Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended January 31, 1998 Commission file number 0-14851 INVESTORS REAL ESTATE TRUST (Exact name of registrant as specified in its charter) North Dakota 45-0311232 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12 South Main, Minot, ND 58701 (Address of principal executive offices)(Zip code) Registrant's telephone number, including area code: (701) 852-1756 (Former name, former address and former fiscal year, if changed since last report.) No change Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Applicant is a North Dakota Real Estate Investment Trust. As of January 31, 1998, it had 16,037,968 Shares of Beneficial Interest outstanding.
PART I ITEM 1. FINANCIAL STATEMENTS - BASIS OF PRESENTATION. The accompanying condensed consolidated financial statements of Investors Real Estate Trust, and its subsidiaries and consolidated partnerships (collectively, the "Company"), included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary (of a normal recurring nature only) to present fairly the financial position of the Company as of January 31, 1998 and results of operations and cash flows for the stated periods have been included. The Condensed Consolidated Balance Sheet at April 30, 1997, contained herein, was derived from audited financial statements, but does not include all disclosures included in the 1997 Annual Report and applicable under generally accepted accounting principles. Certain information and footnote disclosures normally included in interim financial statements prepared in accordance with generally accepted accounting principles have been omitted. The results of operations for the three and nine months ended January 31, 1998, are not necessarily indicative of operating results for the entire year. BALANCE SHEETS (unaudited) <TABLE> <CAPTION> ASSETS: 01-31-98 04-30-97 <S> <C> <C> Cash $ 1,861,954 $ 1,718,257 Marketable Securities - GNMA's 3,694,701 4,055,459 - Other REIT's 736,301 683,466 Tax & Insurance Escrow 1,593,417 1,250,469 Deferred Charges 1,233,494 968,278 Prepaid Insurance 288,543 248,377 Sales Proceeds/Tax Deferred 585,334 0 Real Estate Deposits 173,000 100,000 General Partnerships 60,469 78,469 ------------ ------------ $ 10,227,213 $ 9,102,775 ------------ ------------ Real Estate Investments Real Estate Owned $226,253,919 $191,884,509 Less Accumulated Depreciation (20,211,271) (16,948,156) ------------ ------------ Net Real Estate Owned 206,042,648 174,936,353 ------------ ------------ Real Estate Mortgages (unrelated) 1,860,118 3,108,933 Less Unearned Discounts (6,244) (10,524) Less Deferred Gain from Property Dispositions (18,713) (18,713) Less Reserve for Bad Debts (124,881) (124,881) ------------ ------------ Net Mortgages & Contracts 1,710,280 2,954,815 ------------ ------------ Total Real Estate Investments $207,752,928 $177,891,168 ------------ ------------ TOTAL ASSETS $217,980,141 $186,993,943 ============ ============ LIABILITIES: Accounts Payable & Other Liabilities $ 3,762,286 $ 3,073,071 Mortgages Payable 131,907,577 115,734,946 Investment Certificates Payable 9,918,633 8,187,305 Due on Credit Line 500,000 0 ------------ ------------ TOTAL LIABILITIES $146,088,496 $126,995,322 ------------ ------------ MINORITY INTERESTS IN OPERATING PARTNERSHIP: $ 5,603,013 $ 1,002 ------------ ------------ SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of 01-31-98 04-30-97 -------- -------- 16,037,968 on 01/31/98 14,940,513 on 04/30/97 $ 72,353,880 $ 65,073,951 Accumulated Distributions in Excess of Net Income (6,191,483) (5,162,837) Unrealized Gain on Securities Held for Sale $ 126,235 $ 86,505 ------------ ------------ Total Shareholders' Equity $ 66,288,632 $ 59,997,619 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $217,980,141 $186,993,943 ============ ============ </TABLE>
