SOURCE: Investors Real Estate Trust

December 10, 2007 15:08 ET

Investors Real Estate Trust Announces Second Quarter Fiscal 2008 Financial Results

MINOT, ND--(Marketwire - December 10, 2007) - Investors Real Estate Trust's (IRET) (NASDAQ: IRETS) (NASDAQ: IRETP) financial and operating results for the three and six months ended October 31, 2007 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 October 31, 2007 (click on "Investor Relations" and then on "SEC Filings").

During the second quarter of fiscal year 2008, IRET's revenues and Funds From Operations(1) increased from the year-earlier period, primarily due to property acquisitions and a decrease in the level of tenant concessions. Net income declined from the year-earlier period, due in part to the effect of a gain on sale included within discontinued operations in the three and six months ended October 31, 2006. For the three-month period ended October 31, 2007, as compared to the same period of the prior fiscal year:

--  Revenues increased to $54.3 million from $48.6 million.
    
--  Funds From Operations increased to $15.6 million on approximately 70.2
    million weighted average shares and units outstanding, from $13.4 million
    on approximately 63.2 million weighted average shares and units outstanding
    ($.22 per share and unit compared to $.21 per share and unit).
    
--  Net Income Available to Common Shareholders, as computed under
    generally accepted accounting principles, was $2.2 million, compared to
    $2.9 million.
    

For the six-month period ended October 31, 2007, as compared to the same period of the prior fiscal year:

--  Revenues increased to $107.9 million from $93.0 million.
    
--  Funds From Operations increased to $31.4 million on approximately 69.6
    million weighted average shares and units outstanding, from $26.0 million
    on approximately 62.0 million weighted average shares and units outstanding
    ($.45 per share and unit compared to $.42 per share and unit).
    
--  Net Income Available to Common Shareholders, as computed under
    generally accepted accounting principles, was $4.6 million, compared to
    $5.4 million.
    

Operating Results:

Net Operating Income (NOI)(2) from stabilized properties(3) increased 1.0%, or $275,000, during the three months ended October 31, 2007, compared to the same period one year ago. The increase in NOI from stabilized properties came almost entirely from our Commercial Medical segment, and is due primarily to a reduction in operating expenses. Net Operating Income from stabilized properties increased 1.2%, or $670,000, in the six months ended October 31, 2007 compared to the six months ended October 31, 2006.

Economic occupancy(4) levels in our portfolio declined in three of our five reportable segments during the three and six months ended October 31, 2007 compared to the three and six months ended October 31, 2006. Economic occupancy rates on a stabilized property basis for the three and six months ended October 31, 2007, as compared to the three months and six months ended October 31, 2006, were as follows:


                                          (in thousands)
                                          -------------
Three Months Ended October 31             2007     2006     Change
                                          ------------------------
Multi-Family Residential                  94.1%    94.4%      (0.3%)
Commercial-Office                         91.7%    90.4%       1.3%
Commercial-Medical                        95.5%    97.1%      (1.6%)
Commercial-Industrial                     98.0%    93.5%       4.5%
Commercial-Retail                         86.6%    89.0%      (2.4%)

                                          (in thousands)
                                          -------------
Six Months Ended October 31               2007     2006     Change
                                          ------------------------
Multi-Family Residential                  93.3%    93.6%      (0.3%)
Commercial-Office                         91.8%    91.2%       0.6%
Commercial-Medical                        95.7%    96.8%      (1.1%)
Commercial-Industrial                     98.2%    92.7%       5.5%
Commercial-Retail                         86.6%    89.3%      (2.7%)

Acquisitions for the Three and Six Months Ended October 31, 2007:

During the second quarter of fiscal year 2008, IRET completed no property acquisitions. During the first quarter of fiscal year 2008, the Company acquired four office/warehouse properties and a medical office building for a total purchase price of approximately $27.2 million, excluding closing costs.

The following table details the Company's acquisitions during the six months ended October 31, 2007:

Acquisitions                                                 (in thousands)
                                                              ------------
                                                               Acquisition
                                                                  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
  528,353 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 Activity:

IRET has a number of development projects underway. As of October 31, 2007, the following projects are under construction:

Southdale Medical Building Expansion Project: In July 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 $2.0 million in relocation, tenant improvement and leasing costs expected to be incurred to relocate tenants in the existing facility. Construction began in September 2007, and the expansion project is scheduled for completion in July 2008. As of October 31, 2007, the Company has funded approximately $770,000 in construction costs for this expansion project.

