-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RwGG7nhzjEhz7CVag2l9nTdUnQo3Wkh9PzZBQJbC24D7XOoxz5RlxDlS7i+quePD J16F3/WUYDoaZZMaKWd0Hg== 0000912057-96-007186.txt : 19960822 0000912057-96-007186.hdr.sgml : 19960822 ACCESSION NUMBER: 0000912057-96-007186 CONFORMED SUBMISSION TYPE: S-11/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960426 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS REAL ESTATE TRUST CENTRAL INDEX KEY: 0000798359 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 450311232 STATE OF INCORPORATION: ND FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: S-11/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-01767 FILM NUMBER: 96551934 BUSINESS ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 BUSINESS PHONE: 7018521756 MAIL ADDRESS: STREET 1: 12 S MAIN CITY: MINOT STATE: ND ZIP: 58701 S-11/A 1 AMENDMENT TO S-11 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-11/A (AMENDED) REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- INVESTORS REAL ESTATE TRUST (Exact name of registrant as specified in governing instruments) 12 SOUTH MAIN STREET MINOT, ND 58701 (Address of principal executive offices, including zip code) TIMOTHY P. MIHALICK 12 SOUTH MAIN STREET MINOT, ND 58701 (Name and address of agent for service) Copies of communications to: THOMAS A. WENTZ, JR., ESQ. PRINGLE & HERIGSTAD, P.C. P.O. BOX 1000 MINOT, ND 58702-1000 (701) 852-0381 FAX (701) 857-1361 Approximate date of commencement of proposed sale to the public: As soon as practicable on or after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box. /X/ CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------- Proposed Maximum Proposed Maximum Title of securities Amount to be offering price aggregate offering Amount of to be registered registered per unit price registration fee - ------------------------------------------------------------------------------------------------------- Investors Real 1,000,000 shares $7.00 per share $7,000,000.00 $2,413.81 Estate Trust Shares aggregate offering of Beneficial price Interest - -------------------------------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such dates or date as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. I Cross Reference Sheet Part I. Information Required in Prospectus
ITEM PAGE LOCATION - ---- ------------- 1 Forepart of Registration Statement and Outside Front Cover Page of Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 2 2 Inside Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 8, 9, 10 4 Determination of Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5 Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6 Selling Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 7 Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 11, 12 9 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13 10 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 - 20 11 General Information as to Registrant. . . . . . . . . . . . . . . . . . . . . . . . . 20 12 Policy with Respect to Certain Activities . . . . . . . . . . . . . . . . 20, 21, 22, 23 13 Investment Policies of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14 Description of Real Estate. . . . . . . . . . . . . . . . . . . . . . . . 24, 25, 26, 27 15 Operating Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 25, 26, 27 16 Tax Treatment of Registrant and Its Security Holders. . . . . . . . . 27, 28, 29, 30, 31 17 Market Price Of and Dividends on the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . .31, 32 18 Description of Registrant's Securities. . . . . . . . . . . . . . . . . . . . . . . . .32 19 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 20 Security Ownership of Certain Beneficial Owners and Management. . . . . . . . 33, 34, 35 21 Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . . . . 33, 34, 35 22 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 35, 36, 37, 38 23 Certain Relationships and Related Transactions. . . . . . . . . . . . . . 35, 36, 37, 38 24 Selection, Management and Custody of Registrant's Investments . . . . . . . . . . . . 38 25 Policies with Respect to Certain Transactions . . . . . . . . . . . . . . . . . . . . 38 26 Limitations of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38, 39 27 Financial Statements and Information. . . . . . . . . . . . . . . . . . . . . F-1 - F-35 28 Interests of Named Experts and Counsel. . . . . . . . . . . . . . . . . . . . . . . . N/A 29 Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Part II. Information Not Required in Prospectus
Item Page Location - ---- ------------- 30 Other Expenses of Issuance and Distribution . . . . . . . . . . . . . . . . . . . . . S-1 31 Sales to Special Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1 32 Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . S-1 33 Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . S-1 34 Treatment of Proceeds from Stock Being Registered . . . . . . . . . . . . . . . . . . S-2 35 Financial Statements and Exhibits . . . . . . . . . . . . . . . . . . . . . . . S-2, S-3 36 Undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
II Prospectus INVESTORS REAL ESTATE TRUST 12 South Main Street Minot, ND 58701 (701) 852-1756 FOR 800,000 SHARES OF BENEFICIAL INTEREST OF INVESTORS REAL ESTATE TRUST WITHOUT PAR VALUE MINIMUM PURCHASE: 100 SHARES OFFERING PRICE: $7.00 PER SHARE All of the shares of Beneficial Interest offered hereby (the "Shares) are being sold on a best efforts basis by Investors Real Estate Trust (the "Trust"). A best efforts basis means there is no assurance that any of the shares will be sold. (1)The Trust is a North Dakota Business Trust which has operated as an infinite life real estate investment trust ("REIT") since its formation on July 30, 1970, and is organized for the purpose of investment in real estate and loans secured by real estate. The Trust's investment objectives are to provide investors appreciation of capital, greater security through investment diversification, and a high level of distributable income. The Trust owns or holds interests in a portfolio of real estate or real estate backed mortgages located in eight states. All of the shares of Beneficial Interest offered hereby (the "Offering") are being sold only by the Broker-Dealers listed on page 10. There is no established over-the-counter secondary market for the shares. SEE "MARKET" PAGE 31. THE SECURITIES OFFERED BY THIS PROSPECTUS ARE SPECULATIVE. INVESTMENT IN THE SHARES INVOLVES CERTAIN MATERIAL RISKS AND THERE IS NO GUARANTEE OF RETURN ON INVESTMENT. SEE PAGE 7 OF THIS PROSPECTUS. AMONG SUCH RISKS ARE THE FOLLOWING: - LACK OF A PUBLIC MARKET AND LACK OF LIQUIDITY. - TAXATION OF THE TRUST AS A CORPORATION IF IT FAILS TO QUALIFY AS A REIT. - THE SHARE PRICE IS ARBITRARILY DETERMINED. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 1 - -------------------- (1)The shares are being offered on a "best efforts" basis. The termination date of the offering shall be a date not later than one year after the date of this Prospectus. The minimum required purchase is 100 shares. Any proceeds received from subscribers for the shares will not be placed in escrow or trust.
- ------------------------------------------------------------------------------------- PRICE TO PUBLIC(2) SELLING COMMISSION(3) PROCEEDS TO TRUST(4) - ------------------------------------------------------------------------------------- PER SHARE $7.00 $.56 $6.44 - ------------------------------------------------------------------------------------- TOTAL $5,600,000 $464,000 $5,136,000 - -------------------------------------------------------------------------------------
The Trust has registered 1,000,000 of its shares of Beneficial Interest no par value per share, of which 200,000 shares are available only to shareholders who participate in the Trust's dividend reinvestment plan. See page 32. Said shares do not have a par value. The shares offered hereby (the "Offering") will be sold by securities broker-dealers (the "Soliciting Dealers") who are members of the National Association of Securities Dealers, Inc. ("NASD"). 2 - -------------------- (2)The offering price of the shares was arbitrarily determined by the Company based on the price at which the shares have previously traded. See Determination of Offering Price. Page 10. (3)The Company will pay the securities broker-dealers a commission equal to $.56 per share for the sale of each share of Beneficial Interest sold by them. (4)The proceeds to the company do not include a deduction for the expenses, other than the soliciting dealer's commission, incurred by the company as a result of the offering. These expenses are estimated to be $5,000 for printing and filing fees, and $25,000 for legal fees to be paid to Pringle & Herigstad, P.C.
TABLE OF CONTENTS THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 AVAILABLE INFORMATION CONCERNING THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Securities and Exchange Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Reports to Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Incorporation by Reference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Price of Shares Arbitrarily Determined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Intent to Qualify as a Real Estate Investment Trust . . . . . . . . . . . . . . . . . . . . . . 8 Best Efforts Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Business Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Risks Related to Mortgage Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Relationship with Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Environmental Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 DETERMINATION OF OFFERING PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SELECTED FINANCIAL DATA - ANNUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . 12 TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Funds from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Consolidated Financial Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Sale of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 New Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Fiscal Year 1995 Compared to Fiscal Year 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 15 Fiscal Year 1994 Compared to Fiscal Year 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 16 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Funds From Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Affiliated Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Property Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Equities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Mortgage Loans Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Property Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Impact of Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3 GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST. . . . . . . . . . . . . . . . . . . . . . . . 20 Organization of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Governing Instruments of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Shareholder Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 POLICY WITH RESPECT TO CERTAIN ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 To Issue Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 To Borrow Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 To Make Loans To Other Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 MORTGAGE LOANS RECEIVABLE - UNRELATED . . . . . . . . . . . . . . . . . . . . . . . . . . 21 MORTGAGE LOANS RECEIVABLE - RELATED PARTIES . . . . . . . . . . . . . . . . . . . . . . . 22 To Invest in the Securities of Other Issuers for the Purpose of Exercising Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Consolidated Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 To Underwrite Securities of Other Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 To Engage in the Purchase and Sale (or Turnover) of Investments . . . . . . . . . . . . . . . . 23 To Offer Securities in Exchange for Property. . . . . . . . . . . . . . . . . . . . . . . . . . 23 To Repurchase or Otherwise Reacquire Its Shares or Other Securities . . . . . . . . . . . . . . 23 To Make Annual and Other Reports to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . 23 INVESTMENT POLICIES OF REGISTRANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Investments in Real Estate or Interests in Real Estate. . . . . . . . . . . . . . . . . . . . . 23 Investments in Real Estate Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Investments in Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Investments in Securities Of or Interests In Persons Primarily Engaged in Real Estate Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 DESCRIPTION OF REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 INVESTMENT PORTFOLIO - INVESTORS REAL ESTATE TRUST AS OF APRIL 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Planned Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Contracts or Options to Sell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Occupancy and Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 TAX TREATMENT OF REGISTRANT AND ITS SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 27 Federal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 North Dakota Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Taxation of the Trust's Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Taxation of Tax-Exempt Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Tax Considerations for Foreign Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Backup Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Other Tax Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 MARKET PRICE OF AND DIVIDENDS ON THE TRUST'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Market for the Registrant's Common Stock and Related Security Holder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 DIVIDEND REINVESTMENT PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 DESCRIPTION OF REGISTRANT'S SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . 33
4 EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . 35 ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Basic Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Additional Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Roger R. Odell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Thomas A. Wentz, Sr.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SELECTION, MANAGEMENT AND CUSTODY OF TRUST'S INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . 38 Management of Trust's Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 LIMITATIONS OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5 THE TRUST Investors Real Estate Trust (hereinafter "IRET"), an unincorporated business trust, was organized under the laws of the State of North Dakota on July 31, 1970. IRET has qualified and operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its inception. IRET, pursuant to the requirements of Sections 856-858 of the Internal Revenue Code which govern real estate investment trusts, is engaged in the business of making passive investments in real estate equities and mortgages. IRET has its only office in Minot, North Dakota, and operates principally within the confines of the State of North Dakota, although it has some real estate investments in the states of Minnesota, South Dakota, Nebraska, Montana, Colorado, Wisconsin, Idaho and Arizona. IRET is the general partner of seven limited partnerships which own investment real estate. IRET, as the general partner and as a creditor of said limited partnerships, has a substantial influence over the operation of the partnerships. Thus, the financial statements of IRET and the seven partnerships have been consolidated for financial reporting purposes and all material intercompany transactions and balances have been eliminated. The seven limited partnerships are: Eastgate Properties, Ltd. Bison Properties, Ltd. First Avenue Building, Ltd. Chateau Properties, Ltd. Sweetwater Properties, Ltd. Hill Park Properties, Ltd. Colton Heights, Ltd. IRET operates on a fiscal year ending April 30. For its past three fiscal years, its sources of operating revenue, total expenses, net real estate investment income, capital gain income, total income, and dividend distributions consolidated with said seven limited partnerships are as follows:
Fiscal Year Ending 4/30 1995 1994 1993 ---- ---- ---- REVENUE FROM OPERATIONS Real Estate Rentals $12,733,261 $10,204,670 $6,376,733 Interest, Discount & Fees 1,384,433 1,679,909 1,939,910 ----------- ----------- ---------- $14,117,694 $11,884,579 $8,316,643 EXPENSE $10,549,680 $ 8,706,478 $6,085,551 ----------- ----------- ---------- NET REAL ESTATE INVESTMENT INCOME $ 3,568,014 $ 3,178,101 $2,231,092 GAIN ON SALE OF INVESTMENTS (CAPITAL GAIN) 403,094 64,962 132,610 ----------- ----------- ---------- NET INCOME $ 3,971,108 $ 3,243,063 $2,363,702 ----------- ----------- ---------- ----------- ----------- ---------- PER SHARE Net Income $ .38 $ .35 $ .29 Dividends Paid $ .35 $ .33 $ .32
6 As indicated above, IRET has two principal sources of operating revenue: rental income from real estate properties owned by the trust and interest income from mortgages and contracts for deed secured by real estate. A minor amount of revenue is derived from interest on short-term investments in government securities, interest on savings deposits and fees derived from serving as a general partner of certain limited partnerships. In addition to operating income, the trust has received capital gain income when real estate properties have been sold at a price in excess of the depreciated cost of said properties. IRET has no employees. Its business is conducted through the services of an independent contractor (Odell-Wentz & Associates LLC, a North Dakota Limited Liability Company having as its members Roger R. Odell and Thomas A. Wentz, Sr.) which serves as the advisor to the trust. Since the inception of the Trust and until January 1, 1986, Roger R. Odell, 12 South Main, Minot, North Dakota, served as advisor to the trust, providing office facilities, administering day-to-day operations of the trust, and advising with respect to investments and investment policy. Effective January 1, 1986, the trust entered into a revised advisory agreement with Mr. Odell and Thomas A. Wentz, Sr. Mr. Odell is a graduate of the University of Texas, receiving his B.A. degree in 1947. He has been a resident of Minot, North Dakota since 1947. From 1947 to 1954, he was employed by Minot Federal Savings & Loan Association, serving as secretary of the association from 1952 to 1954. Since 1954, Mr. Odell has been a realtor in Minot, serving as an officer and stockholder of Watne Realty Company from 1954 to January 1, 1970, and since that time as the owner of his own realty firm. Mr. Wentz is a graduate of Harvard College and Harvard Law School, receiving his A.B. degree in 1957 and his L.L.B. degree in 1960. He has been a resident of Minot, North Dakota, since 1962. Mr. Wentz' principal occupation is the practice of law as a partner in the law firm of Pringle & Herigstad, P.C., counsel to the trust and he provides services to Odell-Wentz & Associates on a part-time basis. AVAILABLE INFORMATION CONCERNING THE TRUST SECURITIES AND EXCHANGE COMMISSION: The Trust is currently a reporting company pursuant to the Exchange Act and in accordance therewith annually files a Form 10-K and quarterly Forms 10-Q for the first three quarters of each year with the Securities and Exchange Commission. The information filed by the Trust can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission in Washington, DC, at 450 Fifth Street NW, Room 1024, Washington, DC 20549, (202-272-3100). Copies of said information can be obtained from the Public Reference facility at prescribed rates. REPORTS TO SECURITY HOLDERS: The Trust shall furnish shareholders with annual reports on or about July 25th of each year containing financial statements audited by the Trust's independent accountants, with quarterly reports for the first three quarters of each year containing unaudited summary financial and other information, and with such other reports as the Trust deems appropriate or as required by law. INCORPORATION BY REFERENCE: Copies of any document or part thereof incorporated by reference in this prospectus but delivered therewith is available free of charge upon request made to Timothy Mihalick, 12 South Main Street, Minot, ND 58701 (701-852-1756). RISK FACTORS An investment in the shares involves various risks. Investors should consider the following factors which make the Offering one of high risks: 7 PRICE OF SHARES ARBITRARILY DETERMINED: The price of the shares has been determined by the Trust and is a higher price than the price paid by the current holders of the Trust's shares. The offering price set forth on the cover page of this Prospectus should not be considered an indication of the actual value of the shares. INTENT TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST: The Trust intends to continue operating so as to qualify as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"). Although the Trust believes that it is organized and will continue to operate in such a manner, no assurance can be given that the Trust will remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex code provisions for which there are only limited judicial or administrative interpretations. No assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualifications as a REIT or the federal income tax considerations of such qualifications. If in any taxable year the Trust failed to qualify as a REIT, the Trust would not be allowed a deduction for distribution to shareholders in computing its taxable income and would be subject to federal income tax on its taxable income at regular corporate rates. Unless entitled to relief under certain statutory provisions, the Trust also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. As a result, the funds available for distribution to the Trust's shareholders would be reduced for each of the years involved. Although the Trust currently intends to continue to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the Trust's Board of Trustees to revoke the REIT election. BEST EFFORTS SALE: The shares are being sold by the Soliciting Dealers on a "best efforts" basis whereby the selling agent is only required to use its best efforts to locate purchasers of the shares, but is not obligated to ensure that a minimum number or that even any shares are sold. Therefore, no assurance is given as to the amount of proceeds that will be available for investment by the Trust. In the event fewer than all the Shares are sold during the offering period (which is 365 days from the date of this document), the Trust would have fewer cash assets to apply toward its business plan. In such event, the fixed operating expenses of the Trust, as a percentage of gross income, would be higher and consequently reduce the taxable income distributable to shareholders. BUSINESS ENVIRONMENT: The results of operations of the Trust will depend, among other things, upon the availability of opportunities for the investment and reinvestment of the funds of the Trust. The yields available from time to time on mortgages and other real estate investments depend to a large extent on the type of security involved, the type of investment, the condition of the money market, the geographical location of the property, general economic conditions, competition, and other factors, none of which can be predicted. Trust funds are presently invested in real estate in North Dakota and several other states. As a result, the Trust may be subject to substantially greater risk than if its investments were more dispersed geographically. Local conditions, such as competitive overbuilding or a decrease in employment, may adversely affect the performance of the Trust's investments. In the area in which the Trust operates, the economy is dependent on the areas of agriculture and mineral development. If these areas do not perform satisfactorily, the ability of the Trust to realize profits from its business of real estate investments will be adversely affected. RISKS RELATED TO MORTGAGE LENDING: All real property investments are subject to some degree of risk, which, in some cases, varies according to the size of the investment as a percentage of the value of the real property. In the event of a default by a borrower on a mortgage loan, it may be necessary for the Trust to 8 foreclose its mortgage or engage in negotiations which may involve further outlays to protect the Trust's investment. The mortgages securing the Trust's loans may be, in certain instances, subordinate to mechanics' liens, materialmen's liens, or government liens and, in instances in which the Trust invests in a junior mortgage, to liens of senior mortgages, and the Trust may be required to make payments in order to maintain the status of the prior lien or to discharge it entirely. In certain areas, the Trust might lose first priority of its lien to mechanics' or materialmen's liens by reason of wrongful acts of the borrower. It is possible that the total amount which may be recovered by the Trust in such cases may be less than its total investment, with resultant losses to the Trust. Loans made by the Trust may, in certain cases, be subject to statutory restrictions limiting the maximum interest charges and imposing penalties, which may include restitution of excess interest, and, in some cases, may affect enforceability of the debt. There can be no assurance that all or a portion of the charges and fees which the Trust receives on its loans may not be held to exceed the statutory maximum, in which case the Trust may be subjected to the penalties imposed by the statutes. RELATIONSHIP WITH ADVISOR: Certain operating expenses of the Trust, including compensation to the advisor and the trustees, must be met regardless of profitability. The advisor's fee is computed as a percentage of the investments of the Trust. (See "Advisory Agreement" on page 36.) ENVIRONMENTAL LIABILITY: Investments in real property create a potential for environmental liability on the part of the owner of or any mortgage lender on such real property. Under federal and state legislation, property owners are liable for cleanup expenses in connection with hazardous wastes or other hazardous substances found on their property. No assurance can be given that a substantial financial liability may not occur with respect to properties owned or acquired in the future by the Trust. It is the policy of the Trust to obtain a Phase I environmental survey upon purchasing property and, as of the date of this Prospectus, the Trust is unaware of any environmental liability with respect to properties in its portfolio. COMPETITION: Investments of the types in which the trust is interested may be purchased on a negotiated basis by many kinds of institutions, including mutual savings banks, savings and loan associations, commercial banks, insurance companies and, to a lesser extent, pension funds, credit unions and individuals. In addition, there are a number of other real estate investment trusts in operation, some of which may be active in one or more of the Trust's areas of investment. Investments must thus be made by the Trust in competition with such other entities. The yields available on mortgage and other real estate investments depend upon many factors, including the supply of money available for such investments and the demand for mortgage money. The presence of the foregoing competitors increases the available supply of funds to prospective borrowers from the Trust. All these factors, in turn, vary in relation to may other factors such as general and local economic conditions, conditions in the construction industry, opportunities for other types of investments, international, national and local political affairs, legislation, governmental regulation, tax laws, and other factors. The Trust cannot predict the effect which such factors will have on its operations. LIQUIDITY: No assurance can be given that a purchaser of Trust shares under this Offering would be able to resell such shares when desired. At the present time, there is no brokerage firm that "makes a market" for Trust shares. All resales of Trust shares are now on a "best efforts" basis and the ability of a shareholder to resell shares is dependent on the broker-dealer locating a purchaser. During the past five years, to the best of the Trust's knowledge, all 9 shareholders desiring to resell their shares have been able to do so within five business days. The commission currently being charged for resales is 8%. DETERMINATION OF OFFERING PRICE The offering price of $7.00 per share was arbitrarily established by the Trust based upon the previous asked price for its shares of Beneficial Interest over the past three calendar years. The total number of shares traded, the high and low bid and asked prices during this period and the quarterly dividend are as follows:
