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.
 

The aggregate market value of the Registrant's outstanding Capital Shares of Beneficial Interest held by non-affiliates is $160,140,496 based on the last reported sale price on May 31, 2000.

The number of shares outstanding as of April 30, 2000, was 22,452,069 Shares of Beneficial Interest (no par value).

Portions of the Trust's definitive proxy statement for the 2000 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

ITEM 1. BUSINESS

Investors Real Estate Trust (hereinafter "IRET"), a North Dakota Real Estate Investment Trust, was organized under the laws of the State of North Dakota on July 31, 1970. IRET has qualified and operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its inception.

On February 1, 1997, the Trust reorganized its structure in order to convert to Umbrella Partnership Real Estate Investment Trust (UPREIT) status. The Trust established an operating partnership (IRET Properties, a North Dakota Limited Partnership) with a wholly owned corporate subsidiary acting as its sole general partner (IRET, Inc., a North Dakota Corporation). At that date, the Trust transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units.

The general partner has full and exclusive management responsibility for the real estate investment portfolio owned by the operating partnership. The partnership must be operated in a manner that will allow IRET to continue its qualification as a real estate investment trust under the Internal Revenue Code.

All limited partners of the operating partnership have "exchange rights" allowing them, at their option, to exchange their limited partnership units for shares of the Trust on a one for one basis. The exchange rights are subject to certain restrictions including no exchanges for at least one year following the acquisition of the limited partnership units. The operating partnership distributes cash on a quarterly basis in the amounts determined by the Trust which will result in each limited partner receiving the same distributions as an IRET shareholder.

IRET, pursuant to the requirements of Sections 856-858 of Internal Revenue Code which govern real estate investment trusts, is engaged in the business of making passive investments in real estate equities and mortgages.

IRET has its only office in Minot, North Dakota, and operates principally in the northern plains states with its operating partnership owning real estate investments in the states of North Dakota, Minnesota, South Dakota, Georgia, Nebraska, Montana, Michigan, Colorado, Idaho, Washington, Arizona, Kansas and Texas.

IRET operates on a fiscal year ending April 30. For its past three fiscal years, its sources of operating revenue, total expenses, net real estate investment income, capital gain income, total income, and dividend distributions are as follows:

As indicated above, IRET's principal source of operating revenue is rental income from real estate properties owned by its operating partnership. A minor amount of revenue is derived from interest income from mortgages and contracts for deed secured by real estate, interest on investments in government securities and interest on savings deposits. In addition to operating income, the Trust recognizes capital gain income when real estate properties are sold at a price in excess of the depreciated cost of said properties.

On April 30, 2000, IRET had no employees. Its business was conducted through the services of an independent contractor (Odell-Wentz & Associates, LLC, a North Dakota Limited Liability Company, having as its members Roger R. Odell and Thomas A. Wentz, Sr.) which serves as the advisor to the Trust. Since the inception of the Trust and until January 1, 1986, Roger R. Odell, 12 South Main, Minot, North Dakota, served as advisor to the trust, providing office facilities, administering day to-day operations of the Trust, and advising with respect to investments and investment policy. Effective January 1, 1986, the Trust entered into a revised advisory agreement with Mr. Odell and Thomas A. Wentz, Sr.Mr. Odell is the President of the Advisor and served as President of IRET from its inception until June 30, 2000, and is a graduate of the University of Texas, receiving his B.A. degree in 1947. He has been a resident of Minot, North Dakota since 1947. From 1947 to 1954, he was employed by Minot Federal Savings & Loan Association, serving as secretary of the association from 1952 to 1954. Since 1954, Mr. Odell has been a realtor in Minot, serving as an officer and stockholder Watne Realty Company from 1954 to January 1, 1970, and since that time as the owner of his own realty firm.

Mr. Wentz is Vice President and Chief Investment Officer of the Advisor and is a graduate of Harvard College and Harvard Law School, receiving his A.B. degree in 1957 and his L.L.B. degree in 1960. He has been a resident of Minot, North Dakota, since 1962. Until August 1, 1998, Mr. Wentz' principal occupation was the practice of law as a partner in the firm of Pringle & Herigstad, P.C., counsel to the Trust. Mr. Wentz currently serves as President and Chief Executive Officer of IRET.