IRET Corporate Plaza: During fiscal year 2007, the Company purchased an unimproved parcel of land in Minot, North Dakota for approximately $1.8 million. The Company is in the preliminary stages of construction of a mixed-use project for this site, to consist of approximately 67 apartments and 60,100 rentable square feet of 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, at a total cost of approximately $17.8 million. However, because further design changes to the project are possible, the cost estimates are not yet firm, and no assurances can be given that this project will be completed as currently proposed. As of October 31, 2007, the Company has funded approximately $3.3 million of the estimated construction cost of this project.

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. As of July 2007, approximately 60% of this new medical office building has been pre-leased to an anchor tenant. Construction on the project began in August 2007, and as of October 31, 2007, the Company has paid approximately $2.2 million in construction costs.

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 October 31, 2007, the Company has funded approximately $4.4 million of the estimated construction cost of this project.

Shareholder Equity and Distributions:

During the second quarter of fiscal year 2008, IRET completed a public offering of 6.9 million common shares. The shares were sold at a public offering price of $10.20 per share, before underwriting discounts and commissions. Net proceeds of the offering (after deducting underwriting discounts and offering expenses) included in shareholders' equity totaled $66.4 million.

On October 1, 2007, IRET paid a quarterly distribution of $16.70 cents per share on its common shares and limited partnership units of IRET Properties. This was IRET's 146th consecutive distribution at equal or increasing rates. IRET also paid, on October 1, 2007, a quarterly distribution of $51.56 cents per share on its Series A preferred shares.

(1) The National Association of Real Estate Investment Trusts, Inc. ("NAREIT") defines funds from operations ("FFO") as net income (computed in accordance with generally accepted accounting principles, excluding gains (losses) from sales of property plus real estate depreciation and amortization We consider FFO to be a standard supplemental measure for equity real estate investment trusts because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assume that the value of real estate assets diminishes predictably over time. Since real estate values instead historically rise or fall with market conditions, we believe that FFO provides investors and management with a more accurate indication of our financial and operating results.

(2) We measure the performance of our segments based on NOI, which we define as total revenues less property operating expenses and real estate taxes. We believe that NOI is an important supplemental measure of operating performance for a REIT's operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with GAAP, and should not be considered an alternative to net income, net income available for common shareholders or cash flow from operating activities as a measure of financial performance.

(3) 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.

(4) Economic occupancy represents actual rental revenues recognized for the period indicated as a percentage of scheduled rental revenues for the period; percentage rents, tenant concessions, straightline adjustments and expense reimbursements are not considered in computing either actual revenues or scheduled rent revenues.

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


                                    Three Months Ended   Six Months Ended
                                        October 31          October 31
                                    ------------------  ------------------
                                    (in thousands, except per share data)
                                    --------------------------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------
REVENUE
  Real estate rentals               $ 44,606  $ 40,184  $ 88,766  $ 76,535
  Tenant reimbursement                 9,668     8,454    19,150    16,445
                                    --------  --------  --------  --------
TOTAL REVENUE                         54,274    48,638   107,916    92,980
                                    --------  --------  --------  --------
OPERATING EXPENSE
  Interest                            15,687    14,975    31,129    27,906
  Depreciation/amortization related
   to real estate investments         12,177    11,016    24,382    20,945
  Utilities                            4,306     3,754     8,262     6,631
  Maintenance                          6,026     5,463    12,037    10,437
  Real estate taxes                    6,471     5,498    12,910    10,813
  Insurance                              607       579     1,258     1,148
  Property management expenses         3,675     3,469     7,523     6,720
  Administrative expenses              1,101       989     2,223     1,897
  Advisory and trustee services          166        68       240       140
  Other operating expenses               457       335       710       615
  Amortization related to non-real
   estate investments                    340       241       683       458
                                    --------  --------  --------  --------
TOTAL OPERATING EXPENSE               51,013    46,387   101,357    87,710
                                    --------  --------  --------  --------
Operating income                       3,261     2,251     6,559     5,270
Interest income                          339       537       693       703
Other non-operating income                92       148       373       260
                                    --------  --------  --------  --------
Income before minority interest and
 discontinued operations and
 gain (loss) on sale of other
 investments                           3,692     2,936     7,625     6,233
Gain (loss) on sale of other
 investments                               3       (36)        2       (36)
Minority interest portion of
 operating partnership income           (859)     (636)   (1,846)   (1,248)
Minority interest portion of other
 partnerships’ (income) loss               0       (37)       36       (25)
                                    --------  --------  --------  --------
Income from continuing operations      2,836     2,227     5,817     4,924
Discontinued operations, net of
 minority interest                         0     1,281         0     1,697
                                    --------  --------  --------  --------
NET INCOME                             2,836     3,508     5,817     6,621
  Dividends to preferred
   shareholders                         (593)     (593)   (1,186)   (1,186)
                                    --------  --------  --------  --------
NET INCOME AVAILABLE TO COMMON
 SHAREHOLDERS                       $  2,243  $  2,915  $  4,631  $  5,435
                                    ========  ========  ========  ========
Earnings per common share from
 continuing operations              $    .04  $    .03  $    .09  $    .08
Earnings per common share from
 discontinued operations                 .00       .03       .00       .03
                                    --------  --------  --------  --------
NET INCOME PER COMMON SHARE -
 BASIC AND DILUTED                  $    .04  $    .06  $    .09  $    .11
                                    ========  ========  ========  ========