Quarterly Calendar No. of Bid Asked Per Share Year Months Shares Traded Low High Low High Dividend ---- ------ ------------- --- ---- --- ---- -------- 1993 January-March 241,353 5.02 5.10 5.70 5.80 .08 1993 April-June 230,068 5.10 5.19 5.80 5.90 .0805 1993 July-September 140,339 5.10 5.19 5.90 5.90 .081 1993 October-December 181,613 5.16 5.28 5.90 6.00 .0815 1994 January-March 250,167 5.20 5.37 6.00 6.10 .082 1994 April-June 163,347 5.20 5.37 6.10 6.10 .0825 1994 July-September 134,529 5.37 5.63 6.10 6.25 .088 1994 October-December 335,518 5.63 5.89 6.25 6.40 .084 1995 January-March 210,106 5.89 5.89 6.40 6.40 .085 1995 April-June 137,766 5.89 6.03 6.40 6.55 .08625 1995 July-September 452,665 5.89 6.03 6.40 6.55 .0925 1995 October-December 466,447 5.89 6.16 6.40 6.70 .08875
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 January 31, 1996, the book value of the 12,693,198 shares then outstanding was $3.75. Assuming all of the shares registered under this Offering are sold, the estimated resulting book value will be $4.00 per share. Thus, a purchasing shareholder paying $7.00 per share under this Offering will incur an immediate book value dilution of $3.00 per share. PLAN OF DISTRIBUTION The shares offered by this Prospectus shall be sold by Inland National Securities, Inc., attention David Theusch, of 21 South Main, Minot, North Dakota 58701, (701) 852-1640, and Financial Advantage Brokerage Services, Inc., attention Roger Domres, of 17 South Main, Minot, North Dakota 58701, (701) 852-3090, or the registered securities salespeople associated with said firms. All shares shall be sold on a "best efforts" basis with no guarantee or requirement that any shares be sold. All sales are subject to a 100 share or $700.00 minimum purchase. For each share sold, the selling Broker-Dealer shall receive a commission of $.56 per share. No other compensation or fees other than the percentage commission shall be paid by the Trust to the Broker-Dealers. The relationship between the Broker-Dealers and the Trust may be terminated by either entity at any time for any reason. Both Broker-Dealers have the opportunity to sell the entire Offering. USE OF PROCEEDS The net proceeds from the sale of the 800,000 shares offered to the public will be added to the Trust's operating capital to be used in connection with its general business purposes. 10 As of the date of this Prospectus, the Trust is engaged in constructing apartment buildings in Minot and Grand Forks, North Dakota, and Billings, Montana, and plans to construct the additional apartments described below. These apartments are of a design and type previously constructed by the Trust during the past three years in Sioux Falls, South Dakota (98 units), Bismarck, North Dakota (49 units), and Minot, North Dakota (98 units). The apartments constructed in Sioux Falls, Bismarck and Minot have rented quickly at projected rental rates and, in the judgment of management, will produce a satisfactory investment return. The Trust intends to continue the construction of this type of apartment building as follows:
APARTMENTS UNDER CONSTRUCTION CITY UNITS ESTIMATED COST ---- ----- -------------- Minot, ND 98 $ 4,375,000 Grand Forks, ND 116 5,275,000 Billings, MT 98 5,000,000 ----------- Total - Apartments Under Construction $14,650,000
PLANNED APARTMENT CONSTRUCTION CITY UNITS ESTIMATED COST ---- ----- -------------- Grand Forks, ND 201 $ 9,100,000 Bismarck, ND 192 9,000,000 Billings, MT 98 4,600,000 ----------- Total - Planned Apartment Construction $22,700,000
The Trust does not yet own all of the land necessary for the planned apartment construction, nor has it arranged for the financing that would be necessary. Thus, no assurance can be given that the Trust will successfully complete this construction program. The Trust will also continue to consider other real estate investment opportunities that are presented to it, but is not obligated at the date of this Prospectus to acquire any real estate investments and expects to concentrate its efforts and resources on the planned apartment construction projects described above during the next 18 month period. The Trust will also derive funds to fund the properties under construction that are described above from the following sources: - DEPRECIATION REVENUE. As a "Real Estate Investment Trust" under the Internal Revenue Code, the Trust must distribute at least 95% of its taxable income. However, in computing taxable income, a deduction for depreciation of the buildings owned by the Trust is allowed. In the Fiscal year ended April 30, 1995, this depreciation deduction was $1,845,571. The amount of this depreciation is used by the Trust to acquire addition real estate investments. - LOANS. The Trust seeks to borrow approximately 70% of the cost of real estate purchased. The objective is to purchase real estate at a price which will yield a higher percentage return than the interest rate payable on the mortgage loan. This "leverage" is essential to producing a satisfactory return to the owners of the Trust. (No assurance can be given that the income actually earned on real estate investments made by the Trust will be higher than the interest rate paid on the Trust's mortgage loans.) As of January 31, 1996, the ratio of mortgage liabilities to total Trust real estate assets was $72,332,672 of mortgage liabilities to 11 $117,339,315 of real estate assets or 62%. Thus, as much as $32,682,828 could be borrowed on the existing portfolio before reaching the desired debt ratio of 70% (present equity in real estate of $117,339,315, minus mortgages of $72,332,672 equals $45,006,643 - 30% = $150,022,143, minus present real estate owned of $117,339,315 equals $32,682,828) (no assurance can be given that this amount of borrowed funds would be available). - MARKETABLE SECURITIES/CREDIT LINE. The Trust maintains an investment in marketable government insured securities ($4,508,382 as of January 31, 1996) which securities are held in brokerage accounts with Dean Witter and Smith Barney. The current policy of said brokers is to allow the Trust to borrow up to 90% of the market value of these securities for short-term needs. Also, the Trust may enter into short-term credit line borrowing agreements with banks if the need arises. No assurance can be given that either of these borrowing arrangements would be available to the Trust. SELECTED FINANCIAL DATA - ANNUAL
YEAR ENDED APRIL 30 ------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Consolidated Income Statement Data Revenue $14,117,694 $11,884,579 $ 8,316,643 $ 7,206,054 $ 6,591,500 Operating income 3,568,014 3,178,101 2,231,092 1,628,155 1,160,634 Gain on repossession/ sale of investments 403,094 64,962 132,610 22,858 (10,008) Net income 3,971,108 3,243,063 2,363,702 1,651,013 1,150,626 Balance Sheet Data Total real estate investments 84,408,412 64,427,776 50,041,059 34,302,341 31,722,867 Total assets 94,890,994 72,729,848 54,658,569 38,997,080 35,757,950 Shareholders' equity 38,094,144 30,320,401 23,745,443 18,849,635 15,770,048 Consolidated Per Share Data Net income $ .38 .36 $ .29 $ .23 $ .18 Gain of repossession/ sale of investments .04 .01 .01 .00 .00 Dividends .35 .33 .32 .31 .31 Tax status of dividend Capital gain 11.0% 7.37% 4.08% 1.0% 4.9% Ordinary income 89.0% 92.63% 74.04% 68.0% 53.8% Return of capital 0.0% 0.00% 21.88% 31.0% 41.3%
TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS
QUARTER ENDED ------------------------------------------------- 1-31-94 4-30-94 7-31-94 10-31-94 ---------- ---------- ---------- ---------- Consolidated Income Statement Data Revenue $2,983,480 $3,304,827 $3,328,796 $3,616,969 Income before gains on sale of investments 872,875 610,669 794,755 1,066,229 Net gain on sales of investments -- 64,962 -- 305,543 Net income 872,875 675,631 794,755 1,371,772 Per Share Income before gains on sale of investments $ .10 $ .05 $ .07 $ .10 Net gain on sale of investments -- .01 -- .03
12 TWO YEAR SELECTED FINANCIAL DATA - QUARTERLY RESULTS
QUARTER ENDED ------------------------------------------------- 1-31-94 4-30-94 7-31-94 10-31-94 ---------- ---------- ---------- ---------- Consolidated Income Statement Data Revenue $3,574,068 $3,597,861 $3,782,061 $4,715,186 Income before gains on sale of investments 1,014,011 693,019 1,009,468 1,058,136 Net gain on sales of investments -- 97,551 -- -- Net income 1,014,011 790,570 1,009,468 1,058,136 Per Share Income before gains on sale of investments $ .10 $ .07 $ .09 $ .09 Net gain on sale of investments -- .01 -- --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: IRET has operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its formation in 1970. IRET is in the business of owning income producing real estate investments. No major changes in IRET's business has occurred from the organization of the Trust in 1970 to the date of this Prospectus, and none are planned at this time. RESULTS OF OPERATIONS. IRET's Third Quarter, which ended on January 31, 1996, saw an increase in earnings and property owned. EARNINGS. IRET had net taxable earnings for the Third Quarter of Fiscal 1996 of $1,604,507, compared to $1,064,011 earned in the Third Quarter of the prior fiscal year. This year's results include $522,001 of capital gain income while no capital gain income was included in the prior year's results. For the first nine months of Fiscal 1996, net taxable income was $3,672,110, compared to $3,330,538 in the prior year. The 1996 results include $522,001 of capital gain income compared to $305,543 of capital gain income in the prior year. On a per share basis, net income was $.13 for the Third Quarter (compared to $.10 last year) and $.30 for the nine month period (compared to $.33 in the prior year). FUNDS FROM OPERATIONS. Funds from operations (taxable income increased by non-cash deductions of depreciation and amortization, less extraordinary income items) for the Third Quarter increased to $1,688,506, from the $1,499,011 received in the prior year. For the nine month period, funds from operations increased to $4,760,109 from $4,379,995 in the prior period. These changes in net taxable earnings and funds from operations resulted from: - A continuing strong rental environment in the cities in which we operate. We are experiencing a strong demand for our rental properties and have been able to increase rents at a rate greater than the inflation in our operating expenses. - The new properties that we have purchased and constructed are performing very well. We continue to see a rapid rent-up of our new properties at or above our projected rents. 13 - A considerable amount of our capital continues to be invested in constructing new apartment buildings. During this construction period, our investment is not earning income and will continue to hold down our earnings for financial reporting purposes. - The Smith Home Furnishings property in Boise, Idaho, has not been re- rented. We do have a temporary tenant in part of the building, but we will continue to have a rent shortfall of approximately $45,000 a month until a new permanent tenant can be found. - We are in the process of refinancing many of our existing properties. Interest rates are declining and we expect to see lower interest expense in the months ahead. We continue to be pleased with the performance of our portfolio. We project a continuation of our earnings at the current level. FINANCIAL CONDITION. IRET's liquidity and capital resources remain strong and will enable IRET to continue its rapid expansion of real estate owned. Comparative balance sheet figures are:
1/31/96 1/31/95 ------------ ----------- Cash Marketable Securities $ 7,892,782 $10,635,726 Net Real Estate Owned $114,094,135 $64,397,017 Net Real Estate Mortgages $ 3,245,180 $ 4,926,883 Total Assets $127,421,081 $80,925,554 Total Liabilities $ 79,771,476 $44,964,625 Shareholder Equity $ 47,649,605 $35,960,929
CONSOLIDATED FINANCIAL REPORTS. The financial statements shown in this report consolidate IRET's financial report with those of the seven limited partnerships of which IRET is the general partner and creditor. SALE OF PROPERTIES. During the Third Quarter, IRET sold properties from its portfolio resulting in a capital gain for financial reporting purposes of $522,001. For income tax purposes, IRET has elected to reinvest the proceeds of these sales to acquire like-kind real estate. NEW INVESTMENTS. During the first nine months, IRET has purchased or constructed the following real estate properties. These properties are on IRET's books and are now producing rental income:
COST ----------- - Barnes & Noble Super Store, Omaha, NE (15 yr. net leased) $ 3,675,000 - 313 unit West Stonehill Apartments, St. Cloud, MN 11,000,000 - 18-plex Apartment Bldg., Minot, ND 590,000 - 98 unit Apartment Complex - South Pointe - Phase I, Minot, ND 4,600,000 - 49 unit Apartment Bldg. - North Pointe - Bismarck, ND 2,250,000 - 164 unit Apartment Complex - Southwinds - Grand Forks, ND 5,400,000 - Stone Container Commercial Building, Fargo, ND 4,880,000 ----------- $32,395,000 ----------- -----------
The following properties are under construction: Douglasville, Georgia, Retirement Center ($2,810,000 Estimated Cost) 98-unit Apartment Complex, Minot, ND ($4,500,000 Estimated Cost) 116-unit Apartment Complex, Grand Forks, ND ($5,225,000 Estimated Cost) 98-unit Apartment Complex, Billings, MT ($5,000,000 Estimated Cost) 14 DIVIDENDS. IRET paid its 99th consecutive quarterly dividend on January 5, 1996, of $.09 per share. This was an increase from the $.08875 per share dividend paid on October 1, 1995. FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994: Net income for Fiscal 1995 increased to $3,971,108, compared to $3,243,063 for Fiscal 1994 and $2,363,702 for Fiscal 1993. On a per share basis, net income was $.38 for Fiscal 1995, an increase of 6% over the $.36 earned in the prior year and 31% more than the $.29 earned in Fiscal 1993. Gain from the sale of real estate investments constituted $403,094 ($.04 per share) of the Fiscal 1995 net income, compared to $64,962 ($.01 per share) included in the Fiscal 1994 net income and $132,610 ($.01 per share) for Fiscal 1993. Total revenues were $14,117,694 in Fiscal 1995, compared to $11,884,579 in 1994 and $8,316,643 in 1993. The Fiscal 1995 revenue increase of $2,233,115 consisted of: Rent from 4 properties acquired in Fiscal 1995 $ 534,013 Rent from 4 properties acquired in Fiscal 1994 in excess of that received in Fiscal 1994 1,860,429 An increase in rental rates on existing properties (3%) 213,973 An increase in occupancy rates on existing properties (1/2%) 52,171 A decrease in rent - property sold during 1995 (Yankton) (131,995) A decrease in interest income (260,001) ---------- Net revenue increase (1995 over 1994) $2,233,115 ---------- ----------
Thus, the increase in revenue resulted primarily from the addition of new real estate properties to the portfolio. Scheduled rents on existing properties increased by 3%, while occupancy increased to 95.5% from 95% in the prior year. The $728,045 increase in net income for Fiscal 1995 over the amount earned in the prior year resulted from: An increase in gain from sale of investments $ 338,132 An increase in net rental income (rents, less utilities, maintenance, taxes, insurance and management) 1,999.032 A decrease in interest income (295,476) An increase in interest expense (832,073) An increase in depreciation expense (441,163) A decrease in bad debt expense 50,000 An increase in operating expenses & other items (87,407) ---------- $ 728,045 ---------- ----------
IRET purchased some $27,000,000 of real estate properties during Fiscal 1995 and has contracted to acquire approximately $25,000,000 of additional real estate properties in the coming year. Thus, the Trust's portfolio will shift rapidly from a significant investment in high-yielding mortgage loans to a portfolio consisting primarily of equity positions in real estate. This change in the portfolio will result in a decrease in net income because of increased depreciation. We expect earnings in Fiscal 1996 to exceed this year's level. Occupancy, rental rates and interest rates are expected to remain at present levels and the new properties that are being added to the portfolio will enhance net income. 15 FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993. Net income for Fiscal 1994 increased to $3,242,000, compared to $2,363.702 for Fiscal 1993 and $1,651,013 for Fiscal 1992. On a per share basis, net income was $.35 for Fiscal 1994, an increase of 21% over the $.29 earned in the prior year and 52% more than the $.23 earned in Fiscal 1992. Total revenues were $11,884,579 in Fiscal 1994, compared to $8,316,643 in 1993 and $7,206,054 in 1992. The Fiscal 1994 revenue increase of $3,567,936 consisted of: Rent from 4 properties acquired in Fiscal 1994 $ 722,319 Rent from the 6 properties acquired in Fiscal 1993 in excess of that received in Fiscal 1993 2,568,085 An increase in rental rates on existing properties (3.3%) 336,542 An increase in occupancy rates on existing properties (2%) 200,991 A decrease in interest income (260,001) ---------- Net revenue increase (1994 over 1993) $3,567,936 ---------- ----------
The continuing increase in net income resulted from: - The acquisition of additional real estate properties which have performed at a higher income level than the average of our portfolio. - A continuation of the trend of improved rental rates and occupancy in all of our rental properties. Scheduled rents were up an average of 3.3%, while occupancy increased from 93% to 95%. Rental income was $3,827,937 higher in Fiscal 1994 than in the prior year, while rental expenses (utilities, maintenance, taxes, insurance and managements) were $1,276,774 higher. - A decrease in interest rates on new and existing variable rate mortgages. During Fiscal 1994, IRET increased its allowance for bad debts by $250,000. A residential lot development loan made by IRET to Centrebrooke Homes of Denver, CO, went into default and it is likely that a portion of the $900,708 loan balance will not be collectible. Management is of the opinion that the allowance made in 1994 will cover any losses. DIVIDENDS. The following dividends were paid during Fiscal 1995:
DATE PER SHARE DIVIDEND ---- ------------------ July 1, 1994 $.088* October 1, 1994 $.084 January 5, 1995 $.085 April 1, 1995 $.08625 ------- $.34325 ------- -------
*Includes $.005 special dividend. FUNDS FROM OPERATIONS. The funds derived by the Trust from its operations increased by 18% over the prior year. (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, and after adjustments for 16 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):
FISCAL FISCAL FISCAL FISCAL FISCAL ITEM 1995 1994 1993 1992 1991 - ---- ---------- ---------- ---------- ---------- ---------- Net Income (GAAP) $3,971,108 $3,243,063 $2,363,702 $1,651,073 $1,150,626 Less Gains (Losses) from Property Sales 401,094 64,962 132,610 22,858 (10,008) ---------- ---------- ---------- ---------- ---------- Operating Income $3,568,014 3,178,101 $2,231,092 $1,628,155 $1,160,634 Plus Depreciation 1,845,571 1,401,408 1,051,370 824,369 789,646 Plus Amortization 29,659 28,199 16,364 11,289 11,364 ---------- ---------- ---------- ---------- ---------- Funds from Operations $5,434,244 $4,607,708 $3,298,826 $2,463,813 $1,961,644 Dividends Paid 3,660,986 3,102,061 2,633,799 2,257,303 2,020,303 ---------- ---------- ---------- ---------- ---------- $1,773,258 $1,505,647 $ 665,027 $ 206,510 $ (58,659)
Management expects that the Funds From Operations (as defined above) will continue to improve during Fiscal 1996 and will exceed dividends paid in the coming year. LIQUIDITY AND CAPITAL RESOURCES. IRET's financial condition during Fiscal 1995 continued at the very strong level of its prior fiscal year. - Equity capital increased to $38,094,144 from $30,320,401 on April 30, 1994, a gain of $7,773,743, (26%). Equity capital on April 30, 1993 was $23,745,443. These increases result primarily from the sale of shares of beneficial interest. - Liabilities increased to $56,796,850 from $42,409,447 on April 30, 1994, and $30,409,447 on April 30, 1993. - Total assets increased to $94,890,994 from $72,729,848 on April 30, 1994, and $54,658,569 on April 30, 1993. - Cash and marketable securities were $9,602,551 compared to the year earlier figure of $7,263,031, and $4,124,651 on April 30, 1993. AFFILIATED PARTNERSHIPS. IRET has sponsored and serves as a general partner of seven limited partnerships. Because of IRET's position as a general partner and creditor of these partnerships and because the partnerships (with the exception of Chateau Properties) have not produced sufficient cash flow to pay debts due to IRET as scheduled, the financial statements of IRET and the seven partnerships have been consolidated for financial reporting purposes to more properly depict the financial status of IRET. It is emphasized that the consolidation of the financial reports does not change the legal relationship between IRET and the partnerships, nor the income tax reporting by IRET or the partnerships. 17 The seven affiliated partnerships are as follows:
YEAR PROPERTY IRET NAME FORMED OWNED OWNERSHIP - ------------------------------------------------------------------------- Chateau Properties, 1979 64 Unit 26.7% Ltd. Apt. Bldg. Sweetwater Properties, 1981 114 Units 0% Ltd. Apts. Bison Properties, 1982 125 Units 20% Ltd. Apts. First Avenue Building, 1981 16,500 sq. ft. 20% Ltd. Office Bldg. Eastgate Properties, 1983 116 Units 18% Ltd. Apts. Colton Heights, Ltd. 1984 18 Unit 18.69% Apt. Bldg. Hill Park Properties, 1985 96 Units 7.14% Ltd. Apts.
