Investors Real Estate Trust - Propsectus - 01/25/02
Filed pursuant to Rule 424B(2)
Registration No. 333-76034
Prospectus dated January 25, 2002
 

600,000 COMMON SHARES
INVESTORS REAL ESTATE TRUST (IRET)
Common Shares of Beneficial Interest
Minimum Purchase of 100 Shares


      The Company is a self-advised real estate investment trust (REIT) that, through its operating partnership, IRET Properties, is  engaged in acquiring, owning, and leasing multi-family and commercial real estate. IRET is listed on the Nasdaq Small Cap Market under the symbol "IRETS."

      We intend to use the proceeds of this offering to increase our capital for  real estate additions or acquisitions.

      The shares of beneficial interest being offered are the functional equivalent of common stock and hold the rights and preferences normally associated with common stock.
 
 

 
Per Share
Total if all
shares sold
Percentage
Public Offering Price
$8.75
$ 5,250,000
100%
    Less Selling Commission
$  .70
$    420,000
    8%
Proceeds to us before expenses
$8.05
$ 4,830,000
92%


      After the payment of all fees and expenses associated with this offering and assuming all the shares are sold, IRET will receive approximately $4,787,000 or 91.18% of the sale proceeds.
 

Investing involves certain risks. See page 4.  Some, but not all of the risks to consider are:
 
 

The fixed $8.75 price of shares under this offering may be priced higher than the current Nasdaq price.  You may be paying more for your IRET shares than necessary.
This is a best efforts offering.  Even if we do not sell enough shares to acquire additional real estate, we will not return any portion of your investment.
The book value of the shares available under this offering is substantially less than the purchase price of $8.75 per share.
To preserve our status as a REIT, IRET may redeem its shares from any shareholder at anytime for the fair value of the shares at the time of redemption or IRET may refuse to transfer shares to any person. 

 
      The shares will be offered on a best efforts basis by broker/dealers who have signed a  sales agreement and are registered with the National Association of Securities Dealers (NASD).  The broker/dealers are not required to sell a specific number or dollar amount of shares.  The broker/dealers will be paid an 8% commission on each share sold.  Any money received from investors will go immediately to IRET and will not be placed in escrow or trust.  This offering will end on the earlier of one year from the date of this prospectus or when all shares have been sold.  Broker/dealers who have agreed to sell the shares are listed on page 19.
 
These securities have not been approved or disapproved by the Securities and Exchange Commission or any State Securities Commission nor has the Commission or any State Securities Commission passed upon the accuracy or adequacy of this prospectus.  Any representation to the contrary is a criminal offense.
 
January 25, 2002

Table of Contents


Prospectus Summary Index Page
Prospectus Summary..................................................................................................................... S-1
IRET............................................................................................................................ S-1
Investment Risks.......................................................................................................... S-1
Business...................................................................................................................... S-2
IRET's Real Estate Portfolio........................................................................................... S-3
This Offering & Plan of Distribution.................................................................................. S-4
Use of Proceeds........................................................................................................... S-5
Unaudited Quarterly Financial Data For quarter Ended October 31, 2001............................ S-5
      Summary Operating Data - Three Months and Six Months Ended October 31, 2001...... S-5
      Statement of Operations for Three Months and Six Months Ended 
            October 31, 2001 and 2000................................................................................
S-6
      Selected Financial Data........................................................................................... S-6
      Summary Operating Data Last Three Fiscal Years..................................................... S-7
      Selected Financial Data for IRET for Three Years Ended April 30................................. S-7
      Funds From Operations........................................................................................... S-7
      Recent Developments.............................................................................................. S-8
      Revenues............................................................................................................... S-8
      Funds From Operations........................................................................................... S-8
      Capital Gain Income................................................................................................ S-8
      Acquisition of Interlachen Corporate Center  - Edina, Minnesota.................................. S-9
      Acquisition of Retail Strip Center - Cottage Grove, Minnesota..................................... S-9
      Acquisition of Bloomington Business Plaza - Bloomington, Minnesota......................... S-9
      Acquisition of Canyon Lake Apartments - Rapid City, South Dakota............................ S-10
      Acquisition of Applewood on the Green Apartments - Omaha, Nebraska...................... S-10
Price Range of Common Shares and Distributions........................................................... S-11
Legal Matters............................................................................................................... S-11
Experts  ...................................................................................................................... S-11
Available Information Concerning IRET............................................................................ S-12
    Securities and Exchange Commission........................................................................ S-12
    Reports to Security Holders....................................................................................... S-12
     Additional Information................................................................................................ S-12


Prospectus  


The Company............................................................................................................... 1
      Selected Financial Information for the Past Three Years............................................. 2
      Real Estate Investment by State for the Last Three Years Ended April 30.................... 2
      Commercial Square Footage for the Last Three Years Ended April 30.......................... 3
      Apartment Units Owned for the Last Three Years Ended April 30................................. 3
      Gross Revenue from Real Estate Activities for the Last Three Years
              Ended April 30................................................................................................
4
      Net Income from Real Estate Activities for the Last Three Years
               Ended April 30..................................................................................................
4
Risk Factors................................................................................................................. 4
 Price of Shares May be Higher than Nasdaq Price.......................................................... 4
      Price Exceeds Book Value...................................................................................... 5
      High Leverage on Individual Properties or the Overall Portfolio May
           Result in Losses...............................................................................................
5
      Inability to Sell all the Shares May Prevent Completion of Rochester 
           or Bismarck Apartments....................................................................................
6
      Geographic Concentration in North Dakota and Minnesota May Result In Losses......... 6
      Senior Securities will be Paid Before IRET Shares..................................................... 7
      Current and Future Commercial Vacancy May Negatively Impact Earnings................... 7
      Mortgage Lending May Result in Losses................................................................... 8



Prospectus Page
      Lack of Employment Contracts May Prevent IRET from Retaining Qualified 
            Management....................................................................................................
9
      Competition May Negatively Impact IRET's Earnings.................................................. 9
      Low Trading Volume of IRET on the Nasdaq will Prevent the Timely
            Resale of Shares..............................................................................................
10
      Ability of IRET's Board of Trustees to Change Policy Without
            Shareholder Approval.........................................................................................
10
      Certain Restrictions on Transfer of Shares May Result in Losses................................ 10
      IRET Does Not Carry Insurance Against All Possible Losses...................................... 11
      Adverse Changes in Laws May Affect Our Potential Liability Relating
               to the Properties and Our Operations..................................................................
11
      Potential Effect on Costs and Investment Strategy from Compliance with
            Laws Benefiting Disabled Persons......................................................................
11
      Potential Inability to Renew, Repay or Refinance Our Debt Financing........................... 12
      Increase in Cost of Indebtedness Due to Rising Interest Rates.................................... 12
      Potential Incurrence of Additional Debt and Related Debt Service................................ 13
      Potential Liability Under Environmental Laws............................................................. 13
      Provisions Which Could Limit a Change in Control or Deter a Takeover........................ 14
      Tax Liabilities as a Consequence of Failure to Qualify as a REIT................................. 14
      Conflicts of Interest May Negatively Impact the Financial Performance
           of IRET.............................................................................................................
15
Front-End Fees and Costs Associated With This Offering................................................. 17
Offering Compensation.................................................................................................. 17
Determination of Offering Price....................................................................................... 18
Effective Date of Offering................................................................................................ 18
Dilution........................................................................................................................ 18
Plan of Distribution........................................................................................................ 19
Who May Invest............................................................................................................ 20
Use of Proceeds........................................................................................................... 20
Selected Financial Data for IRET for Five Years Ended April 30......................................... 21
Management's Discussion and Analysis of Financial Conditions
         and Results of Operations........................................................................................
22
     General.................................................................................................................. 22
  Results from Operations - Three Months and Six Months Ended October 31, 2001............ 22
      Revenues............................................................................................................... 22
      Capital Gain Income................................................................................................ 23
      Expenses and Net Income....................................................................................... 23
      Anticipated Increase in Insurance Expense................................................................ 24
      Comparison of Commercial and Residential Properties............................................... 25
      Net Real Estate Operating Income............................................................................ 25
      Occupancy Rates................................................................................................... 26
      Property Acquisitions and Dispositions..................................................................... 26
      Funds From Operations........................................................................................... 26
      Distributions........................................................................................................... 28
      Liquidity and Capital Resources................................................................................ 29
    Results from Operations for the Fiscal Years Ended
           April 30, 2001, 2000 and 1999............................................................................
32
      Revenues............................................................................................................... 32
      Capital Gain Income................................................................................................ 33
      Expenses and Net Income....................................................................................... 33
      Telephone Endorsement Fee.................................................................................... 34
      Comparison of Results from Commercial and Residential Properties............................ 34
      Charge for Impairment of Value Fiscal 2000............................................................... 34
      Commercial Properties - Analysis of Lease Expirations and Credit Exposure............... 35
      Significant Properties.............................................................................................. 35
      Significant Tenants of IRET...................................................................................... 37
      Current Economic Slowdown.................................................................................... 37
      Results from Stabilized Properties............................................................................ 38
      Funds From Operations........................................................................................... 38
      Self-Advised Status................................................................................................. 39
      Property Acquisitions.............................................................................................. 40
             Fiscal 2001 Property Acquisitions for the Period May 1, 2000 
                to April 30, 2001...........................................................................................
40
            Fiscal 2000 Property Acquisitions for the Period May 1, 2001 
                to April 30, 2000...........................................................................................
40
      Property Dispositions.............................................................................................. 42
      Distributions........................................................................................................... 43



Prospectus Page
      Liquidity and Capital Resources........................................................................... 43
      Impact of Inflation............................................................................................... 45
      Anticipated Increase in Insurance Expense........................................................... 45
Quantitative & Qualitative Disclosures about Market Risk............................................. 46
General Information As To Investors Real Estate Trust................................................. 46
      Organization of IRET........................................................................................... 46
      Governing Instruments of IRET............................................................................. 46
      Independent Trustees......................................................................................... 47
      Non-Independent Trustees................................................................................... 47
      Shareholder Meetings......................................................................................... 47
      Structure of IRET................................................................................................ 47
Policy With Respect To Certain Activities................................................................... 49
      To Issue Senior Securities.................................................................................. 49
      Senior Securities Outstanding as of April 30, 2001, 2000 and 1999......................... 49
      To Borrow Money............................................................................................... 49
      To Loan Money.................................................................................................. 50
      Mortgage Loans Receivable................................................................................. 50
      To Invest in the Securities of Other Companies for Purposes
          of Exercising Control.....................................................................................
50
      To Underwrite Securities of Other Issuers............................................................. 51
      To Engage in the Purchase and Sale or Turnover of Investments............................. 51
      To Offer Securities in Exchange for Property......................................................... 51
      To Purchase or Otherwise Re-Acquire Its Shares or Other Securities...................... 52
      To Make Annual and Other Reports Available to Shareholders................................ 52
Investment Policies of IRET....................................................................................... 52
      Investments in Real Estate or Interests in Real Estate........................................... 52
      Investments in Real Estate Mortgages................................................................. 53
      Investments in the Securities of or Interest in Persons Primarily
            Engaged in Real Estate Activities and Other Securities...................................
54
Description of Real Estate......................................................................................... 55
      Commercial Real Estate..................................................................................... 55
      Residential Real Estate...................................................................................... 61
      Fiscal Year 2001 Property Sales for the Year Ended April 30, 2001........................ 68
      Fiscal 2001 Property Acquisitions for Year Ended April 30, 2001............................ 68
      Title....................................................................................................................... 69
      Insurance............................................................................................................... 69
      Planned Improvements........................................................................................ 69
      Occupancy ....................................................................................................... 69
      Material Lease Terms......................................................................................... 69
            Residential Lease Terms............................................................................... 69
            Commercial Lease Terms............................................................................. 70
Shares Available for Future Sale................................................................................ 70
Operating Partnership Agreement.............................................................................. 72
      IRET, Inc. is the Sole General Partner.................................................................. 72
      Transferability of Limited Partnership and General Partnership Interests.................. 72
      Proceeds of this Offering will be Capital Contributions to IRET Properties................ 73
      Exchange Rights of Limited Partners................................................................... 74
      Operation of IRET Properties and Payment of Expenses........................................ 75
      Distributions and Liquidation................................................................................ 75
Allocations............................................................................................................. 75
      Term...................................................................................................................... 76
      Fiduciary Duty................................................................................................... 76
      Tax Matters....................................................................................................... 76
Tax Treatment of IRET and Its Shareholders............................................................... 77
      Federal Income Tax............................................................................................ 77
      State and Local Income Taxation......................................................................... 78
      Taxation of IRET's Shareholders.......................................................................... 78



Prospectus Page
     Taxation of IRA's, 401K's, Pension Plans and Other Tax-exempted Shareholders.......... 79
      IRET Reporting to the IRS and Backup Withholding.................................................... 79
Tax Treatment of IRET Properties and Its Limited Partners................................................ 80
      Classification as a Partnership................................................................................. 80
Income Taxation of IRET Properties and Its Partners........................................................ 81
      Partners and not IRET Properties Subject to Tax....................................................... 81
      Partnership Allocation Income, Losses and Capital Gain............................................ 81
      Tax Allocations with Respect to Contributed Property................................................. 81
      Tax Basis in IRET Properties................................................................................... 82
      Sale of Real Estate................................................................................................. 82
ERISA and Prohibited Transaction Considerations........................................................... 83
      Status of IRET and IRET Properties under ERISA...................................................... 83
Market Price of and Dividends on IRET's Shares of Beneficial Interest................................ 85
      Market for IRET Shares of Beneficial Interest............................................................. 85
      Prior Share Offering Price........................................................................................ 86
      Share Buyback Program.......................................................................................... 86
      Shares Outstanding................................................................................................. 87
      Distributions Payable Last Five Years....................................................................... 87
Distribution Reinvestment Plan....................................................................................... 88
Description of IRET's Shares of Beneficial Interest........................................................... 88
      Ownership and Transfer Restrictions......................................................................... 89
Legal Proceeding.......................................................................................................... 89
Management................................................................................................................ 90
      Directors and Executive Officers............................................................................... 90
      Executive Compensation......................................................................................... 91
      Trustee Compensation............................................................................................. 93
      Security Ownership of Management and Trustees...................................................... 93
Certain Relationships and Related Transactions............................................................... 95
      Management Services............................................................................................. 95
      Acquisition of Odell-Wentz & Associates, L.L.C........................................................ 95
     Property Management Services................................................................................ 95
      Security Sales Services........................................................................................... 96
      Legal Services........................................................................................................ 96
Selection, Management and Custody of IRET's Assets.................................................... 96
      Real Estate Management........................................................................................ 96
Conflicts of Interest....................................................................................................... 98
      Selling To or Buying Property From IRET.................................................................. 98
      Sales Commissions or Finder Fees.......................................................................... 99
      Competition with IRET............................................................................................. 99
Interests of Named Experts and Counsel......................................................................... 99
Limitations of Liability.................................................................................................... 99
      Legal Matters......................................................................................................... 101
      Experts.................................................................................................................. 101
Pro Forma Statement of Operations Acquisitions for the Six Months Ended 
      October 31, 2001.....................................................................................................
102
Unaudited Pro Forma Financial Information - Fiscal 2001................................................... 104
      Pro Forma Consolidated Statement of Operations as of April 30, 2001.......................... 104
Financial Information for Significant Acquisitions - Fiscal 2001.......................................... 105
      Olympic Village - Billings, Montana.......................................................................... 105
            Material Factors Considered by IRET at the Time of Acquisition............................ 105
            Independent Auditor's Report............................................................................. 107
            Historical Summary of Gross Income & Direct Operating Expenses
                  For the Year Ended December 31, 1999.......................................................
108
            Notes to Historical Summary of Gross Income and Direct Operating Expenses
                  For the Year Ended December 31, 1999.......................................................
109
            Unaudited Interim Financial Statement  - January 1, 2000 - August 30, 2000........... 110



Prospectus Page
            Unaudited Estimated Taxable Operating Results.................................................. 110
      Southdale Medical - Edina, Minnesota..................................................................... 111
            Material Factors Considered by IRET at the Time of Acquisition............................ 111
            Independent Auditor's Report.............................................................................. 113
            Historical Summary of Gross Income & Direct Operating Expenses
                  For the Year Ended December 31, 2000.......................................................
114
            Notes to Historical Summary of Gross Income and Direct Operating Expenses
                  For the Year Ended December 31, 2000.......................................................
15
            Unaudited Estimated Taxable Operating Results.................................................. 116
      HealthEast I & II...................................................................................................... 117
            Material Factors Considered by IRET at the Time of Acquisition............................ 117
            Independent Auditor's Report.............................................................................. 118
            Historical Summary of Gross Income & Direct Operating Expenses
                  For the Year Ended December 31, 1999.......................................................
119
            Notes to Historical Summary of Gross Income and Direct Operating Expenses
                  For the Year Ended December 31, 1999.......................................................
120
            Unaudited Interim Financial Statement - January 1, 2000 - April 30, 2000............... 121
            Unaudited Estimated Taxable Operating Results.................................................. 121
      Plymouth Techcenter IV & V.................................................................................... 122
            Material Factors Considered by IRET at the Time of Acquisition............................ 122
           Independent Auditor's Report.............................................................................. 124
             Historical Summary of Gross Income & Direct Operating Expenses
                  For the Year Ended December 31, 2000.......................................................
125
            Notes to Historical Summary of Gross Income and Direct Operating Expenses
                  For the Year Ended December 31, 2000.......................................................
126
            Unaudited Interim Financial Statement - January 1, 2001 - March 31,  2001........... 128
            Unaudited Estimated Taxable Operating Results.................................................. 128
            Table of Contents Financial Statements............................................................... 129
Consolidated Financial Statements - Six Months Ended
          October 31, 2001, and 2000 ..................................................................................
F-1 to F-14
Consolidated Financial Statements - Fiscal Year Ended April 30, 2001,
          2000, and 1999 and Independent Auditor' Report...................................................
F-15 to F-57



Prospectus Summary

       This summary may not contain all of the information that may be important to you.  You should read this prospectus summary and the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference into the prospectus, including the financial data and the related notes, in their entirety before making an investment decision.  When used in this prospectus supplement, the terms "we," "our," "us" and "IRET" refer to Investors Real Estate Trust.

IRET

      Investors Real Estate Trust is a self-administered, self-managed equity real estate investment trust.  Our business consists of the ownership and operation of income-producing real properties.  We conduct our day-to-day business operations though our operating partnership IRET Properties, a North Dakota Limited Partnership.  We have a fundamental strategy of focusing our real estate investments in the upper Midwest consisting primarily of the states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska, of seeking diversification by property type.  While we have historically focused most of our investments in the five states listed above, in order to maximize acquisition opportunities, we consider and undertake investments outside of our targeted region.  We own a diversified portfolio consisting of 62 multi-family communities, and 61 total commercial properties.

      We concentrate on increasing our income from operations per share and funds from operations per share to achieve our objective of paying increasing dividends to our shareholders.  Our dividends have increased every year for 31 consecutive years

      Our principal office is located at 12 South Main Street Suite 100 Minot, North Dakota 58701; our telephone number there is (701) 837-4738.
 
 

Investment Risks

      If you purchase our shares offered pursuant to this offering you will be exposed to a number of risks that may result in a loss of all or a significant portion of your investment.  For a complete discussion of the risks please see pages 4 through 16 of the full prospectus which follows this summary.  A summary of the more significant risks that your investment with us may be exposed to are
 

*
The fixed $8.75 price of shares under this offering may be priced higher than the current Nasdaq price, which may result in you paying more for your IRET shares than necessary.

S-1



* As of October 31, 2001, total liabilities were 220% in relation to our net assets.  The ratio of total liabilities to total assets was 69.58%, and the ratio of real estate assets to total real estate debt was 62.9%..  We intend to borrow 70% of the cost of any real estate constructed or purchased which may result in us becoming too highly leveraged and losing the real estate through foreclosure..
* This is a best efforts offering.  Even if we do not sell enough shares to acquire additional real estate, we will not return any portion of your investment.
* The low trading volume of IRET shares on the Nasdaq small cap market may prevent the timely resale of any shares you purchase.
* The management of IRET operates under a number of conflicts of interest that may prevent the company from receiving the benefit of management's undivided effort and time
* The book value of the shares available under this offering is substantially less than the purchase price of $8.75 per share.

Business

      We have a fundamental strategy of focusing on the upper Midwest with a primary emphasis on the states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska.  For the six months ended October 31, 2001, IRET's investments in these states account for 71% of IRET's total gross revenue of $44,445,900.  We also seek diversification by property type with approximately 60% being multi-family apartment communities and the remaining 40% being commercial buildings.  We attempt to concentrate our multi-family holdings in cities with populations from 35,000 to 500,000 in the 25-mile radius.  As it applies to commercial real estate, we seek to acquire properties that are fully leased to quality tenants and located in medium to large population centers containing from 50,000 to 1,000,000 people or more within a 25-mile radius.  Under certain circumstances, we seek to diversify our real estate portfolio by investing in assets located through out the United States and in smaller or larger metropolitan areas.

 Based upon our ability to raise equity capital and exchange limited partnership units in IRET Properties, we anticipate acquiring $50,000,000 to $150,000,000 of real estate assets on an annual basis going forward.
 

S-2


       IRET contracts with a locally based third party management company to handle all onsite management duties necessary for the proper operation of a particular property.  All management contracts may be terminated on 30 days written notice and provide for compensation ranging from 2.75% to no more than 5% of gross rent collections.  The use of local management companies allows us to enjoy the benefits of local knowledge of the applicable real estate market while avoiding the cost and difficulty associated with maintaining management personnel in every city in which we operate.  Based upon our ability to raise equity capital, we plan to acquire $100,000,000 of real estate assets on an annual basis going forward applying the investment focus outlined in the previous paragraph of approximately two-thirds apartments and one-third commercial primarily located in the upper Midwestern states of Minnesota, North Dakota, South Dakota, Montana, and Nebraska.

     We operate in a manner intended to enable us to qualify as a real estate investment trust under the Internal Revenue Code.  In accordance with the Code, a real estate investment trust which distributes its capital gains and at least 90% of its taxable income to its shareholders each year, and which meets certain other conditions, will not be taxed on that portion of its taxable income which is distributed to its shareholders.

      We generally use available cash or incur short-term floating rate debt in connection with the acquisition of real estate.  We replace the cash used or the floating rate debt with fixed-rate secured debt.  In appropriate circumstances, we also may acquire one or more properties in exchange for our equity securities or operating partnership units that are convertible into our shares.
 
 

IRET's Real Estate Portfolio

            As of April 30, 2001, our real estate portfolio consisted of 61% multi-family apartment complexes and 39% commercial buildings based on the dollar amount of our original investment plus capital improvements to date.  The dollar amount and percentage of total real estate rental revenue by property group for the Fiscal years ending April 30, 2001, 2000 and 1999 was as follows:
 


Apartment
Gross Revenue
% Commercial
Gross Revenue
% Total Revenue






2001 $55,806,712 75% $18,994,010 25% $74,800,722
2000 $42,379,855 78% $11,878,026 22% $54,257,881
1999 $33,010,126 85% $  5,775,161 15% $38,785,287

      The occupancy for each property group for the last three fiscal years ending April 30 was as follows:
 


Apartment Occupancy Commercial Occupancy



2001 93.96% 98.59%
2000 93.24% 97.77%
1999 94.79% 96.54%

S-3


 During the past three fiscal years ending April 30, 2001, we acquired 31 apartment communities consisting of 2,686 units for a total cost of $176,679,134 and 39 commercial properties containing 1,805,669 square feet of space for a total cost of $184,103,411.  During the past three fiscal years ending April 30, 2001, we sold 16 properties realizing net gain of $4,303,285.  No single tenant accounted for more than 10% of revenues during any of the past three fiscal years.  As of April 30, 2001, our three largest commercial tenants as a percentage of total commercial rents were: Edgewood Vista 9.7%, HealthEast Medical 7.8%, Microsoft Corporation 7.7% and all other tenants combined 74.8%.

This Offering and Plan of Distribution

Shares offered by IRET 600,000 shares
Shares outstanding after the offering 27,601,404
Use of proceeds To increase capital for other real estate additions or acquisitions.
NASDAQ Small Cap symbol IRETS

      The number of shares outstanding after the offering assumes that all 600,000 shares offered will be sold.  Since the offering is being handled on a best efforts basis there is no guarantee that any shares will be sold.

      We intend to offer the shares on a best efforts basis through broker/dealers who are licensed by the National Association of Securities Dealers (NASD).  Under a best efforts offering there is no guarantee that any share will be sold nor is there any requirement that a participating broker dealer actually sell any shares.  We will not sell any shares directly to the public.  All shares must be sold through a participating broker/dealer.  For any shares sold by a participating broker dealer and paid for by the investor, we will pay a commission of 8% to the selling broker/dealer.

      All shares will be sold on a first come first serve basis.  Each participating broker/dealer may sell all or any part of the offering assuming that sales by all participating broker/dealers does not exceed the 600,000 shares registered for sale.

      Only residents of Minnesota, Montana, North Dakota, South Dakota, and Washington may purchase shares available under this offering.  There is a minimum purchase of 100 shares.
 
 

S-4


     The offering will terminate one year from the date on the front of this prospectus or when all shares have been sold, whichever occurs first.
 
 

Use of Proceeds

       We estimate that the net proceeds from the sale of the shares we are offering will be approximately $4,787,000.  "Net proceeds" is what we expect to receive after paying expenses of the offering, which we estimate will be approximately $463,000 or about 8.82% of the total offering.

     We plan to use the proceeds to increase our capital for other real estate additions or acquisitions.  The money raised by this offering will be used to purchase real estate which generally meets the following standards:
 
 

* Located in the states of Minnesota, Nebraska, South Dakota, Colorado, Montana or North Dakota.
* Either a multi-family apartment complex with historical occupancy for the previous 24 months of 85% or better or a commercial office, warehouse or retail building currently leased to tenants occupying at least 90% or more of the space.
* The property is not a hotel/motel or undeveloped raw land.
* The appraised value of the property is equal to or greater than the purchase price.

    As of the date of this prospectus, we have not identified any specific properties which satisfy the criteria listed above.  Even in the event we do not identify a particular property or do not raise enough money under this offering to buy any additional real estate, we will not return your money.

     The Board of Trustees will have broad discretion on how to invest the proceeds and may change the investment criteria at any time without notice to or approval of the shareholders.

     Pending any real estate purchases, the net proceeds will be invested in United States Treasury Bonds with terms of six (6) months or less.
 
 

Unaudited Quarterly Financial Data
For Quarter Ending October 31, 2001

Summary Operating Data - Three Months and Six Months Ended October 31, 2001
     We have provided in the table below our summary financial and operating data.  In the opinion of the company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (of a normal recurring nature) necessary for a fair presentation of the financial statements.  The results of operations for the three months and six months ended October 31, 2001, are not necessarily indicative of operating results for the entire year.
 
 

The remainder of this page has been intentionally left blank.

S-5


Statement of Operations
For Three Months and Six Months Ended October 31, 2001 and 2000 (unaudited)

       3 Months
         Ended
10/31/01
      3 Months
         Ended
10/31/00
      6 Months
         Ended
10/31/01
      6 Months
         Ended
10/31/00
REVENUE        
   Real Estate Rentals $ 22,877,520 $ 18,216,163 $ 44,445,900 $ 35,508,138
   Interest, Discounts and Fees $      297,521 $      188,097 $      509,235 $      327,766
Total Revenue $ 23,175,041 $ 18,404,260 $ 44,955,135 $ 35,835,904
         
OPERATING EXPENSE        
   Interest $  7,597,039 $  6,087,438 $ 14,795,417 $ 11,778,403
   Depreciation     3,718,328     3,042,137     7,375,090     5,698,346
   Utilities and Maintenance     3,190,626     2,775,648     6,162,434     5,388,844
   Taxes     2,234,148     1,712,556     4,349,779     3,400,798
   Insurance        313,713        174,471        628,398        341,752
  Property Management Expenses     1,730,144     1,369,059     3,360,223     2,779,561
Administrative Expense & Trustee 
   Services
394,240
295,827
780,546 759,789
   Operating Expenses        118,672        124,078        245,295        204,555
   Amortization $      134,716 $      115,235 $      263,672 $      210,914
Total Expenses $ 19,431,626 $ 15,696,449 $ 37,960,854 $ 30,562,962
INCOME BEFORE GAIN/LOSS ON PROPERTIES AND MINORITY INTEREST 3,743,415  2,707,811     6,994,281     5,272,942
GAIN ON SALE OF INVESTMENT         16,398                0        324,332                0
MINORITY INTEREST OTHER PARTNERSHIP
-86,554 0 -143,309           0
MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME $    -727,344
 $     -538,618
$  -1,453,661 $    -964,285
NET INCOME $  2,945,915 $   2,169,193 $   5,721,643 $  4,308,657
PER SHARE        
   Net Income Per Share $      0.1200 $       0.0900 $      0.2400 $      0.1900
   Dividends Paid Per Share $      0.1475 $       0.1350 $      0.2925 $      0.2675
   Average Number of Shares 
   Outstanding
  24,362,151   22,972,664   24,252,467   22,790,637

S-6


Summary Operating Data Last Three Fiscal Years
     We have provided in the table below our summary financial and operating data.  The financial information for each of the years in the three-year period ended April 30, has been derived from our audited financial statements.  You should read the following financial information in conjunction with our consolidated financial statements and the related notes that we have included in the accompanying prospectus on pages F-1 through F-57.