STATEMENT OF OPERATIONS For the Three- and Nine-Month Periods Ended January 31, 1998 & 1997 (unaudited) <TABLE> <CAPTION> 3 Months Ended 9 Months Ended January 31 January 31 <S> <C> <C> <C> <C> OPERATING INCOME: 1998 1997 1998 1997 ---- ---- ---- ---- Real Estate Rentals $ 8,286,064 $ 6,171,125 $ 23,121,047 $ 16,156,762 Interest Income 136,893 153,477 447,214 601,573 Mortgage Discount & Fees 17,435 58,429 52,156 65,197 ------------ ------------ ------------ ------------ $ 8,440,634 $ 6,383,031 $ 23,620,417 $ 16,823,532 ------------ ------------ ------------ ------------ OPERATING EXPENSE: Interest $ 2,681,092 $ 2,140,655 $ 7,653,429 $ 5,195,324 Utilities & Maintenance 1,307,348 973,831 3,668,313 2,574,265 Property Management 667,387 470,559 1,962,352 1,256,260 Taxes & Insurance 917,211 703,173 2,586,960 1,894,781 Advisory & Trustees Fees 172,552 139,937 485,929 407,258 Operating Expenses 52,755 21,000 167,925 112,347 ------------ ------------ ------------ ------------ $ 5,798,345 $ 4,449,155 $ 16,524,908 $ 11,440,235 ------------ ------------ ------------ ------------ MINORITY INTEREST $ (48,438) $ 0 $ (61,585) $ 0 OPERATING INCOME: (before reserves) $ 2,593,612 $ 1,933,876 $ 7,033,924 $ 5,383,298 ------------ ------------ ------------ ------------ DEPRECIATION/AMORTIZ. (1,283,345) (964,281) (3,609,434) (2,387,443) ------------ ------------ ------------ ------------ OPERATING INCOME (after reserves) $ 1,310,267 $ 969,594 $ 3,424,490 $ 2,995,856 GAIN ON SALE OF INVESTMENTS 326,138 138,629 448,786 390,691 ------------ ------------ ------------ ------------ NET TAXABLE INCOME $ 1,636,404 $ 1,108,223 $ 3,873,276 $ 3,386,547 ============ ============ ============ ============ NET INCOME PER SHARE: Operating Income (after depreciation) .08 .07 .22 .22 Gain on Sale of Investments .02 .01 .03 .03 ------------ ------------ ------------ ------------ Total Net Income/Share .10 .08 .25 .25 ------------ ------------ ------------ ------------ DIVIDENDS PAID PER SHARE .1050 .0975 .30925 .29 ============ ============ ============ ============ Average Number of Shares Outstanding 15,878,436 14,189,624 15,552,844 13,898,920 FUNDS FROM OPERATIONS: * Net Taxable Income $ 1,636,404 $ 1,108,223 $ 3,873,276 $ 3,386,547 Adjustments +depeciation of real estate owned/amortization 1,283,345 964,281 3,609,434 2,387,443 - gain (loss) on sale of investments (326,138) (138,629) (448,786) (390,691) ------------ ------------ ------------ ------------ FUNDS FROM OPERATIONS * $ 2,593,611 $ 1,933,875 $ 7,033,924 $ 5,383,299 per share .16 .14 .45 .39 ------------ ------------ ------------ ------------ </TABLE> * Funds from Operations is defined as income before gains (losses) on sales of investments, minority interests of unitholders in operating partnership and extraordinary items, plus depreciation and amortization.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED JANUARY 31, 1998 AND 1997 (unaudited) <TABLE> <CAPTION> CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 ---- ---- <S> <C> <C> Net Income $ 3,873,276 $ 3,444,069 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,364,663 2,385,473 Minority interest portion of operating partnership income 61,585 0 Accretion of discount on contracts (4,280) 0 Gain on Sale of Properties (448,786) (390,691) Interest reinvested in investment certificates 244,124 173,379 Changes in other assets and liabilities: (Increase) decrease in real estate deposits (73,000) 382,500 (Increase) decrease in other assets (287,386) (324,405) (Increase) decrease in tax and insurance escrow (342,948) (470,001) Increase (decrease) in accounts payable and accrued expenses 689,215 68,004 ------------ ------------ NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 7,076,463 $ 5,268,328 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held to maturity $ 360,758 $ 326,237 Principle payments on mortgage loans receivable 1,696,188 2,466,091 Proceeds from sale of property 1,345,058 389,784 Payments for acquisition and improvements of properties (34,552,590) (23,616,999) Purchase of marketable securities available for sale 0 (596,961) Investment in mortgage loans receivable (294,669) (749,630) ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES $(31,445,255) $(21,781,478) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares $ 9,236,005 $ 5,940,672 Proceeds from investment certificates issued 2,430,709 3,387,650 Proceeds from mortgages payable 18,444,138 9,824,192 Proceeds from short-term lines of credit 8,650,000 5,450,000 Proceeds from sale of minority interest 585,334 0 Repurchase of shares (1,971,506) (1,054,454) Dividends Paid (1,738,751) (1,418,548) Redemption of investment certificates (940,883) (808,049) Principal payments on mortgage loans (2,032,557) (1,900,614) Payments on short-term lines of credit (8,150,000) (4,450,000) ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 24,512,489 $ 14,970,849 ------------ ------------ NET INCREASE (DECREASE) IN CASH $ 143,697 $ (1,542,301) CASH AT APRIL 30 $ 1,718,257 $ 2,715,274 ------------ ------------ CASH AT JANUARY 31 $ 1,861,954 $ 1,172,973 ------------ ------------