CONSOLIDATED FINANCIAL STATEMENTS: The financial statement included in this Prospectus consolidates financial statements of IRET and the above seven limited partnerships. All material inter-company transactions and balances have been eliminated on the consolidated statement. The principal impact of this consolidation on the statement of operations is to reduce reported income as a result of increased depreciation. On the balance sheet, related mortgage loans and the investment in partnerships is reduced and real estate owned is increased. Also, the deferred income account is decreased and the retained earnings account is also decreased. PROPERTY ACQUIRED: During Fiscal 1995, the Trust made the following investments: EQUITIES: Commercial: - 28,300 sq. ft. 10-screen state-of-the-art theatre in Grand Forks, ND. Built to suit & net leased to MIDCO Theatre on a 30-yr. lease. $ 2,543,237 - 30,000 sq. ft. upscale retail building in Fargo, ND. Built for & net leased to Barnes & Noble Bookstore on a 15-yr. lease. $ 3,292,012 - 18,000 sq. ft. building in Fargo, ND. This new sales concept in pet care is net leased to Pet Food Warehouse on a 15-yr. lease. $ 1,251,719
All of the above property are on-line and producing income. 18 - 151,850 sq. ft. manufacturing plant in Fargo ND. Upon completion, will be net leased to Stone Container on a 15-yr. lease. $ 896,268 - 27,500 sq. ft. retail building in Omaha, NE. Upon completion, will be net leased to Barnes & Noble Bookstore on a 15-yr. lease. $ 71,895 Apartments: - 195 luxury unit complex named Pine Cone Apartments in Fort Collins, Colorado, built in 1994. $13,026,079 - 24 unit Oxbow Apartments complex in Sioux Falls, SD. Construction was completed on the 96 units started in 1994 and we added 24 more units. $ 1,746,707 - 24 unit Southview complex in Minot, ND. $ 653,585 The apartments described above are on our books and producing income. Under Construction/Pending Purchases: - 49 unit North Pointe Apartments complex in Bismarck, ND. Estimated completion date, July, 1995. $ 1,460,150 - 98 unit South Pointe Apartments complex in Minot, ND. Estimated completion date, August, 1995. $ 2,062,466 - 313 unit Stonehill Apartments complex in St. Cloud, MN. We are under contract to purchase these newer apartments in July, 1995. Purchase Deposit - $ 340,525 ----------- Total Real Estate Acquisitions $27,344,643 ----------- -----------
MORTGAGE LOANS RECEIVABLE:
1995 1996 ------------ ------------ Mortgage Loans Receivable, Beginning of Year $ 9,853,941 $ 11,546,075 New Participations in & Advances on Mortgage Loans $ 653,952 $ 3,135,673 ------------ ------------ $ 10,507,893 $ 14,681,748 Collections $ (5,823,296) $ (4,827,807) Write-off Through Allowance (200,000) ------------ ------------ Mortgage Loans Receivable, End of Year $ 4,484,597 $ 9,853,941 ------------ ------------ ------------ ------------
PROPERTY SOLD. The Trust sold a 42-unit apartment complex in Yankton, SD, in Fiscal 1995 for a gain of $305,542. It also sold the two tri-plex apartments in 19 Northwest Minot with a gain of $82,053. The Trust plans to continue to offer older and smaller apartment complexes for sale in Fiscal 1996. IMPACT OF INFLATION. The costs of utilities and other rental expenses continue to increase, but in most areas, IRET has been able to increase rental income sufficiently to cover inflationary increases in rental expense. Increases in rental income are not precluded by long-term lease obligations except for a few commercial properties subject to long-term net lease agreements. Thus, as market conditions allow, rents will be increased to cover inflationary expenses and to provide a better return to IRET. ECONOMIC CONDITIONS. Fiscal 1995 was a very good year in the northern plains states in which the Trust operates. The economy was strong, due to adequate rainfall and higher commodity prices and a moderate improvement in energy activity. Occupancy and rent levels for Trust properties improved only slightly in Fiscal 1995. GENERAL INFORMATION AS TO INVESTORS REAL ESTATE TRUST ORGANIZATION OF TRUST. Investors Real Estate Trust is an unincorporated business trust organized and governed under the laws of North Dakota. The Trust has qualified as a real estate investment trust under Sections 856-858 of the Internal Revenue Code. GOVERNING INSTRUMENTS OF TRUST. The Trust was organized pursuant to Trust Agreement dated July 31, 1970. The Trust will continue, unless sooner terminated by a 2/3rds vote of the shareholders, until the expiration of 20 years after the death of the last survivor of the seven original trustees. All of the original Trustees are still living, the youngest being 60 years of age. The existence of the Trust may be extended indefinitely by action of the Trustees approved by the vote of shareholders holding fifty per cent or more of the outstanding shares. SHAREHOLDER MEETINGS. The governing provisions of the Trust require the holding of annual meetings. It is the policy of the Board of Trustees to hold the annual meeting in Minot, North Dakota, during the month of August. All shareholders shall be given not less than 15 nor more than 40 days prior written notice. Special meetings of the shareholders may be called at any time upon not less than 15 nor more than 40 days prior written notice by the Chairman of the Trustees, by a majority of the trustees or by the written request of shareholders holding in aggregate not less than 20% of the issued and outstanding shares entitled to vote at such meeting. POLICY WITH RESPECT TO CERTAIN ACTIVITIES The following information is a statement of the Trust's policy as it pertains to the described activities. TO ISSUE SENIOR SECURITIES. The Trust has issued and outstanding Investment Certificates which are senior to the shares of Beneficial Interest being offered under this Prospectus. The Investment Certificates are issued for a definite term and annual interest rate (currently 7% for 6 months; 7 1/2% for 1 year; 8% for 3 years and 8 1/2% for 5 years). In the event of dissolution of the Trust, the Investment Certificates would be paid in preference to the shares of Beneficial Interest. As of January 31, 1996, the Investment Certificates outstanding totalled $5,994,973. The Trust does not plan on issuing other senior securities in the future. 20 TO BORROW MONEY. The Trust plans to continue to borrow money. The Trust relies on borrowed funds in pursuing its investment objectives and goals. The policy concerning borrowed funds is vested solely with the Board of Trustees and may be changed by a majority of the Board without a vote of the shareholders. The Trust intends to continue borrowing funds in the future. Over the past three fiscal years, the Trust has borrowed funds as follows:
FISCAL FISCAL FISCAL 1995 1994 1993 ---- ---- ---- Cost of Property Acquired $27,033,369 $17,569,810 $17,777,896 Net Increase in Mortgages Payable $13,006,654 $11,684,600 $ 9,686,184 Percent of Acquisition Price Represented by Net Increase in Mortgages Payable 48% 67% 54%
TO MAKE LOANS TO OTHER PERSONS. As part of the Trust's business plan, Trust funds have been loaned to third parties. The loans are in the form of mortgages secured by real estate. The decision to make loans is vested solely with the Board of Trustees and may be changed by a majority of the Board without a vote of the shareholders. The Trust has no present plans to make additional loans of Trust funds, but may do so in the future. The Trust has the following outstanding mortgage loans: MORTGAGE LOANS RECEIVABLE - UNRELATED:
REAL ESTATE 4/30/95 LOCATION SECURITY BALANCE RATE - -------- -------- ------- ---- Billings, MT Colton Heights Apts. - 144 Units $ 437,302 8% Aurora, CO Geneva Delmar Apt. Complex 328,277 12% Pier Point-Writer Corp. Residential Lots 407,842 12% Denver, CO Westminister-Writer Corp. Residential Lots 281,101 14% Centrebrooke Homes Residential Lots 724,832 12% Gilbert, AZ NE 1/4-27-2-6 Commercial Land 700,015 8%
21 OTHER MORTGAGES - --------------- Over $100,000 $ 977,249 8-12 1/2% $50,000 to $99,999 370,724 8-9% $20,000 to $49,999 111,933 8-10% Less than $20,000 27,185 7-12% ---------- TOTAL $4,366,460 Unearned Discounts (34,792) Allowance for Losses (293,365) Deferred Gain (219,861) ---------- $3,818,442 ---------- ----------
MORTGAGE LOANS RECEIVABLE - RELATED PARTIES
REAL ESTATE 4/30/95 LOCATION SECURITY BALANCE RATE - -------- -------- ------- ---- MINOT, ND Investors Management & Marketing, Inc. 10 Unit Apt. Bldg. $ 118,137 11% --------- TOTAL $ 118,137 --------- ---------
TO INVEST IN THE SECURITIES OF OTHER ISSUERS FOR THE PURPOSE OF EXERCISING CONTROL. The Trust has not invested in such securities in the past. The decision to do so is vested solely in the Board of Trustees and may be changed without a vote of the shareholders. The Trust currently holds an interest in the following partnerships: CONSOLIDATED PARTNERSHIPS:
YEAR PARTNER- NAME, LOCATION, SIZE SHIP FORMED FISCAL MORTGAGES & TYPE OF REAL AND % OWNED 1995 YEAR PAYABLE ESTATE OWNED BY IRET OCCUPANCY PURCHASED COST (RATE) - ------------------- ------------- --------- --------- ---- --------- CHATEAU PROPERTIES, LTD. Apartment Complex 1979 99% 1972 $2,663,654 $ 1,318,597 - - Minot, ND, 64 Units 26.7% (7%) SWEETWATER PROPERTIES, LTD. Apartment Complex 1981 94% 1972 1,354,230 275,285 - - Devils Lake, ND 0% (9.25%) 72 Units - - Grafton, ND, 42 Units BISON PROPERTIES, LTD. Apartment Complex 1982 94% 1972 1,490,135 188,062 - - Jamestown, ND 20% (8.5 to 90 Units 10%) - - Carrington, ND 18 Units - - Cooperstown, ND 17 Units FIRST AVENUE BUILDING, LTD. 16,500 sq. ft. Office Building 1981 95% 1981 778,817 0 - - 15 First Ave. SW 20% Minot, ND EASTGATE PROPERTIES, LTD. Apartment Complex 1983 85% 1970 1,681,203 0 - - Terrace on the Green 18% Moorhead, MN 116 Units
22 COLTON HEIGHTS, LTD. Apartment Building 1984 97% 1984 816,561 399,197 - - Minot, ND, 18 Units 18.69% (8.5%) HILL PARK PROPERTIES, LTD. Garden Grove Apts. 1985 92% 1985 2,820,677 1,551,775 - - 201 Xavier Drive 7.14% (10.625%) Bismarck, ND, 92 Units
It is possible that the Board may increase its ownership in the above entities or seek to acquire a controlling ownership interest in other unrelated entities. TO UNDERWRITE SECURITIES OF OTHER ISSUERS. The Trust has no plans to engage in such an activity. TO ENGAGE IN THE PURCHASE AND SALE (OR TURNOVER) OF INVESTMENTS. The Trust has no plans to engage in such an activity. TO OFFER SECURITIES IN EXCHANGE FOR PROPERTY. The Trust has no plans to engage in such an activity. TO REPURCHASE OR OTHERWISE REACQUIRE ITS SHARES OR OTHER SECURITIES. As a "real estate investment trust" under federal income tax laws, the Trust intends to invest only in real estate assets. The Trust is authorized, but not obligated, to repurchase its own shares and may do so from time to time if the Trustees deem such action to be appropriate. TO MAKE ANNUAL AND OTHER REPORTS TO SHAREHOLDERS. The Trust is required to provide an annual report to shareholders during the month of July. The annual report contains a financial statement certified by an independent public accountant. Provision of the annual report to shareholders may only be changed by a vote of a majority of the shareholders. The Trust has a policy of providing quarterly reports to the shareholders during January, March, June and October. The quarterly reports do not contain a financial statement certified by an independent public accountant. The provision of a quarterly report to the shareholders may be changed by a majority of the Board without a vote of the shareholders. INVESTMENT POLICIES OF REGISTRANT INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Trust currently owns real estate located in 8 states. The company may invest in real estate or interests in real estate which is located anywhere in the United States. The Trust may invest in any type of real estate or interest in real estate including, but not limited to, office buildings, apartment buildings, shopping centers, industrial and commercial properties, special purpose buildings and undeveloped acreage, except the Trust may not invest more than 10% of net assets in unimproved real estate, excluding property being developed or property where development will be completed within a reasonable period. The method of operating the Trust's real estate shall be delegated to a management company as it pertains to the day-to-day management. All major operating decisions concerning the Trust's operation of its real estate shall be made by the Board. The method of financing the purchase of real estate investments shall be primarily from borrowed funds and the sale of shares. The income generated from rental income and interest income is planned to be distributed to shareholders as dividends. The Trust will rely on proceeds from the sale of shares offered by this Prospectus to expand its portfolio of real estate investments. 23 There is no limitation on the number or amount of mortgages which may be placed on any one piece of property, provided that the overall ratio of liabilities to assets for the Trust must not exceed 80%. As of January 31, 1996, the ratio of total liabilities ($79,771,476) to total assets ($127,421,082) was 63%. It is not the Trust's policy to acquire assets primarily for possible capital gain. Rather, it is the policy of the Trust to acquire assets primarily for income. The Trust has no limitation on the amount or percentage of assets which will be invested in any specific property, except that not more than 10% of assets can consist of unimproved real estate. Any Trust policy as it relates to investments in real estate or interests in real estate may be changed by the Board at anytime without a vote of the shareholders. INVESTMENTS IN REAL ESTATE MORTGAGES. While the Trust has made mortgage loans in the past, it is the current policy of the Trust not to make any further mortgage loans. Any Trust policy as it relates to mortgage loans may be changed by the Board at anytime without a vote of the shareholders. INVESTMENTS IN OTHER SECURITIES. The Trust has purchased and now owns United States guaranteed obligations. These purchases are made solely for the purpose of holding cash until future real estate investments are identified. No investments in other types of securities are planned. Any Trust policy as it relates to investments in other securities may be changed by the Board at anytime without a vote of the shareholders. INVESTMENTS IN SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE ACTIVITIES. The Trust does not plan to make any such investments. Any Trust policy as it relates to investments in other securities may be changed by the Board at anytime without a vote of the shareholders. DESCRIPTION OF REAL ESTATE IRET owned the following properties as of April 30, 1995: INVESTMENT PORTFOLIO - INVESTORS REAL ESTATE TRUST AS OF APRIL 30, 1995 REAL ESTATE OWNED:
FISCAL MORTGAGES 1995 YEAR PAYABLE LOCATION SIZE/TYPE OCCUPANCY PURCHASED COST (RATE) -------- --------- --------- --------- ---- --------- APARTMENTS: - ----------- 612 & 618 7th Ave. 18 & 17 Unit 97% 1974 $ 352,852 $ 134,590 Mobridge, SD Apt. Bldgs (9.75%) 155 High St. 24 Unit 95% 1977 396,393 82,378 Hutchinson, MN Apt. Bldg. (10%) Century Apartments 192 Unit 91% 1986 3,498,110 2,309,223 Williston, ND Apt. Complex (7%) Century Condos 22 Condo 70% 1983 420,946 13,210 Beulah, ND Apt. Units & 1989 (7.17%) Century Apts. 120 Unit 96% 1986 1,722,060 1,200,205 Dickinson, ND Apt. Complex (7.96%)
24 201 - 301 17th Ave NE 2 24-Unit 79% 1987 804,436 318,384 Waseca, MN Apt. Bldgs (10%) Virginia Apts. 14 Unit 88% 1988 209,098 49,768 Minot, ND Apt. Bldg. (10%) 1305 Birch St. 24 Unit 98% 1989 344,134 168,927 Marshall, MN Apt. Bldg. (9.0%) Oak Manor Apts. 27 Unit 100% 1989 267,417 247,845 Dickinson, ND Apt. Bldg. (10.5%) 4301-13 9th Ave. SW 2 18-Unit 95% 1988 993,039 618,440 Fargo, ND Apt. Bldgs. (8.65%) Parkway Apts. 2 18-Unit 75% 1989 54,460 0 Beulah, ND Apt. Bldgs. Scottsbluff Estates 2 24-Unit 95% 1988 693,887 411,968 Scottsbluff, NE Apt. Bldgs. (10.25%) 177 10th Ave. E 41 Unit 93% 1989 360,718 241,998 Dickinson, ND Apt. Bldg. (8%) 312 12th Ave. NW 18 Unit 99% 1989 256,750 68,672 Mandan, ND Apt. Bldg. (8.75%) Lantern Court 12 Unit 99% 1990 55,000 0 Minot, ND Apt. Bldg. 105 Grant St. 12 Unit 89% 1990 171,581 0 Harvey, ND Apt. Bldg. Candlelight Apts. 66 Unit 96% 1992 838,017 565,342 Fargo, ND (2/3rds) Apt. Complex (7.5%) Forest Park 270 Unit 97% 1993 6,515,247 4,391,709 Grand Forks, ND Apt. Complex (6.12%) Oakwood Estates 100 Unit 99% 1993 3,291,248 2,173,463 Sioux Falls, SD Apt. Complex (7.64%) Prairie Winds 48 Unit 6% 1993 1,960,108 1,452,941 Sioux Falls, SD Apt. Complex (6.62%) Crestview Apts. 152 Unit 94% 1994 4,525,031 3,118,132 Bismarck, ND Apt. Complex (6.47%) Pointe West 90 Unit 91% 1994 3,777,775 2,598,185 Rapid City, SD Apt. Complex (6.35%) Oxbow Apts. 96 Unit 90% 1994 3,151,806 1,461,471 Sioux Falls, SD Apt. Complex (8%) Pine Cone 195 Unit N/A 1995 13,026,079 10,685,215 Ft. Collins, CO Apt. Complex (7.79%) Southview 24 Unit N/A N/A 653,585 0 Minot, ND Apt. Complex North Pointe 49 Units Now N/A Not 1,460,150 0 Bismarck, ND Completed South Pointe 196 Units Now N/A Not 2,062,466 0 Minot, ND Under Construction Completed Stonehill In the Process of N/A Not 340,525 0 St. Cloud, MN Acquiring Completed Others In the Process of N/A Not 32,957 0 Acquiring Completed COMMERCIAL: - ----------- 108 4th Ave SE 5,000 sq ft. 100% 1973 328,808 0 Minot, ND Office Bldg
25 114 S. Main 3,500 sq ft. 100% 1978 103,751 33,082 Minot, ND Retail Bldg. (9%) 408 1st St SE Rental House 100% 1986 46,873 0 Minot, ND Arrowhead Center 80,000 sq ft. 95% 1973 2,378,387 331,570 Minot, ND Shopping Center (8%) Superpumper Gas Station/ 100% 1986 297,064 0 Emerado, ND Conven. Store Superpumper Gas Station/ 100% 1987 239,212 0 Langdon, ND Conven. Store 401 South Main 9,200 sq ft. 92% 1988 471,889 0 Minot, ND Commercial Bldg. Lester Chiropractic 5,000 sq ft. 100% 1988 268,917 0 Clinic Clinic Bldg. Bismarck, ND (1/2 int.) Superpumper Gas Station/ 100% 1988 301,013 0 Bottineau, ND Conven. Store Superpumper Gas Station/ 100% 1988 428,778 0 Crookston, MN Conven. Store Superpumper Gas Station/ 100% 1991 485,007 0 Grand Forks, ND Conven. Store Superpumper Gas Station/ 100% 1991 250,000 0 New Town, ND Conven. Store Pioneer Hi Bred Office/Whse. 100% 1991 605,717 389,031 Moorhead, MN (8.25%) Lindberg Office/Whse. 100% 1991 1,371,409 912,766 Eden Prairie, MN (7.5%) Creekside Office Bldgs. 96% 1991 1,462,263 998,970 Billings, MT (7.25%) Superpumper Gas Station/ 100% 1992 120,600 0 Sidney, MT Conven. Store Hutchinson Technology Manufacturing 100% 1992 4,275,286 2,664,281 Sioux Falls, SD Plant (8.36%) Minot Plaza 11,200 sq ft. 100% 1993 502,898 0 Minot, ND Strip Shopping Center Retail Warehouse 70,000 sq ft. 100% 1994 5,639,576 3,713,806 Boise, ID Retail warehouse Midco Theatre 28,528 sq. ft. 100% 1994 2,543,237 1,731,283 Grand Forks, ND 10-screen theatre (9.40%) 30 Year Lease Pet Foods 18,000 sq. ft. N/A 1995 1,251,719 0 Fargo, ND Retail/Whse. Barnes and Noble 30,000 sq. ft. N/A 1995 3,292,012 2,046,381 Fargo, ND Retail/Whse. (8.5%) Stone Container Currently Under N/A Not 896,268 0 Fargo, ND Construction Completed Barnes & Noble Currently Under N/A Not 71,895 0 Omaha, NE Construction Completed Total Real Estate Owned $93,556,316 $49,453,453 ----------- ----------- Less Accumulated Depreciation (13,084,483) ----------- Net Carrying Value $80,471,833 ----------- -----------
