10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

Form 10-Q

Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended January 31, 2005

Commission File Number 0-14851

INVESTORS REAL ESTATE TRUST

(Exact name of registrant as specified in its charter)

North Dakota	45-0311232
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 1988
12 South Main Street
Minot, ND	58702-1988
(Address of principal executive offices)	(Zip code)

(701) 837-4738
(Registrant’s telephone number, including area code)

N/A
(Former name, former address, and former fiscal year, if changed since last report.)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ                 No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Yes þ                 No o

     Registrant is a North Dakota Real Estate Investment Trust. As of March 9, 2005, it had 44,521,703 common shares of beneficial interest outstanding.

TABLE OF CONTENTS

	Page
Part I Financial Information
Item 1. Financial Statements – Third Quarter — Fiscal 2005:		1
Condensed Consolidated Balance Sheets (unaudited) January 31, 2005 and April 30, 2004		1
Condensed Consolidated Statements of Operations (unaudited) For the Three Months and Nine Months ended January 31, 2005 and 2004		2
Condensed Consolidated Statement of Shareholders’ Equity (unaudited) For the Nine Months ended January 31, 2005		3
Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months ended January 31, 2005 and 2004		4
Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		37
Item 4. Controls and Procedures		38
Part II Other Information		39
Item 1. Legal Proceedings		39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 3. Defaults Upon Senior Securities – None		39
Item 4. Submission of Matters to a Vote of Security Holders-None		39
Item 5. Other Information		39
Item 6. Exhibits		39
Signatures		40
Base Salaries of Named Executive Officers
Certification by Chief Executive Officer Pursuant to Section 302
Certification by Chief Financial Officer Pursuant to Section 302
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906

PART I

ITEM 1. FINANCIAL STATEMENTS – THIRD QUARTER — FISCAL 2005

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	(in thousands)
	January 31, 2005			April 30, 2004
ASSETS
Real estate investments
Property owned	$	1,172,070		$	1,100,434
Less accumulated depreciation/amortization		(117,392	)		(100,250	)
		1,054,678			1,000,184
Undeveloped land		4,435			2,994
Mortgage loans receivable, net of allowance		625			4,893
Total real estate investments		1,059,738			1,008,071
Other assets
Cash and cash equivalents		36,374			31,704
Marketable securities – available-for-sale		2,377			2,336
Receivable arising from straight-lining of rents, net of allowance		6,671			5,976
Accounts receivable – net of allowance		1,947			2,155
Real estate deposits		3,100			1,567
Prepaid and other assets		735			2,677
Tax, insurance, and other escrow		8,923			11,301
Property and equipment, net		2,410			2,292
Goodwill		1,441			1,441
Deferred charges and leasing costs – net		8,099			6,797
TOTAL ASSETS	$	1,131,815		$	1,076,317
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Accounts payable, accrued expenses and other liabilities	$	20,904		$	22,639
Notes payable		—			25,000
Mortgages payable		691,304			633,124
Investment certificates issued		5,053			7,074
Other debt		810			843
TOTAL LIABILITIES		718,071			688,680
COMMITMENTS AND CONTINGENCIES (NOTE 6)
MINORITY INTEREST IN PARTNERSHIPS		16,070			16,386
MINORITY INTEREST OF UNIT HOLDERS IN OPERATING PARTNERSHIP
(13,075,167 units on January 31, 2005 and 11,819,350 units on April 30, 2004)		103,610			92,622
SHAREHOLDERS’ EQUITY
Preferred shares of beneficial interest (Cumulative redeemable preferred shares, no par value, 1,150,000 shares issued and outstanding at January 31, 2005 and April 30, 2004, aggregate liquidation preference of $28,750,000)		27,317			27,343
Common shares of beneficial interest (Unlimited authorization, no par value, 44,371,535 shares issued and outstanding at January 31, 2005 and 41,693,256 shares issued and outstanding at April 30, 2004)		317,674			292,400
Accumulated distributions in excess of net income		(50,914	)		(41,083	)
Accumulated other comprehensive loss		(13	)		(31	)
TOTAL SHAREHOLDERS’ EQUITY		294,064			278,629
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,131,815		$	1,076,317

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

for the three and nine months ended January 31, 2005 and 2004

	Three Months Ended						Nine Months Ended
	January 31						January 31
	(in thousands, except per share data)
	2005			2004			2005			2004
REVENUE
Real estate rentals	$	32,349		$	28,697		$	97,257		$	82,857
Tenant reimbursement		6,129			5,252			18,614			14,594
TOTAL REVENUE		38,478			33,949			115,871			97,451
OPERATING EXPENSE
Interest		11,806			10,856			34,882			30,568
Depreciation/amortization related to real estate investments		8,370			6,024			24,287			16,799
Utilities		2,806			2,292			7,741			6,209
Maintenance		3,916			3,560			12,349			10,226
Real estate taxes		4,507			4,308			13,643			12,201
Insurance		671			728			2,001			2,078
Property management expenses		2,709			2,231			7,937			6,327
Property management related party		0			248			284			578
Administrative expense		1,158			747			2,811			1,979
Advisory and trustee services		17			23			61			80
Other operating expenses		331			291			892			854
Amortization		304			232			861			592
Amortization of related party costs		14			13			44			30
TOTAL OPERATING EXPENSE		36,609			31,553			107,793			88,521
Operating income		1,869			2,396			8,078			8,930
Non-operating income		151			170			596			464
Income before minority interest and discontinued operations and gain on sale of other investments		2,020			2,566			8,674			9,394
Gain on sale of other investments		3			13			3			13
Minority interest portion of other partnerships’ income		(28	)		(129	)		(233	)		(598	)
Minority interest portion of operating partnership income		(558	)		(625	)		(2,025	)		(2,114	)
Income from continuing operations		1,437			1,825			6,419			6,695
Discontinued operations, net		1,799			664			6,241			1,329
NET INCOME		3,236			2,489			12,660			8,024
Dividends to preferred shareholders		(593	)		0			(1,779	)		0
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	2,643		$	2,489		$	10,881		$	8,024
Earnings per common share from continuing operations	$	.02		$	.04		$	.11		$	.17
Earnings per common share from discontinued operations		.04			.02			.15			.04
NET INCOME PER COMMON SHARE - BASIC	$	.06		$	.06		$	.26		$	.21
DILUTED
Earnings per common share from continuing operations	$	.02		$	.05		$	.11		$	.18
Earnings per common share from discontinued operations		.04			.01			.15			.03
NET INCOME PER COMMON SHARE	$	.06		$	.06		$	.26		$	.21

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)

for the nine months ended January 31, 2005

	(in thousands)
	NUMBER														ACCUMULATED
	OF					NUMBER						DISTRIBUTIONS			OTHER			TOTAL
	PREFERRED		PREFERRED			OF COMMON			COMMON			IN EXCESS OF			COMPREHENSIVE			SHAREHOLDERS’
	SHARES		SHARES			SHARES			SHARES			NET INCOME			INCOME (LOSS)			EQUITY
Balance May 1, 2004		1,150	$	27,343			41,693		$	292,400		$	(41,083	)	$	(31	)	$	278,629
Comprehensive Income
Net income													12,660						12,660
Unrealized gain on securities available-for- sale																18			18
Total comprehensive income																			12,678
Distributions													(22,491	)					(22,491	)
Distribution reinvestment plan							820			7,863									7,863
Sale of shares				(26	)		1,649			15,753									15,727
Redemption of units for common shares							213			1,693									1,693
Fractional shares repurchased							(4	)		(35	)								(35	)
Balance January 31, 2005		1,150	$	27,317			44,371		$	317,674		$	(50,914	)	$	(13	)	$	294,064

The accompanying notes are an integral part of these condensed consolidated financial statements.

The remainder of this page has been left blank intentionally.

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

for the nine months ended January 31, 2005 and 2004

	(in thousands)
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	12,660		$	8,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,595			18,316
Minority interest portion of income		4,087			2,952
Gain on sale of real estate, land and other investments		(8,174	)		(515	)
Interest reinvested in investment certificates		210			254
Bad debt expense:
Straight-line allowance		50			270
Past due rent		218			0
Changes in other assets and liabilities:
(Increase) decrease in real estate deposits		(1,533	)		(3,674	)
Increase in receivable arising from straight-lining of rents		(745	)		(1,176	)
(Increase) decrease in accounts receivable		(12	)		(479	)
(Increase) decrease in prepaid and other assets		1,942			(518	)
(Increase) decrease in tax, insurance and other escrow		2,378			(4,380	)
Increase in deferred charges and leasing costs		(2,238	)		(2,259	)
(Increase) decrease in related party capitalized leasing commissions		21			(32	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(1,291	)		781
Net cash provided by operating activities		33,168			17,564
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments on mortgage loans receivable		4,268			39
Investment in mortgage loans receivable		0			(2,710	)
Purchase of marketable securities – available-for-sale		(23	)		(1,500	)
Proceeds from sale of real estate, land and other investments		45,974			3,211
Payments for acquisitions and improvements of properties		(83,269	)		(68,377	)
Net cash used by investing activities		(33,050	)		(69,337	)

continued

The remainder of this page has been left blank intentionally.

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (unaudited, continued)
for the nine months ended January 31, 2005 and 2004

	(in thousands)
	2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common shares, net of issue costs	$	15,721		$	35,563
Issue costs for preferred shares		(26	)		0
Proceeds from mortgages payable		93,510			93,044
Proceeds from minority partner Brenwood/Dixon		161			0
Proceeds from notes payable		13			11
Repurchase of shares and minority interest units		(35	)		(12	)
Distributions paid to shareholders, net of reinvestment		(14,989	)		(10,968	)
Distributions paid to unitholders of operating partnership		(5,416	)		(4,693	)
Distributions paid to other minority partners		(709	)		(790	)
Redemption of investment certificates		(2,231	)		(1,696	)
Principal payments on mortgages payable		(56,401	)		(42,879	)
Principal payments on notes payable		(25,046	)		(11,258	)
Net cash provided by financing activities		4,552			56,322
NET INCREASE IN CASH AND CASH EQUIVALENTS		4,670			4,549
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		31,704			18,642
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	36,374		$	23,191
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE PERIOD
Distribution reinvestment plan	$	7,304		$	7,642
UPREIT distribution reinvestment plan		559			552
Preferred dividends payable		198			0
Property acquired through issue of shares		32			0
Real estate investment acquired through assumption of mortgage loans payable and accrual of costs		21,071			21,332
Assets acquired through the issuance of minority interest units in the operating partnership		14,802			14,386
Operating partnership units converted to shares		1,693			2,347
Minority partner interest in Golden Hills		0			1,294
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on mortgages		34,388			30,076
Interest on investment certificates		207			312
Interest on margin account and other		354			902
	$	34,949		$	31,290

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (unaudited)

for the nine months ended January 31, 2005 and 2004

NOTE 1 • ORGANIZATION

     Investors Real Estate Trust (“IRET” or the “Company”) is a self-advised real estate investment trust engaged in acquiring, owning and leasing multi-family and commercial real estate. IRET has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. REITs are subject to a number of organizational and operational requirements, including a requirement to distribute 90% of ordinary taxable income to shareholders, and, generally, are not subject to federal income tax on net income. IRET’s multi-family residential properties and commercial properties are located mainly in the states of North Dakota and Minnesota, but also in the states of Colorado, Idaho, Iowa, Georgia, Kansas, Montana, Nebraska, South Dakota, Texas, Michigan and Wisconsin. As of January 31, 2005, IRET owned 66 multi-family residential properties with 8,505 apartment units and 145 commercial properties, consisting of office, medical, industrial and retail properties, totaling 7.8 million net rentable square feet. IRET conducts a majority of its business activities through its consolidated operating partnership, IRET Properties, a North Dakota Limited Partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities.

