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 October 31, 1996 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 October 31, 1996, it had 13,994,747 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 October 31, 1996 & 1995 (unaudited) ASSETS: 10-31-96 10-31-95 <S> <C> <C> Cash $ 1,344,519 $ 747,787 Marketable Securities -GNMA's 4,157,371 4,615,430 -Other REIT's 596,961 0 Tax & Insurance Escrow 1,414,320 968,399 Deferred Charges 748,770 414,551 Prepaid Insurance 172,432 159,356 Deposits 320,000 50,000 General Partnerships 85,576 0 $ 8,839,949 $ 6,955,523 Real Estate Investments Real Estate Owned $147,288,224 $123,515,461 Less Accumulated Deprec. (14,773,341) (14,088,483) Net Real Estate Owned 132,514,883 109,426,978 Real Estate Mortgages (related) 0 117,235 Real Estate Mortgages (unrelated) 2,791,154 3,336,992 Less Unearned Discounts (14,373) (34,792) Less Deferred Gain from Property Dispositions (165,074) (219,861) Less Reserve for Bad Debts (197,096) (267,096) Net Mortgages & Contracts 2,414,610 2,932,478 Total Real Estate Investments $134,929,494 $112,359,456 TOTAL ASSETS $143,769,442 $119,313,979 LIABILITIES: Accounts Payable & Other Liabilities $ 2,534,382 $ 4,302,183 Mortgages Payable 79,214,615 61,972,317 Investment Certificates Payable 6,991,458 5,440,733 Due on Margin Account 0 3,981,937 TOTAL LIABILITIES $88,740,456 $75,697,170 SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of 10-31-96 10-31-95 13,994,747 as of 10/31/96 12,071,256 as of 10/31/95 $ 58,950,599 $ 47,142,109 Undistributed Net Income (3,921,613) (3,525,300) Total Shareholders' Equity $ 55,028,986 $ 43,616,809 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $143,769,442 $119,313,979 </TABLE>
STATEMENT OF OPERATIONS For the Three- and Six-Month Periods Ended October 31, 1996 & 1995 (unaudited) <TABLE> <CAPTION> 3 Months Ended 6 Months Ended October 31 October 31 <S> <C> <C> <C> <C> OPERATING INCOME: 1996 1995 1996 1995 Real Estate Rentals $ 5,235,244 $ 4,508,952 $ 9,985,638 $ 8,051,435 Interest Income 233,448 183,034 448,096 398,212 Mortgage Discount & Fees 5,335 23,200 6,768 47,600 $ 5,474,027 $ 4,715,186 $10,440,502 $ 8,497,247 OPERATING EXPENSE: Interest $ 1,633,486 $ 1,384,224 $ 3,054,669 $ 2,500,412 Utilities & Maintenance 826,003 764,719 1,600,434 1,260,006 Property Management 407,983 357,718 785,701 521,581 Taxes & Insurance 638,858 482,777 1,191,608 854,339 Advisory & Trustees Fees 138,104 114,340 267,321 212,523 Operating Expenses 48,637 45,272 91,346 76,782 $ 3,693,071 $ 3,149,050 $ 6,991,079 $ 5,425,643 OPERATING INCOME (before reserves): $ 1,780,956 $ 1,566,136 $ 3,449,423 $ 3,071,604 DEPRECIATION/AMORTIZATION (732,802) (508,000) (1,423,162) (1,004,000) OPERATING INCOME (after reserves): $ 1,048,154 $ 1,058,136 $ 2,026,261 $ 2,067,604 GAIN ON SALE OF INVESTMENTS (2,867) 0 252,062 0 NET INCOME $ 1,045,287 $ 1,058,136 $ 2,278,323 $ 2,067,604 NET INCOME PER SHARE: Operating Income (after depreciation) .08 .09 .15 .18 Gain on Sale of Investments .00 0 .02 0 Total Net Income/Share .08 .09 .17 .18 DIVIDENDS PAID PER SHARE .0950 .08875 .1925 .18125 Average Number of Shares Outstanding 13,882,377 11,958,672 13,721,089 11,668,888 FUNDS FROM OPERATIONS* Net Taxable Income $ 1,045,287 $ 1,058,136 $ 2,278,323 $ 2,067,604 Adjustments - depreciation of real estate owned 732,802 508,000 1,423,162 1,004,000 - gain (loss) on sale of investments 2,867 0 (252,062) 0 FUNDS FROM OPERATIONS* $ 1,780,956 $ 1,566,136 $ 3,449,423 $ 3,071,604 per share .13 .13 .25 .26 </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 SIX-MONTH PERIODS ENDED OCTOBER 31, 1996, AND 1995 (unaudited) <TABLE> <CAPTION> CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995 <S> <C> <C> Net Income $ 2,278,323 $ 2,067,604 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,423,163 1,004,000 Interest reinvested in investment certificates 61,471 55,706 Changes in other assets and liabilities: (Increase) decrease in other assets (903,345) (358,230) Increase in accounts payable and accrued expenses 824,265 185,280 NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 3,329,857 $ 2,954,360 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of REIT stock $ (596,961)$ 0 Proceeds from sale of securities 255,861 154,190 Principal payments on mortgage loans receivable 1,419,511 1,586,110 Payments for acquisition of properties (12,565,971) (32,123,437) Investment in mortgage loans receivable (559,450) (164,516) NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES $(11,994,784)$(30,547,653) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Line of Credit $ 900,000 $ 3,000,000 Proceeds from loan refinance $ 5,835,467 $ 12,857,569 Proceeds from sale of shares 2,960,557 5,195,392 Dividends paid (934,150) (809,331) Proceeds from investment certificates issued 1,639,602 517,813 Loan on margin account 0 6,473,437 Redemption of investment certificates (506,542) (221,701) Principal payments on mortgage loans and notes payable (2,259,365) (1,008,857) Payments on margin account 0 (2,436,984) NET CASH USED FOR FINANCING ACTIVITIES $ 7,635,569 $ 23,567,338 NET INCREASE (DECREASE) IN CASH $(1,003,245) $ (4,025,955) CASH AT APRIL 30 $ 2,337,764 $ 4,772,742 CASH AT OCTOBER 31 $ 1,334,519 $ 746,787 </TABLE>