26 TITLE. The title to all of the above properties is in the name of IRET in fee simple (in each case, IRET has in its files an attorney's title opinion or a title insurance policy evidencing its title). INSURANCE. In the opinion of management, all of said properties are adequately covered by casualty and liability insurance. PLANNED IMPROVEMENTS. There are no plans for material improvements to any of the above properties. CONTRACTS OR OPTIONS TO SELL. As of April 30, 1995, IRET had not entered into any contracts or options to sell any of the above properties. OCCUPANCY AND LEASES. Occupancy rates shown above are for the fiscal year ended April 30, 1995. In the case of apartment properties, lease arrangements with individual tenants vary from month-to-month to one year leases, with the normal term being six months. Leases on commercial properties vary from one year to 20 years. The tenant occupying the retail warehouse in Boise, Idaho, is in bankruptcy. The lease has been terminated and the Trust is seeking a new tenant. TAX TREATMENT OF REGISTRANT AND ITS SECURITY HOLDERS FEDERAL INCOME TAX. Since its organization, the Trust has operated in a manner to qualify as a real estate investment trust under Sections 856-858 of the Internal Revenue Code. Under such Sections a real estate investment trust which, in any taxable year, meets certain requirements will not be subject to Federal income tax with respect to income which it distributes to shareholders. To be considered a real estate investment trust for purposes of the Federal income tax laws, the Trust must continue to meet the following requirements, among others: (1) At the end of each fiscal quarter at least 75% of the value of the total assets of the Trust must consist of real estate assets (including interests in mortgages on real property and shares in other real estate investment trusts meeting the requirements for taxation in accordance with Sections 856-858 of the Internal Revenue Code), cash, cash items including receivables and government securities. As to non-real estate investments, which may not exceed 25% of the total assets of the Trust, the securities of any one issuer acquired by the Trust may not represent more than 5% of the value of the Trust's assets or more than 10% of the outstanding voting securities of such issuer. (2) At least 75% of the gross income of the Trust for the taxable year must be derived from real property rents, interest on obligations secured by mortgages on real property, abatements and refunds of real estate taxes, gains from the sale or other disposition of real estate interests or mortgages on real property and dividends or other distributions on, and gains from the sale of, shares of other real estate investment trusts meeting the requirements for taxation in accordance with Sections 856-868 of the Internal Revenue Code. An additional 15% of the gross income of the Trust must be derived from the same sources or from dividends, or interest, or gains from the sale or other disposition of stock or securities, or any combination of the foregoing. 27 (3) Gross income for the taxable year from sales or other disposition of stock or securities held for less than six months and of real property (or interests in real property) held for less than four years must be less than 30% of gross income. The Trust may not hold any property primarily for sale to customers in the ordinary course of its trade or business. (4) Beneficial ownership of the Trust must be held by 100 or more persons during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. More than 50% of the outstanding capital stock may not be owned, directly or indirectly, by or for, five or fewer individuals, at any time during the last half of the taxable year. As a real estate investment trust, the Trust will not be taxed on that portion of its taxable income (including capital gains) which is distributed to shareholders, if at least 95% of its real estate investment trust taxable income (taxable income adjusted as provided in Section 857 of the Internal Revenue Code) is distributed. However, to the extent that there is undistributed taxable income or undistributed capital gain, the Trust will be taxed as a corporation at corporate income tax rates. The Trust will not be entitled to carry back or carry forward any net operating losses. So long as the Trust has met the statutory requirements for taxation as a real estate investment trust, distributions made to the Trust's shareholders will be taxed to them as ordinary income or long term capital gain, as the case may be. Distributions will not be eligible for the dividend exclusion for individuals, or for the 85% dividends received deduction for corporations. The Trust will notify each shareholder as to what portion of the distributions in the opinion of its counsel constitutes ordinary income or capital gain. The shareholders may not include in their individual income tax returns any operating or extraordinary losses of the Trust, whether ordinary or capital losses. If, in any taxable year, the Trust should not qualify as a real estate investment trust, it would be taxed as a corporation and distributions to its shareholders would not be deductible by the Trust in computing its taxable income. Such distributions, to the extent made out of the Trust's current or accumulated earnings and profits, would be taxable to the shareholders as dividends, but would be eligible for the dividend exclusion, or the 85% dividends received deduction for corporations. The foregoing, while summarizing some of the more significant provisions of the Internal Revenue Code which govern the tax treatment of the Trust, is general in character. For a complete statement, reference should be made to the pertinent Code Sections and the Regulations issued thereunder. In the opinion of the law firm of Pringle & Herigstad, P.C., counsel for the Trust, the contemplated method of operation of the Trust complies with the requirements of the Internal Revenue Code for qualification as a real estate investment trust. The Regulations of the Treasury Department require that the trustees have continuing exclusive authority over the management of the Trust, the conduct of its affairs and, with certain limitations, the management and disposition of the trust property. It is the intention of the trustees to effect any amendments to the Declaration of Trust that may be necessary in the opinion of counsel for the Trust to meet the requirements of any modification or interpretation of the Regulations. Provision for such amendment by the trustees, without the vote or consent of the shareholders, is contained in the Declaration of Trust. 28 NORTH DAKOTA INCOME TAX. In the opinion of counsel for the Trust, since the Trust qualifies as a Real Estate Investment Trust for purposes of the Federal income tax laws, it will not be subject to the North Dakota Corporate Income Tax on that portion of its taxable income (including capital gains) which is distributed to shareholders, provided that the 95 percent distribution requirement outlined above is met. To the extent there is undistributed taxable income or undistributed capital gain, the Trust will be taxed as a corporation for North Dakota income tax purposes. The Trust will not be entitled to carry back or carry forward any net operating losses. Distributions to the trust shareholders of capital gains or taxable income will be subject to the North Dakota income tax. TAXATION OF THE TRUST'S SHAREHOLDERS. If the Trust qualifies as a REIT, and so long as the Trust so qualifies, distributions made to the Trust's shareholders out of current or accumulated earnings and profits will be taken into account by them as ordinary income (which will not be eligible for the dividends received deduction for corporations). Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed the Trust's actual net capital gain dividend for the taxable year, although corporate shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income. Distributions in excess of current or accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares of stock, but rather will reduce the adjusted basis of such shares of stock. To the extent that such distributions exceed the adjusted basis of shareholder's shares of stock they will be included in income as long-term or short-term capital gain assuming the shares are held as a capital asset in the hands of the shareholder. The Trust will notify shareholders at the end of each year as to the portions of the distributions which constitute ordinary income, net capital gain or return of capital. In addition, any dividend declared by the Trust in October, November or December of any year payable to a shareholder of record on a specified date in any such month shall be treated as both paid by the Trust and received by the shareholder on December 31 of such year, provided that the dividend is actually paid by the Trust during January of the following calendar year. Shareholders may not include in their individual income tax returns any net operating losses or capital losses of the Trust. In general any gain or loss upon a sale or exchange of shares by a shareholder who has held such shares as a capital asset will be long-term or short-term depending on whether the stock was held for more than one year; provided, however, any loss on the sale or exchange of shares that have been held by such shareholder for six months or less will be treated as a long-term capital loss to the extent of distributions from the Trust required to be treated by such shareholders as long-term capital gain. TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts distributed as dividends by a qualified REIT do not constitute unrelated business taxable income ("UBTI") when received by a tax-exempt entity. Based on that ruling the dividend income from the Trust should not, subject to certain exceptions described below, be UBTI to a qualified plan, IRE 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. 29 For Tax-Exempt Shareholders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code respectively, income from an investment in the Trust will constitute UBTI unless the organization is able to deduct properly amounts set aside or placed in reserve for certain purposes so as to offset the income generated by its investment in the Trust. Such prospective investors should consult their tax advisors concerning these "set-aside" and reserve requirements. Notwithstanding the above, however, the recently enacted Omnibus Budget Reconciliation Act of 1993 (the "1993 Act") provides that, effective for taxable years beginning in 1994, a portion of the dividends paid by a "pension held REIT" shall be treated as UBTI as to any trust which (i) is described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a) of the Code, and (iii) holds more than 10% (by value) of the interests in the REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code are referred to below as "qualified trusts." A real estate investment trust is a "pension held REIT" if (i) it would not have qualified as a real estate investment trust but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act) provides that stock owned by qualified trusts shall be treated, for purposes of the "not closely held" requirements, as owned by the beneficiaries of the trust (rather than by the trust itself), and (ii) EITHER (a) at least one such qualified trust holds more than 25% (by value) of the interests in the REIT, OR (b) one or more such qualified trusts, each of whom owns more than 10% (by value) of the interests in the REIT, hold in the aggregate more than 50% (by value) of the interests in the REIT. TAX CONSIDERATIONS FOR FOREIGN INVESTORS. The preceding discussion does not address the federal income tax considerations to foreign investors of an investment in the Trust. Foreign investors in the Shares should consult their own tax advisors concerning those provisions of the Code which deal with the taxation of foreign taxpayers. In particular, foreign investors should consider, among other things, the impact of the Foreign Investors Real Property Tax Act of 1980. In addition, various income tax treaties between the United States and other countries could affect the tax treatment of an investment in the Shares. Furthermore, the backup withholding and information reporting rules are under review by the United States Treasury, and their application to the Common Stock could be changed prospectively or retroactively by future Treasury Regulations. BACKUP WITHHOLDING. The Trust will report to its domestic shareholders and the IRS the amount of dividends paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding at the rate of 31% with respect to dividends paid unless such holder (a) is a corporation or comes within certain other exempt categories and when required, demonstrates this fact, or (b) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A shareholder that does not provide the Trust with a correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, the Trust may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to the Trust. STATE AND LOCAL TAXES. The Trust or its shareholders may be subject to state or local taxation in the state or local jurisdiction in which the Trust's investments or loans are located or in which the shareholders reside. 30 Prospective shareholders should consult their tax advisors for an explanation of how state and local tax laws could affect their investment in the Shares. OTHER TAX CONSIDERATIONS. In the event the Trust enters into any joint venture transactions, special tax risks might arise. Such risks include possible challenge by the IRS of (i) allocations of income and expense items, which could affect the computation of taxable income of the Trust and (ii) the status of the joint venture as a partnership (as opposed to a corporation). If a joint venture were treated as a corporation, the joint venture would be treated as a taxable entity and if the Trust's ownership interest in the joint venture exceeds 10%, the Trust would cease to qualify as a REIT. Furthermore, in such a situation even if the Trust ownership does not exceed 10%, distributions from the joint venture to the Trust would be treated as dividends, which are not taken into account in satisfying the 75% gross income test described above and which could therefore make it more difficult for the Trust to qualify as a REIT for the taxable year in which such distribution was received and the interest in the joint venture held by the Trust would not qualify as a "real estate asset" which could make it more difficult for the Trust to meet the 75% asset test described above. Finally, in such a situation the Trust would not be able to deduct its share of losses generated by the joint venture in computing its taxable income., See "Failure of the Trust to Qualify as a Real Estate Investment Trust" above for a discussion of the effect of the Trust's failure to meet such tests for a taxable year. The Trust will not enter into any joint venture, however, unless it has received from its counsel an opinion to the effect that the joint venture will be treated for tax purposes as a partnership. Such opinion will not be binding on the IRS and no assurance can be given that the IRS might not successfully challenge the status of any such joint venture as a partnership. MARKET PRICE OF AND DIVIDENDS ON THE TRUST'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS No assurance can be given that a purchaser of Trust shares under this Offering would be able to resell such shares when desired. At the present time, there is no brokerage firm that "makes a market" for Trust shares. All resales of Trust shares are now on a "best efforts" basis and the ability of a shareholder to resell shares is dependent on the broker-dealer locating a purchaser. At the present time, the Trust itself acts to support the secondary market in its shares by repurchasing shares upon the following terms: A repurchase limitation of $100,000 per customer, with a cumulative total for all shareholders of $600,000. To the extent shares are sold by the Trust under this Offering, such sales will replenish the repurchasing fund on a share for share basis. THIS REPURCHASE POLICY MAY BE CHANGED AT ANY TIME BY THE BOARD OF TRUSTEES AND NO ASSURANCE CAN BE GIVEN OF ITS CONTINUATION. Sales of Trust shares are handled by Inland National Securities, Inc., 21 South Main, Minot, ND 58701, and Financial Advantage Brokerage Services, Inc., 17 South Main, Minot, ND 58701. The following is a summary of the total number of shares sold and repurchased during the past 7 years: PRICE RANGE
SHARES REPURCHASED FROM NEW SHARES SOLD SHAREHOLDERS BY IRET ----------------------- ----------------- YEAR NO. OF SHARES LOW HIGH LOW HIGH - ---- ------------- ---- ---- ---- ---- 1989 686,847 3.82 4.18 4.35 4.75 1990 396,816 4.18 4.40 4.75 5.00 1991 562,227 4.40 4.75 5.00 5.40 1992 646,779 4.75 5.02 5.40 5.70 1993 911,773 5.02 5.28 5.70 6.00 1994 817,872 5.28 5.63 6.00 6.40 1995 1,266,984 5.89 6.16 6.40 6.70
31 As of January 31, 1996, IRET had 2,546 shareholders. No shareholder held more than 5% of the 12,693,198 shares outstanding and there were no warrants or stock options outstanding. Dividends are paid on January 5, April 1, July 1, and October 1 of each year. DIVIDEND REINVESTMENT PLAN The Trust is registering 200,000 of its shares of Beneficial Interest to distribute to its shareholders who elect to participate in its Dividend Reinvestment Plan. Each shareholder shall have the option to receive dividends in the form of additional shares instead of in cash. In order to participate in the Dividend Reinvestment Plan, the shareholder must affirmatively elect to do so by notifying the Transfer Agent and Registrar, Odell-Wentz & Associates, L.L.C., 12 South Main, Minot, ND 58701, (701) 852-1756. The shareholder may terminate participation at any time by notifying the Transfer Agent. The price at which shares will be issued under the Dividend Reinvestment Plan is equal to 92% of the price at which the Trust is then offering its shares for sale to the public on the dividend declaration date ($6.85 X 92% = $6.30 per share as of the date of this Prospectus). The dividend is taxable to the shareholders whether received in cash or shares. DESCRIPTION OF REGISTRANT'S SECURITIES DESCRIPTION OF SHARES. The shares of beneficial interests of the Trust are of one class without par value. There is no limit on the number of shares that may be issued. All shares participate equally in dividends and distributions when and as declared by the trustees and in net assets upon liquidation. The shares of beneficial interests offered hereby will be fully paid and non-assessable by the Trust upon issuance and will have no preference, conversion, exchange, pre-emptive or redemption rights. Annual meetings of shareholders are held on the second Wednesday of August and special meetings may be called by the Chairman of the trustees or by a majority of the trustees or upon written request of shareholders holding not less than 20 percent of the issued and outstanding shares. At any meeting a shareholder is entitled to one vote for each share of beneficial interest owned. The shares of beneficial interests are transferable in the same manner as are shares of a North Dakota business corporation. With respect to the election of trustees, the shares have cumulative voting rights which allow each shareholder one vote in person or by written proxy for each share registered in his name for as many persons as there are trustees to be elected. LEGAL PROCEEDINGS On September 29, 1994, IRET brought suit against Centrebrooke Development, Inc., Daniel B. Najor and Land Title Guarantee Company to recover on a $475,232.55 loan to Centrebrooke guaranteed by Najor. IRET has settled with Mr. Najor and has dismissed its suit against Land Title. Judgment against Centrebrooke for $577,131.66 (which amount includes accrued interest and costs) was ordered on June 6, 1995. However, Centrebrooke is thought to be insolvent and litigation continues to foreclose on residential lots which are also held as security for this loan. An addition of $200,000 was made to the reserve for loan losses during Fiscal 1995, which, in the judgment of management, is sufficient to cover any losses on this matter. 32 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of May 31, 1995, no persons, or any Trustee or officer individually was known by the Trust to own beneficially more than 5% of the outstanding shares of Beneficial Interest. Collectively, the Trustees owned 6.14% of such shares on May 31, 1995.