Selected Financial Data for IRET for the Three Years Ended April 30
 


     2001
     2000
     1999
Consolidated Income Statement Data



      Revenue 
$      75,767,150
$      55,445,193
$      39,927,262
      Income before gain/loss on properties
      and minority interest
$      10,187,812
$        8,548,558
$        6,401,676
      Gain on repossession/ Sale of properties
$           601,605
$        1,754,496
$        1,947,184
      Minority interest of portion of
      operating partnership income 
$       -2,095,177
$       -1,495,209
$         -744,725




      Net income
$        8,694,240
$        8,807,845
$       7,604,135
Consolidated Balance Sheet Data


 
      Total real estate investments
$     548,580,418
$     418,216,516
$    280,311,442
      Total assets 
$     570,322,124
$     432,978,299
$    291,493,311
      Shareholders' equity 
$     118,945,160
$     109,920,591
$      85,783,294
Per Share



      Net Income
$                  .38
$                  .42
$                 .44
      Dividends 
$                  .55
$                  .51
$                 .47




Calendar Year
         2001
         2000
         1999
Tax status of dividend


 
      Capital gain
                  .7%
                30.3%
                 6.3%
      Ordinary income 
              86.8%
                69.7%
                76.0%
      Return of capital 
              12.5%
                  0.0%
                17.7%

The remainder of this page has been intentionally left blank.

S-7


Recent Developments

Revenues
     Total IRET revenues for the second quarter of Fiscal 2002 ended October 31, 2001, were $23,175,041 compared to $18,404,260 received in the" second quarter of the prior fiscal year ended October 31, 2000.  This is an increase of $4,770,781 or 25.9%.

     Total revenues for the first six months of Fiscal 2002 ended October 31, 2001, were $44,955,135 compared to $35,835,904, an increase of 25.4% for the first six months of the prior fiscal year ended October 31, 2000.  These increases are primarily attributable to the addition of new properties to IRET's investment portfolio.

Funds From Operations
     IRET considers Funds From Operations ("FFO") a useful measure of performance for an equity REIT.  FFO is defined as net income available to shareholders determined in accordance with generally accepted accounting principles (GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures.  IRET uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO as amended by NAREIT to be effective January 1, 2000.  FFO for any period means the net income of the company for such period, excluding gains or losses from debt restructuring and sales of property, and plus depreciation and amortization of real estate assets in IRET's investment portfolio, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with GAAP.

     FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition.

     FFO should not be considered as an alternative to net income as determined in accordance with accounting principles generally accepted in the United States of America as a measure of IRET's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of IRET's needs or its ability to service indebtedness or make distributions.

     Funds from Operations for IRET for the three months ended October 31, 2001, increased to $7,436,176 compared to $5,749,948 for the three months ended October 31, 2000, an increase of 29.4%.

     Funds from Operations for IRET for the six months ended October 31, 2001, increased to $14,335,235 compared to $10,971,288 for the six months ended Fiscal 2000, an increase of 30.7%.

S-8


Capital Gain Income
      IRET realized capital gain income of $16,398 during the second quarter of Fiscal 2002 ended October 31, 2001.  This resulted from the sale of the Lester Chiropractic building in Bismarck, North Dakota, at a gain of $85,279, and the sale of marketable securities available for sale at a loss of $68,881.

     Total capital gain income for the first six months of Fiscal 2002 ended October 31, 2001, was $324,332.  In addition to the two items listed in the previous paragraph, capital gain income for the first six months for Fiscal 2002 included a gain of $296,409 from the sale of the Sunchase Apartments, a 36-unit apartment complex in Fargo, North Dakota, and a gain of $11,525 from the sale of marketable securities held to maturity.  Both events occurred in the first quarter of Fiscal 2002.  No capital gain income was realized in the first six months of the prior fiscal year ended October 31, 2000.

Acquisition of Interlachen Corporate Center  - Edina, Minnesota
      On August 13, 2001, we acquired Interlachen Corporate Center a 105,084 square foot office building located in Edina, Minnesota for $16,500,000 in cash.

      Interlachen Corporate Center is a four-story building containing four levels of office space and one level of underground parking containing 36 stalls located at 5050 Lincoln Drive Edina Minnesota.  The building was completed in April of 2001 and is currently 95% leased to five tenants.  The primary tenant occupying 75% of the space is Alliant Techsystems, Inc. (NYSE symbol ATK).  Alliant Techsystems is an aerospace and defense company with leading market positions in propulsion, composite structures, munitions, and precision capabilities.  The company, which is headquartered at the Interlachen Corporate Center, employs approximately 9,600 people worldwide and has two business segments: Aerospace and Defense.

      Alliant's lease commenced in May of 2001 and runs for a 7-year term.

Acquisition of Retail Strip Center Cottage Grove, Minnesota
      On July 6, 2001, we acquired the Cottage Grove Strip Center which is a 15,217 square foot retail strip center located in Cottage Grove, Minnesota for an agreed value of $1,100,000 which was paid partly in cash of $823,594.00 and the balance of $276,594 with 31,603.53 limited partnership units with a value of $8.752 per unit.

     The Cottage Grove Strip Center is a single story multi-tenant retail building built in 1986 and located at 7155 80th Street South Cottage Grove, Minnesota.  It is currently 100% leased to eight tenants with remaining lease terms ranging from 2 to 6 years.  All rents paid by the current tenants are at market rates.  No one tenant occupies more than 35% of the leasable space.

Acquisition of Bloomington Business Plaza - Bloomington, Minnesota
     On October 1, 2001, we acquired the Bloomington Business Plaza from a general partnership controlled by Steven B. Hoyt.  The property was acquired pursuant to the terms of a contract dated January 8, 2001, as amended by an agreement dated September 27, 2001.  At the time of acquisition, Mr. Hoyt was a member of the Board of Trustees for IRET.  At the time the original acquisition contract was signed, Mr. Hoyt was not a member of the Board of Trustees for IRET.

S-9


     The property was purchased for an agreed value of $7,201,680 of which $215,000 was paid in cash and the balance of $6,986,680 with 812,404.65 limited partnership units of IRET Properties with a value of $8.60 per unit.  In addition to the purchase price of $7,201,680, IRET incurred acquisition costs of $203,989 for commissions, loan costs and legal costs.

     The acquisition was approved by a majority of the Board of Trustees and based on an independent appraisal of the property which determined the value to be $6,975,000.

     Bloomington Business Plaza is a multi-tenant office/warehouse building constructed in 1985.  It consists of 121,063 square feet of leasable space and is currently 100% leased to 21 tenants with remaining lease terms ranging from five months to four years and 10 months.  All rents paid by the current tenants are at market rates.  No one tenant occupies more than 17.08% of the leasable space.

Acquisition of Canyon Lake Apartments - Rapid City, South Dakota
     On September 27, 2001, we acquired the Canyon Lake Plaza Apartments which is a 109-unit multi-family apartment complex located in Rapid City, South Dakota, for an agreed value of $4,270,607 which was paid for with 83,626.79 limited partnership units of IRET Properties with a value of $8.60 per unit.

     The Canyon Lake Plaza Apartments is a multi-building apartment complex consisting of four separate buildings.  The complex was built in 1972.  As of October 31, 2001, the property was 96.3% occupied.

Acquisition of Applewood on the Green Apartments - Omaha, Nebraska
     On November 1, 2001, we acquired the Applewood on the Green Apartments located in Omaha, Nebraska, for an agreed value of $10,364,745 which was paid partly in cash of $2,643,611 and the balance by assumption of an existing debt secured by the property with an unpaid balance of $7,721,134.  The assumed debt bears interest at a fixed rate of 6.55% and is payable in monthly installments  of $51,334 amortized over a remaining term of seven years with a balloon payment of all remaining principal and interest due on October 8, 2008.

     The Applewood Apartments is a multi-building apartment complex consisting of 13 individual buildings.  The complex was built in 1971.  As of October 31, 2001, the property was 70.5% occupied.

The remainder of this page has been intentionally left blank.

S-10


 

Price Range of Common Shares and Distributions
      The following sets forth the high and low sale prices for our common shares for the periods indicated as reported by the NASDAQ Small Cap Market and the distributions we paid with respect to each period.
 

High Low Distribution
Per Share




Fiscal 1999


First Quarter ending July 31, 1998  $   7.313  $   7.188       $     0.11000
Second Quarter ending October 31, 1998  $   14.00  $   6.50       $     0.11500
Third Quarter ending January 31, 1999  $   7.875  $    7.00       $     0.12000
Fourth Quarter ending April 30, 1999  $     8.00  $    7.00       $     0.12250




Fiscal 2000


First Quarter ending July 31, 1999  $ 17.875  $   7.063       $     0.12400
Second Quarter ending October 31, 1999  $   10.50  $   7.063       $     0.12600
Third Quarter ending January 31, 2000  $   8.375  $   7.250       $     0.12800
Fourth Quarter ending April 30, 2000  $   8.125  $   7.125       $     0.13000




Fiscal 2001


First Quarter ending July 31, 2000  $   8.125  $   7.375       $     0.13250
Second Quarter ending October 31, 2000  $   8.250  $   7.594       $     0.13500
Third Quarter ending January 31, 2001  $     8.50  $   7.438       $     0.14000
Fourth Quarter ending April 30, 2001  $   8.980  $     8.00       $     0.14250




Fiscal 2002


First Quarter ending July 31, 2001  $  10.490  $   8.250       $     0.14500
Second Quarter through October 31, 2001  $    9.430  $     8.80       $     0.14750

      On December 24, 2001, the last reported sale price of our common shares on the Nasdaq Small Cap Market was $9.35 per share.

Legal Matters

      Pringle & Herigstad, P.C., Minot, North Dakota, our legal counsel, will issue opinions about the valid issuance of the shares offered by this prospectus and tax matters relating to the qualification of IRET as a real estate investment trust.

Experts

      The audited consolidated financial statements for Investors Real Estate Trust included in this prospectus have been audited by Brady, Martz & Associates, P.C. independent public accountants, as indicated in their report with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said report.

S-11


Available Information Concerning IRET

Securities and Exchange Commission

     IRET is currently a reporting company pursuant to the Securities Exchange Act of 1934 and annually files a Form 10-K during July and quarterly Forms 10-Q for the first three quarters of each year with the Securities and Exchange Commission.  The information filed by IRET can be inspected and copied at the Public Reference Room maintained by the Securities and Exchange Commission in Washington, DC, at 450 Fifth Street NW, Room 1024, Washington, DC 20549.  For further information about the Public Reference Room, please call 1-800-SEC-0330.
     The Securities and Exchange Commission maintains a website at http://www.sec.gov.  Annual and quarterly reports, proxy statements and other information regarding IRET can be obtained from the SEC website.
 
    IRET also maintains a website at www.iret.com which contains information about the company.

Reports to Security Holders
     IRET provides shareholders with an annual report on or about the second week of August of each year containing financial statements audited by IRET's independent accountants for the prior fiscal year ended.  For the first three quarters of each year, IRET provides shareholders with a quarterly report containing unaudited summary financial statements and such other information as IRET deems appropriate or as required by law.  The quarterly reports are distributed on or before April 15, October 15, and January 15, of each year.

Additional Information
     Copies of any document discussed in this prospectus is available free of charge upon request to Timothy P. Mihalick, 12 South Main Street, Suite 100, Minot, North Dakota 58701, (701-837-4738).

     Certain matters included in this prospectus are forward-looking statements within the meaning of federal securities laws.  Although IRET believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that the expectations expressed will actually be achieved.  Many factors may cause actual results to differ materially from IRET's current expectations, including general economic conditions, local real estate conditions, the general level of interest rates and the availability of financing, timely completion and lease-up of properties under construction, and various other economic risks inherent in the business of owning and operating investment real estate.

 
 

S-12


PROSPECTUS
 The Company

     Investors Real Estate Trust ("IRET") was organized under the laws of the State of North Dakota on July 31, 1970.  Since its formation, IRET has qualified and operates as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code.  IRET is a self-administered and self-managed company.  As of October 31, 2001, IRET owned and operated a portfolio of 59 apartment communities containing 8,248 apartment units and 62 commercial buildings containing 2,781,115 square feet of leasable space.

     IRET's investment strategy is to maintain its real estate investment portfolio at approximately 60% invested in multi-family apartment communities located primarily in the upper Midwest and the remaining 40% of real estate owned in commercial property warehouses, retirement homes, manufacturing plants, offices, and retail properties leased to single or multiple tenants, usually for seven years or longer, located throughout the upper Midwest.  IRET operates mainly within the states of North Dakota and Minnesota, although it has real estate investments in the states of Colorado, Georgia, Idaho, Iowa, Kansas, Michigan, Montana, Nebraska, South Dakota, Washington, and Texas.
 
       IRET seeks to leverage all property acquired so that the debt is approximately 70% of the property's value.
 

       IRET conducts all of its daily business operations through its operating partnership, IRET Properties, a North Dakota Limited Partnership.  IRET Properties is principally engaged in acquiring, owning, operating and leasing multi-family apartment buildings and commercial real estate.  The sole general partner of IRET Properties is IRET, Inc.  IRET owns 100% of IRET, Inc.

      As the general partner, IRET, Inc. owns a 76% interest as of April 30, 2001, in IRET Properties.  The remaining ownership of IRET Properties is held by individual limited partners, none of who own more than 10% of the outstanding limited partnership units of IRET Properties.

      IRET's principal source of operating revenue is rental income from real estate properties owned and operated by its operating partnership.  A minor amount of revenue is derived from interest on short-term investments in government securities and interest on savings deposits.  In addition to operating income, IRET has received capital gain income when real estate properties have been sold at a price in excess of the depreciated cost of said properties.

      IRET has its only office at 12 South Main, Suite 100, Minot, North Dakota 58701, (701) 837-4738.

1


Selected Financial Information For the Past Three Years
      IRET operates on a fiscal year ending April 30th. For the past three fiscal years, sources of operating revenue, total expenses, net real estate investment income, capital gain income, total income, and dividend distributions are as follows:
 

Fiscal Year Ending 4/30
      2001
      2000
      1999
      Revenue from Operations
 
 
 
      Real Estate Rentals
$     74,800,722
$     54,257,881
$     38,785,287
      Interest, Discount & Fees 
$          966,428
$       1,187,312
$       1,141,975
 
$     75,767,150
$     55,445,193
$     39,927,262
Expenses 
$     65,579,338
$     46,896,635
$     33,525,586
Income Before Gain/Loss on Properties
      and Minority Interest
$     10,187,812
$       8,548,558
$       6,401,676
Gain on Sale of Properties
$          601,605
$       1,754,496
$       1,947,184
Minority Interest Portion of
      Operating Partnership Income
$      -2,095,177
$      -1,495,209
$        -744,725
Net Income
$       8,694,240
$       8,807,845
$      7,604,135
Per Share
 
 
 
 Net Income Per Share (basic and diluted)
$                 .38
$                 .42
$                   .44
Dividends Paid 
$                 .55
$                 .51
$                   .47

      Over the past three years IRET's investment in real estate, ownership, and sources of revenue by geographic location has been as follows:

Real Estate Investment by State for the Last Three Years Ended April 30 (1)
 


Commercial
Apartments
State
2001
 
2000
 
1999
 
2001
 
2000
 
1999
 
CO
$                  0
0%
$  1,409,445
1%
$               0
0%
$  39,050,180
11%
$  38,837,432
12%
$38,599,278
17%
GA
$    3,971,878
2%
$  3,971,878
3%
$ 3,971,878
6%
$                  0
0%
$                  0
0%
$                0
0%
ID
$    4,788,294
2%
$  4,788,094
4%
$ 5,792,182
9%
      $    3,853,638
1%
$    3,833,486
1%
$  3,822,199
2%
IA
$                  0
0%
$                0
0%
$               0
0%
$    4,281,967
1%
$                  0
0%
$                0
0%
KS
$                  0
0%
$                0
0%
$               0
0%
$  26,818,295
7%
$  26,541,920
8%
$                0
0%
MI
$    2,121,474
1%
$  2,113,574
2%
$ 2,113,574
3%
    $                  0
0%
$                  0
0%
$                0
0%
MN
$143,191,654
62%
$44,384,465
37%
$ 7,873,122
12%
               $55,485,023
15%
$  45,712,269
14%
$38,645,843
17%
MT
$    4,832,860
2%
$  4,130,684
3%
$ 3,627,565
5%
               $36,883,028
10%
$  24,982,540
       8%
$18,503,389
8%
NE
$  14,640,541
6%
$13,112,879
11%
$11,983,078
18%
               $9,956,873
3%
$    9,572,130
3%
$                0
0%
ND
$  48,492,536
21%
$45,829,016
38%
$25,212,104
37%
               $112,882,092
31%
$107,836,564
33%
$94,845,697
41%
SD
$    8,019,609
3%
$     974,739
1%
$  5,403,765
8%
               $16,769,796
5%
$  16,559,607
5%
$16,427,555
7%
TX
$                   0
0%
$                0
0%
$                0
0%
               $37,617,106
10%
$ 37,473,258
11%
$                0
0%
WA
 $                  0
0%
$                0
 0%
$                0
 0%
               $17,979,624
  5%
$ 17,855,910
    5%
$17,731,015
   8%
Other
$                  0
0%
$                 0
0%
 $  1,273,596
2%
$                   0
0%
$                  0
0%
$                 0
0%
Total
$230,058,846
100%
$120,714,774
100%
$67,250,864
100%
               $361,577,622
100%
$329,205,117
100%
$228,574,976
100%
(1)
Investment is the amount paid by IRET for the land and buildings plus the cost of any improvements made to the real estate.

2


Commercial Square Footage for the Last Three Years Ended April 30
 

State
2001
sq. ft.
%
2000
sq. ft.
%
1999
sq. ft.
%
CO
29,408
1%
40,000
2%
0
0%
GA
0
0%
29,408
2%
29,408
2%
IA
0
0%
0
0%
0
0%
ID
69,599
3%
139,198
9%
139,198
12%
KS
0
0%
0
0%
0
0%
MI
16,000
1%
16,000
1%
16,000
1%
MN
1,430,460
57%
554,962
35%
176,319
15%
MT
70,598
3%
64,803
4%
59,603
5%
NE
126,774
5%
127,274
8%
101,274
8%
ND
682,893
27%
623,593
39%
600,765
48%
SD
87,786
3%
11,971
1%
106,147
9%
TX
0
0%
0
0%
0
0%
WA
              0
    0%
             0
    0%
             0
    0%
Total
2,513,518
100%
1,607,209
100%
1,228,714
100%

 Apartment Units Owned For the Last Three Years Ended April 30
 

State
2001
Units
%
2000
Units
%
1999
Units
%
CO
597
8%
597
8%
597
11%
GA
0
0%
0
0%
0
0%
IA
132
2%
0
0%
0
0%
ID
60
1%
60
1%
60
1%
KS
520
7%
520
7%
0
0%
MI
0
0%
0
0%
0
0%
MN
1,236
16%
1,163
16%
1,079
20%
MT
749
10%
475
6%
330
6%
NE
264
3%
264
4%
0
0%
ND
3,085
39%
3,014
41%
2,740
50%
SD
418
5%
418
6%
418
8%
TX
504
6%
504
7%
0
0%
    WA
   304
    4%
   304
   4%
   304
    5%
Total
7,869
100%
7,319
100%
5,528
100%

The remainder of this page has been intentionally left blank.

3


Gross Revenue from Real Estate Activities for the Last Three Years Ended April 30


 
Commercial
Apartments
State
2001
 
2000
 
1999
 
2001
 
2000
 
1999
 
CO
$                0
0%
$                0
0%
$                0
0
$  6,004,925
11%
$  4,387,457
10%
$  5,442,020
16%
GA
$     436,907
2%
$     436,907
4%
$     436,907
8%
$                0
0%
$                0
0%
$                0
0%
IA
$                0
0%
$                0
0%
$                0
0%
$     189,193
0%
$                0
0%
$                0
0%
ID
$       26,780
0%
$       63,081
1%
$     101,702
2%
$     521,415
1%
$     117,075
0%
$     324,505
1%
KS
$                0
0%
$                0
0%
$                0
0%
$  3,763,671
7%
$  2,006,578
5%
$                0
0%
MI
$     202,912
1%
$     192,264
2%
$     192,264
3%
$                0
0%
$                0
0%
$                0
0%
MN
$10,085,064
53%
$  3,169,633
27%
$     459,246
8%
$  9,057,050
16%
$  7,707,359
18%
$  7,106,374
22%
MT
$     591,581
3%
$     569,668
5%
$     578,412
10%
$  4,649,153
      8%
$  2,667,540
6%
$  1,761,288
5%
NE
$  1,367,740
7%
$  1,201,903
10%
$     416,755
7%
$  1,717,494
3%
$  1,065,585
3%
$                0
0%
ND
$  5,675,734
30%
$  5,878,584
49%
$  2,976,140
52%
$18,982,213
34%
$17,994,851
42%
$  4,825,877
45%
SD
$     607,293
3%
$     365,987
3%
$     613,735
11%
$  3,020,178
5%
$  2,654,752
6%
$  2,795,807
8%
TX
$                0
0%
$                0
0%
$                0
0%
$  5,339,707
10%
$  1,306,004
3%
$                0
0%
WA
$                0
   0%
$                 0
  0%
$                0
   0%
$   2,561,714
    5%
$   2,472,654
   6%
   754,255
   2%
Total
$18,994,011
100%
$11,878,027
100%
$  5,775,161
100%
$55,806,713
100%
$ 42,379,855
100%
$33,010,126
100%

Net Income from Real Estate Activities for the Last Three Years Ended April 30
 

 
Commercial
Apartments
State
2001
 
2000
 
1999
 
2001
 
2000
 
1999
 
CO
$               0
0%
$              0
0%
$              0
0%
$ 1,832,402
11%
$ 1,551,246
12%
$  1,456,732
14%
GA
$    310,708
4%
$   321,847
6%
$   313,720
11%
$               0
0%
$               0
0%
$                0
0%
IA
$               0
0%
$              0
0%
$              0
0%
$      55,868
0%
$               0
0%
$                0
0%
ID
$   -377,029
-5%
$  -349,029
-6%
$  -346,420
-12%
$    173,756
1%
$    187,005
1%
$     182,780
2%
KS
$               0
0%
$              0
0%
$              0
0%
$    787,400
5%
$    745,696
6%
$                0
0%
MI
$      93,154
1%
$     78,988
1%
$     75,732
3%
$               0
0%
$               0
0%
$                0
0%
MN
$ 3,993,685
48%
$1,718,743
31%
$   247,823
8%
$ 3,108,143
19%
$ 2,759,136
21%
$  2,465,305
23%
MT
$    155,815
2%
$   205,684
4%
$   221,922
7%
$ 1,570,239
10%
$ 1,107,386
8%
$     752,074
7%
NE
$    719,870
9%
$   589,536
11%
$   215,732
7%
$    376,243
2%
$    318,190
2%
$                0
0%
ND
$ 3,179,328
38%
$2,694,967
49%
$1,870,459
63%
$ 5,496,014
34%
$ 4,290,775
33%
$  4,546,399
43%
SD
$    268,989
3%
$   199,381
4%
$   361,894
12%
$    895,872
5%
$ 1,007,574
8%
$     853,890
8%
TX
$               0
0%
$              0
0%
$              0
0%
$ 1,227,386
8%
$    432,807
3%
$                0
0%
WA
$               0
   0%
$              0
   0%
$              0
   0%
$   783,319
   5%
$   692,017
   5%
   312,817
   3%
Total
$  8,344,520
100%
$5,460,117
100%
$2,960,862
100%
$16,306,642
100%
$13,091,832
100%
$10,569,997
100%

Risk Factors

      An investment in the shares involves various risks.  Before investing you should carefully consider the following risks:
 

Price of Shares May be Higher than Nasdaq Price
      The $8.75 price is higher than the price paid by most of the current holders of IRET's shares.  The $8.75 price may be higher than the price at which IRET shares trade on the Nasdaq Smallcap Market. As a result, before buying shares pursuant to this offer, you should check to determine whether you might be able to buy the same number of shares on the Nasdaq for a lower price.  See "Determination of Offering Price" on Page 18.
 
 

4


Price Exceeds Book Value
      The book value of IRET shares of beneficial interest is substantially less than the $8.75 purchase price. As of January 1, 2002, the book value of the 27,030,009 shares then outstanding was $5.24 per share. Assuming all of the shares registered under this offering are sold, the estimated resulting book value will be $5.30 per share. Thus, a purchasing shareholder paying $8.75 per share will incur an immediate book value dilution of $3.45 per share.

High Leverage on Individual Properties or the Overall Portfolio May Result in Losses
      IRET seeks to borrow approximately 70% of the cost of real estate purchased or constructed. The 70% per property borrowing limitation is a policy that has been established by management and approved by the Board of Trustees. Since it is a policy, the 70% limitation may be changed at anytime by IRET without notice to or the approval of the shareholders. For the past three years as of April 30th, the total mortgage indebtedness of IRET as it relates to the total real estate assets of IRET at book value has been as follows:
 
 

 
2001
2000
1999
 
     
Real Estate Assets
$   591,636,468
$   449,919,890
$   295,825,839
Total real estate debt
$   368,956,930
$   265,056,767
$   175,071,069
Leverage percentage
62.4%
58.9%
59.2%


      In addition to the policy of not exceeding an overall 70% debt ratio on all real estate, the Declaration of Trust, Article 1, Section J provides that the total borrowings of IRET, secured and unsecured, shall be reasonable in relation to the total net assets of IRET, and shall be reviewed by the trustees at least quarterly. The maximum borrowings in relation to the net assets, in the absence of a satisfactory showing that a higher level of borrowing is appropriate, shall not exceed 300% of net assets in the aggregate.  Any borrowing in excess of the 300% limit shall be approved by a majority of the independent trustees and disclosed to shareholders in the next quarterly report of IRET along with justification for the excess. There is no limit on the amount of money IRET may borrow on an individual property.  For the past three years as of April 30, the total indebtedness of IRET as it relates to its total net assets has been as follows:
 
 

 
2001
2000
1999
 
     
Total Net Assets
$   177,948,354
$   145,038,261
$   100,263,836
Total debt
$   389,086,105
$   287,940,038
$   191,229,475
Leverage percentage
219%
199%
191%


      This amount of leverage may expose IRET to cash flow problems in the event rental income decreases. Such a scenario may require IRET to sell properties at a loss, reduce or eliminate quarterly cash distributions to shareholders or default on the mortgage which would result in loss of the property through foreclosure.
 
 

5


Inability to Sell All the Shares May Prevent Acquisition of Additional Real estate
      The shares are being sold by the broker/dealers on a "best efforts" basis whereby the selling agent is only required to use its best efforts to locate purchasers for the shares, but is not obligated to ensure that a minimum number or that even any shares are sold. Therefore, no assurance is given as to the amount of proceeds that will be available for investment by IRET.  In the event fewer than all the shares are sold during the offering period which is the shorter of one year from the date on the front of the prospectus or when all shares have been sold, IRET would not have sufficient money to acquire additional real estate.  This could result in the fixed operating expenses of IRET, as a percentage of gross income, to be higher and consequently reduce the taxable income distributable to shareholders.

          In the event less than all the shares are sold, any net proceeds actually received by us will not be returned to you.
 

Geographic Concentration in North Dakota and Minnesota May Result in Losses
      A majority of IRET's assets are presently invested in real estate in North Dakota and Minnesota.
 

      For fiscal year 2001 IRET received 53% of its commercial gross revenue of $18,994,011 from commercial real estate from activities in Minnesota and 30% of its commercial gross revenue from North Dakota.  Minnesota accounts for 57% of IRET's commercial real estate portfolio by square footage while North Dakota accounts for 27%.
 

      For fiscal year 2001, IRET received 16% of its apartment gross revenue of $42,379,855 from activities in Minnesota and 34% of its apartment gross revenue from North Dakota.  IRET owns 1,163 apartment units in Minnesota or 16% of IRET's total number of apartment units and 39% of IRET's apartment units or 3,014 units are located in North Dakota.
 

      As a result of this concentration in two states, IRET may be subject to substantially greater risk than if its investments were more dispersed geographically.  Due to the high concentration in North Dakota and Minnesota changes in local conditions, such as building by competitors or a decrease in employment may adversely affect the performance of IRET's investments much more severely.
 

      While the Minnesota economic climate has been strong for past five years, it is dependent on the areas of service, manufacturing, high technology, and agriculture.  Since 75% of IRET's assets in Minnesota are commercial properties, an economic weakening in any of these areas would adversely affect the performance of IRET's real estate portfolio by decreasing demand for rental space.
 

           In contrast, the North Dakota economy is dependent on the areas of agriculture and mineral development.  Both of these industries were depressed for most of the past decade.  In the opinion of IRET there appears little prospect for improvement.  While the North Dakota unemployment rate is below 4%, the state experienced almost zero population growth during the last decade and currently has a high concentration of people over 65.  During the past decade, the population located in the rural areas declined significantly while that of the cities and towns over
 
 

6


15,000 increased on average by 5%.  This increase was due to the rural population moving to North Dakota's larger towns and cities of Fargo, Bismarck, Grand Forks, Minot, Jamestown, Dickinson, Williston, and Devils Lake.  Of IRET's assets in North Dakota, over 90% are located in the cities and towns previously listed. It is predicted that the rural population in North Dakota will continue to move to North Dakota's larger towns and cities over the coming decade and that the overall population will decline over the next decade.


   Unlike Minnesota, two-thirds of IRET's assets in North Dakota are multi-family apartment complexes, which are dependent on a stable or growing population.  If North Dakota's population declines, IRET will experience difficulty in renting its real estate located in North Dakota at acceptable rates of return.  This will result in a decrease in net income and a corresponding decline in the level of distributions to shareholders.
 

     IRET currently has no limitations or targets concerning the concentration of assets or geographic location of business activities.
 

Senior Securities will be Paid Before IRET Shares
     As of October 31, 2001, IRET has issued $25,875,441 of securities to other investors, which are senior to the shares offered for sale under this document.  As a result, in the event IRET ceases operations or liquidates and distributes all of its assets, the holders of the senior securities will be paid in full first before any money is distributed to shareholders.  This preference will result in shareholders receiving less money.  Currently, IRET is authorized to issue no more than $5,000,000 in senior securities.  However, this policy can be changed by the trustees at any time without advance notice to or a vote of the shareholders.
 

Current and Future Commercial Vacancy May Negatively Impact Earnings
  Over the next 12 months leases covering approximately 5.07% of the total commercial square footage owned by IRET will expire.  As of October 31, 2001, approximately 3.12% of the total commercial square footage owned by IRET was vacant.  Of that current vacancy, 80.28% is represented by the warehouse in Boise, Idaho, which has been vacant for the last 14 months.  As a result, in the event IRET is unable to rent or sell those properties affected by an expiring lease or that are already vacant, then 8.19% of IRET's total commercial portfolio per square foot will be vacant.  If not corrected, this vacancy will negatively impact IRET's earnings and result in lower distributions to shareholders and a possible decline in the value of IRET real estate portfolio.

      While it is difficult to clearly identify specific properties which may not produce sufficient returns, IRET currently has two commercial properties facing great risk of not producing rental income.  Those properties are the Boise warehouse which is currently vacant and producing no income.  IRET is still paying all expenses associated with the property, which are expected to be $500,000 over the next 12 months.

     The second building is the Carmike Cinema building in Grand Forks, North Dakota.  The tenant is currently in Chapter 11 bankruptcy.  All rent has been paid to date, and the tenant has affirmed the lease in the bankruptcy proceeding and may no longer reject the lease.  However, Carmike may not successfully complete its Chapter 11 re-organization and could default on its

 7


obligations.  IRET currently receives $278,512 in rent annually for Carmike compared to fiscal year 2001 gross revenues of $74,774,464.  Annual rent from Carmike represents less than 1% of annual gross revenue.  However, should Carmike reject the lease, IRET would incur a decline in net income.
 

Mortgage Lending May Result in Losses

    Over the past three years, IRET has the following mortgage loans:

 
Location
Real Estate
Security
        10/31/01
        4/30/01
        4/30/00
        4/30/99
Interest
Rate
Priority
 
 
 
 
 
 
 

Higley Heights - Phoenix, AZ
Orange Grove
$                 0
$                0
$     598,843
$      742,811
8.00%
First
Great Plains Software - Fargo, ND
Campus/Office Facility
$                 0
$                0
$                0
$   9,185,758
9.50%
First
Hausmann Rentals - Moorhead, MN
Apartment Building
$      273,934
$     278,527
$     287,115
$      294,968
9.00%
First
1516 N. Street -  Bismarck, ND
Apartment Building
$                 0
$                0
$                0
$      159,965
10.25%
First
Scottsbluff Estates - Scottsbluff, NE
Apartment Building
$      106,514
$     106,926
$     108,752
$      110,437
8.00%
Second
Fairfield Apts - Hutchinson, MN
Apartment Building
$        42,692
$       43,313
$       45,930
$        46,500
8.75%
First
1921 7th Street NW - Minot, ND
Rental House
$                 0
$            954
$         2,269
$          3,282
7.00%
First
Inwards Building - Detroit Lakes, MN
Apartment Building
$                 0
$                0
$                0
$      117,493
9.00%
First
Edgewood Vista - Norfolk, MN
Alzheimer Facility
$      477,375
$     477,375
$     477,375
$                 0
11.00%
First
  Edgewood Vista - Virginia, MN   Alzheimer Facility
  $   1,712,382  
  $                 0  
  $                0  
   $                  0  
10.00%
First
Mankato Heights Plaza - Mankota, MN
Strip Mall
$   3,200,000
$                0
$                0
$                 0
10.00%
First
Other Mortgages
 
$      130,000
$     130,000
$     130,000
$        60,000
8.00%

 
 
 
 
 
 


Total
 
$  5,942,897
$ 1 ,037,095
$  1,650,284
$ 10,721,213


Less:
 
 
 
 
 


    Unearned Discounts
 
$                0
$                0
$           -392
$        -1,898


    Deferred gain from property     dispositions
 
$                0
$                0
$                0
$        -1,000


    Allowance for Losses
 
$                0
$                0
$     120,314
$    -120,314


 
 
$  5,942,897
$  1,037,095
$  1,529,578
$ 10,598,001



      All real property investments are subject to some degree of risk, which, in some cases, varies according to the size of the investment as a percentage of the value of the real property.  In the event of a default by a borrower on a mortgage loan, it may be necessary for IRET to foreclose its mortgage or engage in negotiations that may involve further outlays to protect IRET's investment.
 

      The mortgages securing IRET's loans may be, in certain instances, subordinate to mechanics' liens, materialmen's liens, or government liens and, in instances in which IRET invests in a junior mortgage, IRET may be required to make payments in order to maintain the status of the prior lien or to discharge it entirely. In certain areas, IRET might lose first priority of its lien to mechanics' or materialmen's liens due to wrongful acts of the borrower.  It is possible that the total amount which may be recovered by IRET in such cases may be less than its total investment, with resultant losses to IRET.  Loans made by IRET may, in certain cases, be subject to statutory restrictions limiting the maximum interest charges and imposing penalties, which may include restitution of excess interest, and, in some cases, may affect enforceability of the debt. There can be no assurance that all or a portion of the charges and fees which IRET receives on its loans may not be held to exceed the statutory maximum, in which case IRET may be subjected to the penalties imposed by the statutes.
 

      IRET may change any policy relating to its mortgage lending at any time without prior notice to or the approval of the shareholders.
 
 

8


Lack of Employment Contracts May Prevent IRET from Retaining Qualified Management
      Certain operating expenses of IRET, including compensation to employees and trustees, must be met regardless of profitability.  IRET will be dependent upon its officers for essentially all aspects of its business operations.  Because the officers have experience in the specialized business segment in which IRET operates, the loss of any of the officers, for any reason, would likely have a material adverse affect on IRET's operations.  The officers may terminate their relationship with IRET at any time and without providing any advance notice to IRET.  IRET currently relies on the following key employees:
 
 

Name
Position
Age
 
 

Thomas A. Wentz, Sr.
President & Chief Executive Officer
66
Timothy P. Mihalick
Senior Vice President  & Chief Operating Officer
42
Thomas A. Wentz, Jr.
Vice President & Legal Counsel
35
Diane K. Bryantt
Secretary & Chief Financial Officer
37

 

      IRET does not have any employment contracts or agreements with any employees or trustees.  IRET would incur significant expense in order to recruit and relocate officers to its location in Minot, North Dakota.

Competition May Negatively Impact IRET's Earnings
      Investments of the types in which IRET is interested may be purchased on a negotiated basis by many kinds of institutions, including other real estate investment trusts, private partnerships, individuals, pension funds, and banks.  There are a number of other real estate investment trusts in operation, many of which are active in one or more of IRET's areas of investment.  According to the National Association of Real Estate Investment Trusts (NAREIT) as of September 2001, there were 178 publicly traded real estate investment trusts and another 20 real estate investment trusts not traded on a public exchange.  According to the NAREIT list, IRET is currently ranked in the middle category according to market capitalization and annual gross revenue.

     All of the properties currently owned by us are located in developed areas.  Many of our competitors have  greater financial and other resources than we have, within the market area of each of the properties that will compete with us for tenants and development and acquisition opportunities.  The number of competitive properties and real estate companies in such areas could have a material effect on (1) our ability to rent our real estate properties and the rents charged and (2) development and acquisition opportunities. The activities of these competitors could cause us to pay a higher price for a new property than we otherwise would have paid or may prevent us from purchasing a desired property at all, which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt

      There are also thousands of private limited partnerships organized to invest in real estate.  Investments must thus be made by IRET in competition with such other entities as well.  The yields available on mortgage and other real estate investments depend upon many factors, including the supply of money available for such investments and the demand for mortgage money.  The presence of the foregoing competitors increases the price for real estate assets as well as the available supply of funds to prospective borrowers from IRET.  All these factors, in turn, vary in relation to many other factors such as general and local economic conditions, conditions in the construction industry, opportunities for other types of investments,
 
 

9


 international, national and local political affairs, legislation, governmental regulation, tax laws, and other factors.  IRET cannot predict the effect that such factors will have on its operations.

      In no market in which IRET operates does a particular competitor own or otherwise control more than 10% of the available apartment units or more than 5% of the available commercial real estate space for rent to the public.

Low Trading Volume of IRET on the Nasdaq will Prevent the Timely Resale of Shares
      No assurance can be given that a purchaser of IRET shares under this offering would be able to resell such shares when desired.  Effective October 17, 1997, IRET shares of beneficial interest have been traded on the National Association of Securities Dealers Automated Quotation System Small Capitalization Market (NASDAQ).  Since October 17, 1997, the average daily trading volume has been 13,827 and the average monthly trading volume through October 31, 2001, has been 285,902.  As a result of this low trading volume, an owner of IRET shares will encounter difficulty in selling shares of IRET in a timely manner and may incur a substantial loss.

Ability of IRET's Board of Trustees to Change Policy Without Shareholder Approval
      The major policies of IRET, including its policies with respect to development, acquisitions, financing, growth, debt capitalization and distributions will be determined by the trustees.  Accordingly, the trustees may amend or revoke those policies and other policies without advance notice to or the approval of shareholders.

Certain Restrictions on Transfer of Shares May Result in Losses
      Provisions of the Declaration of Trust of IRET designed to enable IRET to maintain its status as a REIT, authorize IRET (i) to refuse to effect a transfer of any shares of stock of IRET to any person if such transfer would jeopardize IRET's qualification as a REIT, and (ii) to repurchase any such shares held by any such person.

     These restrictions allow IRET at anytime to redeem its shares held by any shareholder at the fair market value of the shares redeemed as determined by an independent appraisal.  As a result, an investor may be forced to sell their shares of stock at a loss or at a time that may cause adverse income tax consequences.

      Additionally, IRET may refuse to allow a transfer or sale of its stock.  As a result, an investor may be prevented from receiving the highest price possible for their shares, buying additional shares at a lower or favorable price, or even being able to buy or sell shares at any price. The Declaration of Trust specifically provides:

"To ensure compliance with the Internal Revenue Code provision that no more than 50% of the outstanding shares may be owned by five or fewer individuals, the trustees may at any time redeem shares from any shareholder at the fair market value thereof (as determined in good faith by the trustees based on an independent appraisal of trust assets made within six months of the redemption date).  Also, the trustee may refuse to transfer shares to any person whose


10


  acquisition of additional shares might, in the opinion of the trustees, violate the above requirement."
IRET Does Not Carry Insurance Against All Possible Losses
      We carry comprehensive liability, fire, extended coverage, and rental loss insurance with respect to our properties with certain policy specifications, limits, and deductibles.  No assurance can be given that such coverage will be available on acceptable terms or at an acceptable cost, or at all, in the future, or if obtained, that the limits of those policies will cover the full cost of repair or replacement of covered properties.

      In addition, there may be certain extraordinary losses such as those resulting from civil unrest, terrorism, or environmental contamination that are not generally insured or fully insured against because they are either uninsurable or not economically insurable.  IRET does not carry environmental insurance.  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 and would continue to be obligated on any mortgage indebtedness on the property.  Any such loss could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.

Adverse Changes in Laws May Affect Our Potential Liability Relating to the Properties and Our 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, and may adversely affect our cash available for distribution and our ability to make distributions to you and to pay amounts due on our debt.  Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.  In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenues or increase operating costs.

Potential Effect on Costs and Investment Strategy from Compliance with Laws Benefiting Disabled Persons
      A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction.  Legislation or regulations adopted in the future may impose further burdens or restrictions on us with respect to improved access by disabled persons. The costs of compliance with these laws and regulations may be substantial, and limits or restrictions on construction or completion of certain renovations may limit implementation of our investment strategy in certain instances or reduce overall returns on our investments, which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. We review our properties periodically to determine the level of compliance and, if necessary, take appropriate action to bring such properties into compliance. We believe, based on property reviews to date, that the

11


costs of such compliance should not have a material adverse effect on us. Such conclusions are based upon currently available information and data, and no assurance can be given that further review and analysis of our properties, or future legal interpretations or legislative changes, will not significantly increase the costs of compliance.

Potential Inability to Renew, Repay or Refinance Our Debt Financing
      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, the risk that indebtedness on our properties, or unsecured indebtedness, will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the terms of such indebtedness.  If we were unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of the properties on disadvantageous terms, which might result in losses to us. Such losses could have a material adverse effect on us and our ability to make distributions to you and pay amounts due on our debt.

     The balance of IRET's indebtedness in individual mortgage loans secured by individual commercial and residential properties totaled $401,345,146 as of October 31, 2001.  Of this amount, $24,539,567 is subject to variable interest rate agreements and none will come due during the balance of Fiscal 2002, $4,925,762 will come due during Fiscal 2003, and $3,694,240 will come due during Fiscal 2004 and the remaining balance in later years.

      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 Code.

Increase in Cost of Indebtedness Due to Rising Interest Rates
      We have incurred and expect in the future to incur indebtedness that bears interest at a variable rate.  Accordingly, increases in interest rates would increase our interest costs, which could have a material adverse effect on us and our ability to make distributions to you or cause us to be in default under certain debt instruments (including our debt). In addition, an increase in market interest rates may lead holders of our common shares to demand a higher yield on their shares from distributions by us, which could adversely affect the market price for IRET Shares of Beneficial Interest.

 As of October 31, 2001, of the total $401,345,146 mortgage indebtedness outstanding, $24,539,567 or 6.1% is subject to variable interest rate agreements.  The range of interest rates on the variable rate mortgages are from 7% to 9.17%.  An increase of 1% in the interest rate would collectively increase the interest payment by $203,678 annually.

12


 Potential Incurrence of Additional Debt and Related Debt Service
      We currently fund the acquisition and development of multifamily communities partially through borrowings including our line of credit as well as from other sources such as sales of properties which no longer meet our investment criteria or the contribution of property to joint ventures.  We could become more highly leveraged, resulting in an increase in debt service, which could have a material adverse effect on us and our ability to make distributions and to pay amounts due on our debt and in an increased risk of default on our obligations.
 

       For the past three years as of April 30, the total indebtedness of IRET as it relates to its total net assets has been as follows:
 

 
2001
2000
1999
 
     
Total Net Assets
$   177,948,354
$   145,038,261
$   100,263,836
Total debt
$   389,086,105
$   287,940,038
$   191,229,475
Leverage percentage
219%
199%
191%

      Pursuant to the governing instruments of IRET, we may increase our total debt level to 300% of our total net assets or if approved by the Board to higher level if necessary.  As a result, without notice to or the approval of the shareholders, we may increase our total indebtedness as compared to total net assets by an additional 81% or $144,758,957.00 to $533,845,062.00.

Potential Liability Under Environmental Laws
      Under various federal, state, and local laws, ordinances and regulations, 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 in, on, around, or under such property.  Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of, or failure to remediate properly, such substances may adversely affect the owner's or operator's ability to sell or rent the affected property or to borrow using such property as collateral.  Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may also seek recovery from owners or operators of real properties for personal injury associated with asbestos- containing materials and other hazardous or toxic substances. The operation and subsequent removal of certain underground storage tanks are also regulated by federal and state laws.  In connection with the current or former ownership (direct or indirect), operation, management, development and/or control of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines, and claims for injuries to persons and property.

13


 Our current policy is to obtain a Phase I environmental study on each property we seek to acquire and to proceed accordingly.  No assurance can be given, however, that the Phase I environmental studies or other environmental studies undertaken with respect to any of our current or future properties will reveal all or the full extent of potential environmental liabilities, that any prior owner or operator of a property did not create any material environmental condition unknown to us, that a material environmental condition does not otherwise exist as to any one or more of such properties or that environmental matters will not have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt  It is the policy of IRET to obtain a Phase I environmental survey upon purchasing property.  If the Phase I indicates any possible environmental problems, IRET's policy is to order a Phase II study which involves testing the soil and ground water for actual hazardous substances.  We currently carry no insurance for environmental liabilities.

      Certain environmental laws impose liability on a previous owner of property to the extent that hazardous or toxic substances were present during the prior ownership period.  A transfer of the property does not relieve an owner of such liability. As a result, we may have liability with respect to properties previously sold by our predecessors or us.

      As of the date of this prospectus, we do not own any properties that contain know environmental liabilities.

Provisions Which Could Limit a Change in Control or Deter a Takeover
      In order to maintain our qualification as a REIT, not more than 50% in value of our outstanding capital stock may be owned, actually or constructively, by five or fewer individuals as defined in the Code to include certain entities.  In order to protect us against risk of losing our status as a REIT due to a concentration of ownership among our shareholders, our Trust Agreement provide, among other things, that if the Board determines, in good faith, that direct or indirect ownership of IRET Shares of Beneficial Interest has or may become concentrated to an extent that would prevent us from qualifying as a REIT, the Board may prevent the transfer or call for redemption (by lot or other means affecting one or more shareholders selected in the sole discretion of the Board) of a number of shares sufficient in the opinion of the Board to maintain or bring the direct or indirect ownership of IRET Shares of Beneficial Interest into conformity with the requirements for maintaining REIT status.

      These limitations may have the effect of preventing a change in control or takeover of us by a third-party without consent of the Board even if such an event would be in the best interests of our shareholders.

Tax Liabilities as a Consequence of Failure to Qualify as a REIT
  Although management believes that we are organized and are operating to qualify as a REIT under the Code, no assurance can be given that we have in fact operated or will 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 Code provisions for which there are only limited judicial or administrative interpretations and the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a REIT, at least 95% of our taxable gross income in any year must be derived from qualifying

14


sources and we must make distributions to shareholders aggregating annually at least 90% of our REIT taxable income (excluding net capital gains).  Thus, to the extent revenues from non qualifying sources such as income from third-party management represents more than 5% 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 apply, and, even if those relief provisions apply, a tax would be imposed with respect to excess net income, any of which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt. Additionally, to the extent the Operating Partnership or certain other subsidiaries are determined to be taxable as a corporation, we would not qualify as a REIT, which could have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt.  Finally, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.

      If we fail to qualify as a REIT, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at corporate rates, which would likely have a material adverse effect on us and our ability to make distributions to you and to pay amounts due on our debt.  In addition, unless entitled to relief under certain statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce funds available for investment or distributions to you because of the additional tax liability to us for the year or years involved. In addition, we would no longer be required to make distributions to you. To the extent that distributions to you would have 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.

Conflicts of Interest May Negatively Impact the Financial Performance of IRET
      The Trustees and management are subject to certain conflicts of interest that could adversely impact the future performance of IRET.  Potential conflicts of interest include:

Competition By Trustees and Management  - Certain officers and trustees of IRET either directly or though entities controlled by them, are now engaged, and may engage in the future, in other real estate ownership, management or development activities for their own personal accounts.  Accordingly, certain conflicts of interest may arise with respect to the allocation of time and efforts of such entities and persons between their own personal activities and those of IRET.  A failure by the trustees or management to allocate all of their time to IRET may adversely impact the financial performance of IRET.

As of October 31, 2001, other than ownership of IRET shares and limited partnership units of IRET Properties no employee or trustee has any ownership interest in any IRET subsidiary, real estate project or business activity.  However, without notice to or the approval of the shareholders, IRET may enter into joint ventures with any of the trustees or management. As of October 31, 2001, the ownership structure of Investors Real Estate Trust was as follows:

15
 
Entity
Owner
Investors Real Estate Trust (IRET)
Publicly traded on the Nasdaq small cap market
IRET, Inc.
100% owned by Investors Real Estate Trust (IRET)
IRET Properties
71% owned by IRET, Inc. and 29% individual limited partners
PineCone IRET, Inc.
100% owned by IRET
Miramont IRET, Inc.
100% owned by IRET
Forest Park Properties, LP
100% owned by IRET Properties
Thomasbrook Properties, LP
100% owned by IRET Properties
Dakota Hill Properties, LP
100% owned by IRET Properties
MedPark Properties, LP
100% owned by IRET Properties
7901 Properties, LP
100% owned by IRET Properties
Health Investors Business Trust
100% owned by IRET Properties
Meadow 2 Properties, LP
100% owned by IRET Properties
Ridge Oaks, LP
100% owned by IRET Properties
Minnesota Medical Investors
68% owned by IRET Properties and 32% by an unrelated investment group
Applewood - IRET Properties 100% owned by IRET Properties
Purchase of Services or Goods from Management - IRET is not precluded from purchasing either goods or services from the trustees or management without notice to or approval from the shareholders provided all relationships are on terms no more favorable than those IRET could obtain from other third-party providers.

As of October 31, 2001, the only business relationship between IRET and management involved trustee Steven B. Hoyt.  As of October 31, 2001, IRET has contracts with Hoyt Properties, Inc. to provide management and leasing services for seven office buildings located in Minnesota.  The contracts can be terminated on 30 day's notice by either party without penalty.  Hoyt Properties, Inc. is paid a fee equal to 5% of gross rents.
 
 


The remainder of this page has been intentionally left blank.

16

 Front-End Fees and Costs Associated With This Offering


       For the money that is being raised by this offering, there are front-end fees.  A front-end fee is a cost or expense of the offering that must be paid regardless of the number of shares sold.  The Declaration of Trust caps all front-end fees for organizational or sale purposes at no more than 15% of the total offering.  In the present case, the total front-end fees will not be more than 9%, which is below the capped amount.  The fees are capped in that under no situation shall they exceed the capped amount:
 

Type
  Minimum
  Maximum
Maximum
Percentage
Selling agent commission 8% of the amount sold
     $              0
    $     420,000
8.000%
Legal Fees
     $       7,500
    $         7,500
less than 1%
Advertising, Printing and Promotion Expenses
     $     20,000
    $       20,000
less than 1%
Registration Fees
     $     10,500
    $       10,500
less than 1%
Accounting Fees
     $       5000
    $         5,000
 less than 1%
 
     $     43,000
    $     463,500
8.820%

Offering Compensation

      The following table sets forth the fees and other compensation which IRET is to pay in association with this offering.  No officer, trustee or employee of IRET will receive any additional compensation, bonus or fees as a result of the offering other than their normal salary as listed on pages 91 through 93.  Additionally, no officer, trustee or employee of IRET will be selling any shares of IRET they own as part of this offering.
 

Item of Compensation
Recipient
Amount / Method
Incentive Fees
N/A
While authorized by the Restated Declaration of Trust, no incentive fees shall be paid to anyone.  This may be changed by a vote of the Trustees at anytime with incentive fees then payable for future transactions as limited by the Restated Declaration of Trust.
Broker-Dealer Fees
Selling Brokerage Firms
Eight percent or $.70 of each share sold for a total possible commission of $420,000.
Advertising, Printing and Promotion Expenses
 
Up to $20,000 may be paid as compensation for advertising and promotional expenses.
Experts' Fees 
Pringle & Herigstad, P.C.
$7,500 for legal fees, plus filing fees, accounting fees and printing costs estimated to be another $35,500.

17


Determination of Offering Price

      In setting the price of the shares available for sale under this offering at $8.75, we considered the following three factors:

      First, the recent trading price on the Nasdaq Smallcap Market from May 1, 2001 to September 10, 2001.  During this period of time the average high has been $9.088, the average low $8.85 with an average closing price of $8.966.

      Second, we attempt to achieve an annual distribution rate of 6.5% based on the selling price of new shares.  As of October 31, 2001, our historical distribution rate over the prior 12 months of  $0.575 based on the goal of a 6.5% distribution yield suggests an offering price of $8.85.
 

      Third, we attempt to base the price for new shares as a multiple of the prior 12 months of Funds from Operations (FFO) which does not exceed 11 times the prior year's FFO.  Based on fiscal 2001 FFO of $.79 multiplied by 11 results in a suggested price of $8.69 per share.
 

      Based on the above three factors, we decided to set the price at $8.75 per share.

Effective Date of Offering

      The offering of shares pursuant to this prospectus will last for a period of one year from the effective date on the front cover or until all shares have been sold on a first-come first-serve basis, whichever occurs first.

Dilution

      The book value of IRET shares of beneficial interest is substantially less than the purchase price to new shareholders under this Offering.  As of January 1, 2002, the book value of the 27,030,009 shares outstanding was $5.24 per share.  Assuming all of the shares registered under this offering are sold, the estimated resulting book value will be $5.30 per share.  Thus, a purchasing shareholder paying $8.75 per share under this offering will incur an immediate book value dilution of $3.45 per share.

The remainder of this page has been intentionally left blank.

18


Plan of Distribution


     For the sole purpose of selling the shares to be offered pursuant to this prospectus, IRET has entered into Security Sales Agreements with a number of broker/dealers who are members of the National Association of Security Dealers (NASD).  Broker/dealers participating in this offering are considered statutory underwriters pursuant to Section 2a(11) of the Securities Act of 1933.    None of the broker/dealers involved are required to take and pay for or to sell a specific number of shares.  This offering shall be conducted on a best efforts basis under which a participating broker/dealer is required to take and pay for only those shares that are actually sold to the public.  All shares of IRET available for sale to the public will be available for purchase through broker/dealers who have signed a selling agreement with IRET.  The shares offered will only be sold for cash payable in United States Dollars.  There will be no other distribution or sale of IRET shares to the public except through IRET's distribution reinvestment plan available only to current IRET shareholders. See page 88  - "Distribution Reinvestment Plan."
 

     It is IRET's plan to request the following NASD registered broker/dealers to use their best efforts to sell the IRET shares offered under this prospectus to the public:
 

American Investment Services, Inc.
Investment Centers of America, Inc.
Berthel Fisher & Co.
ND Capital, Inc.
D. A. Davidson & Co.
Primevest Financial Services, Inc.
Huntingdon Securities Corporation
Proequities, Inc.
Inland National Securities, Inc.
Protective Group Securities
INVEST Financial
Raymond James Financial Services, Inc.

 John F. Decker is an employee of D.A. Davidson & Co. and is a Trustee of IRET.  Please see "Management" on page 94.

   The material terms of the Security Sales Agreement are as follows:
 

*
For each share sold and paid for, IRET will pay a commission of 8% or $.70 per share. There will be no discounts, other compensation, commissions, finders fees or other compensation paid to any broker/dealer.
*
Subject only to a minimum purchase of 100 shares, no broker/dealer is required to sell a minimum number of shares.
*
There may be limits on the number of shares a particular broker/dealer may sell. 
*  
No more than the total offering of 600,000 shares may be sold. 
*
Either IRET or the broker/dealer may terminate the Security Sales Agreement at anytime without penalty or further obligation.
*
Except as otherwise agreed by IRET, IRET has not agreed to indemnify broker/dealers for liability arising under the Securities Act.

19


* Any full-time employee of a participating broker/dealer may purchase shares for their own account at the offering price of $8.75 per share.  Any such shares so acquired may not be sold, transferred, assigned, pledged or hypothecated by any person for a period of one year from the date of acquisition.
* No broker/dealers has a right to nominate or elect a member to the board of trustees.

      None of the broker/dealers intend to engage in any passive market making activities, stabilization or other transactions that otherwise may affect the price of the shares offered or the price of IRET on the NASDAQ.

Who May Invest

  In order to purchase shares, an investor must be a resident of one of the states listed below as well as meet the other requirements listed:
 

State
Income or Net Worth Requirements
Minimum Purchase
 
 
 
 Minnesota  None   100 shares or $875.00
Montana
None
100 shares or $875.00
 North Dakota  None   100 shares or $875.00
South Dakota
None
100 shares or $875.00
 Washington  None   100 shares or $875.00

 

Use of Proceeds

        We plan to use the proceeds to increase our capital for other real estate additions or acquisitions.  The money raised by this offering will be used to purchase real estate which generally meets the following standards:
 
 

* Located in the states of Minnesota, Nebraska, South Dakota, Colorado, Montana or North Dakota.
* Either a multi-family apartment complex with historical occupancy for the previous 24 months of 85% or better or a commercial office, warehouse or retail building currently leased to tenants occupying at least 90% or more of the space.
* The property is not a hotel/motel or undeveloped raw land.
* The appraised value of the property is equal to or greater than the purchase price.

    As of the date of this prospectus, we have not identified any specific properties which satisfy the criteria listed above.  Even in the event we do not identify a particular property or do not raise enough money under this offering to buy any additional real estate, we will not return your money.

     The Board of Trustees will have broad discretion on how to invest the proceeds and may change the investment criteria at any time without notice to or approval of the shareholders.

     Pending any real estate purchases, the net proceeds will be invested in United States Treasury Bonds with terms of six (6) months or less.
 
 

The remainder of this page has been intentionally left blank.
 

20



  

Selected Financial Data for IRET for Five Years Ended April 30



2001
2000
1999
1998
1997
Consolidated Income Statement Data
 
 
 
 
 
     Revenue 
$  75,767,150
$  55,445,193
$   39,927,262
$ 32,407,545
$ 23,833,981
     Income before gain/loss on
        properties and minority interest
$  10,187,812
$    8,548,558
$     6,401,676
$     4,691,198
$    3,499,443
     Gain on repossession/ Sale 
of properties
$       601,605
$    1,754,496
$     1,947,184
$       465,499
$      398,424
     Minority interest of portion of operating partnership income 
$   -2,095,177
$   -1,495,209
$      -744,725
$      -141,788
$              -18
 
 
 
 
 
 
     Net income
$    8,694,240
$    8,807,845
$    7,604,135
$    5,014,909
$    3,897,849
Consolidated Balance Sheet Data
 
 



     Total real estate investments
$548,580,418
$418,216,516
$280,311,442
$213,211,369
$177,891,168
     Total assets 
$570,322,124
$432,978,299
$291,493,311
$224,718,514
$186,993,943
     Shareholders' equity 
$118,945,160
$109,920,591
$  85,783,294
$ 68,152,626
$  59,997,619
Per Share
 
 
 
 
 
     Net Income
$               .38
$               .42
$               .44
$               .32
$              .28
     Dividends 
$               .55
$               .51
$              .47
$               .42
$              .39
 
 
 
 
 
 
Calendar Year
2001
2000
1999
1998
1997
Tax status of dividend
 
 

 

     Capital gain
.72%
30.3%
6.3%
 2.9%
 21.0%
     Ordinary income 
86.76%
69.7%
76.0%
97.1%
79.0%
     Return of capital 
12.52%
0%
17.7%
0.0%
0.0%

The remainder of this page has been intentionally left blank.
 
 

Page 21


Management's Discussion and Analysis
of Financial Conditions
and Results of Operations

General
      IRET has operated as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code since its formation in 1970 and is in the business of owning income-producing real estate investments, both residential and commercial.

       On February 1, 1997, IRET restructured itself as an Umbrella Partnership Real Estate Investment Trust  (UPREIT).  IRET, through its wholly owned subsidiary, IRET, Inc., is the general partner of IRET Properties, a North Dakota limited partnership (the "Operating Partnership").

      On July 1, 2000, IRET became "self-advised" as a result of the acquisition of the advisory business and assets of Odell-Wentz and Associates, L.L.C.  Prior to that date, Odell-Wentz had been the advisor to the Trust and had furnished office space, employees, and equipment to conduct all of the day-to-day operations of IRET.  The Operating Partnership issued 255,000 of its limited partnership units to Odell-Wentz and Associates, L.L.C. in exchange for the advisory business and assets.  The valuation of the advisory business and assets of $2,083,350 was determined by an independent appraisal of the business and assets by a certified public accounting firm not otherwise employed by either IRET or the advisory company.  All employees of the advisory company became employees of IRET Properties on July 1, 2000, with the exception of Roger R. Odell who retired.

       No other material change in IRET's business is contemplated at this time.

       The following discussion and analysis should be read in conjunction with the attached audited financial statements prepared by Brady, Martz & Associates, P.C. of Minot, North Dakota, certified public accountants, which firm and its predecessors have served as the auditor for IRET since its inception in 1970.
 
 

Results of Operations
Three Months and Six Months Ended October 31, 2001 and 2000

Revenues
     Total IRET revenues for the second quarter of Fiscal 2002 ended October 31, 2001, were $23,175,041 compared to $18,404,260 received in the second quarter of the prior fiscal year ended October 31, 2000.  This is an increase of $4,770,781 or 25.9%.

     Total revenues for the first six months of Fiscal 2002 ended October 31, 2001, were $44,955,135 compared to $35,835,904, an increase of 25.4% for the first six months of the prior fiscal year ended October 31, 2000.  These increases are primarily attributable to the addition of new properties to IRET's investment portfolio.
 
 

Page 22


Capital Gain Income
      IRET realized capital gain income of $16,398 during the second quarter of Fiscal 2002 ended October 31, 2001.  This resulted from the sale of the Lester Chiropractic building in Bismarck, North Dakota, at a gain of $85,279, and the sale of marketable securities available for sale at a loss of $68,881.

     Total capital gain income for the first six months of Fiscal 2002 ended October 31, 2001, was $324,332.  In addition to the two items listed in the previous paragraph, capital gain income for the first six months for Fiscal 2002 included a gain of $296,409 from the sale of the Sunchase Apartments, a 36-unit apartment complex in Fargo, North Dakota, and a gain of $11,525 from the sale of marketable securities held to maturity.  Both events occurred in the first quarter of Fiscal 2002.  No capital gain income was realized in the first six months of the prior fiscal year ended October 31, 2000.
 

Expenses and Net Income
      The following table shows the changes in revenues, operating expenses, interest, and depreciation for the three months and six months ended October 31, 2001, as compared to the three months and six months ended October 31, 2000:
   

Three Months Ended   10/31/01   10/31/00            Percent
      Change
       
Real Estate Rental Income $    22,877,520 $    18,216,163             25.6%
       
Real Estate Operating Expenses      
   Utilities and Maintenance $      3,190,626 $      2,775,648             15.0%
   Real Estate Taxes         2,234,148         1,712,556             30.5%
   Insurance           313,713           174,471             79.8%
   Property Management         1,730,144         1,369,059             26.4%
   Interest on Mortgage Indebtedness $      7,117,923 $      5,900,611      20.7%
Total Property Expenses $    14,586,554 $    11,932,345      22.3%
       
Net Real Estate Operating Income $      8,290,966 $      6,283,818             32.0%
Interest Discount and Fee Income           297,521           188,097             58.2%
Other Interest Expense          -479,116          -186,827            156.5%
Depreciation        -3,718,328        -3,042,137             22.3%
Administrative Trustee & Operating          -512,912          -419,905             22.2%
Amortization Expense          -134,716          -115,235             16.9%
Gain on Sale of Investments             16,398                   0            100.0%
Minority Interest in Other Partnerships            -86,554                   0                 N/A
Minority Interest Portion of Operating Partnership Income $       -727,344 $       -538,618             35.1 %
Net Income for Generally Accepted Accounting Purposes $      2,945,915 $      2,169,193             35.8 %

Page 23


Expenses and Net Income - continued
 

Six Months Ended
  10/31/01   10/31/00 Percen
Change
       
Real Estate Rental Income $    44,445,900 $     35,508,138             25.2%
       
Real Estate Operating Expenses      
   Utilities and Maintenance $      6,162,434 $      5,388,844             14.4%
   Real Estate Taxes         4,349,779         3,400,798             27.9%
   Insurance           628,398           341,752             83.9%
   Property Management Expenses         3,360,223         2,779,561             20.9%
   Interest on Mortgage Indebtedness $    14,138,640 $    11,409,775             24.0 %
Total Property Expenses $    28,639,474 $    23,320,730             22.8%
       
Net Real Estate Operating Income $    15,806,426 $    12,187,408             29.7%
Interest Discount and Fee Income           509,235           327,766             55.4%
Other Interest Expense          -656,777          -368,628             78.2%
Depreciation        -7,375,090        -5,698,346             29.5%
Administrative Trustee & Operating        -1,025,841          -964,344               6.4%
Amortization Expense          -263,672          -210,914             25.1%
Gain on Sale of Investments           324,332                   0            100.0%
Minority Interest in Other Partnerships          -143,309                   0                 N/A
Minority Interest Portion of Operating Partnership Income $     -1,453,661 $        -964,285             50.8 %
Net Income for Generally Accepted Accounting Purposes $      5,721,643 $      4,308,657             32.8 %

     The above described changes result primarily from the addition of new real estate assets to IRET's portfolio.  The increase in insurance costs resulted from an increase in the general level of premiums for property casualty insurance.

Anticipated Increase in Insurance Expense
     IRET's blanket casualty and liability insurance policy, which covers all of its residential properties and most of its commercial properties, will expire April 30, 2002.  Because of the September 11, 2001, terrorist attacks, IRET expects a substantial increase in its insurance premiums beginning with fiscal year 2003, which commences May 1, 2002, but is not able to quantify the amount of the expected increase at this time.
 
 

The remainder of this page has been intentionally left blank.
 
 

Page 24


 
 
Comparison of Residential and Commercial Properties
        The following is a comparison of the net operating income from the two types of real estate investments owned by IRET - residential and commercial - for the three months and six months ended October 31, 2001 and 2000:
 
Net Real Estate Operating Income

Three Months Ended
  10/31/01 10/31/00     Percent Change
       
Segment      
   Residential $      5,301,569 $      4,809,146             10.3%
       
   Commercial $      2,989,397 $      1,474,672           102.8%
       
Total
$      8,290,966 $      6,283,818             32.0


Six Months Ended
10/31/01 10/31/00   PercentChange
       
Segment      
   Residential $      9,204,045 $      8,611,629               6.9%
       
   Commercial $      6,602,381 $      3,575,779             84.7 %
       
Total
$     15,806,426 $    12,187,408             29.7 %

   

The growth in the two operating segments resulted primarily from the acquisition of real estate properties during the prior and current fiscal years.
 
 

The remainder of this page has been intentionally left blank.



Page 25


Occupancy Rates
     Occupancy rates are calculated as a percentage of the actual rent paid to IRET versus the scheduled rent charged by IRET for the period of time presented.  The following tables compare occupancy rates for stabilized properties for the three months and six months ended October 31, 2001 and 2000:
 
 
Three Months Ended
10/31/01 10/31/00   Percent Change
       
Segment      
   Residential            96.12%            94.72%               1.4%
   Commercial            98.82%            98.55%                .3%


Six Months Ended
10/31/01 10/31/00       Percent Change
       
Segment      
   Residential            95.42%            94.12%               1.3%
   Commercial            99.07%            98.50%                .6%


Property Acquisitions and Dispositions

     During the six months ended October 31, 2001, IRET acquired three commercial properties and two apartment complexes:
 
 

Acquisition Cost
Commercial Property  
15,217 sq. ft. - Cottage Grove Retail Strip Center - Cottage Grove, MN $        1,101,550
105,084 sq. ft. - Interlachen Corporation Center - Edina, MN $      16,691,307
114,819 sq. ft. - Bloomington Business Plaza - Bloomington, MN $        7,405,669
   
Apartments  
109 units - Canyon Lake Plaza Apartments - Rapid City, SD $        4,270,607
284 units - Applewood on the Green - Omaha, NE $      10,364,745

    The 36-unit Sunchase apartment complex in Fargo, North Dakota, was sold during the first quarter of Fiscal 2001 at a gain of $296,409.

     The Lester Chiropractic Building in Bismarck, North Dakota, was sold during the second quarter of Fiscal 2001 at a gain of $85,279.

Funds From Operations
   IRET considers Funds from Operations ("FFO") a useful measure of performance for an equity REIT  FFO is defined as net income available to shareholders determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures.

 
 
Page 26

     IRET uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO as amended by NAREIT to be effective January 1, 2000.  FFO for any period means the net income of the company for such period, excluding gains or losses from debt restructuring and sales of property, and plus depreciation and amortization of real estate assets in IRET's investment portfolio, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with GAAP.

     FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition.

     FFO should not be considered as an alternative to net income as determined in accordance with accounting principles generally accepted in the United States of America as a measure of IRET's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of IRET's needs or its ability to service indebtedness or make distributions.

     Funds from Operations for IRET for the three months ended October 31, 2001, increased to $7,436,176 compared to $5,749,948 for the three months ended October 31, 2000, an increase of 29.4%.

     Funds from Operations for IRET for the six months ended October 31, 2001, increased to $14,335,235 compared to $10,971,288 for the six months ended Fiscal 2000, an increase of 30.7%.

     Calculations of Funds from Operations for IRET are as follows:
   

Three Months Ended   10/31/01   10/31/00             Percent
Change
       

Net Income available to IRET shareholders and unitholders from operations andcapital gains
$      3,759,813 $      2,707,811 38.9%
Less gain from property sales $          16,398                   0             100.0%
  Operating Income $      3,743,415 $      2,707,811             38.3%
Plus real estate depreciation and amortization (1) $      3,692,761 $      3,042,137             21.4 %
Funds From Operations $      7,436,176 $      5,749,948             29.4 %
       
Weighted average shares and units outstanding - diluted (2)       32,510,747       28,541,676             13.9%
Distributions paid to Shareholders Unitholders (3) $      4,758,010 $      3,800,495             25.2%

27




Six Months Ended   10/31/01   10/31/00            Percent
      Change
       
Net Income available to IRET shareholders and unitholders from operations and capital gains $      7,318,613 $      5,272,942
38.8%
Less gain from property sales $         324,332 $                  0             100.0%
   Operating Income $      6,994,281 $      5,272,942             32.7%
Plus real estate depreciation and amortization (1) $      7,340,954 $      5,698,346             28.9 %
Funds From Operations $    14,335,235 $    10,971,288             30.7 %
       
Weighted average shares and units outstanding - diluted (2)       32,122,649       27,951,380             14.9%
Dividends and Distributions paid to Shareholders/Unitholders (3) $      9,335,971 $      7,402,773             26.2%


(1)
Depreciation on office equipment and other assets used by IRET are excluded.  Amortization of financing and other expenses are excluded, except for amortization of leasing commissions that are included.
(2)
Limited Partnership Units of the operating partnership, IRET Properties, a North Dakota Limited Partnership,  are exchangeable for shares of beneficial interest of Investors Real Estate Trust only on a one-for-one basis.
(3)
Distributions made equally on shares and units.


Distributions
     The following distributions were paid during the first six months ended October 31, of fiscal years 2001 and 2000:
 

Date
      2001
      2000
Percent Change
   
 
 
July 1
$           .1450
$           .1325
              9.4%
October 1
$           .1475
$           .1350
              9.3%

    The Board of Trustees of IRET has declared a distribution of $.15 per share payable January 17, 2002, to shareholders of record at the close of business on January 2, 2002.  The ex-dividend date will be December 27, 2001.

The remainder of this page has been intentionally left blank.

28


  Liquidity and Capital Resources

    The important changes in IRET's balance sheet during the first six months of Fiscal 2002 ended October 31, 2001, were:
 
 
* Real Estate Owned
Real estate owned increased to $637,805,923 from the April 30, 2001, figure of $591,636,468.  The increase primarily resulted from the acquisition of additional investment properties net of dispositions as described below:


Acquired  
     Cottage Grove Retail Strip Center $          1,101,550
     Interlachen Corporation Center $        16,691,307
     Canyon Lake Plaza Apartments $          4,270,607
     Bloomington Business Plaza $          7,405,669
     Applewood on the Green $        10,364,745
   
Disposed  
     Sunchase Apartments  $         -1,042,210
     Lester Chiropractic Center  $         -   268,917


* Mortgage Loans Receivable
Mortgage loans receivable increased to $5,942,897 as of October 31, 2001, from $1,037,095 from April 30, 2001.  This increase resulted from the $3,200,000 short-term loan to Mankato Plaza Associates and the $1,713,307 advance of short-term construction loan to Edgewood Vista, net of receipts.
* Cash
Cash on hand on October 31, 2001, was $19,994,239 compared to $6,356,063 on April 30, 2001.  This increase resulted from the proceeds of the sale of marketable securities, new mortgages on existing properties, as well as the sale of investment certificates.
* Marketable Securities
During the second quarter ended October 31, 2001, IRET sold its marketable securities classified as held-to-maturity.  IRET sold its investment in marketable securities classified as available-for-sale in the first quarter ended July 31, 2001.
* Mortgages Payable
Mortgages payable on October 31, 2001, totaled $401,345,146 compared to $368,956,930 at April 30, 2001.  This increase resulted from refinancing of maturing mortgages and the placement of new mortgages.  The average weighted interest rate payable on the outstanding indebtedness on October 31, 2001, was 7.78%. 



Page 29


 

* Investment Certificates
Investment Certificates outstanding on October 31, 2001, totaled $25,875,441, compared to $11,876,417.  This increase resulted from the sale of new investment certificates to North Dakota residents as well as the reinvestment of accruing interest on outstanding investment certificates.
* Operating Partnership Units
Outstanding Limited Partnership Units in the Operating Partnership increased to 8,433,295 Partnership Units on October 31, 2001, as compared to the 7,527,151 Units outstanding on April 30, 2001.  The increase resulted from the issuance of additional Partnership units to acquire the Cottage Grove Retail Center, Bloomington Business Center, and the Canyon Lake Plaza Apartments. 
* Shares of Beneficial Interest
Shares of Beneficial Interest outstanding on October 31, 2001, totaled 24,530,009 as compared to the 24,068,346 shares outstanding on April 30, 2001.  This increase resulted from the issuance of additional shares pursuant to IRET's distribution reinvestment plan. 

    As of October 31, 2001, IRET has entered into contracts to acquire the following real estate investments:
 

Property   Total Cost            Loan or
          UPREIT
     Contribution
              Cash
      Required
       
113,736 sq. ft. Thresher East & West Office Building - Minneapolis, MN $     11,350,000 $    10,950,000 $        400,000
23 Unit Pinehurst Apartment Complex - Billings, MT          715,000          715,000                   0
                  Total $     12,065,000 $    11,665,000 $        400,000

     In addition to the above acquisitions, IRET is committed to provide construction financing for an assisted living and Alzheimer care facility in Virginia, Minnesota, for $7,000,000, of which $1,713,307 was advanced as of October 31, 2001.

     In addition to cash on hand of $19,994,239 on October 31, 2001, IRET has unsecured line of credit agreements with First International Bank & Trust, Bremer Bank, and First Western Bank & Trust, all of Minot, North Dakota, totaling $17,500,000, none of which were in use on October 31, 2001, nor on April 30, 2001.

     IRET believes that its existing cash and borrowing capacities are adequate to fund all of its acquisition and development obligations and all of its other short and long-term liquidity requirements.  IRET believes that its net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends in accordance with Internal Revenue Code provisions pertaining to real estate investment trusts in both the short and long term.

Page 30


Budgeted expenditures for ongoing maintenance, capital improvements and renovations to its real estate portfolio are expected to be funded from the cash flow generated from the operation of these properties.
 
 

The remainder of this page has been intentionally left blank.

Page 31


Results From Operations for the Fiscal Years Ended
April 30, 2001, 2000, and 1999

     IRET operates on a fiscal year ending on April 30.  The following discussion and analysis is for the fiscal years ended April 30, 2001, 2000, and 1999.

Revenues
     Total revenues of the Operating Partnership for Fiscal 2001 were $75,767,150, compared to $55,445,193 in Fiscal 2000 and $39,927,262 in Fiscal 1999.  The increase in revenues received during Fiscal 2001 in excess of the prior year revenues was $20,321,957.  This increase resulted from:
  

Rent from 28 properties acquired/completed in Fiscal 2001 
$            6,890,585
Rent from 27 properties acquired in Fiscal 2000 in excess of that received in 2000
$          12,888,919
Increase in rental income on existing properties
$                 93,420
A decrease in Boise Warehouse rent (bankruptcy of tenant)
$                -36,301
A decrease in rent - properties sold in 2001 
$                -32,404
A decrease in interest income
$              -371,585
An increase in straight line rents
$               383,015
An increase in ancillary income
$               506,308
 
$          20,321,957

      The increase in revenues received during Fiscal 2000 in excess of that received in Fiscal 1999 was $15,517,931.  This increase resulted from:
 

Rent from 27 properties acquired/completed in Fiscal 2000
$          10,206,154
Rent from 12 properties acquired in Fiscal 1999 in excess of that received in 1999
$            4,419,227
An increase in rental income on existing properties
$               579,151
A decrease in rent on the Boise, Idaho Furniture Store (bankruptcy of tenant)
$                -38,622
A decrease in rent - properties sold during 1999
$             -524,680
An increase in interest income
$                 45,337
An increase in rent (straight-line calculations)
$               831,364
 
$          15,517,931

       As shown by the above analysis, the Fiscal 2001 and 2000 increases in revenues resulted primarily from the addition of new real estate properties to the Operating Partnership's portfolio.  Rents received on properties owned at the beginning of Fiscal 2000 increased by $579,151 in Fiscal 2000 and only $93,420 in Fiscal 2001.  Thus, new properties generated most of the new revenues during the past two years.

Page 32


 Capital Gain Income
      The Operating Partnership realized capital gain income for Fiscal 2001 of $601,605.  This compares to $1,754,496 of capital gain income recognized in Fiscal 2000 and the $1,947,184 recognized in Fiscal 1999.  A list of the properties sold during each of these years showing sales price, depreciated cost plus sales costs and net gain (loss) is included in a later section of this discussion.

Expenses and Net Income
      The Operating Partnership's operating income for fiscal year 2001 increased to $10,187,812 from $8,548,558 earned in Fiscal 2000 and $6,401,676 earned in Fiscal 1999.  IRET's Net Income for generally accepted accounting purposes for Fiscal 2001 was $8,694,240, compared to $8,807,845 in Fiscal 2000 and $7,604,135 in Fiscal 1999.  On a per share basis, net income was $.38 per share in Fiscal 2001 compared to $.42 in Fiscal 2000 and $.44 in Fiscal 1999.

       These changes in Operating Income and Net Income result from the changes in revenues and expenses detailed below:

       For Fiscal 2001, a decrease in net income of $113,605, resulting from:
 

A decrease in gain on sale of investments 
$           -1,152,891
An increase in net rental income
$          12,572,228
A decrease in interest income
$              -371,585
An increase in ancillary income
$               506,308
An increase in interest expense
$           -8,217,228
An increase in depreciation expense
$           -3,839,420
An increase in operating expenses, administrative, advisory & trustee services
$              -119,274
An increase in amortization expense
$              -212,091
An increase in minority interest of operating partnership
$              -598,968
A decrease in loss on impairment
$            1,319,316
 
$              -113,605

      The $1,203,710 increase in net taxable income for Fiscal 2000 over the net income earned in the prior fiscal year resulted from:
 

A decrease in gain from sale of investments 
$              -192,688
An increase in net rental income (rents, less utilities, maintenance,
          taxes, insurance and management)
$          11,432,978
An increase in interest income
$                 45,337
An increase in interest expense
$           -4,912,189
An increase in depreciation expense
$           -2,493,238
An increase in operating expenses and advisory trustee services
$              -545,270
An increase in amortization expense
$                -61,420
An increase in minority interest of operating partnership income
$              -750,484
An increase in loss on impairment of properties
$           -1,319,316
 
$            1,203,710

Page 33


Telephone Endorsement Fee
      During Fiscal 2001, IRET received a payment of $869,505 from a major telecommunications provider for allowing marketing access by that company to residents of apartment communities owned by IRET, totaling 5,863 units.  The contract provides that IRET will allow promotional materials to be placed in its apartment communities advertising the availability of telecommunication services over a 12-year period.  Of this payment, $110,979 was recognized as income by IRET during Fiscal 2001.  The balance of $758,526 will be recognized ratably over the remaining portion of the contract period and there is a possibility of a refund of these monies if IRET should violate the contractual terms of the agreement.

Comparison of Results from Commercial and Residential Properties
      The following is an analysis of the contribution by each of the two categories of real estate owned by IRET - residential and commercial - to IRET revenues as compared to the year-end depreciated cost of each:
 

Fiscal Years Ended 4/30
2001
     %
2000
    %
1999
    %
 
 
 
 
 
 
 
Property Cost  - less depreciation
   Commercial
$ 218,261,880
40%
$ 112,511,467
27%
$  60,141,248
22%
   Residential
$ 329,281,443
 60%
$ 304,175,471
 73%
$ 209,572,192
 78%
Total
$ 547,543,323
100%
$ 416,686,938
100%
$ 269,713,440
100%
 
 
 
 
 
 
 
Revenues
   Commercial
$    18,994,010
25%
$    11,878,026
22%
$     5,775,161
15%
   Residential
$    55,806,712
 75%
   42,379,855
 78%
$   33,010,126
 85%
Total
$    74,800,722
100%
$    54,257,881
100%
$   38,785,287
100%
 
 
 
 
 
 
 
Expenses  - before depreciation - see Note 11 to Financial Statement for detail
   Commercial
$  10,649,488
21%
$      6,417,909
18%
$     2,814,299
11%
   Residential
   39,500,071
 79%
   29,288,023
 82%
$   22,440,129
 89%
Total
$    50,149,559
100%
$    35,705,932
100%
$   25,254,428
100%
 
 
 
 
 
 
 
Segment Gross Profit - before depreciation
   Commercial
$      8,344,522
34%
$      5,460,117
29%
$    2,960,862
22%
   Residential
$    16,306,641
  66%
   13,091,832
  71%
$ 10,569,997
 78%
Total
$    24,651,163
100%
$    18,551,949
100%
$ 13,530,859
100%

Charge for Impairment of Value Fiscal 2000
      During fiscal 2000, IRET reduced the value of two properties to reflect the reduced rental income expected to be received from the properties.  The properties are the Boise warehouse, Boise, Idaho, and the First Avenue building, Minot, North Dakota.  Based on the reduced rental income the Boise building's value was reduced by $1,008,114 and First Avenue by $311,302.  The Boise warehouse is vacant and has been for the last 18 months.  First Avenue is mostly occupied but at rents below those necessary to justify the building's acquisition cost.

Page 34


 Commercial Properties - Analysis of Lease Expirations and Credit Exposure
      The following table shows the annual lease expiration percentages for the commercial properties owned by IRET for Fiscal years 2001 through 2010 and the leases that will expire during Fiscal year 2011 and beyond.
 

Year of Lease Expiration
Square Footage of
Expiring Leases
Percentage of
Total Leased
Square Footage
Annualized Base Rent of Expiring Leases
at Expiration
Percentage of Total
Annualized
Base Rent
 
   
 
 
2001
111,548
4.40%
$               165,396
0.75%
2002
164,941
6.60%
$            1,468,440
6.64%
2003
156,327
6.20%
$               908,393
4.11%
2004
152,845
6.10%
$           1,342,386
6.07%
2005
128,214
5.10%
$            1,170,815
5.29%
2006
64,743
2.60%
$               727,858
3.29%
2007
128,827
5.10%
$               766,844
3.47%
2008
96,301
3.80%
$            1,113,073
5.03%
2009
81,016
3.20%
$               592,695
2.68%
2010
102,999
4.10%
$            1,228,872
5.55%
2011 and beyond
1,325,757
  42.80%
$          12,642,660
  57.14%
Total
2,513,518
100.00%
$          22,127,432
100.00%

       The following table shows the percentage of commercial leases by size of leased space in 10,000 square foot increments:
 
 

Square Feet 
Under Lease
Percentage of Aggregate
Portfolio Leased
Square Feet
Annualized
Base Rent
Percentage of Aggregate
Portfolio Annualized
Base Rent
 

 
 
10,000 or Less
13.93%
       $        3,245,361
14.67%
10,001 - 20,000
14.75%
       $        3,044,041
13.76%
20,001 - 30,000
14.50%
       $        2,987,722
13.50%
30,001 - 40,000
7.75%
       $        1,426,070
6.44%
40,001  - 50,000
9.94%
       $        2,191,103
9.90%
50,001 +
  39.14%
       $        9,233,134
  41.73%
Total
100.00%
       $      22,127,431
100.00%

 Significant Properties
      During Fiscal 2000 and 2001, IRET acquired one apartment community (Dakota Hill - Irving, Texas acquired during fiscal year 2000) and two commercial properties (HealthEast Medical in Maplewood and Woodbury, Minnesota acquired in fiscal 2000 and Southdale Medical Center in Edina, Minnesota acquired in fiscal year 2001) where the purchase price exceeded 10% of the corresponding IRET portfolio for apartments in the case of Dakota Hill and commercial in the case of HealthEast and Southdale.

35


   However, none of the acquisitions exceeded 10% of IRET's total portfolio value or account for more than 10% of IRET's gross or net income.

       The details of such acquisitions and their performance since acquisition are as follows:
 

 
Dakota Hill
HealthEast
Southdale Medical*
 
     
Description
504-unit Class A Apartment Community
114,216 Square Feet
Medical Office Buildings
195,983 Square Feet Medical Office Buildings
 
     
Address
7902 North MacArthur - Irving, TX
St. Johns Medical Office Building - 1600 Beam Ave, Maplewood, MN

Woodwinds Medical Office Bldgs. - 1875 Woodwinds Dr, Woodbury, MN

6545 France Ave S,
Edina, MN
 
 
 
 
Date of Acquisition
02/01/2000
05/01/2000
12/13/2000
 
 
 
 
Purchase Price
$37,473,258
$21,600,999
$32,421,070
 
     
Loan
$25,550,000
$19,482,851
$24,000,000
 
     
Interest Rate - 
fixed for 10 years or longer
7.88%
7.940%
7.8%
 
     
Cash Investment
$10,152,420
$   1,775,978
$  5,000,000
 
     
Fiscal 2001
 
 
 
   Rental Income
$  5,339,716
$  1,916,636
$    954,315
   Expenses
$-2,461,696
$             - 0
$    - 30,852
   Gross Income
$ 2,878,020
$ 1,916,636
$    923,463
   Mortgage Interest Paid
$-2,002,678
$-1,533,964
$   -686,068
   Depreciation
$   -859,058
 $   -439,868
 $   -210,883
   Net Income
$      16,284
$     -57,196
$      26,512
 
     
Fiscal 2000
     
   Rental Income
$ 1,300,317
n/a
n/a
   Expenses
$   -376,642
n/a
n/a
   Gross Income
$    923,675
n/a
n/a
   Mortgage Interest Paid
$   -502,988
n/a
n/a
   Depreciation
$   -176,361
n/a
n/a
   Net Income
$    244,326
n/a
n/a
*
IRET owns a 60% interest in this property. Data shown is the full income and expense for this property.


36


 Significant Tenants of IRET
      The following table shows the lessees of commercial property that account for five percent or more of the total commercial rent on May 1, 2001, from all commercial properties owned by IRET:
 

Lessee
Monthly Rent
Commercial Rent
 
   
Step II, Inc. DBA Edgewood Vista
$             197,547
9.70%
HealthEast Medical
$             159,720
7.8%
Great Plains Software, a subsidiary of Microsoft, Inc.
$             156,250
7.7%
All Others
$          1,524,190
    74.8%
Total Scheduled Rent on May 1, 2001
$          2,037,707
100.0%

       As of this date, two tenants of commercial space have filed for bankruptcy protection under Chapter 11 of the bankruptcy code.  Carmike Theatres is the lessee of a 28,300 square foot theatre in Grand Forks, North Dakota with a monthly rent of $23,654 and Teligent Communications, Inc. is the lessee of 21,677 square feet in the Lexington Commerce Center, Eagan, Minnesota with a monthly rent of $11,182, plus common area charges of $4,571.  Teligent has the right to reject its lease obligations and vacate the leased premises.  Carmike has reaffirmed its lease, but still remains in Chapter 11 bankruptcy.  At this time, both are paying rent and remain in possession.

 Current Economic Slowdown
           As of September 2001 there appears to have been little economic impact on IRET as a result of the recently publicized economic slowdown.  Changes in the economic condition of country generally do not begin to affect real estate type operations until 6 to 12 months after the economic slowdown begins. This is due to the fact that most properties are already leased for a term of 6 to 12 months for apartment complexes and generally for 1 to 15 years for commercial property. At this point we do not anticipate that the current economic slowdown will have a significant adverse affect on our financial performance over the coming 12 months.

The remainder of this page has been intentionally left blank.

Page 37


 Results from Stabilized Properties
      IRET defines fully stabilized properties as those both owned at the beginning of the prior fiscal year and having completed the rent-up phase (90% occupancy).  "Same store" results for Fiscal 2001 and 2000 for residential and commercial were:
  

Same Store Residential
Fiscal 2001
Fiscal 2000
% Change
 
     
Scheduled Rent
$   38,228,938
$   37,471,897
   2.0%
Total Receipts
$   37,957,512
$   36,615,535
   3.7%
      Utilities & Maintenance
$     8,020,633
$     6,757,467
18.7%
      Management YTD
$     3,770,137
$     3,615,178
4.3%
      Taxes & Insurance
$     4,104,636
$     4,021,124
2.1%
      Mortgage Interest
$     9,250,331
$   10,259,450
-10.9%
Total Expenses
$   25,145,737
$   24,653,219
   2.0%
Net Operating Income
$   12,811,775
$   11,962,316
7.1%

 
Same Store Commercial
Fiscal 2001
Fiscal 2000
% Change
 
     
Scheduled Rent
$          6,439,820
$          6,298,261
   2.2%
Total Receipts
$          6,318,864
$          6,146,533
   2.8%
      Utilities & Maintenance
$             336,672
$             285,478
17.9%
      Management YTD
$              73,638
$               58,356
26.2%
      Taxes & Insurance
$             210,145
$             200,784
7.7%
      Mortgage Interest
$          2,799,274
$          2,831,082
-11.2%
Total Expenses
$          3,419,729
$          3,375,700
   1.3%
Net Operating Income
$          2,899,135
$          2,770,833
4.6%

 Funds From Operations
      IRET considers Funds From Operations ("FFO") a useful measure of performance for an equity REIT.  FFO herein is defined as net income available to shareholders determined in accordance with generally accepted accounting principles (GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures.  IRET uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO as amended by NAREIT to be effective January 1, 2000.  FFO for any period means the net income of the company for such period, excluding gains or losses from debt restructuring and sales of property, and plus depreciation and amortization of real estate assets in IRET's investment portfolio, and after adjustment for unconsolidated partnerships and joint ventures, all determined on a consistent basis in accordance with GAAP.

       FFO presented herein is not necessarily comparable to FFO presented by other real estate companies because not all real estate companies use the same definition.
 
 

Page 38



 

       FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as a measure of IRET's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of IRET's needs or its ability to service indebtedness or make distributions.

       Funds from operations for the operating partnership increased to $22,440,463 for Fiscal 2001, compared to $18,327,986 for Fiscal 2000 and $12,368,550 for Fiscal 1999.

      Calculations of funds from operations for the operating partnership are as follows:
 

Item
Fiscal 2001
Fiscal 2000
Fiscal 1999
 
     
Net Income Available to IRET Shareholders and Unit Holders from operations and capital gains
$  10,789,417
$  11,622,370
$    8,348,860
Less gain from property sales
$     -601,605
$   -1,754,496
$   -1,947,184
Operating income
$  10,187,812
$    9,867,874
$    6,401,676
Plus real estate depreciation and amortization (1)
$  12,252,651
$    8,460,112
$    5,966,874
Funds from operations
$  22,440,463
$  18,327,986
$  12,368,550
Weighted average shares and units outstanding - basic and diluted (2)
$  28,577,700
$  24,476,984
$  19,104,465
Distributions paid to Shareholders/Unit holders (3)
$  15,732,399
$  12,492,067
$    8,984,996

 
(1)
Depreciation on office equipment and other assets used by the Company are excluded.  Amortization of financing and other expenses are excluded, except for amortization of leasing commissions, which are included.
(2)
Limited Partnership Units of the Operating Partnership are exchangeable for Shares of Beneficial Interest of IRET only on a one-for-one basis.
(3)
Distributions made equally on shares and units.

 Self-Advised Status
      On July 1, 2000, IRET Properties became self-advised.  Prior to that date, Odell-Wentz and Associates, L.L.C., pursuant to an advisory contract with IRET, provided all office space, personnel, office equipment, and other equipment and services necessary to conduct all of the day-to-day operations of IRET.  Odell-Wentz and its predecessor firms had acted as advisor to the Trust since its inception in 1970.  IRET obtained an independent appraisal of the value of the advisory business and assets from certified public accounts not otherwise employed by either IRET or the advisory company.

       The purchase price for the business and assets was $2,083,350 allocated as follows:
 
 

Real Estate
$        475,000
Furniture, Fixtures & Vehicles
$        193,350
Good Will
$     1,645,000
Less Real Estate Mortgages Assumed
$       -230,000
 
$      2,083,350

Page 39


      IRET Properties issued 255,000 of its limited partnership units in exchange for the above-described assets.  Except for Roger R. Odell, who retired on July 1, 2000, all officers and employees of Odell-Wentz and Associates, L.L.C. were retained by IRET Properties.

 Property Acquisitions
      The Operating Partnership added $143,042,292 of real estate investments to its portfolio during Fiscal 2001, compared to $155,284,745 added in Fiscal 2000 and $62,455,508 in Fiscal 1999.  The Fiscal 2001 and 2000 additions are detailed below:

 Fiscal 2001 Property Acquisitions for the Period May 1, 2000 to April 30, 2001


Commercial
Location
Property Type
Net Rentable
Sq. Ft.
    Purchase Price
 
 
 
 
 
12 South Main
Minot, ND
Office
11,300
$        385,000
17 South Main
Minot, ND
Office/Apartments
6,500
$          90,000
2030 Cliff Road
Eagan, MN
Office
13,374
$        950,000
Burnsville Bluffs
Burnsville, MN
Office
26,186
$     2,400,000
Cold Springs Center
St. Cloud, MN
Office
77,533
$     8,250,000
Conseco Financial Building
Rapid City, SD
Office
  75,815
$     6,850,000
Dewey Hill Business Center
Edina, MN
Office
73,338
$     4,472,895
Edgewood Vista Addition
Duluth, MN
Assisted Living
26,412
$     2,200,000
Edgewood Vista Addition
East Grand Forks, MN
Assisted Living
5,100
$        516,700
Edgewood Vista
Fremont, NE
Assisted Living
5,100
$        535,550
Edgewood Vista
Hastings, NE
Assisted Living
5,100
$        550,800
Edgewood Vista
Kalispell, MT
Assisted Living
5,895
$        560,000
Edgewood Vista
Omaha, NE
Assisted Living
5,100
$        610,800
HealthEast I & II
Woodbury &  Maplewood, MN
Medical Office
114,216
$   21,588,498
Hospitality Associates
Minnetonka, MN
Office
4,000
$        400,000
Nicollet VII
Burnsville, MN
Office
118,400
$     7,200,000
Pillsbury Business Center
Bloomington, MN
Office
42,220
$     1,800,000
Plymouth IV & V
Plymouth, MN
Office
   126,809
$   13,750,000
 
 
 
 
 
Sterner Lighting
Winsted, MN
Manufacturing
38,000
$     1,000,000
Stone Container Addition
Fargo, ND
Manufacturing
41,500
$     2,001,879
Stone Container
Waconia, MN
Warehouse
  29,440
$     1,666,500
Southdale Medical Center   (60.31% part int.)
Edina, MN
Medical Office
   195,983
$   32,421,070
 
 
 
1,047,321
$ 110,199,692

40



Residential
 
Units
 
Purchase Price
 
 
 
 
 
Cottonwood Phase III
Bismarck, ND***
  67
 
$     1,854,800
Meadows, Phase III
Jamestown, ND***
27
 
$     1,865,182
Olympic Village
Billings, MT
274
 
$   11,616,500
Prairiewood Meadows
Fargo, ND
85
 
$     2,811,000
Ridge Oaks
Sioux City, IA
132
 
$     4,195,036
Sunset Trail, Phase I
Rochester, MN
  73
 
$     6,493,150
Sunset Trail, Phase II
Rochester, MN**
 n/a 
 
$     4,006,932
 
 
658
 
 32,842,600
Total
 
   
$   43,042,292

 
**
Property not placed in service at April 30, 2001.  Additional costs are still to be incurred.
***
Represents costs to complete a project started in year ending April 30, 2000.

     Fiscal 2000 Property Acquisitions for the Period of May 1, 1999 to April 30, 2000


Commercial
Location
Property Type
Net Rentable
Sq. Ft.
Purchase Price
 
 
 
 
 
Maplewood Square
Rochester, MN
Retail
118,397
$   11,800,000
Great Plains
Fargo, ND
Software Mfg.
121,600
$   15,000,000
Edgewood Vista
Grand Island, NE
Assisted Living
5,100
$        446,000
Edgewood Vista
Columbus, NE
Assisted Living
5,100
$        446,000
Edgewood Vista
Belgrade, MT
Assisted Living
5,100
$        446,000
Corner C-Store
East Grand Forks, MN
Convenience Store
14,490
$     1,385,000
Flying Cloud Drive
Eden Prairie, MN
Office Building
61,217
$     4,900,000
Lexington Commerce Ctr.
Eagan, MN
Office Warehouse
89,440
$     4,800,000
Northgate II
Maple Grove, MN
Office Warehouse
25,999
$     2,300,000
Southeast Tech Ctr.
Eagan, MN
Office Warehouse
58,300
$     6,050,000
MedPark Mall
Grand Forks, ND
Retail
45,328
$     5,300,000
Edgewood Vista
Hermantown, MN
Assisted Living
  57,187
$     4,800,000
 
 
 
607,258
$   57,673,000

  The remainder of this page has been intentionally left blank.

41



Residential
 
 
Units
Purchase Price
 
 
 
 
 
Rimrock West
Billings, MT
 
78
$     3,750,000
Valley Park Manor
Grand Forks, ND
 
168
$     4,400,000
The Meadows I***
Jamestown, ND
 
27
$        247,700
Thomasbrook
Lincoln, NE
 
264
$     9,188,470
Pebble Creek
Bismarck, ND
 
18
$        720,000
Country Meadows II***
Billings, MT
 
67
$     3,010,325
Crown Colony
Topeka, KS
 
220
$   10,500,000
Sherwood
Topeka, KS
 
300
$   15,750,000
Sunset Trail**
Rochester, MN
 
n/a
$     1,500,000
Legacy IV
Grand Forks, ND
 
67
$     4,301,250
Dakota Hill
Irving, TX
 
504
$   36,500,000
The Meadows II
Jamestown, ND
 
27
$     1,845,000
Lancaster Place
St. Cloud, MN
 
84
$     3,200,000
The Meadows III**
Jamestown, ND
 
n/a
$          68,000
Cottonwood Lake III**
Bismarck, ND
 
    n/a
$     2,631,000
 
 
 
1,824
$   97,611,745
Total
 
 
 
$ 155,284,745

 
**
Property not placed in service at April 30, 2000.  Additional costs are still to be incurred.
***
Represents costs to complete a project started in year ending April 30, 1999.

 Property Dispositions
      Real Estate assets sold by the Operating Partnership during Fiscal 2001 and 2000 were as follows:
 
 

Property Sold
Sales Price
Book Value
& Sales Costs
Gain
 
 
 
 
Fiscal 2001
 
 
 
   Evergreen Shopping Center, Evergreen, CO
$     1,450,000
$     1,448,310
$            1,689
   Chalet Apartments, Minot, ND
$        390,000
$        366,566
$          23,434
   Hill Park aka Garden Grove, Bismarck, ND
$     2,400,000
$     1,823,518
$        576,482
Total Fiscal 2001 Gain
 
 
$        601,605

The remainder of this page has been intentionally left blank.

42



Property Sold
Sales Price
Book Value
& Sales Costs
                Gain
 
 
 
 
Fiscal 2000
 
 
 
   Superpumper - Grand Forks, ND
$           485,000
$          398,521
$             86,479
   Superpumper - Crookston, MN
$           428,000
$          338,097
$             89,903
   Superpumper - Langdon, ND
$           239,000
$          174,648
$             64,352
   Superpumper - Sydney, MT
$           120,000
$          102,839
$             17,161
   Mandan Apartments, Mandan, ND
$           325,000
$          249,388
$             75,612
   Sweetwater Apartments, Devils Lake, ND
$           480,000
$          144,697
$           335,303
   Hutchinson Technology - Hutchinson, MN
$        5,200,000
$       4,090,997
$        1,109,003
   Jenner 18-Plex - Devils Lake, ND
$           340,000
$          354,009
$            -14,009
   Virginia Apartments, Minot, ND
$           165,000
$          175,308
$            -10,308
   Installment Sales
 
 
$               1,000
Total Fiscal 2000 Gain
 
 
$        1,754,496

Distributions
 The following distributions were paid during Fiscal Years 2001, 2000 and 1999:
 

Date
2001
2000
1999
 
 
 
 
July 1,
$           .1325
$           .1240
$           .1100
October 1,
$           .1350
$           .1260
$           .1150
January 15,
$           .1400
$           .1280
$           .1200
April 1, 2000
$           .1425
$           .1300
$           .1225
 
$           .5500
$           .5080
$           .4675

     The Fiscal 2001 distributions increased 8.3% over those paid during fiscal year 2000 and 17.6% over Fiscal 1999.

Liquidity and Capital Resources
      Important equity capital and financing events in Fiscal 2001 were:
 

*
As a result of the sale of additional Shares of Beneficial Interest, shareholder equity increased by $9,024,569 and, in addition, the equity capital of the Operating Partnership was increased by $23,885,524 as a result of contributions of real estate in exchange for Operating Units, resulting in a total increase in equity capital for the Operating Partnership of $32,910,093.
*
Mortgage loan indebtedness increased substantially due to the acquisition of new investment properties to $368,956,930 on 04/30/01 from $265,056,767 on 04/30/00, and $175,071,069 on 04/30/99.  The weighted interest rate on these loans decreased to 7.56% per annum from 7.59% on 04/30/00 compared to 7.12% at the end of Fiscal 1999. 
*
Of new real estate investments, $143,042,292 was made by the Operating Partnership, compared to $155,284,745 in Fiscal 2000 and $62,455,508 in Fiscal 1999.

43



*
Net cash provided from operating activities increased to $22,328,745 from $16,277,085 due to the addition of new investments to our real estate portfolio.
*
Net cash used in investing activities declined to $76,165,151 from the $120,041,064 used in Fiscal 2000.  This decrease resulted from the lesser amount of cash used to acquire new investment properties.
*
Net cash provided from financing activities also declined to $56,743,205 from the year earlier figure of $103,500,190, again due to the lower activity in acquiring new properties for cash and borrowed funds. 

    IRET expects that its short-term liquidity requirements will be met through the net cash provided by its operations and also expects that it will meet its long-term liquidity requirements including scheduled debt maturities, construction and development activities, and property acquisitions through long-term secured borrowings and the issuance of additional equity securities by the Operating Partnership, including Shares of Beneficial Interest of the company as well as limited partnership units of the Operating Partnership to be issued in connection with acquisitions of improved real estate properties.  IRET believes that its net cash provided by operations will continue to be adequate to meet both operating requirements and the payment of dividends in accordance with REIT requirements in both the short and long term.  Budgeted expenditures for ongoing maintenance and capital improvements and renovations to its real estate portfolio are expected to be funded from cash flow generated from operations of these properties.

       Of the $368,956,930 of mortgage indebtedness on April 30, 2001, $31,592,149 were variable rate mortgages on which the future interest rate will vary based on changes in the interest rate index for each such loan and the balance of fixed rate mortgages was $337,364,781.  The principal payments due on all of the mortgage indebtedness are as follows:
 
 

Year Ending April 30
Mortgage Principal
 
 
2002
      $          14,474,108
2003
      $            8,298,146
2004
      $            8,940,912
2005
      $           9,746,970
2006
      $          13,133,365
Later Years
      $        314,363,429
Total Payments
      $        368,956,930

       As of April 30, 2001, IRET is committed to provide construction financing for an assisted living and Alzheimer care facility in Virginia, Minnesota for $7,000,000.

44


      The following is a summary of IRET's equity capital and liability conditions at the end of Fiscal 2001 as compared to prior periods:
 

*
IRET's shareholder equity increased to $118,945,160 from $109,920,591 on April 30, 2000, and from $85,783,297 on April 30, 1999.  These increases resulted from the sale of Shares of Beneficial Interest and the reinvestment of dividends in new shares. 
*
Liabilities of the Operating Partnership increased to $389,086,105 from $287,940,038 on April 30, 2000, and $191,229,475 as of April 30, 1999.  These increases resulted from increased mortgage loans to finance the acquisition of real estate properties.
*
Total assets of the Operating Partnership increased to $570,322,124 from $432,978,299 on April 30, 2000, and $291,493,311 as of April 30, 1999, again, as a result of investments in additional real estate properties.
*
Cash and marketable securities were $9,368,176, compared to $6,623,495 on April 30, 2000, and $7,412,236 on April 30, 1999. 
*
In addition to its cash and marketable securities, IRET Properties has unsecured line of credit agreements with First International Bank & Trust, Bremer Bank, and First Western Bank & Trust, all of Minot, North Dakota, totaling $17,500,000, none of which were in use on April 30, 2001.  On April 30, 2000, $6,452,420 was in use.  Credit lines in Fiscal 1999 totaling $11,500,000 were not in use at the end of 1999.

 Impact of Inflation
      In Fiscal 2001, IRET experienced a 17% increase in the cost of utilities primarily due to natural gas price increases in its same store apartment communities.  Same store communities represent communities that had twelve consecutive months of operations in both Fiscal 2000 and 2001.  Of the $1,060,282 total increase in same store utility and maintenance expense in Fiscal 2001 over the prior year, $731,595 or 69% of the increase was due to natural gas prices and $328,687 or 31% snow removal expense.  Since that time, natural gas prices have retreated, but it is possible that IRET's apartment communities will again experience a sharp increase in utility expenses that may not be recoverable in the form of increased rent.  Maintenance and other rental expenses also to increased at rate of 2-3%. IRET has been able to increase rental income sufficient to cover the normal inflationary increases in rental expenses.

Anticipated Increase in Insurance Expense
     IRET's blanket casualty and liability insurance policy, which covers all of its residential properties and most of its commercial properties, will expire April 30, 2002.  Because of the September 11, 2001, terrorist attacks, IRET expects a substantial increase in its insurance premiums beginning with fiscal year 2003, which commences May 1, 2002, but is not able to quantify the amount of the expected increase at this time.
 
 

 45


      With respect to IRET's commercial properties, the tenant is responsible to pay utilities, insurance, and most other rental expenses.  However, commercial leases tend to be of a longer term and IRET is precluded from increasing rent to compensate for inflationary changes in currency values.  In the case of residential properties, no leases are longer than one year and the majority are for six months or less and thus IRET may raise rent to cover inflationary changes in expenses and the value of its capital investment, subject to market conditions.
 
 

Quantitative & Qualitative Disclosures about Market Risk

     IRET's exposure to market risk is limited to fluctuations in the general level of interest rates on its current and future fixed and variable rate debt obligations.  Even though IRET's philosophy is to maintain a fairly low exposure to interest rate fluctuation risk, IRET is still vulnerable to significant fluctuations in interest rates on its variable rate debt, on any future repricing or refinancing of its fixed rate debt and on future debt.

     IRET primarily uses long-term and medium-term (more than 10 years) and medium-term debt as a source of capital.  IRET does not currently use derivative securities, or interest rate swaps or any other type of hedging activity to manage its costs of capital.  As of April 30, 2001, IRET had the following amount of future principal payments on mortgages secured by its real estate:
 

Long Term Debt
2002
2003
2004
2005
2006
Thereafter
Total
 
             
   Fixed Rate
$13,209,699
$6,949,388
$7,482,220
$8,183,905
$10,998,715
$291,141,854
$337,364,781
   Variable Rate
$  1,265,409
$1,348,758
$1,458,692
$1,563,065
$  2,734,650
$  23,221,575
$  31,592,149
 
           
$368,956,930
Average Interest Rate (%)
(1)
(1)
(1)
(1)
(1)
(1)
 

 
(1)
The weighted average interest rate as of April 30, 2001, was 7.56%.  Any flucuations on the variable interest rates could increase or decrease IRET's interest expenses.  For example, an increase of 1% per annum on IRET's $31,592,149 of variable rate indebtedness would increase its annual interest expense by $315,921.

 

General Information As To Investors Real Estate Trust

Organization of IRET
      Investors Real Estate Trust is a registered real estate investment trust organized and governed under the laws of North Dakota.  IRET has qualified as a real estate investment trust under Sections 856-858 of the Internal Revenue Code during all years of its existence.
 

 Governing Instruments of IRET
      IRET was organized on July 31, 1970.  IRET will continue, unless sooner terminated by a majority vote of the shareholders, until the expiration of 20 years after the death of the last survivor of the seven original trustees. All of the original Trustees are still living, the youngest being 65 years of age.  The existence of IRET may be extended indefinitely by action of the
 
 

Page 46


Trustees approved by the vote of shareholders holding fifty per cent or more of the outstanding shares. IRET has nine Trustees.
 

 Independent Trustees
      IRET adheres to NASAA guidelines requiring a majority of the board to be composed of independent Trustees.  Pursuant to NASAA guidelines, IRET considers the following Trustees as independent:
 

C. Morris Anderson
John F. Decker
Daniel L. Feist 
Steven B. Hoyt
Patrick G. Jones
Jeffrey L. Miller
Stephen L. Stenehjem
 

Non-Independent Trustees
      IRET considers the following trustees as non-independent:
 

Timothy P. Mihalick
Thomas A. Wentz, Jr.


 Shareholder Meetings

      The governing provisions of IRET require the holding of annual meetings.  It is the policy of the Board of Trustees to hold the annual meeting in Minot, North Dakota, during the month of September. All shareholders shall be given at least 30 days prior written notice.

      Special meetings of the shareholders may be called by the chief executive officer, by a majority of the trustees or by a majority of the independent trustees, and shall be called by an officer of IRET upon written request of the shareholders holding in the aggregate of not less than 10% of the outstanding shares of IRET entitled to vote at such meeting.

      Upon receipt of a written request, either in person or by mail, stating the purpose or purposes of the meeting, IRET shall provide all shareholders within ten days after receipt of said request, written notice, either in person or by mail, of a meeting and the purpose of such meeting to be held on a date not less than fifteen nor more than sixty days after the distribution of such notice, at a time and place specified in the request, or if none if specified, at a time and place convenient to shareholders. The holders of a majority of shares in IRET, present in person or by proxy, shall constitute a quorum at any meeting.

Structure of IRET
      IRET carries on its activities directly and through subsidiaries and an operating partnership.  IRET Properties, a North Dakota Limited Partnership, was organized on January 31, 1997, and, since February 1, 1997, is the principle entity through which IRET operates. All assets (except for qualified REIT subsidiaries) and liabilities of IRET have been contributed to the operating partnership in exchange for a general partnership interest in the operating partnership. IRET, INC., a North Dakota corporation, and a wholly owned subsidiary of IRET acts as the general partner of the operating partnership.  As the sole shareholder of IRET, INC., which in turn is the sole general partner of the operating partnership, IRET has the exclusive power under the Operating Partnership Agreement to manage and conduct the business of the operating partnership, subject to certain limitations contained in the Operating Partnership Agreement. See "Operating Partnership Agreement."

Page 47


      IRET's interest in the operating partnership will entitle it to receive all quarterly or yearly cash distributions from the operating partnership and to be allocated its pro-rata share of the profits and losses of the operating partnership.  IRET owned approximately 76% of the operating partnership as of April 30, 2001. It is expected that the operating partnership will merge with other partnerships or acquire real estate from other persons in exchange for limited partnership units. When certain properties were acquired by IRET, the lender financing the properties required, as a condition of the loan, that the properties be owned by a "single asset entity." Accordingly, IRET has organized two wholly owned subsidiary corporations and IRET Properties has organized several limited partnerships for the purpose of holding title to these investment properties in order to comply with the conditions of the lender. All financial statements of these subsidiaries are consolidated into the financial statements of IRET.
 
 

The remainder of this page has been intentionally left blank.

Page 48


Policy With Respect To Certain Activities

      The following information is a statement of IRET's current policy as it pertains to the described activities.
 

To Issue Senior Securities
      IRET has issued and outstanding investment certificates which are senior to the shares of beneficial interest being offered under this prospectus.  The investment certificates are issued for a definite term and annual interest rate. In the event of dissolution of IRET, the investment certificates would be paid in preference to the shares of beneficial interest. Please see page 8 concerning the risks associated with the preference of the senior securities.

The Trust does not plan to issue other senior securities in the future.  However, the organizational documents of IRET do not restrict IRET from issuing additional senior securities with liquidation preferences superior to the shares purchased under this offering. The decision on whether to issue additional senior securities may be made by the trustees at anytime without notice to or a vote of the shareholders. As of April 30, over the past three years IRET had outstanding the following senior securities:
 

Senior Securities Outstanding as of April 30
 

Due in Years Ending April 30
  Fiscal 2001
  Fiscal 2000
  Fiscal 1999
 
 
 
 
6 month notes
     $           800,206
     $        2,762,960
$           842,174
1 year notes
     $        4,805,206
     $           330,000
$        2,446,566
3 year notes
     $        2,369,328
     $        1,574,669
$        1,651,865
5 year notes
     $        3,899,807
     $        5,419,627
$        6,829,531
    Totals
     $      11,874,416
     $      10,087,256
     $      11,770,136
Rate of interest paid on investment certificates as of April 30
 
 
 
6 month notes
                    6.50%
                    6.50%
                    6.00%
1 year notes
                    7.00%
                    7.00%
                    6.50%
3 year notes
                    7.50%
                    7.50%
                    7.00%
5 year notes
                    8.00%
                    8.00%
                    7.50%

 
To Borrow Money

      IRET plans to continue to borrow money on all new real estate acquired or developed.  IRET's policy is to seek to borrow up to 70% of the cost a property. IRET relies on borrowed funds in pursuing its investment objectives and goals. The policy concerning borrowed funds is vested solely with the board of trustees, subject to the limitation in IRET's organizational documents that unless justified and approved by a majority of the trustees, IRET may not borrow more than 300% of the value of its total portfolio of assets. The organizational documents of IRET do not impose any limitation on the amount of money IRET may borrow against any one particular property.
 

       The decision to borrow up to 70% of the acquisition or development cost of individual properties or to borrow up to or more than 300% of the net value of IRET's assets may be changed by a majority of the trustees without notice to or a vote of the shareholders.

Page 49


       IRET intends to continue borrowing funds in the future.  Over the past three fiscal years, IRET has borrowed funds on new property acquisitions and developments as follows:
 


Fiscal 2001
Fiscal 2000
Fiscal 1999
 
     
Cost of Property Acquired or developed
$   143,042,292
$   154,094,051
$    62,455,508
Net Increase in borrowings
$   103,900,163
$     89,985,698
$    41,011,095
Borrowing as a percentage of cost
73%
58%
66%

To Loan Money
      As part of IRET's business plan, trust funds have been loaned to third parties.  The loans are in the form of mortgages secured by real estate. The decision to make loans is vested solely with the trustees and may be changed by a majority of the trustees without notice to or a vote of the shareholders.
 

Mortgage Loans Receivable
   

Location
Real Estate
Security
        10/31/01         4/30/01         4/30/00         4/30/99
Interest
Rate
Priority
 
 
 
 
 
 
 
Higley Heights - Phoenix, AZ
Orange Grove
$                 0
$                0
$     598,843
$      742,811
8.00%
First
Great Plains Software - Fargo, ND
Campus/Office Facility
$                 0
$                0
$                0
$   9,185,758
9.50%
First
Hausmann Rentals - Moorhead, MN
Apartment Building
$      273,934
$     278,527
$     287,115
$      294,968
9.00%
First
1516 N. Street -  Bismarck, ND
Apartment Building
$                 0
$                0
$                0
$      159,965
10.25%
First
Scottsbluff Estates - Scottsbluff, NE
Apartment Building
$      106,514
$     106,926
$     108,752
$      110,437
8.00%
Second
Fairfield Apts - Hutchinson, MN
Apartment Building
$        42,692
$       43,313
$       45,930
$        46,500
8.75%
First
1921 7th Street NW - Minot, ND
Rental House
$                 0
$            954
$         2,269
$          3,282
7.00%
First
Inwards Building - Detroit Lakes, MN
Apartment Building
$                0
$               0
$                0
$      117,493
9.00%
First
Edgewood Vista - Norfolk, MN
Alzheimer Facility
$      477,375
$     477,375
$     477,375
$                 0
11.00%
First
Edgewood Vista - Virginia, MN Alzheimer Facility   $   1,712,382   $                0   $                0   $                0
10.00% 
First
Mankato Heights Plaza - Mankota, MN
Strip Mall
$   3,200,000
$                0
$                0
$                 0
10.00%
First
Other Mortgages
 
$      130,000
$     130,000
$     130,000
$       60,000
8.00%

 
 
 
 
 
 


Total
 
$  5,942,897
$ 1 ,037,095
$  1,650,284
$ 10,721,213


Less:
 
 
 
 
 


    Unearned Discounts
 
$                0
$                0
$          -392
$        -1,898


    Deferred gain from property     dispositions
 
$                0
$                0
$                0
$        -1,000


    Allowance for Losses
 
$                0
$                0
$     120,314
$    -120,314


 
 
$  5,942,897
$  1,037,095
$  1,529,578
$ 10,598,001



 
      As of October 31, 2001, all of our mortgage loans were current and none of the loans were in default.
 

 To Invest in the Securities of Other Companies for Purposes of Exercising Control
      Other than the formation of wholly owned subsidiaries to hold individual properties, IRET has not during the past three years invested in the securities of other issuers for the purpose of exercising control over such issuer and has no plans to do so. Over the past three years, IRET has created a number of subsidiary companies for the sole purpose of holding individual real estate properties. A list of those subsidiary companies is listed on page F-20 of the financial statements at the end of this prospectus.

Page 50


      Even though IRET has not done so in the past, the organizational documents of IRET do not impose any limitations on IRET's ability to invest in the securities of other companies for the purpose of exercising control. Any decision to do so is vested solely in the trustees and may be changed without notice to or a vote of the shareholders.


To Underwrite Securities of Other Issuers

      Over the past three years, IRET has not engaged in the underwriting of securities of other issuers.  Even though IRET has not done so in the past, the organizational documents of IRET do not impose any limitation on IRET's ability to underwrite the securities of other issuers. Any decision to do so is vested solely in the trustees and may be changed without notice to or a vote of the shareholders.

To Engage in the Purchase and Sale or Turnover of Investments
      IRET has no plans to engage in the purchase and sale or turnover of investments.  IRET's current policy is to acquire or develop real estate that will be held for a period of at least 10 years. Even though IRET has not engage in the practice of purchasing and then selling the property shortly thereafter in hopes of making a profit at any time over the past three years, the organizational documents of IRET do not impose any limitation on IRET's ability to do so. Any decision to do so is vested solely in the trustees and may be changed without notice to or a vote of the shareholders. 

To Offer Securities in Exchange for Property
      Commencing on February 1, 1997, IRET operates principally through IRET Properties, a North Dakota Limited Partnership, of which IRET is the sole general partner.  Such a structure allows IRET to offer limited partnership units in exchange for real estate. IRET currently has plans to offer limited partnership units in exchange for real estate on a continuous and ongoing basis. The limited partnership units are convertible on a one to one basis into shares of IRET after at least a two-year holding period.  All limited partnership units receive the same dividend as paid on shares of IRET. Limited partners are not entitled to vote on any matters affecting the company until they convert their units to shares. For a complete description of the limited partnership units, please see page 70.  All exchanges shall be subject to approval by the trustees on such terms and conditions that are deemed reasonable by the trustees.
 

       The organizational documents of IRET do not contain any restrictions of IRET's ability to offer its securities in exchange for property.  As a result, any decision to do so is vested solely in the trustees. This policy may be changed at anytime without notice to or a vote of shareholders. Over the past three fiscal years ending April 30, IRET has issued the following limited partnership units in exchange for property:
 
 

 
2001
2000
1999
 
     
Limited partnership units issued
2,968,030
2,709,253
858,843
Dollar value
$   25,344,059
$   21,602,838
$   6,485,927

Page 51


 To Purchase or Otherwise Re-Acquire Its Shares or Other Securities
      As a "real estate investment trust" under federal income tax laws, IRET intends to invest only in real estate assets.  The organizational documents of IRET do not prohibit IRET from acquiring or otherwise repurchasing its own securities so long as such activity does not prohibit IRET from operating as a real estate investment trust under the IRS code. Any decision to purchase or otherwise reacquire its share or other securities is vested solely in the trustees and may be changed without notice to or a vote of the shareholders.


       Over the past three years, IRET has repurchased its shares under the terms of its dividend reinvestment plan for allocation to those existing shareholders who elect to reinvest their dividends into additional shares of IRET.  Over the past three years IRET has repurchased the following number and amount of shares:
 

For the period ending 4/30
2001
2000
1999
 
     
Number of shares
555,785
372,500
148,000
Total price paid by IRET
$  4,478,401
$   2,970,675
$   1,174,675
Average price per share
$         8.057
$            7.97
$          7.936


 To Make Annual and Other Reports Available to Shareholders

      The organizational documents of IRET require that an annual report be provided to shareholders at least once a year.  The report must be provided no later than 120 days from the end of IRET's most recent fiscal year ending April 30. The annual reports are generally mailed during the second week of August. The annual report contains a financial statement certified by an independent public accountant. The requirement to provide an annual report to shareholders may only be changed by a vote of a majority of the shareholders.
 
      IRET also has a policy of providing quarterly reports to the shareholders during January, April, July, and October.  The quarterly reports do not contain financial statements certified by an independent public accountant.  The provision of a quarterly report to the shareholders is not required by IRET's organizational documents and may be changed by a majority of the trustees at any time without notice to or a vote of the shareholders.

 

Investment Policies of IRET

Investments in Real Estate or Interests in Real Estate
      We currently own real estate located in 13 states.  Our current portfolio is allocated among the various states and between apartments and commercial property.
 

       We may invest in real estate or interests in real estate which are located anywhere in the United States, but plans to focus on those states where we already have property with a concentration on Minnesota, Montana, North Dakota and South Dakota.  Please see pages 55 through 67 for a breakdown of our real estate ownership by state and between apartments and commercial.

52


      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, except we may not invest more than 10% of net assets in unimproved real estate, excluding property being developed or property where development will be completed within a reasonable period.

      The method of operating our real estate shall be delegated to a management company as it pertains to the day-to-day management.  All major operating decisions concerning our operation of our real estate shall be made by the trustees.

    The method of financing the purchase of real estate investments shall be primarily from borrowed funds and the sale of shares.  The income generated from rental income and interest income is planned to be distributed to shareholders as dividends.

      There is no limitation on the number or amount of mortgages which may be placed on any one piece of property provided that in the event we seek to borrow an amount which is more than 300% or 3 times our total net assets, our governing instrument requires that it must be approved by a majority of the independent trustees and disclosed to the shareholders in the next quarterly report.  In addition to the 300% limitation on total indebtedness, we have a policy that may be changed at anytime without shareholder approval of not exceeding a 70% debt level on our real estate assets. As of October 31, 2001, our ratio of total real estate mortgages to total real estate assets was 62.9% while our ratio of total indebtedness as compared to our net assets was 220%.

      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 that asset 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 our stock price as a result of the increase in value of the underlying 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 the trustees at anytime without notice to or a vote of the shareholders.

Investments in Real Estate Mortgages
      While not IRET's primary business focus, IRET does make loans to others that are secured by mortgages, liens, or deeds of trust covering real estate.  Over the last three years IRET has made a number of mortgage loans, most of which are still outstanding. IRET has no restrictions on what type of property may be used as collateral for a mortgage loan, provided that except for loans insured or guaranteed by a government or a governmental agency, IRET may not invest in or make a mortgage loan unless an appraisal is obtained concerning the underlying property.
 

       It is IRET's policy not to invest in mortgage loans on any one property if in the aggregate the total indebtedness on the property including IRET's mortgage exceeds 85% of the property's value unless approved by the board of trustees.  As of October 31, 2001, all outstanding loans met the 85% criteria.

Page 53


       IRET can invest in second mortgages without the approval of or notice to the shareholders.  As of October 31, 2001, IRET only had one second mortgage with a principal balance of $106,514.  IRET does not plan to invest in any other second mortgages, but this policy may be changed at anytime by the trustees without the approval of or notice to the shareholders.
 

       For a complete description of IRET's mortgage loan activity, please see page 8 "Mortgage Loan Receivable."   IRET's policy as it relates to mortgage loans may be changed by the trustees at anytime without notice to or a vote of the shareholders.


Investments in the Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Securities
      IRET is permitted to invest in the securities of other entities engaged in the ownership and operation of real estate.  Over the past three years IRET has purchased United States guaranteed obligations and common shares of five other publicly traded real estate investment trusts.  These purchases are made solely for the purpose of holding cash until future real estate investments are identified. No further investments in other types of securities are planned.
 

       IRET has organized a number of wholly owned subsidiary limited partnerships and other wholly owned subsidiary companies for the sole purpose of conducting its real estate business activities.  For a list of these subsidiary entities please see page F-23 and F-24 of the financial statements at the end of this prospectus or page 16.
 

       While permitted to do so under its organizational documents, IRET has not invested in any other affiliated real estate investment trusts or entities organized for the purpose of operating as a real estate investment trust.
 

       Any Trust policy as it relates to investments in other securities may be changed by the trustees at anytime without notice to or a vote of the shareholders.

 The remainder of this page has been intentionally left blank.

54



Description of Commercial Real Estate

      The following commercial properties were owned by IRET as of April 30, 2001.  The monthly average rent is calculated by dividing the annualized rent by the total rentable space at the property.  Annualized rental income is calculated by dividing the total base rent still to be received by IRET over the remaining term of the lease divided by the number of months of the lease term. This process is called "straight line rent" and is done in accordance with accounting principals generally accepted in the United States. Base rent does not include additional rents received from tenants as reimbursement to IRET of building operating costs including but not limited to  management fees, insurance, taxes, utilities, and snow removal.
 

Unit Name
Property Type
Ownership Interest
Square Feet
Year
Acquired
Year of 
Construction/ Remodel
  Investment
Occupancy
AnnualizedRental Income
Monthly Average Rent Per Sq.Foot
Number Units
 
 
 
 
 
 
 
 
 
 
 
Georgia


 


 

 
 

Lithia Springs





 

 
 

Wedgewood 1600 Lee Road
Assisted Living
Fee-100%
29,408
1996
1996
$ 3,971,878
100.00%
$  515,011
$        1.46
  1
Georgia Totals
 

29,408


$3,971,878
100.00%
$  515,011
$         1.46
1
 
 

 


 
 
 
 
 
Idaho
 

 


 
 
 
 
 
Boise
 

 


 
 
 
 
 
America's Best 8740 Fairview Avenue
Single Tenant Retail
Fee-100%
69,599
1994
1992
$ 4,788,294
0%
$             0
$         0.00
  1
Idaho Totals
 

69,599


$4,788,294
0%
$               0
$         0.00
1
 
 

 


 
 
 
 
 
Michigan
 

 


 
 
 
 
 
Kentwood
 

 


 
 
 
 
 
Comp USA
2984 28th St. SE
Single Tenant Retail
Fee-100%
16,000
1996
1995
$  2,121,474
100.00%
$  200,396
$       1.04
  1
Michigan Totals
 

16,000


$ 2,121,474
100.00%
$  200,396
$         1.04
1
 
 

 


 
 
 
 
 
Minnesota
 

 


 
 
 
 
 
Bloomington
 

 


 
 
 
 
 
Pillsbury Business Ctr
8300 Pillsbury Ave. South
Single Story Office
Fee-100%
42,220
2001
1985
$1,842,970
n/a
$  225,543
$         0.45
4
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

55


Description of Commercial Real Estate - continued
 

Unit Name
Property Type
Ownership Interest
Square Feet
Year
Acquired
Year of 
Construction/ Remodel
Investment
Occupancy
AnnualizedRental Income
Monthly Avg.RentPer
Sq.Foot
Number Units
 
 

 


 
 
 
 
 
Burnsville
 

 


 
 
 
 
 
Burnsville Bluffs
11351 Rupp Dr.
Single Story Office
Fee-100%
26,186
2001
1988
$2,456,646
n/a
$     279,957
$       0.89
2
Nicollet VII 12150 Nicollet Avenue
Single Story Office
Fee-100%
118,400
2001
1999
$7,360,670
n/a
$    724,788
$       0.51
4
 
 

 


 
 
 
 
 
Duluth
 

 


 
 
 
 
 
Edgewood Vista 4195 Westberg Road
Assisted Living
Fee-100%
57,187
2000
2000
$4,241,450
100.00%
$    889,812
$       1.30
1
Edgewood Vista II
Assisted Living
Fee-100%
26,412
2001
2001
$1,439,737
100.00%
$   242,004
$       0.76
1
Eagan
 

 


 
 
 
 
 
2030 Cliff Road
Single Story Office
Fee-100%
13,374
2001
1983
$   980,866
n/a
$   108,329
$       0.67
1
Lexington Commerce 3030 Lexington Ave.
Single Story Office
Fee-100%
89,840
2000
1997
$5,489,723
100.00%
$   574,175
$       0.53
5
S.E. Tech Center 3020 Denmark Ave.
Single Story Office
Fee-100%
58,300
2000
1998
$6,115,517
100.00%
$   268,064
$       0.38
3
East Grand Forks
 

 


 
 
 
 
 
Corner Express 1010 Central Ave. NE
C-Store
Fee-100%
14,490
2000
2000
$1,392,251
100.00%
$   152,352
$       0.88
1
Edgewood Vista      608 5th Ave. NW
Assisted Living
Fee-100%
10,778
1997
1997
$   899,821
100.00%
$   126,972
$       0.98
1
Edgewood Vista II
Assisted Living
Fee-100%
5,100
2001
2001
$   516,700
100.00%
$      59,760
$       0.98
1
Eden Prairie
 

 


 
 
 
 
 
Flying Cloud Drive 7901 Flying Cloud Dr.
Multi-Story Office
Fee-100%
61,217
2000
1977
$5,074,810
99.18%
$1,018,521
$       1.39
22
Lindberg Building
10150 Crosstown Circle
Office/Warehouse
Fee-100%
40,941
1992
1979
$1,608,535
100.00%
$   217,151
$       0.44
1
ViroMed 6101 Blue Circle Dr.
Office/Warehouse
Fee-100%
48,700
1999
1994
$4,863,634
100.00%
$  541,070
$       0.93
1
Edina
 

 


 
 
 
 
 
Dewey Hill Business Ctr. 5555 West 78th St.
Single Story Office
Fee-100%
73,338
2001
1986
$4,492,381
100.00%
$   468,192
$       0.53
8
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

56


Description of Commercial Real Estate - continued

Unit Name
Property Type
Ownership Interest
Square Feet
Year
Acquired
Year of 
Construction/ Remodel
Investment
Occupancy
AnnualizedRental Income
Monthly Avg. RentPer


Sq.Foot

Number Units
 
 

 

 
 
 
 
 
Southdale Medical Center     6545 France Ave. South
Multi-Story Office
Fee -69%
195,983
2001
1958-1999
$32,421,070
100.00%
$ 3,420,000
$       1.45
1
Maple Grove
 

 

 
 
 
 
 
Northgate II 6420 Sycamore Lane
Single Story Office
Fee-100%
25,999
2000
1997
$ 2,348,979
100.00%
$    628,672
$       2.02
2
Maplewood
 

 

 
 
 
 
 
HealthEast I   1574 St. Johns Blvd.
Multi-Story Office
Fee-100%
34,195
2000
2000
$ 6,266,915 
100.00%
$  632,177
$       1.54
1
Woodbury
 

 

 
 
 
 
 
HealthEast II   1851 Weir Dr.
Multi-Story Office
Fee-100%
80,021
2000
2000
$14,334,084
100.00%
$ 1,475,079
$       1.54
1
Minnetonka
 

 

 
 
 
 
 
Hospitality Associates 17800 Excelsior Blvd.
Multi-Story Office
Fee-100%
4,000
2001
1985
$    400,898
n/a
$       42,000
$       0.88
1
Moorhead
 

 

 
 
 
 
 
Pioneer Seed Co.1505 29th Ave. South
Office/Warehouse
Fee-100%
13,600
1992
1979
$    653,876
100.00%
$       80,000
$       0.49
1
Plymouth
 

 

 
 
 
 
 
Plymouth Tech IV 5000 Chelshire Lane North
Single Story Office
Fee-100%
53,309
2001
2000
$ 5,891,898
n/a
$    612,851
$       0.96
4
Plymouth Tech V 5010 Chelshire Lane North
Single Story Office
Fee-100%
73,500
2001
2000
$ 8,136,431
n/a
$    643,128
$       0.73
2
Rochester
 

 

 
 
 
 
 
Maplewood Square 3956 E Frontage Rd Hwy 52 N
Multi-Tennant Retail
Fee-100%
118,397
2000
1990
$11,898,946
98.31%
$ 1,160,094
$       0.82
11
St. Cloud
 

 

 
 
 
 
 
Cold Spring Center 4150 2nd St. South
Multi-Story Office
Fee-100%
77,533
2001
1989
$ 8,395,539
n/a
$    857,990
$       0.92
6
Waconia
 

 

 
 
 
 
 
Stone Container 888 Industrial Blvd.
Office/Warehouse
Fee-100%
29,440
2001
1996
$ 1,666,518
100.00%
$    181,371
$       0.51
1
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

57


Description of Commercial Real Estate - continued
 

Unit Name
Property Type
Ownership Interest
Square


Feet

Year
Acquired
Year of 
Construction/ Remodel
Investment
Occupancy
Annualized


Rental 
Income

Monthly Avg. Rent er 


Sq.Foot

Number Units
 
 

 


 
 
 
 
 
Winsted
 

 


 
 
 
 
 
Sterner Lighting 351 Lewis Ave. West
Office/Warehouse
Fee-100%
    38,000
2001
1985
$   1,000,789
         n/a
$    130,000
$       0.29
  1
Total Minnesota
 

1,430,460


$141,291,654
99.73%
$15,760,052
$          .92
88
 
 

 


 
 
 
 
 
Montana
 

 


 
 
 
 
 
Belgrade
 

 


 
 
 
 
 
Edgewood Vista 1101 Cardinal Dr.
Assisted Living
Fee-100%
5,100
2000
2000
$     453,494
100.00%
$       57,198
$       0.93
1
Billings
 

 


 
 
 
 
 
Creekside Office Park 1001 S 24th St. West
Multi-Story Office
Fee-100%
37,318
1992
1984
$  1,868,570
81.39%
$    415,602
$       0.93
20
Edgewood Vista 1225 Wicks Lane
Assisted Living
Fee-100%
11,971
1999
1999
$    980,218
100.00%
$    125,318
$       0.87
1
Kalispell
 

 


 
 
 
 
 
Edgewood Vista 141 Interstate Lane
Assisted Living
Fee-100%
5,895
2001
2001
$      568,150
100.00%
$       71,307
$       1.01
1
Missoula
 

 


 
 
 
 
 
Edgewood Vista 2815 Palmer
Assisted Living
Fee-100%
10,314
1997
1997
$      962,428
100.00%
$    126,135
$        1.02
 1
Total Montana
 

70,598


$  4,832,860
90.38%
$   795,560
$       0.94
24
 
 

 


 
 
 
 
 
Nebraska
 

 


 
 
 
 
 
Columbus
 

 


 
 
 
 
 
Edgewood Vista 3386 53rd Avenue
Assisted Living
Fee-100%
5,100
2000
2000
$     455,626
100.00%
$       57,197
$       0.93
1
Freemont
 

 


 
 
 
 
 
Edgewood Vista 2910 North Clarkson St.
Assisted Living
Fee-100%
5,100
2000
2000
$     546,410
100.00%
$       68,177
$       1.11
1
Grand Island
 

 


 
 
 
 
 
Edgewood Vista 214 North Piper Street
Assisted Living
Fee-100%
5,100
2000
2000
$     455,626
100.00%
$       57,197
$       0.93
1
n/a
Property held less than 12 months
 
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.
 

58


Description of Commercial Real Estate - continued

Unit Name
Property Type
Ownership Interest
Square

Feet

Year
Acquired
Year of 
Construction/ Remodel
Investment
Occupancy
Annualized
Rental

Income

Monthly Avg. Rent Per 

Sq.Foot

Number Units
 
 

 


 
 
 
 
 
Hastings
 

 


 
 
 
 
 
Edgewood Vista 2400 West 12th St.
Assisted Living
Fee-100%
5,100
2000
2000
$   565,777
100.00%
$       60,588
$       0.99
1
Omaha
 

 


 
 
 
 
 
Ameritrade Headquarter 4211 South 102nd St.
Single Story Office
Fee-100%
73,774
1999
1993/1997
$8,306,535
100.00%
$    748,000
$       0.84
1
Barnes & Noble 3333 Oak Dr.
Single-Tennant Retail
Fee-100%
27,500
1995
1995
$3,699,197
100.00%
$    409,956
$       1.24
1
Edgewood Vista 17620 Poppleton Street
Assisted Living
Fee-100%
   5,100
2000
2000
$   611,370
100.00%
     77,775
$      1.27
1
Total Nebraska
 

126,774


$14,640,541
100.00%
$ 1,478,890
$        .97
7
 
 

 


 
 
 
 
 
North Dakota
 

 


 
 
 
 
 
Bismarck
 

 


 
 
 
 
 
Lester Chiropractic Clinic 1122 West Divide Ave.
Single Story Office
Fee-100%
5,400
1988
1974
$    268,917
100.00%
$       33,840
$      0.52
1
Fargo
 

 


 
 
 
 
 
Barnes & Noble 1201 42nd St. SW
Single-Tennant Retail
Fee-100%
30,000
1994
1994
$ 3,259,893
100.00%
$    396,750
$       1.10
1
Great Plains Software3900 44th Ave. SW
2 Story Office
Fee-100%
121,600
1999
1999
$15,375,154
100.00%
$ 1,875,000
$       1.28
1
Petco 1126 43rd St. SW
Single-Tennant Retail
Fee-100%
18,000
1994
1994
$ 1,278,934
100.00%
$    185,040
$       0.86
1
Stone Container 4637 16th Ave. NW
Office/Warehouse
Fee-100%
193,350
1995
1995-2001
$ 7,000,364
100.00%
$    884,793
$       0.38
1
Grand Forks
 

 


 
 
 
 
 
Carmike Theatre 2306 32nd Ave. South
Multi-Plex Theatre
Fee-100%
28,300
1994
1986
$ 2,545,737
100.00%
$    318,232
$       0.94
1
MedPark Mall1375&1395 S Columbia Rd
Multi-Tennant Retail
Fee-100%
59,177
2000
1989
$ 5,642,950
97.31%
$    625,816
$       0.88
13
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

59


Description of Commercial Real Estate  - continued

Unit Name
Property Type
Ownership
Interest
Square

Feet

Year
Acquired
Year of 
Construction/ Remodel
Investment
Occupancy
Annualized

Rental 
Income

Monthly Avg. Rent Per 

Sq. Foot

Number Units
 
 

 


 
 
 
 
 
Minot
 

 


 
 
 
 
 
13 1st Ave SW
Multi-Story Office
Fee-100%
15,900
1981
1929-1993
$      533,765
58.82%
$     114,794
$       0.60
23
12 South Main
Multi-Story Office
Fee-100%
11,300
2001
1905-1985
$      389,205
93.25%
$       47,979
$       0.35
9
17 South Main
Multi-Story Office
Fee-100%
6,500
2001
1908-1990
$        90,000
100.00%
$       14,100
$       0.18
1
114 South Main
Single Tenant Retail
Fee-100%
3,500
1978
1910-1985
$      111,996
0.00%
$               0
$             0
1
401 South Main
Multi-Story Office
Fee-100%
11,200
1987
1956-1982
$      659,914
90.41%
$        74,503
$       0.55
10
Arrowhead Shopping Center 1600 2nd Ave. SW
Multi-Tennant Retail
Fee-100%
80,000
1973
1961-1998
$  2,973,786
98.74%
      $      372,782
$       0.39
26
Corner Express C-Store 3630 South Broadway
C-Store
Fee-100%
4,674
1998
1998
$  1,581,260
100.00%
$     172,260
$       3.07
1
Edgewood Vista 706 16th Ave. SE
Assisted Living
Fee-100%
97,821
1997
1997
$  6,270,707
100.00%
$     810,581
$       0.69
1
Minot Plaza 1930 South Broadway
Multi-Tennant Retail
Fee-100%
  10,020
1993
1983
$     509,954
100.00%
$     120,298
$       1.00
 4
Total North Dakota
 

696,742


$48,492,536
98.52%
$  6,046,768
$          .72
95
 
 

 


 
 
 
 
 
South Dakota
 

 


 
 
 
 
 
Rapid City
 

 


 
 
 
 
 
Conseco 900 Concourse Dr.
Single Story Office
Fee-100%
75,815
2000
2000
$  7,044,870
100.00%
$     771,214
$       0.85
1
Sioux Falls
 

 


 
 
 
 
 
Edgewood Vista 3401 Ralph Rodgers Rd.
Assisted Living
Fee-100%
    11,971
1999
1999
$  _  974,739
100.00%
$      125,318
$       0.87
    1
Total South Dakota
 

    87,786


$   8,019,609
100.00%
$      896,532
$         .85
    2
 
 

 


 
 
 
 
 
Total Commercial Properties
 

2,527,367


$228,158,801
98.59%
$ 25,639,743
$         .85
219
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

60


Description of Residential Real Estate

       IRET owned the following residential properties as of April 30, 2001:
 

Unit Name
Property
Type
Ownership Interest
Square
Feet
Year
Acquired
Investment
Year of 
Construction/
Remodel
Occupancy
Annualized
|Rental
Income
Monthly
Avg.Rent
Per Unit
Number Units
Colorado
 



 

 
 
 
 
Colorado Springs
 



 

 
 
 
 
Neighborhood


3502-3508 Van Teylingen Dr.

Multi-Family
Fee-100%
204,480
1996
$11,422,781
1980-1985
96.27%
$1,787,824
$      775.97
192
Ft. Collins
 

 

 

 
 
 
 
MiraMont


4900 Boardwalk Dr. Bldg A

Multi-Family
Fee-100%
215,800
1996
$14,363,539
1996
97.10%
$  2,145,632
$      851.44
210
Pine Cone


2212 Vermont Dr.

Multi-Family
Fee-100%
197,135
1994
$ 13,263,860
1994
 96.71%
$1,924,155
$    822.29
195
Total Colorado
 

617,415

$39,050,180

96.88%
$5,857,611
$    816.57
597
 
 

 

 

 
 
 
 
Idaho
 

 

 

 
 
 
 
Boise
 

 

 

 
 
 
 
Clearwater 660 South Clearwater Lane
Multi-Family
Fee-100%
57,000
1999
$  3,853,638
1995
92.14%
  556,440
$    772.83
 60
Total Idaho
 

57,000

$  3,853,638

92.14%
$    556,440
$     72.83
60
 
 

 

 

 
 
 
 
Iowa
 

 

 

 
 
 
 
Sioux City
 

 

 

 
 
 
 
Ridge Oaks 2300 Indian Hills Drive
Multi-Family
Fee-100%
183,720
2001
$ 4,281,967
1976-2001
    n/a%
  895,080
$    565.08
132
Total Iowa
 

183,720

$ 4,281,967

n/a%
$     895,080
$      565.08
132
 
 

 

 

 
 
 
 
Kansas
 

 

 

 
 
 
 
Topeka
 

 

 

 
 
 
 
Crown Colony 900 SW Robinson
Multi-Family
Fee-100%
208,864
2000
$10,817,090
1986
83.88%
$  1,739,359
$      658.85
220
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

61


Description of Residential Real Estate - continued

Unit Name
Property
Type
Ownership Interest
Square
Feet
Year
Acquired
Investment
Year of 
Construction/
Remodel
Occupancy
Annualized
Rental

Income

Monthly
Avg.Rent 
  Per Unit
Number Units
Sherwood 2745 SW Villa W Drive
Multi-Family
Fee-100%
200,390
2000
$16,001,205
1987
86.97%
$  2,471,037
$    686.40
300
Total Kansas
 

409,254

$26,818,295

86.98%
$   4,210,396
$    674.74
520
 
 

 

 

 
 
 
 
Minnesota
 

 

 

 
 
 
 
Moorhead
 

 

 

 
 
 
 
Eastgate 1605 20th St. S
Multi-Family
Fee-100%
129,504
1970
$ 2,425,737
1968-1997
90.25%
$       562,274
$    403.93
116
Rochester
 

 

 

 
 
 
 
Heritage Manor 2409 Hwy 52 N
Multi-Family
Fee-100%
173,634
1999
$ 7,697,780
1965-1999
99.41%
$   1,270,490
$    581.73
182
Woodridge 2804 2nd St. SW
Multi-Family
Fee-100%
191,118
1996
$ 6,775,134
1991
98.46%
$   1,237,638
$    954.97
108
Sunset Trail 3675 41st St. NW
Multi-Family
Fee-100%
77,078
2,000
$ 7,908,091
2000
96.53%
$       886,920
$ 1,012.46
73
Sunset Trail II & III 3675 41st St. NW
Multi-Family
Fee-100%
(2)
2001
$ 4,006,932
2001
(2)
                     (2)
                (2)
(2)
St. Cloud
 

 

 

 
 
 
 
Lancaster Place 1100 East Division St.
Multi-Family
Fee-100%
106,222
2000
$ 3,226,626
1989
95.87%
$       575,016
$    570.45
84
Park Meadows 360 Park Meadows Dr.
Multi-Family
Fee-100%
423,100
1997
$11,673,583
1982-1989
97.72%
$   2,488,248
$    575.98
360
West Stonehill 625 10th Ave. S
Multi-Family
Fee-100%
  374,160
1995
$11,771,140
1989-1991
99.64%
$  2,244,024
$  597.45
   313
Total Minnesota
 

1,474,816

$55,485,023

97.10%
$   9,264,610
$   627.06
1,236
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.
(2)
The property is currently in the lease-up phase having been completed on August 25, 2001.

      62


Description of Residential Real Estate - continued

Unit Name
Property Type
Ownership Interest
Square
Feet
Year Acquired
Investment
Year of
Construction/ Remodel
Occupancy
Annualized
Rental
Income
Monthly Avg.Rent Per Unit
Number Units
Montana
 

 

 

 
 
 
 
Billings
 

 

 

 
 
 
 
Castle Rock 1551 Nottingham Pl.
Multi-Family
Fee-100%
174,604
1999
$ 5,742,534
1979-1999
92.49%
$   1,083,846
$    547.40
165
Country Meadows I 1550 Country Manor Blvd.
Multi-Family
Fee-100%
115,202
1996
$ 4,361,135
1999
97.34%
$       588,156
$    731.54
67
Country Meadows II 1550 Country Manor Blvd.
Multi-Family
Fee-100%
115,202
2000
$ 4,359,718
2000
97.50%
$       588,156
$    731.54
67
Olympic Village3900 Victory Circle
Multi-Family
Fee-100%
319,312
2001
$11,782,852
1983
n/a%
$   1,624,332
$    494.02
274
Rimrock 2220 St. Johns Ave.-A
Multi-Family
Fee-100%
99,196
2000
$ 3,899,680
1984
97.12%
$       551,386
$    589.09
78
Rocky Meadows 2440 Village Lane
Multi-Family
Fee-100%
150,916
1996
$ 6,737,109
1996-1997
96.93%
$     831,495
$  707.05
  98
Total Montana
 

974,432

$36,883,028

96.30%
$  5,267,371
$  586.04
749
 
 

 

 

 
 
 
 
Nebraska
 

 

 

 
 
 
 
Lincoln
 

 

 

 
 
 
 
Thomasbrook 5900 Roose St.
Multi-Family
Fee-100%
274,253
2000
$ 9,956,873
1974-2000
96.42%
1,717,838
542.25
264
Total Nebraska
 

274,253

$ 9,956,873

96.42%
$  1,717,838
$  542.25
264
 
 

 

 

 
 
 
 
North Dakota
 

 

 

 
 
 
 
Bismarck
 

 

 

 
 
 
 
Cottonwood Lake I & II 1045 Tacoma
Multi-Family
Fee-100%
205,389
1997
$ 9,197,265
1997
88.36%
$   1,067,563
$    663.91
134
Cottonwood III     1045 Tacoma
Multi-Family
Fee-100%
102,695
2000
$ 4,535,371
2000
n/a%
$       533,782
$    663.91
67
Crestview 1615 E Capitol Ave.
Multi-Family
Fee-100%
176,320
1994
$ 4,961,835
1983
94.30%
$       857,623
$    470.19
152
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

63


 Description of Residential Real Estate - continued
 

Unit Name
Property Type
Ownership Interest
Square
Feet
Year Acquired
Investment
Year of 
Construction/
Remodel
Occupancy
Annualized Rental
Income
Monthly
Avg.Rent Per Unit
Number Units
Kirkwood Manor  114 E Indiana Ave.
Multi-Family
Fee-100%
135,244
1997
$  3,731,401
1983-1984
93.86%
$     657,872
$  507.62
108
North Pointe 1930 E Capitol Ave
Multi-Family
Fee-100%
83,250
1995
$  2,446,675
1995
97.99%
$    370,776
$   630.57
49
Pebble Creek 3110 N 19th St.
Multi-Family
Fee-100%
22,400
2000
$     784,962
1993
98.04%
$    102,954
$   476.64
18
Westwood Park   1101 Westwood St. #100
Multi-Family
Fee-100%
66,166
1999
$  2,205,488
1984
99.25%
$    395,621
$   515.13
64
Dickinson
 

 
 

 
 
 
 
Century 1156 W 2nd St. 101-124
Multi-Family
Fee-100%
130,144
1986
$  2,321,814
1979-1998
88.09%
$    588,954
$   409.00
120
Eastwood 177 10th Ave. E
Multi-Family
Fee-100%
23,945
1989
$     472,395
1968-1995
79.00%
$    132,492
$   290.55
38
Oak Manor 417 2nd St. E
Multi-Family
Fee-100%
23,735
1989
$     374,730
1997
97.23%
$    106,902
$   329.94
27
Fargo
 

 
 

 
 
 
 
Candlelight 2200 21st Ave S
Multi-Family
Fee-100%
54,765
1993
$     977,083
1985
97.21%
$    180,911
$  342.63
44
Park East  1 S 2nd St. Bldg. 1
Multi-Family
Fee-100%
153,852
1997
$  5,136,953
1973-1997
98.75%
$    947,796
$   647.40
122
Prairiewood Meadows 137 Prairiewood Dr.
Multi-Family
Fee-100%
118,652
2001
$  2,839,271
1985
n/a%
$    563,240
$   552.20
85
Sunchase 4301-4313 9th Ave. SE
Multi-Family
Fee-100%
30,936
1988
$  1,042,210
1987
99.10%
$    177,678
$   411.29
36
Grand Forks
 

 
 

 
 
 
 
Forest Park Estates 3415 20th Ave. S
Multi-Family
Fee-100%
265,175
1993
$  7,482,837
1978-1985-1996
94.70%
$ 1,790,802
$   552.72
270
Jenner Properties 3624 Landeco Lane
Multi-Family
Fee-100%
54,908
1996
$  2,231,184
1969-1997
94.10%
$    414,744
$   285.64
121
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

64


Description of Residential Real Estate - continued
 

Unit Name
Property Type
Ownership Interest
Square
Feet
Year Acquired
Investment
Year of Construction/  Remodel
Occupancy
Annualized Rental
Income
Monthly Avg.Rent
Per Unit
Number Units
Legacy    2600 34th Ave. S
Multi-Family
Fee-100%
305,853
1996
$10,997,398
1997
95.42%
$   1,586,068
$   722.25
183
 Legacy IV 2600 34th Ave. S
Multi-Family
Fee-100%
101,951
1997
$  7,031,125
1997
95.42%
$       528,690
$   657.57
67
Southwinds 2402 30th Ave. S
Multi-Family
Fee-100%
176,789
1996
$  5,972,073
1982
90.77%
$   1,250,718
$   635.53
164
Valley Park Manor     2300 Library Lane
Multi-Family
Fee-100%
153,005
2000
$  4,713,692
1970-2000
95.44%
$       775,403
$  384.62
168
Minot
 

 

 

 
 
 
 
Chateau  1725 2nd Ave. SW
Multi-Family
Fee-100%
81,614
1997
$  2,468,984
1979-1996
96.86%
$       471,934
$   614.50
64
Colton Heights
707 6th Ave. NW
Multi-Family
Fee-100%
28,432
1984
$     967,733
1984
93.85%
$     127,374
$   589.69
18
Dakota Arms 1112 32nd Ave. SW
Multi-Family
Fee-100%
19,908
1996
$     625,487
1982
97.12%
$       109,608
$   507.44
18
Magic City 411 8th St. SW
Multi-Family
Fee-100%
134,520
1997
$  5,257,208
1975-1996
96.62%
$   1,053,119
$   378.28
232
South Pointe 1201 31st Ave. SW
Multi-Family
Fee-100%
305,184
1995
$10,345,036
1995
97.01%
$   1,515,330
$   644.27
196
Southview 2800 7th St. SW
Multi-Family
Fee-100%
21,344
1994
$     728,676
1981
93.24%
$       138,024
$   479.25
24
Williston
 

 

 

 
 
 
 
Century
1510 9th Ave. NW
Multi-Family
Fee-100%
204,288
1986
$  4,125,747
1979-1996
71.35%
$       841,434
$   365.21
192
Other Communities
 

 

 

 
 
 
 
Beulah Condominiums - Beulah
Multi-Family
Fee-100%
17,976
1983
$     483,155
1971-1998
55.44%
$         76,740
$   245.96
26

 
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

65


Description of Residential Real Estate - continued
 

Unit Name
Property Type
Ownership Interest
Square
Feet
Year Acquired
Investment
Year of Construction/Remodel
Occupancy
Annualized
Rental
Income
Monthly Avg.Rent PerUnit
Number Units
Parkway Apartments - Beulah 700 Parkway Dr.
Multi-Family
Fee-100%
10,800
1988
$    150,912
1975-1996
56.99%
$ 104,916
$   242.86
36
Bison Properties- Carrington & Cooperstown 
806 13th St. NE
Multi-Family
Fee-100%
21,868
1972
$    614,541
1969-1996
94.36%
$     112,500
$   267.86
35
SweetwaterProperties - Devils Lake & Grafton 
1112 5th Ave. SE
Multi-Family
Fee-100%
67,179
1972
$ 1,626,298
1970-1999
76.79%
$     353,658
$   258.52
114
Lonetree Manor - Harvey
405 Grant Ave.
Multi-Family
Fee-100%
8,956
1991
$    228,846
1969-1996
74.82%
$       50,946
$   353.79
12
The Meadows I - Jamestown
615 10th St. NE
Multi-Family
Fee-100%
29,240
2000
$ 1,878,636
1999
98.40%
$     200,000
$   617.28
27
The Meadows II - Jamestown
615 10th St. NE
Multi-Family
Fee-100%
29,240
2000
$ 1,878,636
2000
97.54%
$     200,000
$   617.28
27
The Meadows III - Jamestown
615 10th St. NE
Multi-Family
Fee-100%
    29,196
2001
$ 2,046,455
2001
     n/a%
$     200,000
$ 617.28
   27
Total North Dakota
 

3,394,919

$112,882,092

91.99%
$18,586,172
$   502.06
3,085
 
 

 

 

 
 
 
 
South Dakota
 

 

 

 
 
 
 
Rapid City
 

 

 

 
 
 
 
Pointe West
3955 Pointe West Place
Multi-Family
Fee-100%
77,062
1994
$  4,061,061
1985
94.59%
$     687,312
$ 636.40
90
Sioux Falls
 

 

 

 
 
 
 
Oakwood Estates 3300 W 53rd
Multi-Family
Fee-100%
157,720
1993
$  5,664,991
1988
96.47%
$  1,003,630
$   522.72
160

 
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

66


Description of Residential Real Estate - continued

Unit Name
Property Type
Ownership
Interest
Square
Feet
Year
Acquired
Investment
Year of 
Construction/  Remodel
Occupancy
Annualized
Rental Income
Monthly
Avg. Rent
Per Unit
Number
Units
 Oxbow
4701 S Oxbow Ave.
Multi-Family
Fee - 100%
   172,404
1994
$  5,030,689
1994
99.53%
$       943,746
$   655.38
120
Prairie Winds
6000 W 43rd
Multi-Family
Fee - 100%
  64,050
1993
$   2,013,055
1993
 99.32%
$       358,044
$   621.60
   48
Total South Dakota


471,236

$ 16,769,796

97.35%
$    2,992,732
$   609.03
418
 


 
 

 
 
 
 
Texas


 
 

 
 
 
 
Irving


 
 

 
 
 
 
Dakota Hill at Valley Ranch 7902 N MacArthur
Multi-Family
Fee - 100%
  616,615
2000
$ 37,617,106
1998
93.08%
$    5,771,632
$   954.30
504
Total Texas


616,615

$ 37,617,106

93.08%
$    5,771,632
$   954.30
504
 


 
 

 
 
 
 
Washington


 
 

 
 
 
 
Vancouver


 
 

 
 
 
 
Ivy Club
8701 NE 54th St.
Multi-Family
Fee - 100%
225,505
1999
$ 11,827,863
1988
94.19%
$    1,712,580
$   699.58
204
Van Mall Woods
7609 NE Van Mall Dr.
Multi-Family
Fee - 100%
     93,832
1999
$   6,151,761
1994
96.31%
$       886,024
$ 712.345
   100
Total Washington


   319,337

$ 17,979,624

94.98%
$    2,598,604
$    718.97
   304
 


 
 

 
 
 
 
Total Apartment Communities


8,792,997

$361,577,622

93.96%
$  57,754,486
$    602.15
7,869
n/a
Property held less than 12 months
(1)
Investment is the actual cost paid for the property by IRET plus any capital improvements to the real property.

67


Fiscal Year 2001 Property Sales

      During fiscal year 2001, IRET made the following changes to its real estate investment portfolio:

 
Property Sold
Sales Price
Book Value
& Sales Costs
Gain
Fiscal 2001
 
 
 
   Evergreen Shopping Center, Evergreen, CO
$    1,450,000
$     1,448,310
$           1,689
   Chalet Apartments, Minot, ND
$       390,000
$        366,566
$         23,434
   Hill Park aka Garden Grove, Bismarck, ND
$    2,400,000
$     1,823,518
$       576,482
Total Fiscal 2001 Gain
 
 
$       601,605

 Fiscal 2001 Property Acquisitions for Year Ended April 30, 2001

Commercial
Location
Property Type
Net
Rentable
Sq. Ft.
Purchase
Price
12 South Main
Minot, ND
Office
11,300
$        385,000
17 South Main
Minot, ND
Office/Apartments
6,500
$          90,000
2030 Cliff Road
Eagan, MN
Office
13,374
$        950,000
Burnsville Bluffs
Burnsville, MN
Office
26,186
$     2,400,000
Cold Springs Center
St. Cloud, MN
Office
77,533
$     8,250,000
Conseco Financial Building
Rapid City, SD
Office
  75,815
$     6,850,000
Dewey Hill Business Center
Edina, MN
Office
73,338
$     4,472,895
Edgewood Vista Addition
Duluth, MN
Assisted Living
26,412
$     2,200,000
Edgewood Vista Addition
East Grand Forks, MN
Assisted Living
5,100
$        516,700
Edgewood Vista
Fremont, NE
Assisted Living
5,100
$        535,550
Edgewood Vista
Hastings, NE
Assisted Living
5,100
$        550,800
Edgewood Vista
Kalispell, MT
Assisted Living
5,895
$        560,000
Edgewood Vista
Omaha, NE
Assisted Living
5,100
$        610,800
HealthEast I & II
Woodbury & Maplewood, MN
Medical Office
114,216
$   21,588,498
Hospitality Associates
Minnetonka, MN
Office
4,000
$        400,000
Nicollet VII
Burnsville, MN
Office
118,400
$     7,200,000
Pillsbury Business Center
Bloomington, MN
Office
42,220
$     1,800,000
Plymouth IV & V
Plymouth, MN
Office
   126,809
$   13,750,000
Sterner Lighting
Winsted, MN
Manufacturing
38,000
$     1,000,000
Stone Container Addition
Fargo, ND
Manufacturing
41,500
$     2,001,879
Stone Container
Waconia, MN
Warehouse
  29,440
$     1,666,500
Southdale Medical Center (60.31% part int.)
Edina, MN
Medical Office
   195,983
$   32,421,070
 
 
 
1,047,321
$ 110,199,692

68



Residential
 
 
Units
Purchase
Price
Cottonwood Phase III
Bismarck, ND***
 
  67
$      1,854,800
Meadows, Phase III
Jamestown, ND***
 
27
$      1,865,182
Olympic Village
Billings, MT
 
274
$    11,616,500
Prairiewood Meadows
Fargo, ND
 
85
$      2,811,000
Ridge Oaks
Sioux City, IA
 
132
$      4,195,036
Sunset Trail, Phase I
Rochester, MN
 
  73
$      6,493,150
Sunset Trail, Phase II
Rochester, MN**
 
n/a 
$      4,006,932
 
 
 
658
$    32,842,600
TOTAL
 
 
 
$  143,042,292

 
**
Property not placed in service at April 30, 2001.  Additional costs are still to be incurred.
***
Represents costs to complete a project started in year ending April 30, 2000.

Title
      The title to all of the above properties is in the name of IRET Properties, IRET or a wholly owned subsidiary, in fee simple (in each case, IRET has in its files an attorney's title opinion or a title insurance policy evidencing its title).

Insurance
      In the opinion of management, all of said properties are adequately covered by casualty and liability insurance.

Planned Improvements
      There are no plans for material improvements to any of the above properties.

Occupancy
      Occupancy rates shown above are for the twelve months ended April 30, 2001. In the case of apartment properties, lease arrangements with individual tenants vary from month-to-month to one-year leases, with the normal term being six months.  Leases on commercial properties vary from one year to 20 years.
 

Material Lease Terms
 

      Residential Lease Terms - IRET's typical residential lease terms are as follows:
 

*
A term of 3 to no more than 12 months.
*
Month-to-month occupancy is not permitted.
*
Water, sewer, and garbage are included in the monthly rent while all other utilities and services are the direct responsibility of the tenant.
*
Renter's insurance is not required to be carried by the individual tenants.

69


      Commercial Lease Terms - IRET's typical commercial least terms are as follows:
 

*
Terms from no less than 12 months up to 20 years plus guaranteed renewal terms.
*
Renewal term rents shall be equal to current market rents at time of renewal, but in no event less than the most recent rental rate.
*
Tenant pays all expenses associated with taxes, insurance, repairs, daily operations, and maintenance.
*
Less than 5% of rental income is based on our commercial tenant's sales.  Majority of rent is payable in fixed monthly amounts.
*
All tenants are prohibited from assigning the lease or subleasing without our written approval.
*
IRET may sell the property and assign the lease at any time without the approval of the tenants.
*
IRET does not grant tenants an option to purchase the property.

Shares Available for Future Sale

      Pursuant to its organizational documents, IRET is authorized to issue an unlimited number of its shares.

      The shares of IRET issued in connection with this offering and six prior registrations of shares are freely transferable without restriction under the Securities Act of 1933, as amended, subject to those certain limitations on ownership imposed by IRET's organizational documents designed to insure that IRET may continue to qualify as a real estate investment trust under the IRS code. See Description of IRET's Restrictions on Transfer at page 89.

      Pursuant to the partnership agreement of IRET Properties, all limited partners of IRET properties have certain exchange rights. After at least a holding period of one year, a limited partner is entitled to convert their limited partnership units to share of IRET stock on a one for one basis. Shares of Beneficial Interest of IRET, other than those issued under this registration and the prior registrations which were effective July 9, 1996, March 14, 1997, December 15, 1998, June 4, 1999, September 1, 1999, December 14, 1999, June 13, 2000, and December 3, 2001 respectively, will be restricted securities under the meaning of Rule 144 of the Securities Act of 1933 and may not be sold in the absence of registration under the Securities Act of 1933 unless an exemption from registration is available, including exemptions contained in Rule 144.

      In general, under Rule 144 as currently in effect, if one year has elapsed since the later of the date of acquisition of restricted securities from IRET or any "affiliate"; of IRET, as that term is defined under the Securities Act of 1933, the acquirer or subsequent holder thereof is entitled to sell within any three month period a number of shares that does not exceed the greater of one percent (1%) of the then outstanding shares of Beneficial Interest or the average weekly trading

70


volume of the shares of Beneficial Interest during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales under Rule 144 also are subject to certain manner of sale provisions, notice requirements and the availability of current public information about IRET. If two years have elapsed since the date of acquisition of restricted shares from IRET or from any affiliate of IRET and the holder thereof is deemed not to have been an affiliate of IRET at any time during the three months preceding a sale, such holder would be entitled to sell such shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements.

    IRET has agreed under the Operating Partnership Agreement that it will file with the Securities and Exchange Commission a shelf registration on Form S-3 under Rule 415 of the Securities Act or any similar rule adopted by the Commission with respect to any IRET shares that may be issued upon exchange of limited partnership units in the operating partnership, pursuant to Section 8.06 of the Operating Partnership Agreement and to use its best efforts to have such registration statement declared effective under the Securities Act of 1933.  The sale of shares acquired by limited partners upon conversion of their limited partnership units to IRET shares may have an adverse impact on the market price of IRET shares.

  The remainder of this page has been intentionally left blank.

71


Operating Partnership Agreement

      IRET conducts all of its day-to-day real estate activities through it operating partnership IRET Properties, a North Dakota Limited Partnership (IRET Properties).  The operation of IRET Properties is governed by the limited partnership agreement between IRET, Inc. and the individual limited partners. IRET, Inc. is 100% owned by Investors Real Estate Trust (IRET). IRET, Inc. as of April 30, 2001, owned 71% of IRET Properties. The material terms of the limited partnership agreement for IRET Properties are as follows:

IRET, Inc. is the Sole General Partner
      The IRET Properties has been organized as a North Dakota limited partnership pursuant to the terms of the Agreement of Limited Partnership dated January 31, 1997. Pursuant to the agreement of limited partnership, IRET, Inc., as the sole general partner, has full, exclusive and complete responsibility and discretion in the management and control of IRET Properties, and the limited partners have no authority in their capacity as limited partners to transact business for, or participate in the management activities or decisions of IRET Properties except as required by applicable law. However, any amendment to the limited partnership agreement that would (i) adversely affect the Exchange Rights as described below on page 72, (ii) adversely affect the limited partners' rights to receive cash distributions, (iii) alter the limited partnership's allocations of capital of the IRET Properties, requires the consent of the limited partners holding more than fifty percent (50%) of the limited partnership units held by such partners.
 

 Transferability of Limited Partnership and General Partnership Interests
      As the general partner, IRET, Inc., may not voluntarily withdraw as the general partner of IRET Properties or transfer or assign its interest in IRET Properties unless the transaction in which such withdrawal or transfer occurs results in the limited partners receiving property in an amount equal to the amount they would have received had they exercised their Exchange Rights immediately prior to such transaction, or unless the successor to IRET, Inc. contributes substantially all of its assets to the IRET Properties in return for an interest in IRET Properties. With certain limited exceptions, the limited partners may not transfer their interests in IRET Properties, in whole or in part, without the written consent of IRET, Inc., which consent IRET, Inc. may withhold in its sole discretion. IRET, Inc. may not consent to any transfer that would cause IRET Properties to be treated as a corporation for federal income tax purposes.

