XNAS:IRET Annual Report 10-K Filing - 4/30/2012

Effective Date 4/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended April 30, 2012
 
or
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____________ to ____________
 
Commission File Number 000-14851

Investors Real Estate Trust
(Exact name of Registrant as specified in its charter)

North Dakota
45-0311232
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1400 31st Avenue SW, Suite 60
Post Office Box 1988
Minot, ND 58702-1988
(Address of principal executive offices) (Zip code)

701-837-4738
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest (no par value) - NASDAQ Global Select Market
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (no par value) -
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None
________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
o
Yes
þ
No
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
 
o
Yes
þ
No
 
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.
 
þ
Yes
o
No
 

 

2012 Annual Report

 
 

 

 
Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
 
þ
Yes
o
No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
o Large accelerated filer
 
þ Accelerated filer
o Non-accelerated filer
 
o Smaller reporting Company
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
o
Yes
þ
No
 
The aggregate market value of the Registrant’s outstanding common shares of beneficial interest held by non-affiliates of the Registrant as of October 31, 2011 was $608,961,193 based on the last reported sale price on the NASDAQ Global Select Market on October 31, 2011. For purposes of this calculation, the Registrant has assumed that its trustees and executive officers are affiliates.
 
The number of common shares of beneficial interest outstanding as of June 25, 2012, was 90,265,194.
 
References in this Annual Report on Form 10-K to the “Company,” “IRET,” “we,” “us,” or “our” include consolidated subsidiaries, unless the context indicates otherwise.
 
Documents Incorporated by Reference: Portions of IRET’s definitive Proxy Statement for its 2012 Annual Meeting of Shareholders to be held on September 18, 2012 are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) hereof.
 

2009 Annual Report
 
 

 


 
INVESTORS REAL ESTATE TRUST
 
 
 
PAGE
PART I
 
Item 1.    Business                                                                                                                                  
5
Item 1A. Risk Factors                                                                                                                                  
11
Item 1B. Unresolved Staff Comments                                                                                                                                  
22
Item 2.    Properties                                                                                                                                  
22
Item 3.    Legal Proceedings                                                                                                                                  
34
Item 4.     Mine Safety Disclosures                                                                                                                                  
35
PART II
 
35
37
37
65
66
66
67
69
PART III
 
69
69
69
69
69
PART IV
 
70
70
72
F-1 to F-44

2012 Annual Report 3
 

 

Special Note Regarding Forward Looking Statements
 
Certain statements included in this Annual Report on Form 10-K and the documents incorporated into this document by reference are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements about our belief that we have the liquidity and capital resources necessary to meet our known obligations and to make additional real estate acquisitions and capital improvements when appropriate to enhance long term growth; and other statements preceded by, followed by or otherwise including words such as “believe,” “expect,” “intend,” “project,” “plan,” “anticipate,” “potential,” “may,” “designed,” “estimate,” “should,” “continue” and other similar expressions. These statements indicate that we have used assumptions that are subject to a number of risks and uncertainties that could cause our actual results or performance to differ materially from those projected.
 
Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:
 
 
the economic health of the markets in which we own and operate multi-family and commercial properties, in particular the states of Minnesota and North Dakota, or other markets in which we may invest in the future;
 
 
the economic health of our commercial tenants;
 
 
market rental conditions, including occupancy levels and rental rates, for multi-family residential and commercial properties;
 
 
our ability to identify and secure additional multi-family residential and commercial properties that meet our criteria for investment;
 
 
the level and volatility of prevailing market interest rates and the pricing of our common shares of beneficial interest;
 
 
financing risks, such as our inability to obtain debt or equity financing on favorable terms, or at all;
 
 
compliance with applicable laws, including those concerning the environment and access by persons with disabilities; and
 
 
the availability and cost of casualty insurance for losses.
 
Readers should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” in Item 1A of this Annual Report on Form 10-K and the other documents we file from time to time with the Securities and Exchange Commission (“SEC”).
 
In light of these uncertainties, the events anticipated by our forward-looking statements might not occur. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause our actual results to differ materially from those contemplated in any forward-looking statements included in this Annual Report on Form 10-K should not be construed as exhaustive.
 

2012 Annual Report  4
 

 

PART I
 
Item 1. Business
 
Overview
 
Investors Real Estate Trust (“IRET” or the “Company”) is a self-advised equity Real Estate Investment Trust (“REIT”) organized under the laws of North Dakota. Since our formation in 1970, our business has consisted of owning and operating income-producing real estate properties. We are structured as an Umbrella Partnership Real Estate Investment Trust or UPREIT and we conduct our day-to-day business operations through our operating partnership, IRET Properties, a North Dakota Limited Partnership (“IRET Properties” or the “Operating Partnership”). Our investments consist of multi-family residential properties and commercial office, commercial medical, commercial industrial and commercial retail properties. These properties are located primarily in the upper Midwest states of Minnesota and North Dakota. For the fiscal year ended April 30, 2012, our real estate investments in these two states accounted for 69.0% of our total gross revenue. Our principal executive office is located in Minot, North Dakota. We also have corporate offices in Minneapolis and St. Cloud, Minnesota, and additional property management offices in Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota and South Dakota.
 
We seek to diversify our investments among multi-family residential, commercial office, commercial medical, commercial industrial and commercial retail properties. As of April 30, 2012, our real estate portfolio consisted of:
 
 
84 multi-family residential properties containing 9,161 apartment units and having a total real estate investment amount net of accumulated depreciation of $411.0 million;
 
 
68 commercial office properties containing approximately 5.1 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $483.9 million;
 
 
65 commercial medical properties (including senior housing) containing approximately 2.9 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $421.5 million;
 
 
19 commercial industrial properties containing approximately 2.9 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $98.3 million; and
 
 
30 commercial retail properties containing approximately 1.4 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $103.8 million.
 
Our residential leases are generally for a one-year term. Our commercial properties are typically leased to tenants under long-term lease arrangements. As of April 30, 2012, no individual tenant accounted for more than 10% of our total real estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 12.4% of our total commercial segments’ minimum rents.
 
Structure
 
We were organized as a REIT under the laws of North Dakota on July 31, 1970.
 
Since our formation, we have operated as a REIT under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and since February 1, 1997, we have been structured as an UPREIT. Since restructuring as an UPREIT, we have conducted our daily business operations primarily through IRET Properties. IRET Properties is organized under the laws of North Dakota pursuant to an Agreement of Limited Partnership dated January 31, 1997. IRET Properties is principally engaged in acquiring, owning, operating and leasing multi-family residential and commercial real estate. The sole general partner of IRET Properties is IRET, Inc., a North Dakota corporation and our wholly-owned subsidiary. All of our assets (except for qualified REIT subsidiaries) and liabilities were contributed to IRET Properties, through IRET, Inc., in exchange for the sole general partnership interest in IRET Properties. As of April 30, 2012, IRET, Inc. owned an 81.5% interest in IRET Properties. The remaining ownership of IRET Properties is held by individual limited partners.
 

2012 Annual Report 5
 

 

Investment Strategy and Policies
 
Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is focused on growing assets in desired geographical markets, achieving diversification by property type and location, and adhering to targeted returns in acquiring properties.
 
We generally use available cash or short-term floating rate debt to acquire real estate. We then replace such cash or short-term floating rate debt with fixed-rate secured debt. In appropriate circumstances, we also may acquire one or more properties in exchange for our common shares of beneficial interest (“common shares”) or for limited partnership units of IRET Properties (“limited partnership units” or “UPREIT Units”), which are convertible, after the expiration of a minimum holding period of one year, into cash or, at our sole discretion, into our common shares on a one-to-one basis.
 
Our investment strategy is to invest in multi-family residential properties, and in commercial office, commercial medical, commercial industrial and commercial retail properties that are leased to single or multiple tenants, usually for five years or longer, and are located throughout the upper Midwest. We operate mainly within the states of North Dakota and Minnesota, although we also have real estate investments in Colorado, Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, South Dakota, Wisconsin and Wyoming.
 
In order to implement our investment strategy we have certain investment policies. Our significant investment policies are as follows:
 
Investments in the securities of, or interests in, entities primarily engaged in real estate activities and other securities. While we are permitted to invest in the securities of other entities engaged in the ownership and operation of real estate, as well as other securities, we currently have no plans to make any investments in other securities.
 
Any policy, as it relates to investments in other securities, may be changed by a majority of the members of our Board of Trustees at any time without notice to or a vote of our shareholders.
 
Investments in real estate or interests in real estate. We currently own multi-family residential properties and/or commercial properties in 12 states. We may invest in real estate, or interests in real estate, located anywhere in the United States; however, we currently plan to focus our investments in those states in which we already have property, with specific concentration in Minnesota, North Dakota, Nebraska, Iowa, Colorado, Montana, South Dakota, and Kansas. Similarly, we may invest in any type of real estate or interest in real estate including, but not limited to, office buildings, apartment buildings, shopping centers, industrial and commercial properties, special purpose buildings and undeveloped acreage. Under our Third Restated Trustees’ Regulations (Bylaws), however, we may not invest more than 10.0% of our total assets in unimproved real estate, excluding property being developed or property where development will be commenced within one year.
 
It is not our policy to acquire assets primarily for capital gain through sale in the short term. Rather, it is our policy to acquire assets with an intention to hold such assets for at least a 10-year period. During the holding period, it is our policy to seek current income and capital appreciation through an increase in value of our real estate portfolio, as well as increased revenue as a result of higher rents.
 
Any policy, as it relates to investments in real estate or interests in real estate may be changed by our Board of Trustees at any time without notice to or a vote of our shareholders.
 
Investments in real estate mortgages. While not our primary business focus, from time to time we make loans to others that are secured by mortgages, liens or deeds of trust covering real estate. We have no restrictions on the type of property that may be used as collateral for a mortgage loan; provided, however, that except for loans insured or guaranteed by a government or a governmental agency, we may not invest in or make a mortgage loan unless an appraisal is obtained concerning the value of the underlying property.  Unless otherwise approved by our Board of Trustees, it is our policy that we will not invest in mortgage loans on any one property if in the aggregate the total indebtedness on the property, including our mortgage, exceeds 85.0% of the property’s appraised value.  We can invest in junior mortgages without notice to, or the approval of, our shareholders.  As of April 30, 2012 and 2011, we had no junior mortgages
 

2012 Annual Report 6
 

 

outstanding.  We had no investments in real estate mortgages at April 30, 2012. We had one contract for deed outstanding as of April 30, 2011, with a balance due to us, net of reserves, of approximately $156,000.
 
Our policies relating to mortgage loans, including second mortgages, may be changed by our Board of Trustees at any time, or from time to time, without notice to, or a vote of, our shareholders.
 
Policies With Respect to Certain of Our Activities
 
Our current policies as they pertain to certain of our activities are described as follows:
 
Distributions to shareholders and holders of limited partnership units. One of the requirements of the Internal Revenue Code for a REIT is that it distribute 90% of its net taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our general policy has been to make cash distributions to our common shareholders and the holders of limited partnership units of approximately 65.0% to 90.0% of our funds from operations and to use the remaining funds for capital improvements or the purchase of additional properties. This policy may be changed at any time by our Board of Trustees without notice to, or approval of, our shareholders. Distributions to our common shareholders and unitholders in fiscal years 2012 and 2011 totaled approximately 86.4% and 108.9%, respectively, on a per share and unit basis of our funds from operations.
 
Issuing senior securities. On April 26, 2004, we issued 1,150,000 shares of 8.25% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A preferred shares”). Depending on future interest rate and market conditions, we may issue additional preferred shares or other senior securities which would have dividend and liquidation preference over our common shares.
 