NAME AND POSITION PRINCIPAL OCCUPATIONS TRUSTEE SHARES BENEFICIALLY WITH TRUST DURING PAST 5 YEARS SINCE OWNED AS OF 5-31-95 - ----------------- --------------------- ------- -------------------- C. Morris Anderson President of North Hill Trustee, Age 66 Bowl, Inc.; Director of International Inn, Inc., Norwest Bank - Minot, N.A. and a Partner in Magic City Realty, Ltd. 1970 11,164(5) Ralph A. Christensen Partner in Thompson-Christensen Trustee and Chairman Ranch, Towner, ND; Director of Age 66 First Bank - Minot, N.A.; Chairman of IRET 1970 28,501(6) John D. Decker Trustee, Age 78 Investor 1970 36,092(7) Mike F. Dolan Trustee and Vice Investor; Chairman, Age 83 Vice-Chairman of IRET 1978 211,436(8) J. Norman Ellison, Jr. Businessman; Managing Trustee, Age 72 Partner of Ellison Realty Co.; Former Director of First Bank - Minot, N.A. 1970 17,817(9)
33 _________________ (5) Owned by Mr. Anderson and his wife as Joint Tenants. (6) Includes shares held in Mr. Christensen's IRA, and also his wife's IRA, which is comprised of 535 shares; the balance is owned by Mr. Christensen and his wife as Joint Tenants. Mr. Christensen's children own 24,842 shares as to which Mr. Christensen does not have beneficial ownership or any dispositive powers. (7) Owned by Mr. Decker with his wife as Tenants in Common. Mr. Decker's children own 3,192 shares as to which Mr. Decker does not have beneficial ownership or dispositive powers. (8) Mr. Dolan's children own 9,735 shares, as to which Mr. Dolan disclaims beneficial ownership or dispositive powers. (9) Includes 4,165 shares held by Mr. Ellison's wife. Mr. Ellison disclaims beneficial ownership of such shares. Daniel L. Feist Real Estate Development and Trustee, Age 63 Brokerage; President of Feist Construction & Realty, Inc.; Director of First Bank - Minot, N.A. 1985 118,127(10) Patrick G. Jones Investor; Former President Trustee, Age 47 of Central Venture Capital, Inc.; former Manager and Director of Minot Daily News 1986 51,457(11) Jeff L. Miller Businessman; President of Trustee and Vice M & S Concessions, Inc., and Chairman, Age 51 former president of Coca-Cola Bottling Co. of Minot; President and Director of Western Sales and Service, Inc.; and Director of First Bank - Minot 1985 122,059(12) Roger R. Odell Realtor; President of IRET; Trustee and Partner in Odell-Wentz & President, Age 69 Associates (Advisor of IRET); Director of Investors Manage- ment & Marketing, Inc. and Inland National Securities, Inc.; Partner in Magic City Realty, Ltd. 1970 130,097(13) Thomas A. Wentz, Sr. Attorney, Pringle & Herigstad, Trustee and Vice P.C.; Vice-President of IRET; President, Age 60 Partner in Odell-Wentz & Associates (Advisor to the Trust). 1970 180,052(14)
34 _________________ (10) Includes 32,112 shares held by Mr. Feist's wife. Mr. Feist disclaims beneficial ownership of such shares. Mr. Feist's children own 70,596 shares as to which Mr. Feist does not have benefical ownership or dispositive powers. (11) Includes 25,728 shares held by Mr. Jones' wife. Mr. Jones disclaims beneficial ownership of such shares. Mr. Jones' children own 10,305 shares as to which Mr. Jones disclaims beneficial ownership. (12) 40,338 of such shares are owned by Mr. Miller's wife. Mr. Miller disclaims beneficial ownership of such shares. (13) Includes 8,748 shares owned by Magic City Realty, 15,558 shares owned by Investors Management & Marketing, Inc., and 12,448 shares owned by Inland Securities, Inc. Also includes 67,897 shares owned by Mr. Odell's wife as to which shares Mr. Odell disclaims beneficial ownership. Mr. Odell's children own 53,869 shares as to which Mr. Odell does not have beneficial ownership or dispositive powers. (14) Includes 159,551 shares owned by Wenco, Ltd. Also includes 9,371 shares held by Mr. Wentz's wife; Mr. Wentz disclaims beneficial ownership of such shares. Mr. Wentz's children own 835 shares as to which Mr. Wentz does not have beneficial ownership or dispositive powers. As of May 31, 1995, all of the above trustees as a group owned or held voting control of 906,802 shares of Beneficial Interest of IRET, representing 8.07% of the 11,231,947 shares then outstanding. During the fiscal year ending April 30, 1995, there were twelve regular meetings of the Board of Trustees. All of the Trustees attended 75% or more of the meetings held during said fiscal year. There are no separate audit, nominating or compensation committees of the Board of Trustees, which duties are performed by the Board as a whole. The last shareholder meeting at which Trustees were elected was held on August 10, 1994, at which meeting shareholders owning 66.9% of the shares of IRET entitled to vote were present in person, or by proxy. The ten nominees received 100% of the total shares voted at such meeting. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following tabulation shows the cash compensation paid by IRET to its trustees and officers during its fiscal year ending April 30, 1995. The Trust has no retirement, bonus, or deferred compensation plan and no other compensation will accrue, directly or indirectly, to any of the Trustees except as noted below.
CASH COMPENSATION CAPACITY IN FOR YEAR ENDING NAME WHICH SERVED APRIL 30, 1995 - ---- ------------ ----------------- C. Morris Anderson Trustee $ 5,465.00 Ralph A. Christensen Trustee & Chairman 7,117.25 John D. Decker Trustee 5,265.00 Mike F. Dolan Trustee & Vice Chairman 6,553.75 J. Norman Ellison, Jr. Trustee 5,265.00 Daniel L. Feist Trustee 5,365.00 Jeff L. Miller Trustee & Vice Chairman 6,353.75 Patrick G. Jones Trustee 5,465.00 Thomas A. Wentz, Sr. Trustee & Vice President (1 & 2) Roger R. Odell Trustee & President (1)
(1) Mr. Odell is a partner in Odell-Wentz & Associates, the Advisor to the Trust. Under the Advisory Contract between IRET and Odell-Wentz & Associates, IRET pays an Advisor's fee based on the net assets of the Trust and, in addition, a percentage fee for investigating and negotiating the acquisition of new investments. For the year ending April 30, 1995, Odell-Wentz & Associates received compensation and reimbursement of disbursements under said Agreement of $339,128. The terms of said Advisory Agreement are explained below. Investors Management & Marketing, Inc., a firm in which Mr. Odell is a minority shareholder also furnishes real estate management services to the Trust and receives as compensation four percent (4%) of rents received from such real estate. For the fiscal year ending April 30, 1995, Investors Management & Marketing, Inc., received $212,019 as real estate management commissions. In addition, Inland National Securities, Inc., a corporation in which Mr. Odell and members of his family are shareholders, acts as the broker-dealer for the sale of Trust securities. During the fiscal year ending April 30, 1995, the Trust paid Inland National Securities, Inc. $272,615 as security sales fees. (2) Mr. Wentz is a partner in Odell-Wentz & Associates. He is also a member of the law firm of Pringle & Herigstad, P.C., counsel for the Trust. During the fiscal year ending April 30, 1995, the Trust paid Pringle & Herigstad, P.C., the sum of $4,825 for legal services rendered and disbursements made on behalf of the Trust. 35 ADVISORY AGREEMENT Roger R. Odell has served as advisor to IRET since its formation in 1970. As of January 1, 1986, a revised Advisory Agreement was entered into between IRET and Odell-Wentz & Associates, a partnership of Roger R. Odell and Thomas A. Wentz, Sr. Mr. Odell serves as president and Mr. Wentz serves as vice president of IRET. Mr. Wentz has also served as attorney for IRET since its formation as a member of the law firm of Pringle & Herigstad, P.C. Under the Advisory Agreement, the advisor has the following duties and responsibilities: Advisor, at its expense, shall provide suitable office facilities for IRET in Minot, North Dakota, and shall provide sufficient staff and other equipment to conduct the day-to-day operations of IRET. Advisor shall furnish a computer and all other office equipment necessary to conduct the operations of IRET and shall pay for all routine supplies, postage, and other costs of operating said office. IRET shall be billed by the Advisor for stationery and other forms and documents printed especially for IRET, the printing of the annual report and quarterly reports and other communications to shareholders, and also for the postage for mailing reports, checks and other documents to shareholders. The Advisor, under the direction of Trustees, shall be responsible to conduct all operations of IRET, including: Collection of rent, contract and mortgage payments and depositing the same in IRET bank accounts; Payment of bills; Disbursement of dividends; Preparing monthly reports to the Trustees; Preparing quarterly and annual reports to shareholders; Preparing notices of shareholders' meetings and proxies and proxy statements; and Advising the Trustees as to investment decisions, including acquisition and disposition of real estate and other permissible investments. For providing the above services, the Advisor is compensated as follows: BASIC COMPENSATION. Advisor shall receive monthly as its basic compensation for the above described services a percentage of "net invested assets" of IRET held on the last day of the month for which the payment is made as follows: 1/12th of .9% of net invested assets up to $10,000,000; and, 1/12th of .8% of net invested assets over $10,000,000, but less than $20,000,000; and, 1/12th of .7% of net invested assets in excess of $20,000,000. For the purpose of this agreement, "net invested assets" shall be determined as follows: Add: +total assets at cost +depreciation reserve +unearned contract receivable discount +deferred gain account 36 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 1996 by action of the Board of Trustees at its December, 1995 regular meeting. ROGER R. ODELL. Mr. Odell's address is 1445 SW 15th St., Minot, North Dakota 58701, (701) 839-4631. Mr. Odell is a graduate of the University of Texas, receiving his B.A. degree in 1947. He has been a resident of Minot, North Dakota, since 1947. From 1947 to 1954, he was employed by Minot Federal Savings & Loan Association, serving as Secretary of the Association from 1952 to 1954. Since 1954, Mr. Odell has been a realtor in Minot, serving as an officer and stockholder of Watne Realty Trust from 1954 to January 1, 1970, and since that time as the owner of his own realty firm. Mr. Odell is a partner in Odell-Wentz & Associates, the Advisor to the Trust. Under the Advisory Contract between IRET and Odell-Wentz & Associates, IRET pays an Advisor's fee based on the net assets of the Trust and, in addition, a percentage fee for investigating and negotiating the acquisition of new investments. For the year ending April 30, 1995, Odell-Wentz & Associates received compensation and reimbursement of disbursements under said Agreement of $339,128. The terms of said Advisory Agreement are explained above. Investors Management & Marketing, Inc., a firm in which Mr. Odell is a minority shareholder also furnishes real estate management services to the Trust and receives as compensation four percent (4%) of rents received from such real estate. For the fiscal year ending April 30, 1995, Investors Management & Marketing, Inc., received $212,019 as real estate management commissions. In addition, Inland National Securities, Inc., a corporation in which Mr. Odell and members of his family are shareholders, acts as the broker-dealer for the sale of Trust securities. During the fiscal year ending April 30, 1995, the Trust paid Inland National Securities, Inc., $272,615 as security sales fees. THOMAS A. WENTZ, SR.. Mr. Wentz's address is 505 8th Ave. SE, Minot, North Dakota 58701, (701) 838-0811. Mr. Wentz is a graduate of Harvard College and Harvard Law School, receiving his A.B. degree in 1957 and his L.L.B. degree in 1960. He has been a resident of Minot, North Dakota, since 1962. Mr. Wentz is a partner in Odell-Wentz & Associates, the Advisor to the Trust. Under the Advisory Contract between IRET and Odell-Wentz & Associates, IRET pays an Advisor's fee based on the net assets of the Trust and, in addition, a percentage fee for investigating and negotiating the acquisition of new investments. For the year ending April 30, 1995, Odell-Wentz & Associates 37 received compensation and reimbursement of disbursements under said Agreement of $339,128. The terms of said Advisory Agreement are explained above. He is also a member of the law firm of Pringle & Herigstad, P.C., counsel for the Trust. During the fiscal year ending April 30, 1995, the Trust paid Pringle & Herigstad, P.C., the sum of $4,825 for legal services rendered and disbursements made on behalf of the Trust. SELECTION, MANAGEMENT AND CUSTODY OF TRUST'S INVESTMENTS MANAGEMENT OF TRUST'S INVESTMENTS. The Trust contracts with various local management companies for the sole purpose of leasing, maintaining and monitoring the Trust's interests. All other management is the responsibility of the Advisor. POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS No trustee, officer or advisor of the Trust, or any person affiliated with any such persons, shall sell any property or assets to the Trust or purchase any property or assets from the Trust, directly or indirectly, nor shall any such person receive any commission or other remuneration, directly or indirectly, in connection with the purchase or sale of Trust assets, except pursuant to transactions that are fair and reasonable to the Shareholders and that relate to: a. the acquisition of property or assets at the formation of the Trust or shortly thereafter and fully disclosed in the prospectus filed with the North Dakota State Securities Commissioner; b. The acquisition of federally insured or guaranteed mortgages at prices not exceeding the currently quoted prices at which the Federal National Mortgage Association is purchasing comparable mortgages; c. The acquisition of other mortgages on terms not less favorable to the Trust than similar transactions involving unaffiliated parties; or, d. The acquisition by the Trust of other property at prices not exceeding) or disposition of other property at prices not less than) the fair value thereof as determined by independent appraisal. All such transactions and all other transactions in which any such persons have any direct or indirect interest shall be approved by a majority of the trustees, including a majority of the independent trustees. All brokerage commissions or remuneration received by any such person from the Trust in connection with any such transactions shall be deemed a part of the fee payable under any management or advisory contract. No trustee or affiliate of the trustee shall receive a brokerage commission or other such remuneration in connection with the acquisition or disposition of Trust assets. LIMITATIONS OF LIABILITY Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed 38 that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. The governing instrument of the Trust provides as follows: Section 11. NONLIABILITY OF TRUSTEES. No trustee shall be liable individually for any act or omission of any other trustee or agent or representative of the Trust, or for negligence, error in judgment, or any act or omission except his own willful misfeasance, bad faith, or gross negligence in the conduct of his duties. Every act or thing done or omitted, and every power exercised or obligation incurred by the trustees or any of them in the administration of the Trust or in connection with any business or property of the Trust whether ostensibly in their own names or in their trust capacity, shall be deemed done, omitted, exercised, or incurred by them as trustees and not as individuals; and upon any debt, claim, demand, judgment, decree, or obligation of any nature whatsoever against or incurred by the trustees in their capacities as such, whether founded upon contract, tort or otherwise, resort shall be had solely to the property of the Trust. Nothing contained in the Declaration shall protect a trustee or agent or representative of the Trust against liability to the Trust or to the Shareholders for willful misfeasance, gross negligence or bad faith in the conduct of his duties. Section 12. INDEMNIFICATION OF TRUSTEES. The Trust shall indemnify and hold harmless each trustee from and against all claims and liabilities, whether they proceed to judgment or are settled, to which such trustee may become subject by reason of his being or having been a trustee, or by reason of any action alleged to have been taken or omitted by him as trustee, and shall reimburse him for all legal and other expenses reasonably incurred by him in connection with any such claim or liability; provided, however, that no trustee shall be indemnified or reimbursed under the foregoing provisions in relation to any matter unless it shall have been adjudicated that his action or omission did not constitute willful misfeasance, bad faith, or gross negligence in the conduct of his duties, or, unless, in the absence of such an adjudication, the Trust shall have received a written opinion from independent counsel, approved by the trustees, to the effect that if the matter of willful misfeasance, bad faith, or gross negligence in the conduct of duties had been adjudicated, it would have been adjudicated in favor of such trustee. The rights accruing to a trustee under these provisions shall not exclude any other right to which he may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse such trustee in any proper cause even though not specifically provided for herein; provided, that no trustee may satisfy any right of indemnity or reimbursement granted herein or to which he may be otherwise entitled except out of the property of the Trust and no Shareholder sell be personally liable with respect to any claim of a trustee for indemnity or reimbursement. Notwithstanding any of the provisions hereof, however, no trustee shall be indemnified for any lability which he personally may have under the provisions of the Securities Act of 1933. 39 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS MINOT, NORTH DAKOTA CONSOLIDATED FINANCIAL STATEMENTS AS OF APRIL 30, 1995 AND 1994 AND INDEPENDENT AUDITOR'S REPORT F-1 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS TABLE OF CONTENTS PAGES ----- INDEPENDENT AUDITOR'S REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets 2-3 Consolidated Statements of Operations 4 Consolidated Statements of Shareholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Consolidated Financial Statements 8-14 ADDITIONAL INFORMATION Independent Auditor's Report on Additional Information 15 Marketable Securities 16 Noncurrent Indebtedness of Related Parties - Mortgage Loans Receivable 17 Supplemental Income Statement Information 18 Real Estate and Accumulated Depreciation 19-21 Investments in Mortgage Loans on Real Estate 22-24 Selected Financial Data 25 Gain from Property Dispositions 26 Mortgage Loans 27 Significant Property Acquisitions 28 Quarterly Results of Consolidated Operations (Unaudited) 29 OTHER SCHEDULES ARE OMITTED DUE TO INAPPLICABILITY F-2 INDEPENDENT AUDITOR'S REPORT Board of Trustees Investors Real Estate Trust and Affiliated Partnerships Minot, North Dakota We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and Affiliated Partnerships as of April 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended April 30, 1995, 1994 and 1993. These consolidated financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Investors Real Estate Trust and Affiliated Partnerships at April 30, 1995 and 1994, and the consolidated results of its operations and cash flows for the years ended April 30, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. BRADY, MARTZ & ASSOCIATES, P.C. Minot, North Dakota May 19, 1995 F-3 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS CONSOLIDATED BALANCE SHEETS APRIL 30, 1995 AND 1994 ASSETS
1995 1994 ------------- ------------- REAL ESTATE INVESTMENTS Property owned $ 93,556,316 $ 66,522,947 Less accumulated depreciation (13,084,483) (11,370,925) ------------- ------------- $ 80,471,833 $ 55,152,022 Mortgage loans receivable - related parties 118,137 663,391 - other 4,366,460 9,190,550 Less - unearned discounts and deferred interest (34,792) (49,462) - deferred gain from property dispositions (219,861) (235,360) - allowance for loan losses (293,365) (293,365) ------------- ------------- Total real estate investments $ 84,408,412 $ 64,427,776 OTHER ASSETS Cash 4,772,742 1,991,578 Marketable securities 4,829,809 5,271,453 Accounts receivable 60,260 - Real estate deposits 175,000 449,148 Prepaid insurance 101,465 43,066 Tax and insurance escrow 317,520 313,917 Deferred charges 225,786 232,910 ------------- ------------- TOTAL ASSETS $ 94,890,994 $ 72,729,848 ------------- ------------- ------------- -------------
F-4 LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994 ------------ ----------- LIABILITIES Accounts payable and accrued expenses $ 1,938,179 $ 1,014,211 Mortgages payable 49,996,207 36,989,553 Investment certificates issued 4,862,464 4,405,683 ------------ ----------- Total liabilities $56,796,850 $42,409,447 ------------ ----------- SHAREHOLDERS' EQUITY Shares of beneficial interest (unlimited authorization, no par value, 11,187,786 shares outstanding in 1995 and 9,881,643 shares outstanding in 1994) $41,560,587 $34,096,966 Accumulated distributions in excess of net income (3,466,443) (3,776,565) ------------ ----------- Total shareholders' equity $38,094,144 $30,320,401 ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $94,890,994 $72,729,848 ------------ ----------- ------------ -----------