     All references to IRET or the Company refer to Investors Real Estate Trust and its consolidated subsidiaries.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements include the accounts of IRET and all its subsidiaries in which it maintains a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. The Company’s fiscal year ends April 30^th.

     The accompanying condensed consolidated financial statements include the accounts of IRET and its general partnership interest in the Operating Partnership. The Company’s interest in the Operating Partnership was 77.2% and 78.0%, respectively, as of January 31, 2005, and April 30, 2004, which includes 100% of the general partnership interest. The limited partners have a redemption option that they may exercise. IRET has the choice of redeeming the limited partners’ interests (“Units”) for IRET common shares of beneficial interest, on a one-for-one basis, or making a cash payment to the unitholder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units (provided, however, that in general not more than two redemptions by a limited partner may occur during each calendar year, and each limited partner may not exercise the redemption for less than 1,000 Units, or, if such limited partner holds less than 1,000 Units, for all of the Units held by such limited partner). The Operating Partnership and some limited partners have

6

contractually agreed to a holding period of greater than one year and/or a greater number of redemptions during a calendar year.

     The condensed consolidated financial statements also reflect the ownership by the Operating Partnership of certain joint venture entities in which the Operating Partnership has a general partner or controlling interest. These entities are consolidated into IRET’s other operations, with minority interests reflecting the minority partners’ share of ownership and income and expenses.

UNAUDITED INTERIM FINANCIAL STATEMENTS

     The interim condensed consolidated financial statements of IRET have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America are omitted. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods have been included.

     The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 8-K dated January 21, 2005 for the fiscal year ended April 30, 2004, filed with the SEC.

RECLASSIFICATIONS

     Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

NOTE 3 • EARNINGS PER SHARE

     Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. The Company has no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional common shares that would result in a dilution of earnings. While Units can be exchanged for common shares on a one-for-one basis after a minimum holding period of one year, the exchange of Units for common shares has no effect on net income per share, as Unitholders and common shareholders effectively share equally in the net income of the Operating Partnership. The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the consolidated financial statements for the three and nine months ended January 31, 2005 and 2004:

7

	Three Months					Nine Months
	Ended January 31					Ended January 31
	(in thousands, except per share data)
	2005			2004		2005			2004
NUMERATOR
Income from continuing operations	$	1,437		$	1,825	$	6,419		$	6,695
Discontinued operations		1,799			664		6,241			1,329
Net income		3,236			2,489		12,660			8,024
Dividends to preferred shareholders		(593	)		0		(1,779	)		0
Numerator for basic earnings per share – net income available to common shareholders		2,643			2,489		10,881			8,024
Minority interest portion of operating partnership income		1,092			699		3,854			2,353
Numerator for diluted earnings per share	$	3,735		$	3,188	$	14,735		$	10,377
DENOMINATOR
Denominator for basic earnings per share - weighted average shares		43,786			40,735		42,747			38,473
Effect of dilutive securities – convertible operating partnership units		13,023			11,583		12,540			11,093
Denominator for diluted earnings per share		56,809			52,318		55,287			49,566
BASIC
Earnings per common share from continuing operations	$	.02		$	.04	$	.11		$	.17
Earnings per common share from discontinued operations		.04			.02		.15			.04
NET INCOME PER COMMON SHARE	$	.06		$	.06	$	.26		$	.21
DILUTED
Earnings per common share from continuing operations	$	.02		$	.05	$	.11		$	.18
Earnings per common share from discontinued operations		.04			.01		.15			.03
NET INCOME PER COMMON SHARE	$	.06		$	.06	$	.26		$	.21

NOTE 4 • SHAREHOLDERS’ EQUITY

     On July 1, 2004, October 1, 2004 and January 27, 2005, we issued approximately 259,000 common shares, 280,000 common shares and 281,000 common shares, respectively, pursuant to our distribution reinvestment plan, for total value of $7.9 million. In addition, as of January 31, 2005, approximately 213,000 Units have been converted to common shares during fiscal year 2005, with a total value of $1.7 million included in shareholders’ equity. In November 2004, the Company concluded a “best efforts” offering of up to 1.5 million common shares at $10.15 per share. In this offering, 1.4 million common shares were sold, for gross proceeds to the Company

8

of approximately $14.3 million, before payment of commissions of six percent per share to the broker-dealers selling the shares, and before payment of other expenses of the offering.

NOTE 5 • SEGMENT REPORTING

     IRET is engaged in acquiring, owning and leasing multi-family residential and commercial real estate. Each property is considered a separate operating segment. Each segment on a stand-alone basis is less than 10% of the revenues, profit or loss, and assets of the combined reported operating segments, and meets the aggregation criteria under SFAS 131. Previously, IRET’s operating segments were aggregated and classified as multi-family residential and commercial properties, producing two reportable segments. Beginning with the first quarter of IRET’s current fiscal year, IRET is reporting its results in five segments: multi-family residential properties, and office, industrial (including miscellaneous commercial properties), retail, and medical (including assisted living facilities) properties.

IRET expanded its number of reportable segments in response to its growth and to the increased diversity of its properties, in particular the increase in the number of retail and medical properties IRET owns. This growth and increased diversity of property type prompted IRET to reorganize its asset management group, effective July 2004, in order to permit greater management specialization by property type. It also provides a basis for aggregating properties with similar economic characteristics. While IRET will continue to separately evaluate the performance of each of its properties, management will also assess IRET’s performance in each of its five segments.

     The revenues, profit (loss) and assets for these reportable segments are summarized as follows as of and for the three and nine-month periods ended January 31, 2005 and 2004, along with reconciliations to the consolidated financial statements:

Three Months Ended January 31, 2005

	(in thousands)
	Commercial-		Commercial-		Commercial-		Commercial-		Multi-Family
	Office		Medical		Industrial		Retail		Residential		Total
Real Estate Revenue	$	12,378	$	6,269	$	1,544	$	3,566	$	14,721	$	38,478
Expenses
Mortgage interest		3,312		2,264		577		1,054		4,513		11,720
Depreciation/amortization related to real estate investments		3,147		1,320		380		692		2,784		8,323
Utilities and maintenance		2,296		674		88		333		3,331		6,722
Real estate taxes		1,784		332		214		470		1,707		4,507
Insurance		126		70		20		50		405		671
Property management		520		295		25		52		1,817		2,709
Total segment expense		11,185		4,955		1,304		2,651		14,557		34,652
Segment operating profit	$	1,193	$	1,314	$	240	$	915	$	164		3,826
Reconciliation to consolidated operations
Interest discounts and fee revenue												151
Other interest expense												(86	)
Depreciation – furniture and fixtures												(47	)
Administrative, advisory and trustee fees												(1,175	)
Operating expenses												(331	)
Amortization												(318	)
Income before minority interest and discontinued operations and gain on sale of other investments											$	2,020

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     Three Months Ended January 31, 2004

	(in thousands)
	Commercial-		Commercial-		Commercial-		Commercial-		Multi-Family
	Office		Medical		Industrial		Retail		Residential		Total
Real Estate Revenue	$	10,255	$	3,969	$	1,629	$	3,026	$	15,070	$	33,949
Expenses
Mortgage interest		2,838		1,545		515		719		4,456		10,073
Depreciation/amortization related to real estate investments		1,792		769		310		493		2,620		5,984
Utilities and maintenance		1,958		607		90		264		2,933		5,852
Real estate taxes		1,568		362		198		465		1,715		4,308
Insurance		120		37		17		42		512		728
Property management		520		304		23		45		1,587		2,479
Total segment expense		8,796		3,624		1,153		2,028		13,823		29,424
Segment operating profit	$	1,459	$	345	$	476	$	998	$	1,247		4,525
Reconciliation to consolidated operations:
Interest discounts and fee revenue												170
Other interest expense												(783	)
Depreciation – furniture and fixtures												(40	)
Administrative, advisory and trustee fees												(770	)
Operating expenses												(291	)
Amortization												(245	)
Income before minority interest and discontinued operations and gain on sale of other investments											$	2,566

     Nine Months Ended January 31, 2005

	(in thousands)
	Commercial-		Commercial-		Commercial-		Commercial-		Multi-Family
	Office		Medical		Industrial		Retail		Residential		Total
Real Estate Revenue	$	35,873	$	18,644	$	4,768	$	11,613	$	44,973	$	115,871
Expenses
Mortgage interest		9,332		6,475		1,730		3,047		13,710		34,294
Depreciation/amortization related to real estate investments		8,812		3,895		1,136		2,080		8,228		24,151
Utilities and maintenance		6,901		2,090		210		1,030		9,859		20,090
Real estate taxes		5,250		1,259		671		1,431		5,032		13,643
Insurance		371		199		62		150		1,219		2,001
Property management		1,545		938		72		196		5,470		8,221
Total segment expense		32,211		14,856		3,881		7,934		43,518		102,400
Segment operating profit	$	3,662	$	3,788	$	887	$	3,679	$	1,455		13,471
Reconciliation to consolidated operations:
Interest discounts and fee revenue												596
Other interest expense												(588	)
Depreciation – furniture and fixtures												(136	)
Administrative, advisory and trustee fees												(2,872	)
Operating expenses												(892	)
Amortization												(905	)
Income before minority interest and discontinued operations and gain on sale of other investments											$	8,674

10

     Nine Months Ended January 31, 2004

	(in thousands)
	Commercial-		Commercial-		Commercial-		Commercial-		Multi-Family
	Office		Medical		Industrial		Retail		Residential		Total
Real Estate Revenue	$	27,730	$	11,838	$	5,021	$	8,807	$	44,055	$	97,451
Expenses
Mortgage interest		7,981		4,359		1,564		2,447		12,937		29,288
Depreciation/amortization related to real estate investments		4,516		2,172		931		1,424		7,639		16,682
Utilities and maintenance		5,349		1,632		165		733		8,556		16,435
Real estate taxes		4,159		1,054		569		1,439		4,980		12,201
Insurance		320		102		49		119		1,488		2,078
Property management		1,268		907		73		70		4,587		6,905
Total segment expense		23,593		10,226		3,351		6,232		40,187		83,589
Segment operating profit	$	4,137	$	1,612	$	1,670	$	2,575	$	3,868		13,862
Reconciliation to consolidated operations:
Interest discounts and fee revenue												464
Other interest expense												(1,280	)
Depreciation – furniture and fixtures												(117	)
Administrative, advisory and trustee fees												(2,059	)
Operating expenses												(854	)
Amortization												(622	)
Income before minority interest and discontinued operations and gain on sale of other investments											$	9,394

     Segment Assets and Accumulated Depreciation

     January 31, 2005

	(in thousands)
	Commercial-			Commercial-			Commercial-			Commercial-			Multi-Family
	Office			Medical			Industrial			Retail			Residential			Total
Segment assets
Property owned	$	347,064		$	209,641		$	58,677		$	122,466		$	434,222		$	1,172,070
Less accumulated depreciation/ amortization		(25,684	)		(11,895	)		(5,004	)		(9,716	)		(65,093	)		(117,392	)
Total property owned	$	321,380		$	197,746		$	53,673		$	112,750		$	369,129		$	1,054,678

     April 30, 2004

	(in thousands)
	Commercial-			Commercial-			Commercial-			Commercial-			Multi-Family
	Office			Medical			Industrial			Retail			Residential			Total
Segment assets
Property owned	$	301,401		$	171,180		$	58,573		$	123,108		$	446,172		$	1,100,434
Less accumulated depreciation/ amortization		(17,307	)		(9,135	)		(3,860	)		(8,338	)		(61,610	)		(100,250	)
Total property owned	$	284,094		$	162,045		$	54,713		$	114,770		$	384,562		$	1,000,184

11

NOTE 6 • COMMITMENTS AND CONTINGENCIES

     Litigation. IRET is involved in various lawsuits arising in the normal course of business. Management believes that such matters will not have a material effect on the Company’s financial statements.

