MINOT, ND (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: 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
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