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, 1999 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, 1999, it had 18,134,700 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, 1999 and results of operations and cash flows for the stated periods have been included. The Condensed Consolidated Balance Sheet at April 30, 1998, contained herein, was derived from audited financial statements, but does not include all disclosures included in the 1998 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, 1999, are not necessarily indicative of operating results for the entire year. BALANCE SHEETS (unaudited) ASSETS: 01-31-99 04-30-98 -------- -------- Cash $ 6,585,779 $ 2,132,220 Marketable Securities - GNMA's 3,169,508 3,536,538 - Other REIT's 722,461 720,688 Accounts Receivable 30,452 55,326 Tax & Insurance Escrow 2,573,915 1,254,068 Deferred Charges 1,315,927 1,088,016 Prepaid Insurance 348,819 219,871 Real Estate Deposits 694,963 2,493,713 General Partnerships 0 6,705 ------------ ------------ $ 15,441,824 $ 11,507,145 Real Estate Investments Real Estate Owned $272,827,784 $231,416,322 Less Accumulated Depreciation (24,639,537) (21,516,129) Net Real Estate Owned 248,188,248 209,900,193 Real Estate Mortgages 1,474,587 3,438,308 Less Unearned Discounts & Allowances (124,879) (127,132) Net Mortgages & Contracts 1,349,708 3,311,176 Total Real Estate Investments $249,537,955 $213,211,369 ------------ ------------ TOTAL ASSETS $264,979,779 $224,718,514 ============ ============
LIABILITIES: 01-31-99 04-30-98 -------- -------- Accounts Payable & Other Liabilities $ 4,254,406 $ 2,847,080 Mortgages Payable 155,942,643 134,059,974 Investment Certificates Payable 12,358,251 10,369,561 Due on Credit Line 0 1,000,000 ------------ ------------ TOTAL LIABILITIES $172,555,300 $148,276,615 MINORITY INTERESTS IN OPERATING PARTNERSHIP: $ 12,619,372 $ 8,289,273 ------------ ------------ SHAREHOLDERS' EQUITY Shares of Beneficial Interest Outstanding Shares of: 01-31-99 04-30-98 -------- -------- 18,134,700 on 01/31/99 16,391,412 on 04/30/98 $ 86,426,032 $ 74,708,559 Accumulated Distributions in Excess of Net Income (6,552,068) (6,666,555) Unrealized Gain(Loss) on Securities Held for Sale (68,857) $ 110,622 ------------ ------------ Total Shareholders' Equity $ 79,805,107 $ 68,152,626 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $264,979,779 $224,718,514 ============ ============
STATEMENT OF OPERATIONS For the Three- and Nine-Month Periods Ended January 31, 1999 & 1998 (unaudited) <TABLE> <CAPTION> 3 Months Ended 9 Months Ended January 31,1999 January 31,1999 OPERATING INCOME: 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Real Estate Rentals $ 9,930,345 $ 8,286,064 $ 28,359,059 $ 23,121,047 Interest Income 305,785 136,893 754,133 447,214 Mortgage Discount & Fees 667 17,435 62,253 52,156 ------------ ------------ ------------ ------------ $ 10,236,797 $ 8,440,634 $ 29,175,445 $ 23,620,417 ------------ ------------ ------------ ------------ OPERATING EXPENSE: Interest $ 3,095,853 $ 2,681,092 $ 8,847,570 $ 7,653,429 Utilities & Maintenance 1,528,599 1,307,348 4,494,113 3,668,313 Property Management 828,598 667,387 2,382,422 1,962,352 Taxes & Insurance 1,154,956 917,211 3,271,700 2,586,960 Advisory & Trustees Fees 170,980 172,552 613,245 485,929 Operating Expenses 166,722 52,755 296,492 167,925 ------------ ------------ ------------ ------------ $ 6,945,708 $ 5,798,345 $ 19,905,542 $ 16,524,908 ------------ ------------ ------------ ------------ OPERATING INCOME: (before reserves) $ 3,291,089 $ 2,642,289 $ 9,269,903 $ 7,095,509 ------------ ------------ ------------ ------------ DEPRECIATION/AMORTIZATION (1,558,161) (1,283,345) (4,449,057) (3,609,434) ------------ ------------ ------------ ------------ OPERATING INCOME (after reserves) $ 1,732,928 $ 1,358,944 $ 4,820,846 $ 3,486,075 GAIN ON SALE OF INVESTMENTS 80,121 326,138 1,788,038 448,786 MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP NET INCOME (158,821) (48,438) (580,263) (61,585) ------------ ------------ ------------ ------------ NET INCOME $ 1,654,228 $ 1,636,644 $ 6,028,621 $ 3,873,276 ============ ============ ============ ============ NET INCOME PER SHARE: Operating Income (after depreciation) .09 .08 .25 .22 Gain on Sale of Investments .00 .02 .10 .03 ------------ ----------- ----------- ----------- Total