Borrowing money. We rely on borrowed funds in pursuing our investment objectives and goals. It is generally our policy to seek to borrow up to 65.0% to 75.0% of the appraised value of all new real estate acquired or developed. This policy concerning borrowed funds is vested solely with our Board of Trustees and can be changed by our Board of Trustees at any time, or from time to time, without notice to, or a vote of, our shareholders. Such policy is subject, however, to the limitation in our Bylaws, which provides that unless approved by a majority of the independent members of our Board of Trustees and disclosed to our shareholders in our next quarterly report along with justification for such excess, we may not borrow in excess of 300.0% of our total Net Assets (as such term is used in our Bylaws, which usage is not in accordance with generally accepted accounting principles (“GAAP”), “Net Assets” means our total assets at cost before deducting depreciation or other non-cash reserves, less total liabilities). Our Bylaws do not impose any limitation on the amount that we may borrow against any one particular property.  As of April 30, 2012, our ratio of total indebtedness to total real estate investments was 70.7% while our ratio of total indebtedness as compared to our Net Assets (computed in accordance with our Bylaws) was 117.2%.
 
Offering securities in exchange for property. Our organizational structure allows us to issue shares and to offer limited partnership units of IRET Properties in exchange for real estate. The limited partnership units are convertible into cash, or, at our option, common shares on a one-for-one basis after a minimum one-year holding period. All limited partnership units receive the same cash distributions as those paid on common shares. Limited partners are not entitled to vote on any matters affecting us until they convert their limited partnership units to common shares.
 
Our declaration of trust, as amended (our “Declaration of Trust”), does not contain any restrictions on our ability to offer limited partnership units of IRET Properties in exchange for property. As a result, any decision to do so is vested solely in our Board of Trustees. This policy may be changed at any time, or from time to time, without notice to, or a vote of, our shareholders. For the three most recent fiscal years ended April 30, we have issued the following limited partnership units of IRET Properties in exchange for properties:
 
   
(in thousands)
 
 
 
2012
   
2011
   
2010
 
Limited partnership units issued
    1,024       555       390  
Value at issuance
  $ 8,055     $ 4,996     $ 3,897  
 
Acquiring or repurchasing shares. As a REIT, it is our intention to invest only in real estate assets. Our Declaration of Trust does not prohibit the acquisition or repurchase of our common or preferred shares or other securities so long as such activity does not prohibit us from operating as a REIT under the Internal Revenue Code. Any policy
 

2012 Annual Report 7
 

 

 
regarding the acquisition or repurchase of shares or other securities is vested solely in our Board of Trustees and may be changed at any time, or from time to time, without notice to, or a vote of, our shareholders.
 
During fiscal year 2012, we did not repurchase any of our outstanding common shares, preferred shares or limited partnership units, except for the redemption of a nominal amount of fractional common shares held by shareholders.
 
To make loans to other persons. Our organizational structure allows us to make loans to other persons, subject to certain conditions and subject to our election to be taxed as a REIT. All loans must be secured by real property or limited partnership units of IRET Properties. Our mortgage loans receivable (including contracts for deed), net of reserves, totaled $0 as of April 30, 2012, and approximately $156,000 as of April 30, 2011.
 
To invest in the securities of other issuers for the purpose of exercising control. We have not, for the past three years, engaged in, and we are not currently engaging in, investment in the securities of other issuers for the purpose of exercising control. Our Declaration of Trust does not impose any limitation on our ability to invest in the securities of other issuers for the purpose of exercising control. Any decision to do so is vested solely in our Board of Trustees and may be changed at any time, or from time to time, without notice to, or a vote of, our shareholders.
 
Information about Segments
 
We currently operate in five reportable real estate segments: multi-family residential, commercial office, commercial medical (including senior housing), commercial industrial and commercial retail. For further information on these segments and other related information, see Note 11 of our consolidated financial statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Annual Report on Form 10-K.
 
Executive Officers of the Company
 
Set forth below are the names, ages, titles and biographies of each of our executive officers as of July 1, 2012.
 
Name
Age
Title
Timothy P. Mihalick
53
President and Chief Executive Officer
Thomas A. Wentz, Jr.
46
Executive Vice President and Chief Operating Officer
Diane K. Bryantt
48
Executive Vice President and Chief Financial Officer
Michael A. Bosh
41
Executive Vice President and General Counsel
Mark W. Reiling
54
Executive Vice President of Asset Management
Charles A. Greenberg
53
Senior Vice President, Commercial Asset Management
Ted E. Holmes
41
Senior Vice President, Finance
Andrew Martin
39
Senior Vice President, Residential Property Management
 
Timothy P. Mihalick joined us as a financial officer in May 1981, after graduating from Minot State University. He has served in various capacities with us over the years and was named Vice President in 1992. Mr. Mihalick served as the Chief Operating Officer from 1997 to 2009, as a Senior Vice President from 2002 to 2009, and as a member of our Board of Trustees since 1999. In September 2009, Mr. Mihalick was named President and Chief Executive Officer.
 
Thomas A. Wentz, Jr. is a graduate of Harvard College and the University of North Dakota School of Law, and joined us as General Counsel and Vice President in January 2000. He served as Senior Vice President of Asset Management and Finance from 2002 to 2009 and as a member of our Board of Trustees since 1996. In September 2009, Mr. Wentz was named Senior Vice President and Chief Operating Officer, and in June 2012 Mr. Wentz was named Executive Vice President and Chief Operating Officer. Prior to 2000, Mr. Wentz was a shareholder in the law firm of Pringle & Herigstad, P.C. from 1992 to 1999. Mr. Wentz is a member of the American Bar Association and the North Dakota Bar Association, and he is a Director of SRT Communications, Inc.
 
Diane K. Bryantt is a graduate of Minot State University. Ms. Bryantt joined us in June 1996, and served as our Controller and Corporate Secretary before being appointed to the positions of Senior Vice President and Chief Financial Officer in 2002 and Executive Vice President and Chief Financial Officer in June 2012. Prior to joining us, Ms. Bryantt was employed by First American Bank, Minot, North Dakota.
 

2012 Annual Report 8
 

 

Michael A. Bosh joined us as Associate General Counsel and Secretary in September 2002, and was named General Counsel in September 2003 and Executive Vice President and General Counsel in June 2012. Prior to 2002, Mr. Bosh was a shareholder in the law firm of Pringle & Herigstad, P.C. Mr. Bosh graduated from Jamestown College in 1992 and from Washington & Lee University School of Law in 1995. Mr. Bosh is a member of the American Bar Association and the North Dakota Bar Association.
 
Mark W. Reiling joined IRET in June 2012 as Executive Vice President of Asset Management. Mr. Reiling holds a Bachelor’s in Business Administration degree in Finance from the University of Notre Dame, and has over 30 years of experience in commercial real estate. He was associated with the Towle Real Estate Company and its successors (now Cassidy Turley) in Minneapolis, Minnesota, for approximately 18 years as President of Towle Properties, Inc., providing asset management services to commercial property owners, and as Senior Vice President at Cassidy Turley, responsible for new business development (brokerage and property management services).
 
Charles A. Greenberg joined IRET in August 2005 as Director of Commercial Asset Management, and was named Senior Vice President, Commercial Asset Management in November 2008. He is a graduate of the University of Wisconsin-Madison and has over 26 years of experience in both asset and property management of institutional-grade real estate investments. From 1989 to 2005, Mr. Greenberg was General Manager at Northco Corporation, a Minneapolis-based real estate investment firm.
 
Ted E. Holmes joined us in 2009 as Vice President of Finance, and was promoted to Senior Vice President of Finance in December 2010.  Mr. Holmes has over 15 years of experience in the finance industry, including the placement of debt and equity as a commercial and multi-family mortgage banker. From 1994 to 2002 Mr. Holmes was an Analyst and Assistant Vice President with Towle Financial Services/Midwest, a privately held mortgage banking company in Minneapolis, and he served as Director with Wells Fargo Bank, NA from 2003 to 2009. He holds a Bachelor of Arts degree in Economics from St. Cloud State University and is a licensed Minnesota Broker.
 
Andrew Martin joined IRET in December 2009 to lead the Company’s Residential Property Management division. In May 2011 Mr. Martin was promoted to Senior Vice President of Residential Property Management.   He has over 17 years of experience in the commercial and multi-family property management industry.  Prior to his employment with IRET, Mr. Martin was a partner with INH Companies, a property management firm based in St. Cloud, Minnesota, and also worked in Minneapolis, Minnesota for United Properties as a regional property manager.  Mr. Martin holds a bachelors degree in Real Estate and a Master’s degree in Business Administration from St. Cloud State University, and has earned the designation of Certified Property Manager from the Institute of Real Estate Management.
 
Employees
 
As of April 30, 2012, we had 400 employees, of whom 322 were full-time and 78 part-time employees. Of these 400 employees, 55 are corporate staff in our Minot, North Dakota and Minneapolis, Minnesota offices, and 345 are property management employees based at our properties or in local property management offices.
 
Environmental Matters and Government Regulation
 
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances released at a property, and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred in connection with any contamination. In addition, some environmental laws create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. These laws often impose liability without regard to whether the current owner was responsible for, or even knew of, the presence of such substances. It is generally our policy to obtain from independent environmental consultants a “Phase I” environmental audit (which involves visual inspection but not soil or groundwater analysis) on all properties that we seek to acquire. We do not believe that any of our properties are subject to any material environmental contamination. However, no assurances can be given that:
 
 
a prior owner, operator or occupant of the properties we own or the properties we intend to acquire did not create a material environmental condition not known to us, which might have been revealed by more in-depth study of the properties; and
 

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future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in the imposition of environmental liability upon us.
 
In addition to laws and regulations relating to the protection of the environment, many other laws and governmental regulations are applicable to our properties, and changes in the laws and regulations, or in their interpretation by agencies and the courts, occur frequently. Under the Americans with Disabilities Act of 1990 (the “ADA”), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. In addition, the Fair Housing Amendments Act of 1988 (the “FHAA”) requires apartment communities first occupied after March 13, 1990, to be accessible to the handicapped. Non-compliance with the ADA or the FHAA could result in the imposition of fines or an award of damages to private litigants. We believe that those of our properties to which the ADA and/or FHAA apply are substantially in compliance with present ADA and FHAA requirements.
 
Competition
 
Investing in and operating real estate is a very competitive business. We compete with other owners and developers of multi-family and commercial properties to attract tenants to our properties. Ownership of competing properties is diversified among other REITs, financial institutions, individuals and public and private companies who are actively engaged in this business. Our multi-family properties compete directly with other rental apartments, as well as with condominiums and single-family homes that are available for rent or purchase in the areas in which our properties are located. Our commercial properties compete with other commercial properties for tenants. Additionally, we compete with other real estate investors, including other REITs, pension and investment funds, partnerships and investment companies, to acquire properties. This competition affects our ability to acquire properties we want to add to our portfolio and the price we pay for acquisitions. We do not believe we have a dominant position in any of the geographic markets in which we operate, but some of our competitors may be dominant in selected markets. Many of our competitors have greater financial and management resources than we have. We believe, however, that the geographic diversity of our investments, the experience and abilities of our management, the quality of our assets and the financial strength of many of our commercial tenants affords us some competitive advantages that have in the past and will in the future allow us to operate our business successfully despite the competitive nature of our business.
 
Corporate Governance
 
Our Board of Trustees has adopted various policies and initiatives to strengthen the Company’s corporate governance and increase the transparency of financial reporting.  Each of the committees of the Board of Trustees operates under written charters, and the Company’s independent trustees meet regularly in executive sessions at which only the independent trustees are present.  The Board of Trustees has also adopted a Code of Conduct applicable to trustees, officers and employees, and a Code of Ethics for Senior Financial Officers, and has established processes for shareholder communications with the Board of Trustees.
 