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




             RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS


                             (in thousands, except per share amounts)
                        --------------------------------------------------
Three Months Ended
 October 31,                     2007                      2006
                        ------------------------  ------------------------
                               Weighted    Per            Weighted   Per
                               Avg Shares Share          Avg Shares Share
                               and Units  and Unit       and Units and Unit
                         Amount   (2)      (3)     Amount   (2)      (3)
                        ------------------------  ------------------------
Net income              $  2,836                  $  3,508
Less dividends to
 preferred shareholders     (593)                     (593)
                        --------                  --------
Net income available to
 common shareholders       2,243   49,675 $   .04    2,915   47,408 $   .06
Adjustments:
Minority interest in
 earnings of
 Unitholders                 859   20,483            1,038   15,757
Depreciation and
 amortization(1)          12,452                    11,262
(Gains)/loss on
 depreciable property
 sales                        (3)                   (1,817)
                        --------  ------- ------- --------  ------- -------
Funds from operations
 applicable to common
 shares and Units       $ 15,551   70,158 $   .22 $ 13,398   63,165 $   .21
                        ========  ======= ======= ========  ======= =======



                             (in thousands, except per share amounts)
                        --------------------------------------------------
Six Months Ended
 October 31,                      2007                      2006
                        ------------------------  ------------------------
                               Weighted    Per            Weighted   Per
                               Avg Shares Share          Avg Shares Share
                               and Units  and Unit       and Units and Unit
                         Amount   (2)      (3)     Amount   (2)      (3)
                        ------------------------  ------------------------
Net income              $  5,817                  $  6,621
Less dividends to
 preferred shareholders   (1,186)                   (1,186)
                        --------                  --------
Net income available to
 common shareholders       4,631   49,169 $   .09    5,435   47,225 $   .11
Adjustments:
Minority interest in
 earnings of
 Unitholders               1,846   20,383            1,771   14,760
Depreciation and
 amortization(4)          24,937                    21,467
(Gains)/loss on
 depreciable property
 sales                        (2)                   (2,637)
                        --------  ------- ------- --------  ------- -------
Funds from operations
 applicable to common
 shares and Units       $ 31,412   69,552 $   .45 $ 26,036   61,985 $   .42
                        ========  ======= ======= ========  ======= =======



(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 $12,517 and $11,252,
    and depreciation/amortization from Discontinued Operations of $0 and
    $67, less corporate-related depreciation and amortization on office
    equipment and other assets of $65 and $57, for the three months ended
    October 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.
(4) 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 $25,065 and $21,393,
    and depreciation/amortization from Discontinued Operations of $0 and
    $191, less corporate-related depreciation and amortization on office
    equipment and other assets of $128 and $117, for the six months ended
    October 31, 2007 and 2006, respectively.


