10 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, 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 North Dakota Real Estate Investment Trust. As of October 31, 1997, it had 15,806,230 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, 1998. Reference is made to the footnotes to the Statements prepared by the Trust's auditors for the Fiscal Year ended April 30, 1997, contained in the Annual Report for Fiscal 1997. 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, 1997, statements. BALANCE SHEETS (unaudited) <TABLE> <CAPTION> ASSETS: 10-31-97 10-31-96 <S> <C> <C> Cash $ 2,425,397 $ 1,344,519 Marketable Securities - GNMA's 3,862,957 4,157,371 - Other REIT's 610,066 596,961 Tax & Insurance Escrow 1,170,759 1,414,320 Deferred Charges 1,078,765 748,770 Prepaid Insurance 288,887 172,432 Sales Proceeds/Tax Deferred 229,642 0 Real Estate Deposits 612,800 320,000 General Partnerships 78,469 85,576 ------------ ------------ $ 10,357,742 $ 8,839,949 ------------ ------------ Real Estate Investments Real Estate Owned $211,087,102 $147,288,224 Less Accumulated Depreciation (19,121,467) (14,773,341) ------------ ------------ Net Real Estate Owned 191,965,635 132,514,883 ------------ ------------ Real Estate Mortgages (unrelated) 1,829,591 2,791,154 Less Unearned Discounts (7,671) (14,373) Less Deferred Gain from Property Dispositions (18,713) (165,074) Less Reserve for Bad Debts (124,881) (197,096) ------------ ------------ Net Mortgages & Contracts 1,678,327 2,414,610 ------------ ------------ Total Real Estate Investments $193,643,962 $134,929,494 ------------ ------------ TOTAL ASSETS $204,001,703 $143,769,442 ============ ============ LIABILITIES: Accounts Payable & Other Liabilities $ 2,897,261 $ 2,534,382 Mortgages Payable 122,303,008 79,214,615 Investment Certificates Payable 9,579,003 6,991,458 Due on Credit Line 3,245,837 0 ------------ ------------ TOTAL LIABILITIES $138,025,109 $ 88,740,456 ============ ============ Minority Interest in Operating Partnership $ 1,240,368 $ 0 ------------ ------------ SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of 10-31-97 10-31-96 15,806,230 on 10/31/97 13,994,747 on 10/31/96 $ 70,816,091 $ 58,950,599 Undistributed Net Income (6,079,865) (3,921,613) ------------ ------------ Total Shareholders' Equity $ 64,736,226 $ 55,028,986 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $204,001,703 $143,769,442 ============ ============ </TABLE>
STATEMENT OF OPERATIONS For the Three- and Six-Month Periods Ended October 31, 1997 & 1996 (unaudited) <TABLE> <CAPTION> 3 Months Ended 6 Months Ended October 31 October 31 <S> <C> <C> <C> <C> OPERATING INCOME: 1997 1996 1997 1996 Real Estate Rentals $ 7,827,686 $ 5,235,244 $ 14,834,983 $ 9,985,638 Interest Income 147,614 233,448 448,396 310,319 Mortgage Discount & Fees 20,962 5,335 34,721 6,768 ------------ ------------ ------------ ------------ $ 7,996,262 $ 5,474,027 $ 15,180,023 $ 10,440,502 ------------ ------------ ------------ ------------ OPERATING EXPENSE: Interest $ 2,530,549 $ 1,633,486 $ 4,972,337 $ 3,054,669 Utilities & Maintenance 1,242,214 826,003 2,360,965 1,600,434 Property Management 669,818 407,893 1,294,965 785,701 Taxes & Insurance 868,863 638,858 1,669,749 1,191,608 Advisory & Trustees Fees 162,729 138,104 313,377 267,321 Operating Expenses 61,705 48,637 115,171 91,346 ------------ ------------ ------------ ------------ $ 5,535,878 $ 3,693,071 $ 10,726,564 $ 6,991,079 ------------ ------------ ------------ ------------ Minority Interest (13,140) 0 (13,140) 0 ------------ ------------ ------------ ------------ OPERATING INCOME: (before reserves) $ 2,447,244 $ 1,780,956 $ 4,440,312 $ 3,449,423 ------------ ------------ ------------ ------------ DEPRECIATION/AMORTIZ. (1,227,058) (732,802) (2,326,089) (1,423,162) OPERATING INCOME (after reserves) $ 1,220,186 $ 1,048,154 $ 2,114,223 $ 2,026,261 GAIN ON SALE OF INVESTMENTS 83,579 (2,867) 122,648 252,062 ------------ ------------ ------------ ------------ NET TAXABLE INCOME $ 1,303,765 $ 1,045,287 $ 2,236,871 $ 2,278,323 ============ ============ ============ ============ NET INCOME PER SHARE: Operating Income (after depreciation) .08 .08 .14 .15 Gain on Sale of Investments .00 0 .01 .02 ------------ ------------ ------------ ------------ Total Net Income/Share .08 .08 .15 .17 ------------ ------------ ------------ ------------ DIVIDENDS PAID PER SHARE .1030 .0950 .20425 .1925 ============ ============ ============ ============ Average Number of Shares Outstanding 15,551,732 13,882,377 15,373,372 13,721,089 FUNDS FROM OPERATIONS: * Net Taxable Income $ 1,303,765 $ 1,045,287 $ 2,236,871 $ 2,278,323 Adjustments + depeciation of real estate owned/amortization 1,227,058 732,802 2,326,089 1,423,162 - gain (loss) on sale of investments 83,759 2,867 (122,648) (252,062) - minority interest - Operating Partnership 13,140 0 (13,147) 0 ------------ ------------ ------------ ------------ FUNDS FROM OPERATIONS * $ 2,433,924 $ 1,780,956 $ 4,427,165 $ 3,449,423 per share .16 .13 .28 .25 ------------ ------------ ------------ ------------ * 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. </TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED OCTOBER 31, 1997 AND 1996 (unaudited) <TABLE> <CAPTION> CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 <S> <C> <C> Net Income $ 2,236,871 $ 2,278,324 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,326,089 1,423,163 Minority interest portion of operating partnership income 13,147 0 Accretion of discount on contracts (2,853) 0 Gain on Sale of Properties (122,648) (252,062) Interest reinvested in investment certificates 105,312 61,471 Changes in other assets and liabilities: Increase (decrease) in real estate deposits 512,800 320,000 (Increase) decrease in other assets (390,639) (342,433) (Increase) decrease in tax and insurance escrow 79,710 (262,793) Increase (decrease) in accounts payable and accrued expenses 408,304 (574,767) ------------ ------------ NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 5,166,093 $ 2,650,902 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held to maturity $ 192,502 $ 255,861 Principle payments on mortgage loans receivable 512,439 1,419,511 Proceeds from sale of property 580,000 389,784 Payments for acquisition and improvements of properties (19,382,971) (12,565,971) Purchase of marketable securities available for sale (13,105) (596,961) Investment in mortgage loans receivable (206,834) (559,450) ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES $(18,317,969) $(11,657,226) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares $ 4,861,457 $ 2,960,557 Proceeds from investment certificates issued 2,026,839 1,639,602 Proceeds from mortgages payable 7,937,469 5,835,467 Proceeds from short-term lines of credit 4,941,392 900,000 Proceeds from sale of minority interest 122,050 0 Repurchase of shares (1,193,635) 0 Dividends Paid (1,076,596) (934,150) Redemption of investment certificates (740,553) (506,542) Principal payments on mortgage loans (1,369,407) (2,259,365) Payments on short-term lines of credit (1,650,000) 0 ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 13,859,016 $ 7,635,569 ------------ ------------ NET INCREASE (DECREASE) IN CASH $ 707,140 $ (1,370,755) CASH AT APRIL 30 $ 1,718,257 $ 2,715,274 ------------ ------------ CASH AT OCTOBER 31 $ 2,425,397 $ 1,334,519 ------------ ------------ </TABLE>
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES <TABLE> <CAPTION> 1997 1996 <S> <C> <C> Dividends reinvested $ 2,058,893 $ 2,151,724 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 3,691,585 1,565,361 Mortgage loan receivable transferred to property owned 1,161,878 2,810,000 Proceeds from sale of properties deposited directly with escrow agent 0 455,329 Mortgages paid directly by owner of contract 0 0 Interest reinvested directly in investment certificates 105,312 61,471 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest paid on mortgages $ 4,598,216 $ 2,996,724 Interest paid on margin account and other 16,121 0 Interest paid on investment certificates 