SOURCE: Investors Real Estate Trust

September 10, 2007 13:59 ET

Investors Real Estate Trust Announces First Quarter Fiscal 2008 Financial Results

MINOT, ND--(Marketwire - September 10, 2007) - Investors Real Estate Trust's (NASDAQ: IRETS) (NASDAQ: IRETP) financial results for the first three months of its fiscal year 2008 are summarized below. For the full report, please access our website at www.iret.com to view the quarterly report on Form 10-Q filed with the Securities and Exchange Commission for the quarter ended July 31, 2007 (click on "Investor Relations" and then on "SEC Filings").

During the first quarter of fiscal year 2008, IRET's revenues, net operating income and funds from operations increased from the year-earlier period, due to property acquisitions, improvements in rental rates and a decrease in the level of tenant concessions. Net income declined slightly from the year-earlier period, primarily due to an increase in the minority interest portion of operating partnership income as a result of acquisitions completed subsequent to the first quarter of fiscal year 2007 (notably the Company's acquisition in the second quarter of fiscal year 2007 of a sizeable portfolio of properties from Magnum Resources). During the three months ended July 31, 2007, IRET acquired four office/warehouse properties and a medical office building for a total purchase price of approximately $27.2 million, excluding closing costs. The Company did not dispose of any properties during the three months ended July 31, 2007. These completed acquisitions brought the Company's property owned (at cost, before depreciation) to $1.5 billion as of July 31, 2007.

For the three month period ended July 31, 2007, as compared to the same period of the prior fiscal year:

--  Revenues increased to $53.6 million from $44.3 million.
--  Net Operating Income increased to $32.7 million from $27.4 million.
--  Funds from Operations increased to $15.9 million from $12.6 million
    ($.23 per share and unit compared to $.21 per share and unit) on 68,947,000
    weighted average shares and units outstanding as of July 31, 2007, compared
    to 60,805,000 weighted average shares and units outstanding as of July 31,
    2006.
--  Net Income Available to Common Shareholders, as computed under
    generally accepted accounting principles, was $2.4 million, compared to
    $2.5 million.
    

Occupancy levels in our portfolio declined slightly in four of our five segments in the first quarter of the current fiscal year compared to the year-earlier period. Economic occupancy rates on a stabilized property basis for the three months ended July 31, 2007, as compared to the three months ended July 31, 2006, were as follows (stabilized properties are those properties owned for the entirety of both periods being compared; while results presented on a stabilized property basis are not determined in accordance with GAAP, management believes that measuring performance on a stabilized property basis is useful to investors and to management because it enables evaluation of how the Company's properties are performing year over year):

                                              (in thousands)
                                           --------------------
                                             2007       2006      Change
Three Months Ended July 31                 ---------  ---------  ---------
Multi-Family Residential                        92.6%      92.9%    (0.3%)
Commercial-Office                               91.9%      92.0%    (0.1%)
Commercial-Medical                              96.0%      96.6%    (0.6%)
Commercial-Industrial                           98.3%      91.7%     6.6%
Commercial-Retail                               86.7%      89.6%    (2.9%)

IRET experienced during the first quarter of fiscal year 2008 an accelerating demand for industrial space, although as in past periods rental rates in this segment continue to remain at levels lower than in prior fiscal years. We have not seen in the first quarter of fiscal year 2008 any consistent sustained demand for commercial office space or for existing smaller retail developments, which comprise a majority of IRET's retail portfolio. Our previous expectation was that demand in IRET's markets for our multi-family, medical, office and industrial locations would strengthen in the remaining quarters of fiscal year 2008. However, with the recent volatility in the credit markets and in the single-family home mortgage market, this may no longer be the case. With the exception of our multi-family residential segment, in which our overall rental rates continue to improve and levels of tenant concessions continue to decline, we are seeing some evidence in our commercial segments of an increased hesitation on the part of prospective tenants to commit to commercial space.

Acquisitions for the Three Months Ended July 31, 2007:

During the three months ended July 31, 2007, IRET acquired four office/warehouse properties and a medical office building. The Company did not dispose of any properties during the three months ended July 31, 2007.

                                                             (in thousands)
                                                             --------------
                                                              Acquisition
Acquisitions                                                      Cost
                                                             --------------

Commercial Property - Office
 20,528 sq. ft. Plymouth 5095 Nathan Lane Office Building -
  Plymouth, MN                                               $        2,000
                                                             --------------

Commercial Property - Medical (including senior
 housing/assisted living)
 18,502 sq. ft. Barry Pointe Medical Building -
 Kansas City, MO                                                      3,200
                                                             --------------

Commercial Property - Industrial
 50,400 sq. ft. Cedar Lake Business Center -
 St. Louis Park, MN                                                   4,040
 519,813 sq. ft. Urbandale Warehouse Building -
 Urbandale, IA                                                       14,000
 69,600 sq. ft. Woodbury 1865 Woodlane - Woodbury, MN                 4,000
                                                             --------------

Total Property Acquisitions                                  $       27,240
                                                             ==============

Development Projects

IRET continues to pursue development and redevelopment projects at existing and newly-acquired sites. As of July 31, 2007, ongoing or newly-commenced projects include the following:

Stevens Point Assisted Living: During fiscal year 2006, IRET purchased an existing senior housing complex and adjoining vacant parcel of land in Stevens Point, Wisconsin. IRET committed to fund construction of an expansion to the existing facility on the adjoining parcel of land, to be leased to the tenant of the existing senior housing complex. The construction costs to be paid by IRET were capped at approximately $10.7 million. Construction on this project began in May 2006 and was substantially completed in June 2007. As of July 31, 2007, IRET had funded approximately $9.3 million of the construction cost. The expansion facility is now in lease-up.