F-5 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
1995 1994 1993 ----------- ----------- ---------- REVENUE Real estate rentals $12,733,261 $10,204,670 $6,376,733 Interest, discounts and fees 1,384,433 1,679,909 1,939,910 ----------- ----------- ---------- Total revenue $14,117,694 $11,884,579 $8,316,643 ----------- ----------- ---------- EXPENSES Interest $ 3,483,909 $ 2,651,836 $1,924,662 Depreciation 1,845,571 1,401,408 1,051,370 Utilities and maintenance 2,495,783 2,271,284 1,504,354 Taxes and insurance 1,271,049 1,103,959 787,476 Property management expenses 779,024 641,054 447,693 Advisory and trustee services 336,142 304,898 252,013 Operating expenses 117,543 53,840 58,253 Amortization 20,659 28,199 16,364 Provision for loan losses 200,000 250,000 43,366 ----------- ----------- ---------- Total expenses $10,549,680 $ 8,706,478 $6,085,551 ----------- ----------- ---------- OPERATING INCOME $ 3,568,014 $ 3,178,101 $2,231,092 GAIN ON SALE OF PROPERTIES 403,094 64,962 132,610 ----------- ----------- ---------- NET INCOME $ 3,971,108 $ 3,243,063 $2,363,702 ----------- ----------- ---------- ----------- ----------- ---------- Net income per share: Operating income $ .34 $ .35 $ .28 Gain on sale of investments .04 .01 .01 ------- ------- ------- Net income $ .38 $ .36 $ .29 ------- ------- ------- ------- ------- -------
F-6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
ACCUMULATED SHARES OF DISTRIBUTIONS TOTAL BENEFICIAL IN EXCESS OF SHAREHOLDERS' INTEREST NET INCOME EQUITY ----------- ----------- ------------ BALANCE, MAY 1, 1992 $22,497,105 $(3,647,470) $18,849,635 Net income - 2,363,702 2,363,702 Dividends distributed - (2,633,799) (2,633,799) Dividends reinvested 1,513,143 - 1,513,143 Sale of shares 3,652,762 - 3,652,762 ----------- ----------- ------------ BALANCE, APRIL 30, 1993 $27,663,010 $(3,917,567) $23,745,443 Net income - 3,243,063 3,243,063 Dividends distributed - (3,102,061) (3,102,061) Dividends reinvested 1,853,356 - 1,853,356 Sale of shares 4,580,600 - 4,580,600 ----------- ----------- ------------ BALANCE, APRIL 30, 1994 $34,096,966 $(3,776,565) $30,320,401 Net income - 3,971,108 3,971,108 Dividends distributed - (3,660,986) (3,660,986) Dividends reinvested 2,175,278 - 2,175,278 Sale of shares 5,288,343 - 5,288,343 ----------- ----------- ------------ BALANCE, APRIL 30, 1995 $41,560,587 $(3,466,443) $38,094,144 ----------- ----------- ------------ ----------- ----------- ------------
F-7 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,971,108 $ 3,243,063 $ 2,363,702 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,866,230 1,429,606 1,067,734 Provision for loan losses - 250,000 43,366 Accretion of discount on contracts (14,670) (120,485) (139,353) Gain on sale of properties (403,094) (64,962) (132,610) Interest reinvested in investment certificates 205,491 237,415 233,088 Changes in other assets and liabilities: (Increase) decrease in other assets 138,350 (24,601) (137,775) Increase (decrease) in accounts payable and accrued expenses (109,116) 165,719 282,437 ----------- ----------- ----------- Net cash provided from operating activities $ 5,654,299 $ 5,115,755 $ 3,580,589 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of investment securities $ 441,644 $ 992,872 $ 430,755 Principal payments on mortgage loans receivable 4,032,090 4,808,981 3,114,315 Proceeds from sale of other assets - - 115,000 Payments for acquisition and improvement of properties (10,859,997) (8,508,607) (7,375,840) Purchase of investment securities - (3,035,142) (996,969) Investment in mortgage loans receivable (653,952) (3,116,847) (2,773,125) ----------- ----------- ----------- Net cash used for investing activities $(7,040,215) $(8,858,743) $(7,485,864) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares $ 5,288,343 $ 4,580,600 $ 3,652,762 Proceeds from investment certificates issued 947,093 896,657 1,115,929 Proceeds from mortgages payable 2,092,266 3,453,849 1,524,642 Loan on margin account - 2,250,000 - Dividends paid (1,485,708) (1,248,705) (1,120,656) Redemption of investment certificates (695,803) (1,488,070) (551,957) Principal payments on mortgage loans (1,979,111) (1,355,233) (1,480,390) Payments on margin account - (2,250,000) - ----------- ----------- ----------- Net cash provided from financing activities $ 4,167,080 $ 4,839,098 $ 3,140,330 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH $ 2,781,164 $ 1,096,110 $ (764,945) CASH AT BEGINNING OF YEAR 1,991,578 895,468 1,660,413 ----------- ----------- ----------- CASH AT END OF YEAR $ 4,772,742 $ 1,991,578 $ 895,468 ----------- ----------- ----------- ----------- ----------- -----------
F-8 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1995 1994 1993 ----------- ---------- ----------- SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends reinvested $ 2,175,278 $1,853,356 $ 1,513,143 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 15,917,788 9,510,351 10,303,021 Proceeds from sale of properties deposited directly with escrow agent 940,258 - - Mortgages paid directly by owner of contract 543,598 18,826 661,089 Interest reinvested directly in investment certificates 205,491 237,415 233,088 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid on mortgages $ 3,109,727 $2,215,752 $ 1,512,201 Interest paid on margin account and other - 9,413 8,689 Interest paid on investment certificates 157,233 183,037 141,218 ----------- ---------- ----------- $ 3,266,960 $2,408,202 $ 1,662,108 ----------- ---------- ----------- ----------- ---------- -----------
F-9 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1995, 1994 AND 1993 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Investors Real Estate Trust qualifies under Section 856 of the Internal Revenue Code of 1954 as a real estate investment trust. The Trust has properties located throughout the Upper Midwest, with principal offices located in Minot, North Dakota. The company invests in real estate, real estate contracts and real estate related governmental backed securities (GNMA). PRINCIPALS OF CONSOLIDATION - The consolidated financial statements include the accounts of Investors Real Estate Trust and all limited partnerships in which Investors Real Estate Trust is a general partner and maintains a controlling interest in accordance with the definition provided by Statement of Position 78-9. Due to the immaterial involvement of the limited partners, the trust's general partnership interest provides it with substantial influence over operations of the partnerships. These limited partnerships are as follows: Eastgate Properties, Ltd. Bison Properties, Ltd. First Avenue Building, Ltd. Chateau Properties, Ltd. Sweetwater Properties, Ltd. Hill Park Properties, Ltd. Colton Heights, Ltd. All material intercompany transactions and balances have been eliminated in the consolidated financial statements. ACCOUNTING POLICIES PROPERTY OWNED - Real estate is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs which do not add to the value or extend the useful life are charged to expense as incurred. DEPRECIATION is provided to amortize the cost of individual assets over their estimated useful lives using principally the straight- line method. Useful lives range from 15 to 40 years for buildings and improvements. F-10 NOTE 1 - (CONTINUED) 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. Deferred gain is recognized as income on the installment method when principal payments are received. Interest income is accrued and reflected in the related balance. ALLOWANCE FOR LOAN LOSSES - The Trust evaluates the need for an allowance for loan losses periodically. In performing its evaluation, management assesses the recoverability of individual real estate loans by a comparison of their carrying amount with their estimated net realizable value. MARKETABLE SECURITIES - The Trust's investments in securities are classified as securities to be held to maturity. These securities consist of Government National Mortgage Association securities for which the Trust has the positive intent and ability to hold to maturity. They are reported at cost, adjusted by amortization of premiums and accretion of discounts which are recognized in interest income using the straight line method over the period to maturity. NET INCOME PER SHARE of beneficial interest has been computed based on the weighted average number of shares outstanding during the year. INCOME TAXES - The Trust intends to continue to qualify as a real estate investment trust as defined by the Internal Revenue Code and, as such, will not be taxed on the portion of the income that is distributed to the shareholders, provided at least 95% of its real estate investment trust taxable income is distributed and other requirements are met. The Trust intends to distribute all of its taxable income and realized capital gains from property dispositions within the prescribed time limits and, accordingly, there is no provision or liability for income taxes shown on the financial statements. INCOME RECOGNITION - In accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate", profit shall be recognized in full when real estate is sold, provided: a. The profit is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will be collectible can be estimated. b. The earnings process is virtually complete, that is, the seller is not obliged to perform significant activities after the sale to earn the profit. Based on the economic climate and the terms of many contracts, the collectibility of the sales price is not reasonably assured as required by Statement of Financial Accounting Standards No. 66. Consequently, the Trust uses the installment method of accounting for profits on real estate sold as it more fairly reflects earned revenue. 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 only to the extent of cash received. Rent from leases of real estate is recognized in income as it accrues on the straight-line basis. Advance rental deposits are recorded as deferred income. Gains or losses on marketable securities are recognized on the basis of specific identification. F-11 NOTE 2 - OFF-BALANCE-SHEET RISK The Trust had deposits at Norwest Bank, North Dakota, N.A., First Bank and First International Bank which exceeded Federal Deposit Insurance Corporation limits by $1,435,153, $1,255,270 and $1,427,013, respectively, at April 30, 1995. 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, APRIL 30, 1995 1994 ------------ ------------ Residential $64,905,196 $46,166,682 Less accumulated depreciation (9,417,195) (8,282,229) ------------ ------------ $55,488,001 $37,884,453 ------------ ------------ Commercial $28,651,120 $20,356,265 Less accumulated depreciation (3,667,288) (3,088,696) ------------ ------------ $24,983,832 $17,267,569 ------------ ------------ Remaining cost $80,471,833 $55,152,022 ------------ ------------ ------------ ------------
There were no repossessions during the years ended April 30, 1995 and 1994. Construction period interest of $94,313 has been capitalized for the year ended April 30, 1995. There was no interest capitalized for the year ended April 30, 1994. Residential apartment units are rented to individual tenants with lease terms up to one year. Gross revenues from residential rentals totaled $9,528,999, $7,752,749 and $4,651,112 for the years ended April 30, 1995, 1994 and 1993, respectively. Commercial properties are leased to tenants under terms of leases expiring at various dates through 2015. Lease terms often include renewal options. In addition, a number of the commercial leases provide for a base rent plus a percentage rent based on gross sales in excess of a stipulated amount. Rents based on a percentage of sales totaled $16,586, $22,943 and $14,107 for the years ended April 30, 1995, 1994 and 1993, respectively. The future minimum lease payments to be received under these operating leases for the commercial properties as of April 30, 1995, are as follows:
YEAR ENDING APRIL 30, 1996 $ 3,243,410 1997 3,074,807 1998 2,830,573 1999 2,757,545 2000 2,684,332 Thereafter 18,507,120 ----------- $33,097,787 ----------- -----------
F-12 NOTE 4 - MORTGAGE LOANS RECEIVABLE Mortgage loans receivable consists of approximately thirty contracts which are collateralized by real estate. Discounts on the contracts, where applicable, are being accreted on the straight-line method over the term of the contract. Contract terms call for monthly payments of principal and interest. Interest rates range from 7 to 14%. Mortgage loans receivable have been evaluated for possible losses considering repayment history, market value of underlying collateral, deferred gains and economic conditions. Future principal payments due under the mortgage loan contracts as of April 30, 1995 are as follows:
YEAR ENDING APRIL 30, 1996 $2,093,653 1997 544,561 1998 626,353 1999 180,304 2000 52,339 Later years 987,387 ---------- $4,484,597 ---------- ----------
Details concerning mortgage loans receivable from related parties can be found in Note 9. NOTE 5 - MARKETABLE SECURITIES Marketable securities consist of Governmental National Mortgage Association (GNMA) securities bearing interest from 6.5% to 9.5% with varying maturity dates. The details of the amortized cost and approximate market value of marketable securities at April 30, 1995 and 1994 are as follows:
1995 1994 ------------------------ ------------------------ AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ---------- ---------- ---------- ---------- GNMA Due after 10 years $4,829,809 $4,588,905 $5,271,453 $5,303,469 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The amortized cost and estimated market values with unrealized gains and losses of marketable securities at April 30, 1995 and 1994 are as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR 1995 COST GAINS LOSSES VALUE ---- ---------- ---------- ---------- ---------- ISSUER GNMA $4,829,809 $ - $ 240,904 $4,588,905 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
F-13 NOTE 5 - CONTINUED
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR 1994 COST GAINS LOSSES VALUE ---- ---------- ---------- ---------- ---------- ISSUER GNMA $5,271,453 $32,016 $ - $5,303,469 ---------- ------- ------- ---------- ---------- ------- ------- ----------
There were no realized gains or losses on sales of securities for the years ended April 30, 1995, 1994 and 1993. NOTE 6 - MORTGAGES PAYABLE Mortgages payable as of April 30, 1995, included mortgages on properties owned totaling $49,453,453, and mortgages of $542,754 on property sold on contract. The carrying value of the related real estate owned was $76,151,887 and the carrying value of the related mortgage loans receivable was $1,081,118 as of April 30, 1995. Mortgages payable as of April 30, 1994, included mortgages on properties owned totaling $34,917,196, and mortgages of $2,072,357 on property sold on contract. The carrying value of the related real estate owned was $51,165,379 and the carrying value of the related mortgage loans receivable was $3,833,005 as of April 30, 1994. Monthly installments are due on the mortgages with interest rates ranging from 7.0% to 10.63% and with varying maturity dates thru May 1, 2018. The aggregate amount of required future principal payments on mortgages payable is as follows:
YEARS ENDING APRIL 30, 1996 $ 1,728,448 1997 1,829,558 1998 1,550,277 1999 3,595,124 2000 1,333,269 Later years 39,959,531 ----------- Total payments $49,996,207 ----------- -----------
NOTE 7 - INVESTMENT CERTIFICATES ISSUED 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 1996 $2,242,139 1997 616,953 1998 652,831 1999 383,655 2000 966,886 ---------- $4,862,464 ---------- ----------
F-14 NOTE 8 - DEFERRED GAIN FROM PROPERTY DISPOSITIONS Deferred gain represents gain from property dispositions that have been reported on the installment method. With the installment method of reporting, the proportionate share of the gain is recognized at the point cash is received. Deferred gain recognized on the installment basis was $15,499, $64,962, and $14,385 for the years ended April 30, 1995, 1994 and 1993, respectively. NOTE 9 - TRANSACTIONS WITH RELATED PARTIES Mr. Roger Odell and Mr. Tom Wentz, 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, 1995, Odell-Wentz & Associates received total fees under said agreement of $339,128. The fees for April 30, 1994 were $350,815, and for April 30, 1993 were $272,253. For the years ended April 30, 1995, 1994 and 1993, the Trust has capitalized $49,323, $95,772 and $57,666, respectively, of these fees, with the remainder of $289,805, $255,040 and $214,587, respectively, expensed as advisory and trustee fees on the statement of operations. The advisor is obligated to provide office space, staff, office equipment and computer services and other services necessary to conduct the business affairs of the Trust. Investors Management and Marketing (IMM) provides property management services to the Trust. Roger Odell is a shareholder in IMM. IMM received $212,018, $170,870 and $91,639 for services rendered for years ended April 30, 1995, 1994 and 1993, respectively. In addition, IMM owed the Trust $118,137 and $119,793 at April 30, 1995 and 1994, respectively. This receivable earns interest at 11% and is due in November, 1995. Inland Securities is a corporation that provides underwriting services in the sale of additional shares for the Trust. Roger Odell is also a shareholder in Inland Securities. Fees for services totaled $272,615 for the year ended April 30, 1995, $507,036 for the year ended April 30, 1994, and $405,709 for the year ended April 30, 1993. The Trust paid fees and expense reimbursements to the law firm in which Tom Wentz is a partner totaling $4,890, $4,692 and $4,383 for the years ended April 30, 1995, 1994 and 1993, respectively. The Trust had a mortgage loan receivable from Jenner Properties 1978, a limited partnership in which Roger Odell and Tom Wentz are investors. This contract was paid off during the year ended April 30, 1995. The contract balance at April 30, 1994 was $543,598. F-15 NOTE 9 - (CONTINUED) Investment certificates issued by the Trust to officers and trustees totaled $1,179,324 at April 30, 1995 and $1,156,684 at April 30, 1994. In addition, Daniel Feist, a trustee, was paid $59,564 in conjunction with the brokerage of a contract receivable during the year ended April 30, 1993. NOTE 10 - MARKET PRICE RANGE OF SHARES Investors Real Estate Trust shares are traded on the Over-The- Counter-Market, with sales handled by Inland Securities, Inc., 21 South Main, Minot, North Dakota. The price range is as follows:
BID ASK -------------- -------------- LOW HIGH LOW HIGH ----- ----- ----- ----- 1993 $4.95 $5.22 $5.50 $5.80 1994 5.22 5.49 5.80 6.10 1995 5.49 5.89 6.10 6.40
F-16 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Board of Trustees Investors Real Estate Trust and Affiliated Partnerships Minot, North Dakota Our report on our audit of the basic consolidated financial statements of Investors Real Estate Trust and Affiliated Partnerships for the years ended April 30, 1995, 1994 and 1993, appears on page F-3. Those audits were made for the purpose of forming an opinion on such consolidated financial statements taken as a whole. The information on pages F-18 through F-32 related to the 1995, 1994 and 1993 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 F-32 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, 1995, 1994 and 1993, taken as a whole. We also have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Investors Real Estate Trust and Affiliated Partnerships as of April 30, 1992, and 1991, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended April 30, 1992, none of which is presented herein, and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information on page F-28 relating to the 1992 and 1991 consolidated financial statements is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived. BRADY, MARTZ & ASSOCIATES, P.C. May 19, 1995 F-17 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995 AND 1994 Schedule I MARKETABLE SECURITIES
APRIL 30, 1995 APRIL 30, 1994 ------------------------- ------------------------- PRINCIPAL PRINCIPAL AMOUNT MARKET AMOUNT MARKET ---------- ---------- ---------- ---------- GNMA Pools $4,829,809 $4,588,905 $5,271,453 $5,303,469 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
F-18 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995 AND 1994 Schedule IV NONCURRENT INDEBTEDNESS OF RELATED PARTIES MORTGAGE LOANS RECEIVABLE
BEGINNING ENDING Year ended April 30, 1995 BALANCE ADDITIONS DEDUCTIONS BALANCE --------- --------- ---------- -------- Jenner Properties 1978, Ltd. $543,598 $ - $(543,598) $ - Investors Management and Marketing 119,793 - (1,656) 118,137 -------- ------- --------- -------- $663,391 $ - $ 545,254 $118,137 -------- ------- --------- -------- -------- ------- --------- -------- Year ended April 30, 1994 Jenner Properties 1978, Ltd. $597,657 $38,500 $ (92,559) $543,598 Investors Management and Marketing 121,270 - (1,477) 119,793 -------- ------- --------- -------- $718,927 $38,500 $ (94,036) $663,391 -------- ------- --------- -------- -------- ------- --------- --------
F-19 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993 Schedule X SUPPLEMENTAL INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES -------------------------------------- 1995 1994 1993 ---------- ---------- -------- Item Maintenance and repairs $1,338,236 $1,236,251 $752,229 Depreciation and amortization of intangible assets, preoperating costs and similar deferrals * * * Taxes, other than payroll and income taxes Property taxes 1,124,849 974,737 634,627 Royalties * * * Advertising costs * * *
* Less than 1 percent of total revenues F-20 ADDITIONAL INFORMATION F-21 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995 Schedule XI REAL ESTATE AND ACCUMULATED DEPRECIATION
COST CAPITALIZED SUBSEQUENT INITIAL COST TO TRUST TO ACQUISITION ------------------------------ ---------------------------- BUILDINGS AND CARRYING DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS ----------- ------------ ---------- ------------- ------------ -------- Apartments: Mobridge $ 79,761 $ 33,996 $ 312,518 $ 6,339 $ - Hutchinson 33,281 24,772 332,250 42,748 - Century - Williston 2,266,709 200,000 3,166,750 140,483 - Beulah - 6,360 336,589 78,734 - Century - Dickinson 1,178,928 100,000 1,564,598 61,474 - Waseca, MN 293,459 40,000 634,737 129,699 - Virginia 30,592 37,600 163,036 16,447 - Parkway - 7,000 40,738 20,728 - 4301-4313 9th Ave. 583,661 52,870 908,727 33,531 - Marshall 153,154 35,000 275,000 88,175 - Scottsbluff 311,874 60,000 570,000 63,887 - Oak Manor 243,000 25,000 225,000 17,417 - 177 10th Ave. E 238,965 40,000 318,109 2,709 - 312 12th Ave. NW 57,673 20,000 236,750 - - 105 Grant Street - 13,584 157,211 1,090 - Lantern Court - 15,000 40,000 16 - Sweetwater 275,285 90,767 1,208,847 54,616 - Bison 188,062 100,210 1,348,127 41,798 - Eastgate - 23,917 1,490,181 167,105 - Chateau 1,318,597 60,000 2,539,381 64,273 - Colton Heights 399,197 80,000 734,286 2,275 - Hill Park 1,551,775 224,750 2,562,296 33,631 - Candlelight Apts. 552,170 80,040 757,977 - - Forest Park 4,270,518 810,000 5,579,164 126,083 - Oakwood Estates 2,120,562 342,800 2,783,950 164,861 - Prairie Winds 1,426,174 144,097 1,816,011 - - Crestview Apts. 2,996,871 235,000 4,290,031 - - Pointe West 2,497,043 240,000 3,537,775 - - Oxbow Apts. 3,184,364 404,072 4,494,441 - - 49 units, Bismarck, ND - - 1,460,150 - - Prairie Green, Minot, ND - - 2,062,466 - - Stonehill, St. Cloud, MN - - 340,525 - - Pine Cone, Ft. Collins, CO 10,685,215 904,545 12,121,534 - - South View, Minot, ND - 185,000 468,585 - - Other - - 32,957 - - Office Buildings: 108 4th Ave. SE - 42,195 286,588 25 - 114 S. Main 26,073 27,055 76,076 774 - 408 1st St. SE - 10,000 34,836 2,037 - 401 South Main - 70,600 334,308 66,981 - Lester Building - 25,000 243,916 - - First Avenue - 30,000 219,496 529,321 - Creekside 962,992 311,310 1,088,149 138,715 - Commercial: Arrowhead Shopping Center 242,369 100,359 1,063,925 1,222,811 - Superpumper, Emerado, ND - 25,000 225,564 46,500 - Superpumper, Langdon, ND - 59,674 151,500 28,038 - Superpumper, Bottineau, ND - 15,000 186,013 100,000 - Superpumper, Crookston, MN - 13,125 214,152 201,500 - Superpumper, Grand Forks, ND - 80,000 405,007 - - Superpumper, New Town - 69,900 180,100 - - Pioneer Hi-Bred 369,711 56,925 548,075 1,931 - Lindberg Building 883,344 198,000 1,154,404 19,005 - Superpumper, Sidney, MT - 12,000 108,600 - - Hutchinson Tech 2,580,542 244,800 4,029,426 154,800 - Minot Plaza - 50,000 452,898 - - Smith's, Boise, ID 3,673,868 765,000 4,874,576 - - Midco Theatre, Grand Forks, ND 1,731,283 183,515 2,359,721 - - Pet Foods, Fargo, ND - 324,148 927,570 - - Barnes & Noble, Fargo, ND 2,046,381 540,000 2,752,012 - - Stone Container, Fargo, ND - - 896,268 - - Barnes & Noble, Omaha, NE - - 71,895 - - ----------- ---------- ----------- ---------- -------- $49,453,453 $7,889,986 $81,795,773 $3,870,557 $ - ----------- ---------- ----------- ---------- -------- ----------- ---------- ----------- ---------- --------
F-22 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS Schedule XI (Continued)
GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD ------------------------------------------- LIFE ON WHICH BUILDINGS LATEST INCOME AND ACCUMULATED DATE STATEMENT DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED IS COMPUTED - ----------- ---------- ------------ ----------- ------------ -------- ------------- Apartments: Mobridge $ 33,996 $ 318,856 $ 352,852 $ 260,690 1974 25-40 years Hutchinson 24,772 374,998 399,770 176,994 1977 33-1/2-40 years Century - Williston 262,974 3,244,259 3,507,233 871,833 1985 35-40 years Beulah 78,327 343,356 421,683 248,173 1983 15-40 years Century - Dickinson 126,738 1,599,334 1,726,072 404,654 1986 35-40 years Waseca, MN 40,000 764,436 804,436 214,583 1987 27-1/2-40 years Virginia 37,600 179,483 217,083 45,481 1987 27-1/2-40 years Parkway 11,445 57,021 68,466 7,163 1988 5-40 years 4301-4313 9th Ave. 64,397 930,729 995,126 157,244 1988 40 years Marshall 35,360 362,815 398,175 49,082 1988 40 years Scottsbluff 60,000 633,887 693,887 102,135 1988 40 years Oak Manor 29,012 238,405 267,417 34,930 1989 40 years 177 10th Ave. E 40,159 320,659 360,818 43,995 1989 40 years 312 12th Ave. NW 20,000 236,750 256,750 32,553 1989 40 years 105 Grant Street 14,674 157,211 171,885 17,649 1991 40 years Lantern Court 15,016 40,000 55,016 4,500 1991 40 years Sweetwater 94,270 1,259,960 1,354,230 866,703 1972 20-33 years Bison 100,210 1,389,925 1,490,135 983,225 1972 25-33 years Eastgate 28,638 1,652,565 1,681,203 1,164,458 1970 33 years Chateau 64,316 2,599,338 2,663,654 1,351,859 1972 33 years Colton Heights 80,095 736,466 816,561 280,068 1984 33 years Hill Park 245,653 2,575,024 2,820,677 909,339 1985 33 years Candlelight Apts. 80,040 757,977 838,017 47,374 1993 40 years Forest Park 810,000 5,705,247 6,515,247 353,426 1993 40 years Oakwood Estates 342,800 2,948,811 3,291,611 180,170 1993 40 years Prairie Winds 144,097 1,816,011 1,960,108 113,501 1993 40 years Crestview Apts. 235,000 4,290,031 4,525,031 160,876 1994 40 years Pointe West 240,000 3,537,775 3,777,775 132,667 1994 40 years Oxbow Apts. 404,072 4,494,441 4,898,513 56,180 1994 40 years 49 units, Bismarck, ND - 1,460,150 1,460,150 - 1995 40 years Prairie Green, Minot, ND - 2,062,466 2,062,466 - 1995 40 years Stonehill, St. Cloud, MN - 340,525 340,525 - 1995 40 years Pine Cone, Ft. Collins, CO 904,545 12,121,534 13,026,079 151,519 1994 40 years South View, Minot, ND 185,000 468,585 653,585 8,170 1994 40 years Other - 32,957 32,957 - 1995 40 years Office Buildings: 108 4th Ave SE 42,221 286,587 328,808 177,587 1972 30 years 114 S. Main 27,829 76,076 103,905 64,543 1978 20 years 408 1st St. SE 10,016 36,857 46,873 16,372 1986 19-40 years 401 South Main 70,722 401,167 471,889 89,338 1987 31-1/2-40 years Lester Building 25,000 243,917 268,917 39,814 1988 40 years First Avenue 67,711 711,106 778,817 254,168 1981 33 years Creekside 311,310 1,226,864 1,538,174 99,263 1992 40 years Commercial: Arrowhead Shopping Ctr. 100,412 2,286,683 2,387,095 1,920,867 1973 15-40 years Superpumper, Emerado, ND 25,000 272,064 297,064 108,293 1986 19-40 years Superpumper, Langdon, ND 59,674 179,538 239,212 40,014 1987 31-1/2-40 years Superpumper, Bottineau, ND 15,000 286,013 301,013 36,120 1989 40 years Superpumper, Crookston, MN 13,125 415,653 428,778 48,682 1988 40 years Superpumper Grand Forks, ND 80,000 405,007 485,007 45,563 1991 40 years Superpumper, New Town, ND 69,900 180,100 250,000 15,759 1992 40 years Pioneer Hi-Bred 56,925 550,006 606,931 47,999 1992 40 years Lindberg Building 198,000 1,173,409 1,371,409 101,723 1992 40 years Superpumper, Sidney, MT 12,000 108,600 120,600 6,788 1993 40 years Hutchinson Tech 244,800 4,184,226 4,429,026 253,801 1993 40 years Minot Plaza 50,000 452,898 502,898 28,306 1993 40 years Smith's, Boise, ID 765,000 4,874,576 5,639,576 182,797 1994 40 years Midco Theatre, Grand Forks, ND 183,516 2,359,721 2,543,237 29,497 1994 40 years Pet Foods, Fargo, ND 324,148 927,571 1,251,719 11,595 1994 40 years Barnes & Noble, Fargo, ND 540,000 2,752,012 3,292,012 34,400 1994 40 years Stone Container, Fargo, ND - 896,268 896,268 - 1995 40 years Barnes & Noble, Omaha, NE - 71,895 71,895 - 1995 40 years ---------- ----------- ----------- ----------- $8,145,515 $85,410,801 $93,556,316 $13,084,483 ---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
F-23 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS Schedule XI (Continued) Reconciliations of total real estate carrying value for the three years ended April 30, 1995, 1994 and 1993 are as follows:
1995 1994 1993 -------------- ------------- ------------ Balance at beginning of year $ 66,522,947 $ 48,953,137 $ 31,175,241 Additions during year - acquisitions 27,371,289 17,094,188 17,249,765 - improvements 346,755 475,622 528,131 -------------- ------------- ------------ $ 94,240,991 $ 66,522,947 $ 48,953,137 Deductions during year - cost of real estate sold (684,675) - - -------------- ------------- ------------ Balance at close of year $ 93,556,316 $ 66,522,947 $ 48,953,137 -------------- ------------- ------------ -------------- ------------- ------------
Reconciliations of accumulated depreciation for the three years ended April 30, 1995, 1994 and 1993 are as follows:
1995 1994 1993 -------------- ------------- ------------ Balance at beginning of year $ 11,370,925 $ 9,969,517 $ 8,918,147 Additions during year - provisions for depreciation 1,845,571 1,401,408 1,051,370 Deduction during year - accumulated depreciation on real estate sold (132,013) - - -------------- ------------- ------------ Balance at close of year $ 13,084,483 $ 11,370,925 $ 9,969,517 -------------- ------------- ------------ -------------- ------------- ------------
F-24 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995 Schedule XII INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
INTEREST FINAL MATURITY PAYMENT PRIOR RATE DATE TERMS LIENS -------- -------------- ------ ----- RESIDENTIAL Billings, MT - 144 units 9% 9-1-98 Monthly - Higley Heights, Phoenix, AZ 8% 3-31-04 Monthly - North Park - Writer Corp. 14% 1-04-98 Monthly - Pier Point - Writer Corp. 12% 10-01-95 Quarterly - Geneva Del Mar Apts. 12% 6-30-95 Quarterly - Centerbrooke Homes 12% 1-14-94 Monthly - Other - over $100,000 8-12 1/2% 1-1-98 to 7-1-08 Monthly - - from $50,000 - 99,999 8-9% 12-1-98 to 2-1-00 Monthly - - from $20,000 - 49,999 8-10% 08-1-96 to 12-1-03 Monthly - - less than $20,000 7-12% 8-1-96 to 12-1-01 Monthly Total Less - Unearned discounts - Deferred gain from property dispositions - Allowance for bad debts
F-25
PRINCIPAL AMOUNT FACE CARRYING OF LOANS SUBJECT TO AMOUNTS OF AMOUNTS OF DELINQUENT PRINCIPAL MORTGAGES MORTGAGES OR INTEREST ------------ ----------- -------------------- $ 1,500,000 $ 437,302 $ - 809,786 700,015 - 1,550,000 281,101 - 887,000 407,842 - 586,000 328,277 - 1,900,000 724,832 724,832 1,795,483 1,095,386 - 973,794 370,724 8,660 383,660 111,933 - 235,189 27,185 - ------------ ----------- ----------- $ 10,620,912 $ 4,484,597 $ 733,492 ------------ ----------- ------------ ----------- (34,792) (219,861) (293,365) ----------- $ 3,936,579 ----------- -----------
F-26 Schedule XII (CONTINUED)
1995 1994 1993 ------------ ------------ ------------ MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR $ 9,853,941 $ 11,546,075 $ 12,548,354 New participations in and advances on mortgage loans 653,952 3,135,673 2,773,125 ------------ ------------ ------------ $ 10,507,893 $ 14,681,748 $ 15,321,479 Collections (5,823,296) (4,827,807) (3,775,404) Write-off through allowance (200,000) - - ------------ ------------ ------------ MORTGAGE LOANS RECEIVABLE, END OF YEAR $ 4,484,597 $ 9,853,941 $ 11,546,075 ------------ ------------ ------------ ------------ ------------ ------------
F-27 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS SELECTED FINANCIAL DATA
YEAR ENDED APRIL 30 ------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------- ------------- ------------ ------------ ------------ Consolidated Income Statement Data Revenue $ 14,117,694 $ 11,884,579 $ 8,316,643 $ 7,206,054 $ 6,591,500 Operating income 3,568,014 3,178,101 2,231,092 1,628,155 1,160,634 Gain (loss) on repossession/ sale of investments 403,094 64,962 132,610 22,858 (10,008) Net income 3,971,108 3,243,063 2,363,702 1,651,013 1,150,626 Consolidated Balance Sheet Data Total real estate investments $ 84,408,412 $ 64,427,776 $ 50,041,059 $ 34,302,341 $ 31,722,867 Total assets 94,890,994 72,729,848 54,658,569 38,997,080 35,757,950 Shareholders' equity 38,094,144 30,320,401 23,745,443 18,849,635 15,770,048 Consolidated Per Share Data Operating income $ .34 $ .35 $ .28 $ .23 $ .18 Gain on repossession/ sale of investments .04 .01 .01 .00 .00 Dividends .35 .34 .32 .31 .31 Tax status of dividend Capital gain 11.0% 7.4% 4.1% 1.0% 4.9% Ordinary income 89.0% 92.6% 74.0% 67.8% 53.8% Return of capital 0.0% 0.0% 21.9% 31.2% 41.3%
F-28 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995, 1994 AND 1993 GAIN FROM PROPERTY DISPOSITIONS
TOTAL ORIGINAL UNREALIZED REALIZED REALIZED REALIZED PROPERTY GAIN 4/30/95 4/30/95 4/30/94 4/30/93 - -------- ---------- ---------- ---------- --------- --------- Brooklyn Addition * $ 25,000 $ 5,000 $ 1,000 $ 1,000 $ 1,000 1411 South 20th * 34,696 1,177 3,292 3,039 2,806 1302 South 19 1/2 * 87,669 28,659 5,739 5,299 4,893 600 Maple * 60,025 41,253 859 766 630 406 17th Street - Mandan * 233,522 143,772 4,609 4,131 3,702 1320 19 1/2 South* 74,424 - - 50,727 1,354 419 and 404 - Minot 82,053 - 82,053 - - Yankton, SD 305,542 - 305,542 - - Other gain realized - - - - 118,225 ---------- ---------- --------- --------- $ 219,861 $ 403,094 $ 64,962 $ 132,610 ---------- ---------- --------- --------- ---------- ---------- --------- ---------
* The gain from the sale of these properties is being realized based on the installment method. The amount of deferred gain realized was $15,499, $64,962 and $14,385 for the years ended April 30, 1995, 1994 and 1993, respectively. F-29 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1994 MORTGAGE LOANS
Final Periodic Carrying Delinquent Interest Maturity Payment Face Amount Amount of Principal Rate Date Terms of Mortgage Mortgages or interest -------- -------- -------- ----------- ----------- ----------- Arrowhead Shopping Center, Minot, ND 10.00% 10-1-97 Monthly $ 1,152,278 $ 242,369 $ - Century Apartments, Williston, 196 unit complex 9.02 10-1-15 Monthly 2,680,000 2,266,709 - Century Apartments, Dickinson, 120 unit complex 9.53 4-20-16 Monthly 1,320,000 1,178,928 - Colton Heights Assoc., Billings, MT 9.00 3-1-97 Monthly 1,291,000 255,911 - Chateau Properties, Ltd., Minot, ND 64 unit complex 7.00 6-10-08 Monthly 1,400,000 1,318,597 - Sweetwater Properties, Grafton, Devils 2003 to Lake, 114 units 9.25 2004 Monthly 914,138 275,285 - Bison Properties, Jamestown, Carrington, 8.50 to 1999 to Cooperstown, 125 units 10.00 2000 Monthly 1,001,650 188,062 - Hill Park Properties, Ltd. Bismarck, ND, 96 units 10.625 9-1-15 Monthly 2,225,675 1,551,775 - Colton Heights, Ltd. Minot, ND, 18 units 8.50 1-1-00 Monthly 730,000 399,197 - Residential Properties, Single family - 7.25 to 5-1-95 to 36 unit complexes 10.50 3-1-03 Monthly 4,017,631 2,312,264 - Commercial Properties, Retail stores 9.00 5-1-98 Monthly 97,500 26,073 - Pioneer Hi-Bred, Moorhead, MN 7.38 11-1-01 Monthly 425,000 369,711 - Creekside Office Complex Billings, MT 9.50 12-1-16 Monthly 1,023,750 962,992 - Hutchinson Tech Sioux Falls, SD 8.50 8-1-99 Monthly 2,800,000 2,580,542 - Candlelight Apts. 9.00 12-1-04 Monthly 578,000 552,170 - Oakwood Apts. 7.64 5-1-99 Monthly 2,227,765 2,120,562 - Prairie Winds 7.19 5-1-18 Monthly 1,470,000 1,426,174 - Forest Park 9.75 5-1-03 Monthly 4,500,000 4,270,518 - Pointe West Apts. 8.98 1-1-14 Monthly 2,625,000 2,497,042 - Crestview Apts. 8.97 1-1-14 Monthly 3,150,000 2,996,871 - Midco Theatre 9.40 7-1-14 Monthly 1,750,000 1,731,283 - Sioux Falls, SD 9.25 7-15-14 Monthly 2,600,000 2,534,364 - Smith's Home Furnishings 9.75 3-29-14 Monthly 3,750,000 3,673,868 - Lindberg Building 8.75 4-1-00 Monthly 950,000 883,344 - Barnes & Noble, Fargo, ND 8.50 12-5-14 Monthly 2,062,500 2,046,381 - 24 unit additions, Sioux Falls 9.50 4-10-15 Monthly 650,000 650,000 - Pine Cone 7.79 11-30-99 Monthly 10,685,215 10,685,215 - ----------- ----------- --------- $58,077,102 $49,996,207 $ - ----------- ----------- --------- ----------- ----------- ---------
F-30 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS APRIL 30, 1995 SIGNIFICANT PROPERTY ACQUISITIONS Acquisition for cash and assumptions of mortgages Commercial: Midco Theatre, Grand Forks, ND $ 2,543,237 Pet Foods, Fargo, ND 1,251,719 Barnes & Noble, Fargo, ND 3,292,012 Stone Container, Fargo, ND* 896,268 Barnes & Noble, Omaha, NE* 71,895 ----------- $ 8,055,131 ----------- Apartments: North Pointe, Bismarck, ND* 1,460,150 South Pointe, Minot, ND* 2,062,466 Stonehill, St. Cloud, MN* 340,525 Pine Cone, Ft. Collins, CO 13,026,079 South View, Minot, ND 653,585 Oxbow Apts., Sioux Falls, SD** 1,746,707 $19,289,512 ----------- Total $27,344,643 ----------- -----------
* Property not placed in service at April 30, 1995. Additional costs are still to be incurred. ** Represents costs to complete a project started in year ending April 30, 1994. F-31 INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
QUARTER ENDED -------------------------------------------------- 7-31-94 10-31-94 1-31-95 4-30-95 ---------- ---------- ---------- ---------- Revenues $3,328,796 $3,616,969 $3,574,068 $3,597,861 Income before gains on sale of investments 794,755 1,066,229 1,014,011 693,019 Net gain on sale of investments - 305,543 - 97,551 Net income 794,755 1,371,772 1,014,011 790,570 Per share Income before gains on sale of investments .07 .10 .10 .07 Net gain on sale of investments - .03 - .01
QUARTER ENDED -------------------------------------------------- 7-31-93 10-31-93 1-31-94 4-30-94 ---------- ---------- ---------- ---------- Revenues $2,690,066 $2,906,206 $2,983,480 $3,304,827 Income before gains on sale of investments 841,939 852,618 872,875 610,669 Net gain on sale of investments - - - 64,962 Net income 841,939 852,618 872,875 675,631 Per share Income before gains on sale of investments .10 .10 .10 .05 Net gain on sale of investments - - - .01
QUARTER ENDED -------------------------------------------------- 7-31-92 10-31-92 1-31-93 4-30-93 ---------- ---------- ---------- ---------- Revenues $2,007,460 $2,008,188 $2,013,495 $2,287,500 Income before gains on sale of investments 642,241 578,070 656,909 353,872 Net gain on sale of investments - - - 132,610 Net income 642,241 578,070 656,909 486,482 Per share Income before gains on sale of investments .08 .07 .08 .05 Net gain on sale of investments - - - .01
F-32 FINANCIAL STATEMENT - Third Quarter Fiscal 1996 The following Financial Statements have been prepared from the records of Investors Real Estate Trust and its seven affiliated limited partnerships and have not been audited or reviewed by the Trust's independent certified public accountants. Accordingly, these statements are subject to adjustments upon audit, which audit will be conducted for the Fiscal Year ending April 30, 1996. Reference is made to the footnotes to the Statements prepared by the Trust's auditors for the Fiscal year ended April 30, 1995, contained in the Annual Report for Fiscal 1995. In the opinion of the Trust, there have been no developments requiring footnote disclosure for the periods covered by the Financial Statements set forth below that are not adequately disclosed in the footnotes to the April 30, 1995 statements. - ------------------------------------------------------------------------------ STATEMENT OF OPERATIONS For the Three- and Nine-Month Periods Ended January 31, 1996 and 1995 (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 31 JANUARY 31 ----------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ----------- ----------- OPERATING INCOME Real Estate Rentals $4,892,738 $3,245,354 $12,944,173 $ 9,508,065 Interest Income and Fees 211,671 328,714 657,483 1,011,768 ---------- ---------- ----------- ----------- $5,104,409 $3,574,068 $13,601,656 $10,519,833 ---------- ---------- ----------- ----------- OPERATING EXPENSE Interest $1,554,110 $ 865,806 $ 4,054,522 $ 2,534,221 Utilities & Maintenance 782,100 622,300 2,042,106 1,836,204 Property Management 365,453 191,261 887,034 583,236 Taxes & Insurance 555,031 295,334 1,409,370 872,336 Advisory & Trustees Fees 124,801 83,930 337,324 246,239 Operating Expenses 34,408 16,426 111,190 67,602 ---------- ---------- ----------- ----------- $3,415,903 $2,075,057 $ 8,841,546 $ 6,139,838 ---------- ---------- ----------- ----------- OPERATING INCOME (before reserves) $1,688,506 $1,499,011 $ 4,760,109 $ 4,379,995 ---------- ---------- ----------- ----------- DEPRECIATION (606,000) (435,000) (1,610,000) (1,355,000) ---------- ---------- ----------- ----------- RESERVE FOR BAD DEBTS 0 0 0 0 ---------- ---------- ----------- ----------- OPERATING INCOME (after reserves) $1,082,506 $1,064,011 $ 3,150,109 $ 3,024,995 GAIN ON SALE OF INVESTMENTS 522,001 0 522,001 305,543 ---------- ---------- ----------- ----------- NET TAXABLE INCOME $1,604,507 $1,064,011 $ 3,672,110 $ 3,330,538 ---------- ---------- ----------- ----------- ---------- ---------- ----------- ----------- NET INCOME PER SHARE: Operating Income (after depreciation) .09 .10 .26 .30 Gain on Sale of Investments .04 0 .04 .03 ---------- ---------- ----------- ----------- Total Taxable Income/Share .13 .10 .30 .33 ---------- ---------- ----------- ----------- ---------- ---------- ----------- ----------- DIVIDENDS PAID PER SHARE .09 .085 .27125 .2555 ---------- ---------- ----------- ----------- ---------- ---------- ----------- ----------- Average Number of Shares Outstanding 12,382,227 10,559,744 11,940,492 10,254,494 ---------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
F-33 BALANCE SHEETS For the Periods Ended January 31, 1996 & 1995 (Unaudited) ASSETS:
JANUARY 31, 1996 JANUARY 31, 1995 ---------------- ---------------- Cash $ 3,384,400 $ 5,729,487 Marketable Securities 4,508,382 4,906,239 Accounts Receivable 0 0 Tax & Insurance Escrow 1,087,235 459,445 Deferred Charges 490,860 243,196 Prepaid Insurance 153,389 87,287 Deposits 457,500 176,000 ------------ ------------ $ 10,081,766 $ 11,601,654 ------------ ------------ Real Estate Investments Real Estate Owned $128,339,454 $ 77,053,428 Less Accumulated Depreciation (14,245,319) (12,656,411) ------------ ------------ Net Real Estate Owned 114,094,135 64,397,017 ------------ ------------ Real Estate Mortgages (related) 0 122,535 Real Estate Mortgages (unrelated) 3,766,929 5,382,536 Less Unearned Discounts (34,792) (49,462) Less Deferred Gain from Property Dispositions (219,861) (235,360) Less Reserve for Bad Debts (267,096) (293,366) ------------ ------------ Net Mortgages & Contracts 3,245,180 4,926,883 ------------ ------------ Total Real Estate Investments $117,339,315 $ 69,323,900 ------------ ------------ TOTAL ASSETS $127,421,081 $ 80,925,554 ------------ ------------ ------------ ------------ LIABILITIES: Accounts Payable & Other Liabilities $ 1,443,831 $ 1,258,775 Mortgages Payable 72,332,672 39,193,387 Investment Certificates Payable 5,994,973 4,512,463 Due on Margin Account 0 0 ------------ ------------ TOTAL LIABILITIES $ 79,771,476 $ 44,964,625 ------------ ------------ SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of 12,693,198 as of 01/31/96 10,763,881 as of 01/31/95 $ 50,727,029 $ 39,064,436 Undistributed Net Income (3,077,424) (3,103,507) ------------ ------------ ------------ ------------ Total Shareholders' Equity $ 47,649,605 $ 35,960,929 ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $127,421,081 $ 80,925,554 ------------ ------------ ------------ ------------
F-34 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine-Month Periods Ended January 31, 1996 and 1995 (Unaudited)
1996 1995 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 3,672,111 $ 3,330,538 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,610,000 1,355,000 Reserve for Bad Debts 0 0 Interest reinvested in investment certificates 187,266 151,820 Changes in other assets and liabilities: (Increase) decrease in other assets (1,369,242) (224,035) Increase in accounts payable and accrued expenses 692,751 220,565 ------------ ----------- NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 4,792,886 $ 4,833,888 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Real Estate Deposits $ (125,000) $ 0 Proceeds from principal payments on GNMA Securities 321,427 365,214 Principal payments on mortgage loan receivables 691,399 3,071,625 Payments for acquisition of properties (34,783,138) (6,142,793) Investment in mortgage loan receivables 0 (539,824) ------------ ----------- NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES $(33,895,312) $(3,245,778) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from mortgage loans $ 20,854,211 $ 1,447,779 Proceeds from sale of shares 9,166,442 3,433,591 Dividends paid (1,226,474) (1,042,471) Proceeds from investment certificates issued 1,164,989 554,108 Loan on margin account 0 0 Redemption of investment certificates (352,595) (599,410) Principal payments on mortgage loans and notes payable (1,992,489) (1,643,798) Payments on margin account 0 0 ------------ ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 27,714,084 $ 2,149,799 ------------ ----------- Net Increase (Decrease) in Cash $ (1,388,342) $ 3,737,909 ------------ ----------- Cash at April 30, 1995 $ 4,772,742 $ 1,991,578 ------------ ----------- CASH AT JANUARY 31, 1996 $ 3,384,400 $ 5,729,487 ------------ ----------- ------------ -----------
F-35 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemization of the anticipated cost to the Trust in connection with the issuance and distribution of the securities to be registered. Legal: $25,000 Printing: 1,500 Accounting: 1,000 Registration Fees: 2,500 ------- $30,000 ITEM 31. SALES TO SPECIAL PARTIES There is no person or class of persons to whom any securities have been sold within the past six months, or are to be sold, by the registrant or any security holder for whose account any of the securities being registered are to be offered, at a price varying from that at which securities of the same class are to be offered to the general public pursuant to this registration. ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES The shares of Beneficial Interest of IRET are sold in the over-the-counter market only within the State of North Dakota by Inland National Securities, Inc., 21 South Main, Minot, ND 58701, and Financial Advantage Brokerage Services, Inc., 17 South Main, Minot, ND 58701. Set forth below, by quarter-year, are the total number of IRET shares sold and repurchased and the high and low reported sales prices for the past three years:
CALENDAR NO. OF BID ASKED YEAR MONTHS SHARES SOLD LOW HIGH LOW HIGH ---- ------ ----------- --- ---- --- ---- 1993 January-March 241,353 5.02 5.10 5.70 5.80 1993 April-June 230,068 5.10 5.19 5.80 5.90 1993 July-September 140,339 5.10 5.19 5.90 5.90 1993 October-December 181,613 5.16 5.28 5.90 6.00 1994 January-March 250,167 5.20 5.37 6.00 6.10 1994 April-June 163,347 5.20 5.37 6.10 6.10 1994 July-September 134,529 5.37 5.63 6.10 6.25 1994 October-December 335,518 5.63 5.89 6.25 6.40 1995 January-March 210,106 5.89 5.89 6.40 6.40 1995 April-June 137,766 5.89 6.03 6.40 6.55 1995 July-September 452,665 5.89 6.03 6.40 6.55 1995 October-December 466,447 5.89 6.16 6.40 6.70
IRET shares are sold on the primary market only for cash to bona-fide residents of the State of North Dakota by Inland National Securities, Inc., and Financial Advantage Brokerage Services, Inc., which are securities dealers registered with the State of North Dakota. IRET claims exemption from the registration of its shares of Beneficial Interest under the Securities Act of 1933 under Section 3(a)(11) of said Act. All securities have been offered and sold only to persons resident within the State of North Dakota. The Trust is organized and doing business within North Dakota. ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS The governing provisions of the Trust provide nonliability of and indemnification to the Board of Trustees and officers except for willful misfeasance, bad faith, gross negligence, or any liability imposed by the Securities Act of 1933. The Trust currently provides no insurance coverage for the errors or omissions of Board members, officers or the Advisor. The Advisor currently maintains no insurance coverage for its errors or omissions as Advisor to the Trust. S-1 ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED No portion of the consideration to be received by the registrant for such shares is to be credited to an account other than the appropriate capital share account. ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS a) List of all financial statements filed as part of this registration statement FINANCIAL STATEMENT FILED INCLUDED IN PROSPECTUS ------------------------- ---------------------- Financial Statement by Investors Real See F-1 through F-35 Estate Trust for the period ended April 30, 1995, prepared by Brady Martz & Associates, P.C., Certified Public Accountants b) Exhibit Index DESCRIPTION OF EXHIBIT LOCATION ---------------------- -------- (1) Security Sales Agreements Attached as E-2 through E-5 (2) Plan of acquisition, Not Applicable reorganization, arrangement, liquidation or succession (3) (i) Articles of Incorporation Declaration of Trust, (ii) By-Laws dated 7/31/70, and First Amendment thereto dated 8/26/70, and Second Amendment thereto dated 7/11/74, filed as Exhibit 3 to Form 10 filed for the Registrant (File No. 0-14851) and incorporated herein by reference (4) Instruments defining the See #3 rights of security holders, including indentures (5) Opinion re legality Attached as E-6 through E-7 (6) Opinion re discount on Not Applicable capital shares (7) Opinion re liquidation Not Applicable preference (8) Opinion re tax matters Not Applicable (9) Voting trust agreement Not Applicable (10) Material Contracts Advisory Agreement with the Registrant and Odell-Wentz & Associates, filed as Exhibit 10 to said Form 10 and incorporated herein by reference (File No. 0-14851) (11) Statement re computation Not Applicable of per share earnings S-2 (12) Statement re computation Not Applicable of ratios (15) Letter re unaudited Not Applicable interim financial information (16) Letter re change in Not Applicable certifying accountant (21) Subsidiaries of the List of affiliated Registrant partnerships filed as Item 7 of Form 10 filed for the Registrant (File No. 0-14851) and incorporated herein by reference (23) Consent of experts and counsel Attached as E-8 through E-9 (a) Pringle & Herigstad, P.C. (b) Brady Martz & Associates, P.C. (24) Power of Attorney Not Applicable (25) Statement of eligibility Not Applicable of trustee (27) Financial Data Schedule Attached as E-1 (99) Additional Exhibits Not Applicable UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred S-3 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) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certified that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this registration to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minot, State of North Dakota. INVESTORS REAL ESTATE TRUST BY ----------------------------------- Thomas A. Wentz Its Vice President S-4 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 --------- ----- ---- _________________________ President, Trustee and April 10, 1996 Roger R. Odell Principal Executive Officer _________________________ Vice-President and Trustee April 10, 1996 Thomas A. Wentz _________________________ Trustee and Chairman April 10, 1996 Ralph A. Christensen _________________________ Trustee and Vice Chairman April 10, 1996 Mike F. Dolan _________________________ Trustee April 10, 1996 Patrick G. Jones _________________________ Secretary April 10, 1996 Timothy P. Mihalick _________________________ Trustee April 10, 1996 J. Norman Ellison _________________________ Trustee April 10, 1996 Daniel L. Feist _________________________ Trustee April 10, 1996 C. Morris Anderson S-5 EX-1 2 EXHIBIT 1 EXHIBIT E-1 FORM S-11 INVESTORS REAL ESTATE TRUST SECURITY SALES AGREEMENT THIS AGREEMENT, made this 13th day of March, 1996, between INVESTORS REAL ESTATE TRUST, A North Dakota Business Trust, 12 South Main, Minot, North Dakota 58701 (hereinafter ("IRET"), and FINANCIAL ADVANTAGE BROKERAGE SERVICES, INC., 17 South Main, Minot, North Dakota 58701 (hereinafter "FABSI"). WHEREAS, IRET intends to file a Form S-11 with the Securities and Exchange Commission to register for sale to the public 800,000 shares of its shares of Beneficial Interest; and, WHEREAS, FABSI is a broker registered with the National Association of Securities Dealers and is also registered in states in which said shares of Beneficial Interest will also be registered for sale by IRET; NOW, THEREFORE, in consideration of the mutual covenants herein contained, it is agreed as follows: 1. IRET hereby employs FABSI as a Broker to offer said shares of Beneficial Interest for sale for $7.00 per share, minimum purchase of 100 shares. FABSI agrees to use its best efforts to conduct the sales effort necessary to market said securities subject to the terms and conditions of this agreement. This agreement shall become effective only upon the effectiveness of the registration of said securities by the Securities and Exchange Commission and the applicable state Securities Commissioners and shall terminate contemporaneously with the termination or completion of said registration. 2. IRET shall be responsible for paying all costs and expenses relating to the registration of said securities, including the preparation, printing and filing of the Prospectus and Registration Statements and all amendments and exhibits, all filing and registration fees and costs, and all legal, accounting, printing and filing fee expenses in connection therewith. 3. All solicitation expenses including travel, telephone and other expenses incurred by FABSI and its salesmen shall be the responsibility of FABSI and its salesmen. 4. As compensation for its services hereunder, FABSI shall receive 8% of the proceeds of all of the securities sold and paid for. 5. IRET represents and warrants to FABSI as follows: - IRET is a North Dakota Business Trust duly organized and in good standing under the laws of the State of North Dakota and duly authorized to conduct its business in the states in which it operates. - The shares of Beneficial Interest described in the Prospectus filed in connection with the above described Offering have the characteristics set forth in said Prospectus and IRET is authorized to issue an unlimited number of its shares of Beneficial Interest under its trust powers. - The Financial Statements contained in the Prospectus and by reference incorporated herein are true, correct and complete, and no material, adverse changes have occurred since the issuance of such statement. E-1 IRET hereby indemnifies and will hold FABSI harmless from all claims, demands, liabilities and expenses (including legal expenses) arising out of or based on any of the representations or warranties made by IRET herein. This agreement shall be binding upon and shall inure to the benefit of the parties, their successors and assigns. INVESTORS REAL ESTATE TRUST BY /s/ THOMAS A. WENTZ ------------------------------- Thomas A. Wentz, Vice President FINANCIAL ADVANTAGE BROKERAGE SERVICES, INC. BY /s/ ROGER W. DOMRES ------------------------------- Roger W. Domres, President E-2 EXHIBIT E-1 FORM S-11 INVESTORS REAL ESTATE TRUST SECURITY SALES AGREEMENT THIS AGREEMENT, made this 13th day of March, 1996, between INVESTORS REAL ESTATE TRUST, A North Dakota Business Trust, 12 South Main, Minot, North Dakota 58701 (hereinafter ("IRET"), and INLAND NATIONAL SECURITIES, INC., 21 South Main, Minot, North Dakota 58701 (hereinafter "INLAND"). WHEREAS, IRET intends to file a Form S-11 with the Securities and Exchange Commission to register for sale to the public 800,000 shares of its shares of Beneficial Interest; and, WHEREAS, INLAND is a broker registered with the National Association of Securities Dealers and is also registered in states in which said shares of Beneficial Interest will also be registered for sale by IRET; NOW, THEREFORE, in consideration of the mutual covenants herein contained, it is agreed as follows: 1. IRET hereby employs INLAND as a Broker to offer said shares of Beneficial Interest for sale for $7.00 per share, minimum purchase of 100 shares. INLAND agrees to use its best efforts to conduct the sales effort necessary to market said securities subject to the terms and conditions of this agreement. This agreement shall become effective only upon the effectiveness of the registration of said securities by the Securities and Exchange Commission and the applicable state Securities Commissioners and shall terminate contemporaneously with the termination or completion of said registration. 2. IRET shall be responsible for paying all costs and expenses relating to the registration of said securities, including the preparation, printing and filing of the Prospectus and Registration Statements and all amendments and exhibits, all filing and registration fees and costs, and all legal, accounting, printing and filing fee expenses in connection therewith. 3. All solicitation expenses including travel, telephone and other expenses incurred by INLAND and its salesmen shall be the responsibility of INLAND and its salesmen. 4. As compensation for its services hereunder, INLAND shall receive 8% of the proceeds of all of the securities sold and paid for. 5. IRET represents and warrants to INLAND as follows: - IRET is a North Dakota Business Trust duly organized and in good standing under the laws of the State of North Dakota and duly authorized to conduct its business in the states in which it operates. - The shares of Beneficial Interest described in the Prospectus filed in connection with the above described Offering have the characteristics set forth in said Prospectus and IRET is authorized to issue an unlimited number of its shares of Beneficial Interest under its trust powers. - The Financial Statements contained in the Prospectus and by reference incorporated herein are true, correct and complete, and no material, adverse changes have occurred since the issuance of such statement. E-3 IRET hereby indemnifies and will hold INLAND harmless from all claims, demands, liabilities and expenses (including legal expenses) arising out of or based on any of the representations or warranties made by IRET herein. This agreement shall be binding upon and shall inure to the benefit of the parties, their successors and assigns. INVESTORS REAL ESTATE TRUST BY /s/ THOMAS A. WENTZ ------------------------------- Thomas A. Wentz, Vice President INLAND NATIONAL SECURITIES, INC. BY /s/ DAVID J. THEUSCH ------------------------------- David J. Theusch, President E-4 EX-5 3 EXHIBIT 5 [LETTERHEAD] March 13, 1996 EXHIBIT E-5 OPINION RE LEGALITY Securities and Exchange Commission Washington, D.C. 20549 INVESTORS REAL ESTATE TRUST - FORM S-11 DATED MARCH 13, 1996 In connection with the filing of Form S-11 by Investors Real Estate Trust, we advise you that we have examined and are familiar with the originals of all documents, trust records and other instruments relating to the organization of Investors Real Estate Trust, the authorization and issuance of the shares of Beneficial Interest described in said application, including the following: 1. Declaration of Trust dated July 31, 1970; First Amendment thereto dated August 26, 1970; and Second Amendment thereto dated July 11, 1974. 2. Application for Registration of Securities by Qualification and attached exhibits, including Prospectus. From our examination of said documents and records, it is our opinion: 1. Investors Real Estate Trust has been duly organized and is a validly existing business trust under the laws of the State of North Dakota. 2. Investors Real Estate Trust has the power under North Dakota law to conduct the business activities described in the Trust Agreement and said Prospectus. 3. Investors Real Estate Trust is authorized to issue an unlimited number of its shares of Beneficial Interest as set forth in its Trust Agreement and such shares conform to the statements made about them in the Form S-11 and Prospectus. 4. Said shares of Beneficial Interest have been duly and validly authorized and issued. 5. We are not aware, and Investors Real Estate Trust has advised us that it is not aware of any legal or governmental proceedings pending or threatened to which Investors Real Estate Trust is a party or which the property thereof is the subject; and it and we do not know of any contracts of a character to be disclosed on said application or prospectus which are not disclosed, filed and properly summarized therein. E-1 Securities and Exchange Commission March 12, 1996 6. Said Form S-11 and the Prospectus and other exhibits attached thereto are in the form required and have been examined by us; we have no reason to believe that any of said documents contain any untrue statement of material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. We have reviewed said documents and to the best of our knowledge, information and belief, the statements contained therein are correct. PRINGLE & HERIGSTAD, P.C. By_______________________ Thomas A. Wentz, Jr. kak E-2 EX-23 4 EXHIBIT 23 [LETTERHEAD] April 10, 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM S-11 REGISTRATION STATEMENT INVESTORS REAL ESTATE TRUST CIK0000798359 TO WHOM IT MAY CONCERN: We consent to the incorporation directly or by reference in this Registration Statement of Investors Real Estate Trust, on Form S-11 of our opinion letter dated March 13, 1996, concerning the opinion of legality. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is also part of this Registration Statement. PRINGLE & HERIGSTAD, P.C. Thomas A. Wentz, Jr. kak E-8 [LETTERHEAD] April 10, 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM S-11 REGISTRATION STATEMENT INVESTORS REAL ESTATE TRUST CIK0000798359 TO WHOM IT MAY CONCERN: We consent to the incorporation directly or by reference in this Registration Statement of Investors Real Estate Trust, on Form S-11 of the consolidated financial statement of Investors Real Estate Trust and affiliated partnerships as of April 30, 1995, and April 30, 1994, as well as the independent auditor's report. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. BRADY MARTZ & ASSOCIATES, P.C. Boyd Anderson E-9 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FILED BY REGISTRANT FOR THE 3-MONTH PERIOD ENDED JANUARY 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FILING. 3-MOS OCT-31-1996 NOV-01-1995 JAN-31-1996 3,384,400 4,508,382 3,766,929 267,096 0 10,081,766 128,339,454 14,245,319 127,421,081 1,443,831 72,332,672 5,994,973 0 50,727,029 (3,077,424) 127,421,081 0 13,601,656 0 5,948,510 448,514 0 4,054,522 3,150,109 0 3,150,109 0 522,001 0 3,672,110 .26 .26 FOR THE NINE-MONTH PERIOD ENDED 1-31-96
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