Timothy P. Mihalick is Vice President and Chief Operating Officer of IRET and the Advisor. Mr. Mihalick is a graduate of Minot State University, receiving his B.A. degree in Business Administration in 1981.He has been employed by Odell-Wentz & Associates since 1981.Thomas A. Wentz, Jr. is Vice President and Legal Counsel of IRET and the Advisor. Mr. Wentz is a graduate of Harvard College, receiving his A.B. degree in 1988, and of the University of North Dakota Law School, receiving his J.D. degree in 1992.

Diane K. Bryantt is Secretary and Controller of IRET and the Advisor. She graduated from Minot State University in 1986, receiving a B.A. degree in Accounting. Mrs. Bryantt was employed by Bremer Bank in Minot, ND from 1989 to 1996. She has been an employee of Odell-Wentz & Associates since June of 1996.

On July 1, 2000, the real estate and tangible and intangible assets of Odell-Wentz & Associates, L.L.C. used in connection with its business as Advisor were acquired by IRET in exchange for 255,000 of IRET Limited Partnership Units. Thus, from July 1, 2000, IRET has been self-advised and all employees of the Advisor are now employees of IRET properties.

ITEM 2. RISK FACTORS

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K405. In this section, "we" or "us" refers to IRET and "you" refers to IRET's shareholders.

RISKS DUE TO INVESTMENT IN REAL ESTATE
Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend upon the amount of revenues generated and expenses incurred. If properties do not generate revenues sufficient to meet operating expenses, debt service and capital expenditures, our results of operations and ability to make distributions to you and to pay amounts due on our debt will be adversely affected. The performance of the economy in each of the areas in which the properties are located affects occupancy, market rental rates and expenses. These factors consequently can have an impact on the revenues from the properties and their underlying values. The financial results of major local employers may also have an impact on the revenues and value of certain properties.

Other factors may further adversely affect revenues from properties. These factors include the general economic climate, local conditions in the areas in which properties are located such as an oversupply of apartment units or a reduction in the demand for apartment units, the attractiveness of the properties to residents, competition from other multi-family communities and commercial properties and our ability to provide adequate facilities maintenance, services and amenities. Our revenues would also be adversely affected if residents were unable to pay rent or we were unable to rent apartments on favorable terms.

DEVELOPMENT AND CONSTRUCTION PROJECTS MAY NOT BE COMPLETED OR COMPLETED SUCCESSFULLY
IRET is constructing apartment communities in Bismarck, North Dakota, and Rochester, Minnesota. As a general matter, property development and construction projects typically have a higher, and sometimes substantially higher, level of risk than the acquisition of existing properties. There can be no assurance that we will complete development of the properties currently under development or any other development project that we may undertake. Risks associated with our development and construction activities may include the following:
 

In addition, development and construction activities, regardless of whether or not they are ultimately successful, typically require a substantial portion of management's time and attention. Development and construction activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations.

ILLIQUIDITY OF REAL ESTATE AND REINVESTMENT RISK MAY REDUCE ECONOMIC RETURNS TO INVESTORS
Real estate investments are relatively illiquid and, therefore, tend to limit our ability to adjust our portfolio in response to changes in economic or other conditions. Additionally, the Code places certain limits on the number of properties a REIT may sell without adverse tax consequences. To effect our current operating strategy, we have in the past raised, and will seek to continue to raise additional funds, both through outside financing and through the orderly disposition of assets which no longer meet our investment criteria. Depending upon interest rates, current development and acquisition opportunities and other factors, generally we will reinvest the proceeds in commercial and multifamily properties, although such funds may be employed in other uses. In the markets we have targeted for future acquisition of commercial and multifamily properties, there is considerable buying competition from other real estate companies, many of whom may have greater resources, experience or expertise than us. In many cases, this competition for acquisition properties has resulted in an increase in property prices and a decrease in property yields. Due to the relatively low capitalization rates currently prevailing in the pricing of potential acquisitions of commercial and multifamily properties which meet our investment criteria, no assurance can be given that the proceeds realized from the disposition of assets which no longer meet our investment criteria can be reinvested to produce economic returns comparable to those being realized from the properties disposed of, or that we will be able to acquire properties meeting our investment criteria. To the extent that we are unable to reinvest proceeds from the assets which no longer meet our investment criteria, or if properties acquired with such proceeds produce a lower rate of return than the properties disposed of, such results may have a material adverse effect on us. In addition, a delay in reinvestment of such proceeds may have a material adverse effect on us.