     Insurance. IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties.

     Purchase Options. The Company has granted options to purchase certain Company properties to various parties. In general, the options grant the parties the right to purchase these properties at the greater of their appraised value or an annual compounded increase of 2% to 2.5% of the initial cost of the property to the Company. As of January 31, 2005, the total property cost of the 14 properties subject to purchase options was approximately $74.7 million, and the gross rental revenue from these properties was approximately $1.9 million for the three months ended January 31, 2005.

     During the quarter ended January 31, 2005, the tenant in four of IRET’s Edgewood Vista assisted living facilities exercised the purchase options contained in the leases for these properties. The sales of three of these properties under option, Edgewood Vista facilities located in Belgrade, Montana, Columbus, Nebraska and Grand Island, Nebraska, closed in December 2004. See Note 8, Acquisitions and Dispositions, for further information on these sales. The sale of the fourth Edgewood Vista facility, located in East Grand Forks, Minnesota, is pending.

     Real Estate Expansions and Development. The Company has certain funding commitments under contracts for property development and expansion projects. As of January 31, 2005, IRET’s funding commitments included the following:

     Grand Forks Apartment Construction. The Company is obligated under a construction contract and an excavating contract for the construction of a multi-family residential property in Grand Forks, ND. The Company is obligated to pay approximately $7.5 million under the construction contract, subject to additions and deductions as provided in the contract, and approximately $340,000 under the excavating contract, for this development project. As of January 31, 2005, approximately $6.9 million and $305,000 have been paid under the construction contract and the excavating contract, respectively.

     Lithia Springs, Georgia Expansion Project. The Company is obligated to pay up to $575,000 to construct expansion premises at its Lithia Springs, Georgia assisted living facility. As of January 31, 2005, the Company had paid approximately $311,000 of this obligation.

     Crosstown Circle Office Building, Eden Prairie, MN. The Company’s Crosstown Circle Office Building in Eden Prairie, Minnesota was acquired in October 2004 from Best Buy Company, which is leasing all but 7,500 square feet of the 185,000 square foot building under a master lease expiring September 30, 2010. Under the terms of the financing obtained by the Company for this building, the Company is obligated to fund a leasing reserve account in the event that a specified occupancy level is not met at the time the Best Buy master lease expires. The amount to be deposited in the leasing reserve account would be calculated by multiplying a specified amount per square foot by the difference between the specified occupancy level and the

12

building’s actual occupied square feet. The maximum amount the Company would be required to deposit in such leasing reserve account is $4,625,000. Funds in the leasing reserve account would be released as leases for vacant space in the building are executed.

     Environmental Matters. Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While IRET currently has no knowledge of any violation of environmental laws, ordinances or regulations at any of its properties, there can be no assurance that areas of contamination will not be identified at any of the Company’s properties, or that changes in environmental laws, regulations or cleanup requirements would not result in significant costs to the Company.

     Pending Acquisitions and Dispositions. As of January 31, 2005, the Company was a party to purchase agreements to acquire a residential apartment complex and a multi-tenant office property, for purchase prices totaling approximately $17.9 million. The Company was also a party to a contract to purchase a parcel of vacant land in Minot, North Dakota, for approximately $440,000. The Company completed the purchase of the apartment complex in March 2005; see Note 9, Subsequent Events, for more details of this transaction. The acquisitions of the office property and the parcel of vacant land are still pending. Also as of January 31, 2005, the Company was a party to contracts to sell an assisted living facility, a parcel of vacant land, and two multi-family residential properties, for sale prices totaling approximately $2.6 million and an estimated gain on sale of approximately $1.2 million. In February, 2005, the Company signed a purchase agreement to acquire a multi-tenant office property located in the Minneapolis, Minnesota metropolitan area, for a purchase price of approximately $20.3 million. The Company expects to complete these pending transactions over the next several months; however, the purchase or sale of each of these properties is subject to the satisfaction of various closing conditions, and there can be no assurance that any or all of these pending transactions will be consummated.

NOTE 7 • DISCONTINUED OPERATIONS

     SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” requires the Company to report in discontinued operations the results of operations of a property that has either been disposed of or is classified as held for sale. It also requires that any gains or losses from the sale of a property be reported in discontinued operations. There were no properties held for sale as of January 31, 2005 or 2004. The following information shows the effect on net income, net of minority interest, and the gains or losses from the sale of properties classified as discontinued operations for the three and nine months ended January 31, 2005 and 2004:

	Three Months Ended					Nine Months Ended
	January 31					January 31
	(in thousands)
	2005			2004		2005		2004
REVENUE
Real Estate Rentals	$	179		$	1,465	$	2,140	$	4,568
Tenant Reimbursements		(1	)		127		225		385
Total Revenue		178			1,592		2,365		4,953

13

	Three Months Ended						Nine Months Ended
	January 31						January 31
	(in thousands)
	2005			2004			2005			2004
OPERATING EXPENSE
Interest		37			426			637			1,272
Depreciation/amortization		23			280			392			859
Utilities and maintenance		51			242			422			796
Real estate taxes		16			128			196			399
Insurance		4			27			36			83
Property management expenses		13			141			201			442
Administrative expense		0			2			0			3
Operating expense		0			1			1			2
Amortization		0			7			11			35
Loss on impairment of real estate		0			0			571			0
Total operating expense		144			1,254			2,467			3,891
Operating income (loss)		34			338			(102	)		1,062
Non-operating income		0			1			1			5
Income (loss) before minority interest and gain on sale		34			339			(101	)		1,067
Minority interest		(534	)		(74	)		(1,829	)		(240	)
Gain on sale of discontinued operations		2,299			399			8,171			502
Discontinued operations, net	$	1,799		$	664		$	6,241		$	1,329

NOTE 8 • ACQUISITIONS AND DISPOSITIONS

     During the three months ended January 31, 2005, IRET acquired one apartment complex, one office property and a single-tenant retail property, and completed construction on two apartment buildings. During the quarter, IRET sold three medical properties (assisted living facilities), one multi-family residential property and one single-tenant retail property, as follows:

Acquisitions and Dispositions During Three Months Ended January 31, 2005:
Acquisitions

	(in thousands)
	Acquisition Cost
Multi-Family Residential
54-Unit Southbrook Court and Mariposa Lane Townhomes – Topeka, KS	$	5,500
36-Unit Legacy 6 – Grand Forks, ND		2,607
Commercial Property – Office
81,173 sq. ft. Highlands Ranch II Office Building – Highlands Ranch, CO	$	12,800
Commercial Property – Retail
4,000 sq. ft. single tenant retail building (former Payless building) – Fargo, ND	$	375
Total Property Acquisitions	$	21,282

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Dispositions

	(in thousands)
			Book Value and
	Sales Price		Sales Cost		Gain/Loss
Multi-Family Residential
192-unit Century Apartments – Williston, ND	$	4,600	$	2,658	$	1,941
Commercial Property – Medical (assisted living facilities)
5,100 sq. ft. Edgewood Vista – Belgrade, MT		509		433		76
5,100 sq. ft. Edgewood Vista – Columbus, NE		509		435		74
5,100 sq. ft. Edgewood Vista – Grand Island, NE		509		434		75
Commercial Property — Retail
4,800 sq. ft. single tenant retail building (former Tom Thumb store) – Ham Lake, MN		650		518		132
Total Property Dispositions	$	6,777	$	4,478	$	2,298

     During the nine months ended January 31, 2005, IRET has acquired and disposed of the following properties:

Acquisitions and Dispositions During Nine Months Ended January 31, 2005:
Acquisitions

	(in thousands)
	Acquisition Cost
Commercial Property – Medical
52,300 sq. ft. Nebraska Orthopedic Hospital Expansion Project – Omaha, NE	$	20,597
45,081 sq. ft. Pavilion I Clinic—Duluth, MN		10,900
60, 294 sq. ft. High Pointe Health Campus Phase I (East Metro Medical Building) – Lake Elmo, MN		13,050
		44,547
Commercial Property – Industrial (miscellaneous commercial property)
46,720 sq. ft. Sleep Inn Hotel – Brooklyn Park, MN		2,750
		2,750
Commercial Property – Office
26,186 sq. ft. Plymouth I Office Building – Plymouth, MN		1,864
26,186 sq. ft. Plymouth II Office Building – Plymouth, MN		1,748
26,186 sq. ft. Plymouth III Office Building – Plymouth, MN		2,214
79,377 sq. ft. Northgate I Office Building –Maple Grove, MN		8,175
185,000 sq. ft. Crosstown Circle Office Building – Eden Prairie, MN		22,000
81,173 sq. ft. Highlands Ranch II Office Building – Highlands Ranch, CO		12,800
		48,801
Commercial Property — Retail

15

	(in thousands)
	Acquisition Cost
4,000 sq. ft. single tenant retail building (former Payless building) – Fargo, ND		375
		375
Multi-Family Residential
54 unit- Southbrook Court and Mariposa Lane Townhomes – Topeka, KS		5,500
36-Unit Legacy 5 – Grand Forks, ND		2,738
36-Unit Legacy 6 – Grand Forks, ND		2,607
		10,845
Total Property Acquisitions	$	107,318