Additionally, the Company’s Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including procedures for the confidential, anonymous submission by Company employees of concerns regarding accounting or auditing matters. The Audit Committee also maintains a policy requiring Audit Committee approval of all audit and non-audit services provided to the Company by the Company’s independent registered public accounting firm.
 
The Company will disclose any amendment to its Code of Ethics for Senior Financial officers on its website. In the event the Company waives compliance by any of its trustees or officers subject to the Code of Ethics or Code of Conduct, the Company will disclose such waiver in a Form 8-K filed within four business days.
 
Website and Available Information
 
Our internet address is www.iret.com. We make available, free of charge, through the “SEC filings” tab under the Investors/Financial Reporting section of our website, our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such forms are filed with or furnished to the SEC. Current copies of our Code of Conduct, Code of Ethics for Senior Financial Officers, and Charters for the Audit, Compensation, Executive and Nominating and Governance Committees of our Board of Trustees are also available on our website under the heading “Corporate Governance” in the Investors/Corporate Overview section of
 

2012 Annual Report 10
 

 

our website. Copies of these documents are also available to shareholders upon request addressed to the Secretary at Investors Real Estate Trust, P.O. Box 1988, Minot, North Dakota 58702-1988. Information on our internet website does not constitute part of this Annual Report on Form 10-K.
 
Item 1A.  Risk Factors
 
Risks Related to Our Properties and Business
 
Our performance and share value are subject to risks associated with the real estate industry.  Our results of operations and financial condition, the value of our real estate assets, and the value of an investment in us are subject to the risks normally associated with the ownership and operation of real estate properties.  These risks include, but are not limited to, the following factors which, among others, may adversely affect the income generated by our properties:
 
 
downturns in national, regional and local economic conditions (particularly increases in unemployment);
 
 
competition from other commercial and multi-family residential properties;
 
 
local real estate market conditions, such as oversupply or reduction in demand for commercial and multi-family residential space;
 
 
changes in interest rates and availability of attractive financing;
 
 
declines in the economic health and financial condition of our tenants and our ability to collect rents from our tenants;
 
 
vacancies, changes in market rental rates and the need periodically to repair, renovate and re-lease space;
 
 
increased operating costs, including real estate taxes, state and local taxes, insurance expense, utilities, and security costs;
 
 
significant expenditures associated with each investment, such as debt service payments, real estate taxes and insurance and maintenance costs, which are generally not reduced when circumstances cause a reduction in revenues from a property;
 
 
weather conditions, civil disturbances, natural disasters, terrorist acts or acts of war which may result in uninsured or underinsured losses;  and
 
 
decreases in the underlying value of our real estate.
 
Adverse global market and economic conditions may continue to adversely affect us and could cause us to recognize additional impairment charges or otherwise harm our performance.  Market and economic conditions have been challenging for several years, with tighter credit conditions developing at the end of 2008 and continuing in 2009 and 2010, and an uneven economic recovery and persistent high unemployment continuing into 2012.  Continued concerns about unemployment and public debt levels, geopolitical issues and declining real estate markets have contributed to increased market instability and diminished expectations for the U.S. economy. The commercial real estate sector in particular has been negatively affected by these market and economic conditions. These conditions may result in our tenants delaying lease commencements, requesting rent reductions, declining to extend or renew leases upon expiration and/or renewing at lower rates. These conditions also have forced some weaker tenants, in some cases, to declare bankruptcy and/or vacate leased premises. We may be unable to re-lease vacated space at attractive rents or at all.  We are unable to predict whether, or to what extent or for how long, these adverse market and economic conditions will persist.  The continuation and/or intensification of these conditions may impede our ability to generate sufficient operating cash flow to pay expenses, maintain properties, pay distributions and repay debt.
 
The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. Government, may adversely affect our business.  We depend on the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) for financing for the majority of our multi-family
 

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residential properties.  Fannie Mae and Freddie Mac are U.S. Government-sponsored entities, or GSEs, but their guarantees are not backed by the full faith and credit of the United States.  In recent years, Fannie Mae and Freddie Mac have reported substantial losses and a need for substantial amounts of additional capital. In response to the deteriorating financial condition of Fannie Mae and Freddie Mac and credit market disruptions, Congress and the U.S. Treasury have undertaken a series of actions to stabilize these GSEs and the financial markets generally.  In September 2008 Fannie Mae and Freddie Mac were placed in federal conservatorship.  The problems faced by Fannie Mae and Freddie Mac resulting in their being placed into federal conservatorship have stirred debate among some federal policy makers regarding the continued role of the U.S. Government in providing liquidity for the residential mortgage market. In February 2011, the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development issued a report entitled “Reforming America’s Housing Finance Market.”  The report outlines recommendations for reforming the U.S. housing system, including the financing of multi-family residential properties, and discusses specifically the roles of Fannie Mae and Freddie Mac in that system.  It is unclear how future legislation may impact Fannie Mae and Freddie Mac’s involvement in multi-family residential financing.  The scope and nature of the actions that the U.S. Government will ultimately undertake with respect to the future of Fannie Mae and Freddie Mac are unknown and will continue to evolve. It is possible that each of Fannie Mae and Freddie Mac could be dissolved and the U.S. Government could decide to stop providing liquidity support of any kind to the multi-family residential mortgage market.  Future legislation could further change the relationship between Fannie Mae and Freddie Mac and the U.S. Government, and could also nationalize or eliminate such GSEs entirely. Any law affecting these GSEs may create market uncertainty and have the effect of reducing the credit available for financing multi-family residential properties.  The loss or reduction of this important source of credit would be likely to result in higher loan costs for us, and could result in inability to borrow or refinance maturing debt, all of which could materially adversely affect our business, operations and financial condition.
 
Our property acquisition activities subject us to various risks which could adversely affect our operating results. We have acquired in the past and intend to continue to pursue the acquisition of properties and portfolios of properties, including large portfolios that could increase our size and result in alterations to our capital structure. Our acquisition activities and their success are subject to numerous risks, including, but not limited to:
 
 
even if we enter into an acquisition agreement for a property, it is subject to customary closing conditions, including completion of due diligence investigations, and we may be unable to complete that acquisition after making a non-refundable deposit and incurring other acquisition-related costs;
 
 
we may be unable to obtain financing for acquisitions on favorable terms or at all;
 
 
acquired properties may fail to perform as expected;
 
 
the actual costs of repositioning or redeveloping acquired properties may be greater than our estimates; and
 
 
we may be unable to quickly and efficiently integrate new acquisitions into our existing operations.
 
These risks could have an adverse effect on our results of operations and financial condition and the amount of cash available for payment of distributions.
 
Acquired properties may subject us to unknown liabilities which could adversely affect our operating results. We may acquire properties subject to liabilities and without any recourse, or with only limited recourse against prior owners or other third parties, with respect to unknown liabilities. As a result, if liability were asserted against us based upon ownership of these properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flows. Unknown liabilities with respect to acquired properties might include liabilities for clean-up of undisclosed environmental contamination; claims by tenants, vendors or other persons against the former owners of the properties; liabilities incurred in the ordinary course of business; and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
 
Our geographic concentration in Minnesota and North Dakota may result in losses due to our significant exposure to the effects of economic and real estate conditions in those markets.  For the fiscal year ended April 30, 2012, we received approximately 69.0% of our gross revenue from properties in Minnesota and North Dakota.  As a result of this concentration, we are subject to substantially greater risk than if our investments were more geographically dispersed. Specifically, we are more significantly exposed to the effects of economic and real estate conditions in those particular markets, such as building by competitors, local vacancy and rental rates and general levels of
 

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employment and economic activity.  To the extent that weak economic or real estate conditions affect Minnesota and/or North Dakota more severely than other areas of the country, our financial performance could be negatively impacted.
 
If we are not able to renew leases or enter into new leases on favorable terms or at all as our existing leases expire, our revenue, operating results and cash flows will be reduced.  We may be unable to renew leases with our existing tenants or enter into new leases with new tenants due to economic and other factors as our existing leases expire or are terminated prior to the expiration of their current terms.  As a result, we could lose a significant source of revenue while remaining responsible for the payment of our obligations.  In addition, even if we were able to renew existing leases or enter into new leases in a timely manner, the terms of those leases may be less favorable to us than the terms of expiring leases, because the rental rates of the renewal or new leases may be significantly lower than those of the expiring leases, or tenant installation costs, including the cost of required renovations or concessions to tenants, may be significant.  If we are unable to enter into lease renewals or new leases on favorable terms or in a timely manner for all or a substantial portion of space that is subject to expiring leases, our revenue, operating results and cash flows will be adversely affected. As a result, our ability to make distributions to the holders of our shares of beneficial interest may be adversely affected. As of April 30, 2012, approximately 1.6 million square feet, or 12.6% of our total commercial property square footage, was vacant. Approximately 580 of our 9,161 apartment units, or 6.3%, were vacant. As of April 30, 2012, leases covering approximately 7.9% of our total commercial segments net rentable square footage will expire in fiscal year 2013, 11.7% in fiscal year 2014, 9.6% in fiscal year 2015, 13.3% in fiscal year 2016, and 11.0% in fiscal year 2017.
 
We face potential adverse effects from commercial tenant bankruptcies or insolvencies.  The bankruptcy or insolvency of our commercial tenants may adversely affect the income produced by our properties.  If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord.  If a tenant files for bankruptcy, we cannot evict the tenant solely because of such bankruptcy.  A court, however, may authorize the tenant to reject and terminate its lease with us.  In such a case, our claim against the tenant for unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and it is unlikely that a bankrupt tenant would pay in full amounts it owes us under a lease.  This shortfall could adversely affect our cash flow and results of operations.  If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments.  Under some circumstances, we may agree to partially or wholly terminate the lease in advance of the termination date in consideration for a lease termination fee that is less than the agreed rental amount.  Additionally, without regard to the manner in which a lease termination occurs, we are likely to incur additional costs in the form of tenant improvements and leasing commissions in our efforts to lease the space to a new tenant, as well as possibly lower rental rates reflective of declines in market rents.
 
Because real estate investments are generally illiquid, and various factors limit our ability to dispose of assets, we may not be able to sell properties when appropriate.  Real estate investments are relatively illiquid and, therefore, we have limited ability to vary our portfolio quickly in response to changes in economic or other conditions. In addition, the prohibitions under the federal income tax laws on REITs holding property for sale and related regulations may affect our ability to sell properties. Our ability to dispose of assets may also be limited by constraints on our ability to utilize disposition proceeds to make acquisitions on financially attractive terms, and the requirement that we take additional impairment charges on certain assets. More specifically, we are required to distribute or pay tax on all capital gains generated from the sale of assets, and, in addition, a significant number of our properties were acquired using limited partnership units of IRET Properties, our operating partnership, and are subject to certain agreements which restrict our ability to sell such properties in transactions that would create current taxable income to the former owners. As a result, we are motivated to structure the sale of these assets as tax-free exchanges. To accomplish this we must identify attractive re-investment opportunities. These considerations impact our decisions on whether or not to dispose of certain of our assets.
 