All of the properties currently owned by us are located in developed areas. There are numerous other real estate companies, many of which have greater financial and other resources than we have, within the market area of each of the properties which will compete with us for tenants and development and acquisition opportunities. The number of competitive properties and real estate companies in such areas could have a material effect on (1) our ability to rent our real estate properties and the rents charged and (2) development and acquisition opportunities. The activities of these competitors could cause us to pay a higher price for a new property than we otherwise would have paid or may prevent us from purchasing a desired property at all, which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt.

GEOGRAPHIC CONCENTRATION OF PROPERTIES DEPENDENCE ON GREAT PLAINS REGION
Our portfolio is primarily located in the north central states of North and South Dakota, Minnesota and Montana.  IRET also has significant investments in Nebraska, Kansas, Colorado, and Texas. Our performance could be adversely affected by economic conditions in, and other factors relating to, these geographic areas, including supply and demand for apartments in these areas, zoning and other regulatory conditions and competition from other properties and alternative forms of housing. In that regard, certain of these areas have in the recent past experienced economic recessions and depressed conditions in the local real estate markets. To the extent general economic or social conditions in any of these areas deteriorate or any of these areas experiences natural disasters, the value of the portfolio, our results of operations and our ability to make distributions to you and to pay amounts due on our debt could be materially adversely affected.

INABILITY TO IMPLEMENT GROWTH STRATEGY; POTENTIAL FAILURE TO IDENTIFY, ACQUIRE OR INTEGRATE NEW ACQUISITIONS
Our future growth will be dependent upon a number of factors, including our ability to identify acceptable properties for development and acquisition, complete acquisitions and developments on favorable terms, successfully integrate acquired and newly developed properties, and obtain financing to support expansion. There can be no assurance that we will be successful in implementing our growth strategy, that growth will continue at historical levels or at all, or that any expansion will improve operating results. The failure to identify, acquire and integrate new properties effectively could have a material adverse affect on us and our ability to make distributions to you and to pay amounts due on our debt.

RESTRICTIONS ON THE OPERATIONS OF THE OPERATING PARTNERSHIP
IRET's properties are held by IRET Properties, a North Dakota Limited Partnership, which is referred to in this Annual Report on Form 10-K405 as the "Operating Partnership." We are the sole managing member of the Operating Partnership and, as of April 30, 2000, held approximately an 83% equity interest in the Operating Partnership. The remaining equity interests in the Operating Partnership are held by third parties as non managing members.

The Operating Partnership has contracted with most of these third party Limited Partners not to sell the real estate property contributed by that Limited Partner during his or her lifetime.  Such restriction may prevent the sale of such property even though a sale would be advisable.

UNINSURED AND UNDERINSURED LOSSES; LIMITED INSURANCE COVERAGE
We carry comprehensive liability, fire, extended coverage and rental loss insurance with respect to our properties with certain policy specifications, limits and deductibles.  No assurance can be given that such coverage will be available on acceptable terms or at an acceptable cost, or at all, in the future, or if obtained, that the limits of those policies will cover the full cost of repair or replacement of covered properties. In addition, there may be certain extraordinary losses (such as those resulting from civil unrest) that are not generally insured (or fully insured against) because they are either uninsurable or not economically insurable. Should an uninsured or underinsured loss occur to a property, we could be required to use our own funds for restoration or lose all or part of our investment in, and anticipated revenues from, the property and would continue to be obligated on any mortgage indebtedness on the property. Any such loss could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.

