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, 1997 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 Business Trust. As of January 31, 1997, it had 14,571,628 Shares of Beneficial Interest outstanding.
PART I Item 1. Financial Statements. The following financial statements have been prepared from the records of Investors Real Estate Trust and its six affiliated limited partnerships and have not been audited or reviewed by the Trust's independent certified public accountants. Accordingly, these statements are subject to adjustments upon audit, which audit will be conducted for the Fiscal Year ending April 30, 1997. Reference is made to the footnotes to the Statements prepared by the Trust's auditors for the Fiscal Year ended April 30, 1996, contained in the Annual Report for Fiscal 1996. In the opinion of the Trust, there have been no developments requiring footnote disclosure for the periods covered by the Financial Statements set forth below that are not adequately disclosed in the footnotes to the April 30, 1996, statements. <TABLE> <CAPTION> BALANCE SHEETS For the Periods Ended January 31, 1997 & 1996 (unaudited) ASSETS: 01-31-97 01-31-96 <S> <C> <C> Cash $ 1,172,973 $ 3,384,400 Marketable Securities -GNMA's 4,085,621 4,508,382 -Other REIT's 713,192 0 -Less Unrealized Gain on REIT Stock (116,232) 0 Tax & Insurance Escrow 1,557,236 1,087,235 Deferred Charges 868,688 490,860 Prepaid Insurance 298,068 153,389 Deposits 75,000 457,500 General Partnerships 70,576 0 $ 8,725,122 $10,081,766 Real Estate Investments Real Estate Owned $189,830,086 $128,339,454 Less Accumulated Deprec. (15,722,229) (14,245,319) Net Real Estate Owned 174,107,857 114,094,135 Real Estate Mortgages 1,933,017 3,766,929 Less Unearned Discounts (12,448) (34,792) Less Deferred Gain from Property Dispositions (26,445) (219,861) Less Reserve for Bad Debts (197,096) (267,096) Net Mortgages & Contracts 1,697,028 3,245,180 Total Real Estate Investments $175,804,885 $117,339,315 TOTAL ASSETS $184,530,007 $127,421,081 LIABILITIES: Accounts Payable & Other Liabilities $ 2,876,237 $ 1,443,831 Mortgages Payable 114,157,548 72,332,672 Investment Certificates Payable 8,042,206 5,994,973 Due on Credit Line 1,000,000 0 TOTAL LIABILITIES $126,075,991 $ 79,771,476 SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of 01-31-97 01-31-96 14,571,628 as of 01/31/97 12,693,198 as of 01/31/96 $ 62,611,138 $ 50,727,029 Accumulated Distributions in Excess of Undistributed Net Income (4,157,122) (3,077,424) Total Shareholders' Equity $ 58,454,016 $ 47,649,605 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $184,530,007 $127,421,081 </TABLE>
STATEMENT OF OPERATIONS For the Three- and Nine-Month Periods Ended January 31, 1997 & 1996 (unaudited) <TABLE> <CAPTION> 3 Months Ended 9 Months Ended January 31 January 31 <S> <C> <C> <C> <C> OPERATING INCOME: 1997 1996 1997 1996 Real Estate Rentals $ 6,171,124 $ 4,892,738 $16,156,762 $12,944,173 Interest Income 153,477 211,671 601,573 657,483 Mortgage Discount & Fees 58,429 0 65,197 0 $ 6,383,030 $ 5,104,409 $16,823,532 $13,601,656 OPERATING EXPENSE: Interest $ 2,085,103 $ 1,554,110 $ 5,139,772 $ 4,054,522 Utilities & Maintenance 973,831 782,100 2,574,265 2,042,106 Property Management 470,559 365,453 1,256,260 887,034 Taxes & Insurance 703,173 555,031 1,894,781 1,409,370 Advisory & Trustees Fees 139,934 124,801 407,255 337,324 Operating Expenses 21,001 34,408 112,347 111,190 $ 4,393,601 $ 3,415,903 $11,384,680 $ 8,841,546 OPERATING INCOME (before reserves): $ 1,989,429 $ 1,688,506 $ 5,438,852 $ 4,760,109 DEPRECIATION/AMORTIZATION (962,312) (606,000) (2,385,474) (1,610,000) OPERATING INCOME (after reserves): $ 1,027,117 $ 1,082,506 $ 3,053,378 $ 3,150,109 GAIN ON SALE OF INVESTMENTS 138,629 522,001 390,691 522,001 NET INCOME $ 1,165,746 $ 1,604,507 $ 3,444,069 $ 3,672,110 NET INCOME PER SHARE: Operating Income (after depreciation) .07 .09 .22 .26 Gain on Sale of Investments .01 .04 .03 .04 Total Net Income/Share .08 .13 .25 .30 DIVIDENDS PAID PER SHARE .0975 .09 .29 .27125 Average Number of Shares Outstanding 14,254,582 12,382,227 13,898,920 11,940,492 FUNDS FROM OPERATIONS* Net Income $ 1,165,746 $ 1,604,507 $ 3,444,069 $ 3,672,110 Adjustments + depreciation/amortization 962,312 606,000 2,385,474 1,610,000 - (gain) loss on sale of investments (138,629) (522,001) (390,691) (522,001) FUNDS FROM OPERATIONS* $ 1,989,429 $ 1,688,506 $ 5,438,852 $ 4,760,109 per share .14 .14 .39 .40 ______________________________________________________________________________ </TABLE> * "Funds from Operations" is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures calculated on the same basis.