          RECONCILIATION OF NET OPERATING INCOME TO INCOME BEFORE
           MINORITY INTEREST AND DISCONTINUED OPERATIONS AND
             (LOSS) GAIN ON SALE OF OTHER INVESTMENTS


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

Real estate
 revenue       $  18,329 $   20,613 $   8,920 $    3,027 $   3,385 $54,274
Real estate
 expenses          8,706      8,723     2,043        626       987  21,085
               --------- ---------- --------- ---------- ---------  ------
Net operating
 income        $   9,623 $   11,890 $   6,877 $    2,401 $   2,398  33,189
               ========= ========== ========= ========== =========  ------
  Interest                                                         (15,687)
  Depreciation/                                                    (12,517)
   amortization
  Administrative,
   advisory
   and trustee
   fees                                                             (1,267)
  Operating
   expenses                                                           (457)
  Non-operating
   income                                                              431
                --------- ---------- --------- ---------- --------- ------
Income before
 minority
 interest and
 discontinued
 operations and
 (loss) gain on
 sale of other
 investments                                                        $3,692
                ========= ========== ========= ========== ========= ======




                                       (in thousands)
                  --------------------------------------------------------
Three Months      Multi-
 Ended           Family  Commercial Commercial Commercial Commercial
 October       Residential -Office   -Medical  -Industrial -Retail   Total
 31, 2006       --------- ---------- --------- ---------- --------- ------

Real estate
 revenue       $   16,883 $  17,795 $    8,638 $   1,844 $   3,478 $48,638
Real estate
 expenses           7,769     7,549      2,178       195     1,072  18,763
               ---------- --------- ---------- --------- --------- -------
Net operating
 income        $    9,114 $  10,246 $    6,460 $   1,649 $   2,406  29,875
               ========== ========= ========== ========= ========= -------
  Interest                                                         (14,975)
  Depreciation/                                                    (11,257)
   amortization
  Administrative,
   advisory
   and trustee
   fees                                                             (1,057)
  Operating
   expenses                                                           (335)
  Non-operating
   income                                                              685
               ---------- --------- ---------- --------- ---------  ------
Income before
 minority
 interest and
 discontinued
 operations and
 (loss) gain on
 sale of other
 investments                                                        $2,936
               ========== ========= ========== ========= =========  ======



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

Real estate
 revenue     $   36,110 $  41,215 $   17,885 $   5,689 $   7,017 $ 107,916
Real estate
 expenses        17,016    17,444      4,316     1,125     2,089    41,990
             ---------- --------- ---------- --------- --------- ---------
Net
 operating
 income      $   19,094 $  23,771 $   13,569 $   4,564 $   4,928    65,926
             ========== ========= ========== ========= ========= ---------
  Interest                                                         (31,129)
  Depreciation/
   amortization                                                    (25,065)
  Administrative,
   advisory
   and
   trustee
   fees                                                             (2,463)
 Operating
  expenses                                                            (710)
  Non-
   operating
   income                                                            1,066
             ---------- --------- ---------- --------- --------- ---------
Income
 before
 minority
 interest
 and
 discontinued
 operations
 and (loss)
 gain on sale
 of other
 investments                                                     $   7,625
             ========== ========= ========== ========= ========= =========




                                       (in thousands)
             -------------------------------------------------------------
Six Months     Multi-
 Ended         Family  Commercial Commercial Commercial Commercial
 October     Residential -Office   -Medical  -Industrial -Retail   Total
 31, 2006    ---------- --------- ---------- --------- --------- ---------

Real estate
 revenue     $   32,865 $  32,624 $   17,088 $   3,579 $    6,824 $ 92,980
Real estate
 expenses        15,346    13,507      4,288       503      2,105   35,749
             ---------- --------- ---------- --------- ---------- --------
Net
 operating
 income      $   17,519 $  19,117 $   12,800 $   3,076 $    4,719   57,231
             ========== ========= ========== ========= ========== --------
  Interest                                                         (27,906)
  Depreciation/
   amortization                                                    (21,403)
  Administrative,
   advisory
   and
   trustee
   fees                                                             (2,037)
  Operating
   expenses                                                           (615)
  Non-
   operating
   income                                                              963
             ---------- --------- ---------- --------- ---------- --------
Income
 before
 minority
 interest
 and
 discontinued
 operations and
 (loss) gain
 on sale of
 other
 investments                                                      $  6,233
             ========== ========= ========== ========= ========== ========

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
    www.iret.com