ADVERSE CHANGES IN LAWS MAY AFFECT OUR POTENTIAL LIABILITY RELATING TO THE PROPERTIES AND OUR OPERATIONS
Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to all tenants in the form of higher rents, and may adversely affect our cash available for distribution and our ability to make distributions to you and to pay amounts due on our debt. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.  In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenues or increase operating costs.

LIABILITIES ASSUMED MAY EXCEED EXPECTATIONS
We acquire properties either by acquiring title to the properties and related assets (plus assumption of associated contractual obligations of the contributing parties) or by acquiring all of the ownership interests in the partnerships or limited liability companies which held such properties.  As a matter of law, we automatically assume all of the liabilities (known, unknown or contingent) of the partnerships and limited liability companies whose ownership interests were acquired by us, potentially including liabilities unrelated to the properties conveyed pursuant to such transfer. Moreover, even in cases where title to the properties and related assets (rather than ownership interests therein) were acquired by us, the legal doctrine of successor liability may give creditors of and claimants against the prior owners the right to hold us responsible for liabilities which arose with respect to such properties prior to their acquisition by us, whether or not such liabilities were expressly assumed by us.

As a result of the foregoing, there can be no assurance that we will not be subject to liabilities and claims arising from events which occurred or circumstances which existed prior to our acquisition of those properties, which could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.

RISKS DUE TO REAL ESTATE FINANCING
We anticipate that future developments and acquisitions will be financed, in whole or in part, under various construction loans, lines of credit, other forms of secured or unsecured financing or through the issuance of additional debt or equity by us. We expect periodically to review our financing options regarding the appropriate mix of debt and equity financing. Equity, rather than debt, financing of future developments or acquisitions could have a dilutive effect on the interests of our existing shareholders. Similarly, there are certain risks involved with financing future developments and acquisitions with debt, including those described below. In addition, if new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for such properties may not be available or may be available only on disadvantageous terms or that the cash flow from new properties will be insufficient to cover debt service. If a newly developed or acquired property is unsuccessful, our losses may exceed our investment in the property. Any of the foregoing could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt.

INCREASE IN COST OF INDEBTEDNESS DUE TO RISING INTEREST RATES
We have incurred and expect in the future to incur indebtedness which bears interest at a variable rate. Accordingly, increases in interest rates would increase our interest costs, which could have a material adverse effect on us and our ability to make distributions to you or cause us to be in default under certain debt instruments (including our debt). In addition, an increase in market interest rates may lead holders of our common shares to demand a higher yield on their shares from distributions by us, which could adversely affect the market price for IRET Shares of Beneficial Interest.

POTENTIAL INCURRENCE OF ADDITIONAL DEBT AND RELATED DEBT SERVICE
We currently fund the acquisition and development of multifamily communities partially through borrowings (including our line of credit) as well as from other sources such as sales of properties which no longer meet our investment criteria or the contribution of property to joint ventures. We could become more highly leveraged, resulting in an increase in debt service, which could have a material adverse effect on us and our ability to make distributions and to pay amounts due on our debt and in an increased risk of default on our obligations.

Our current policy is to obtain a Phase I environmental study on each property we seek to acquire and to proceed accordingly. No assurance can be given, however, that the Phase I environmental studies or other environmental studies undertaken with respect to any of our current or future properties will reveal all or the full extent of potential environmental liabilities, that any prior owner or operator of a property did not create any material environmental condition unknown to us, that a material environmental condition does not otherwise exist as to any one or more of such properties or that environmental matters will not have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. We currently carry no insurance for environmental liabilities.

Certain environmental laws impose liability on a previous owner of property to the extent that hazardous or toxic substances were present during the prior ownership period. A transfer of the property does not relieve an owner of such liability. Thus, we may have liability with respect to properties previously sold by us or our predecessors.

PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain our qualification as a REIT, not more than 50% in value of our outstanding capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities). In order to protect us against risk of losing our status as a REIT due to a concentration of ownership among our shareholders, our articles of incorporation provide, among other things, that if the Board determines, in good faith, that direct or indirect ownership of IRET Shares of Beneficial Interest has or may become concentrated to an extent that would prevent us from qualifying as a REIT, the Board may prevent the transfer or call for redemption (by lot or other means affecting one or more shareholders selected in the sole discretion of the Board) of a number of shares sufficient in the opinion of the Board to maintain or bring the direct or indirect ownership of IRET Shares of Beneficial Interest into conformity with the requirements for maintaining REIT status. These limitations may have the effect of precluding acquisition of control of us by a third-party without consent of the Board.

TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALITY AS A REIT
Although management believes that we are organized and are operating so as to qualify as a REIT under the Code, no assurance can be given that we have in fact operated or will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations and the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 90% of our taxable gross income in any year must be derived from qualifying sources and we must make distributions to shareholders aggregating annually at least 90% of our REIT taxable income (excluding net capital gains). Thus, to the extent revenues from non qualifying sources such as income from third-party management represents more than 10% of our gross income in any taxable year, we will not satisfy the 90% income test and may fail to qualify as a REIT, unless certain relief provisions apply, and, even if those relief provisions apply, a tax would be imposed with respect to excess net income, any of which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. Additionally, to the extent the Operating Partnership or certain other subsidiaries are determined to be taxable as a corporation, we would not qualify as a REIT, which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. Finally, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

If we fail to qualify as a REIT, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at corporate rates, which would likely have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. In addition, unless entitled to relief under certain statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce funds available for investment or distributions to you because of the additional tax liability to us for the year or years involved. In addition, we would no longer be required to make distributions to you. To the extent that distributions to you would have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain investments to pay the applicable tax.

ITEM 3. PROPERTIES

IRET is a qualified "real estate investment trust" under Section 856-858 of the Internal Revenue Code, and is in the business of making passive investments in real estate equities and mortgages. These real estate investments are managed by independent contractors on behalf of IRET.

SUMMARY OF REAL ESTATE INVESTMENT PORTFOLIO
 

OTHER ASSETS

SUMMARY OF INDIVIDUAL PROPERTIES

APARTMENT COMMUNITIES
 

   n/a = Property held less than 12 months.
 
 

SUMMARY OF REAL ESTATE INVESTMENT BY STATE
 
 

ITEM 4.  LEGAL PROCEEDINGS

IRET is not involved in any legal proceedings or litigation other than normal collection matters that will not have a material impact on financial results.

ITEM 5.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the August 17, 1999, Annual Shareholders' meeting, the only matters submitted to a vote of security holders were the election of ten Trustees and ratification of the re-appointment of the independent certified public accountants.
 
 

ITEM 6.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND SECURITY HOLDER MATTERS

Since October 17, 1997, IRET Shares of Beneficial Interest have traded on the NASDAQ Small Cap market under the symbol IRETS.

Closing Price Range
 

ITEM 7.  SALE OF SHARES OF BENEFICIAL INTEREST

IRET files this Report of Sales of Securities and Use of Proceeds therefrom in accordance with Rule 463 (17 CFR 230.463).
 

The use of proceeds shown above does not represent a material change in the use of proceeds described in the prospectus.

As of May 31, 2000, IRET had 4,373 shareholder accounts, compared to 3,972 on the same date in 1999. No shareholder held 5% or more of the 22,452,069 Shares of Beneficial Interest outstanding on 05/31/00. IRET has no other classes of stock and there were no warrants, stock options or other contractual arrangements requiring the issuance of its stock (other than "exchange rights" of holders of Limited Partnership Units in IRET Properties, the operating partnership of IRET).

Item 8. Selected Financial Data
 

General : IRET has operated as a 'real estate investment trust' under Sections 856-858 of the Internal Revenue Code since its formation in 1970 and is in the business of owning income-producing real estate investments.

On February 1, 1997, IRET restructured itself as an Umbrella Partnership Real Estate Investment Trust (UPREIT). IRET, through its wholly owned subsidiary, IRET, Inc., is the general partner of IRET Properties, a North Dakota limited partnership (the 'Operating Partnership'). All business operations for IRET are conducted through the Operating Partnership. On July 1, 2000, IRET became 'self-advised' as a result of the acquisition of the advisory business and assets of Odell-Wentz & Associates, L.L.C. IRET Properties issued 255,000 of its Limited Partnership units to Odell-Wentz & Associates, L.L.C. in exchange for those assets. The valuation was determined by independent appraisal of the business and assets. All employees of the Advisory Company became employees of IRET Properties on July 1, 2000.