Dispositions

	(in thousands)
			Book Value
	Sales Price		and Sales Cost		Gain/Loss
Multi-Family Residential
204-unit Ivy Club Apartments – Vancouver, WA	$	12,250	$	12,070	$	180
26-unit Beulah Condominiums – Beulah, ND		96		96		0
36-unit Parkway Apartments – Beulah, ND		159		159		0
18-Unit Dakota Arms Apartments – Minot, ND		825		566		259
100-Unit Van Mall Woods Apartments – Vancouver, WA		6,900		5,625		1,275
192-unit Century Apartments – Williston, ND		4,600		2,658		1,941
Commercial – Retail
30,000 sq. ft. Barnes & Noble Store – Fargo, ND		4,590		2,916		1,674
18,040 sq. ft. Petco Store – Fargo, ND		2,160		1,209		951
4,800 sq. ft. single tenant retail building (former Tom Thumb store) – Ham Lake, MN		650		518		132
Commercial – Medical (assisted living facility)
97,821 sq. ft. Edgewood Vista – Minot, ND		7,210		5,676		1,534
5,100 sq. ft. Edgewood Vista – Belgrade, MT		509		433		76
5,100 sq. ft. Edgewood Vista – Columbus, NE		509		435		74
5,100 sq. ft. Edgewood Vista – Grand Island, NE		509		434		75
Commercial – Office
62,585 sq. ft. Flying Cloud Building – Eden Prairie, MN		5,750		5,750		0
Vacant Land
205,347 sq. ft. parcel of vacant land – Libby, MT		151		151		0
Total Property Dispositions	$	46,868	$	38,696	$	8,171

NOTE 9 • SUBSEQUENT EVENTS

     Acquisition. Subsequent to the end of the third quarter of its fiscal year 2005, the Company closed on the following acquisition:

     Olympik Village Apartments: On March 1, 2005, the Company closed on the purchase of the 140-unit Olympik Village Apartment complex in Rochester, Minnesota. The Company paid approximately $7.1 million for this property, excluding transaction costs, of which $5.6 million

16

was paid in cash, with the remainder of the purchase price paid through the issuance to the sellers of UPREIT Units valued at $10.00 per Unit.

     Common and Preferred Share Distributions. On February 16, 2005, the Company’s Board of Trustees declared a regular quarterly distribution of 16.20 cents per share on the Company’s common shares and Units, payable April 1, 2005, to common shareholders and Unitholders of record on March 18, 2005. The Company’s Board of Trustees also declared a distribution of 51.56 cents per share on the Company’s preferred shares of beneficial interest, payable March 31, 2005, to preferred shareholders of record on March 15, 2005.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with the consolidated financial statements included in this report, as well as the Company’s audited financial statements for the fiscal year ended April 30, 2004, which are included in the Company’s Form 8-K dated January 21, 2005 filed with the Securities and Exchange Commission.

     Forward Looking Statements. Certain matters included in this discussion are forward looking statements within the meaning of the federal securities laws. Although we believe that the expectations reflected in the following statements are based on reasonable assumptions, we can give no assurance that the expectations expressed will actually be achieved. Many factors may cause actual results to differ materially from our current expectations, including general economic conditions, local real estate conditions, the general level of interest rates and the availability of financing and various other economic risks inherent in the business of owning and operating investment real estate.

     Overview. IRET is a self-advised equity real estate investment trust engaged in owning and operating income-producing real properties. Our investments include multi-family residential properties and office, industrial, medical and retail properties located primarily in the upper Midwest states of Minnesota and North Dakota. Our properties are diversified by type and location. As of January 31, 2005, our real estate portfolio consisted of 66 multi-family residential properties containing 8,505 apartment units and having a total carrying amount (net of accumulated depreciation) of $369 million, and 145 commercial properties containing approximately 7.8 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $686 million. Our commercial properties consist of:

•   48 office properties containing approximately 3.3 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $321 million;

•   11 industrial properties (including miscellaneous commercial properties) containing approximately 1.7 million square feet of leasable space and having a total carrying amount (net of accumulated deprecation) of $54 million;

•   60 retail properties containing approximately 1.6 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $113 million; and

•   26 medical properties (including assisted living facilities) containing approximately 1.1 million square feet of leasable space and having a total carrying amount (net of accumulated depreciation) of $198 million.

     Our primary source of income and cash is rents associated with multi-family residential and commercial leases. Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is focused on growing assets in desired

17

geographical markets, achieving diversification by property type and location, and adhering to targeted returns in acquiring properties. We intend to continue to achieve our business objective by investing in multi-family residential properties and in office, industrial, retail and medical commercial properties that are leased to single or multiple tenants, usually for five years or longer, and are located throughout the upper Midwest. We operate mainly within the states of North Dakota and Minnesota, although we also have real estate investments in South Dakota, Montana, Nebraska, Colorado, Georgia, Idaho, Iowa, Kansas, Michigan, Texas and Wisconsin.

     We compete with other owners and developers of multi-family and commercial properties to attract tenants to our properties, and we compete with other real estate investors to acquire properties. Principal areas of competition for tenants are in respect of rents charged and the attractiveness of location and quality of our properties. Competition for investment properties affects our ability to acquire properties we want to add to our portfolio, and the price we pay for acquisitions.

     Critical Accounting Policies. In preparing the consolidated financial statements management has made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of the Company’s critical accounting policies is included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2004, in Management’s Discussion and Analysis of Financial Condition and Results of Operations. There have been no significant changes to those policies during fiscal year 2005.

RECENT ACCOUNTING PRONOUNCEMENTS

     There are no accounting standards or interpretations that have been issued, but which have not yet been adopted, that we believe will have a material impact on our financial statements.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2005 AND 2004

     Throughout this section, we have provided certain information on a “stabilized property” basis. Information provided on a stabilized property basis is provided only for those properties owned for the entirety of both periods being compared, and includes properties which were redeveloped or expanded during the periods being compared. Properties purchased or sold, and properties under development during the periods being compared, are excluded from our stabilized property analysis. Results presented on a stabilized property basis are not determined in accordance with GAAP; see the section of this report entitled “Results on a ‘Stabilized Property’ Basis” beginning on page 24 for a statement of the reasons management believes that presenting certain information on a stabilized property basis is useful to investors.

REVENUES

     Total IRET revenues for the third quarter of fiscal year 2005 were $38.4 million, compared to $33.9 million received in the third quarter of the prior fiscal year. This is an increase of $4.5

18

million or 13.6%. This increase in revenue resulted primarily from the additional investments in real estate made by IRET during fiscal year 2005, as well as other factors shown by the following analysis:

	(in thousands)
	Increase in Total Revenue			Increase in Total Revenue
	Three Months ended			Nine Months ended
	January 31, 2005			January 31, 2005
Rent from 28 properties acquired in Fiscal 2004 in excess of that received in 2004 from the same 28 properties	$	2,193		$	13,846
Rent from 14 properties acquired in Fiscal 2005		2,881			5,870
Increase in rental receipts and accruals on existing properties due to changes in scheduled rent and lease renewals/termination		(545	)		(1,296	)
Net increase in total revenue	$	4,529		$	18,420

SEGMENT EXPENSES AND OPERATING PROFIT

     The following table shows the changes in revenues, operating expenses, interest, and depreciation by reportable operating segment for the three and nine months ended January 31, 2005, as compared to the three and nine months ended January 31, 2004. For a reconciliation of segment revenues, profit (loss) and assets to the consolidated financial statements, see Note 5 of the Notes to Consolidated Financial Statements beginning on page 9 of this report.

Three Months Ended January 31

	(in thousands)
	2005		2004		Change			%
Commercial-Office
Real estate revenue	$	12,378	$	10,255	$	2,123			20.7	%
Expenses
Mortgage interest		3,312		2,838		474			16.7	%
Depreciation and amortization		3,147		1,792		1,355			75.6	%
Utilities and maintenance		2,296		1,958		338			17.3	%
Real estate taxes		1,784		1,568		216			13.8	%
Insurance		126		120		6			5.0	%
Property management		520		520		0			0.0	%
Total segment expense		11,185		8,796		2,389			27.2	%
Segment operating profit	$	1,193	$	1,459	$	(266	)		(18.2	%)

	(in thousands)
	2005		2004		Change			%
Commercial-Medical
Real estate revenue	$	6,269	$	3,969	$	2,300			57.9	%
Expenses
Mortgage interest		2,264		1,545		719			46.5	%
Depreciation and amortization		1,320		769		551			71.7	%
Utilities and maintenance		674		607		67			11.0	%
Real estate taxes		332		362		(30	)		(8.3	%)
Insurance		70		37		33			89.2	%
Property management		295		304		(9	)		(3.0	%)
Total segment expense		4,955		3,624		1,331			36.7	%
Segment operating profit	$	1,314	$	345	$	969			280.9	%

19

	(in thousands)
	2005		2004		Change			%
Commercial-Industrial
Real estate revenue	$	1,544	$	1,629	$	(85	)		(5.2	%)
Expenses
Mortgage interest		577		515		62			12.0	%
Depreciation and amortization		380		310		70			22.6	%
Utilities and maintenance		88		90		(2	)		(2.2	%)
Real estate taxes		214		198		16			8.1	%
Insurance		20		17		3			17.6	%
Property management		25		23		2			8.7	%
Total segment expense		1,304		1,153		151			13.1	%
Segment operating profit	$	240	$	476	$	(236	)		(49.6	%)

	(in thousands)
	2005		2004		Change			%
Commercial-Retail
Real estate revenue	$	3,566	$	3,026	$	540			17.8	%
Expenses
Mortgage interest		1,054		719		335			46.6	%
Depreciation and amortization		692		493		199			40.4	%
Utilities and maintenance		333		264		69			26.1	%
Real estate taxes		470		465		5			1.1	%
Insurance		50		42		8			19.0	%
Property management		52		45		7			15.6	%
Total segment expense		2,651		2,028		623			30.7	%
Segment operating profit	$	915	$	998	$	(83	)		(8.3	%)

	(in thousands)
	2005		2004		Change			%
Multi-Family Residential
Real estate revenue	$	14,721	$	15,070	$	(349	)		(2.3	%)
Expenses
Mortgage interest		4,513		4,456		57			1.3	%
Depreciation and amortization		2,784		2,620		164			6.3	%
Utilities and maintenance		3,331		2,933		398			13.6	%
Real estate taxes		1,707		1,715		(8	)		(0.5	%)
Insurance		405		512		(107	)		(20.9	%)
Property management		1,817		1,587		230			14.5	%
Total segment expense		14,557		13,823		734			5.3	%
Segment operating profit	$	164	$	1,247	$	(1,083	)		(86.8	%)

Nine Months Ended January 31

	(in thousands)
	2005		2004		Change			%
Commercial-Office
Real estate revenue	$	35,873	$	27,730	$	8,143			29.4	%
Expenses
Mortgage interest		9,332		7,981		1,351			16.9	%
Depreciation and amortization		8,812		4,516		4,296			95.1	%
Utilities and maintenance		6,901		5,349		1,552			29.0	%
Real estate taxes		5,250		4,159		1,091			26.2	%
Insurance		371		320		51			15.9	%
Property management		1,545		1,268		277			21.8	%
Total segment expense		32,211		23,593		8,618			36.5	%
Segment operating profit	$	3,662	$	4,137	$	(475	)		(11.5	%)