Capital markets and economic conditions can materially affect our financial condition and results of operations, the value of our equity securities, and our ability to sustain payment of our distribution at current levels. Many factors affect the value of our equity securities and our ability to make or maintain at current levels distributions to the holders of our shares of beneficial interest, including the state of the capital markets and the economy, which in recent years have negatively affected substantially all businesses, including ours. Demand for office, industrial, and retail space has declined nationwide due to bankruptcies, downsizing, layoffs and cost cutting. The availability of credit has been and may in the future again be adversely affected by illiquid credit markets. Regulatory pressures and the burden of troubled and uncollectible loans led some lenders and institutional investors to reduce, and in
 

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some cases, cease to provide funding to borrowers. If these market conditions recur, they may limit our ability and the ability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, which may materially affect our financial condition and results of operations and the value of our equity securities.  Declining rental revenues from our properties due to persistent negative economic conditions may have a material adverse effect on our ability to make distributions to the holders of our shares of beneficial interest.  In fiscal years 2012 and 2011, distributions to our common shareholders and unitholders of the Operating Partnership in cash and common shares pursuant to our Distribution Reinvestment and Share Purchase Plan (DRIP) totaled approximately 88.7% and 115.1%, respectively, of our net cash provided by operating activities.
 
Inability to manage rapid growth effectively may adversely affect our operating results. We have experienced significant growth at various times in the past; principally through the acquisition of additional real estate properties. Subject to our continued ability to raise equity capital and issue limited partnership units of IRET Properties and identify suitable investment properties, we intend to continue our acquisition of real estate properties. Effective management of rapid growth presents challenges, including:
 
 
the need to expand our management team and staff;
 
 
the need to enhance internal operating systems and controls; and
 
 
the ability to consistently achieve targeted returns on individual properties.
 
We may not be able to maintain similar rates of growth in the future, or manage our growth effectively. Additionally, an inability to make accretive property acquisitions may adversely affect our ability to increase our net income. The acquisition of additional real estate properties is critical to our ability to increase our net income.  If we are unable to make real estate acquisitions on terms that meet our financial and strategic objectives, whether due to market conditions, a changed competitive environment or unavailability of capital, our ability to increase our net income may be materially and adversely affected. Our failure to do so may have a material adverse effect on our financial condition and results of operations and ability to make distributions to the holders of our shares of beneficial interest.
 
Competition may negatively impact our earnings. We compete with many kinds of institutions, including other REITs, private partnerships, individuals, pension funds and banks, for tenants and investment opportunities. Many of these institutions are active in the markets in which we invest and have greater financial and other resources that may be used to compete against us. With respect to tenants, this competition may affect our ability to lease our properties, the price at which we are able to lease our properties and the cost of required renovations or tenant improvements. With respect to acquisition and development investment opportunities, this competition may cause us to pay higher prices for new properties than we otherwise would have paid, or may prevent us from purchasing a desired property at all.
 
High leverage on our overall portfolio may result in losses. As of April 30, 2012, our ratio of total indebtedness to total Net Assets (as that term is used in our Bylaws, which usage is not in accordance with GAAP, “Net Assets” means our total assets at cost before deducting depreciation or other non-cash reserves, less total liabilities) was approximately 117.2%. As of April 30, 2011 and 2010, our percentage of total indebtedness to total Net Assets was approximately 117.9% and 122.9%, respectively. Under our Bylaws we may increase our total indebtedness up to 300.0% of our Net Assets, or by an additional approximately $1.7 billion. There is no limitation on the increase that may be permitted if approved by a majority of the independent members of our Board of Trustees and disclosed to the holders of our securities in the next quarterly report, along with justification for any excess.
 
This amount of leverage may expose us to cash flow problems if rental income decreases. Under those circumstances, in order to pay our debt obligations we might be required to sell properties at a loss or be unable to make distributions to the holders of our shares of beneficial interest. A failure to pay amounts due may result in a default on our obligations and the loss of the property through foreclosure.  Additionally, our degree of leverage could adversely affect our ability to obtain additional financing and may have an adverse effect on the market price of our common shares.
 
Our inability to renew, repay or refinance our debt may result in losses. We incur a significant amount of debt in the ordinary course of our business and in connection with acquisitions of real properties. In addition, because we have a limited ability to retain earnings as a result of the REIT distribution requirements, we will generally be required to
 

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refinance debt that matures with additional debt or equity.  We are subject to the normal risks associated with debt financing, including the risk that:
 
 
our cash flow will be insufficient to meet required payments of principal and interest;
 
 
we will not be able to renew, refinance or repay our indebtedness when due; and
 
 
the terms of any renewal or refinancing will be less favorable than the terms of our current indebtedness.
 
These risks increase when credit markets are tight; in general, when the credit markets are constrained, we may encounter resistance from lenders when we seek financing or refinancing for properties or proposed acquisitions, and the terms of such financing or refinancing are likely to be less favorable to us than the terms of our current indebtedness.
 
We anticipate that only a small portion of the principal of our debt will be repaid prior to maturity.  Therefore, we are likely to need to refinance a significant portion of our outstanding debt as it matures.  We cannot guarantee that any refinancing of debt with other debt will be possible on terms that are favorable or acceptable to us.  If we cannot refinance, extend or pay principal payments due at maturity with the proceeds of other capital transactions, such as new equity capital, our cash flows may not be sufficient in all years to repay debt as it matures.  Additionally, if we are unable to refinance our indebtedness on acceptable terms, or at all, we may be forced to dispose of one or more of our properties on disadvantageous terms, which may result in losses to us. These losses could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of our revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements of the Internal Revenue Code.
 
As of April 30, 2012, approximately 4.9% of our mortgage debt is due for repayment in fiscal year 2013.  As of April 30, 2012, we had approximately $51.1 million of principal payments and approximately $59.9 million of interest payments due in fiscal year 2013 on fixed and variable-rate mortgages secured by our real estate. Additionally, as of April 30, 2012, we had $39.0 million outstanding under our $60.0 million multi-bank line of credit, which has a maturity date of August 12, 2013.
 
The cost of our indebtedness may increase. Portions of our fixed-rate indebtedness incurred for past property acquisitions come due on a periodic basis.  Rising interest rates could limit our ability to refinance this existing debt when it matures, and would increase our interest costs, which could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt.  In addition, we have incurred, and we expect to continue to incur, indebtedness that bears interest at a variable rate. As of April 30, 2012, $16.2 million, or approximately 1.5%, of the principal amount of our total mortgage indebtedness was subject to variable interest rate agreements. Additionally, our $60.0 million multi-bank line of credit bears interest at a rate of 1.25% over the Wall Street Journal Prime Rate, with a floor of 5.15% and a cap of 8.65%. If short-term interest rates rise, our debt service payments on adjustable rate debt would increase, which would lower our net income and could decrease our distributions to the holders of our shares of beneficial interest.
 
We depend on distributions and other payments from our subsidiaries that they may be prohibited from making to us, which could impair our ability to make distributions to holders of our shares of beneficial interest.  Substantially all of our assets are held through IRET Properties, our operating partnership, and other of our subsidiaries. As a result, we depend on distributions and other payments from our subsidiaries in order to satisfy our financial obligations and make distributions to the holders of our shares of beneficial interest. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization effectively will be subordinated to the claims of their creditors.  To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
 
Our current or future insurance may not protect us against possible losses. We carry comprehensive liability, fire, extended coverage and rental loss insurance with respect to our properties at levels that we believe to be adequate and comparable to coverage customarily obtained by owners of similar properties. However, the coverage limits of our current or future policies may be insufficient to cover the full cost of repair or replacement of all potential losses.
 

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Moreover, this level of coverage may not continue to be available in the future or, if available, may be available only at unacceptable cost or with unacceptable terms.  Additionally, there may be certain extraordinary losses, such as those resulting from civil unrest, terrorism or environmental contamination, that are not generally, or fully, insured against because they are either uninsurable or not economically insurable. For example, we do not currently carry insurance against losses as a result of environmental contamination. 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. In any event, we would continue to be obligated on any mortgage indebtedness on the property. Any loss could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt.  In addition, in most cases we have to renew our insurance policies on an annual basis and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases.  Any material increase in insurance rates or decrease in available coverage in the future could adversely affect our business and financial condition and results of operations, which could cause a decline in the market value of our securities.
 
We have significant investments in commercial medical properties and adverse trends in healthcare provider operations may negatively affect our lease revenues from these properties. We have acquired a significant number of specialty medical properties (including senior housing) and may acquire more in the future. As of April 30, 2012, our real estate portfolio consisted of 65 commercial medical properties, with a total real estate investment amount, net of accumulated depreciation, of $421.5 million, or approximately 27.8% of the total real estate investment amount, net of accumulated depreciation, of our entire real estate portfolio.  The healthcare industry continues to experience: changes in the demand for, and methods of delivery of, healthcare services; changes in third-party reimbursement policies; significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas; continuing pressure by private and governmental payors to reduce payments to providers of services; and increased scrutiny of billing, referral and other practices by federal and state authorities. Sources of revenue for our commercial medical property tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants.  These factors may adversely affect the economic performance of some or all of our commercial medical services tenants and, in turn, our lease revenues. In addition, if we or our tenants terminate the leases for these properties, or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues and/or additional capital expenditures occurring as a result could hinder our ability to make distributions to the holders of our shares of beneficial interest.
 
New federal healthcare reform laws may adversely affect the operators and tenants of our commercial medical (including senior housing) properties.  In March 2010, the President signed into law The Patient Protection and Affordable Care Act (“PPACA”) and The Health Care and Education and Reconciliation Act of 2010 (the “Reconciliation Act”), which amends the PPACA (collectively, the “Health Reform Acts”).  The Health Reform Acts contain various provisions that may affect us directly as an employer, and that may affect the operators and tenants of commercial medical (including senior housing) properties.  While some of the provisions of these laws may have a positive impact on operators’ or tenants’ revenues, by increasing coverage of uninsured individuals, other provisions may have a negative effect on operator or tenant reimbursements, for example by changing the “market basket” adjustments for certain types of healthcare facilities.  The Health Reform Acts also enhance certain fraud and abuse penalty provisions that could apply to our operators and tenants in the event of one or more violations of complex federal healthcare laws.  Additionally, provisions in the Health Reform Acts may affect the health coverage that we and our operators and tenants provide to our respective employees.  We currently cannot predict the impact that this far-reaching, landmark legislation will have on our business and the businesses and operations of our tenants. Any loss of revenues and/or additional expenditures incurred by us or by operators and tenants of our properties as a result of the Health Reform Acts could adversely affect our cash flow and results of operations and have a material adverse effect on our ability to make distributions to the holders of our shares of beneficial interest.
 
Adverse changes in applicable laws may affect our potential liabilities relating to our properties and 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. As a result, any increase may adversely affect our cash available for distribution, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Similarly, changes in laws that increase the potential liability for environmental conditions existing on
 

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properties, that increase the restrictions on discharges or other conditions or that affect development, construction and safety requirements may result in significant unanticipated expenditures that could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multi-family residential properties may reduce rental revenues or increase operating costs.
 
Complying with laws benefiting disabled persons or other safety regulations and requirements may affect our costs and investment strategies. Federal, state and local laws and regulations designed to improve disabled persons’ access to and use of buildings, including the Americans with Disabilities Act of 1990, may require modifications to, or restrict renovations of, existing buildings. Additionally, these laws and regulations may require that structural features be added to buildings under construction.  Legislation or regulations that may be adopted in the future may impose further burdens or restrictions on us with respect to improved access to, and use of these buildings by, disabled persons. Noncompliance could result in the imposition of fines by government authorities or the award of damages to private litigants.  The costs of complying with these laws and regulations may be substantial, and limits or restrictions on construction, or the completion of required renovations, may limit the implementation of our investment strategy or reduce overall returns on our investments. This could have an adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt.  Our properties are also subject to various other federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these requirements, we could incur fines or private damage awards.  Additionally, in the event that existing requirements change, compliance with future requirements may require significant unanticipated expenditures that may adversely affect our cash flow and results of operations.
 