Fox River Senior Living: During fiscal year 2006, IRET purchased a partially-completed senior housing project and adjoining vacant land located in Grand Chute, Wisconsin. IRET has committed to fund the completion of eight senior living villas and the construction of ten new senior living cottages. The construction costs to be paid by IRET are capped at approximately $2.2 million. Construction on this project began in August 2006 and is expected to be completed in the fall of 2007. As of July 31, 2007, IRET had funded approximately $780,000 of the construction cost.

Southdale Medical Building Expansion Project: In June 2007, the Company signed a lease with an anchor tenant committing the Company to construct an approximately 26,000 square foot addition to the Company's existing Southdale Medical Building located in Edina, Minnesota. The estimated cost of this expansion project is approximately $7.5 million, with an additional approximately $2 million in relocation, tenant improvement and leasing costs expected to be incurred to relocate tenants in the existing facility.

Minot Mixed-Use Project: During fiscal year 2007, the Company purchased an unimproved parcel of land in Minot, North Dakota for approximately $1.75 million. The Company is in the preliminary stages of construction of a mixed-use project for this site, to consist of apartments and office and retail space. The Company currently expects that it will move its Minot, North Dakota offices to this location, occupying approximately one-third of the proposed office/retail space. Current estimates are that the project would be completed in the second quarter of the Company's fiscal year 2009. No firm cost estimates have yet been developed for this project, and no assurances can be given that this project will be completed as currently proposed.

2828 Chicago Avenue Medical Building: In fiscal year 2006, IRET purchased an approximately 55,000 square foot, five-story medical office building located in Minneapolis, Minnesota. During fiscal year 2007, IRET committed to construct an approximately 56,000 square foot medical office building adjacent to the existing structure, and an adjoining parking ramp, with a planned project completion date of August 2008 and an estimated total project cost of $15.7 million. Approximately 60% of this new medical office building has been pre-leased to an anchor tenant. As of July 31, 2007, construction on this project had not yet commenced, but project planning was near completion. Construction on the project began in mid-August.

Cottonwood Apartments: During fiscal year 2007, the Company began construction of a multi-family residential property adjacent to three existing apartment buildings owned by the Company in Bismarck, North Dakota. The 67-unit Cottonwood IV apartment complex is expected to cost approximately $6.1 million to construct, and is targeted for completion in the third quarter of fiscal year 2008. As of July 31, 2007, the Company has funded approximately $2.6 million of the estimated construction cost of this project.

            INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
           for the three months ended July 31, 2007 and 2006


                                                        Three Months Ended
                                                              July 31
                                                        ------------------
                                                          (in thousands,
                                                         except per share
                                                              data)
                                                        ------------------
                                                          2007      2006
                                                        --------  --------
REVENUE
 Real estate rentals                                    $ 44,160  $ 36,351
 Tenant reimbursement                                      9,482     7,991
                                                        --------  --------
TOTAL REVENUE                                             53,642    44,342
                                                        --------  --------
OPERATING EXPENSE
 Interest                                                 15,442    12,931
 Depreciation/amortization related to real estate
  investments                                             12,205     9,929
 Utilities                                                 3,956     2,877
 Maintenance                                               6,011     4,974
 Real estate taxes                                         6,439     5,315
 Insurance                                                   651       569
 Property management expenses                              3,848     3,251
 Administrative expenses                                   1,122       908
 Advisory and trustee services                                74        72
 Other operating expenses                                    253       279
 Amortization related to non-real estate investments         343       218
                                                        --------  --------
TOTAL OPERATING EXPENSE                                   50,344    41,323
                                                        --------  --------
Operating income                                           3,298     3,019
Interest income                                              354       165
Other non-operating income                                   281       113
                                                        --------  --------
Income before minority interest and discontinued
 operations and (loss) gain on sale of other
 investments                                               3,933     3,297
Loss on sale of other investments                             (1)        0
Minority interest portion of operating partnership
 income                                                     (987)     (612)
Minority interest portion of other partnerships' loss         36        12
                                                        --------  --------
Income from continuing operations                          2,981     2,697
Discontinued operations, net of minority interest              0       416
                                                        --------  --------
NET INCOME                                                 2,981     3,113
 Dividends to preferred shareholders                        (593)     (593)
                                                        --------  --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS             $  2,388  $  2,520
                                                        ========  ========
Earnings per common share from continuing operations    $    .05  $    .04
Earnings per common share from discontinued operations       .00       .01
                                                        --------  --------
NET INCOME PER COMMON SHARE - BASIC AND DILUTED         $    .05  $    .05
                                                        ========  ========