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED JANUARY 31, 1997, AND 1996 (unaudited) <TABLE> <CAPTION> CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 <S> <C> <C> Net Income $ 3,444,069 $ 3,672,111 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,385,473 1,610,000 Interest reinvested in investment certificates 173,379 187,266 Changes in other assets and liabilities: (Increase) decrease in other assets (802,597) (1,369,242) Increase in accounts payable and accrued expenses 68,004 692,751 NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 5,268,328 $ 4,792,886 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of REIT stock $ (596,961)$ (0) Proceeds from sale of securities 326,237 321,427 Principal payments on mortgage loans receivable 2,466,091 691,399 Payments for acquisition of properties (23,227,215) (34,908,138) Investment in mortgage loans receivable (749,630) (0) NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES $(21,781,478)$(33,895,312) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Line of Credit $ 5,450,000 $ 0 Proceeds from loan financing $ 9,824,192 $ 20,854,211 Proceeds from sale of shares 4,886,218 9,166,442 Dividends paid (1,418,548) (1,226,474) Proceeds from investment certificates issued 3,387,650 1,164,989 Loan on margin account 0 0 Redemption of investment certificates (808,049) (352,595) Principal payments on mortgage loans and notes payable (6,350,614) (1,892,489) Payments on margin account 0 0 NET CASH USED FOR FINANCING ACTIVITIES $ 14,970,849 $ 27,714,084 NET INCREASE (DECREASE) IN CASH $ (1,542,301)$ (1,388,342) CASH AT APRIL 30 $ 2,715,274 $ 4,772,742 CASH AT JANUARY 31 $ 1,172,973 $ 3,384,400 </TABLE>
<TABLE> SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 1997 1996 <S> <C> <C> Dividends reinvested $ 3,068,581 $ 1,388,851 Real estate investment and mortgage loans receivable acquired through borrowings on margin account and new originations 29,945,273 34,783,138 Proceeds from Sale of Properties deposited directly with escrow agent 456,029 426,352 Mortgages paid directly by owner of contract 0 238,359 Interest reinvested directly in investment certificates 173,379 187,266 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest paid on mortgages $ 4,968,209 $ 3,805,978 Interest paid on margin account and other 0 0 Interest paid on investment certificates 162,405 114,132 $ 5,130,614 $ 3,920,110 </TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The third quarter of Fiscal Year 1997 was another period of significant progress for IRET. - Over $35,000,000 of apartment properties, consisting of four apartment complexes with a total of 870 apartment units, were added to the IRET portfolio. - The 1,000,000 share offering of IRET Shares of Beneficial Interest at $7.00 per share was successfully completed. - The quarterly dividend payable April 1, 1997, was increased to $.10 per share. Results of Operations. IRET's net operating income for the third quarter of Fiscal 1997 was $1,027,117, compared to $1,082,506 for the same period of Fiscal 1996. For the first nine months of Fiscal 1997, net operating income was $3,053,378, compared to $3,150,109 in the prior year. Gain on Sale of Investments was $138,629 for the quarter (compared to $522,000 last year) and $390,691 for the nine- month period (compared to $522,000 last year). The most important performance measure, Funds from Operations (taxable income increased by non-cash deductions of depreciation and amortization, less extraordinary income items) for the third quarter increased to $1,989,429 from the $1,688,506 recorded in the prior year. For the nine- month period, Funds from Operations was $5,438,852, compared to $4,760,109 in Fiscal 1996. Both operating income and Funds from Operations were reduced by the continuing vacancy of the Smith Home Furnishings property in Boise, Idaho. The property is now occupied by a short-term tenant and serious negotiations with a long- term tenant are in process. The performance of IRET's investment portfolio continues at a satisfactory level and the completion of the aggressive building and buying program should result in steadily improving financial results. Financial Condition. IRET's liquidity and capital resources remain strong. Shareholder equity has increased nearly $11,000,000 during the past year. In addition to cash and marketable securities on hand, IRET has unsecured lines of credit with Minot banks of $9,500,000. Comparative balance sheet figures are: 01/31/97 01/31/96 Cash and Marketable Securities $ 5,971,786 $ 7,892,782 Net Real Estate Owned 174,107,857 114,094,135 Net Real Estate Mortgages 1,697,028 3,245,180 Total Assets 175,804,885 117,339,315 Total Liabilities 126,075,991 79,771,476 Shareholder Equity 58,454,016 47,649,605
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. Property Dispositions. During the third quarter, IRET did not sell any of its investments. Property Acquisitions. The following properties were added to our portfolio during the third quarter and are producing income: Cost - 360 unit Park Meadows apartment complex, St. Cloud, MN $10,190,549 - 192 unit Neighborhood apartment complex, Colorado Springs, CO $10,811,900 - 210 unit Miramont apartment complex, Fort Collins, CO $14,231,155 - 108 unit Woodridge apartment complex, Rochester, MN $ 6,394,441 The following properties are under construction: - 67 unit Circle 50 apartment complex in Billings, MT $ 3,900,000 - Sweetwater Springs Retirement Home, Phase II, Douglasville, GA $ 1,540,000
IRET has entered into a purchase agreement to acquire the following property: - Edgewood Vista 24 unit Alzheimer care facility, East Grand Forks, MN $ 892,500 Dividends. IRET paid a regular dividend of 9.75 cents per share on January 8, 1997, to shareholders of record at the close of business on January 3, 1997. This was an increase from the 9.5 cents per share regular dividend paid on October 1, 1996, and was the 103rd 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 11, 1997 By_______________________________ Thomas A. Wentz, Sr., Vice-President