We may be responsible for potential liabilities under environmental laws. Under various federal, state and local laws, ordinances and regulations, we, as a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, hazardous or toxic substances in, on, around or under that property. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The presence of these substances, or the failure to properly remediate any property containing these substances, may adversely affect our ability to sell or rent the affected property or to borrow funds using the property as collateral. In arranging for the disposal or treatment of hazardous or toxic substances, we may also be liable for the costs of removal of, or remediation of, these substances at that disposal or treatment facility, whether or not we own or operate the facility. In connection with our current or former ownership (direct or indirect), operation, management, development and/or control of real properties, we may be potentially liable for removal or remediation costs with respect to hazardous or toxic substances at those properties, as well as certain other costs, including governmental fines and claims for injuries to persons and property. A finding of liability for an environmental condition as to any one or more properties could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt.
 
Environmental laws also govern the presence, maintenance and removal of asbestos, and require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos; notify and train those who may come into contact with asbestos; and undertake special precautions if asbestos would be disturbed during renovation or demolition of a building.  Indoor air quality issues may also necessitate special investigation and remediation.  These air quality issues can result from inadequate ventilation, chemical contaminants from indoor or outdoor sources, or biological contaminants such as molds, pollen, viruses and bacteria.  Such asbestos or air quality remediation programs could be costly, necessitate the temporary relocation of some or all of the property’s tenants or require rehabilitation of an affected property.
 
It is generally our policy to obtain a Phase I environmental study on each property that we seek to acquire.  A Phase I environmental study generally includes a visual inspection of the property and the surrounding areas, an examination of current and historical uses of the property and the surrounding areas and a review of relevant state and federal documents, but does not involve invasive techniques such as soil and ground water sampling. If the Phase I indicates any possible environmental problems, our policy is to order a Phase II study, which involves testing the soil and ground water for actual hazardous substances. However, Phase I and Phase II environmental studies, or any other environmental studies undertaken with respect to any of our current or future properties, may not reveal the full extent of potential environmental liabilities. We currently do not carry insurance for environmental liabilities.
 

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We may be unable to retain or attract qualified management. We are dependent upon our senior officers for essentially all aspects of our business operations. Our senior officers have experience in the specialized business segments in which we operate, and the loss of them would likely have a material adverse effect on our operations, and could adversely impact our relationships with lenders, industry personnel and potential tenants.  We do not have employment contracts with any of our senior officers. As a result, any senior officer may terminate his or her relationship with us at any time, without providing advance notice.  If we fail to manage effectively a transition to new personnel, or if we fail to attract and retain qualified and experienced personnel on acceptable terms, our business and prospects could be harmed.  The location of our company headquarters in Minot, North Dakota, may make it more difficult and expensive to attract, relocate and retain current and future officers and employees.
 
If the level of drilling and production in the Bakken Shale Formation declines substantially near our North Dakota real estate assets, our physical occupancy levels and revenues could decline. We have significant existing real estate assets in our home market of North Dakota, and we are committing additional resources to the development of multi-family residential and commercial real estate in North Dakota in a response to unprecedented demand for office and residential space resulting from the development of the Bakken Shale Formation. We believe that our ability to maintain or increase physical occupancy levels and rental revenues at our commercial and multi-family residential properties in North Dakota will be significantly affected by the level of drilling and production by third parties in the Bakken Shale Formation.  Drilling and production are impacted by factors beyond our control, including:  the demand for and prices of crude oil and natural gas; environmental regulation and enforcement; producers’ finding and development costs of reserves; producers’ desire and ability to obtain necessary permits in a timely and economic manner; oil and natural gas field characteristics and production performance; and transportation and capacity constraints on natural gas, crude oil and natural gas liquids pipelines from the producing areas. Oil field activity could decline precipitously and substantially in North Dakota as a result of any or all of these factors, which could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest, and our ability to pay amounts due on our debt.
 
Risks related to properties under construction or development may adversely affect our financial performance. Our development and construction activities involve significant risks that may adversely affect our cash flow and results of operations, and consequently our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. In connection with our renovation, redevelopment, development and related construction activities, we may be unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These denials or delays could result in increased costs or our abandonment of projects. In addition, we may not be able to obtain financing on favorable terms, which may prevent us from proceeding with our development activities, and we may not be able to complete construction and lease-up of a property on schedule, which could result in increased debt service expense or construction costs. Additionally, the time required for development, construction and lease-up means that we may have to wait years for significant cash returns. Because we are required to make cash distributions to our shareholders, if our cash flow from operations or refinancings is not sufficient, we may be forced to borrow additional money to fund such distributions. Newly developed properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance. In deciding whether to develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy and rental rates. If our financial projections with respect to a new property are inaccurate, and the property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we had expected. Our estimate of the costs of repositioning or redeveloping an acquired property may also prove to be inaccurate, which may result in our failure to meet our profitability goals.
 
Risks related to joint ventures may adversely affect our financial performance and results of operations. We have entered into, and may continue in the future to enter into, partnerships or joint ventures with other persons or entities. Joint venture investments involve risks that may not be present with other methods of ownership, including the possibility:  that our partner might become insolvent, refuse to make capital contributions when due or otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other commitments; that our partner might at any time have economic or other business interests or goals that are or become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which could require us to expend additional resources to resolve such disputes and could have an adverse impact on the operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. In addition, our ability to transfer our interest in a joint venture to a third party may be restricted. In some instances, we and/or our partner may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have
 

2012 Annual Report 18
 

 

initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share decision-making authority with our partners, which could limit our ability to control the properties in the joint ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as the sale, acquisition or financing of a property.
 
Risks Related to Our Structure and Organization
 
We may incur tax liabilities as a consequence of failing to qualify as a REIT. Although our management believes that we are organized and have operated and are operating in such a manner to qualify as a “real estate investment trust,” as that term is defined under the Internal Revenue Code, we may not in fact have operated, or may not be able to continue to operate, in a manner to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations.  Even a technical or inadvertent mistake could endanger our REIT status.  The determination that we qualify as a REIT requires an ongoing analysis of various factual matters and circumstances, some of which may not be within our control. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must come from certain passive sources that are itemized in the REIT tax laws, and we are prohibited from owning specified amounts of debt or equity securities of some issuers.  Thus, to the extent revenues from non-qualifying sources, such as income from third-party management services, represent more than five percent of our gross income in any taxable year, we will not satisfy the 95% income test and may fail to qualify as a REIT, unless certain relief provisions contained in the Internal Revenue Code apply. Even if relief provisions apply, however, a tax would be imposed with respect to excess net income. We are also required to make distributions to the holders of our securities of at least 90% of our REIT taxable income, excluding net capital gains.  The fact that we hold substantially all of our assets (except for qualified REIT subsidiaries) through IRET Properties, our operating partnership, and its subsidiaries, and our ongoing reliance on factual determinations, such as determinations related to the valuation of our assets, further complicates the application of the REIT requirements for us.  Additionally, if IRET Properties, our operating partnership, or one or more of our subsidiaries is determined to be taxable as a corporation, we may fail to qualify as a REIT. Either our failure to qualify as a REIT, for any reason, or the imposition of taxes on excess net income from non-qualifying sources, could have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. Furthermore, new legislation, regulations, administrative interpretations or court decisions could change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of our qualification.
 
If we failed to qualify as a REIT, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, which would likely have a material adverse effect on us, our ability to make distributions to the holders of our shares of beneficial interest and our ability to pay amounts due on our debt. In addition, we could be subject to increased state and local taxes, and, unless entitled to relief under applicable statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which we lost our qualification. This treatment would reduce funds available for investment or distributions to the holders of our securities because of the additional tax liability to us for the year or years involved. In addition, we would no longer be able to deduct, and would not be required to make, distributions to holders of our securities. To the extent that distributions to the holders of our securities had 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.
 
Failure of our operating partnership to qualify as a partnership would have a material adverse effect on us.  We believe that IRET Properties, our operating partnership, qualifies as a partnership for federal income tax purposes.  No assurance can be given, however, that the Internal Revenue Service will not challenge its status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge.  If the Internal Revenue Service were to be successful in treating IRET Properties as an entity that is taxable as a corporation (such as a publicly-traded partnership taxable as a corporation), we would cease to qualify as a REIT because the value of our ownership interest in IRET Properties would exceed 5% of our assets, and because we would be considered to hold more than 10% of the voting securities and value of the outstanding securities of another corporation.  Also, the imposition of a corporate tax on IRET Properties would reduce significantly the amount of cash available for distribution by it.
 

2012 Annual Report 19
 

 

Certain provisions of our Declaration of Trust may limit a change in control and deter a takeover. In order to maintain our qualification as a REIT, our Declaration of Trust provides that any transaction, other than a transaction entered into through the NASDAQ National Market, (renamed the NASDAQ Global Market), or other similar exchange, that would result in our disqualification as a REIT under Section 856 of the Internal Revenue Code, including any transaction that would result in (i) a person owning in excess of the ownership limit of 9.8%, in number or value, of our outstanding securities, (ii) less than 100 people owning our securities, (iii) our being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, or (iv) 50% or more of the fair market value of our securities being held by persons other than “United States persons,” as defined in Section 7701(a)(30) of the Internal Revenue Code, will be void ab initio. If the transaction is not void ab initio, then the securities in excess of the ownership limit, that would cause us to be closely held, that would result in 50% or more of the fair market value of our securities to be held by persons other than United States persons or that otherwise would result in our disqualification as a REIT, will automatically be exchanged for an equal number of excess shares, and these excess shares will be transferred to an excess share trustee for the exclusive benefit of the charitable beneficiaries named by our Board of Trustees. These limitations may have the effect of preventing a change in control or takeover of us by a third party, even if the change in control or takeover would be in the best interests of the holders of our securities.
 
In order to maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions.  In order to maintain our REIT status, we may need to borrow funds on a short-term basis to meet the REIT distribution requirements, even if the then-prevailing market conditions are not favorable for these borrowings.  To qualify as a REIT, we generally must distribute to our shareholders at least 90% of our net taxable income each year, excluding net capital gains.  In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions made by us with respect to the calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income for that year, and any undistributed taxable income from prior periods.  We intend to make distributions to our shareholders to comply with the 90% distribution requirement and to avoid the nondeductible excise tax and will rely for this purpose on distributions from our operating partnership.  However, we may need short-term debt or long-term debt or proceeds from asset sales or sales of common shares to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments.  The inability of our cash flows to cover our distribution requirements could have an adverse impact on our ability to raise short and long-term debt or sell equity securities in order to fund distributions required to maintain our REIT status.
 
Complying with REIT requirements may force us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.  To qualify and maintain our status as a REIT, we must satisfy certain requirements with respect to the character of our assets.  If we fail to comply with these requirements at the end of any quarter, we must correct such failure within 30 days after the end of the quarter (by, possibly, selling assets notwithstanding their prospects as an investment) to avoid losing our REIT status.  If we fail to comply with these requirements at the end of any quarter, and the failure exceeds a minimum threshold, we may be able to preserve our REIT status if (a) the failure was due to reasonable cause and not to willful neglect, (b) we dispose of the assets causing the failure within six months after the last day of the quarter in which we identified the failure, (c) we file a schedule with the IRS describing each asset that caused the failure, and (d) we pay an additional tax of the greater of $50,000 or the product of the highest applicable tax rate multiplied by the net income generated on those assets.  As a result, compliance with the REIT requirements may require us to liquidate or forego otherwise attractive investments.  These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
 
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow.  Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes.  Any of these taxes would decrease cash available for distribution to our shareholders.  In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through a taxable REIT subsidiary (“TRS”). While the TRS structure would allow the economic benefits of ownership to flow to us, a TRS is subject to tax on its income from the operations of the assisted living facilities at the federal and state level. In addition, a TRS is subject to detailed tax regulations that affect how it may be capitalized and operated.
 