123,290 93,967 ------------ ------------ $ 4,737,627 $ 3,090,691 ------------ ------------ </TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operation. Funds from Operations for the second quarter of Fiscal 1998 increased to $2,433,924 from the year earlier figure of $1,780,956. On a per share basis, Funds from Operations for the second quarter were $.16 per share, compared to $.13 per share for the same period of Fiscal 1997 (an increase of 23%). For the first six months of Fiscal 1998, Funds from Operations increased to $4,427,165 from the year earlier figure of $3,449,423 or $.28 per share versus $.25 per share (an increase of 12%). This strong increase in Funds from Operations resulted from increased rental income ($7,827,686 compared to $5,235,244 for the second quarter of Fiscal 1997). Six month rental income figures are $14,834,983 for Fiscal 1998 versus $9,985,638 for Fiscal 1997. Taxable income for the second quarter was $1,303,765 versus $1,045,287 in the prior year. For the first six months of Fiscal 1998, net taxable income was $2,236,871 versus $2,278,323 for the same period of Fiscal 1997. During the second quarter of Fiscal 1998, IRET experienced a strong demand for its apartment properties, with the vacancy rate falling to below 5%. The ongoing program of instituting modest rental rate increases continues to produce satisfactory results. We are very pleased with the performance of the investment portfolio. Sale of Properties. During the second quarter IRET sold the Superpumper convenience store in Bismarck, North Dakota, realizing a gain of $83,579. Also, during the second quarter, a sales agreement was signed providing for the sale of a 48-unit Scottsbluff, Nebraska apartment complex which will close during the third quarter with an approximate gain to IRET of $326,138. Portfolio Acquisitions. The following properties were added to our portfolio during the second quarter and are producing income: Cost ---- - 108 Unit Kirkwood Apartment Complex, Bismarck, ND $3,175,000 - Edgewood Vista Assisted Living Center, Minot, ND $4,900,000 - 67 Unit Circle 50 Apartment Complex, Billings, MT $4,100,000 - 125 Unit Jenner Properties Apartment Complexes, Grand Forks, Devils Lake and Dickinson, ND $2,297,500 - Sweetwater Springs Retirement Home, Phase II, Douglasville, GA $1,161,878
The following properties are under construction: - 67 Unit Legacy Apartment Complex, Grand Forks, ND $4,000,000 - 2 - 67 Unit Apartment Buildings (Cottonwood Apartments, Bismarck, ND) $8,000,000 - Alzheimer's Addition and Expansion of Edgewood Vista Complex, Minot,ND $1,300,000 IRET has entered into purchase agreements to acquire the following properties: - 122 Unit Park East Apartment Complex, Fargo, ND $4,900,000 - 248 Apartment Units Magic City Realty, Minot, ND $5,270,000 - Office Campus for Great Plains Software, Fargo, ND $15,000,000 Financial Condition. IRET continues to enjoy a very strong balance sheet. During the past year, real estate owned has increased to $211,087,102 from the $147,288,224 owned on October 31, 1996. Real estate mortgages owed have increased to $122,303,008 from the $79,214,615 owed one year earlier. Shareholder equity has increased to $64,736,226 from the year earlier figure of $55,028,986. Comparative balance sheet figures are: 10/31/97 10/31/96 Cash and Marketable Securities $ 6,898,420 $ 6,098,851 Net Real Estate Owned 191,965,635 132,514,883 Net Real Estate Mortgages 1,678,327 2,414,610 Total Assets 204,001,703 143,769,442 Total Liabilities 138,025,109 88,740,456 Shareholder Equity 64,736,226 55,028,986 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 10.3 cents per share on October 1, 1997, to shareholders of record at the close of business on September 17, 1997. This was an increase from the 10.125 cents per share dividend paid on July 1, 1997, and was the 106th 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) Date: December 10, 1997 /s/ Thomas A. Wentz, Sr. By ___________________________________ Thomas A. Wentz, Sr.,Vice-President