<TABLE> SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 1996 1995 <S> <C> <C> Dividends reinvested $ 2,151,724 $ 1,321,080 Real estate investment and mortgage loans receivable acquired through borrowings on margin account and new originations 0 18,557,569 Mortgages paid directly by owner of contract 0 0 Interest reinvested directly in investment certificates 61,471 55,706 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest paid on mortgages $ 2,996,724 $ 2,351,452 Interest paid on margin account and other 0 54,136 Interest paid on investment certificates 93,967 73,243 $ 5,303,886 $22,413,186 </TABLE> (The balance of this page was left blank intentionally.)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations. IRET's net taxable earnings for the second quarter of Fiscal 1997 were $1,045,287, compared to $1,058,136 for the same period of Fiscal 1996. For the first six months of Fiscal 1997, net taxable earnings were $2,278,323, compared to $2,067,604 in the prior 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 second quarter increased to $1,780,956 from the $1,566,136 recorded in the prior year. For the six-month period, Funds from Operations was $3,449,423, compared to $3,071,604 in Fiscal 1996. Both taxable income and Funds from Operations were reduced by the continuing vacancy of the Smith Home Furnishings property in Boise, Idaho. We continue to seek a replacement tenant for this property. There are several prospects, but no firm rental offer is yet in hand. On the positive side, IRET continued to experience satisfactory occupancy of its apartment properties; the program of instituting modest rental rate increases is on target and the new properties being added to the portfolio are performing well. Overall, we continue to be pleased with the performance of our investment portfolio and look for improving financial results upon the completion of our aggressive building and buying program. Financial Condition. IRET's liquidity and capital resources remain strong. During the past year, real estate owned by IRET has increased by 23 million dollars. This growth in real estate investments will continue as the Trust has agreed to purchase a substantial amount of real estate investments which will come on line during the balance of this fiscal year. Comparative balance sheet figures are: 10/31/96 10/31/95 Cash and Marketable Securities $ 6,098,851 $ 5,362,217 Net Real Estate Owned 132,514,883 109,426,978 Net Real Estate Mortgages 2,414,610 2,932,478 Total Assets 143,769,442 119,313,979 Total Liabilities 88,740,456 75,697,170 Shareholder Equity 55,028,986 43,616,809
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. Sale of Properties. During the second quarter, IRET did not sell any of its investments. The following properties were added to our portfolio during the second quarter and are producing income: Cost - Edgewood Vista 24 unit Alzheimers center, Missoula, MT $ 950,000 - 16,000 sq. ft. Computer City retail commercial building, Grand Rapids, MI $ 2,100,000 - 98 unit apartment complex in Billings, MT $ 6,100,000 - 67 unit Legacy Apartment complex in Grand Forks, ND $ 6,465,000 - Sweetwater Springs Retirement Home, Phase I, Douglasville, GA $ 2,810,000 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 purchase agreements to acquire the following properties: - 360 unit Park Meadows apartment complex, St. Cloud, MN $10,120,000 - 192 unit Neighborhood apartment complex, Colorado Springs, CO $10,750,000 - 210 unit Miramont apartment complex, Fort Collins, CO $14,200,000 - 108 unit Woodridge apartment complex, Rochester, MN $ 6,300,000 Dividends. IRET paid a regular dividend of 9.5 cents per share on October 1, 1996, to shareholders of record at the close of business on September 20, 1996. This was an increase from the 9.25 cents per share regular dividend paid on July 1, 1996 (a special dividend of .5 cents per share was also paid with the July dividend for a total dividend of 9.75 cents), and was the 102nd 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: December 9, 1996 By_______________________________ Thomas A. Wentz, Sr., Vice-President