No other material change in IRET's business is contemplated at this time.

This discussion and analysis should be read in conjunction with the attached audited financial statements prepared by Brady Martz & Associates, certified public accountants, who have served as the auditor for IRET since its inception.

Certain matters included in this discussion are forward-looking statements within the meaning of federal securities laws.  Although IRET believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that the expectations expressed will actually be achieved. Many factors may cause actual results to differ materially from IRET's current expectations, including general economic conditions, local real estate conditions, the general level of interest rates and the availability of financing, timely completion and lease up of properties under construction, and various other economic risks inherent in the business of owning and operating investment real estate.

RESULTS FROM OPERATIONS

Fiscal Year 2000 Compared to Fiscal Years 1999 and 1998

OVERVIEW On April 30, 2000, IRET celebrated it's 30th anniversary as a Real Estate Investment Trust. In the opinion of management, this 30th year was IRET's best year ever.

The following is a summary of the major events and results of IRET's Fiscal Year 2000 which will be commented on in more detail in the balance of this discussion.

Funds from Operations increased to $16,832,777 from $11,623,825 an increase of $5,208,952 (45%). On a per share basis, FFO increased from .68¢ per share to .80¢ per share, an increase of 18% (.04¢ of this increase resulted from the straight-line rent recorded which increased rental income by $831,364 representing rents to be collected in future years on long-term commercial leases.)

Net Income increased to $8,807,845 from $7,604,135 even after a $1,319,316 provision for an impairment of value allowance on two real estate properties - America's Best furniture store - Boise, Idaho and the First Avenue Building - Minot, North Dakota.

Revenuesincreased to $55,445,193 from $39,927,262, an increase of $15,517,931 or 39%.

Real Estate Owned increased to $449,919,890 from $295,825,839, an increase of $154,094,051 or 52%. This increase is after establishment of a loss reserve of $1,319,316 reflecting a write-down on the Boise furniture store and the First Avenue Building in Minot. Both properties are producing rental income below that necessary to justify their carrying values. Accordingly, a loss reserve has been established for this impairment of value.

Shareholder Equity increased to $109,920,591 from $85,783,294, an increase of $24,137,297 or 28%. In addition, $20,647,039 of equity capital was contributed to the Operating Partnership in UPREIT transactions for a total increase in equity capital of $44,784,336.

Dividendsincreased to 50.8 cents per share from 46.75 cents, an increase of 4.05 cents (8.7%).

"Self-Advised" Status. On July 1, 2000, IRET became "self-advised" when the Advisory business assets of Odell-Wentz and Associates, L.L.C. were acquired by IRET's Operating Partnership

FUNDS FROM OPERATIONS Funds from operations of the Operating Partnership (taxable income increased by non-cash deductions of real estate asset depreciation and amortization, and reduced by capital gain income and other extraordinary income items) for Fiscal 2000 increased to $16,832,777 ($.805 per share) from the Fiscal 1999 amount of $11,623,825 ($.6753 per share), compared to $9,447,425 ($.6042 per share) for Fiscal 1998. The Fiscal 2000 computation of FFO includes $831,364 ($.0398 per share) of "straight-line rent." Due to an accounting pronouncement which impacts many of our new long-term commercial leases, we are required to recognize as income rents from commercial leases that will not be received until future years.  IRET has several commercial properties with leases that provide for periodic rent increases. This pronouncement requires that we calculate the total rents that will be received under each lease and report as income a pro-rata amount each year.  Thus, we will report more rent than actually received in the early years of the lease and less rent in the later years.  We will report each year the amount of the total difference between the cash actually received in that year and the "straight-line amount" that must be used in our financial reports. The remainder of these increases in funds from operations resulted primarily from increased revenues from existing and newly acquired rental properties as detailed below.