Net Income/Share .09 .10 .35 .25 ------------ ----------- ----------- ----------- DIVIDENDS PAID PER SHARE .12 .105 .345 .30925 ============ =========== =========== =========== Average Number of Shares Outstanding 17,772,327 15,878,436 17,263,056 15,552,844 FUNDS FROM OPERATIONS: * Operating Income $ 1,732,928 $ 1,358,944 $ 4,820,846 $ 3,486,075 Plus Depreciation and Amortization 1,558,161 1,283,345 4,449,057 3,609,434 Minus Minority Interest - Operating Partnership (158,821) (48,438) (580,263) (61,585) FUNDS FROM OPERATIONS * $ 3,132,268 $ 2,593,851 $ 8,689,640 $ 7,033,924 per share .18 .16 .50 .45 - ---------------------------------------------------------------------------- </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, 1999 AND 1998 (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 ---- ---- Net Income $ 6,028,621 $ 3,873,276 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,336,034 3,364,663 Minority interest portion of operating partnership income 580,263 61,585 Accretion of discount on contracts (2,253) (4,280) Gain on Sale of Properties (1,788,038) (448,786) Interest reinvested in investment certificates 291,804 244,124 Changes in other assets and liabilities: (Increase) decrease in real estate deposits 1,494,087 (73,000) (Increase) decrease in other assets (104,074) (178,038) (Increase) decrease in tax and insurance escrow (1,319,847) (342,948) (Increase) decrease in deferred charges (227,911) (109,348) Increase (decrease) in accounts payable and accrued expenses 1,686,559 689,215 ------------ ------------ NET CASH PROVIDED FROM OPERATING ACTIVITIES $ 10,975,245 $ 7,076,463 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of marketable securities held to maturity $ 367,030 $ 360,758 Principle payments on mortgage loans receivable 321,484 1,696,188 Proceeds from sale of property 3,045,454 1,345,058 Payments for acquisition and improvements of properties (36,099,964) (34,552,590) Purchase of marketable securities available for sale (181,250) 0 Investment in mortgage loans receivable (46,500) (294,669) ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES $(32,593,746) $(31,445,255) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of shares $ 10,866,530 $ 9,236,005 Proceeds from investment certificates issued 3,064,421 2,430,709 Proceeds from mortgages payable 18,670,909 18,444,138 Proceeds from short-term lines of credit 8,250,000 8,650,000 Proceeds from sale of minority interest 4,245,197 585,334 Repurchase of shares (3,053,729) (1,971,506) Dividends Paid (2,730,164) (1,738,751) Redemption of investment certificates (1,403,881) (940,883) Principal payments on mortgage loans (2,587,223) (2,032,557) Payments on short-term lines of credit (9,250,000) (8,150,000) ------------ ------------ NET CASH PROVIDED FROM FINANCING ACTIVITIES $ 26,072,060 $ 24,512,489 ------------ ------------ NET INCREASE (DECREASE) IN CASH $ 4,453,559 $ 143,697 CASH AT APRIL 30 $ 2,132,220 $ 1,718,257 ------------ ------------ CASH AT JANUARY 31 $ 6,585,779 $ 1,861,954 ------------ ------------
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 1999 1998 ---- ---- Dividends reinvested $ 3,925,118 $ 3,149,841 Real estate investment and mortgage loans receivable acquired through assumption of mortgage loans payable and accrual of costs 5,366,292 10,609,107 Mortgage loan receivable transferred to property owned 1,701,308 1,161,878 Proceeds from sale of properties deposited directly with escrow agent 2,569,292 0 Properties acquired through the issuance of minority interest units in the operating partnership 1,055,525 5,455,265 Mortgages paid directly by owner of contract 0 0 Interest reinvested directly in investment certificates 291,804 244,124 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest paid on mortgages $ 7,952,416 $ 6,739,919 Interest paid on margin account and other 41,452 39,045 Interest paid on investment certificates 285,562 224,529 ------------ ------------ $ 8,279,430 $ 7,003,493 ------------ ------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are pleased to report excellent operating results for IRET'S Fiscal 1999 Third Quarter which ended January 31, 1999. Revenues, Net Income, Funds from Operations and Real Estate Owned all reached new highs and we were successful in finding attractive properties to add to our rapidly expanding investment portfolio. FUNDS FROM OPERATIONS. Funds from Operations for the Third Quarter of Fiscal 1999 increased to $3,132,268 from the $2,593,851 reported for the prior year, an increase of $538,417 or 21%. On a per share basis, Funds from Operations for the Third Quarter were $.18, compared to $.16 per share earned in the same period of Fiscal 1998, an increase of 13%. For the first nine months of Fiscal 1999, Funds from Operations increased to $8,689,640 from the year earlier figure of $7,033,924, an increase of $1,655,716 or 24%. On a per share basis, Funds from Operations for the nine month period were $.50 per share compared to the year earlier figure of $.45 per share, an increase of 11%. Occupancy rates continue at a good level and we continue to experience good results from the new properties we are adding to our portfolio. NET INCOME. Net Income for the Third Quarter rose slightly from the year earlier figure to $1,654,228 from $1,636,644. For the nine month period, Net Income was $6,028,620 compared to $3,873,276. As noted in our prior quarterly report, the change in Net Income is attributable to the increase in the Gain on Sale of Investments. In the Third Quarter, the gain was $80,121 compared to the year earlier figure of $326,138. However, for the full nine month period, capital gain income was $1,788,038 compared to $448,786, reflecting the large gain from the sale of the 90 Unit Bison Apartment Complex in Jamestown, ND, in the Second Quarter. OPERATIONS. The Third Quarter saw a slight increase in vacancies in certain of our apartment communities. Overall, the occupancy rates for our apartments are still at or above normal levels and we continue to implement periodic rental increases as conditions allow. The new properties that we have been adding to our portfolio are perfoming very well. We continue our apartment building program in Billings, MT, Bismarck, Jamestown and Grand Forks, ND. We are also in the process of acquiring land in Rochester, MN to begin construction of apartments this summer. SALE OF PROPERTIES. During the Third Quarter, we completed the sale of the Fairfield Apartment Community in Marshall, MN for $466,000 resulting in a gain of $80,122. We've also entered into sales agreements for our Superpumper Convenience Stores and expect to report gains from the sale of these properties in the Fourth Quarter. PORTFOLIO ACQUISITIONS. We were successful in acquiring additional investment properties in the Third Quarter. The following properties were purchased or completed and added to our portfolio during the Third Quarter and are producing income:
Cost ---- - 165 Unit Castle Rock Apartment Complex, Billings, MT $ 5,600,000 - 67 Unit Cottonwood Apartment II, Bismarck, ND $ 4,000,000 The following properties are under construction: - 67 Unit Legacy Apartment Complex with underground parking, Grand Forks, ND $ 4,750,000 - Great Plains Software Home Office Complex, Fargo, ND $15,000,000 - 27 Unit The Meadows Apartments, Jamestown, ND $ 2,000,000 IRET has entered into purchase agreements for the following properties: - 48,700 sq. ft. Viromed Office Building, Eden Prairie, MN $ 4,800,000 - 204 Unit Ivy Club Apartment Community, Vancouver, WA $11,542,000 - 76,000 sq. ft. Home Office Building of Ameritrade Holding Corporation, Omaha, NE $ 8,200,000 FINANCIAL CONDITION. On January 31, 1998 cash and marketable securities were $10,477,747, compared to the $6,389,446 on hand at the beginning of the current fiscal year. Total assets increased to $264,979,779 from $224,718,514 at the beginning of the current fiscal year. During that same period, liabilities increased to $172,555,299 compared to $148,276,615. IRET continues to enjoy a strong inflow of investment funds and is well positioned to continue the expansion of its investment portfolio. DIVIDENDS. IRET paid a regular dividend of 12 cents per share on January 15, 1999, to shareholders of record at the close of business on January 4, 1998. This was an increase from the 11.5 cents per share dividend paid on October 1, 1998, and was the 111th 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. Form 8-K filed 12/09/98 to report sales of Shares of Beneficial Interest under current registration. 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, 1999 By________________________________ Thomas A. Wentz, Sr.,Vice-President