                        NET OPERATING INCOME RECONCILIATION

                                   (in thousands)
           ----------------------------------------------------------------
Three Months  Multi-
Ended July   Family   Commercial Commercial Commercial Commercial
31, 2007   Residential -Office    -Medical  -Industrial -Retail    Total
           ---------- ---------- ---------- ---------- ---------- --------

Real
 estate
 revenue   $   17,781 $   20,601 $    8,966 $    2,662 $    3,632 $ 53,642
Real
 estate
 expenses       8,310      8,721      2,273        499      1,102   20,905
           ---------- ---------- ---------- ---------- ---------- --------
Net
 operating
 income    $    9,471 $   11,880 $    6,693 $    2,163 $    2,530   32,737
           ========== ========== ========== ========== ========== --------
 Interest                                                          (15,442)
 Depreciation
 /amortization                                                     (12,548)
 Administrative,
  advisory
  and
  trustee
  fees                                                              (1,196)
 Operating
  expenses                                                            (253)
 Non-operating
  income                                                               635
           ---------- ---------- ---------- ---------- ---------- --------
Income
 before
 minority
 interest
 and
 discontinued
 operations
 and
 (loss)
 gain on
 sale of
 other
 investments                                                      $  3,933
           ========== ========== ========== ========== ========== ========



                                   (in thousands)
           ----------------------------------------------------------------
Three Months  Multi-
Ended July    Family   Commercial Commercial Commercial Commercial
31, 2006   Residential -Office    -Medical  -Industrial  -Retail   Total
           ---------- ---------- ---------- ---------- ---------- --------
Real
 estate
 revenue   $   15,983 $   14,828 $    8,450 $    1,735 $    3,346 $ 44,342
Real
 estate
 expenses       7,577      5,960      2,109        307      1,033   16,986
           ---------- ---------- ---------- ---------- ---------- --------
Net
 operating
 income    $    8,406 $    8,868 $    6,341 $    1,428 $    2,313   27,356
           ========== ========== ========== ========== ========== --------
 Interest                                                          (12,931)
 Depreciation
  /amortization                                                    (10,147)
 Administrative,
  advisory
  and
  trustee
  fees                                                                (980)
 Operating
  expenses                                                            (279)
 Non-operating
 income                                                                278
           ---------- ---------- ---------- ---------- ---------- --------
Income
 before
 minority
 interest
 and
 discontinued
 operations
 and
 (loss)
 gain on
 sale of
 other
 investments                                                      $  3,297
           ========== ========== ========== ========== ========== ========



                  RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS

                         (in thousands, except per share amounts)
                ----------------------------------------------------------
Three Months
 Ended July 31,             2007                          2006
                ----------------------------  ----------------------------
                          Weighted                      Weighted
                            Avg                           Avg
                           Shares      Per               Shares    Per
                            and      Share and            and     Share and
                Amount     Units(2)  Unit (3)  Amount    Units(2)  Unit (3)
                --------  --------- --------- --------  --------- ---------
Net income      $  2,981            $         $  3,113            $
Less dividends
 to preferred
 shareholders       (593)                         (593)
                --------                      --------
Net income
 available to
 common
 shareholders      2,388     48,663       .05    2,520     47,043       .05
Adjustments:
Minority
 interest in
 earnings of
 Unitholders         987     20,284                733     13,762
Depreciation
 and
 amortization(1)  12,485                        10,205
(Gains)/loss on
 depreciable
 property sales        1                          (820)
                --------  --------- --------- --------  --------- ---------
Funds from
 operations
 applicable to
 common shares
 and Units      $ 15,861     68,947 $     .23 $ 12,638     60,805 $     .21
                ========  ========= ========= ========  ========= =========


(1)  Real estate depreciation and amortization consists of the sum of
     depreciation/amortization related to real estate investments and
     amortization related to non-real estate investments from the Condensed
     Consolidated Statements of Operations, totaling $12,548 and $10,147,
     and depreciation/amortization from Discontinued Operations of $0 and
     $119, less corporate-related depreciation and amortization on office
     equipment and other assets of $63 and $61, for the three months ended
     July 31, 2007 and 2006, respectively.
(2)  UPREIT Units of the Operating Partnership are exchangeable for common
     shares of beneficial interest on a one-for-one basis.
(3)  Net income is calculated on a per share basis. FFO is calculated on a
     per share and unit basis.

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from projected results. Such risk, uncertainties and other factors include, but are not limited to: potential fluctuations in our operating results; the need for additional capital; the direction of interest rates and their subsequent effect on our business; competition; our ability to attract and retain skilled personnel; and those risk and uncertainties discussed in filings made by us with the Securities and Exchange Commission.

Contact Information

  • CONTACT:
    Michelle R. Saari
    Investors Real Estate Trust
    PO Box 1988
    12 Main Street South
    Minot, North Dakota 58701
    701.837.4738 phone
    701.838.8875 fax
    info@iret.com email
    WEBSITE: www.iret.com