These increases in net income resulted primarily from increased rental income, with the exact changes in revenues and expenses detailed below.

REVENUES
Total revenues of the Operating Partnership for Fiscal 2000 were $55,445,193, compared to $39,927,262 in Fiscal 1999 (an increase of 38%) and $32,407,545 in Fiscal 1998. The increase in revenues received during Fiscal 2000 in excess of the prior year revenues was $15,517,931. This increase resulted from:
 

The increase in revenues received during Fiscal 1999 in excess of that received during Fiscal 1998 was $7,519,717.  This increase resulted from:
 

As shown by the above analysis, the Fiscal 2000 and 1999 increases in revenues resulted primarily from the addition of new real estate properties to the operating partnership's portfolio. Rents received on properties owned at the beginning of Fiscal 1999 increased by $1,081,995 in Fiscal 1999 and another $579,151 in Fiscal 2000. Thus, the new properties acquired during Fiscal Years 1999 and 2000 generated most of the new revenues during the past two years.

CAPITAL GAINS
The Operating Partnership realized capital gain income for Fiscal 2000 of $1,754,496. This compares to $1,947,184 of capital gain income recognized in Fiscal 1999 and the $465,499 recognized in Fiscal 1998. IRET will continue to seek to market several of its older and smaller apartment and commercial properties.

NET INCOME The $1,203,710 increase in net taxable income for Fiscal 2000 over the net income earned in the prior fiscal year resulted from:
 

The $2,589,226 increase in net taxable income for Fiscal 1999 over the net income earned in the prior fiscal year resulted from:
 

RESULTS FROM STABILIZED PROPERTIES
IRET defines fully stabilized properties as those both owned at the beginning of the prior fiscal year and having completed the rent-up phase (90% occupancy). "Same store" results of these properties for Fiscal 2000 and 1999 were as follows:
 

PROPERTY ACQUISITIONS
The Operating Partnership added $155,284,745 of real estate investments to its portfolio during Fiscal 2000, compared to $62,455,508 added in the prior year, as detailed below:

Fiscal 2000 Property Acquisitions
 

**Property not placed in service at April 30, 2000. Additional costs are still to be incurred.
***Represents costs to complete a project started in year ending April 30, 1999.  The remainder of this page has been intentionally left blank.
 
 

Fiscal 1999 Property Acquisitions
 
 

**Property not placed in service at April 30, 1998. Additional costs are still to be incurred.
***Represents costs to complete a project started in year ending April 30, 1997.

Property Dispositions
Real estate assets sold by the Operating Partnership during Fiscal 2000 and 1999 were as follows:
 

DIVIDENDS
The following dividends were paid during Fiscal Years 2000, 1999 and 1998:
 

The Fiscal 2000 dividends increased 8.7% over the dividends paid during Fiscal Year 1999 and 22% over Fiscal 1998.

FUNDS FROM OPERATIONS
The funds derived during Fiscal 2000 by the Trust from its operations increased by 45% over the prior year and by 80% from the Fiscal 1998 level, ($16,832,777 in Fiscal 2000, $11,623,825 in Fiscal 1999, and $9,341,317 in 1998). The Fiscal 2000 FFO results include $831,364 of additional non-cash income due to the "straight-line rent" requirement which impacts rent recognition on long-term commercial leases. On a per share basis, Funds From Operations increased to $.8053 per share from $.6753 in Fiscal 1999 (an increase of 19%) and $.6042 generated in Fiscal 1998. (IRET uses the definition of "Funds From Operations" recommended by the National Association of Real Estate Investment Trusts to mean "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures calculated on the same basis." It is emphasized that funds from operations as so calculated and presented does not represent cash flows from operations as defined under generally accepted accounting principles and should not be considered as an alternative to net income as an indication of operating performance or to cash flows as a measure of liquidity or ability to fund all cash needs.) (See the Consolidated Statements of Cash Flows in the Consolidated Financial Statements attached hereto.)

The following is a comparison of dividends paid during the past five fiscal years to Funds From Operations (as defined above):
 

*Includes $837,364 of "straight-line rent" - see above explanation.