20

	(in thousands)
	2005		2004		Change		%
Commercial-Medical
Real estate revenue	$	18,644	$	11,838	$	6,806		57.5	%
Expenses
Mortgage interest		6,475		4,359		2,116		48.5	%
Depreciation and amortization		3,895		2,172		1,723		79.3	%
Utilities and maintenance		2,090		1,632		458		28.1	%
Real estate taxes		1,259		1,054		205		19.4	%
Insurance		199		102		97		95.1	%
Property management		938		907		31		3.4	%
Total segment expense		14,856		10,226		4,630		45.3	%
Segment operating profit	$	3,788	$	1,612		2,176		135.0	%

	(in thousands)
	2005		2004		Change			%
Commercial-Industrial
Real estate revenue	$	4,768	$	5,021	$	(253	)		(5.0	%)
Expenses
Mortgage interest		1,730		1,564		166			10.6	%
Depreciation and amortization		1,136		931		205			22.0	%
Utilities and maintenance		210		165		45			27.3	%
Real estate taxes		671		569		102			17.9	%
Insurance		62		49		13			26.5	%
Property management		72		73		(1	)		(1.4	%)
Total segment expense		3,881		3,351		530			15.8	%
Segment operating profit	$	887	$	1,670	$	(783	)		(46.9	%)

	(in thousands)
	2005		2004		Change			%
Commercial-Retail
Real estate revenue	$	11,613	$	8,807	$	2,806			31.9	%
Expenses
Mortgage interest		3,047		2,447		600			24.5	%
Depreciation and amortization		2,080		1,424		656			46.1	%
Utilities and maintenance		1,030		733		297			40.5	%
Real estate taxes		1,431		1,439		(8	)		(0.6	%)
Insurance		150		119		31			26.1	%
Property management		196		70		126			180.0	%
Total segment expense		7,934		6,232		1,702			27.3	%
Segment operating profit	$	3,679	$	2,575	$	1,104			42.9	%

	(in thousands)
	2005		2004		Change			%
Multi-Family Residential
Real estate revenue	$	44,973	$	44,055	$	918			2.1	%
Expenses
Mortgage interest		13,710		12,937		773			6.0	%
Depreciation and amortization		8,228		7,639		589			7.7	%
Utilities and maintenance		9,859		8,556		1,303			15.2	%
Real estate taxes		5,032		4,980		52			1.0	%
Insurance		1,219		1,488		(269	)		(18.1	%)
Property management		5,470		4,587		883			19.3	%
Total segment expense		43,518		40,187		3,331			8.3	%
Segment operating profit	$	1,455	$	3,868	$	(2,413	)		(62.4	%)

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FACTORS IMPACTING NET INCOME:

     During the first three months and nine months of fiscal year 2005, the following factors were the most significant causes of the limited growth of our total revenue. These factors ultimately also negatively impacted our net income per share:

•	Economic Vacancy & Concessions. Our stabilized apartment vacancy decreased to 9.60% from 10.14% for the three months ended January 31, 2005 and 2004, respectively. Vacancy levels at our stabilized commercial properties increased to 11.46% from 8.32% for the three months ended January 31, 2005 and 2004, respectively. Our stabilized apartment vacancy decreased to 9.21% from 9.30% for the nine months ended January 31, 2005 and 2004, respectively. Vacancy levels at our stabilized commercial properties increased to 10.64% from 6.70% for the nine months ended January 31, 2005 and 2004, respectively.
	While occupancy levels at our multi-family residential properties showed signs of improvement this quarter, our level of tenant concessions continues to increase, and results at our multi-family residential properties continue to be negatively influenced by the availability of low-interest mortgages to prospective home buyers. To maintain physical occupancy levels at our multi-family residential properties, we may offer tenant incentives, generally in the form of lower rents, which results in decreased revenues and income from operations at our stabilized properties. We estimate that rent concessions offered during the three and nine months ended January 31, 2005 lowered our operating revenues by approximately $0.8 million and $2.8 million, respectively, as compared to an estimated approximately $0.7 million and $2.0 million reduction in operating revenues attributable to rent concessions offered in the three and nine months ended January 31, 2004.
	Our commercial vacancy levels are primarily due to our inability to either renew existing leases or to re-lease space being vacated by tenants at the expiration of their lease. As we previously reported to our shareholders, despite some positive economic developments, we have yet to see a significant increase in demand for commercial space. Our expectation is that demand in IRET’s markets for both apartments and commercial space will continue to remain weak through the fourth quarter of fiscal year 2005. Additionally, we generally see a seasonal reduction in demand for both commercial space and apartments during winter. As a result, we do not expect our occupancy levels to improve significantly, or a reduction in the level of rent concessions offered, during our fiscal year 2005, which ends April 30, 2005.
•	Increased maintenance expense. The maintenance expense category increased by $356,000 or 10% for the three months ended January 31, 2005, and $2,123,000 or 21% for the nine months ended January 31, 2005, as compared to the corresponding periods in fiscal 2004. Of the increased maintenance costs for the three months ended January 31, 2005, $383,000 or 108% is attributable to the addition of new real estate acquired in fiscal 2005, while $27,000 or 8% is due to decreased costs for maintenance on existing real estate assets. Of the increased maintenance costs for the nine months ended January

22

	31, 2005, $1,743,000 or 82% is attributable to the addition of new real estate acquired in fiscal 2005, while $380,000 or 18% is due to increased costs for maintenance on existing real estate assets. Under the terms of most of our commercial leases, the full cost of maintenance is paid by the tenant as additional rent. For our noncommercial real estate properties, any increase in our maintenance costs must be collected from tenants in the form of a general rent increase. While we have implemented selected rent increases, the current economic conditions and increased vacancy levels have prevented us from raising rents in the amount necessary to fully recover our increased maintenance costs.
•	Increased Utility Expense. The utility expense category increased by $514,000, or 22%, for the three months ended January 31, 2005, and by $1,532,000 or 25% for the nine months ended January 31, 2005, as compared to the corresponding periods of fiscal year 2004. Of the increased utility costs for the three months ended January 31, 2005, $209,000, or 41%, is attributable to the addition of new real estate, while $305,000, or 59%, is due to increased costs for utilities on existing real estate assets. Of the increased utility costs for the nine months ended January 31, 2005, $1,029,000 or 67% is attributable to the addition of new real estate, while $503,000, or 33% is due to increased costs for utilities on existing real estate assets. For the three and nine months ended January 31, 2005, no one property accounts for a significant portion of this increase, as we have seen a general increase for natural gas, water, sewer and garbage disposal in the communities where our properties are located.
•	Increased Administrative and Operating Expenses. Administrative and operating expenses increased by $451,000, or 43%, for the three months ended January 31, 2005, and by $870,000 or 31% for the nine months ended January 31, 2005, as compared to the corresponding periods of fiscal year 2004, primarily because of increased salary and other expense resulting from our hiring of additional employees. We added a total of 7 additional employees through the third quarter of fiscal year 2005. Additionally, in common with other public companies, we have experienced a significant increase in accounting fees and other costs, primarily as a result of certain provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), in particular the internal controls report and attestation requirements of Section 404 of Sarbanes-Oxley.
•	Increased Mortgage Interest Expense. Our mortgage debt increased $58.2 million, or 9%, to $691.3 million as of January 31, 2005, as compared to $633.1 million on April 30, 2004. Our mortgage interest expense increased by $1.6 million, or 16%, for the three months ended January 31, 2005 and by $5.0 million, or 17%, for the nine months ended January 31, 2005. Of the increased mortgage interest expense for the three months ended January 31, 2005, $1.7 million is attributable to the addition of new real estate. Of the increased mortgage interest expense for the nine months ended January 31, 2005, $5.3 million is attributable to the addition of new real estate, while mortgage interest expense on existing real estate assets declined by $0.3 million. Our overall weighted average interest rate on all outstanding mortgage debt is 6.09% as of January 31, 2005.
•	Increased Amortization Expense. In accordance with SFAS No. 141, “Business Combinations,” which establishes standards for valuing in-place leases in purchase

23

transactions, the Company allocates a portion of the purchase price paid for properties to in-place lease intangible assets. The amortization period of these intangible assets is the term of the lease, rather than the estimated life of the buildings and improvements. The Company accordingly initially records additional amortization expense due to this shorter amortization period, which has the effect in the short term of decreasing the Company’s net income available to common shareholders.

RESULTS ON A “STABILIZED PROPERTY” BASIS

     The following table presents results on a stabilized property basis for the three months and nine months ended January 31, 2005 and 2004, for our multi-family residential and commercial properties, consisting of office, medical, industrial and retail properties. Property Segment Operating Profit should not be considered as an alternative to operating net income as determined in accordance with GAAP as a measure of IRET’s performance. The Company analyzes and compares results of operations on properties owned and in operation for the entirety of the periods being compared (including properties that were redeveloped or expanded during the periods being compared, with properties purchased or sold during the periods being compared being excluded from this analysis). This comparison allows the Company to evaluate the performance of existing properties and their contribution to net income.

     Management believes that measuring performance on a stabilized property basis is useful to investors because it enables evaluation of how the Company’s properties are performing year over year. Management uses this measure to assess whether or not it has been successful in increasing net operating income, renewing the leases of existing tenants, controlling operating costs and appropriately handling capital improvements.

	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Multi-family residential
Real Estate Revenue	$	13,847	$	13,713		1.0	%
Expenses:
Utilities & maintenance		3,014		2,690		12.0	%
Property management		1,614		1,422		13.5	%
Real estate taxes		1,580		1,608		(1.7	%)
Insurance		373		472		(21.0	%)
Depreciation and amortization		2,516		2,432		3.5	%
Mortgage interest		4,125		4,168		(1.0	%)
Total expenses		13,222		12,792		3.4	%
Property segment operating profit	$	625	$	921		(32.1	%)
Commercial – office
Real estate revenue	$	8,225	$	8,486		(3.1	%)
Expenses:
Utilities & maintenance		1,606		1,686		(4.7	%)

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	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Property management		358		452		(20.8	%)
Real estate taxes		1,295		1,304		(0.7	%)
Insurance		90		102		(11.8	%)
Depreciation and amortization		1,420		1,390		2.2	%
Mortgage interest		2,403		2,496		(3.7	%)
Total expenses		7,172		7,430		(3.5	%)
Property segment operating profit	$	1,053	$	1,056		(0.3	%)
Commercial – medical
Real estate revenue	$	3,670	$	3,795		(3.3	%)
Expenses:
Utilities & maintenance		495		490		1.0	%
Property management		174		231		(24.7	%)
Real estate taxes		362		346		4.6	%
Insurance		35		34		2.9	%
Depreciation and amortization		677		670		1.0	%
Mortgage interest		1,282		1,392		(7.9	%)
Total expenses		3,025		3,163		(4.4	%)
Property segment operating profit	$	645	$	632		2.1	%

	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Commercial – Industrial
Real Estate Revenue	$	1,426	$	1,629		(12.5	%)
Expenses:
Utilities & maintenance		86		90		(4.4	%)
Property management		22		23		(4.3	%)
Real estate taxes		192		198		(3.0	%)
Insurance		18		17		5.9	%
Depreciation and amortization		313		310		1.0	%
Mortgage interest		538		515		4.5	%
Total expenses		1,169		1,153		1.4	%
Property Segment Operating Profit	$	257	$	476		(46.0	%)
Commercial – Retail
Real Estate Revenue	$	2,702	$	2,792		(3.2	%)
Expenses:
Utilities & maintenance		250		217		15.2	%
Property management		10		12		(16.7	%)
Real estate taxes		403		449		(10.2	%)
Insurance		34		36		(5.6	%)
Depreciation and amortization		480		471		1.9	%
Mortgage interest		842		719		17.1	%

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	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Total expenses		2,019		1,904		6.0	%
Property segment operating profit	$	683	$	888		(23.1	%)
Total Stabilized Segment Operating Profit	$	3,263	$	3,973		(17.9	%)
Reconciliation to Segment Operating Profit
Real Estate Revenue – Non-Stabilized		8,608		3,534
Expenses – Non-Stabilized
Utilities & Maintenance		1,271		679
Property Management		531		339
Real Estate Taxes		675		403
Insurance		121		67
Depreciation and Amortization		2,917		711
Mortgage Interest		2,530		783
Total Segment Operating Profit	$	3,826	$	4,525

	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Multi-family residential
Real Estate Revenue	$	41,443	$	41,688		(0.6	%)
Expenses:
Utilities & maintenance		8,883		8,120		9.4	%
Property management		4,835		4,307		12.3	%
Real estate taxes		4,688		4,780		(1.9	%)
Insurance		1,117		1,413		(20.9	%)
Depreciation and amortization		7,492		7,242		3.5	%
Mortgage interest		12,540		12,360		1.5	%
Total expenses		39,555		38,222		3.5	%
Property segment operating profit	$	1,888	$	3,466		(45.5	%)
Commercial – office
Real estate revenue	$	25,204	$	25,820		(2.4	%)
Expenses:
Utilities & maintenance		4,974		5,065		(1.8	%)
Property management		1,131		1,193		(5.2	%)
Real estate taxes		3,891		3,872		0.5	%
Insurance		263		299		(12.0	%)
Depreciation and amortization		4,202		4,093		2.7	%
Mortgage interest		7,310		7,640		(4.3	%)
Total expenses		21,771		22,162		(1.8	%)
Property segment operating profit	$	3,433	$	3,658		(6.2	%)
Commercial – medical
Real estate revenue	$	11,292	$	11,664		(3.2	%)

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	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Expenses:
Utilities & maintenance		1,601		1,515		5.7	%
Property management		589		798		(26.2	%)
Real estate taxes		1,088		1,036		5.0	%
Insurance		106		97		9.3	%
Depreciation and amortization		2,046		2,072		(1.3	%)
Mortgage interest		3,967		4,207		(5.7	%)
Total expenses		9,397		9,725		(3.4	%)
Property segment operating profit	$	1,895	$	1,939		(2.3	%)

	(in thousands)
	For the Three Months Ended January 31,
	2005		2004		% Change
Commercial – Industrial
Real Estate Revenue	$	4,400	$	5,021		(12.4	%)
Expenses:
Utilities & maintenance		202		165		22.4	%
Property management		63		73		(13.7	%)
Real estate taxes		606		569		6.5	%
Insurance		55		49		12.2	%
Depreciation and amortization		936		931		0.5	%
Mortgage interest		1,636		1,564		4.6	%
Total expenses		3,498		3,351		4.4	%
Property Segment Operating Profit	$	902	$	1,670		(46.0	%)
Commercial – Retail
Real Estate Revenue	$	9,104	$	8,548		6.5	%
Expenses:
Utilities & maintenance		771		683		12.9	%
Property management		36		38		(5.3	%)
Real estate taxes		1,202		1,423		(15.5	%)
Insurance		103		113		(8.8	%)
Depreciation and amortization		1,426		1,394		2.3	%
Mortgage interest		2,512		2,448		2.6	%
Total expenses		6,050		6,099		(0.8	%)
Property segment operating profit	$	3,054	$	2,449		24.7	%
Total Stabilized Segment Operating Profit	$	11,172	$	13,182		(15.2	%)
Reconciliation to Segment Operating Profit
Real Estate Revenue – Non-Stabilized		24,428		4,710
Expenses – Non-Stabilized
Utilities & Maintenance		3,659		887
Property Management		1,567		496
Real Estate Taxes		2,168		521
Insurance		357		107
Depreciation and Amortization		8,049		950
Mortgage Interest		6,329		1,069
Total Segment Operating Profit	$	13,471	$	13,862

27

ECONOMIC OCCUPANCY RATES

     IRET monitors both physical vacancy rates and economic vacancy rates at each of its properties. Physical vacancy for multi-family residential properties is calculated as the number of total habitable units that are vacant divided by the total number of units in the property. Physical vacancy for commercial buildings is calculated as the total number of vacant square feet in a particular building, divided by the total number of square feet (vacant and occupied) in the building. Economic vacancy is defined as total possible revenue less vacancy loss as a percentage of total possible revenue. Total possible revenue is determined by valuing occupied units or square footage at contract rates, and vacant units or square footage at market rates.

     Economic occupancy rates are calculated as a percentage of the actual rent paid to IRET versus the scheduled rent charged by IRET for the period of time presented. The following tables compare economic occupancy rates on a “stabilized property” basis for the three and nine months ended January 31, 2005 and 2004:

Three Months Ended January 31:

	(in thousands)
	2005			2004			Change
Commercial-Office		88.07	%		91.99	%		(3.92	%)
Commercial-Medical		91.78	%		92.79	%		(1.01	%)
Commercial-Industrial		84.10	%		92.74	%		(8.64	%)
Commercial-Retail		88.63	%		88.94	%		(0.31	%)
Multi-Family Residential		90.40	%		89.86	%		0.54	%

Nine Months Ended January 31:

	(in thousands)
	2005			2004			Change
Commercial-Office		89.56	%		92.63	%		(3.07	%)
Commercial-Medical		92.01	%		94.40	%		(2.39	%)
Commercial-Industrial		85.33	%		94.66	%		(9.33	%)
Commercial-Retail		88.26	%		92.85	%		(4.59	%)
Multi-Family Residential		90.79	%		90.70	%		0.09	%

CREDIT RISK

28

     The following table lists our top ten commercial tenants on January 31, 2005, for all commercial properties owned by us. No single tenant accounted for more than 10% of revenues from commercial properties during the third quarter of fiscal year 2005.

			% of Total Rental
			Income from
Lessee	Monthly Rent		Commercial Properties
St. Lukes	$	342,000		5.38	%
Edgewood Living Communities, Inc.		263,000		4.13	%
Best Buy		207,000		3.25	%
Healtheast – Woodbury & Maplewood		169,000		2.66	%
Allina Health		156,000		2.46	%
Microsoft Great Plains		156,000		2.46	%
Northland Insurance Company		147,000		2.31	%
Nebraska Orthopaedic Hospital		141,000		2.22	%
Smurfit – Stone Container Corp.		131,000		2.06	%
Wilson’s the Leather Experts, Inc.		119,000		1.87	%
All Others		4,527,000		71.20	%
Total Monthly Rent as of January 31, 2005	$	6,358,000		100.00	%

PROPERTY ACQUISITIONS AND DISPOSITIONS

     During the nine months ended January 31, 2005, IRET acquired and disposed of the following properties:

Acquisitions and Dispositions During Nine Months Ended January 31, 2005:

Acquisitions

	(in thousands)
	Acquisition Cost
Commercial Property – Medical
52,300 sq. ft. Nebraska Orthopedic Hospital Expansion Project – Omaha, NE	$	20,597
45,081 sq. ft. Pavilion I Clinic—Duluth, MN		10,900
60, 294 sq. ft. High Pointe Health Campus Phase I (East Metro Medical Building) – Lake Elmo, MN		13,050
		44,547
Commercial Property – Industrial (miscellaneous commercial property)
46,720 sq. ft. Sleep Inn Hotel – Brooklyn Park, MN		2,750
		2,750
Commercial Property – Office
26,186 sq. ft. Plymouth I Office Building – Plymouth, MN		1,864
26,186 sq. ft. Plymouth II Office Building – Plymouth, MN		1,748
26,186 sq. ft. Plymouth III Office Building – Plymouth, MN		2,214
79,377 sq. ft. Northgate I Office Building –Maple Grove, MN		8,175
185,000 sq. ft. Crosstown Circle Office Building – Eden Prairie, MN		22,000
81,173 sq. ft. Highlands Ranch II Office Building – Highlands Ranch, CO		12,800
		48,801

29

	(in thousands)
	Acquisition Cost
Commercial Property — Retail
4,000 sq. ft. single tenant retail building (former Payless building) – Fargo, ND		375
		375
Multi-Family Residential
54 unit- Southbrook Court and Mariposa Lane Townhomes – Topeka, KS		5,500
36-Unit Legacy 5 – Grand Forks, ND		2,738
36-Unit Legacy 6 – Grand Forks, ND		2,607
		10,845
Total Property Acquisitions	$	107,318

Dispositions

	(in thousands)
			Book Value
	Sales Price		and Sales Cost		Gain/Loss
Multi-Family Residential
204-unit Ivy Club Apartments – Vancouver, WA	$	12,250	$	12,070	$	180
26-unit Beulah Condominiums – Beulah, ND		96		96		0
36-unit Parkway Apartments – Beulah, ND		159		159		0
18-Unit Dakota Arms Apartments – Minot, ND		825		566		259
100-Unit Van Mall Woods Apartments – Vancouver, WA		6,900		5,625		1,275
192-unit Century Apartments – Williston, ND		4,600		2,658		1,941
Commercial – Retail
30,000 sq. ft. Barnes & Noble Store – Fargo, ND		4,590		2,916		1,674
18,040 sq. ft. Petco Store – Fargo, ND		2,160		1,209		951
4,800 sq. ft. single tenant retail building (former Tom Thumb store) – Ham Lake, MN		650		518		132
Commercial – Medical (assisted living facility)
97,821 sq. ft. Edgewood Vista – Minot, ND		7,210		5,676		1,534
5,100 sq. ft. Edgewood Vista – Belgrade, MT		509		433		76
5,100 sq. ft. Edgewood Vista – Columbus, NE		509		435		74
5,100 sq. ft. Edgewood Vista – Grand Island, NE		509		434		75
Commercial – Office
62,585 sq. ft. Flying Cloud Building – Eden Prairie, MN		5,750		5,750		0
Vacant Land
205,347 sq. ft. parcel of vacant land – Libby, MT		151		151		0
Total Property Dispositions	$	46,868	$	38,696	$	8,171

FUNDS FROM OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2005 AND 2004

     IRET considers Funds from Operations (“FFO”) a useful measure of performance for an equity REIT. IRET uses the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in 1991, as clarified in 1995, 1999 and 2002. NAREIT defines FFO to mean “net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and

30

amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.”

     While IRET uses the NAREIT definition of FFO, the components of that definition in many cases require interpretation, and IRET accordingly has made certain interpretations in applying the definition. In particular, in calculating FFO per share, IRET “adds back” to net income computed in accordance with GAAP the allocations made to limited partners, and divides this amount by the total number of IRET common shares of beneficial interest and UPREIT Units outstanding. Under the partnership agreement pursuant to which IRET’s UPREIT Units are issued, UPREIT Unitholders effectively have the same claim on the earnings and assets of IRET as do IRET’s common shares of beneficial interest shareholders, and therefore IRET considers that the UPREIT Units also should be included with the common shares of beneficial interest in calculating FFO per share. IRET believes that, while this particular adjustment made by IRET in calculating FFO is not specifically provided for in the NAREIT definition, it is consistent with the definition.

     IRET management considers that FFO, by excluding depreciation costs, the gains or losses from the sale of operating real estate properties and extraordinary items as defined by GAAP, is useful to investors in providing an additional perspective on IRET’s operating results. Historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation, that the value of real estate assets decreases predictably over time. However, real estate asset values have historically risen or fallen with market conditions. NAREIT’s definition of FFO, by excluding depreciation costs, reflects the fact that real estate, as an asset class, generally appreciates over time and that depreciation charges required by GAAP may not reflect underlying economic realities. Additionally, the exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets, allows IRET management and investors better to identify the operating results of the long-term assets that form the core of IRET’s investments, and assists in comparing those operating results between periods. IRET management uses FFO to identify trends in occupancy rates, rental rates and operating costs. FFO is used by investors to compare IRET’s performance to that of other REITs.

     While FFO is widely used by REITs as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies.

     FFO should not be considered as an alternative to net income as determined in accordance with GAAP as a measure of IRET’s performance, but rather should be considered as an additional, supplemental measure, and should be viewed in conjunction with net income as presented in the consolidated financial statements included in this report. FFO does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily indicative of sufficient cash flow to fund all of IRET’s needs or its ability to service indebtedness or make distributions.

31

     FFO applicable to common shares and Units for the three and nine months ended January 31, 2005 increased to $9.9 million and $31.4 million, respectively, compared to $9.1 million and $27.5 million for the comparable periods ended January 31, 2004, an increase of 9% and 14%, respectively.

RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS

	(in thousands, except per share amounts)
Three Months Ended January
31,	2005							2004
													Per
				Weighted		Per					Weighted		Share
				Avg Shares		Share and					Avg Shares		and
	Amount			and Units(2)		Unit(3)		Amount			and Units(2)		Unit(3)
Net income	$	3,236				$		$	2,489				$
Less dividends to preferred shareholders		(593	)						—
Net income available to common shareholders		2,643			43,786		.06		2,489			40,735		.06
Adjustments:
Minority interest in earnings of Unitholders		1,092			13,023				699			11,583
Depreciation and Amortization (1)		8,457							6,308
Gains on depreciable property sales		(2,302	)						(412	)
Funds from operations applicable to common shares and Units	$	9,890			56,809	$	.17	$	9,084			52,318	$	.17

(1)	Real estate depreciation and amortization consists of the sum of depreciation/amortization related to real estate investments; amortization; and amortization of related party costs from the Condensed Consolidated Statements of Operations, totaling $8,688 and $6,269, and depreciation and amortization from Discontinued Operations (excluding amortization of financing charges) of $23 and $285, less corporate-related depreciation and amortization on office equipment and other assets of $47 and $40 and less amortization of financing costs of $207 and $206, for the three months ended January 31, 2005 and 2004, respectively.
(2)	UPREIT Units of the Operating Partnership are exchangeable for common shares of beneficial interest on a one-for-one basis.
(3)	Net income is calculated on a per share basis. Funds from Operations is calculated on a per share and unit basis.

32

	(in thousands, except per share amounts)
Nine Months Ended January
31,	2005							2004
													Per
				Weighted		Per					Weighted		Share
				Avg Shares		Share and					Avg Shares		and
	Amount			and Units(2)		Unit(3)		Amount			and Units(2)		Unit(3)
Net income	$	12,660				$		$	8,024				$
Less dividends to preferred shareholders		1,779							—
Net income available to common shareholders		10,881			42,747		.26		8,024			38,473		.21
Adjustments:
Minority interest in earnings of Unitholders		3,854			12,540				2,354			11,093
Depreciation and Amortization (1)		24,821							17,678
Gains on depreciable property sales		(8,174	)						(515	)
Funds from operations applicable to common shares and Units	$	31,382			55,287	$	.57	$	27,541			49,566	$	.56

(1)	Real estate depreciation and amortization consists of the sum of depreciation/amortization related to real estate investments; amortization; and amortization of related party costs from the Condensed Consolidated Statements of Operations, totaling $25,192 and $17,421 and depreciation and amortization from Discontinued Operations (excluding amortization of financing charges) of $402 and $891, less corporate-related depreciation and amortization on office equipment and other assets of $136 and $117 and less amortization of financing costs of $646 and $517, for the nine months ended January 31, 2005 and 2004, respectively.
(2)	UPREIT Units of the Operating Partnership are exchangeable for common shares of beneficial interest on a one-for-one basis.
(3)	Net income is calculated on a per share basis. Funds from Operations is calculated on a per share and unit basis.

DISTRIBUTIONS

     The following distributions per common share and unit were paid during the nine months ended January 31 of fiscal years 2005 and 2004:

Date	Fiscal Year 2005		Fiscal Year 2004		Percent Change
July 1		.1605		.1585		1.3	%
October 1		.1610		.1590		1.3	%
January 27 & 26, respectively		.1615		.1595		1.3	%
Total	$	.4830	$	.4770		1.3	%

In addition, during the nine months ended January 31, 2005, the Company paid, on June 30, 2004, an initial distribution of 37.24 cents per share on the Company’s 1,150,000 preferred shares of beneficial interest (issued April 26, 2004), to preferred shareholders of record on June 15, 2004, and the Company paid, on each of September 30, 2004 and December 31, 2004, a distribution of 51.56 cents per share on such preferred shares, to preferred shareholders of record on, respectively, September 15, 2004 and December 15, 2004.

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LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

     The Company’s principal liquidity demands are distributions to the holders of the Company’s common and preferred shares of beneficial interest and UPREIT Units, capital improvements and repairs and maintenance for the properties, redemption of outstanding investment certificates, acquisition of additional properties, property development, tenant improvements and debt repayments.

     The Company expects to meet its short-term liquidity requirements through net cash flows provided by its operating activities, and through draws from time to time on its unsecured lines of credit. Management considers the Company’s ability to generate cash to be adequate to meet all operating requirements and to make distributions to its shareholders in accordance with the REIT provisions of the Internal Revenue Code. Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are expected to be funded from cash flow generated from operations of current properties.

     To the extent the Company does not satisfy its long-term liquidity requirements, which consist primarily of maturities under the Company’s long-term debt, maturing investment certificates, construction and development activities and potential acquisition opportunities, through net cash flows provided by operating activities and its credit facilities, the Company intends to satisfy such requirements through a combination of funding sources which the Company believes will be available to it, including the issuance of UPREIT Units, additional common or preferred equity, proceeds from the sale of properties, and additional long-term secured or unsecured indebtedness.

SOURCES AND USES OF CASH

     As of January 31, 2005, the Company had three unsecured lines of credit in the amounts of $10 million dollars, $10 million dollars, and $4.4 million dollars from (1) Bremer Bank, (2) First Western Bank and Trust, and (3) First International Bank and Trust, respectively. The Company had no outstanding balances under these lines of credit as of January 31, 2005. Borrowings under the lines of credit bear interest based on the following for each of the lines of credit described above (1) Bremer Financial Corporation Reference Rate, (2) highest New York Prime as published in the Wall Street Journal, and (3) highest New York Prime as published in the Wall Street Journal. Increases in interest rates will increase the Company’s interest expense on its lines of credit and as a result will affect the Company’s results of operations and cash flows. The Company’s lines of credit with First Western Bank and Bremer Bank expire September 1, 2005, and September 14, 2005, respectively. The Company’s line of credit with First International Bank and Trust expires on December 7, 2005.

     The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company. In the third quarter of fiscal year 2005, 258,930 Units were issued in connection with property acquisitions, compared to 0 Units issued in connection with property acquisitions during the third quarter of fiscal year 2004.

34

     In October 2004, the Company commenced a best efforts offering of up to 1.5 million of its common shares of beneficial interest at a price of $10.15 per share. This offering terminated in November 2004 with approximately 1.4 million common shares sold, for aggregate proceeds to the Company of approximately $13.4 million, after selling commissions of six percent paid to the broker-dealers who sold the shares but before other expenses of the offering.

     The Company has a Distribution Reinvestment Plan (“DRIP”). The DRIP provides common shareholders and UPREIT Unitholders of the Company an opportunity to invest their cash distributions in common shares of the Company at a discount of 5% from the market price. The Company issued 258,661 common shares under its DRIP during the first quarter of fiscal year 2005, 279,795 common shares during the second quarter of fiscal year 2005, and 281,405 common shares during the third quarter of fiscal year 2005.

     Cash and cash equivalents on January 31, 2005 totaled $36.4 million, compared to $23.2 million on the same date in 2004. Net cash provided from operating activities increased to $33.2 million through nine months of fiscal year 2005 from $17.6 million through nine months of fiscal year 2004, due primarily to an increase in cash provided from the operations of new properties.

     Cash used for acquisitions increased by $14.9 million through nine months of fiscal year 2005, to $83.3 million from $68.4 million through nine months of fiscal year 2004. Cash and other proceeds received from other investing activities (including proceeds from the sale of property and principal payments on mortgage loans receivable) increased by $51.2 million through nine months of fiscal year 2005, to $50.2 million, from $(1) million through nine months of fiscal year 2004. Net cash used in investing activities decreased to $33.0 million through nine months of fiscal year 2005 from $69.3 million through nine months of fiscal year 2004.

     Net cash provided from financing activities decreased, to $4.6 million through nine months of fiscal year 2005 from $56.3 million through nine months of fiscal year 2004. Net cash provided from financing activities was higher through nine months of fiscal year 2004 due to offerings of common shares carried out by the Company during this period. Also through nine months of fiscal year 2005, the Company paid down mortgage loans due to refinancing activity and payoff of credit lines with permanent financing.

FINANCIAL CONDITION

     Mortgage Loan Indebtedness. Mortgage loan indebtedness increased to $691 million on January 31, 2005, due to new debt placed on new and existing properties, from $633 million on April 30, 2004. Ninety-five per cent of such mortgage debt is at fixed rates of interest, with staggered maturities. This limits the Company’s exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on the Company’s results of operations and cash flows. As of January 31, 2005, the weighted average rate of interest on the Company’s mortgage debt was 6.09%, compared to 7.17% on April 30, 2004.

35

     Mortgage Loans Receivable. Mortgage loans receivable decreased to $625,000 at January 31, 2005 from $4.9 million at April 30, 2004. This decrease resulted from repayment of a mortgage loan receivable in respect of the Company’s Nebraska Orthopedic property.

     Real Estate Owned. Real estate owned increased to $1,059.7 million at January 31, 2005 from $1,008.1 million at April 30, 2004. The increase resulted primarily from the acquisition of the additional investment properties net of dispositions as described above in the “Property Acquisitions and Dispositions” subsection of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Investment Certificates. The Company discontinued the issuance of investment certificates in April 2002. As of January 31, 2005, investment certificates outstanding totaled $5.1 million, compared to $7.1 million of such certificates outstanding on April 30, 2004. This decrease resulted from the redemption of maturing investment certificates during the nine months ended January 31, 2005.

     Cash and Cash Equivalents. Cash and cash equivalents on hand on January 31, 2005 were $36.4 million, compared to $31.7 million on April 30, 2004. The increase in cash on hand on January 31, 2005, as compared to April 30, 2004, was due primarily to the refinancing of mortgage debt.

     Marketable Securities. The Company’s investment in marketable securities classified as available-for-sale was $2.4 million on January 31, 2005, and $2.3 million on April 30, 2004. Marketable securities are held available for sale and, from time to time, the Company invests excess funds in such securities or uses the funds so invested for operational purposes.

     Operating Partnership Units. Outstanding units in the Operating Partnership increased to 13.1 million Units on January 31, 2005, compared to 11.8 million Units outstanding on April 30, 2004. This increase resulted primarily from the issuance of additional limited partnership units to acquire interests in real estate, net of Units converted to common shares.

     Common and Preferred Shares of Beneficial Interest. Common shares of beneficial interest outstanding on January 31, 2005 totaled 44.4 million, compared to 41.7 million outstanding on April 30, 2004. This increase in common shares outstanding was primarily due to the issuance of approximately 1.4 million common shares in a best efforts offering that terminated in November 2004, and to the issuance of common shares pursuant to our Distribution Reinvestment Plan, consisting of approximately 259,000 common shares issued on July 1, 2004, approximately 280,000 common shares issued on October 1, 2004 and approximately 281,000 common shares issued on January 27, 2005, for total value of $7.9 million. Conversions of 213,000 UPREIT Units to common shares, for a total of $1.7 million in shareholders’ equity, also increased the Company’s common shares of beneficial interest outstanding during the nine months ended January 31, 2005. Preferred shares of beneficial interest outstanding on January 31, 2005 and April 30, 2004 totaled 1.15 million.

PENDING ACQUISITIONS AND DISPOSITIONS

36

     As of January 31, 2005, the Company was a party to purchase agreements to acquire a residential apartment complex and a multi-tenant office property, for purchase prices totaling approximately $17.9 million. The Company was also a party to a contract to purchase a parcel of vacant land in Minot, North Dakota, for approximately $440,000. The Company completed the purchase of the apartment complex in March 2005; see Note 9, Subsequent Events, for more details of this transaction. The acquisitions of the office property and the parcel of vacant land are still pending. Also as of January 31, 2005, the Company was a party to contracts to sell an assisted living facility, a parcel of vacant land, and two multi-family residential properties, for sale prices totaling approximately $2.6 million and an estimated gain on sale of approximately $1.2 million. In February, 2005, the Company signed a purchase agreement to acquire a multi-tenant office property located in the Minneapolis, Minnesota metropolitan area, for a purchase price of approximately $20.3 million. The Company expects to complete these pending transactions over the next several months; however, the purchase or sale of each of these properties is subject to the satisfaction of various closing conditions, and there can be no assurance that any or all of these pending transactions will be consummated.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk is limited primarily to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations.

     Variable interest rates. Even though our goal is to maintain a fairly low exposure to interest rate fluctuation risk, we are still vulnerable to significant fluctuations in interest rates on variable rate debt, on any future repricing or refinancing of our fixed rate debt and on future debt. We primarily use long-term (more than nine years) and medium term (five to seven years) debt as a source of capital. We do not currently use derivative securities, interest-rate swaps or any other type of hedging activity to manage our interest rate risk. As of January 31, 2005, we had the following amounts of future principal and interest payments due on mortgages secured by our real estate:

	Future Principal Payments (in thousands)
Long Term Debt	2005			2006			2007			2008			2009			Thereafter			Total
Fixed Rate	$	4,314		$	17,400		$	18,718		$	44,798		$	42,917		$	527,155		$	655,302
Variable Rate		146			1,217			2,036			1,290			1,570			29,743			36,002
																			$	691,304	(1)
Average Interest Rate (%)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)

	Future Interest Payments (in thousands)
Long Term Debt	2005			2006			2007			2008			2009			Thereafter			Total
Fixed Rate	$	10,838		$	42,804		$	42,349		$	41,105		$	37,631		$	172,022		$	346,749
Variable Rate		397			1,550			1,473			1,362			1,157			4,011			9,950
																			$	356,699	(1)
Average Interest Rate (%)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)		(1	)

37

(1) The weighted average interest rate on our debt as of January 31, 2005, was 6.09%. Any fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one percent per annum on our $36.0 million of variable rate indebtedness would increase our annual interest expense by $360,000.

ITEM 4. CONTROLS AND PROCEDURES

     IRET carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of IRET’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that IRET’s disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission.

     There were no changes in IRET’s internal control over financial reporting that occurred during IRET’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

     Section 404 of the Sarbanes Oxley Act requires the Company to include an internal control report from management in its Annual Report on Form 10-K for its fiscal year ended April 30, 2005, and in subsequent Annual Reports. In preparation for providing this report, the Company has been carrying out a process to document and evaluate its internal controls over financial reporting since fiscal year 2004. In support of this process, the Company has dedicated internal resources, hired additional staff, engaged outside consultants and adopted a detailed work plan.

     While there were no changes in the Company’s internal controls during the most recent fiscal quarter that Management considers to have materially affected, or to be likely to materially affect, the Company’s internal control over financial reporting, the Company has, during the third quarter of fiscal year 2005, identified and initiated a number of measures to improve the operating effectiveness of its internal controls over financial reporting. In general, these measures included improved documentation, improved information technology system access controls, additional segregation of duties, additional required approvals for business and financial transactions, and documented reviews and approvals of work performed or procedures executed. The Company’s documentation, evaluation and testing of its internal controls to date have identified certain deficiencies and gaps in the documentation, design and operating effectiveness of internal controls that the Company has either remediated or is in the process of remediating. Such documentation and testing is continuing, and accordingly there is a risk that during the course of these efforts the Company may identify deficiencies that it may not be able to remediate in time to meet the April 30, 2005 deadline for compliance with the requirements of Section 404 of the Sarbanes Oxley Act. The Company likewise can provide no assurances as to management’s, or the Company’s independent registered public accounting firm’s, conclusions at April 30, 2005 with respect to the effectiveness of the Company’s internal controls over financial reporting.

38

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     In the course of our operations, we become involved in litigation. At this time, we know of no pending or threatened proceedings that would have a material impact upon us.

Items 2. Unregistered Sales of Equity Securities and Use of Proceeds

     During the third quarter of fiscal year 2005, the Company issued an aggregate of 13,429 unregistered common shares to holders of limited partnership units of IRET Properties, on a one-for-one basis upon redemption and conversion of an equal number of limited partnership units. All such issuances of common shares were exempt from registration as private placements under Section 4(2) of the Securities Act, including Regulation D promulgated thereunder. The Company has registered the re-sale of such common shares under the Securities Act.

Item 3 is not applicable and has been omitted.

Item 4 is not applicable and has been omitted.

Item 5. Other Information

On November 17, 2004, the Compensation Committee of the Board of Trustees of the Company approved the annual base salaries, effective as of January 1, 2005, of the Company’s executive officers, after a review of performance, market data and salary information for executives of comparable companies. A table setting forth the annual base salary levels of the Company’s Named Executive Officers (which officers were determined by reference to the Company’s proxy statement, dated August 6, 2004) for calendar years 2005 and 2004, is filed as Exhibit 10 to this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

Item 6. Exhibits

Exhibit No.	Description
10	Base Salaries of Named Executive Officers for 2005 and 2004
31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

39

Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INVESTORS REAL ESTATE TRUST
(Registrant)

By:	/s/ Thomas A. Wentz, Sr.
	Thomas A. Wentz, Sr., President & Chief
	Executive Officer

By:	/s/ Diane K. Bryantt
	Diane K. Bryantt, Senior Vice President &
	Chief Financial Officer

Date: March 11, 2005

40

EX-10

Exhibit 10

On November 17, 2004, the Compensation Committee of the Board of Trustees of the Company approved the annual base salaries (effective as of January 1, 2005) of the Company’s executive officers after a review of performance, market data and salaries of executives at comparable companies. The following table sets forth the annual base salary levels of the Company’s Named Executive Officers (which officers were determined by reference to the Company’s proxy statement, dated August 6, 2004) for calendar years 2005 and 2004. The Compensation Committee determined that no bonuses were payable in respect of calendar year 2004 to any of the Named Executive Officers.

Name and Position	Year		Base Salary
Thomas A. Wentz, Sr.		2005	$	200,000
President and Chief Executive Officer		2004	$	182,500
Timothy P. Mihalick		2005	$	240,000
Senior Vice President and Chief Operating		2004	$	200,000
Officer, and Trustee
Diane K. Bryantt		2005	$	130,000
Senior Vice President and Chief Financial Officer		2004	$	110,000
Charles Wm. James		2005	$	230,000
Senior Vice President, and Trustee		2004	$	220,000
Thomas A. Wentz, Jr.		2005	$	200,000
Senior Vice President, and Trustee		2004	$	165,000

EX-31.1

Exhibit 31.1

Certifications

I, Thomas A. Wentz, Sr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Investors Real Estate Trust;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005

	/s/ Thomas A. Wentz, Sr.
By:
	Thomas A. Wentz, Sr., President & CEO

EX-31.2

Exhibit 31.2

I, Diane K. Bryantt, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Investors Real Estate Trust;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2005

	/s/ Diane K. Bryantt
By:
	Diane K. Bryantt, Senior Vice President & CFO

EX-32

Exhibit 32

Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, we, Thomas A. Wentz, Sr., and Diane K. Bryantt, hereby certify that, to the best of our knowledge, the Quarterly Report of Investors Real Estate Trust on Form 10-Q for the quarter ended January 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and that the information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of Investors Real Estate Trust.

/s/ Thomas A. Wentz, Sr.
                                                                                                    
Thomas A. Wentz, Sr.
President and Chief Executive Officer
March 11, 2005

/s/ Diane K. Bryantt
                                                                                                    
Diane K. Bryantt
Senior Vice President and Chief Financial Officer
March 11, 2005

A signed original of this written statement required by Section 906 has been provided to Investors Real Estate Trust and will be retained by Investors Real Estate Trust and furnished to the Securities and Exchange Commission or its staff upon request.