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 1998 1997 ---- ---- Dividends reinvested $ 3,149,841 $ 3,068,581 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 10,609,107 29,945,273 Mortgage loan receivable transferred to property owned 1,161,878 2,810,000 Proceeds from sale of properties deposited directly with escrow agent 0 456,029 Mortgages paid directly by owner of contract 0 0 Interest reinvested directly in investment certificates 244,124 173,379 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest paid on mortgages $ 6,739,919 $ 4,968,209 Interest paid on margin account and other 39,045 14,696 Interest paid on investment certificates 224,529 162,405 ------------ ------------ $ 7,003,493 $ 5,145,310 ------------ ------------ </TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We are pleased to report that IRET's Third Quarter was very productive. Funds from Operations, Revenues, Real Estate Owned and Dividends all reached new highs. Of particular note is the attainment of the $200,000,000 mark in real estate assets owned. RESULTS OF OPERATION. Funds from Operations for the Third Quarter of Fiscal 1998 increased to $2,593,611 from the $1,933,875 earned for the same period of the prior year (an increase of 34%). On a per share basis, Funds from Operations increased to $.16 vs. the year eariler figure of $.14 (an increase of 14%). For the nine-month period ended January 31, 1998, Funds from Operations was $7,033,924, compared to the year earlier figure of $5,383,299 (an increase of 31%). On a per share basis, the nine- month Funds from Operations was $.45 vs. $.39 (an increase of 16%). These excellent results stem from strong occupancy rates, decreased utility expense due to the mild winter, decreased interest rates and a good performance from the new properties added to our portfolio. Taxable income for the third quarter was $1,636,404, compared to $1,108,223 for the prior year. For the nine-month period, it was $3,873,276, compared to $3,386,547. Occupancy rates continue to be satisfactory and we continue to adjust rents upward as market conditions allow. SALE OF PROPERTIES. A 48-unit apartment complex in Scottsbluff, Nebraska, was sold during the Third Quarter with a capital gain of $326,138. PORTFOLIO ACQUISITIONS. The following properties were added to our investment portfolio during the Third Quarter and are producing income: Cost ---- - 122 Unit Park East Apartment Complex, Fargo, ND $ 4,900,000 - 248 Unit Magic City Realty Apartment portfolio, Minot, ND $ 5,270,000 - Edgewood Vista Alzheimer's Unit, Minot, ND $ 500,000 The following properties are under construction: - 67 Unit Legacy Apartment Complex, Grand Forks, ND $ 4,000,000 - 2 - 67 Unit Cottonwood Apartment Buildings, Bismarck, ND $ 8,000,000 - Office Campus - Great Plains Software, Fargo, ND $15,000,000 - Edgewood Vista Phase II expansion, Minot, ND $ 800,000 FINANCIAL CONDITION. IRET continues to enjoy a very strong balance sheet. During the first three quarters of Fiscal 1998, real estate owned has increased to $206,042,648 from the $174,936,353 owned on April 30, 1997. Real estate mortgages owed have increased to $131,907,577 from the $115,734,946 owed on April 30, 1997. Shareholder equity has increased to $66,288,632 from the prior fiscal year end figure of $59,997,619. Comparative balance sheet figures are: 01/31/98 04/30/97 -------- -------- Cash and Marketable Securities $ 6,292,956 $ 6,457,182 Net Real Estate Owned 206,042,648 174,936,353 Net Mortgages and Contracts 1,710,280 2,954,815 Total Assets 217,980,141 186,993,943 Total Liabilities 146,088,496 126,995,322 Shareholder Equity 66,288,632 59,997,619 CONSOLIDATED FINANCIAL REPORTS. The Financial Statements shown in this report consolidate IRET's financial report with those of the six limited partnerships of which IRET is the General Partner and creditor. DIVIDENDS. IRET paid a regular dividend of 10.5 cents per share on January 16, 1998, to shareholders of record at the close of business on January 2, 1998. This was an increase from the 10.3 cents per share dividend paid on October 1, 1997, and was the 107th consecutive quarterly dividend paid by IRET.
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INVESTORS REAL ESTATE TRUST (Registrant) /s/ Thomas A. Wentz, Sr. Date: March 10, 1998 By ___________________________________ Thomas A. Wentz, Sr.,Vice-President