2012 Annual Report 20
 

 

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.  At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended.  Any of those new laws or interpretations may take effect retroactively and could adversely affect us or the market price of our common shares of beneficial interest.
 
The U.S. federal income tax laws governing REITs are complex.  We intend to operate in a manner that will qualify us as a REIT under the U.S. federal income tax laws.  The REIT qualification requirements are extremely complex, however, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so we can continue to qualify as a REIT.  At any time, new laws, interpretations, or court decisions may change the federal tax laws or the U.S. federal income tax consequences of our qualification as a REIT.
 
Our Board of Trustees may make changes to our major policies without approval of the holders of our shares of beneficial interest. Our operating and financial policies, including policies relating to development and acquisition of real estate, financing, growth, operations, indebtedness, capitalization and distributions, are exclusively determined by our Board of Trustees. Our Board of Trustees may amend or revoke those policies, and other policies, without advance notice to, or the approval of, the holders of our shares of beneficial interest.  Accordingly, our shareholders do not control these policies, and policy changes could adversely affect our financial condition and results of operations.
 
Risks Related to the Purchase of our Shares of Beneficial Interest
 
Our future growth depends, in part, on our ability to raise additional equity capital, which will have the effect of diluting the interests of the holders of our common shares. Our future growth depends upon, among other things, our ability to raise equity capital and issue limited partnership units of IRET Properties. The issuance of additional common shares, and of limited partnership units for which we subsequently issue common shares upon the redemption of the limited partnership units, will dilute the interests of the current holders of our common shares.  Additionally, sales of substantial amounts of our common shares or preferred shares in the public market, or issuances of our common shares upon redemption of limited partnership units in our operating partnership, or the perception that such sales or issuances might occur, could adversely affect the market price of our common shares.
 
We may issue additional classes or series of our shares of beneficial interest with rights and preferences that are superior to the rights and preferences of our common shares. Without the approval of the holders of our common shares, our Board of Trustees may establish additional classes or series of our shares of beneficial interest, and such classes or series may have dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights and preferences that are superior to the rights of the holders of our common shares.
 
Payment of distributions on our shares of beneficial interest is not guaranteed. Our Board of Trustees must approve our payment of distributions and may elect at any time, or from time to time, and for an indefinite duration, to reduce the distributions payable on our shares of beneficial interest or to not pay distributions on our shares of beneficial interest. Our Board of Trustees may reduce distributions for a variety of reasons, including, but not limited to, the following:
 
 
operating and financial results below expectations that cannot support the current distribution payment;
 
 
unanticipated costs or cash requirements; or
 
 
a conclusion that the payment of distributions would cause us to breach the terms of certain agreements or contracts, such as financial ratio covenants in our debt financing documents.
 
Our distributions are not eligible for the lower tax rate on dividends except in limited situations. The tax rate applicable to qualifying corporate dividends received by shareholders taxed at individual rates has been reduced to a maximum rate of 15%.  This special tax rate is generally not applicable to distributions paid by a REIT, unless such distributions represent earnings on which the REIT itself had been taxed. As a result, distributions (other than capital gain distributions) paid by us to shareholders taxed at individual rates will generally be subject to the tax rates that are otherwise applicable to ordinary income which, currently, are as high as 35%.  Although the earnings of a REIT that are distributed to its shareholders are still generally subject to less federal income taxation than earnings of a non-REIT C corporation that are distributed to its shareholders net of corporate-level income tax, this law change
 

2012 Annual Report 21
 

 

may make an investment in our securities comparatively less attractive relative to an investment in the shares of other entities which pay dividends but are not formed as REITs.
 
Changes in market conditions could adversely affect the price of our securities. As is the case with any publicly-traded securities, certain factors outside of our control could influence the value of our common shares, Series A preferred shares and any other securities to be issued in the future. These conditions include, but are not limited to:
 
 
market perception of REITs in general;
 
 
market perception of REITs relative to other investment opportunities;
 
 
market perception of our financial condition, performance, distributions and growth potential;
 
 
prevailing interest rates;
 
 
general economic and business conditions;
 
 
government action or regulation, including changes in the tax laws; and
 
 
relatively low trading volumes in securities of REITS.
 
Higher market interest rates may adversely affect the market price of our securities, and low trading volume on the NASDAQ Global Select Market may prevent the timely resale of our securities. One of the factors that investors may consider important in deciding whether to buy or sell shares of a REIT is the distribution with respect to such REIT’s shares as a percentage of the price of those shares, relative to market interest rates.  If market interest rates rise, prospective purchasers of REIT shares may expect a higher distribution rate in order to maintain their investment.  Higher market interest rates would likely increase our borrowing costs and might decrease funds available for distribution.  Thus, higher market interest rates could cause the market price of our common shares to decline.  In addition, although our common shares of beneficial interest are listed on the NASDAQ Global Select Market, the daily trading volume of our shares may be lower than the trading volume for other companies.  The average daily trading volume for the period of May 1, 2011 through April 30, 2012 was 345,965 shares and the average monthly trading volume for the period of May 1, 2011 through April 30, 2012 was 7,265,262 shares.  As a result of this trading volume, an owner of our common shares may encounter difficulty in selling our shares in a timely manner and may incur a substantial loss.
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2. Properties
 
IRET is organized as a REIT under Section 856-858 of the Internal Revenue Code, and is in the business of owning, leasing, developing and acquiring real estate properties. These real estate investments are managed by our own employees and by third-party professional real estate management companies on our behalf.
 
Total Real Estate Rental Revenue
 
As of April 30, 2012, our real estate portfolio consisted of 84 multi-family residential properties and 182 commercial properties, consisting of commercial office, commercial medical, commercial industrial and commercial retail properties, comprising 27.1%, 31.9%, 27.7%, 6.5%, and 6.8%, respectively, of our total real estate portfolio, based on the dollar amount of our original investment plus capital improvements, net of accumulated depreciation, through April 30, 2012. Gross annual rental revenue and percentages of total annual real estate rental revenue by property type for each of the three most recent fiscal years ended April 30, are as follows:
 

2012 Annual Report 22
 

 


 
Fiscal Year
Ended April
30,
(in thousands)
 
Multi-
Family
Residential
Gross
Revenue
   
%
   
Commercial
Office
Gross
Revenue
   
%
   
Commercial
Medical
Gross
Revenue
   
%
   
Commercial
Industrial
Gross
Revenue
   
%
   
Commercial
Retail
Gross
Revenue
   
%
   
All
Segments
Gross
Revenue
 
2012
  $ 74,190       30.7 %   $ 74,334       30.7 %   $ 65,531       27.1 %   $ 14,325       5.9 %   $ 13,408       5.6 %   $ 241,788  
2011
  $ 66,838       28.2 %   $ 77,747       32.8 %   $ 66,048       27.8 %   $ 13,165       5.6 %   $ 13,156       5.6 %   $ 236,954  
2010
  $ 65,478       28.3 %   $ 82,079       35.5 %   $ 57,439       24.9 %   $ 13,095       5.7 %   $ 12,852       5.6 %   $ 230,943  
 
Average Effective Annual Rent
 
The table below sets out the average effective annual rent per square foot or unit for each of the last five fiscal years in each of our five segments:
 
   
Average Effective Annual Rent per square foot or unit
 
As of April 30
 
Multi-family
Residential(1)
   
Commercial
Office(2)
   
Commercial
Medical(2)
   
Commercial
Industrial(2)
   
Commercial
Retail(2)
 
2012
  $ 738     $ 13     $ 17     $ 4     $ 8  
2011
  $ 688     $ 13     $ 19     $ 4     $ 8  
2010
  $ 680     $ 13     $ 18     $ 4     $ 9  
2009
  $ 673     $ 13     $ 18     $ 4     $ 8  
2008
  $ 654     $ 13     $ 18     $ 3     $ 9  
 
(1)  
Monthly rent per unit, calculated as annualized rental revenue divided by the occupied units as of April 30.
(2)  
Monthly rental rate per square foot calculated as annualized contractual base rental income, net of free rent, divided by the leased square feet as of April 30.
 
Physical Occupancy Rates
 
Physical occupancy levels on a stabilized property and all-property basis are shown below for each property type in each of the three most recent fiscal years ended April 30. Stabilized properties are those properties owned for the entirety of both periods being compared, and, in the case of development or re-development properties, which have achieved a target level of occupancy.  In the case of multi-family residential properties, lease arrangements with individual tenants vary from month-to-month to one-year leases. Leases on commercial properties generally vary from month-to-month to 20 years.
 
Segments
Stabilized Properties
 
All Properties
 
Fiscal Year Ended April 30,
 
Fiscal Year Ended April 30,
 
2012
2011
2010
 
2012
2011
2010
Multi-Family Residential
94.2%
92.8%
89.7%
 
93.7%
92.8%
89.7%
Commercial Office
78.4%
79.5%
83.9%
 
78.6%
79.7%
83.4%
Commercial Medical
93.8%
95.8%
95.7%
 
94.5%
96.0%
95.1%
Commercial Industrial
95.4%
90.0%
90.6%
 
95.5%
90.1%
90.7%
Commercial Retail
86.6%
83.2%
82.7%
 
87.1%
82.2%
82.7%
 
Certain Lending Requirements
 
In certain instances, in connection with the acquisition of investment properties, the lender financing such properties may require, as a condition of the loan, that the properties be owned by a “single asset entity.” Accordingly, we have organized a number of wholly-owned subsidiary corporations, and IRET Properties has organized several limited partnerships, for the purpose of holding title in an entity that complies with such lending conditions. All financial statements of these subsidiaries are consolidated into our financial statements.
 
Management and Leasing of Our Real Estate Assets
 
We conduct our corporate operations from offices in Minot, North Dakota and Minneapolis and St. Cloud, Minnesota.  We also have property management offices in Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, and South Dakota. The day-to-day management of our properties is carried out by our own employees and in certain cases by third-party property management companies. In markets where the amount of rentable square footage we own does not justify self-management, when properties acquired have effective pre-existing property management in place, or when for other reasons particular properties are in our judgment not attractive candidates
 

2012 Annual Report 23
 

 

for self-management, we utilize third-party professional management companies for day-to-day management.  However, all decisions relating to purchase, sale, insurance coverage, capital improvements, approval of commercial leases, annual operating budgets and major renovations are made exclusively by our employees and implemented by the third-party management companies.  The management and leasing of our multi-family residential properties previously was generally handled by locally-based, third-party management companies, but during fiscal year 2010 we began implementing our previously-announced plan to transfer the management of the majority of our commercial and multi-family residential properties to our own employees, and that transfer is now substantially complete. Generally, our management contracts provide for compensation ranging from 2.5% to 6.0% of gross rent collections and, typically, we may terminate these contracts in 60 days or less or upon the property manager’s failure to meet certain specified financial performance goals. With respect to multi-tenant commercial properties, we rely almost exclusively on third-party brokers to locate potential tenants. As compensation, brokers may receive a commission that is generally calculated as a percentage of the net rent to be paid over the term of the lease. We believe that the broker commissions paid by us conform to market and industry standards, and accordingly are commercially reasonable.
 
Summary of Real Estate Investment Portfolio
 
As of April 30, (in thousands, except percentages)
 
2012
   
%
   
2011
   
%
   
2010
   
%
 
Real estate investments
       
 
         
 
         
 
 
Property owned
  $ 1,892,009           $ 1,770,798           $ 1,800,519        
Less accumulated depreciation
    (373,490 )           (328,952 )           (308,626 )      
    $ 1,518,519       97.5 %   $ 1,441,846       98.9 %   $ 1,491,893       99.4 %
Development in progress
    27,599       1.8 %     9,693       0.7 %     2,831       0.2 %
Unimproved land
    10,990       0.7 %     6,550       0.4 %     6,007       0.4 %
Mortgage loans receivable
    0       0.0 %     156       0.0 %     158       0.0 %
Total real estate investments
  $ 1,557,108       100.0 %   $ 1,458,245       100.0 %   $ 1,500,889       100.0 %

Summary of Individual Properties Owned as of April 30, 2012
 
The following table presents information regarding our 266 residential and commercial properties as well as unimproved land and development properties owned as of April 30, 2012. We own the following interests in real estate either through our wholly-owned subsidiaries or by ownership of a controlling interest in an entity owning the real estate. We account for these interests on a consolidated basis. Additional information is included in Schedule III to our financial statements included in the Annual Report on Form 10-K.
 
* = Real estate not owned in fee; all or a portion is leased under a ground or air rights lease.
 
Property Name and Location
 
Units
   
(in thousands)
 Investment
 (initial cost plus
 improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
MULTI-FAMILY RESIDENTIAL
                 
11th Street 3 Plex - Minot, ND
    3     $ 74       100.0 %
4th Street 4 Plex - Minot, ND
    4       102       100.0 %
Apartments on Main - Minot, ND
    10       1,301       90.0 %
Arbors - S Sioux City, NE
    192       8,118       87.0 %
Ashland - Grand Forks, ND
    84       8,310       100.0 %
Boulder Court - Eagan, MN
    115       9,072       95.7 %
Brookfield Village - Topeka, KS
    160       8,388       96.9 %
Brooklyn Heights - Minot, ND
    72       2,327       100.0 %
Campus Center - St. Cloud, MN
    92       2,776       88.0 %
Campus Heights - St. Cloud, MN
    49       785       40.8 %
Campus Knoll - St. Cloud, MN
    71       1,854       87.3 %
Campus Plaza - St. Cloud, MN
    24       404       100.0 %
Campus Side - St. Cloud, MN
    48       798       83.3 %
Campus View - St. Cloud, MN
    48       788       68.8 %
Candlelight - Fargo, ND
    66       1,889       87.9 %
 
 
2012 Annual Report 24
 

 
Property Name and Location
 
Units
   
(in thousands)
 Investment
 (initial cost plus
 improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
MULTI-FAMILY RESIDENTIAL - continued
                 
Canyon Lake - Rapid City, SD
    109     $ 5,062       96.3 %
Castlerock - Billings, MT
    166       7,223       98.2 %
Chateau - Minot, ND(1)
    32       2,090       n/a  
Cimarron Hills - Omaha, NE
    234       14,557       95.7 %
Colonial Villa - Burnsville, MN
    240       17,320       75.0 %
Colton Heights - Minot, ND
    18       1,110       94.4 %
Cornerstone - St. Cloud, MN
    24       407       58.3 %
Cottage West Twin Homes - Sioux Falls, SD
    50       4,763       100.0 %
Cottonwood - Bismarck, ND
    268       21,085       100.0 %
Country Meadows - Billings, MT
    133       9,367       97.0 %
Crestview - Bismarck, ND
    152       5,785       100.0 %
Crown - Rochester, MN
    48       3,678       97.9 %
Crown Colony - Topeka, KS
    220       12,472       97.3 %
East Park - Sioux Falls, SD
    84       3,201       98.8 %
Evergreen - Isanti, MN
    36       3,172       94.4 %
Evergreen II - Isanti, MN
    36       3,477       80.6 %
Fairmont - Minot, ND
    12       408       100.0 %
Forest Park - Grand Forks, ND
    269       12,563       99.3 %
Gables Townhomes - Sioux Falls, SD
    24       2,293       91.7 %
Grand Gateway - St. Cloud, MN
    116       7,914       87.1 %
Greenfield - Omaha, NE
    96       5,212       100.0 %
Heritage Manor - Rochester, MN
    182       9,515       91.2 %
Indian Hills - Sioux City, IA
    120       6,202       92.5 %
Kirkwood Manor - Bismarck, ND
    108       4,517       100.0 %
Lancaster - St. Cloud, MN
    83       4,056       74.7 %
Landmark - Grand Forks, ND
    90       2,543       100.0 %
Legacy - Grand Forks, ND
    361       28,536       100.0 %
Mariposa - Topeka, KS
    54       5,843       100.0 %
Monticello Village - Monticello, MN
    60       4,645       100.0 %
North Pointe - Bismarck, ND
    73       4,503       98.6 %
Northern Valley - Rochester, MN
    16       769       87.5 %
Oakmont Estates - Sioux Falls, SD
    80       5,670       97.5 %
Oakwood Estates - Sioux Falls, SD
    160       7,339       97.5 %
Olympic Village - Billings, MT
    274       13,882       98.5 %
Olympik Village - Rochester, MN
    140       8,494       92.9 %
Oxbow Park - Sioux Falls, SD
    120       5,951       97.5 %
Park Meadows - Waite Park, MN
    360       14,423       85.0 %
Pebble Springs - Bismarck, ND
    16       856       93.8 %
Pinehurst - Billings, MT
    21       919       95.2 %
Pines - Minot, ND
    16       399       100.0 %
Plaza - Minot, ND
    71       15,821       98.6 %
Pointe West - Rapid City, SD
    90       4,896       98.9 %
Prairie Winds - Sioux Falls, SD
    48       2,393       91.7 %
Prairiewood Meadows - Fargo, ND
    85       3,764       100.0 %
Quarry Ridge - Rochester, MN
    156       15,255       98.7 %
Regency Park Estates - St. Cloud, MN
    147       11,040       83.0 %
Ridge Oaks - Sioux City, IA
    132       6,187       97.0 %
Rimrock West - Billings, MT
    78       5,175       98.7 %
Rocky Meadows - Billings, MT
    98       7,253       99.0 %
Rum River - Isanti, MN
    72       5,740       88.9 %
Sherwood - Topeka, KS
    300       18,329       96.3 %

2012 Annual Report 25
 

 


Property Name and Location
 
Units
   
(in thousands)
 Investment
 (initial cost plus
 improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
MULTI-FAMILY RESIDENTIAL - continued
                 
Sierra Vista - Sioux Falls, SD
    44     $ 2,394       100.0 %
South Pointe - Minot, ND
    196       12,237       100.0 %
Southview - Minot, ND
    24       949       95.8 %
Southwind - Grand Forks, ND
    164       7,807       99.4 %
Summit Park - Minot, ND
    95       3,081       98.9 %
Sunset Trail - Rochester, MN
    146       15,364       95.2 %
Sycamore Village - Sioux Falls, SD
    48       1,875       100.0 %
Temple - Minot, ND
    4       226       100.0 %
Terrace Heights - Minot, ND
    16       424       100.0 %
Terrace On The Green - Moorhead, MN
    116       3,306       93.1 %
The Meadows - Jamestown, ND
    81       6,172       96.3 %
Thomasbrook - Lincoln, NE
    264       13,659       99.2 %
University Park Place - St. Cloud, MN
    35       582       42.9 %
Valley Park - Grand Forks, ND
    168       6,912       96.4 %
Village Green - Rochester, MN
    36       3,111       94.4 %
West Stonehill - Waite Park, MN
    313       15,333       80.8 %
Westridge - Minot, ND
    33       2,010       97.0 %
Westwood Park - Bismarck, ND
    65       3,621       100.0 %
Williston Garden - Williston, ND
    72       9,678       98.6 %
Winchester - Rochester, MN
    115       7,807       97.4 %
Woodridge - Rochester, MN
    110       8,175       98.2 %
TOTAL MULTI-FAMILY RESIDENTIAL
    9,161     $ 539,783       93.7 %

Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 improvements)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL OFFICE
                 
1st Avenue Building - Minot, ND
    4,427     $ 71       100.0 %
2030 Cliff Road - Eagan, MN
    13,374       1,071       100.0 %
610 Business Center IV - Brooklyn Park, MN
    78,190       9,403       100.0 %
7800 West Brown Deer Road - Milwaukee, WI
    175,610       12,472       98.0 %
American Corporate Center - Mendota Heights, MN
    138,959       21,540       87.4 %
Ameritrade - Omaha, NE
    73,742       8,349       100.0 %
Benton Business Park - Sauk Rapids, MN
    30,464       1,528       70.2 %
Bismarck 715 East Broadway - Bismarck, ND
    22,187       2,778       100.0 %
Bloomington Business Plaza - Bloomington, MN
    121,669       8,968       55.4 %
Brenwood - Minnetonka, MN
    176,800       17,501       59.0 %
Brook Valley I - La Vista, NE
    30,000       2,099       50.1 %
Burnsville Bluffs II - Burnsville, MN
    45,019       3,415       67.2 %
Cold Spring Center - St. Cloud, MN
    77,634       9,398       98.0 %
Corporate Center West - Omaha, NE
    141,724       22,330       100.0 %
Crosstown Centre - Eden Prairie, MN
    181,224       19,073       66.5 %
Dewey Hill Business Center - Edina, MN
    73,338       5,399       35.7 %
Farnam Executive Center - Omaha, NE
    94,832       13,592       100.0 %
Flagship - Eden Prairie, MN
    138,825       24,476       95.6 %
Gateway Corporate Center - Woodbury, MN
    59,827       9,838       33.2 %
Golden Hills Office Center - Golden Valley, MN
    190,758       24,811       90.7 %
Great Plains - Fargo, ND
    122,040       15,376       100.0 %
Highlands Ranch I - Highlands Ranch, CO
    71,430       11,057       100.0 %

2012 Annual Report 26
 

 


Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 Improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL OFFICE - continued
                 
Highlands Ranch II - Highlands Ranch, CO
    81,173     $ 12,383       88.7 %
Interlachen Corporate Center - Edina, MN
    105,084       18,624       67.5 %
Intertech Building - Fenton, MO
    64,749       6,603       78.1 %
Mendota Office Center I - Mendota Heights, MN
    59,852       7,371       71.3 %
Mendota Office Center II - Mendota Heights, MN
    88,398       12,680       88.2 %
Mendota Office Center III - Mendota Heights, MN
    60,776       6,962       65.3 %
Mendota Office Center IV - Mendota Heights, MN
    72,231       9,283       100.0 %
Minnesota National Bank - Duluth, MN
    18,869       1,912       100.0 %
Minot 2505 16th Street SW - Minot, ND
    15,000       2,318       100.0 %
Miracle Hills One - Omaha, NE
    83,448       13,375       76.9 %
Nicollett VII - Burnsville, MN
    118,125       7,790       94.1 %
Northgate I - Maple Grove, MN
    79,297       8,252       100.0 %
Northgate II - Maple Grove, MN
    26,000       2,447       32.7 %
Northpark Corporate Center - Arden Hills, MN
    146,087       17,933       33.1 %
Omaha 10802 Farnam Dr - Omaha, NE
    58,574       6,836       98.6 %
Pacific Hills - Omaha, NE
    143,075       17,983       79.9 %
Pillsbury Business Center - Bloomington, MN
    42,929       2,010       61.2 %
Plaza 16 - Minot, ND
    50,610       9,582       100.0 %
Plaza VII - Boise, ID
    28,994       3,800       32.9 %
Plymouth 5095 Nathan Lane - Plymouth, MN
    20,528       1,939       100.0 %
Plymouth I - Plymouth, MN
    26,186       1,705       100.0 %
Plymouth II - Plymouth, MN
    26,186       1,672       100.0 %
Plymouth III - Plymouth, MN
    26,186       2,361       100.0 %
Plymouth IV & V - Plymouth, MN
    126,930       15,705       92.1 %
Prairie Oak Business Center - Eden Prairie, MN
    36,421       6,240       75.8 %
Rapid City 900 Concourse Drive - Rapid City, SD
    75,815       7,388       59.4 %
Riverport - Maryland Heights, MO
    121,316       21,569       64.6 %
Southeast Tech Center - Eagan, MN
    58,300       6,475       30.4 %
Spring Valley IV - Omaha, NE
    15,700       1,154       100.0 %
Spring Valley V - Omaha, NE
    24,171       1,586       100.0 %
Spring Valley X - Omaha, NE
    24,000       1,258       80.0 %
Spring Valley XI - Omaha, NE
    24,000       1,273       100.0 %
Superior Office Building - Duluth, MN
    20,000       2,619       100.0 %
TCA Building - Eagan, MN
    103,640       10,005       85.2 %
Three Paramount Plaza - Bloomington, MN
    75,526       9,293       73.3 %
Thresher Square - Minneapolis, MN
    117,144       12,826       38.7 %
Timberlands - Leawood, KS
    90,388       15,342       65.1 %
UHC Office - International Falls, MN
    30,000       2,565       100.0 %
US Bank Financial Center - Bloomington, MN
    153,311       17,077       92.6 %
Viromed - Eden Prairie, MN
    48,700       4,864       100.0 %
Wells Fargo Center - St Cloud, MN
    86,477       10,672       91.7 %
West River Business Park - Waite Park, MN
    24,075       1,480       69.2 %
Westgate - Boise, ID
    103,342       13,529       100.0 %
Whitewater Plaza - Minnetonka, MN
    61,138       6,174       49.8 %
Wirth Corporate Center - Golden Valley, MN
    74,568       9,561       15.7 %
Woodlands Plaza IV - Maryland Heights, MO
    61,820       6,297       80.5 %
TOTAL COMMERCIAL OFFICE
    5,061,212     $ 605,318       78.6 %

 

2012 Annual Report 27
 

 


 
Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 Improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL MEDICAL
                 
2800 Medical Building - Minneapolis, MN
    53,750     $ 9,523       89.2 %
2828 Chicago Avenue - Minneapolis, MN
    56,239       17,672       100.0 %
Airport Medical - Bloomington, MN*
    24,218       4,678       100.0 %
Barry Pointe Office Park - Kansas City, MO
    18,502       2,854       76.8 %
Billings 2300 Grant Road - Billings, MT
    14,705       1,865       100.0 %
Burnsville 303 Nicollet Medical (Ridgeview) - Burnsville, MN
    53,896       9,307       100.0 %
Burnsville 305 Nicollet Medical (Ridgeview South) - Burnsville, MN
    36,199       5,994       100.0 %
Casper 1930 E 12th Street (Park Place) - Casper, WY
    65,160       6,381       100.0 %
Casper 3955 E 12th Street (Meadow Wind) - Casper, WY
    57,822       10,250       100.0 %
Cheyenne 4010 N College Drive (Aspen Wind) - Cheyenne, WY
    47,509       11,160       100.0 %
Cheyenne 4606 N College Drive (Sierra Hills) - Cheyenne, WY
    54,072       8,189       100.0 %
Denfeld Clinic - Duluth, MN
    20,512       3,099       100.0 %
Eagan 1440 Duckwood Medical - Eagan, MN
    17,640       2,587       100.0 %
Edgewood Vista - Belgrade, MT
    5,192       814       100.0 %
Edgewood Vista - Billings, MT
    11,800       1,882       100.0 %
Edgewood Vista - Bismarck, ND
    74,112       9,740       100.0 %
Edgewood Vista - Brainerd, MN
    82,535       9,620       100.0 %
Edgewood Vista - Columbus, NE
    5,194       867       100.0 %
Edgewood Vista - East Grand Forks, MN
    18,488       1,642       100.0 %
Edgewood Vista - Fargo, ND
    167,391       21,645       100.0 %
Edgewood Vista - Fremont, NE
    6,042       588       100.0 %
Edgewood Vista - Grand Island, NE
    5,185       807       100.0 %
Edgewood Vista - Hastings, NE
    6,042       606       100.0 %
Edgewood Vista - Hermantown I, MN
    119,349       11,660       100.0 %
Edgewood Vista - Hermantown II, MN
    160,485       11,269       100.0 %
Edgewood Vista - Kalispell, MT
    5,895       644       100.0 %
Edgewood Vista - Minot, ND
    108,503       12,635       100.0 %
Edgewood Vista - Missoula, MT
    10,150       999       100.0 %
Edgewood Vista - Norfolk, NE
    5,135       764       100.0 %
Edgewood Vista - Omaha, NE
    6,042       676       100.0 %
Edgewood Vista - Sioux Falls, SD
    11,800       1,289       100.0 %
Edgewood Vista - Spearfish, SD
    84,126       8,942       100.0 %
Edgewood Vista - Virginia, MN
    147,183       12,146       100.0 %
Edina 6363 France Medical - Edina, MN*
    70,934       14,202       55.7 %
Edina 6405 France Medical  - Edina, MN*
    55,478       12,201       100.0 %
Edina 6517 Drew Avenue - Edina, MN
    12,140       1,542       100.0 %
Edina 6525 Drew Avenue - Edina, MN
    3,431       505       88.7 %
Edina 6525 France SMC II - Edina, MN
    67,409       14,754       100.0 %
Edina 6545 France SMC I - Edina MN*
    227,626       45,467       85.8 %
Fresenius - Duluth, MN
    9,052       1,572       100.0 %
Garden View - St. Paul, MN*
    43,404       7,819       100.0 %
Gateway Clinic - Sandstone, MN*
    12,444       1,766       100.0 %
Healtheast St John & Woodwinds - Maplewood & Woodbury, MN
    114,316       21,601       100.0 %
High Pointe Health Campus - Lake Elmo, MN
    60,364       13,462       75.4 %
Laramie 1072 N 22nd Street (Spring Wind) - Laramie, WY
    35,629       7,057       100.0 %
Mariner Clinic - Superior, WI*
    28,928       3,864       100.0 %
Minneapolis 701 25th Avenue Medical - Minneapolis, MN*
    57,212       8,682       100.0 %
Missoula 3050 Great Northern - Missoula, MT
    14,640       1,971       100.0 %
Nebraska Orthopedic Hospital - Omaha, NE*
    61,758       21,887       100.0 %
Park Dental - Brooklyn Center, MN
    9,998       2,952       100.0 %

2012 Annual Report 28
 

 


Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 Improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL MEDICAL – continued
                 
Pavilion I - Duluth, MN*
    45,081     $ 10,174       100.0 %
Pavilion II - Duluth, MN
    73,000       19,325       100.0 %
Plaza 16-Trinity - Minot, ND
    24,795       9,535       100.0 %
Ritchie Medical Plaza - St Paul, MN
    52,116       10,718       37.8 %
Sartell 2000 23rd Street South - Sartell, MN*
    59,760       12,716       32.3 %
Spring Creek-American Falls - American Falls, ID
    17,273       4,015       100.0 %
Spring Creek-Soda Springs - Soda Springs, ID
    15,571       2,233       100.0 %
Spring Creek-Eagle - Eagle, ID
    15,559       4,038       100.0 %
Spring Creek-Meridian - Meridian, ID
    31,820       7,148       100.0 %
Spring Creek-Overland - Overland, ID
    26,605       6,628       100.0 %
Spring Creek-Boise - Boise, ID
    16,311       5,004       100.0 %
Spring Creek-Ustick - Meridian, ID
    26,605       4,300       100.0 %
St Michael Clinic - St Michael, MN
    10,796       2,851       100.0 %
Stevens Point - Stevens Point, WI
    47,950       14,825       100.0 %
Wells Clinic - Hibbing, MN
    18,810       2,660       100.0 %
TOTAL COMMERCIAL MEDICAL
    2,927,688     $ 500,268       94.5 %


Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 Improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL INDUSTRIAL
                 
API Building - Duluth, MN
    35,000     $ 1,723       100.0 %
Bloomington 2000 W 94th Street - Bloomington, MN
    100,850       7,337       100.0 %
Bodycote Industrial Building - Eden Prairie, MN
    41,880       2,152       100.0 %
Brooklyn Park 7401 Boone Avenue - Brooklyn Park, MN
    322,751       15,132       87.3 %
Cedar Lake Business Center - St. Louis Park, MN
    50,400       3,771       73.8 %
Clive 2075 NW 94th Street - Clive, IA
    42,510       3,067       100.0 %
Dixon Avenue Industrial Park - Des Moines, IA
    606,006       13,808       100.0 %
Eagan 2785 & 2795 Highway 55 - Eagan, MN
    198,600       5,628       74.3 %
Fargo 1320 45th Street N - Fargo, ND
    42,244       4,159       100.0 %
Lexington Commerce Center - Eagan, MN
    90,260       6,647       79.2 %
Lighthouse - Duluth, MN
    59,292       1,885       100.0 %
Metal Improvement Company - New Brighton, MN
    49,620       2,507       100.0 %
Minnetonka 13600 County Road 62 - Minnetonka, MN
    69,984       3,702       100.0 %
Roseville 2929 Long Lake Road - Roseville, MN
    172,057       10,960       100.0 %
Stone Container - Fargo, ND
    195,075       7,141       100.0 %
Stone Container - Roseville, MN
    229,072       8,452       100.0 %
Urbandale 3900 106th Street - Urbandale, IA
    528,353       14,262       98.1 %
Winsted Industrial Building - Winsted, MN
    41,685       1,049       100.0 %
Woodbury 1865 Woodlane - Woodbury, MN
    69,600       5,620       100.0 %
TOTAL COMMERCIAL INDUSTRIAL
    2,945,239     $ 119,002       95.5 %


2012 Annual Report 29
 

 


Property Name and Location
 
Approximate
 Net Rentable
 Square Footage
   
(in thousands)
 Investment
 (initial cost plus
 Improvements less impairment)
   
Physical
 Occupancy as of April 30, 2012
 
                   
COMMERCIAL RETAIL
                 
17 South Main - Minot, ND
    2,454     $ 287       100.0 %
Anoka Strip Center - Anoka, MN
    10,625       750       28.2 %
Burnsville 1 Strip Center - Burnsville, MN
    8,526       1,188       100.0 %
Burnsville 2 Strip Center - Burnsville, MN
    8,400       974       47.5 %
Champlin South Pond - Champlin, MN
    26,020       3,603       77.2 %
Chan West Village - Chanhassen, MN
    137,572       21,595       92.2 %
Dakota West Plaza - Minot , ND
    16,921       615       94.9 %
Duluth Denfeld Retail - Duluth, MN
    37,770       5,097       73.6 %
Duluth NAPA - Duluth, MN
    15,582       1,934       30.5 %
Eagan Community - Eagan, MN
    23,187       3,167       84.5 %
Fargo Express Community - Fargo, ND
    34,226       2,489       100.0 %
Forest Lake Auto - Forest Lake, MN
    6,836       509       100.0 %
Forest Lake Westlake Center - Forest Lake, MN
    100,570       8,237       97.6 %
Grand Forks Carmike - Grand Forks, ND
    28,528       2,546       100.0 %
Grand Forks Medpark Mall - Grand Forks, ND
    59,117       5,740       91.7 %
Jamestown Buffalo Mall - Jamestown, ND
    213,271       8,640       88.4 %
Jamestown Business Center - Jamestown, ND
    100,249       2,654       80.9 %
Kalispell Retail Center - Kalispell, MT
    52,000       3,473       100.0 %
Lakeville Strip Center - Lakeville, MN
    9,488       2,040       76.0 %
Minot 1400 31st Ave - Minot, ND
    48,960       11,425