Management expects that the Funds From Operations (as defined above) will continue to improve during Fiscal 2001 and will continue to substantially exceed dividends paid in the coming year.

LIQUIDITY AND CAPITAL RESOURCES
Important investment and financing events in Fiscal 2000 were:
 

IMPACT OF INFLATION
The costs of utilities and other rental expenses continue to increase, but in most areas, IRET has been able to increase rental income sufficiently to cover inflationary increases in rental expense. Increases in rental income are not precluded by long-term lease obligations except for a few commercial properties subject to long-term net lease agreements. Thus, as market conditions allow, rents will be increased to cover inflationary expenses and to provide a better return to IRET.

ECONOMIC CONDITIONS
Fiscal 2000 saw continued stable economic conditions in the states in which IRET operates. Occupancy rates for residential properties decreased slightly from the year earlier level.  The current economic outlook for much of IRET's trade area indicates a continuation of our current rental experiences. Higher interest rates will increase the interest expense of IRET's borrowings.  Of IRET's $265,056,767 of mortgage debt in place at 04/30/00, only $22,711,952 is variable rate debt on which the interest rates may be adjusted upward. None of the mortgages come due in Fiscal 2001 and only $9,072,618 will come due in Fiscal 2002. Thus, most of IRET's mortgage debt has fixed interest rates for the next two years.

YEAR 2000 COSTS
IRET experienced no costs or problems associated with the Year 2000 issue for computer hardware and software. As of 04/30/00, IRET itself did not own or operate computer systems and had no direct costs to update such systems. IRET was not impacted by computer costs or failures of its third-party vendors.

ITEM 9a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks inherent in IRET's business include:

Changes in market values of owned securities. On April 30, 2000, IRET owned $2,601,420 of GNMA securities which it intends to hold to maturity and $572,811 of common stock of other real estate investment trusts which it may sell.

Changes in interest rates payable by IRET on its indebtedness. As of 04/30/00, IRET owed $6,452,420 on its credit line which is tied to the New York Prime interest rate; $10,087,256 on investment certificates of which $6,115,525 will come due during Fiscal year 2001 and will either be renewed at the then prevailing interest rates or redeemed, and $265,056,767 of mortgage loans secured by individual buildings, $22,711,952 of which is subject to variable interest rate agreements and none of which will come due in Fiscal 2001 and $9,072,618 which will come due in Fiscal 2002 and the balance in later years. IRET has not entered into any interest rate hedge or other such agreements with respect to its indebtedness or business.

ITEM 10.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data listed in the accompanying Index to Financial Statements and Supplementary Data are incorporated herein by reference and filed as a part of this report.

ITEM 11.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 12.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and Trustees of IRET as of April 30, 2000, were:
 

* unaffiliated Trustee

ITEM 13.  EXECUTIVE COMPENSATION

There is hereby incorporated by reference the information under the caption "Remuneration and Transactions with Trustees and Advisor" in the Registrant's definitive proxy statement relating to its annual meeting of shareholders to be held on August 15, 2000.

ITEM 14.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of May 31, 2000, no person, nor any trustee or officer individually was known by the Trust to own beneficially more than 5% of the outstanding Shares of Beneficial Interest.

Collectively, the Trustees owned 10.84% of such shares on said date.

ITEM 15.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference the information under the caption "Remuneration and Transactions with Trustees and Advisor" in the Registrant's definitive proxy statement relating to its annual meeting of shareholders to be held August 15, 2000.
 
 

ITEM 16.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
 

Pursuant to the requirements of Section 13 or 15(d) 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.
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
 

Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North Dakota

We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended April 30, 2000, 1999 and 1998. These consolidated financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis of our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Investors Real Estate Trust and Subsidiaries as of April 30, 2000 and 1999, and the consolidated results of its operations and cash flows for the years ended April 30, 2000, 1999 and 1998, in conformity with generally accepted accounting principles.

BRADY, MARTZ & ASSOCIATES, P.C.
 

/S/ Brady, Martz & Associates, P.C.

Minot, North Dakota

May 25, 2000
 
 

ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY