax basis allocable to those
Properties at the time of the sale. Any remaining gain recognized by the
Operating Partnership on the disposition of contributed Properties, and
any gain recognized upon the disposition of the Properties acquired by
the Operating Partnership for cash, will be allocated among the partners
in accordance with their respective percentage interests in the Operating
Partnership. IRET's Declaration of Trust provides that any decision to
sell any real estate asset in which a trustee, or officer of IRET, the
Advisor, or any Affiliate of the foregoing, has a direct or indirect interest,
will be made by a majority of the trustees including a majority of the
Independent Trustees. See "Policies with Respect to Certain Activities."
IRET's share of any gain realized by the Operating Partnership on the
sale of any property held by the Operating Partnership as inventory or
other property held primarily for sale to customers in the ordinary course
of the Operating Partnership's trade or business will be treated as income
form a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income also may have an adverse effect upon IRET's
ability to satisfy the income tests for REIT status. See "Federal Income
Tax Considerations" above. IRET, however, does not presently intend to
allow the Operating Partnership to acquire or hold any property that represents
inventory or other property held primarily for sale to customers in the
ordinary course of IRET's or the Operating Partnership's trade or business.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the prohibited transaction provisions of section 4975 of the Code that may be relevant to a prospective purchaser. The discussion does not purport to deal with all aspects of ERISA or section 4975 of the Code that may be relevant to particular shareholders (including plans subject to Title I of ERISA, other retirement plans and IRAs subject to the prohibited transaction provisions of section 4975 of the Code, and governmental plans or church plans that are exempt from ERISA and section 4975 of the Code but that may be subject to state law requirements) in light of their particular circumstances.
The discussion is based on current provisions of ERISA and the Code, existing and currently proposed regulations under ERISA and the Code, the legislative history of ERISA and the Code, existing administrative rulings of the Department of Labor ("DOL") and reported judicial decisions. No assurance can be given that legislative, judicial, or administrative changes will not affect the accuracy of any statements herein with respect to transactions entered into or contemplated prior to the effective date of such changes.
A FIDUCIARY MAKING THE DECISION TO INVEST IN THE SHARES OF BENEFICIAL INTEREST ON BEHALF OF A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED RETIREMENT PLAN, OR AN IRA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE SHARES BY SUCH PLAN OR IRA.
EMPLOYEE BENEFIT PLAN, TAX-QUALIFIED
RETIREMENT PLANS, AND IRAS
Each fiduciary of a pension, profit-sharing, or other employee benefit
plan (an "ERISA Plan") subject to Title I of ERISA should consider carefully
whether an investment in the Shares of Beneficial Interest is consistent
with his fiduciary responsibilities under ERISA. In particular, the fiduciary
requirements of Part 4 of Title I of ERISA require an ERISA Plan's investments
to be (i) prudent and in the best interests of the ERISA Plan, its
Page 55 of 131
The fiduciary of an IRA or of a qualified retirement plan not subject to Title I of ERISA because it is a governmental or church plan or because it does not cover common law employees (a "Non-ERISA Plan") should consider that such an IRA or Non- ERISA Plan may only make investments that are authorized by the appropriate governing documents and under applicable state law.
Fiduciaries of ERISA Plans and persons making the investment decision for an IRA or other Non-ERISA Plan should consider the application of the prohibited transaction provisions of ERISA and the Code in making their investment decision. A "party in interest" or "disqualified person" with respect to an ERISA Plan or with respect to a Non-ERISA Plan or IRA subject to Code section 4975 is subject to (i) an initial 5% excise tax on the amount involved in any prohibited transaction involving the assets of the plan or IRA and (ii) an excise tax equal to 100% of the amount involved if any prohibited transaction is not corrected. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA will lose its tax-exempt status and its assets will be deemed to have been distributed to such individual in a taxable distribution (and no excise tax will be imposed) on account of the prohibited transaction. In addition, a fiduciary who permits an ERISA Plan to engage in a transaction that the fiduciary knows or should know is a prohibited transaction may be liable to the ERISA Plan for any loss the ERISA Plan incurs as a result of the transaction or for any profits earned by the fiduciary in the transaction.
STATUS OF IRET AND THE OPERATING
PARTNERSHIP UNDER ERISA
The following section discusses certain principles that apply in determining
whether the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code apply to an entity because one or more
investors in the equity interests in the entity is an ERISA Plan or is
a Non-ERISA Plan or IRA subject to section 4975 of the Code. An ERISA Plan
fiduciary also should consider the relevance of those principles to ERISA's
prohibition on improper delegation of control over or responsibility for
"plan assets" and ERISA's imposition of co-fiduciary liability on a fiduciary
who participates in, permits (by action or inaction) the occurrence of,
or fails to remedy a known breach by another fiduciary.
If the assets of IRET are deemed to be "plan assets" under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to any transactions involving IRET's assets, (ii) persons who exercise any authority over IRET's assets, or who provide investment advise to IRET, would (for purposes of fiduciary responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that acquires Shares, and transactions involving IRET's assets undertaken at their direction or pursuant to their advise might violate their fiduciary responsibilities under ERISA, especially with regard to conflicts of interest, (iii) a fiduciary exercising his investment discretion over the assets of an ERISA Plan to cause it to acquire or hold the Shares could be liable under Part 4 of Title I of ERISA for transactions entered into by IRET that do not conform to ERISA standards of prudence and fiduciary responsibility, and (iv) certain transactions that IRET might enter into in the ordinary course of its business and operations might constitute "prohibited transactions" under ERISA and the Code.
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Regulations of the Department of Labor (DOL) defining "plan assets" (the "Plan Asset Regulations") generally provide that when an ERISA Plan or Non-ERISA Plan or IRA acquires a security that is an equity interest in an entity and the security is neither a "publicly-offered security" nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both the equity interest and an undivided interest in each of the underlying assets of the issuer of such equity interest, unless one or more exceptions specified in the Plan Asset Regulations are satisfied.
The Plan Asset Regulations define a publicly-offered security as a security that is "widely-held," "freely transferable," and either part of a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an effective registration statement under the Securities Act (provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Shares are being sold in an offering registered under the Securities Act and are registered under the Exchange Act. The plan Asset Regulations provide that a security is "widely-held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be widely held because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. IRET currently has in excess of 3,500 shareholders and is of the opinion that the Shares are now and will be "widely held."
The Plan Asset Regulations provide that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The Plan Asset Regulations further provide that where a security is part of an offering in which the minimum investment is $10,000 or less (as is the case with this Offering), certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on transfer enumerated in the Plan Asset Regulations as not affecting that finding include: (i) any restriction on or prohibition against any transfer or assignment that would result in the termination or reclassification of an entity for federal or state tax purposes, or that otherwise would violate any federal or state law or court order, (ii) any requirement that advance notice of a transfer or assignment be given to the issuer, (iii) any administrative procedure that establishes an effective date, or an event (such as completion of an offering), prior to which a transfer or assignment will not be effective, and (iv) any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer. IRET believes that the restrictions imposed under the Declaration of Trust on the transfer of IRET's Shares of Beneficial Interest will not result in the failure of the Shares to be "freely transferable." IRET also is not aware of any other facts or circumstances limiting the transferability of the Shares that are not enumerated in the Plan Asset Regulations as those not affecting free transferability, and IRET does not intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions. The Plan Asset Regulations only establish a presumption in favor of a finding of free transferability, and no assurance can be given that the DOL or the Treasury Department will not reach a contrary conclusion.
Assuming that the Shares will be "widely held" and that no other facts and circumstances other than those referred to in the preceding paragraph exist that restrict transferability of the Shares, the Shares should be publicly offered securities and the assets of IRET should not be deemed to be "plan assets" of any ERISA Plan, IRA, or Non-ERISA Plan that invests in the Shares.
The Plan Asset Regulations also will apply in determining whether the assets of the Operating Partnership will be deemed to be "plan assets." The partnership interests in the Operating Partnership will not be publicly-offered securities. Nevertheless, if the Shares constitute publicly-offered securities, the indirect investment in the Partnership and the Subsidiary Partnerships by ERISA Plans, IRAs, or Non-ERISA Plans subject to section
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MARKET PRICE OF AND DIVIDENDS ON IRET'S
SHARES OF BENEFICIAL INTEREST
MARKET FOR IRET SHARES OF BENEFICIAL
INTEREST
Since October 17, 1997, IRET shares of Beneficial Interest have traded
on the NASDAQ Small-Cap market under the symbol "IRETS." The following
sets forth high and low closing sale prices for the fiscal periods indicated
as well as the total volume and total number of trades during such periods:
Fiscal Quarter Ended High Low Total Volume Total Trades 10-31-97* $ 7.125 $6.563 35,154 45 01-31-98 7.313 6.625 339,857 204 04-30-98 7.344 7.031 437,487 196 07-31-98 7.250 7.000 359,835 118 10-31-98 7.500 7.000 489,586 232 01-31-99 7.688 7.000 343,128 249 04-30-99 8.000 7.000 445,900 313 07-31-99 17.875 7.063 1,306,088 754 10-31-99 8.438 7.000 962,576 746 |
IRET also offered primary Shares of Beneficial Interest for sale to
the public under Best Efforts offerings through various brokers registered
with the National Association of Securities Dealers. Primary shares were
sold at $7.20 per share from 5-01-97 to 12-31-97, at $7.45 per share from
1-05-98 to 11-20-98, at $7.85 from 1- 15-98 to 4-30-99 at $8.10 from 6-4-99
to 7-20-99 AND AT $8.25 FROM 09-01-99 TO 11-19-99. IRET also repurchased
its shares during this period. Following is a summary, by quarter-year,
of the sale of primary shares and repurchase of shares by IRET:
SHARES DOLLARS ------ ------- 5-01-97 Beginning Balance 14,940,513 $65,073,951 Quarter Ended 7-31-97 - Shares sold 356,722 $ 2,920,162 - Commissions paid (163,102) - Shares repurchased (20,393) (386,062) ----------- ------------ 15,276,842 $67,444,949 Quarter Ended 10-31-97 - Shares sold 630,937 $ 4,422,125 - Commissions paid (243,432) - Shares repurchased (101,548) (807,573) ----------- ------------ 15,806,231 $70,816,070 Quarter Ended 1-31-98 - Shares sold 340,640 $ 2,415,531 - Commissions paid (99,850) - Shares repurchased (108,903) (777,871) ----------- ------------ 16,037,969 $72,353,880 Quarter Ended 4-30-98 - Shares sold 505,062 $ 3,656,419 |
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- Commissions paid (195,456) - Shares repurchased (151,618) (1,106,285) ----------- ------------ 16,391,412 $74,708,559 Quarter Ended 7-31-98 - Shares sold 573,081 $ 4,075,505 - Commissions paid (148,902) - Shares repurchased (197,124) (1,389,936) ----------- ------------ 16,767,369 $77,245,225 Quarter Ended 10/31/98 - Shares sold 768,922 $ 5,565,703 - Commissions paid (290,653) - Shares repurchased (126,336) (912,133) ---------- ----------- 17,409,955 $81,608,143 Quarter Ended 1/31/99 - Shares sold 793,599 $ 5,689,642 - Commissions paid (356,872) - Shares repurchased (68,853) (514,881) ---------- ----------- 18,134,701 $86,426,032 Quarter Ended 4/30/99 - Shares sold 994,953 $ 7,620,458 - Commissions paid (480,732) - Shares repurchased (62,700) (469,938) ---------- ----------- 19,066,954 $93,095,819 Quarter Ended 07/31/99 - Shares sold 1,017,084 $ 8,072,142 - Commissions paid (466,368) - Shares repurchased (160,347) ( 1,232,724) 19,923,692 $99,802,054 Quarter Ended 10/31/99 - Shares sold 1,216,692 9,794,166 - Commissions paid (497,488) - Shares repurchased (226) (5,673) 21,139,971 $109,093,059 |
As of May 31, 1999, IRET had 3,092 shareholder accounts. No shareholder held 5% or more of the 19,066,954 Shares of Beneficial Interest outstanding on 4-30-99. IRET has no other classes of stock and there were no warrants, stock options or other contractual arrangements requiring the issuance of its stock.
IRET has paid quarterly dividends since July 1, 1971. Dividends paid
during the past three fiscal years and the current fiscal year to date
were as follows:
FISCAL YEAR 1997 1998 1999 2000 July 1st $.0925 $.10125 $.11 $.124 October 1st .0950 .10300 .115 .126 January 5th .0975 .10500 .12 April 1st .1000 .10700 .1225 Total $.385 $.41625 $.4675 |
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Dividend/ Date Share Price(1) ----------------------------------------------------------------- 6/30/71 $.0125 $1.00 10/30/71 $.015 $1.00 1/1/72 $.015 $1.00 4/1/72 $.015 $1.10 7/1/72 $.016 $1.10 10/1/72 $.016 $1.10 1/1/73 $.016 $1.10 4/1/73 $.0165 $1.30 7/1/73 $.0165 $1.30 10/1/73 $.0165 $1.30 1/1/74 $.0175 $1.30 4/1/74 $.0175 $1.40 7/1/74 $.0175 $1.40 10/1/74 $.0185 $1.40 1/1/75 $.02 $1.40 4/1/75 $.02 $1.50 7/1/75 $.02 $1.50 10/1/75 $.02 $1.50 1/1/76 $.021 $1.50 4/1/76 $.021 $1.60 7/1/76 $.0225 $1.60 10/1/76 $.0225 $1.70 1/1/77 $.0225 $1.70 4/1/77 $.0225 $1.80 7/1/77 $.025 $1.80 10/1/77 $.025 $1.80 1/1/78 $.025 $1.80 4/1/78 $.025 $1.80 7/1/78 $.0275 $1.90 10/1/78 $.0275 $1.90 1/1/79 $.0275 $2.00 4/1/79 $.0275 $2.10 7/1/79 $.0275 $2.00 10/1/79 $.03 $2.00 1/1/80 $.03 $1.70 4/1/80 $.0325 $1.70 7/1/80 $.035 $1.70 10/1/80 $.035 $1.80 1/1/81 $.035 $1.80 4/1/81 $.035 $1.80 7/1/81 $.035(2) $1.70 10/1/81 $.035(2) $1.70 1/1/82 $.035(2) $1.70 4/1/82 $.035(2) $1.70 7/1/82 $.0375 $1.70 10/1/82 $.04 $1.70 1/1/83 $.0425 $1.90 4/1/83 $.045 $2.07 7/1/83 $.0475 $2.20 10/1/83 $.05 $2.61 1/1/84 $.0525 $2.66 4/1/84 $.055 $2.75 7/1/84 $.05625 $2.75 |
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10/1/84 $.0575 $2.79 1/1/85 $.05875 $2.84 4/1/85 $.06 $2.88 7/1/85 $.06125 $2.97 10/1/85 $.0625 $3.11 1/1/86 $.06375 $3.15 4/1/86 $.065 $3.20 7/1/86 $.066 $3.29 10/1/86 $.067 $3.38 1/1/87 $.068 $3.47 4/1/87 $.069 $3.56 7/1/87 $.0695 $3.56 10/1/87 $.07 $3.65 1/1/88 $.07 $3.65 4/1/88 $.071 $3.74 7/1/88 $.075 $3.74 10/1/88 $.071 $3.83 1/1/89 $.072 $3.92 4/1/89 $.0725 $4.01 7/1/89 $.073 $4.10 10/1/89 $.0735 $4.19 1/1/90 $.074 $4.28 4/1/90 $.0745 $4.28 7/1/90 $.075 $4.37 10/1/90 $.0755 $4.50 1/5/91 $.076 $4.50 4/1/91 $.0765 $4.59 7/1/91 $.077 $4.68 10/1/91 $.0775 $4.77 1/5/92 $.078 $4.86 4/1/92 $.0785 $4.95 7/1/92 $.079 $4.95 10/1/92 $.0795 $5.04 1/5/93 $.08 $5.13 4/1/93 $.0805 $5.22 7/1/93 $.081 $5.31 10/1/93 $.0815 $5.31 1/5/94 $.082 $5.40 4/1/94 $.0825 $5.49 7/1/94 $.088 $5.49 10/1/94 $.084 $5.63 1/1/95 $.085 $5.89 4/1/95 $.08625 $5.89 7/1/95 $.0925 $6.03 10/1/95 $.08875 $6.16 1/5/96 $.09 $6.16 4/1/96 $.09125 $6.30 7/1/96 $.0975 $6.30 10/1/96 $.09 $6.44 1/5/97 $.0975 $6.44 4/1/97 $.10 $6.62 7/1/97 $.10125 $6.62 10/1/97 $.103 $6.62 1/16/98 $.105 $6.85 4/1/98 $.107 $6.85 7/1/98 $.11 $6.85 10/1/98 $.115 $6.85 1/15/99 $.12 $7.25 4/1/99 $.1225 $7.3125 7/1/99 $.124 $7.65 10/01/99 $.126 $7.875 |
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| (1) | The stock prices shown are the prices at which Trust Shares of Beneficial Interest were available for purchase on the date shown by then shareholders under IRET's Dividend Reinvestment Plan (after 1/1/80) or from IRET (prior to 1/1/80). |
| (2) | In addition to the cash dividend shown, a stock dividend of .0175 share for each share then owned. |
IRET will separately register its shares of Beneficial Interest for sale to its shareholders who elect to participate in its Dividend Reinvestment Plan.DIVIDEND REINVESTMENT PLAN
Pursuant to its Dividend Reinvestment Plan, IRET may, from time to time, repurchase shares of Beneficial Interest in the open market for purposes of fulfilling its obligations under the Plan or, if sufficient shares are not available on the open market, IRET will issue additional shares of Beneficial Interest.
Each shareholder shall have the option to use cash dividends to purchase additional shares. 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 Shares are traded on the NASDAQ Small Cap Market. The price at which the Shares will be purchased will be the aggregate weighted average price of all shares purchased with the total amount of reinvested dividends. Since the agent responsible for purchasing the shares is also able to purchase newly issued shares directly from IRET under this Registration without payment of the full commission, it is unlikely that the price of shares purchased under the Plan will exceed price of newly issued shares offered under a primary offering. If the reinvestment price involves a fraction, it will be expressed in one-eighth of a point, with a rounding out to the next higher one-eighth of a point.
The dividend is taxable to the shareholders whether received in cash or shares.
DESCRIPTION OF IRET'S SECURITIES
DESCRIPTION OF SHARES
The shares of beneficial interest of IRET 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 IRET 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 10% 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, subject to certain restrictions. See "Shares Available for Future Sale."
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RESTRICTIONS ON TRANSFER
Section 7 of Article 2 of the Declaration of Trust provides: "To insure
compliance with the Internal Revenue Code provision that no more than 50%
of the outstanding Shares may be owned by five or fewer individuals, the
Trustees may at any time redeem Shares from any Shareholder at the fair
market value thereof (as determined in good faith by the Trustees based
on an independent appraisal of Trust assets made within six months of the
redemption date). Also, the Trustee may refuse to transfer Shares to any
Person who acquisition of additional Shares might, in the opinion of the
Trustees, violate the above requirement."
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
As of date of this prospectus, no persons, or any Trustee or officer individually was known by IRET to own beneficially more than 5% of the outstanding shares of Beneficial Interest.
Collectively, the Trustees and officers owned 9.44% of such shares on May 31, 1999.
The following tabulation shows the ownership of and compensation paid
by IRET to its Trustees, Trustees Emeritus and Officers during its Fiscal
Year ended April 30, 1999. IRET has no retirement, bonus or any deferred,
direct or indirect compensation plan and no other compensation will accrue,
directly or indirectly, to any of the following persons, except as noted
below:
CASH COMPENSATION SECURITIES FOR YEAR ENDED NAME OWNERSHIP (1) APRIL 30, 1999 ----------------------------------------------------------------------------- TRUSTEES C. Morris Anderson 185,754 12,001.00 Ralph A. Christensen 42,659 15,265.25 John F. Decker 23,392 7,933.00 Mike F. Dolan 236,770 13,683.25 J. Norman Ellison, Jr. 19,177 12,101.00 Daniel L. Feist 526,269 12,201.00 Patrick G. Jones 96,403 12,201.00 Jeffrey L. Miller 162,908 13,583.25 Thomas A. Wentz, Jr. 174,255 (3) TRUSTEE EMERITUS John D. Decker 63,312 4,268.00 OFFICERS Roger R. Odell 290,538 (2) President Thomas A. Wentz, Sr. 224,976 (2 and 3) Vice President Timothy P. Mihalick 16,014 (2) Vice President Diane K. Bryantt 1,688 (2) Secretary |
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| (1) | Includes all shares of Beneficial Interest and Limited Partnership Units of IRET Properties exchangeable into Shares of Beneficial Interest owned directly by the person indicated or indirectly owned by such person's spouse, minor children, Individual Retirement Account, corporation, partnership, or in any manner giving power to direct the voting of such securities. |
| (2) | Mr. Odell and Mr. Wentz, Sr., are members of Odell-Wentz & Associates, L.L.C., the Advisor to the Trust. Mr. Mihalick is Vice President and Principal Operating Officer of the Advisor. Diane Bryantt is Secretary and Controller of IRET and the Advisor. Under the Advisory Contract between IRET and Odell-Wentz & Associates, L.L.C., 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, 1999, Odell-Wentz & Associates, L.L.C., received compensation and reimbursement of disbursements under said Agreement of $951,234. 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 a percentage of rents received from such real estate. For the fiscal year ending April 30, 1999, Investors Management & Marketing, Inc., received $609,783 as real estate management commissions. In addition, Inland National Securities, Inc., a corporation in which Mr. Odell and members of his family are minority shareholders, acts as a broker-dealer for the dale of Trust securities. During the fiscal year ending April 30, 1999, the Trust paid Inland National Securities, Inc., $157,392 as security sales fees. |
| (3) | Mr. Wentz, Jr., is a member of the law firm of Pringle & Herigstad, P.C., counsel for the Trust. Mr. Wentz, Sr., was a member of the firm until August 1, 1998. During the fiscal year ending April 30, 1999, the Trust paid Pringle & Herigstad, P.C., the sum of $33,022 for legal services rendered and disbursements made on behalf of the Trust. |
EXECUTIVE COMPENSATION AND
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
IRET has no employees and has contracted with Odell-Wentz & Associates,
L.L.C., to provide management services for it. See "Advisory Agreement."
In addition to the advisory fee paid for these managements services, IRET
also incurs administrative expenses for trustees' fees, accountants' fees,
printing and postage, filing fees and other related expenses incurred in
connection with administering IRET assets and its communications with its
shareholders and regulatory authorities. During the past five fiscal years,
the following is a summary of the administrative expenses of IRET paid
to the Advisor, the trustees and the other administrative expenses:
FISCAL YEARS ENDING APRIL 30 1995 1996 1997 1998 1999 Advisor's and Trustees' Compensation $336,142 $458,019 $559,149 $ 745,907 $ 927,063 Other Administrative Expenses 79,974 162,588 158,627 271,738 320,479 TOTAL $416,116 $620,607 $717,776 $1,017,645 $1,247,542 |
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For the Fiscal Years 1995-1999, the amount of these acquisition fees were $49,836, $117,506, $177,834, $141,468 and $177,834, respectively.
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., and on January 1, 1994, with Odell-Wentz & Associates, L.L.C., a North Dakota Limited Liability Company. Mr. Odell serves as president and Mr. Wentz serves as vice president of IRET.
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,
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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 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 1999 by action of the Board of Trustees at its December, 1998 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 President and a member of Odell-Wentz & Associates, L.L.C., the Advisor to IRET. Under the Advisory Contract between IRET and Odell-Wentz & Associates, L.L.C., IRET pays an Advisor's fee based on the net assets of IRET and, in addition, a percentage fee for investigating and negotiating the acquisition of new investments. For the year ending April 30, 1998, Odell-Wentz & Associates, L.L.C., received compensation and reimbursement of disbursements under said Agreement of $740,393. 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 IRET and receives as compensation four percent (4%) of rents received from such real estate.
Page 66 of 131
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 Vice-President and a member of Odell-Wentz & Associates, L.L.C., the Advisor to IRET. Under the Advisory Contract between IRET and Odell-Wentz & Associates, L.L.C., IRET pays an Advisor's fee based on the net assets of IRET and, in addition, a percentage fee for investigating and negotiating the acquisition of new investments. For the year ending April 30, 1999, Odell-Wentz & Associates, L.L.C., received compensation and reimbursement of disbursements under said Agreement of $951,234. The terms of said Advisory Agreement are explained above.
Until August 1, 1998, Mr. Wentz was also a member of the law firm of Pringle & Herigstad, P.C., counsel for IRET. During the fiscal year ending April 30, 1999, IRET paid Pringle & Herigstad, P.C., the sum of $33,022 for legal services rendered and disbursements made on behalf of IRET.
SELECTION, MANAGEMENT AND
CUSTODY
OF TRUST'S INVESTMENTS
MANAGEMENT OF TRUST'S
INVESTMENTS
RET contracts with various local management companies for the sole
purpose of leasing, maintaining and monitoring IRET's interests. All other
management is the responsibility of the Advisor.
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
No trustee, officer or advisor of IRET, or any person affiliated with any such persons, shall sell any property or assets to IRET or purchase any property or assets from IRET, 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 IRET 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 IRET than similar transactions involving unaffiliated parties; or, d. The acquisition by IRET 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.
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, except as it may pertain to legal fees incurred in the normal course of business.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Mr. Thomas A. Wentz, Jr. is the named counsel for the registrant. Mr. Wentz, Jr., is a member of the law firm of Pringle & Herigstad, P.C., counsel for the Trust. During the fiscal year ending April 30, 1999, the Trust paid Pringle & Herigstad, P.C., the sum of $33,022 for legal services rendered and disbursements made on behalf of the Trust. Mr. Wentz, Jr., as of the date of this registration statement, is a voting Trustee and Officer of the registrant.
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 IRET provides as follows:
SECTION 12. INDEMNIFICATION
A. INDEMNIFICATION OF TRUSTEES.
1. IRET shall indemnify and hold harmless each TRUSTEE, ADVISOR or AFFILIATE from and against all claims and liabilities, whether they proceed to judgment or are settled, to which such TRUSTEE, ADVISOR or AFFILIATE may become subject by reason of his being or having been a TRUSTEE, ADVISOR or AFFILIATE, or by reason of any action alleged to have been taken or omitted by him as TRUSTEE, ADVISOR or AFFILIATE, and shall reimburse him for all legal and other expenses reasonably incurred by him in connection with any such claim or liability. IRET shall not provide for indemnification of the TRUSTEES, ADVISORS or AFFILIATES for any liability or loss suffered by the TRUSTEES, ADVISORS or AFFILIATES, nor shall it provide that the TRUSTEES, ADVISORS or AFFILIATES be held harmless for any loss or liability suffered by IRET, unless all of the following condition are met:
a. The TRUSTEES, ADVISORS or AFFILIATES have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of IRET. b. The TRUSTEES, ADVISORS or AFFILIATES were acting on behalf of or performing services for IRET.
c. Such liability or loss was not the result of: i. negligence or misconduct by the TRUSTEES, excluding the INDEPENDENT TRUSTEES, ADVISORS or AFFILIATES; orii. gross negligence or willful misconduct by the INDEPENDENT TRUSTEES.
d. Such indemnification or agreement to hold harmless is recoverable only out of IRET NET ASSETS and not from SHAREHOLDERS.
2. Notwithstanding anything to the contrary contained in this document or elsewhere, the TRUSTEES, ADVISORS or AFFILIATES and any PERSONS acting as a broker-dealer shall not be indemnified by IRET for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met:
a. There has been a successful adjudication on the merits of each count involving alleged securities law violations as to the
particular indemnitee.b. Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee. c. A court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of IRET were offered or sold as to indemnification for violations of securities laws.
3. The advancement of IRET funds to the TRUSTEES, ADVISORS or AFFILIATES for legal expenses and other costs incurred for which indemnification is being sought is permissible only if all of the following conditions are satisfied:
a. The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of IRET. b. The legal action is initiated by a third party who is not a SHAREHOLDER or the legal action is initiated by a SHAREHOLDER acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement. c. The TRUSTEES, ADVISORS or AFFILIATES undertake to repay the advanced fundsto IRET, together with the applicable legal rate of interest thereon, in cases in which such TRUSTEES, ADVISORS or AFFILIATES are found not to be entitled to indemnification.
EXPERTS
The balance sheets of IRET as of
April 30, 1998, and April 30, 1999, the statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
April 30, 1999, as listed on the Index to Financial Statements on page
F-1, included in this Prospectus, have been included herein in reliance
on the reports of Brady-Martz & Associates, P.C., Minot, North Dakota,
independent accountants, given on the authority of that firm as experts
in accounting and auditing.
THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
Page 70 of 131
Unless a different definition is provided immediately following a term used in this documents, the following definitions shall apply:
ADMINISTRATOR
The official or agency administering the Securities laws of a jurisdiction.
ACQUISITION EXPENSES
Expenses including but not limited to legal fees and expenses, travel
and communications expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, title
insurance, and miscellaneous expenses related to selection and acquisition
of properties, whether or not acquired.
ACQUISITION FEE
The total of all fees and commissions paid by any party to any party
in connection with making or investing in mortgage loans or the purchase,
development or construction of property by IRET. Included in the computation
of such fees or commissions shall be any real estate commission, selection
fee, DEVELOPMENT FEE, CONSTRUCTION FEE, nonrecurring management fee, loan
fees or points or any fee of a similar nature, however designated. Excluded
shall be DEVELOPMENT FEES and CONSTRUCTION FEES paid to PERSONS not affiliated
with the ADVISOR in connection with the actual development and construction
of a project.
ADVISOR
Odell-Wentz & Associates, L.L.C., a North Dakota Limited Liability
Company, 12 South Main, Minot, North Dakota, is the advisor. The PERSON
responsible for directing or performing the day-to-day business affairs
of a REIT, including a PERSON to which an Advisor subcontracts substantially
all such functions. To the extent the provisions of this Statement of Policy
are germane they shall apply to self-administered REITs.
ADVISORY AGREEMENT
The contract between IRET and the ADVISOR which is summarized in this
Prospectus. See "Advisory Agreement."
AFFILIATE
An AFFILIATE of another PERSON includes any of the following:
a. any PERSON directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other PERSON. b. any PERSON ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other PERSON. c. any PERSON directly or indirectly controlling, controlled by, or under common control with such other PERSON. d. any executive officer, director, trustee or general partner of such other PERSON. e. any legal entity for which such PERSON acts as an executive officer, director, trustee or general partner.
BOARD OF TRUSTEES
The nine member BOARD OF TRUSTEES
of IRET.
COMPETITIVE REAL ESTATE COMMISSION
Real estate or brokerage commission paid for the purchase or sale of
a property which is reasonable, customary and competitive in light of the
size, type and location of such property.
CONTRACT PRICE FOR THE PROPERTY
The amount actually paid or allocated to the purchase, development,
construction or improvement of a property exclusive of ACQUISITION FEES
and ACQUISITION EXPENSES.
CONSTRUCTION FEE
A fee or other remuneration for acting as general contractor and/or
construction manager to construct improvements, supervise and coordinate
projects or to provide MAJOR REPAIRS OR REHABILITATION to IRET's property.
DECLARATION OF TRUST
The Restated Declaration of Trust dated October 24, 1996, for IRET.
The declaration of trust, by-laws, certificate, articles of incorporation
or other governing instrument pursuant to which a REIT is organized.
DEVELOPMENT FEE
A fee for the development of IRET's property, including negotiating
and approving plans, and undertaking to assist in obtaining zoning and
necessary variances and necessary financing for the specific property,
either initially or at a later date.
ERISA
The Employee Retirement Income Security Act of 1974, as amended.
EXCHANGE RIGHT
The right of limited partners in the OPERATING PARTNERSHIP to exchange
their limited partnership UNITS on a one-for-one basis for SHARES of IRET.
FUNDS FROM OPERATIONS
Net income (computed in accordance with Generally Accepted Accounting
Principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures calculated on the same
basis.
GAAP
Generally Accepted Accounting Principles.
INDEPENDENT EXPERT
A PERSON with no material current or prior business or personal relationship
with the ADVISOR or TRUSTEES who is engaged to a substantial extent in
the business of rendering opinions regarding the value of assets of the
type held by IRET.
INDEPENDENT TRUSTEE(S)
The TRUSTEE(S) of IRET who are not associated and have not been associated
within the last two years, directly or indirectly, with the ADVISOR of
IRET, or AFFILIATES of the ADVISOR.
Page 72 of 131
IRET
a. A TRUSTEE shall be deemed to be associated with the ADVISOR if he or she:
* is employed by the ADVISOR or any of its AFFILIATES; or * is an officer or director of the ADVISOR or any of its AFFILIATES; or * performs services, other than as a TRUSTEE, for IRET; or * is a TRUSTEE for more than three REITS organized by or advised by the ADVISOR; or * has any material business or professional relationship with the ADVISOR, or any of its AFFILIATES.
b. For purposes of determining whether or not the business or professional relationship is material, the gross revenue derived by the prospective INDEPENDENT TRUSTEE from then ADVISOR and AFFILIATES shall be deemed material per se if it exceeds 5% of the prospective INDEPENDENT TRUSTEE'S:
i. annual gross revenue, derived from all sources, during either of the last two years; or ii. net worth, on a fair market value basis.
c. An indirect relationship shall include circumstances in which a TRUSTEE'S spouse, parents, children, siblings, mothers-or fathers-in- laws, sons-or daughters-in-laws, or brothers-or sisters-in-law is or has been associated with the ADVISOR, any of its AFFILIATES, or the TRUST.
IRET, INC.
The general partner of the OPERATING PARTNERSHIP.
IRET, PROPERTIES
The OPERATING PARTNERSHIP.
IRS
The United States Internal Revenue Service.
LEVERAGE
The aggregate amount of indebtedness of IRET for money borrowed (including
purchase money mortgage loans) outstanding at any time, both secured and
unsecured.
LIMITED PARTNERS
The limited partners of the OPERATING PARTNERSHIP.
NET ASSETS
The total assets (other than intangibles) at cost before deducting
depreciation or other non-cash reserves less total liabilities, calculated
at least quarterly on a basis consistently applied.
Page 73 of 131
NET INCOME
For any period total revenues applicable to such period, less the expenses
applicable to such period other than additions to reserves for depreciation
or bad debts or other similar non-cash reserves. If the ADVISOR receives
an incentive fee, NET INCOME, for purposes of calculation TOTAL OPERATING
EXPENSES in Section IV.D shall exclude the gain from the sale of the REIT'S
assets.
NET OPERATING INCOME
The total gross income from a real estate property, less all operating
expenses attributable to that property but excluding interest expense,
depreciation and any other non-cash deductions.
OFFERING
The offering of SHARES of beneficial interest of IRET to the public
pursuant to this PROSPECTUS.
OFFERING EXPENSES
All expenses incurred by and to be paid from the assets of IRET in
connection with registration and offering and distributing its shares to
the public, including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters' attorneys),
expenses for printing, engraving, mailing, salaries of employees while
engaged in sales activity, charges of transfer agents, registrars, trustees,
escrow holders, depositories, experts, expenses of qualification of the
sale of the securities under Federal and State laws, including taxes and
fees, accountants' and attorneys' fees.
OPERATING PARTNERSHIP
IRET Properties, a North Dakota Limited Partnership.
OPERATING PARTNERSHIP AGREEMENT
The agreement of limited partnership for IRET Properties, a North Dakota
Limited Partnership.
PERSON
Any natural persons, partnership, corporation, association, trust,
limited liability company or other legal entity.
PROSPECTUS
Shall have the meaning given to that term by Section 2(10) of the Securities
Act of 1933, including a preliminary Prospectus; provided however, that
such term as used herein shall also include an offering circular as described
in Rule 256 of the General Rules and Regulations under the Securities Act
of 1933 or, in the case of an intrastate offering, any document by whatever
name known, utilized for the purpose of offering and selling securities
to the public.
REAL ESTATE INVESTMENT TRUST ("REIT")
A corporation, trust, association or other legal entity (other than
a real estate syndication) which is engaged primarily in investing in equity
interests in real estate (including fee ownership and leasehold interests)
or in loans secured by real estate or both.
ROLL-UP
A transaction involving the acquisition, merger, conversion, or consolidation
either directly or indirectly of the REIT and the issuance of securities
of a ROLL-UP ENTITY. Such term does not include:
| a. | a transaction involving securities of the REIT that have been for at least 12 months listed on a national securities exchange or traded through the National Association of Securities Dealers Automated Quotation National Market System; or |
Page 74 of 131
| b. | a transaction involving the conversion to corporate, trust, or association form of only the REIT if, as a consequence of the transaction there will be no significant adverse change in any of the following: |
SHARES
i. SHAREHOLDERS' voting rights; ii. the term of existence of the REIT; iii. SPONSOR or ADVISOR compensation; iv. the REIT'S investment objectives.
SHAREHOLDERS
The registered holders of IRET's SHARES.
SPONSOR
Any PERSON directly or indirectly instrumental in organizing, wholly
or in part, a REIT or any PERSON who will control, manage or participate
in the management of a REIT, and any AFFILIATE of such PERSON. Not included
is any PERSON whose only relationship with the REIT is as that of an independent
property manager of REIT assets, and whose only compensation is as such.
SPONSOR does not include wholly independent third parties such as attorneys,
accountants and underwriters whose only compensation is for professional
services. A PERSON may also be deemed a SPONSOR of the REIT by:
TOTAL OPERATING EXPENSES
a. taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the REIT; either alone or in conjunction with one or more other PERSONS; b. receiving a material participation in the REIT in connection with the founding or organizing of the business of the REIT, in consideration of services or property, or both services and property; c. having a substantial number of relationships and contacts with the REIT; d. possessing significant rights to control REIT properties; e. receiving fees for providing services to the REIT which are paid on a basis that is not customary in the industry; or f. providing goods or services to the REIT on a basis which was not negotiated at arms length with the REIT.
a. The expenses of raising capital such as ORGANIZATION AND OFFERING EXPENSES, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses, and tax incurred in connection with the issuance, distribution, transfer, registration, and stock exchange listing of IRET's SHARES; b. interest payments;
TRUSTEE(S)
c. non-real estate taxes; d. non-cash expenditures such as depreciation, amortization and bad debt reserves; e. ACQUISITION FEES, ACQUISITION EXPENSES, real estate commissions on resale of property and other expenses connection with the acquisition, disposition, and ownership of real estate interests, mortgage loans, or other property, (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property).
UNIMPROVED REAL PROPERTY
The real property of IRET which has the following three characteristics:
UNITS
a. an equity interest in real property which was not acquired for the purpose of producing rental or other operating income; b. has no development or construction in process on such land; c. and no development or construction on such land is planned in good faith to commence on such land within one year.
THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
Page 76 of 131
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
APRIL 30, 1999, 1998 AND 1997
AND
INDEPENDENT AUDITOR'S REPORT
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES ----- INDEPENDENT AUDITOR'S REPORT..........................................................F-1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets..................................................F-2 to F-3 Consolidated Statements of Operations...............................................F-4 Consolidated Statements of Shareholders'Equity......................................F-5 Consolidated Statements of Cash Flows........................................F-6 to F-7 Notes to Consolidated Financial Statements..................................F-8 to F-21 ADDITIONAL INFORMATION Independent Auditor's Report on Additional Information.............................F-22 Marketable Securities..............................................................F-23 Supplemental Income Statement Information..........................................F-23 Real Estate and Accumulated Depreciation...................................F-24 to F-28 Investments in Mortgage Loans on Real Estate...............................F-29 to F-30 Selected Financial Data............................................................F-31 Gain From Property Dispositions....................................................F-32 Mortgage Loans Payable.............................................................F-33 Significant Property Acquisitions..................................................F-34 Quarterly Results of Consolidated Operations (Unaudited)...........................F-35 First Quarter Fiscal Year 2000 Financial Statements (Unaudited)............F-36 to F-39 Schedules other than those listed above are omitted since they are not required or are not applicable, or the required information is shown in the financial statement or notes thereon. |
Page 77 of 131
INDEPENDENT AUDITOR'S REPORT
Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North DakotaWe have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended April 30, 1999, 1998 and 1997. 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 of 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 Subsidiaries as of April 30, 1999 and 1998, and the consolidated results of its operations and cash flows for the years ended April 30, 1999, 1998 and 1997, in conformity with generally accepted accounting principles.
BRADY, MARTZ & ASSOCIATES, P.C.
May 26, 1999
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND 1998
ASSETS
REAL ESTATE INVESTMENTS 1999 1998 ------------ ------------ Property owned $295,825,839 $231,416,322 Less accumulated depreciation (26,112,399) (21,516,129) ------------ ------------ $269,713,440 $209,900,193 Mortgage loans receivable 10,721,214 3,438,308 Less discounts and allowances (123,212) (127,132) ------------ ------------ Total real estate investments $280,311,442 $213,211,369 ------------ ------------ OTHER ASSETS Cash $ 3,713,053 2,132,220 Marketable securities - Held-to-maturity 2,964,434 3,536,538 Marketable securities - Available-for-sale 734,749 720,688 Accounts receivable 77,438 55,326 Real estate deposits 300,900 2,493,713 Investment in partnership 0 6,705 Prepaid insurance 216,348 219,871 Tax and insurance escrow 1,761,195 1,254,068 Deferred charges 1,413,752 1,088,016 ------------ ------------ TOTAL ASSETS $291,493,311 $224,718,514 ------------ ------------ ------------ ------------ |
F-2
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LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998 ------------- ------------ LIABILITIES Accounts payable $ 4,388,270 $ 2,847,080 Notes payable 0 1,000,000 Mortgages payable 175,071,069 134,059,974 Investment certificate issued 11,770,136 10,369,561 ------------- ------------ Total liabilities $191,229,475 $148,276,615 ------------- ------------ MINORITY INTEREST OF UNITHOLDERS IN OPERATING PARTNERSHIP $ 14,480,542 $ 8,289,273 ------------- ------------ SHAREHOLDER'S EQUITY Shares of beneficial interest (unlimited authorization, no par value, 19,066,954 shares outstanding in 1999 and 16,391,412 shares outstanding in 1998) 93,095,819 74,708,559 Accumulated distributions in excess of net income (7,255,958) (6,666,555) Accumulated other comprehensive Income (loss) (56,567) 110,622 ------------- ------------- $ 85,783,294 $ 68,152,626 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $291,493,311 $224,718,514 ------------- ------------ ------------- ------------ |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-3
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND
1997
1999 1998 1997 ---- ---- ---- REVENUE Real estate rentals $ 38,785,287 $ 31,694,586 $ 22,972,368 Interest, discounts and fees 1,141,975 712,959 861,613 ------------ ------------ ------------ Total revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 ------------ ------------ ------------ EXPENSES Interest $ 12,101,981 $ 10,479,104 $ 7,638,776 Depreciation 5,966,874 4,791,907 3,584,591 Utilities and maintenance 6,356,483 5,142,459 3,741,877 Taxes and insurance 4,409,762 3,536,147 2,720,495 Property management 3,288,267 2,642,977 1,870,435 expenses Advisory and trustee 927,063 745,907 559,149 services Operating expenses 320,479 271,738 158,627 Amortization 154,677 106,108 60,588 ------------ ------------ ------------ Total expense $ 33,525,586 $ 27,716,347 $ 20,334,538 ------------ ------------ ------------ OPERATING INCOME $ 6,401,676 $ 4,691,198 $ 3,499,443 GAIN ON SALE OF PROPERTIES 1,947,184 465,499 398,424 MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME (744,725) (141,788) (18) ------------ ------------ ------------ NET INCOME $ 7,604,135 $ 5,014,909 $ 3,897,849 ------------ ------------ ------------ ------------ ------------ ------------ Net income per share (basic and diluted) Operating income $ 0.33 $ 0.29 $ 0.25 Gain on sale of properties 0.11 0.03 0.03 ------------ ------------ ------------ Net income $ 0.44 $ 0.32 $ 0.28 ------------ ------------ ------------ ------------ ------------ ------------ |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-4
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND
1997
Accumulated Shares of Distributions Other Total Number of Beneficial in excess of Comprehensive Shareholder's Shares Interest Net Income Income (Loss) Equity BALANCE MAY 1, 1996 13,258,908 $ 54,263,917 $ (3,551,997) $ 0 $ 50,711,920 Comprehensive income Net income 0 0 3,897,849 0 3,897,849 Unrealized gain on securities available for sale 0 0 0 86,505 86,505 ------------ Total comprehensive income $ 3,984,354 Dividends distributed 0 0 (5,508,689) 0 (5,508,689) Dividends reinvested 554,681 3,579,744 0 0 3,579,744 Sale of shares 1,403,776 9,025,706 0 0 9,025,706 Shares repurchased (276,852) (1,795,416) 0 0 (1,795,416) ------------ ------------ ------------ ------------ ------------ BALANCE APRIL 30, 1997 14,940,513 $ 65,073,951 $ (5,162,837) $ 86,505 $ 59,997,619 Comprehensive income Net income 0 0 5,014,909 0 5,014,909 Unrealized gain on securities available for sale 0 0 0 24,117 24,117 ------------ Total comprehensive income $ 5,039,026 Dividends distributed 0 0 (6,518,627) 0 (6,518,627) Dividends reinvested 639,799 4,290,541 0 0 4,290,541 Sale of shares 1,196,562 8,421,858 0 0 8,421,858 Shares repurchased (382,462) (3,077,791) 0 0 (3,077,791) ------------ ------------ ------------ ------------ ------------ BALANCE APRIL 30, 1998 16,391,412 $ 74,708,559 $ (6,666,555) $ 110,622 $ 68,152,626 Comprehensive income Net income 0 0 7,604,135 0 7,604,135 Unrealized loss on securities available for sale 0 0 0 (167,189) (167,189) ------------- Total comprehensive income $ 7,436,946 Dividends distributed 0 0 (8,193,538) 0 (8,193,538) Dividends reinvested 762,051 5,389,464 0 0 5,389,464 Sales of shares 2,368,504 16,284,684 0 0 16,284,684 Shares repurchased (455,013) (3,286,888) 0 0 (3,286,888) ------------ ------------ ------------ ------------ ------------ BALANCE APRIL 30, 1999 19,066,954 $ 93,095,819 $ (7,255,958) $ (56,567) $ 85,783,294 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-5
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND
1997
1999 1998 1997 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,604,135 5,014,909 3,897,849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,121,551 4,898,015 3,645,179 Minority interest portion of operating partnership income 744,725 141,788 18 Accretion of discount on contracts (2,920) (5,706) (7,698) Gain on sale of properties (1,947,184) (465,499) (398,424) Interest reinvested in investment certificates 408,097 349,791 288,517 Changes in other assets and liabilities: (Increase) decrease in real estate deposits 2,192,813 (350,000) (100,000) (Increase) decrease in other assets (11,884) 377,758 (415,274) Increase in tax and insurance escrow (507,127) (3,599) (98,942) Increase in deferred charges (480,413) (558,660) (180,779) Increase (decrease) in accounts payable and accrued expenses 1,541,190 (225,991) (69,119) ------------ ------------ ------------ Net cash provided from operating activities $ 15,662,983 9,172,806 6,561,327 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held-to-maturity $ 572,104 518,921 356,398 Principal payments on mortgage loans receivable 372,155 565,359 1,706,202 Proceeds from sale of property 435,787 1,482,046 0 Payments for acquisitions and improvement of properties (45,325,061) (22,894,602) (38,046,177) Purchase of marketable securities available-for-sale (181,250) 0 (596,961) Investment in mortgage loans receivable (7,655,061) (2,061,179) (2,835,212) ------------ ------------ ------------ Net cash used for investing activities $(51,781,326) (22,389,455) (39,415,750) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of shares, net of issue costs $ 16,284,684 8,421,858 9,025,706 Proceeds from investment certificates issued 4,591,528 3,283,248 4,225,004 Proceeds from mortgages payable 32,326,973 10,612,652 27,094,270 Proceeds from short-term lines of credit 0 12,900,000 8,450,000 Proceeds from sale of minority interest 0 0 0 Repurchase of shares and minority interest units (3,534,813) (3,077,791) (1,795,416) Dividends paid (2,804,074) (2,228,086) (1,930,439) Distributions paid to minority interest unitholders (791,458) (179,185) (16) Redemption of investment certificates (3,599,050) (1,450,783) (2,128,686) Principal payments on mortgage loans (3,774,614) (2,751,301) (2,634,017) Payments on short-term lines of credit (1,000,000) (11,900,000) (8,450,000) ------------ ------------ ------------ Net cash provided from financing activities $ 37,699,176 13,630,612 31,857,406 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH $ 1,580,833 413,963 (977,017) CASH AT BEGINNING OF YEAR 2,132,220 1,718,257 2,715,274 ------------ ------------ ------------ CASH AT END OF YEAR $ 3,713,053 2,132,220 1,718,257 ------------ ------------ ------------ ------------ ------------ ------------ |
F-6
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND
1997
1999 1998 1997 ----------- ----------- ----------- SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends reinvested $ 5,389,464 4,290,541 3,579,744 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 12,458,735 10,463,677 19,575,635 Mortgage loan receivable transferred to property owned 0 1,161,878 2,810,000 Proceeds from sale of properties deposited directly with escrow agent 6,863,691 2,870,387 455,329 Properties acquired through the issuance of minority interest units in the operating partnership 6,485,927 8,325,652 0 Interest reinvested directly in investment certificates 408,097 349,791 288,517 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid on mortgages $10,998,722 9,613,154 6,773,978 Interest paid on investment certificates 895,214 657,966 508,686 ----------- ----------- ----------- $11,893,936 10,271,120 7,282,664 ----------- ----------- ----------- ----------- ----------- ----------- |
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-7
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999, 1998 AND 1997
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Investors Real Estate Trust qualifies under Section 856 of the Internal Revenue Code as a real estate investment trust. The Trust has properties located primarily throughout the Upper Midwest, with principal offices located in Minot, North Dakota. The Company invests in commercial and residential real estate, real estate contracts, real estate related governmental backed securities (GNMA), and equity securities in other real estate investment trusts. Rental revenue from residential properties represents the major source of revenues for the Trust.
Effective February 1, 1997, the Trust reorganized its structure in order to convert to Umbrella Partnership Real Estate Investment Trust (UPREIT) status. The Trust established an operating partnership (IRET Properties, a North Dakota Limited Partnership) with a wholly owned corporate subsidiary acting as its sole general partner (IRET, Inc., a North Dakota Corporation). At that date, the Trust transferred substantially all of its assets and liabilities to the operating partnership in exchange for general partnership units.
The general partner has full and exclusive management responsibility for the real estate investment portfolio owned by the operating partnership. The partnership is operated in a manner that allows IRET to continue its qualification as a real estate investment trust under the Internal Revenue Code.
All limited partners of the operating partnership have "exchange rights" allowing them, at their option, to exchange their limited partnership units for shares of the Trust on a one for one basis. The exchange rights are subject to certain restrictions including no exchanges for at least one year following the acquisition of the limited partnership units. The operating partnership distributes cash on a quarterly basis in the amounts determined by the Trust which results in each limited partner receiving a distribution equivalent to the dividend received by a Trust shareholder.
BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Investors Real Estate Trust and all of its subsidiaries in which it maintains a controlling interest. The Trust is the sole shareholder of IRET, Inc. which is the general partner of the operating partnership, IRET Properties. The trust is also the sole shareholder of Miramont - IRET Inc. and Pine Cone - IRET Inc., both of which are invested in real estate. All material intercompany transactions and balances have been eliminated in the consolidated financial statements.
Prior to May 1, 1998, IRET Properties was also a general partner in six limited partnerships, and due to the immaterial involvement of the limited partners, had substantial influence over their operations. These limited partnership were as follows:
Eastgate Properties, Ltd.
Bison Properties, Ltd.
First Avenue Building, Ltd.
Sweetwater Properties, Ltd.
Hill Park Properties, Ltd.
Colton Heights, Ltd.
F-8
Page 85 of 131
NOTE 1 - CONTINUED
The above partnerships were consolidated in prior year financial statements. Effective May 1, 1998, the related partnerships were acquired by IRET Properties through the issuance of operating partnership units as part of UPREIT transactions.
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. Interest, real estate taxes, and other development costs relating to the acquisition and development of certain qualifying properties are also capitalized. Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred.
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 12 years for furniture and fixtures to 20 - 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 "held-to-maturity" and securities "available-for-sale". The securities classified as "available- for-sale" consist of equity shares in other real estate investment trusts and are stated at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in shareholders' equity. Cost of securities sold are recognized on the basis of specific identification. The securities classified as "held-to-maturity" consist of Government National Mortgage Association securities for which the Trust has 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.
F-9
Page 86 of 131
NOTE 1 - CONTINUED
REAL ESTATE DEPOSITS consist of funds held by an escrow agent to be applied toward the purchase of real estate qualifying for gain deferral as a like-kind exchange of property under section 1031 of the Internal Revenue Code. It also consists of earnest money, or "good faith deposits", to be used by the Trust toward the purchase of property or the payment of loan costs associated with loan refinancing.
INVESTMENT IN PARTNERSHIP - The Trust was accounting for its investment in Chateau Properties, Ltd. under the equity method of accounting, wherein the appropriate portion of the earnings or loss was recognized annually. The Operating Partnership had a general partnership interest in the limited partnership. Chateau Properties, Ltd. had invested in real estate properties. During 1998, the real estate in Chateau Properties, Ltd. was acquired through the issuance of operating partnership units.
MINORITY INTEREST - Interests in the operating partnerships held by limited partners are represented by operating partnership units. The operating partnerships' income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to minority interests in accordance with the terms of the operating partnership agreement.
NET INCOME PER SHARE - Effective May 1, 1998, the Trust adopted Statement of Financial Accounting Standard No. 128, Earnings Per Share. Basic net income per share is computed using the weighted average number of shares outstanding. There is potential for dilution of net income per share due to the conversion option of operating partnership units. However, basic and diluted net income per share are the same. The computation of basic and diluted net income per share can be found in Note 13.
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.
UPREIT status allows non-recognition of gain by an owner of appreciated
real estate if that owner contributes the real estate to a partnership
in exchange for a partnership interest. The UPREIT concept was born when
the non-recognition provisions of Section 721 of the Internal Revenue Code
were combined with "Exchange Rights" which allow the contributing partner
to exchange the limited partnership interest received in exchange for the
appreciated real estate for the Trust stock. Upon conversion of the partnership
units to Trust shares, a taxable event occurs for that limited partner.
Income or loss of the operating partnership shall be allocated among its
partners in compliance with the provisions of the Internal Revenue Code
Section
701(b) and 704(c).
REVENUE RECOGNITION - Residential rental properties are leased under operating leases with terms generally of one year or less. Commercial properties are leased to tenants for various terms exceeding one year. 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. Rental income is recognized as it is earned, which is not materially different than on a straight-line basis.
F-10
Page 87 of 131
NOTE 1 - CONTINUED
Profit on sales of real estate shall be recognized in full when real estate is sold, provided:
Based on the economic climate and the terms of many contracts, the collectibility of the sales price was not reasonably assured as required by generally accepted accounting principles. Consequently, the Trust uses the installment method of accounting for profits on several property sales as it more fairly reflects earned revenue.
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.
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 as discussed in Note 4.
RECLASSIFICATIONS - Certain previously reported amounts have been reclassified to conform with the current financial statement presentation.
ACCOUNTING CHANGES - During the year ended April 30, 1999, the Trust adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and disclosing comprehensive income and its components. Besides net income, SFAS No. 130 requires the reporting of other comprehensive income, defined as revenues, expenses, gains, and losses that under generally accepted accounting principles are not included in net income. Unrealized gains/losses on securities available-for-sale represent the only items presented as other comprehensive income. Comprehensive income is presented in the Consolidated Statements of Shareholders' Equity.
During the year ended April 30, 1999, the Trust adopted SFAS No 131, "Disclosure About Segments of an Enterprise and Related Information." This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated by the chief decision makers in deciding how to allocate resources and in assessing performance. Operating segments of the Trust would include commercial and residential rental operations. Generally, segmental information follows the same accounting policies utilized for consolidated reporting, except, certain expenses, such as depreciation, are not allocated to segments for management purposes. See Note 12 for the Trust's disclosure of segment information in compliance with SFAS No. 131.
THE DIVIDEND REINVESTMENT PLAN is available to all shareholders of the Trust. Under the Dividend Reinvestment Plan, shareholders may elect for their dividends to be used by the plan administrator to acquire additional shares on the NASDAQ Small Cap Market or, if not available, directly from the Trust for approximately 95% of the market price on the date of purchase.
NOTE 2 - OFF-BALANCE-SHEET RISK
The Trust had deposits at First Western Bank and Bremer Bank which exceeded Federal Deposit Insurance Corporation limits by $3,128,203 and $665,255, respectively, at April 30, 1999.
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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, 1999 April 30, 1998 -------------- -------------- Residential $ 228,574,976 $ 180,986,906 Less accumulated depreciation (19,002,784) (15,449,736) ---------------- ----------- $ 209,572,192 $ 165,537,170 ---------------- ----------------- Commercial $ 67,250 863 $ 50,429,416 Less accumulated depreciation (7,109,615) (6,066,393) ----------------- ------------------ $ 60,141,248 $ 44,363,023 ---------------- ----------------- Remaining cost $ 269,713,440 $ 209,900,193 ================ ================= |
There were no repossessions during the years ended April 30, 1999 and 1998.
The above cost of residential real estate owned included construction in progress of $7,492,062 and $753,680 as of April 30, 1999 and 1998, respectively. As of April 30, 1999 the trust expects to fund approximately $5,000,000 during the upcoming year to complete these construction projects and has a commitment to purchase the Great Plains Software building for approximately $15,000,000. The Trust also has outstanding offers to purchase selected properties as part of their normal operations.
Construction period interest of $211,882, $220,573 and $269,513 has been capitalized for the years ended April 30, 1999, 1998 and 1997, respectively.
Residential apartment units are rented to individual tenants with lease terms up to one year. Gross revenues from residential rentals totaled $33,010,126, $27,231,714 and $18,935,111 for the years ended April 20, 1999, 1998 and 1997, respectively.
Gross revenues from commercial property rentals totaled $5,775,161, $4,462,872 and $4,037,258 for the years ended April 30, 1999, 1998 and 1997, respectively. Commercial properties are leased to tenants under terms of leases expiring at various dates through 2013. 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 $101,032, $28,316 and $16,517 for the years ended April 30, 1999, 1998 and 1997, respectively.
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NOTE 3 - CONTINUED
The future minimum lease payments to be received under these operating
leases for the commercial properties as of April 30, 1999, are as follows:
Year ending April 30, 2000 $ 8,069,271 2001 8,061,284 2002 7,289,618 2003 6,992,587 2004 6,987,797 Thereafter 67,613,980 ---------- $ 105,014,537 ================= |
NOTE 4 - MORTGAGE LOANS RECEIVABLE
Mortgage loans receivable consists of nine contracts which are collateralized by real estate. Contract terms call for monthly payments of principals and interest. Interest rates range from 7 to 10.25%. 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 loans contracts as
of April 30, 1999 are as follows:
Year ending April 30, 2000 $ 9,323,959 2001 85,035 2002 92,144 2003 202,017 2004 113,307 Later years 904,752 ----------------- $ 10,721,214 ================= |
Details concerning mortgage loans receivable from related parties can be found in Note 10.
There were no significant non-performing mortgage loans receivable as of April 30, 1999 and 1998. Non-performing loans are recognized as impaired in conformity with FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan. The average balance of impaired loans for the year ended April 30, 1999 and 1998 was not significant. 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 loans if they had not been non-performing was not significant in 1999, 1998 or 1997. There was no interest income on non-performing loans recognized on a cash basis for 1999, 1998 and 1997.
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NOTE 5 - MARKETABLE SECURITIES
The amortized cost and estimated market values of marketable securities
held-to-maturity at April 30, 1999 and 1998 are as follows:
Gross Gross 1999 Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------------- ISSUER GNMA $ 2,964,434 $ 34,773 $ 21,723 $ 2,977,484 ================ ================= ================= ============== 1998 ISSUER GNMA $ 3,536,538 $ 22,757 $ 0 $ 3,559,295 ================ ================= ================= ============== |
The amortized cost and estimated market values of marketable securities
available-for-sale at April 30, 1999 and 1998 are as follows:
1999 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------------------------- Equity shares in other REIT's $ 791,316 $ 82,524 $ 139,091 $ 734,749 ========== ========= ================ =========== 1998 Equity shares in other REIT's $ 610,666 $ 110,6227 $ 0 $ 720,688 ========== =========== ================ =========== |
There were no realized gains or losses on sales of securities for the years ended April 30, 1999, 1998 and 1997.
Marketable securities held-to-maturity consists of Governmental National
Mortgage Association (GNMA) securities bearing interest from 6.5% to 9.5%
with maturity dates ranging from May 15, 2016 to September 15, 2023. The
following is a summary of the maturities of securities held-to-maturity
at April 30, 1999 and 1998:
1999 1998 ------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value ------------------------------------------------------------- Due after 10 years $ 791,316 $ 734,749 $ 3,536,538 $ 3,559,295 ========== ========== ============ ============= |
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As of April 30, 1999, the trust had lines of credit available from three financial institutions. An unsecured line of credit was issued by First Western Bank & Trust in the amount of $4,000,000 carrying an interest rate equal to prime and maturing February 1, 2000. A second unsecured line of credit from First International Bank & Trust was issued in the amount of $2,500,000 carrying an interest rate equal to prime and maturing September 15, 1999. A third unsecured line of credit from Bremer Bank was issued in the amount of $5,000,000 carrying an interest rate equal to Bremer Financial Corp.'s reference rate and maturing September 1, 1999. Interest payments are due monthly on all three notes. As of April 30, 1999, the Trust had no unpaid balances on any of their three lines of credit. As of April 30, 1998, the Trust had an unpaid balance of $1,000,000 on the First Western Bank & Trust line of credit and no unpaid balance on the First International Bank & Trust line of credit. The Trust did not have a line of credit available from Bremer Bank as of April 30, 1998.
NOTE 7 - MORTGAGES PAYABLE
Mortgages payable as of April 30, 1999 included mortgages on properties owned totaling $175,064,346 and mortgages of $6,723 on property sold on contract. The carrying value of the related real estate owned was $198,076,573 and the carrying value of the related mortgage loans receivable was $159,965 as of April 30, 1999.
Mortgages payable as of April 30, 1998 included mortgages on properties owned totaling $134,012,050 and mortgages of $47,924 on property sold on contract. The carrying value of the related real estate owned was $190,827,346 and the carrying value of the related mortgage loans receivable was $209,260 as of April 30, 1998.
Monthly installments are due on the mortgages with interest rates ranging from 6.47% to 9.75% and with varying maturity dates through November 30, 2034.
Of the mortgages payable, the balances of fixed rate mortgages totaled $138,616,556 and $85,899,604, and the balances of variable rate mortgages totaled $36,454,513 and $48,160,370 as of April 30, 1999 and 1998, respectively.
The aggregate amount of required future principal payments on mortgages
payable is as follows:
Years ending April 30, 2000 $ 4,257,321 2001 4,560,488 2002 4,897,046 2003 8,353,234 2004 5,197,797 Later years 147,805,183 ---------------- Total payments $ 175,071,069 ---------------- ---------------- |
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The Trust has placed investment certificates with the public. The interest
rates vary from 6% 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 2000 $ 7,908,954 2001 896,483 2002 902,368 2003 562,451 2004 1,466,151 Thereafter 33,729 ----------------- $ 11,770,136 ----------------- ----------------- |
NOTE 9 - 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 $1,000, $16,713 and $146,361 for the years ended April 30, 1999, 1998 and 1997, respectively.
NOTE 10 - 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, 1999, Odell-Wentz & Associates received total fees under said agreement of $951,234. The fees for April 30, 1998 were $740,393 and for April 30, 1997 were $667,367.
For the years ended April 30, 1999, 1998 and 1997, the Trust has capitalized $195,019, $141,468 and $177,834, respectively, of these fees, with the remainder of $756,215, $598,925 and $489,533, respectively, expensed as advisory and trustee fees on the statement of operations. The advisor is obligated to provide office space, staff, office equipment, 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 $609,783, $530,678 and $408,904 for services rendered for years ended April 30, 1999, 1998 and 1997, respectively.
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 $157,392, $171,755 and $291,143 for the years ended April 30, 1999, 1998 and 1997, respectively.
The Trust paid fees and expense reimbursements to the law firm in which Thomas A. Wentz, Jr. is a partner totaling $33,022, $62,293 and $36,045 for the years ended April 30, 1999, 1998 and 1997, respectively. Thomas A. Wentz, Jr. is a trustee of the Trust.
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NOTE 10 - CONTINUED
Investment certificates issued by the Trust to officers and trustees totaled $2,138,758, $1,219,457 and $519,528, at April 30, 1999, 1998 and 1997, respectively.
The Trust issued 334,172 limited partnership units at $7.20/unit to Roger R. Odell and C. Morris Anderson upon the completion of the UPREIT transaction with Magic City Realty during the year ended April 30, 1998. Mr. Odell and Mr. Anderson owned all of Magic City Realty. Mr. Anderson is also a trustee of the Trust.
NOTE 11 - MARKET PRICE RANGE OF SHARES
Since October 17, 1997, Investors Real Estate Trust traded shares on the NASDAQ Small Capital Market. For the year ended April 30, 1998 a total of 812,498 shares were traded in 445 separate trades. The high trade price during the period was 7.41, low was 6.56, and the closing price on April 30, 1998 was 7.12. For the year ended April 30, 1999, a total of1,862,187 shares were traded in 1,017 separate trades. The high trade price during the period was 14.00, low was 6.50, and the closing price on April 30, 1999 was 7.50.
Prior to October 17, 1997, Investors Real Estate Trust shares were traded
on Over-the- Counter-Market. The price range is as follows:
Bid Ask ------------- ------------------------------- Low High Low High ----------------- --------------------------- May 1, 1996 to April 30, 1997 $ 6.44 6.62 7.00 7.20 May 1, 1997 to October 17, 1997 6.62 6.85 7.20 7.45 |
NOTE 12 - SEGMENT DATA
The following information summarizes the Trust's segment reporting for Residential and Commercial properties along with reconciliations to the consolidated financial statements:
YEAR ENDING APRIL 30, 1999
Commercial Residential Total - ---------------------------------------- Segment revenue Rental revenue $ 5,775,161 $33,010,126 $38,785,287 Segment expenses Mortgage interest 2,417,316 8,782,600 11,199,916 Utilities and maintenance 113,374 6,243,109 6,356,483 Taxes and insurance 91,003 4,318,759 4,409,762 Property management 60,612 3,227,655 3,288,267 ----------- ----------- ----------- $ 2,682,206 22,572,123 25,254,428 ----------- ----------- ----------- Segment gross profit $ 3,092,856 10,438,003 13,530,859 ----------- ----------- ----------- ----------- |
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Reconciliation to consolidated operations: Interest discounts and fee revenue 1,141,975 Other interest expense (902,065) Depreciation (5,966,874) Advisory and trust fees (927,063) Operating expenses (320,479) Amortization (154,677) ------------- Consolidated operating income $ 6,401,676 ------------- ------------- |
APRIL 30, 1999 Commercial Residential Total ------- ------------------------------------------- Segment Assets Property owned $ 67,250,863 $ 228,574,976 $ 295,825,839 Less accumulated depreciation (7,109,615) (19,002,784) (26,112,399) ------------- ------------- ------------- Total consolidated property owned $ 60,141,248 $ 209,572,192 $ 269,713,440 ============= ============= ============= YEAR ENDING APRIL 30, 1998 Commercial Residential Total ------------- ------------- ------------- Segment revenue Rental revenue $ 5,775,161 $ 25,919,425 $ 31,694,586 ------------- ------------- ------------- Segment expenses Mortgage interest $ 2,048,990 $ 7,665,969 $ 9,714,959 Utilities and maintenance 113,374 5,029,085 5,142,459 Taxes and insurance 229,696 3,306,451 3,536,147 Property management 50,700 2,592,277 2,642,977 ------------- ------------- ------------- $ 2,442,760 $ 18,593,782 $ 21,036,542 ------------- ------------- ------------- Segment gross profit $ 3,332,401 $ 7,325,643 $ 10,658,044 ============= ============= Reconciliation to consolidated operations: Interest discounts and fee revenue $ 712,959 Other interest expense (764,145) Depreciation (4,791,907) Advisory and trust fees (745,907) Operating expenses (271,738) Amortization (106,108) ------------- Consolidate operating income $ 4,691,198 ============= APRIL 30, 1998 Commercial Residential Total ------------- ------------ ------------- Segment Assets Property owned $ 50,429,416 180,986,906 231,416,322 Less accumulated depreciation (6,066,393) (15,449,736) (21,516,129) ------------- ------------- ------------- Total consolidated property owned $ 44,363,023 $ 165,537,170 $ 209,900,193 ============= ============= ============= |
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NOTE 12 - (CONTINUED)
YEAR ENDING APRIL 30,1997
Commercial Residential Total ----------- ----------- ----------- Segment revenue Rental revenue $ 4,063,284 $18,909,084 $22,972,368 ----------- ----------- ----------- Segment expenses Mortgage interest 1,670,216 5,406,681 7,076,897 Utilities and maintenance 254,248 3,487,629 3,741,877 Taxes and insurance 225,810 2,494,685 2,720,495 Property management 45,249 1,825,186 1,870,435 ----------- ----------- ----------- $ 2,195,523 $13,214,181 $15,409,704 ----------- ----------- ----------- Segment gross profit $ 1,867,761 $ 5,694,903 $ 7,562,664 =========== =========== Reconciliation to consolidated operations: Interest discounts and fee revenue 861,613 Other interest expense (561,879) Depreciation (3,584,591) Advisory and trust fees (559,149) Operating expenses (158,627) Amortization (60,588) ----------- Consolidated operating income $ 3,499,443 =========== APRIL 30, 1997 Commercial Residential Total ------------- ------------- ------------- Segment Assets Property owned $ 42,241,096 $ 149,643,413 $ 191,884,509 Less accumulated depreciation (5,102,464) (11,845,692) (16,948,156) ------------- ------------- ------------- Total consolidated property owned $ 37,138,632 $ 137,797,721 $ 174,936,353 ============= ============= ============= |
NOTE 13 - EARNINGS PER SHARE
Basic earnings per share are computed by dividing the earnings available to stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if potential dilutive securities had been converted to shares. Operating partnership units can be exchanged for shares on a one for one basis. The following tables reconciles amounts reported in the consolidated financial statements for the years ended April 30, 1999, 1998, and 1997:
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1999 1998 1997 ----------- ----------- ----------- NUMERATOR Net income applicable to shares $ 7,604,135 $ 5,014,909 $ 3,897,849 =========== =========== =========== Numerator for basic earnings per share 7,604,135 5,014,909 3,897,849 Minority interest portion of operating partnership income 744,725 141,788 18 ----------- ----------- ----------- Numerator for diluted earnings per share $ 8,348,860 $ 5,156,697 $ 3,897,867 ----------- ----------- ----------- DENOMINATOR Denominator for basic earnings per share Weighted average shares 17,441,976 15,636,214 14,044,467 Effect of dilutive securities Convertible operating partnership units 1,662,489 417,445 13 ----------- ----------- ----------- Denominator for diluted earnings per share 19,104,465 16,053,659 14,044,480 ----------- ----------- ----------- Basic earnings per share $ 0.44 $ 0.32 $ 0.28 =========== =========== =========== Diluted earnings per share $ 0.44 $ 0.32 $ 0.28 =========== =========== =========== |
NOTE 14 - 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.
Notes payable - The carrying amount approximates fair value because of the short maturity of those notes.
Mortgages payable - For variable rate loans that re-price frequently, fair values are based on carrying values. The fair value of fixed-rate loans is estimated based on the discounted cash flows of the loans using 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.
Accrued interest payable - The carrying amount approximates fair value because of the short-term nature of which interest will be paid.
The estimated fair values of the Company's financial instruments are as follows:
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1999 1998 Carrying Fair Carrying Fair Amount Value Amount Value FINANCIAL ASSETS Mortgage loan receivable $ 10,721,214 $ 10,721,214 $ 3,438,308 $ 3,438,308 Cash 3,713,053 3,713,053 2,132,220 2,132,220 Marketable securities held-to-maturity 2,964,434 2,977,484 3,536,538 3,559,295 Marketable securities available-for-sale 734,749 734,749 720,688 720,688 FINANCIAL LIABILITIES Notes payable $ 0 $ 0 $ 1,000,000 $ 1,000,000 Mortgages payable 175,071,069 175,561,542 135,059,974 129,354,699 Investment certificates issued 11,770,136 11,619,938 10,369,561 10,202,603 Accrued interest payable 1,428,222 1,428,222 1,220,177 1,220,177 |
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INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION
Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North DakotaOur report on our audit of the basic consolidated financial statements of Investors Real Estate Trust and Subsidiaries for the years ended April 30, 1999, 1998 and 1997, 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 24 through 38 related to the 1999, 1998 and 1997 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 39 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, 1999, 1998 and 1997, 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 Subsidiaries as of April 30, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years ended April 30, 1996 and 1995, none of which is presented herein, and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information on page 34 relating to the 1996 and 1995 consolidated financial statements is fairly stated in all material respects in relation to the basic consolidated financial statements from which is has been derived.
BRADY, MARTZ & ASSOCIATES, P.C.
May 26, 1999
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999 AND 1998
Schedule I
MARKETABLE SECURITIES
April 30, 1999 April 30, 1998 ------------------------------------------------------------------------------------- Principal Principal Amount Market Amount Market ------------------------------------------------------------------------------------- GNMA Pools $ 2,964,434 $ 2,977,484 $ 3,536,538 $ 3,559,295 ================================================================================ Cost Market Cost Market ------------------------------------------------------------------------------------- Equity shares in other REIT's $ 791,316 $ 734,749 $ 610,066 $ 720,688 ========================================================================================= |
INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND
1997
Schedule X
SUPPLEMENTAL INCOME STATEMENT INFORMATION
Charged to Costs and Expenses ------------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------- ITEM Maintenance and repairs $ 3,470,202 $ 2,832,772 $ 1,812,496 Taxes, other than payroll and income taxes Property taxes 4,025,560 3,162,656 2,515,631 Royalties * * * Advertising costs * * * |
*Less than 1 percent of total revenues
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZATION INITIAL COST TO TRUST SUBSEQUENT TO ACQUISITION --------------------------- --------------------------- BUILDING & CARRYING APARTMENTS ENCUMBRANCES LAND I MPROVEMENTS IMPROVEMENTS COSTS ---------- ------------ ------------ ------------ ------------ ------------ 1112 32ND AVE SW $ 354,903 $ 50,000 $ 543,147 $ 21,605 $ 0 177 10TH AVE E-DICKINSON, ND 221,575 40,000 318,109 76,470 0 405 GRANT AVE-HARVEY, ND 0 13,584 157,211 54,914 0 4301-4313 9TH AVE SW-FARGO, ND 415,847 52,870 908,727 58,694 0 BEULAH CONDOS ND 0 6,360 336,589 128,500 0 BISON PROPERTIES 0 38,581 333,394 197,808 0 CANDLELIGHT APTS-FARGO, ND 473,605 80,040 757,977 61,075 0 CASTLE ROCK-BILLINGS, MT 3,946,539 736,000 4,375,683 561,514 0 CENTURY APTS-DICKINSON, ND 1,481,672 100,000 1,564,598 459,683 0 CENTURY APTS-WILLISTON, ND 2,508,160 200,000 3,166,750 542,834 0 CHATEAU APTS-MINOT, ND 1,625,659 122,000 2,242,090 42,020 0 CLEARWATER APTS-BOISE, ID 2,652,705 585,000 3,189,463 47,736 0 COUNTRY MEADOWS-BILLINGS, MT 2,609,222 245,624 3,638,442 9,855 120,821 COUNTRY MEADOWS PHASE II 0 245,623 1,897,131 0 0 COLTON HEIGHTS-MINOT, ND 313,877 80,000 734,286 111,759 0 COTTONWOOD LAKE-BISMARCK, ND 2,792,497 1,055,862 8,027,224 763,951 114,353 CRESTVIEW APTS-BISMARCK, ND 3,360,790 235,000 4,290,031 274,576 0 EASTGATE PROPERTIES 0 23,917 1,490,181 530,188 0 FOREST PARK ESTATES-G FORKS 3,849,741 810,000 5,579,164 731,736 0 HERITAGE MANOR-ROCHESTER, MN 5,014,255 403,256 6,967,952 50,769 0 HILL PARK PROPERTIES 1,365,554 224,750 2,562,296 237,113 0 IBM LAND-ROCHESTER, MN 0 11,871 0 0 0 IVY CLUB-VANCOUVER, WA 7,079,422 1,274,000 9,973,755 448,913 0 JENNER PROPERTIES 1,298,052 220,000 2,077,500 215,668 0 KIRKWOOD APTS-BISMARCK, ND 2,205,000 449,290 2,729,745 408,247 0 LEGACY APTS-GRAND FORKS, ND 6,404,073 1,361,855 8,886,258 360,264 224,180 LEGACY UNDERGROUND-G FORKS 0 725,277 2,260,345 0 0 MAGIC CITY APTS, MINOT, ND 2,546,829 532,000 4,738,000 158,774 0 MANDAN APTS, MANDAN, ND 818 20,000 236,500 32,921 0 MEADOWS-JAMESTOWN-INS. CLAIM 0 0 1,334,976 0 0 MEADOWS-JMSTWN-NEW CONST 0 167,325 452,685 0 0 MIRAMONT APTS-FT. COLLINS, CO 11,481,696 1,470,000 12,765,460 49,715 0 NEIGHBORHOOD APTS-CO SPRINGS 7,291,069 1,033,592 9,811,600 251,991 0 NORTH POINTE, BISMARCK, ND 1,678,718 143,500 1,996,726 139,262 123,687 OAK MANOR APTS-DICKINSON, ND 0 25,000 225,000 100,484 0 OAKWOOD ESTATES-SIOUX FALLS, SD 2,090,133 342,800 2,783,950 418,581 0 OXBOW-SIOUX FALLS, SD 3,311,700 404,072 4,494,441 90,760 0 PARK EAST APTS-FARGO, ND 3,466,359 83,000 4,082,665 785,662 0 PARK MEADOWS-WAITE PARK, MN 7,753,474 1,143,450 9,099,297 898,267 0 PARKWAY APTS-BEULAH, ND 0 7,000 40,738 74,320 0 PINE CONE APTS-FT. COLLINS, CO 10,472,304 904,545 12,167,093 145,282 0 POINTE WEST APTS-MINOT, ND 2,372,322 240,000 3,537,775 179,566 0 PRAIRIE WINDS APTS-S FALLS, SD 1,307,534 144,097 1,816,011 27,567 0 ROCKY MEADOWS 96-BILLINGS, MT 2,788,609 655,985 5,484,735 428,596 103,378 ROSEWOOD/OAKWOOD-S. FALLS 1,243,428 200,000 1,738,245 9,690 0 SOUTH POINTE-MINOT, ND 6,418,627 550,000 9,151,175 191,819 402,672 SOUTHVIEW APTS-MINOT, ND 0 185,000 468,585 59,543 0 SOUTHWIND APTS-GRAND FORKS, ND 4,048,673 400,000 5,033,683 278,671 0 SWEETWATER PROPERTIES 162,315 90,767 1,208,847 539,077 0 VAN MALL WOODS, VANCOUVER, WA 4,031,894 600,000 5,421,312 13,036 0 VIRGINIA APTS-MINOT, ND 0 37,600 163,036 30,527 0 WEST STONEHILL-ST CLOUD, MN 7,799,243 939,000 10,167,355 386,329 0 WESTWOOD PARK-BISMARCK, ND 1,254,294 161,114 1,717,304 249,443 0 WOODRIDGE APTS-ROCHESTER, MN 4,177,096 370,000 6,028,096 135,915 0 ------------ ------------ ------------ ------------ ------------ $135,670,283 $ 20,240,607 $195,173,588 $ 12,071,690 $ 1,089,091 ------------ ------------ ------------ ------------ ------------ |
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
LIFE ON WHICH LATEST INCOME BUILDINGS & ACCUMULATED DATE STATEMENT IS APARTMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPUTED ---------- ------------ ------------ ------------ ------------ ---------- --------------------- 1112 32ND AVE SW $ 50,000 $ 564,752 $ 614,752 $ 49,252 1996 24-40 YEARS 177 10TH AVE E DICKINSON 40,278 394,301 434,579 82,205 1989 24-40 YEARS 405 GRANT AVE HARVEY 14,674 211,036 225,710 37,196 1991 24-40 YEARS 4301-4313 9TH AVE SW FARGO 68,868 951,423 1,020,291 252,252 1988 5-40 YEARS BEULAH CONDOS ND 78,339 393,110 471,449 323,402 1983 15-40 YEARS BISON PROPERTIES 38,581 531,202 569,783 43,202 1972 25-40 YEARS CANDLELIGHT APTS FARGO 80,040 819,052 899,092 128,130 1993 24-40 YEARS CASTLE ROCK BILLINGS 736,000 4,937,197 5,673,197 46,470 1999 40 YEARS CENTURY APTS DICKINSON 126,738 1,997,543 2,124,281 607,904 1986 35-40 YEARS CENTURY APTS WILLISTON 274,971 3,634,613 3,909,584 1,263,633 1986 35-40 YEARS CHATEAU APTS MINOT 122,000 2,284,110 2,406,110 60,360 1997 12-40 YEARS CLEARWATER BOISE 585,000 3,237,199 3,822,199 50,368 1999 40 YEARS COUNTRY MEADOWS BILLINGS 245,624 3,769,118 4,014,742 135,691 1996 40 YEARS COUNTRY MEADOWS PHASE II 245,623 1,897,131 2,142,754 0 1999 N/A-CONST IN PROGRESS COLTON HEIGHTS PROPERTIES 80,095 845,950 926,045 364,965 1984 33-40 YEARS COTTONWOOD LAKE BISMARCK 1,055,862 8,905,528 9,961,390 172,173 1997 40 YEARS CRESTVIEW APTS BISMARCK 235,000 4,564,607 4,799,607 610,281 1994 24-40 YEARS EASTGATE PROPERTIES 28,639 2,015,647 2,044,286 1,376,073 1970 33-40 YEARS FOREST PARK ESTS G FORKS 811,954 6,308,946 7,120,900 966,124 1993 24-40 YEARS HERITAGE MANOR ROCHESTER 403,256 7,018,721 7,421,977 124,570 1999 40 YEARS HILL PARK PROPERTIES 245,653 2,778,506 3,024,159 1,207,552 1985 33-40 YEARS IBM LAND ROCHESTER 11,871 0 11,871 0 1999 N/A LAN IVY CLUB VANCOUVER 1,274,000 10,422,668 11,696,668 54,423 1999 40 YEARS JENNER PROPERTIES 1,357,209 1,155,959 2,513,168 98,005 1996 40 YEARS KIRKWOOD APTS BISMARCK 449,290 3,137,992 3,587,282 130,417 1997 12-40 YEARS LEGACY APTS GRAND FORKS 1,361,855 9,470,702 10,832,557 507,423 1996 24-40 YEARS LEGACY UNDERGROUND G FORKS 725,277 2,260,345 2,985,622 0 1997 N/A-CONST IN PROGRESS MAGIC CITY APTS MINOT 532,000 4,896,774 5,428,774 186,966 1997 12-40 YEARS MANDAN APTS MANDAN 20,000 269,671 289,671 58,649 1989 24-40 YEARS MEADOWS JMSTWN-INS CLAIM 0 1,334,976 1,334,976 0 1999 N/A-CONST IN PROGRESS MEADOWS JMSTWN-NEW CONST 167,325 452,685 620,010 0 1999 N/A-CONST IN PROGRESS MIRAMONT APTS FT COLLINS 1,470,000 12,815,175 14,285,175 801,792 1996 40 YEARS NEIGHBORHOOD APTS CO SPRING 1,033,592 10,063,591 11,097,183 640,191 1996 40 YEARS NORTH POINTE 49 BISMARCK 143,500 2,259,675 2,403,175 195,742 1995 24-40 YEARS OAK MANOR APTS DICKINSON 29,012 321,472 350,484 63,163 1989 24-40 YEARS OAKWOOD ESTS SIOUX FALLS 342,800 3,202,531 3,545,331 496,449 1993 24-40 YEARS OXBOW SIOUX FALLS 404,073 4,585,200 4,989,273 512,778 1994 24-40 YEARS PARK EAST APTS FARGO 83,000 4,868,327 4,951,327 142,292 1997 12-40 YEARS PARK MEADOWS WAITE PARK 1,143,450 9,997,564 11,141,014 645,662 1997 40 YEARS PARKWAY APTS BEULAH 11,816 110,242 122,058 17,555 1988 5-40 YEARS PINE CONE APTS FT COLLINS 904,545 12,312,375 13,216,920 1,226,183 1994 40 YEARS POINTE WEST APTS MINOT 240,000 3,717,341 3,957,341 498,446 1994 24-40 YEARS PRAIRIE WINDS APTS S FALLS 144,097 1,843,577 1,987,674 296,874 1993 24-40 YEARS ROCKY MEADOWS 96 BILLINGS 655,985 6,016,710 6,672,695 377,901 1996 40 YEARS ROSEWOOD/OAKWOOD S FALLS 200,000 1,747,935 1,947,935 108,851 1996 40 YEARS SOUTH POINTE MINOT 275,000 10,020,666 10,295,666 721,002 1995 24-40 YEARS SOUTHVIEW APTS MINOT 185,000 528,128 713,128 60,658 1994 24-40 YEARS SOUTHWIND APTS G FORKS 409,892 5,302,462 5,712,354 456,706 1996 24-40 YEARS SWEETWATER PROPERTIES 94,270 1,744,421 1,838,691 1,012,925 1972 5-40 YEARS VAN MALL WOODS VANCOUVER 600,000 5,434,347 6,034,347 73,671 1999 40 YEARS VIRGINIA APTS MINOT 37,600 193,563 231,163 68,508 1987 27 1/2-40 YEARS WEST STONEHILL ST. CLOUD 939,000 10,553,684 11,492,684 923,809 1995 40 YEARS WESTWOOD PARK BISMARCK 161,114 1,966,747 2,127,861 35,926 1999 40 YEARS WOODRIDGE APTS ROCHESTER 370,000 6,164,011 6,534,011 388,014 1996 40 YEARS ------------ ------------ ------------ ------------ $ 21,343,768 $207,231,208 $ 228,574,976 $ 19,002,784 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ |
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AND SUBSIDIARIES
APRIL 30, 1999
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZATION INITIAL COST TO TRUST SUBSEQUENT TO ACQUISITION --------------------------- ------------------------------- BUILDING & CARRYING OFFICE BUILDINGS ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS ---------------- ------------ ------------ ------------ ------------ ------------ 1ST AVENUE BUILDING $ 0 $ 30,000 $ 219,496 $ 589,341 $ 0 401 SOUTH MAIN MINOT 0 70,600 334,308 204,211 0 408 1ST ST SE MINOT 0 10,000 34,836 2,072 0 CREEKSIDE OFFICE BLDG BILLINGS 1,210,759 311,310 1,088,149 285,459 0 LESTER CHIROPRACTIC CLINIC 0 25,000 243,916 0 0 WALTERS 214 S MAIN MINOT 0 27,055 76,076 8,809 0 ------------ ------------ ------------ ------------ ------------ $ 1,210,759 $ 473,965 $ 1,966,781 $ 1,089,892 $ 0 ------------ ------------ ------------ ------------ ------------ COMMERCIAL ---------- AMERICA'S BEST FURNITURE $ 3,453,722 $ 765,000 $ 4,874,576 $ 152,606 $ 0 AMERITRADE OMAHA, NE 6,150,000 326,500 7,873,500 83,977 0 ARROWHEAD SHOPPING CENTER 0 100,359 1,063,925 1,666,880 0 BARNES & NOBLE FARGO 2,032,279 540,000 2,752,012 0 0 BARNES & NOBLE OMAHA 2,201,636 600,000 3,099,101 0 0 CARMIKE THEATRE GRAND FORKS 1,945,022 183,515 2,225,585 69,569 67,068 COMPUTER CITY KENTWOOD, MI 1,456,644 225,000 1,888,574 0 0 CORNER C-STORE MINOT 869,944 195,000 999,432 5,910 0 EDGEWOOD VISTA BILLINGS 705,332 130,000 837,405 12,813 0 EDGEWOOD VISTA E. GRAND FORKS 605,008 25,000 874,821 0 0 EDGEWOOD VISTA MINOT 4,248,353 260,000 1,835,335 4,180,596 0 EDGEWOOD VISTA MISSOULA 609,135 108,900 853,528 0 0 EDGEWOOD VISTA SIOUX FALLS 707,751 130,000 838,366 6,373 0 GREAT PLAINS SOFTWARE FARGO 0 125,501 283,199 0 0 HUTCHINSON TECH S FALLS 3,177,752 244,800 4,029,426 154,800 0 LINDBERG BLDG EDEN PRAIRIE 1,178,965 198,000 1,154,404 103,385 0 MINOT PLAZA MINOT 0 50,000 452,898 6,181 0 PETCO FARGO 1,058,364 324,148 873,080 54,461 27,245 PIONEER SEED MOORHEAD 278,123 56,925 548,075 48,876 0 STONE CONTAINER FARGO 2,884,434 440,251 4,319,924 149,155 89,156 SUPERPUMPER CROOKSTON 0 13,125 214,153 201,499 0 SUPERPUMPER GRAND FORKS 0 80,000 405,007 0 0 SUPERPUMPER LANGDON 0 59,674 151,500 28,038 0 SUPERPUMPER SIDNEY 0 12,000 108,600 0 0 VIROMED EDEN PRAIRIE 3,120,000 666,000 4,160,310 37,324 0 WEDGEWOOD SWEETWATER, GA 1,500,840 334,346 2,475,655 1,161,878 0 ------------ ------------ ------------ ------------ ------------ $ 38,183,304 $ 6,194,044 $ 49,188,391 $ 8,124,321 $ 183,469 ------------ ------------ ------------ ------------ ------------ TOTALS $175,064,346 $ 26,908,616 $246,358,760 $ 21,285,903 $ 1,272,560 ============ ============ ============ ============ ============ |
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AND SUBSIDIARIES
APRIL 30, 1999
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
LIFE ON WHICH LATEST INCOME BUILDINGS & ACCUMULATED DATE STATEMENT IS OFFICE BUILDINGS LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPUTED ---------------- ------------ ------------ ------------ ------------ -------- -------------- IS COMPUTED ----------- 1ST AVENUE BUILDING $ 67,710 $ 771,127 $ 838,837 $ 340,708 1981 33-40 YEARS 401 SOUTH MAIN MINOT 70,722 538,397 609,119 138,716 1987 24-40 YEARS 408 1ST STREET SE MINOT 10,016 36,892 46,908 23,918 1986 19-40 YEARS CREEKSIDE OFFICE BLDG 311,310 1,373,608 1,684,918 233,355 1992 40 YEARS LESTER CHIROPRACTIC 25,000 243,917 268,917 64,206 1988 40 YEARS WALTERS 214 S MAIN 27,829 84,110 111,939 76,556 1978 20-40 YEARS ------------ ------------ ------------ ------------ $ 512,587 $ 3,048,051 $ 3,560,638 $ 877,459 ------------ ------------ ------------ ------------ COMMERCIAL ---------- AMERICA'S BEST $ 765,000 $ 5,027,182 $ 5,792,182 $ 672,263 1994 40 YEARS AMERITRADE OMAHA 326,500 7,957,477 8,283,977 8,289 1999 40 YEARS ARRWHD SHOPPING CTR 100,411 2,730,753 2,831,164 2,147,694 1973 15 1/2- 40 YEARS BARNES & NOBLE FARGO 540,000 2,752,012 3,292,012 309,601 1994 40 YEARS BARNES & NOBLE OMAHA 600,000 3,099,101 3,699,101 271,171 1995 40 YEARS CARMICKE THEATRE 183,516 2,362,221 2,545,737 265,687 1994 40 YEARS COMPUTER CITY 225,000 1,888,574 2,113,574 118,036 1996 40 YEARS CORNER C-STORE 195,000 1,001,342 1,196,342 21,904 1999 40 YEARS EDGEWD V BILLINGS 130,000 850,218 980,218 18,504 1999 40 YEARS EDGEWD V E G FORKS 630,608 269,213 899,821 39,175 1997 40 YEARS EDGEWD V MINOT 260,000 6,015,931 6,275,931 227,907 1997 40 YEARS EDGEWD V MISSOULA 108,900 853,528 962,428 53,346 1997 40 YEARS EDGEWD V SIOUX FALLS 130,000 844,739 974,739 18,437 1999 40 YEARS GT PLAINS SOFTWARE 125,501 283,199 408,700 0 1998 N/A-CONST IN PROGRESS HUTCHINSON TECH 244,800 4,184,226 4,429,026 672,223 1993 40 YEARS LINDBERG BLDG EDEN 198,000 1,257,789 1,455,789 226,447 1992 40 YEARS MINOT PLAZA 50,000 459,079 509,079 74,132 1993 40 YEARS PETCO FARGO 324,148 954,786 1,278,934 106,679 1994 40 YEARS PIONEER SEED MRHD 56,925 596,951 653,876 107,107 1992 40 YEARS STONE CONTAINER 440,251 4,558,235 4,998,486 396,231 1995 40 YEARS SPRPUMPER CROOKSTON 13,125 415,652 428,777 90,248 1988 40 YEARS SPRPUMPER G FORKS 80,000 405,007 485,007 86,064 1991 40 YEARS SPRPUMPER LANGDON 59,674 179,538 239,212 62,067 1987 31 1/2- 40 YEARS SPRPUMPER SIDNEY 12,000 108,600 120,600 17,648 1993 40 YEARS VIROMED EDEN PRAIRIE 666,000 4,197,634 4,863,634 21,787 1999 40 YEARS WEDGEWD SWEETWATER 334,346 3,637,533 3,971,879 199,509 1996 40 YEARS ------------ ------------ ------------ ------------ $ 6,799,705 $ 56,890,520 $ 63,690,225 $ 6,232,156 ------------ ------------ ------------ ------------ TOTALS $ 28,656,060 $267,169,779 $295,825,839 $ 26,112,399 ============ ============ ============ ============ |
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliations of total real estate carrying value for the three years
ending April 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ------------------------------------------------------- Balance at beginning of year $ 231,416,322 $ 191,884,509 $ 131,447,734 Additions during year - acquisitions 62,455,508 39,014,23 59,377,674 - improvements and other 4,780,853 1,463,878 635,791 ---------------- ---------------- ----------------- $ 298,652,683 $ 232,687,071 $ 192,289,286 Deductions during year - cost of real estate sold (2,826,844) (1,270,749) (404,777) --------------- ----------------- ---------------- Balance at close of year $ 295,825,839 $ 231,416,322 $ 191,884,509 ================ ================ ================= |
Reconciliations of accumulated depreciation for the three years ended
April 30, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ------------------------------------------------------------- Balance at beginning of year $ 21,516,129 $ 16,948,156 $ 13,551,571 Additions during year - provisions for depreciation 5,966,874 4,791,907 3,584,591 Deduction during year - accumulated depreciation on real estate sold (1,370,604) (223,934) (188,006) ---------------- ---------------- ----------------- Balance at close of year $ 26,112,399 $ 21,516,129 $ 16,948,156 ================ ================ ================= |
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
Schedule XII
INVESTMENTS IN MORTGAGE LOANS ON
REAL ESTATE
Interest Final Maturity Payment Prior Rate Date Terms Liens -------------------------------------------------------------- RESIDENTIAL Higley Heights, Phoenix, AZ 8% 3-31-04 Quarterly - Great Plains Software, Fargo, ND 9.50% 1-1-99 Balloon Pmt - Rolland Hausman 9% 2-1-16 Monthly - Other - over $100,000 8-10.25% 11-1-02 to 6-1-07 Monthly - - less than $100,000 7-8.75% 12-1-00 to 1-1-04 Monthly - Total |
Less - Unearned discounts
- Deferred gain from property dispositions - Allowance for loan losses
Principal Amount Face Carrying of Loans Subject to Amounts of Amounts of Delinquent Principal Mortgages Mortgages or Interest --------------------------------------------------------------------- $ 809,786 $ 742,811 $ 742,811 15,000,000 9,185,758 0 315,659 294,968 0 517,325 387,895 0 113,970 109,782 0 ---------------- ---------------- ----------------------- $ 16,756,740 $ 10,721,214 $ 742,811 ================ ======================= (1,898) (1,000) (120,314) ---------------- $ 10,598,002 ================ |
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Schedule XII (Continued)
1999 1998 ----------------- ------------------ MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR $ 3,438,308 $ 3,108,933 New participations in and advances on mortgage loans 7,655,061 2,061,179 ---------------- ----------------- $ 11,093,369 $ 5,170,112 Collections (372,155) (1,727,237) Write-off through allowance 0 (4,567) ---------------- ----------------- MORTGAGE LOANS RECEIVABLE, END OF YEAR $ 10,721,214 $ 3,438,308 ================ ================= |
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ----------------------------------------------------------------------------------- Consolidated Income Statement Data Revenue $ 39,927,262 $ 32,407,545 $ 23,833,981 $ 18,659,665 $13,801,123 Operating income 6,401,676 4,691,198 3,499,443 3,617,807 3,560,318 Gain on repossession/ Sale of properties 1,947,184 465,499 398,424 994,163 407,512 Minority interest of portion of Operating partnership income (744,725) (141,788) (18) 0 0 Net income 7,604,135 5,014,909 3,897,849 4,611,970 3,967,830 Consolidated Balance Sheet Data Total real estate investments $280,311,442 $213,211,369 $177,891,168 $122,377,909 $84,005,635 Total assets 291,493,311 224,718,514 186,993,943 131,355,638 94,616,744 Shareholders' equity 85,783,294 68,152,626 59,997,619 50,711,920 37,835,654 Consolidated Per Share Data (basic and diluted) Operating income $ .33 $ .29 $ .25 $ .30 $ .34 Gain on sale of properties .11 .03 .03 .08 .04 Dividends .47 .42 .39 .37 .34 Tax status of dividend Capital gain 6.3% 2.9% 21.0% 1.6% 11.0% Ordinary income 76.0% 97.1% 79.0% 98.4% 89.0% Return of capital 17.7% 0.0% 0.0% 0.0% 0.0% |
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INVESTORS REAL ESTATE TRUST
AND AFFILIATED PARTNERSHIPS
APRIL 30, 1999, 1998 AND 1997
GAIN FROM PROPERTY DISPOSITIONS
Total Original Unrealized Realized Realized Realized Gain 4/30/99 4/30/99 4/30/98 4/30/97 ------------------------------------------- -------------------- Brooklyn Addition* $ 25,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 1302 South 19 1/2* 87,699 0 0 15,713 6,732 406 17th St. - Mandan* 233,522 0 0 0 138,629 Fairfeild Apts - Marshall 80,121 0 80,121 0 0 Superpumper - Emerado 158,146 0 158,146 0 0 Park Place Apts - Waseca 366,018 0 366,018 0 0 Bison Props. - Jamestown 1,341,899 0 1,341,899 0 0 Scottsbluff Estates 326,138 0 0 326,138 0 Superpumper - Bottineau 83,579 0 0 83,579 0 Superpumper - New Town 25,417 0 0 25,417 0 Other gains 13,652 0 0 13,652 0 Hutchinson, MN 252,063 0 0 0 252,063 ---------- ---------- ---------- ---------- $ 1,000 $1,947,184 $ 465,499 $ 398,424 ========== ========== ========== ========== |
* The gain from the sale of these properties is being realized based on the installment method. The amount of deferred gain realized was $1,000, $16,713 and $146,361 for the years ended April 30, 1999, 1998 and 1997, respectively.
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
MORTGAGE LOANS PAYABLE
Final Periodic Carrying Delinquent Interest Maturity Payment Face Amount Amount of Principal or Rate Date Terms of Mortgage Mortgage Interest ---- ------- ------- ----------- ---------- ---------- 1112 32ND Ave SW Minot 8.50% 07/20/10 Monthly $ 425,000 $ 354,903 0 177 10th Ave E Dickinson 8.50% 11/01/18 Monthly 250,963 221,575 0 4301 9th Ave Sunchase I 9.04% 09/01/02 Monthly 364,765 116,019 0 4313 9th Ave Sunchase II 9.04% 02/01/14 Monthly 370,000 299,828 0 America's Best (FKA Smiths Home) 9.75% 03/29/03 Monthly 3,750,000 3,453,722 0 Ameritrade-Omaha, NE 7.25% 05/01/19 Monthly 6,150,000 6,150,000 0 Barnes & Noble Stores 7.98% 12/01/10 Monthly 4,900,000 4,233,915 0 Candlelight Apts 8.50% 12/01/99 Monthly 578,000 473,605 0 Carmike-Grand Forks 7.75% 02/01/07 Monthly 2,000,000 1,945,022 0 Castle Rock-Billings 6.66% 03/01/09 Monthly 3,950,000 3,946,539 0 Century Apts-Dickinson 8.00625% 03/01/06 Monthly 1,595,000 1,481,672 0 Century Apts-Williston 8.00625% 03/01/06 Monthly 2,700,000 2,508,160 0 Chateau-Minot 8.00625% 03/01/06 Monthly 1,674,350 1,625,659 0 Clearwater-Boise 6.47000% 01/01/09 Monthly 2,660,000 2,652,705 0 Cottonwood Phase I 6.59000% 01/01/09 Monthly 2,800,000 2,792,497 0 Country Meadows-Billings 7.51000% 01/01/08 Monthly 2,660,000 2,609,222 0 Creekside-Billings 8.35% 06/01/13 Monthly 1,250,000 1,210,759 0 Crestview Apts-Bismarck 8.69% 07/01/08 Monthly 3,400,000 3,360,790 0 COMPUSA 7.75% 02/01/01 Monthly 1,565,361 1,456,644 0 Corner Express-Minot 7.52% 10/01/13 Monthly 885,000 869,944 0 Edgewod Vista-Billings 7.13% 10/01/13 Monthly 720,000 705,332 0 Edgewood Vista-E Grand Forks 8.35% 07/05/12 Monthly 650,000 605,008 0 Edgewood Vista-Minot 8.27% 09/20/12 Monthly 4,510,000 4,248,353 0 Edgewood Vista-Missoula 9.75% 04/15/12 Monthly 647,500 609,135 0 Edgewood Vista-Sioux Falls 7.52% 07/01/13 Monthly 720,000 707,751 0 Forest Park Estates IDS 7.625% 05/01/03 Monthly 4,500,000 3,849,741 0 Heritage Manor-Rochester 6.800% 10/01/18 Monthly 5,075,000 5,014,255 0 Hutchinson Technology 8.75% 08/01/08 Monthly 3,250,000 3,177,752 0 Ivy Club Apts-Vancouver 7.36% 12/01/01 Monthly 7,092,443 7,079,422 0 Jenner Properties, ND 9.50% 11/01/99 Monthly 1,391,585 1,298,052 0 Kirkwood Manor-Bismarck 9.05% Various Bond - Semi 2,330,000 2,205,000 0 Legacy Apts-Phase I-G Forks 7.070% 01/01/04 Monthly 4,000,000 3,861,356 0 Legacy Apts Phase II-G Forks 7.070% 05/29/28 Monthly 2,575,000 2,542,717 0 Lindberg Bldg-Eden Prairie 7.625% 12/01/08 Monthly 1,200,000 1,178,965 0 Magic City Apts-Minot 8.50% 10/10/10 Monthly 2,794,192 2,546,829 0 Mandan Apts-Mandan 8.75% 08/01/99 Monthly 134,767 818 0 Miramont Apts 8.25% 08/01/36 Monthly 11,582,472 11,481,696 0 Neighborhood Apts-Colorado Springs 7.98% 12/20/06 Monthly 7,525,000 7,291,069 0 North Pointe-Bismarck 7.12% 08/01/15 Monthly 1,700,000 1,678,718 0 Oakwood Estate-Sioux Falls 8.00625% 03/01/06 Monthly 2,250,000 2,090,133 0 Oxbow-Sioux Falls 8.00625% 03/01/06 Monthly 3,565,000 3,311,700 0 Park East-Fargo 6.82000% 04/06/08 Monthly 3,500,000 3,466,359 0 Park Meadows-Phase I 8.50% 01/10/07 Monthly 2,600,000 2,469,369 0 Park Meadows-Phase II 7.8990% 01/10/07 Monthly 2,214,851 2,134,105 0 Park Meadows-Phase III 3.84% 30 yr bond Monthly 3,235,000 3,150,000 0 PETCO Warehouse 8.50% 12/01/10 Monthly 1,100,000 1,058,364 0 Pinecone-Ft. Collins 7.125% 12/01/34 Monthly 10,685,215 10,472,304 0 Pioneer Building-Fargo 8.375% 12/01/06 Monthly 425,000 278,123 0 Pointe West Apts-Rapid City 8.97% 01/01/04 Monthly 2,400,000 2,372,322 0 Prairie Winds Apts-Sioux Falls 7.67% 05/01/18 Monthly 1,470,000 1,307,534 0 Rocky Meadows-Billings 7.75% 08/01/16 Monthly 3,000,000 2,788,609 0 Rosewood Ct-Sioux Falls 7.975% 09/01/96 Monthly 1,323,000 1,243,428 0 South Pointe-Minot 7.12% 06/05/16 Monthly 6,500,000 6,418,627 0 Southwinds Apts-Grand Forks 7.12% 04/28/10 Monthly 4,100,000 4,048,673 0 Stone Container-Fargo 8.25% 12/01/10 Monthly 3,300,000 2,884,434 0 Van Mall Woods-Vancouver 6.86% 12/01/03 Monthly 4,070,426 4,031,894 0 Viromed-Eden Prairie 6.98% 04/01/14 Monthly 3,120,000 3,120,000 0 Wedgewood Retirement 7.975% 04/23/17 Monthly 1,566,720 1,500,840 0 West Stonehill-St. Cloud 7.93% 02/01/98 Monthly 8,232,569 7,799,243 0 Westwood Park-Bismarck 9.25% 03/01/11 Monthly 1,295,866 1,254,294 0 Woodridge-Rochester 7.85% 12/01/16 Monthly 4,410,000 4,177,096 0 Colton Heights 8.75% 06/01/07 Monthly 730,000 313,877 0 Grafton 24 Plex 9.75% 03/20/03 Monthly 270,000 68,670 0 Grafton 18 Plex 9.75% 03/20/03 Monthly 198,000 93,645 0 Hill Park Properties 8.00625% 03/01/06 Monthly 1,470,000 1,365,554 0 1516 N Bismarck 8.00% 08/01/99 Monthly 246,000 6,723 0 ------------ ------------ ------------ TOTALS $183,604,045 $175,071,069 $ 0 ============ ============ ============ |
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
APRIL 30, 1999
SIGNIFICANT PROPERTY ACQUISITIONS
Acquisitions for cash, assumptions of mortgages, and issuance of units
in the operating partnership
Commercial: Edgewood Vista - Sioux Falls, SD 965,000 Edgewood Vista - Billings, MT 965,000 Corner Express - Minot, ND 1,190,432 Viromed - Eden Prairie, MN 4,826,310 Ameritrade - Omaha, NE 8,283,977 ----------- $16,230,719 ----------- Apartments: Heritage Manor - Rochester, MN 7,371,208 Westwood Park Apartments - Bismarck, ND 2,025,455 Country Meadows Phase II - Billings, MT** 1,321,962 Clearwater Apts. - Boise, ID 3,786,463 Legacy - Phase III - Grand Forks, ND** 2,260,345 Van Mall Woods - Vancouver, WA 6,021,312 Meadows - Jamestown, ND** 1,502,301 Castle Rock Apartments - Billings, MT 5,614,223 Cottonwood Lake - Bismarck, ND*** 4,645,444 Ivy Club Apartments - Vancouver, WA 11,676,076 ----------- $46,224,789 ----------- $62,455,508 =========== |
**Property not placed in service at April 30, 1999. Additional costs are still to be incurred.
***Represents costs to complete a project started in year ending April 30, 1998.
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INVESTORS REAL ESTATE TRUST
AND SUBSIDIARIES
QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
QUARTER ENDED ------------------------------------------------------------ 7-31-98 10-31-98 1-31-99 4-30-99 ------------ ------------ ------------ ------------ Revenues $ 9,102,179 $ 9,836,370 $ 10,236,797 $ 10,751,916 Income before gains on sale of properties 1,327,851 1,760,067 1,732,928 1,580,830 Net gain on sale of properties 366,017 1,341,899 80,122 158,146 Minority interest of unitholders in operating partnership (133,863) (287,579) (158,820) (164,463) Net income 1,560,005 2,814,387 1,654,228 1,575,515 Per share (basic and diluted) Income before gains on sale of properties .07 .09 .09 .08 Net gain on sale of properties .02 .08 .00 .01 QUARTER ENDED ------------------------------------------------------------ 7-31-97 10-31-97 1-31-98 4-30-98 ------------ ------------ ------------ ------------ Revenues $ 7,183,761 $ 7,996,262 $ 8,440,393 $ 8,787,129 Income before gains on sale of properties 894,045 1,233,451 1,358,752 1,204,950 Net gain on sale of properties 36,096 83,579 326138 16,713 Minority interest of unitholders in operating partnership (9) (9,423) (64,006) (68,350) Net income 933,105 1,307,607 1,620,884 1,153,313 Per share (basic and diluted) Income before gains on sale of properties .06 .08 .08 .07 Net gain on sale of properties .00 .01 .02 .00 QUARTER ENDED ------------------------------------------------------------ 7-31-96 10-31-96 1-31-97 4-30-97 ------------ ------------ ------------ ------------ Revenues $ 4,966,475 $ 5,474,027 $ 6,383,030 $ 7,010,450 Income before gains on sale of properties 978,107 1,048,154 1,027,117 446,065 Net gain on sale of properties 252,062 0 138,629 7,733 Minority interest of unitholders in operating partnership 0 0 0 (18) Net income 1,230,169 1,048,154 1,165,746 453,780 Per share (basic and diluted) Income before gains on sale of properties .07 .08 .07 .03 Net gain on sale of properties .02 .00 .01 .00 |
The above financial information is unaudited. In the opinion of management, all adjustments (which are of a normal recurring nature) have been included for a fair presentation.
F-35
Page 112 of 131
FINANCIAL STATEMENTS - FIRST QUARTER FISCAL 2000 (UNAUDITED)
The accompanying condensed consolidated financial statements have been
prepared from the records of Investors Real Estate Trust and its subsidiaries
(collectively, the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments necessary (of a normal recurring nature only)
to present fairly the financial position of the Company as of July 31,
1999, and results of operations and cash flows for the stated periods have
been included. The Condensed Consolidated Balance Sheet at April 30, 1999,
contained herein, was derived from audited financial statements, but does
not include all disclosures included in the 1999 Annual Report and applicable
under generally accepted accounting principles. Certain information and
footnote disclosures normally included in interim financial statements
prepared in accordance with generally accepted accounting principles have
been omitted. The results of operations for the three months ended July
31, 1999, are not necessarily indicative of operating results for the entire
year.
| BALANCE SHEETS (unaudited) | ||
ASSETS |
07-31-99 | 04-30-99 |
Cash |
$ 5,071,067 | $ 3,713,053 |
Marketable Securities |
||
GNMA's - held to maturity |
2,908,156 | 2,964,434 |
Other REIT's - available for sale |
689,111 | 734,749 |
Accounts Receivable |
248,443 | 77,438 |
Tax & Insurance Escrow |
2,167,530 | 1,761,195 |
Deferred Charges |
1,844,868 | 1,413,752 |
Prepaid Insurance |
107,429 | 216,348 |
Real Estate Deposits |
836,300 | 300,900 |
| $ 13,872,902 | $ 11,181,869 | |
Real Estate Investments |
||
Real Estate Owned |
$332,384,703 | $ 295,825,839 |
Less Accumulated Depreciation |
(27,593,926) | (26,112,399) |
Net Real Estate Owned |
304,790,777 | 269,713,440 |
Real Estate Mortgages |
1,535,783 | 10,721,214 |
Less Unearned Discounts & Allowances |
(122,836) | (123,212) |
Net Mortgages & Contracts |
1,412,947 | 10,598,002 |
Total Real Estate Investments |
$306,203,725 | $280,311,442 |
| TOTAL ASSETS | $320,076,627 | $291,493,311 |
LIABILITIES |
||
Accounts Payable & Accrued Expenses |
$ 3,581,428 | $ 4,388,270 |
Due on Credit Line |
0 | 0 |
Mortgages Payable |
191,282,163 | 175,071,069 |
Investment Certificates Payable |
12,530,595 | 11,770,136 |
| TOTAL LIABILITIES | $207,394,186 | $191,229,475 |
| Minority Interest in Operating Partnership | $ 21,231,911 | $ 14,480,542 |
| SHAREHOLDERS' EQUITY | ||
Shares of Beneficial Interest |
||
Outstanding Shares of: |
07-31-99 | 04-30-99 |
19,923,692 on 07/31/99 |
||
19,066,954 on 04/30/99 |
$ 99,396,963 | $ 93,095,819 |
Accumulated Distributions in Excess of Net Income |
(7,844,229) | (7,255,958) |
Unrealized Gain REIT Stock |
(102,205) | (56,567) |
Total Shareholders' Equity |
$ 91,450,530 | $ 85,783,294 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $320,076,627 | $291,493,311 |
F-36
Page 113 of 131
| OPERATING INCOME | 1999 | 1998 |
Real Estate Rentals |
$ 10,808,522 | $ 8,866,408 |
Interest Income |
377,136 | 212,150 |
Mortgage Discount & Fees |
16,255 | 23,720 |
| $ 11,201,913 | $ 9,102,278 | |
| OPERATING EXPENSE | ||
Interest |
$ 3,441,156 | $ 2,816,108 |
Utilities & Maintenance |
1,736,997 | 1,505,146 |
Property Management |
897,038 | 779,825 |
Taxes & Insurance |
1,109,133 | 1,005,570 |
Advisory & Trustees Fees |
254,442 | 195,178 |
Operating Expenses |
177,141 | 63,358 |
| $ 7,615,907 | $ 6,365,186 | |
| OPERATING INCOME | ||
(before reserves) |
$ 3,586,006 | $ 2,737,092 |
| DEPRECIATION/AMORTIZATION | (1,784,684) | (1,409,241) |
| OPERATING INCOME (after reserves) | $ 1,801,322 | $ 1,327,851 |
| GAIN ON SALE OF INVESTMENTS | 257,895 | 366,017 |
| MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP NET INCOME | (235,935) | (133,863) |
| NET TAXABLE INCOME | $ 1,823,282 | $ 1,560,005 |
| FUNDS FROM OPERATIONS * | ||
Operating Income |
$ 1,801,322 | $ 1,327,851 |
Plus Depreciation and Amortization |
1,784,684 | 1,409,241 |
Minus Minority Interest Portion of Operating Partnership Net Income |
(235,935) | (133,863) |
| FUNDS FROM OPERATIONS | $ 3,350,071 | $ 2,603,229 |
| PER SHARE | 191,282,163 | 175,071,069 |
Operating Income (after reserves) |
.09 | .08 |
| Gain on Sale of Investments | .01 | .02 |
Total Taxable Income/Share |
.10 | .10 |
| FUNDS FROM OPERATIONS * | .17 | .16 |
| DIVIDENDS PAID PER SHARE | .12 | .11 |
| Average Number of Shares Outstanding | 19,495,323 | 16,579,390 |
*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.
F-37
Page 114 of 131
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three-Month Period Ended July 31, 1999 and 1998 (unaudited)
| CASH FLOWS FROM OPERATING ACTIVITIES | 1999 | 1998 |
Net Income |
$ 1,823,282 | $ 1,560,006 |
Adjustments to reconcile net income to net |
||
Depreciation and amortization |
1,741,018 | 1,409,241 |
Minority interest portion of operating partnership income |
235,935 | 133,863 |
Accretion of discount on contracts |
(376) | (667) |
Gain on Sale of Properties |
(257,895) | (366,017) |
Interest reinvested in investment certificates |
114,313 | 97,029 |
Changes in other assets and liabilities: |
||
(Increase) decrease in real estate deposits |
(535,400) | (71,250) |
(Increase) decrease in other assets |
(62,086) | 122,428 |
(Increase) decrease in tax and insurance escrow |
(406,335) | (443,690 |
(Increase) decrease in deferred charges |
(431,115) | (122,535) |
Increase (decrease) in accounts payable and |
358,537 | 264,943 |
| NET CASH PROVIDED FROM OPERATING ACTIVITIES | $ 2,579,879 | $ 2,583,351 |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds from maturity of marketable securities held to maturity |
$ 56,278 | $ 82,656 |
Principle payments on mortgage loans receivable |
11,836 | 64,672 |
Proceeds from sale of property |
0 |
892,349 |
Payments for acquisition and improvements of properties |
(11,465,189) | (7,422,457) |
Purchase of marketable securities available for sale |
0 | 0 |
Investment in mortgage loans receivable |
0 | 0 |
| NET CASH USED FOR INVESTING ACTIVITIES | $ (11,397,075) | $ (6,382,780) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from sale of shares |
$ 6,070,134 | $ 2,721,085 |
Proceeds from investment certificates issued |
874,236 | 979,085 |
Proceeds from mortgages payable |
6,995,548 | 3,769,936 |
Proceeds from short-term lines of credit |
5,800,000 |
3,000,000 |
Proceeds from sale of minority interest |
1,000 | 1,848,249 |
F-38
Page 115 of 131
|
(1,348,242) | (1,389,936) |
Dividends/Distributions Paid |
(1,177,749) | (761,784) |
Redemption of investment certificates |
(228,097) | (644,627) |
Principal payments on mortgage loans |
(1,011,620) | (767,828) |
Payments on short-term lines of credit |
(5,800,000) | (4,000,000) |
| NET CASH PROVIDED FROM FINANCING ACTIVITIES | $ 10,175,210 | $ 4,754,181 |
| NET INCREASE (DECREASE) IN CASH | $ 1,358,013 | $ 954,752 |
| CASH AT APRIL 30 | $ 3,713,053 | $ 2,132,220 |
| CASH AT JULY 31 | $ 5,071,067 | $ 3,086,972 |
F-39
Page 116 of 131
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.
Selling Commission $672,000 Legal 15,000 Advertising, Printing & Promotion Expenses 30,000 Accounting 1,000 Registration Fees 10,000 $728,000 |
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, except as follows:
The Trust has a policy allowing its Trustees and employees of its Advisor
- Odell-Wentz & Associates, L.L.C. - and their spouses to purchase
its shares of beneficial interest at a price equal to the net price then
received by IRET for its shares, after payment of the brokerage commission,
when sold to the public. No commissions or other discounts were paid or
given in connection with such sales. The Trust claims exemption from the
registration of said shares under
Section 4(2) of the Securities Act of 1933.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
None.
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.
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.
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Page 117 of 131
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-35 Estate Trust for the period ended April 30, 1999, prepared by Brady Martz & Associates, P.C., Certified Public Accountants Financial Statement by Investors Real See F-36 through F-39 |
b) Exhibit Index
Description of Exhibit Location in Form S-11 Filing (1) Security Sales Agreement Ex-1(i), Pages 123 - 124 (2) Plan of acquisition, Not Applicable reorganization, arrangement, liquidation or succession (3) (i) Second Restated Filed as Ex-3(i) to Form S-11 Declaration of Trust filed by the Registrant on May Dated February 10, 1999 11, 1999 (File No. O-14851) and incorporated by reference herein (ii) IRET Properties IRET Properties Partnership Partnership Agreement Agreement dated January 31, 1997, filed as Ex-3(ii) to Form S-11 filed by the Registrant on November 28, 1997, (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 Ex-5, Pages 125 (6) Opinion re discount on Not Applicable capital shares (7) Opinion re liquidation Not Applicable preference (8) Opinion re tax matters Ex-8, Page 126 (9) Voting trust agreement Not Applicable (10) Material Contracts Advisory Agreement with the Registrant and Odell-Wentz & Associates, L.L.C. filed as Exhibit 10 to Form S-11 filed by the Registrant on November 28, 1997, and incorporated herein by reference (File No. 0-14851) |
ii-2
Page 118 of 131
(11) Statement re computation Not Applicable of per share earnings (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 S-11 filed for the Registrant (File No. 0-14851) and incorporated herein by reference (23) Consent of experts and counsel (i) Pringle & Herigstad, P.C. Ex-23(i), Page 127 (ii) Brady Martz & Associates, Ex-23(ii), Page 128 P.C. (24) Power of Attorney Not Applicable (25) Statement of eligibility Not Applicable of trustee (27) Financial Data Schedule Ex-27, Page 129 (99) Additional Exhibits (i) Ex-99 Page 130 & 131 (i) Subscription Agreement |
ii-3
Page 119 of 131
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.
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Page 119 of 131
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 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
Dated November 9th, 1999
BY /s/ Roger R. Odell ---------------------------------- Roger R. Odell Its President |
ii-4
Page 120 of 131
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/ Ralph A. Christensen Trustee and Chairman November 10, 1999 Ralph A. Christensen /s/ Jeffrey L. Miller Trustee and Vice Chairman November 10, 1999 Jeffrey L. Miller /s/ John F. Decker Trustee November 10, 1999 John F. Decker /s/ Patrick G. Jones Trustee November 10, 1999 Patrick G. Jones /s/ Daniel L. Feist Trustee November 10, 1999 Daniel L. Feist /s/ Thomas A. Wentz, Jr. Trustee November 10, 1999 Thomas A. Wentz, Jr. /s/ C. Morris Anderson Trustee November 10, 1999 C. Morris Anderson /s/ Roger R. Odell President November 10, 1999 Roger R. Odell /s/ Thomas A. Wentz,Sr. Vice President November 10, 1999 Thomas A. Wentz, Sr. /s/ Timothy P. Mihalick Vice President & Trustee November 10, 1999 Timothy P. Mihalick /s/ Diane K. Bryantt Secretary November 10, 1999 Diane K. Bryantt /s/ Stephen L. Stenehjem Trustee November 10, 1999 Stephen L. Stenehjem |
ii-5
Page 121 of 131
INDEX OF EXHIBITS DESCRIPTION OF EXHIBIT LOCATION IN FORM S-11 FILING (1) Security Sales Agreements Ex-1(i), Pages 123 - 124 (2) Plan of acquisition, Not Applicable reorganization, arrangement, liquidation or succession (3) (i) Second Restated Declaration Filed as Ex-3(i) to Form S-11 of Trust dated February 10, 1999 filed by the Registrant on May 11, 1999 (File No. 0-14581) and incorporated by reference herein (ii) IRET Properties Partnership IRET Properties Partnership Agreement Agreement dated January 31, 1997, filed as Ex-3 (ii) to Form S-11 filed by the Registrant on November 28, 1997, (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 Ex-5, Pages 15 (6) Opinion re discount on Not Applicable capital shares (7) Opinion re liquidation Not Applicable preference (8) Opinion re tax matters Ex-8, Page 126 (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 S-11 and incorporated herein by reference (File No. 0-14851) (11) Statement re computation Not Applicable of per share earnings (12) Statement re computation Not Applicable (15) Letter re unaudited Not Applicable interim financial information Not Applicable (16) Letter re change in Not Applicable certifying accountant (21) Subsidiaries of the List of affiliated Registrant partnerships filed as Item 7 of Form S-11 filed for the Registrant (File No. 0-14851) and incorporated herein by reference (23) Consent of experts and counsel (i) Pringle & Herigstad, P.C. Ex-23 (i), Page 127 (ii) Brady Martz & Associates, Ex-23 (ii), Page 128 P.C. (24) Power of Attorney Not Applicable (25) Statement of eligibility Not Applicable of trustee (27) Financial Data Schedule Ex-27, Page 129 (99) Additional Exhibits (i) Ex-99, Page 130 & 131 |
THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
ii-6
Page 122 of 131
EX-1(i) FORM S-11 INVESTORS REAL
ESTATE
TRUST
SECURITY SALES AGREEMENT
THIS AGREEMENT, made this _____ day of November, 1999, between INVESTORS REAL ESTATE TRUST, A North Dakota Business Trust, 12 South Main, Minot, North Dakota 58701 (hereinafter ("IRET"), and NAME AND ADDRESS OF BROKER, (hereinafter "BROKER").
WHEREAS, IRET intends to file a Form S-11 with the Securities and Exchange Commission to register for sale to the public 1,000,000 shares of its shares of Beneficial Interest; and,
WHEREAS, BROKER 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 BROKER as a Broker to offer said shares of Beneficial Interest for sale for $8.25 per share with a minimum purchase of 100 shares. BROKER 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 BROKER and its salesmen shall be the responsibility of BROKER and its salesmen. In the event the offering is terminated, BROKER will NOT be reimbursed for any out-of-pocket expenses.
4. As compensation for its services hereunder, BROKER shall receive 8% of the proceeds of all of the securities sold by it and paid for. All commissions shall be rounded down to the nearest penny. Assuming a sale at $8.40, the commission would be $.67.
5. IRET represents and warrants to BROKER 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.
This agreement shall be binding upon and shall inure to the benefit of the parties, their successors and assigns.
INVESTORS REAL ESTATE TRUST
By_____________________________
Thomas A. Wentz, Sr., Vice PresidentBROKER
By_____________________________
Its ____________________________
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Page 124 of 131
November _____, 1999
EXHIBIT EX-5
OPINION RE LEGALITY
Securities and Exchange Commission
Washington, D.C. 20549
INVESTORS REAL ESTATE TRUST - FORM S-11 DATED November _____, 1999
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. Second Restated Declaration of Trust of Investors Real Estate Trust dated February 10, 1999.
2. Registration Statement (Form S-11).
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 said 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.
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 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_______________________________
Thomas A. Wentz,
Jr.
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Page 125 of 131
EXHIBIT EX-8
OPINION RE TAX MATTERS
November _____, 1999Securities and Exchange Commission
Washington, D.C. 20549INVESTORS REAL ESTATE TRUST - FORM S-11 DATED November _____, 1999 - TAX MATTERS
In connection with the filing of the above described Form S-11 by Investors Real Estate Trust, we advise you that we have prepared the section of the Prospectus entitled "Tax Treatments of the Trust and Its Security Holders", including the following subcategories: Federal Income Tax, North Dakota Income Tax, Taxation of the Trust's Shareholders, Taxation of Tex-Exempt Shareholders, Tax Considerations for Foreign Investors, Backup Withholding, State and Local Taxes, Other Tax Considerations, Tax Aspects of the Operating Partnership, Classification as a Partnership and Income Taxation of the operating Partnership and Its Partners.
In connection with the preparation of said portion of the filing, we have examined and are familiar with the originals of all documents, trust records and other instruments relating to the organization and operation of Investors Real Estate Trust, IRET Properties, a North Dakota Limited Partnership, and all other related entities described in the filing.
In addition, we have reviewed all applicable provisions of the Internal Revenue Code, the regulations issued thereunder and, where appropriate, revenue rulings, federal and state court decisions and such other materials as we deemed necessary and relevant to the matters being opined upon.
The conclusions and statements made in the above described portions of the S-11 filing represent our opinions on such matters and have been set forth with our knowledge and consent. The above portions of the Prospectus are hereby incorporated by reference.
PRINGLE & HERIGSTAD, P.C.
By____________________________
Thomas A. Wentz, Jr.
EX-23(i)
November _____, 1999UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONER
WASHINGTON DC 20549FORM S-11 REGISTRATION STATEMENT
INVESTORS REAL ESTATE TRUST CIK0000798359TO 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 August 6, 1999, 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.
By_________________________
Thomas A. Wentz, Jr.
ii-11
Page 127 of 131
EX-23(ii)
BRADY MARTZCERTIFIED PUBLIC ACCOUNTANTS
November _____, 1999
UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONER
WASHINGTON DC 20549RE: 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, 1999, as well as our Independent Auditor's Report dated May 26, 1999. 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.
BRADY, MARTZ & ASSOCIATES, P.C.
24 West Central P.O. Box 848
Minot, ND 58702-0848
(701) 852-0196
Fax (701) 839-5452ii-12
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ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM FINANCIAL STATEMENT ATTACHED HERETO AS EXHIBIT F FOR THE TWELVE MONTH PERIOD ENDED APRIL 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH EXHIBIT F.
PERIOD TYPE 12 MOS FISCAL YEAR END APRIL 30, 1999 PERIOD START MAY 01, 1998 PERIOD END APRIL 30, 1999 CASH 3,713,053 SECURITIES 3,699,183 RECEIVABLES 14,490,847 ALLOWANCES (123,212) INVENTORY 0 CURRENT ASSETS 21,779,871 PP 295,825,839 DEPRECIATION (26,112,399) TOTAL ASSETS 291,493,311 CURRENT LIABILITIES 18,868,812 BONDS 186,841,205 PREFERRED MANDATORY 0 PREFERRED 0 COMMON 93,095,819 OTHER SE (7,312,525) TOTAL LIABILITY AND EQUITY 291,493,311 SALES 0 TOTAL REVENUES 39,927,262 CGS 0 TOTAL COSTS 21,423,605 OTHER EXPENSES 744,725 LOSS PROVISION 0 INTEREST EXPENSE 12,101,981 INCOME PRETAX 5,656,951 INCOME TAX 0 INCOME CONTINUING 5,656,951 DISCONTINUED 1,947,184 EXTRAORDINARY 0 CHANGES 0 NET INCOME 7,604,135 EPS BASIC .44 EPS DILUTED 0
Investors Real Estate Trust EX-99 (i) SUBSCRIPTION AGREEMENT
AMOUNT $__________________ NUMBER OF COMMON SHARES ________________
OWNERSHIP
Name(s)________________________________________________________________________REGISTRATION
Address ________________________________________________________________________
City___________________________ State________________ Zip Code____________________
Under penalties of perjury, the undersigned certified (1) that the number shown as his taxpayer identification number is his correct taxpayer identification number and (2) that he is not subject to back up withholding either because he has not been notified that he is subject to backup withholding as a result of a failure to report all interest and dividends or because the Internal Revenue Service has notified him that he is no longer subject to backup withholding.
MAILING ADDRESS FOR CORRESPONDENCE AND CASH DISTRIBUTIONS
Name(s)________________________________________________________________________
Address________________________________________________________________________
City ____________________________________ State __________ Zip ____
(if different from above)TITLE TO BE HELD
_____Individual _____Tenants in Common _____IRA _____Partnership
_____Joint Tenants/ _____Corporation _____Trust _____Pension Plan Rights of Survivorship _____Marital Property _____Custodian _____Profit SharingSIGNATURES
I hereby certify as follows: That a copy of the Prospectus, including the Subscription Agreement attached thereto, as amended and/or supplemented to date, has been delivered to me, and I acknowledge that such Prospectus was received.Executed this ___ day of _________, ______, at ____________(city)____ (state).
Signature ______________________________________________________________
(investor's, otherwise Trustee of IRA, Pension Plan, etc.)
Additional Signature ______________________________________________________
(if joint tenant)The undersigned hereby represents that it has reasonable grounds to believe on the basis of information obtained from the above-named investor concerning his-her investment objectives, other investments, financial situation and needs, and any other information known by it that:
A. The above-named investor is or will be in a financial position appropriate to enable him-her to realize, to a significant extent, the benefits discussed in the Prospectus;
B. The above-named investor has a fair market net worth sufficient to sustain the risks inherent in the Shares, including loss of investment and lack of liquidity; andC. The Shares are otherwise suitable for the above-named investor. I further represent that prior to executing this purchase transaction, I informed the above-named investor of all pertinent facts relating to the liquidity of the Shares.
SOLICITING DEALER ENDORSEMENT
Firm _________________________________________________________________
Registered Representative_________________________________________________
Phone _____________________________
Address ___________________________
Dealer Authorized Signature ___________________________________NOTE: Checks to be made payable to:
INVESTORS REAL ESTATE TRUST, 12 SOUTH MAIN ST., MINOT, ND 58701
Accepted by: INVESTORS REAL ESTATE TRUST
_____________________________________________ Date____________________
By: ODELL-WENTZ & ASSOCIATES (Advisor)
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