      IRET Properties may not engage in any transaction resulting in a change of control Transaction unless in connection with the transaction the limited partners receive or have the right to receive cash or other property equal to the product of the number of shares of IRET into which each limited partnership unit of IRET Properties is then exchangeable and the greatest amount of cash, securities or other property paid in the transaction to the holder of one share of IRET in consideration of one such share.  If, in connection with the transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than fifty percent (50%) of the outstanding shares of IRET, each holder of limited partnership units of IRET Properties will receive, or will have the right to elect to receive, the greatest amount of cash, securities, or other property which such holder would have received had it exercised its right to redemption and received shares of IRET in exchange for its limited partnership units of

72


IRET Properties immediately prior to the expiration of such purchase, tender or exchange offer and had accepted such purchase, tender or exchange offer.

      Despite the foregoing paragraph, IRET may merge, or otherwise combine its assets, with another entity if, immediately after such merger or other combination, substantially all of the assets of the surviving entity, other than its ownership in IRET Properties, are contributed to IRET Properties as a capital contribution in exchange for general partnership units of IRET Properties with a fair market value, as reasonable determined by IRET, equal to the agreed value of the assets so contributed.

      For any transaction described in the preceding two paragraphs, IRET is required to use its commercially reasonable efforts to structure such transaction to avoid causing the limited partners to recognize gain for federal income tax purposes by virtue of the occurrence of or their participation in such transaction, provided such efforts are consistent with the exercise of the trustees' fiduciary duty under applicable law.
 

Proceeds of this Offering will be Capital Contributions to IRET Properties
      All assets of IRET will be held by IRET Properties or a subsidiary of IRET Properties, including the proceeds of this offering.  Although IRET Properties will receive the net proceeds of the offering, IRET and the General Partner will be deemed to have made a capital contribution to the IRET Properties in the amount of the gross proceeds of the offering and IRET Properties will be deemed simultaneously to have paid the expenses paid or incurred in connection with the offering. Upon such contribution, IRET, Inc. or IRET, as applicable, will receive additional Units and the General Partner's or IRET's, as applicable, percentage interest in IRET Properties will be increased on a proportionate basis based upon the amount of such additional capital contributions.
 

       Conversely, the percentage interests of the limited partners will be decreased on a proportionate basis in the event of additional capital contributions by the IRET, Inc. or IRET. In addition, if the IRET, Inc. or IRET contributes additional capital to IRET Properties, IRET, Inc. will revalue the property of IRET Properties to its fair market value as determined by IRET, Inc. and the capital accounts of the partners will be adjusted to reflect the manner in which the unrealized gain or loss inherent in such property which has not been reflected in the capital accounts previously would be allocated among the partners under the terms of the limited partnership agreement of IRET Properties if there were a taxable disposition of such property at fair market value on the date of the revaluation.
 

       The limited partnership agreement of IRET Properties provides that if IRET Properties requires additional funds at any time or from time to time in excess of funds available to IRET Properties from borrowing or capital contributions, IRET, Inc. or IRET may borrow such funds from a financial institution or other lender and lend such funds to IRET Properties on the same terms and conditions as are applicable to IRET, Inc.'s or IRET's, as applicable, borrowing of such funds.

73


      IRET, Inc. is authorized to cause IRET Properties to issue partnership interests for less than fair market value if IRET (i) has concluded in good faith that such issuance is in the best interest of IRET and IRET Properties and (ii) IRET, Inc. makes a capital contribution in an amount equal to the proceeds of such issuance. Under the limited partnership agreement of IRET Properties, IRET, Inc. is obligated to contribute or cause IRET to contribute the proceeds of a share offering by IRET as additional capital to IRET Properties.
 

  Exchange Rights of Limited Partners
      Pursuant to the limited partnership agreement of IRET Properties, the limited partners  have exchange rights that enable them to cause IRET Properties to exchange their limited partnership units for cash, or at the option of IRET, Inc., shares of IRET on a one-for-one basis.
 

       The exchange price will be paid in cash in the event that the issuance of shares of IRET to the exchanging limited partner would:
 

(i)
result in any person owning, directly or indirectly, IRET shares in excess of the ownership limitation of 50% of the outstanding shares of IRET;
(ii)
result in shares of beneficial interest of IRET being owned by fewer than 100 persons;
(iii)
result in IRET being "closely held" within the meaning of Section 856(h) of the IRS code;
(iv)
cause IRET to own, actually or constructively, 10% or more of the ownership interest in a tenant of IRET's or IRET Properties' real estate, within the meaning of Section 856(d)(2)(B) of the IRS code; or
(v)
cause the acquisition of IRET shares by such redeeming limited partner to be "integrated" with any other distribution of IRET shares for purposes of complying with the Securities Act. 

       The exchange may be exercised by the limited partners at any time after the first anniversary of the date of their acquisition, provided that not more than two exchanges may occur during each calendar year and each limited partner may not exercise the exchange for less than 1,000 units or, if such limited partner holds less than 1,000 units all of the units held by such limited partner.
 

       The number of IRET shares issuable upon an exchange will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or the shareholders IRET.

74


Operation of IRET Properties and Payment of Expenses
      The limited partnership agreement of IRET Properties requires that the partnership be operated in a manner that will enable IRET to satisfy the requirements for being classified as a REIT for federal tax purposes, to avoid any federal income or excise tax liability imposed by the IRS code, and to ensure that IRET Properties will not be classified as a publicly  traded partnership for purposes of Section 7704 of the IRS code.

      In addition to the administrative and operating costs and expenses incurred by IRET Properties, it will pay all administrative costs and expenses of IRET and IRET, Inc. All expenses of IRET will be considered expenses of IRET Properties. IRET expenses generally will  include:
 

(i)
all expenses relating to the operation and continuity of existence of IRET and IRET, Inc.;
(ii)
all expenses relating to the public offering and registration of securities by IRET;
(iii)
all expenses associated with the preparation and filing of any periodic reports by IRET under federal, state or local laws or regulations;
(iv)
all expenses associated with compliance by IRET and IRET, Inc. with laws, rules and regulations promulgated by any regulatory body; and
(v)
all other operating or administrative costs of IRET, Inc. incurred in the ordinary course of its business on behalf of IRET Properties.

Distributions and Liquidation
      The limited partnership agreement of IRET Properties provides that it shall distribute cash from operations on a quarterly basis, in amounts determined by IRET, Inc. in its sole discretion, to the partners in accordance with their respective percentage interests in IRET Properties. Upon liquidation of the IRET Properties, and after payment of, or adequate provision for, debts and obligations of IRET Properties, any remaining assets will be distributed to all partners with positive capital accounts in accordance with their respective positive capital account balances. If IRET has a negative balance in its capital account following a liquidation, it will be obligated to contribute cash equal to the negative balance in its capital account.

Allocations
      Income, gain and loss of IRET Properties for each fiscal year is allocated among the partners in  accordance with their respective interests, subject to compliance with the provisions of IRS code sections 704(b) and 704(c) regulations issued thereunder.

75


Term
      IRET Properties shall continue until April 30, 2050, or until sooner dissolved upon:
 

(i)
the bankruptcy, dissolution or withdrawal of IRET, Inc.;
(ii)
the sale or other disposition of all or substantially all of its assets;
(iii)
the redemption of all limited partnership interests; or
(iv)
the election by the General Partner. 

 Fiduciary Duty
      Before becoming a limited partner, each limited partner must agree that in the event of any conflict in the fiduciary duties owed by IRET to its shareholders and by the General Partner to such Limited Partners, the General Partner will fulfill its fiduciary duties to such limited partnership by acting in the best interests of IRET's shareholders.
 

 Tax Matters
      IRET, Inc. is the tax matters partner of IRET Properties and, as such, has authority to handle tax audits and to make tax elections under the IRS code on behalf of IRET Properties and the limited partners.

 The remainder of this page has been intentionally left blank.

76


Tax Treatment of IRET and Its Shareholders

Federal Income Tax
      Since its organization, IRET has operated in a manner to qualify as a real estate investment trust under Sections 856-858 of the IRS code.  Under such sections, a real estate investment trust, which meets certain requirements, will not be subject to Federal income tax with respect to income that it distributes to shareholders.  Rather all earnings of the company will be taxed at the shareholder level

      To be considered a real estate investment trust for purposes of the Federal income tax laws, IRET must continue to meet the following requirements:
 

(1)
At the end of each fiscal quarter at least 75% of the total assets of IRET must consist of real estate, cash, cash items including receivables and government securities. As to non-real estate investments, which may not exceed 25% of the total assets of IRET, the securities of any one issuer acquired by IRET may not represent more than 5% of the value of IRET's assets or more than 10% of the outstanding voting securities of such issuer.
(2)
At least 75% of the gross income of IRET for the taxable year must be derived from real estate rents or mortgages or other real estate related activities
(3)
Gross income for the taxable year from sales or other disposition of stock or securities held for less than six months and of real property (or interests in real property) held for less than four years must be less than 30% of gross income.
(4)
Beneficial ownership of IRET must be held by 100 or more persons during at least 335 days of a taxable year of 12 months.  More than 50% of the outstanding stock may not be owned, directly or indirectly, by or for, five or fewer individuals, at any time during the last half of the taxable year.

      As a real estate investment trust, IRET will not be taxed on that portion of its net income which is distributed to shareholders, if at least 90% of its net income is distributed.  However, to the extent that there is undistributed net income or undistributed capital gain income, IRET will be taxed as a corporation at corporate income tax rates. IRET will not be entitled to carry back or carry forward any net operating losses.

      So long as IRET has met the statutory requirements for taxation as a real estate investment trust, distributions made to IRET's shareholders will be taxed to such shareholders as ordinary income or long-term capital gain.  Distributions will not be eligible for the dividend exclusion for individuals, or for the 85% dividends received deduction for corporations. IRET will notify each shareholder as to what portion of the distributions in the opinion of its counsel constitutes ordinary income or capital gain. The shareholders may not include in their individual income tax returns any operating or extraordinary losses of IRET, whether ordinary or capital losses.

77


      If, in any taxable year, IRET should not qualify as a real estate investment trust, it would be taxed as a corporation and distributions to its shareholders would not be deductible by IRET in computing its taxable income.  Such distributions, to the extent made out of IRET's current or accumulated earnings and profits, would be taxable to the shareholders as dividends, but would be eligible for the dividend exclusion, or the 85% dividends received deduction for corporations.

      In the opinion of the law firm of Pringle & Herigstad, P.C., IRET has conducted its operations in such a manner to qualify as a real estate investment trust.  The regulations of the IRS require that the trustees have continuing exclusive authority over the management of IRET, the conduct of its affairs and, with certain limitations, the management and disposition of IRET property. It is the intention of the trustees to adopt any amendments to IRET's organizational documents that may be necessary for IRET to continue operation as a real estate investment trust. Any amendments to the organizational documents in order to remain qualified as a real estate investment trust may be done by the trustees without notice to or a vote of the shareholders.
 

State and Local Income Taxation
      Since IRET qualifies as a real estate investment trust for purposes of the Federal income tax laws, it will not be subject to state income tax on that portion of its taxable income which is distributed to shareholders.  Distributions to IRET shareholders may be subject to taxation by the state or local jurisdiction of residence of the shareholder.

       Prospective shareholders should consult their tax advisors for an explanation of how state and local tax laws could affect their investment.
 

 Taxation of IRET's Shareholders
      Distributions made to IRET's shareholders out of current or accumulated earnings and profits will be taxed as ordinary income.  Distributions that are designated as capital gain dividends will be taxed as long-term capital gains to the extent they do not exceed IRET's actual net capital gain income for the taxable year, although corporate shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income. Distributions in excess of current or accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares of stock, but rather will reduce the adjusted basis of such shares of stock as a return of capital.

       To the extent that distributions exceed the adjusted basis of shareholder's shares of stock they will be included in income as long-term or short-term capital gain assuming the shares are held as a capital asset in the hands of the shareholder. IRET will notify shareholders at the end of each year as to the portions of the distributions which constitute ordinary income, net capital gain or return of capital.

      In addition, any dividend declared by IRET in October, November or December of any year payable to a shareholder of record on a specified date in any such month shall be treated as both paid by IRET and received by the shareholder on December 31 of such year, even though the dividend is actually paid by IRET during January of the following calendar year.

78


      In general any gain or loss upon a sale or exchange of shares by a shareholder who has held such shares as a capital asset will be long-term or short-term depending on whether the stock was held for more than one year; provided, however, any loss on the sale or exchange of shares that have been held by such shareholder for six months or less will be treated as a long-term capital loss to the extent of distributions from IRET required to be treated by such shareholders as long-term capital gain.
 

Taxation of IRA's, 401K's, Pension Plans and Other Tax-exempted Shareholders
      The IRS has ruled that amounts distributed as dividends by a qualified REIT do not constitute unrelated business taxable income ("UBTI") when received by a tax-exempt entity. Based on that ruling the dividend income from IRET should not, subject to certain exceptions described below, be UBTI to a pension plan, 401k, IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided that the Tax-Exempt Shareholder has not held its shares as "debt financed property" within the meaning of the Code and the shares are not otherwise used in an unrelated trade or business of the Tax-Exempt Shareholder.  Similarly, income from the sale of IRET shares should not, subject to certain exceptions described below, constitute UBTI unless the Tax-Exempt Shareholder has held such shares as a dealer (under Section 512(b)(5)(B) of the IRS code) or as "debt financed property" within the meaning of Section 514 of the IRS code.

      For Tax-Exempt Shareholders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the IRS code respectively, income from an investment in IRET will constitute UBTI unless the organization is able to deduct properly amounts set aside or placed in reserve for certain purposes so as to offset the income generated by its investment in IRET. Such prospective investors should consult their tax advisors concerning these "set-aside" and reserve requirements.
 

IRET Reporting to the IRS and Backup Withholding
      IRET will report to its shareholders and the IRS the amount of dividends paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding at the rate of 31% with respect to dividends paid unless such holder (a) is a corporation or comes within certain other exempt categories and when required, demonstrates this fact, or (b) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A shareholder that does not provide IRET with a correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, IRET may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to IRET.

79


Tax Treatment of IRET Properties and Its Limited Partners

      The following discussion summarizes certain federal income tax considerations applicable to IRET's investment in IRET Properties.  The discussion does not cover state or local tax laws or any federal tax laws other than income tax laws.
 

 Classification as a Partnership
      IRET will include in its income its share of IRET Properties income and deduct its share of the  losses only if IRET Properties is classified for federal income tax purposes as a partnership rather than as a corporation or an association taxable as a corporation.

      IRET has not requested, and does not intend to request, a ruling from the IRS that IRET Properties will be classified as a partnership for federal income tax purposes.  Instead, Pringle & Herigstad, P.C., is of the opinion that, based on certain factual assumptions and representations, IRET Properties does not possess more than two corporate characteristics and will not be treated as a publicly traded partnership. Therefore, it will be treated for federal income tax purposes as a partnership and not as a corporation or an association taxable as a corporation, or a publicly traded partnership. Unlike a tax ruling, an opinion of counsel is not binding upon the IRS, and no assurance can be given that the IRS will not challenge the status of IRET Properties as a partnership for federal income tax purposes. If a court sustained such a challenge, IRET Properties would be treated as a corporation for federal income tax purposes, as described below.  In addition, the opinion of Pringle & Herigstad, P.C., is based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.

      If for any reason IRET Properties was taxable as a corporation, rather than a partnership, for federal income tax purposes, IRET would not be able to qualify as a REIT.  In addition, any change in the Partnership's status for tax purposes might be treated as a taxable event, in which case IRET might incur a tax liability without any related cash distribution. Further, items of income and deduction of the Partnership would not pass through to its partners, and its partners would be treated as shareholders for tax purposes. Additionally, IRET Properties would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing IRET Properties' taxable income.

 The remainder of this page has been intentionally left blank.

80


Income Taxation of IRET Properties and its Partners



Partners and not IRET Properties Subject to Tax
      A partnership is not a taxable entity for federal income tax purposes. Rather, IRET will be required to take into account is allocable share of IRET Properties' income, gains, losses, deductions, and credits for any taxable year ending within or with the taxable year of IRET, without regard to whether IRET has received or will receive any distributions.
 

 Partnership Allocation Income, Losses and Capital Gain
      Although a partnership agreement generally will determine the allocation of income and losses among partners, such allocations will be disregarded for tax purposes under section 704(b) of the Code if they do not comply with the provisions of section 704(b) of the Code and the Treasury Regulations promulgated thereunder. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners' interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. The Operating Partnership's allocations of taxable income and loss are intended to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder.

 Tax Allocations with Respect to Contributed Property
      Pursuant to section 704(c) of the Code, income, gain, loss, and deductions attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for federal income tax purposes in a manner such that the contributor is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution. The Treasury Department has issued regulations requiring partnerships to use a "reasonable method" for allocating items affected by section 704(c) of the Code and outlining several reasonable allocation methods. IRET Properties plans to elect to use the traditional method for allocating IRS code section 704(c) items with respect to the properties it acquires in exchange for limited partnership units.

      Under the limited partnership agreement of IRET Properties, depreciation or amortization deductions of will be allocated among the partners in accordance with their respective interests. In addition, gain on the sale of a property contributed to IRET Properties by a limited partner in exchange for limited partnership units will be specially allocated to such limited partner to the extent of any built-in gain with respect to the property. Depending on the allocation method elected under IRS code section 704(c), it is possible that IRET (i) may be allocated lower amounts of depreciation deductions for tax purposes with respect to contributed properties than would be allocated to IRET if such properties were to have a tax basis equal to their fair market value at the time of contribution and (ii) may be allocated taxable gain in the event of a sale of such contributed properties in excess of the economic profit allocated to IRET as a result of such sale. These allocations may cause IRET to recognize taxable income in excess of cash proceeds, which might adversely affect IRET's ability to comply with the REIT distribution requirements.

81


This situation has not occurred to IRET in the past, nor does IRET have any reason to believe it will occur in the future.

    The allocation rules may also affect the calculation of IRET's earnings and profits for purposes of determining which portion of IRET's distributions is taxable as a dividend. The allocations described in this paragraph may result in a higher portion of IRET's distributions being taxed as a dividend than would have occurred had IRET purchased the Properties for cash.
 

Tax Basis in IRET Properties
      IRET's adjusted tax basis of its partnership interest in IRET properties is equal to (i) the amount of cash and the basis of any other property contributed to IRET Properties by IRET, (ii) increased by its share of income and its share of indebtedness, and (iii) reduced, but not below zero, by its share of the loss and the amount of cash distributed to IRET.

      If the allocation of IRET's share of loss would reduce the adjusted tax basis of IRET's partnership interest in below zero, the recognition of such loss will be deferred until such time as the recognition of such loss would not reduce IRET's adjusted tax basis below zero. To the extent that distributions, or any decrease in IRET's share of the indebtedness would reduce IRET's adjusted tax basis below zero, such distributions will constitute taxable income to IRET. Such distributions normally will be characterized as capital gain, and, if IRET's partnership interest has been held for longer than the long-term capital gain holding period, the distributions will constitute long-term capital gain.
 

Sale of Real Estate
      Generally, any gain realized by IRET Properties on the sale of property held for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture.

       Any gain recognized on the disposition of a particular property contributed by a partner in exchange for limited partnership will be allocated first to such contributing partner under section 704(c) of the IRS code to the extent of such contributing partner's built-in. Any remaining gain will be allocated among the partners in accordance with their respective ownership percentage interests in IRET Properties

The remainder of this page has been intentionally left blank.

82


ERISA and Prohibited Transaction Considerations

      The following is a discussion of material considerations arising under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the prohibited transaction provisions of section 4975 of the IRS code that may be relevant to a prospective purchaser.  The discussion does not purport to deal with all aspects of ERISA or section 4975 of the IRS code that may be relevant to particular shareholders in light of their particular circumstances.

The discussion is based on current provisions of ERISA and the IRS code. Any change in the current law may render this discussion incorrect.
 

      A fiduciary of a pension, profit-sharing, other employee benefit plan, IRA or 401K plan subject to Title I of ERISA should consider carefully whether an investment in IRET shares is consistent with his fiduciary responsibilities under ERISA. In particular, the fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's investments to be (i) prudent and in the best interests of the ERISA Plan, its participants, and its beneficiaries, (ii) diversified in order to minimize the risk of large losses, unless it is clearly prudent not to do so, and (iii) authorized under the terms of the ERISA Plan's governing documents.
 

 Status of IRET and IRET Properties under ERISA
      The following section discusses certain principles that apply in determining whether the fiduciary requirements of ERISA and the prohibited transaction provisions of ERISA and the IRS code apply to IRET or IRET Properties because one or more shareholders may be an ERISA Plan or is a Non-ERISA Plan or IRA subject to prohibited transactions section 4975 of the IRS code.

      If the assets of IRET are deemed to be "plan assets" under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to any transactions involving IRET's assets, (ii) persons who exercise any authority over IRET's assets, or who provide investment advise to IRET, would (for purposes of fiduciary responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that acquires IRET shares, and transactions involving IRET's assets undertaken at their direction or pursuant to their advise might violate their fiduciary responsibilities under ERISA, especially with regard to conflicts of interest, (iii) a fiduciary exercising his investment discretion over the assets of an ERISA Plan to cause it to acquire or hold IRET shares could be liable under Part 4 of Title I of ERISA for transactions entered into by IRET that do not conform to ERISA standards of prudence and fiduciary responsibility, and (iv) certain transactions that IRET might enter into in the ordinary course of its business and operations might constitute "prohibited transactions" under ERISA and the IRS code.

      Regulations of the Department of Labor (DOL) provide that the ERISA rules do not apply in the case of a security which is either a "publicly-offered security."

      The Plan Asset Regulations define a publicly-offered security as a security that is "widely-held," "freely transferable," and either part of a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or sold pursuant to an effective

83


registration statement under the Securities Act. The DOL regulations provide that a security is "widely-held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. As of April 30, 2001, IRET had in excess of 4,800 shareholders and is of the opinion that the Shares are now and will be "widely held."

    The Plan Asset Regulations provide that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. IRET currently imposes only the following restrictions on transfer:

Section 7 of Article 2 of the Declaration of Trust provides: "To insure compliance with the Internal Revenue Code provision that no more than 50% of the outstanding Shares may be owned by five or fewer individuals, the Trustees may at any time redeem Shares from any Shareholder at the fair market value thereof (as determined in good faith by the Trustees based on an independent appraisal of Trust assets made within six months of the redemption date). Also, the Trustee may refuse to transfer Shares to any Person who acquisition of additional Shares might, in the opinion of the Trustees, violate the above requirement."

       IRET is not aware of any other facts or circumstances limiting the transferability of its shares that are not enumerated in the Plan Asset Regulations as those not affecting free transferability.
 

      Assuming that IRET shares will be "widely held" and that no other facts and circumstances other than those referred to in the preceding paragraph exist that restrict transferability, it is IRET's opinion that it shares should be publicly offered securities and the assets of IRET should not be deemed to be "plan assets" of any ERISA Plan, IRA, or Non-ERISA Plan that invests in IRET shares.

The remainder of this page has been intentionally left blank.

84


Market Price of and Distribtion on IRET's
Shares of Beneficial Interest


 Market for IRET Shares of Beneficial Interest
      Since October 17, 1997, IRET shares of Beneficial Interest have traded on the NASDAQ Small-Cap market under the symbol "IRETS."  The following sets forth high and low closing sale prices for the fiscal periods indicated as well as the total volume and total number of trades during such periods:
 

Fiscal Quarter Ended
   High
    Low
Total Volume
Total Trades
*10-31-97
$         7.125
$         6.563
35,154
45
01-31-98
$         7.313
$         6.625
339,857
204
04-30-98
$         7.344
$         7.031
437,487
196
07-31-98
$         7.250
$         7.000
359,835
118
10-31-98
$       14.000
$         7.000
489,586
232
01-31-99
$         7.688
$         7.000
343,128
249
04-30-99
$         8.000
$         7.000
445,900
313
07-31-99
$       17.875
$         7.063
1,306,088
754
10-31-99
$         8.438
$         7.000
962,576
746
01-31-00
$         8.375
$         7.250
620,291
737
04-30-00
$         8.125
$         7.125
1,169,063
1,177
07-31-00
$         8.125
$         7.375
1,389,410
1,189
10-31-00
$         8.250
$         7.594
979,400
1,288
01-31-01
$         8.500
$         7.438
1,075,896
1,311
04-30-01
$         8.980
$         8.000
619,172
904
07-31-01
$       10.490
$         8.250
2,516,122
4,434
10-31-01
$         9.430
$         8.800
1,101,648
2,006

 *          from 10-20-97 - trading day

 The remainder of this page has been intentionally left blank.

85


Prior Share Offering Price
      IRET also offered primary Shares of Beneficial Interest for sale to the public under Best Efforts offerings through various brokers registered with the National Association of Securities Dealers. Primary shares were sold as follows:
 
 
Per Share
05/01/97 to 12/31/97
$7.20
01/05/98 to 11/20/98
$7.45
01/15/98 to 04/30/99
$7.85
06/04/99 to 07/20/99
$8.10
09/01/99 to 11/19/99
$8.25
12/14/99 to 05/01/00
$8.40
06/13/00 to 04/16/01
$8.60
  12/03/01 to 12/04/01
  $8.75  

Share Buyback Program
      IRET also repurchased its shares during this period. Following is a summary, by quarter-year, of the sale of primary shares and repurchase of shares by IRET:
 

 
Shares
  Dollars
05/01/99 Beginning Balance
19,066,954
$    93,095,819
Quarter Ended 07/31/99
 
 
   Shares Sold
856,738
$      7,172,603
   Commissions Paid
_________ 
$        -466,368
 
19,923,692
$    99,802,054
Quarter Ended 10/31/99
 
 
   Shares Sold
1,216,465
$      9,789,966
   Commissions Paid
_________ 
$        -497,488
 
21,140,157
$  109,094,532
Quarter Ended 01/31/00
 
 
   Shares Sold
850,779
$      6,881,751
   Commissions Paid
_________
$        -310,900
 
21,990,936
$  115,665,383
Quarter Ended 04/30/00
 
 
   Shares Sold
461,133
$      3,887,039
   Commissions Paid
_________ 
$        -319,252
 
22,452,069
$  119,233,170
Quarter Ended 07/31/00
 
 
   Shares Sold
288,677
$      2,437,091
   Commissions Paid
 
$       -173,256
   Dividend Reinvestment Plan
141,736
$      1,157,349
   Shares Redeemed
           -716
$            -5,470
 
22,881,768
$  122,648,884
Quarter Ended 10/31/00
 
 
   Shares Sold
158,248
$      1,360,601
   Commissions Paid
 
$          -99,949
   Dividend Reinvestment Plan
40,603
$         330,957
   Shares Redeemed
           -289
$           -2,277
 
23,080,328
$  124,238,216

86



 
Shares
Dollars
Quarter Ended 01/31/01
 
 
   Shares Sold
286,868
$      2,465,230
   Commissions Paid
 
$       -193,123
   Dividend Reinvestment Plan
12,813
$         103,169
   Shares Redeemed
      -39,561
$       -306,722
 
23,340,448
$  126,306,770
Quarter Ended 04/30/01
 
 
   Shares Sold
610,833
$      5,197,960
   Commissions Paid
 
$        -312,251
   Dividend Reinvestment Plan
117,286
$         958,177
   Shares Redeemed
          -221
 $            -1,888
 
24,068,346
$  132,148,768

Shares Outstanding
      No shareholder held 5% or more of the 27,030,009 shares of beneficial interest outstanding on January 1, 2002.  IRET has no other classes of stock and there were no warrants, stock options or other contractual arrangements requiring the issuance of its stock.

Distributions Payable Last Five Years
      IRET has paid quarterly distributions since July 1, 1971.  Distributions are generally paid in January, April, July, and October of each year.  IRET's current dividend rate is .15 cents per share per quarter payable on distributions paid during the past three fiscal years and the current fiscal year to date were as follows:
 

 
  2001
         2000
         1999
  1998
  1997
January 15th
$     .1400
$     .1280
$     .1200
$    .10500
$    .0975
April 1st
$     .1425
$     .1300
$     .1225
$    .10700
$     .1000
July 1st
$     .1450
$     .1240
$     .1100
$    .10125
$     .0925
October 1st
$     .1475
$     .1260
$     .1150
$    .10300
$     .0950
Total
$     .5750
$     .5080
$     .4675
$    .41625
$       .385

      Over the past five fiscal years ending April 30, the annual distributions have been treated as follows for federal and state income tax purposes:
 

 
2001
2000
1999
1998
1997
 
 
 
 
 
 
Ordinary Income
86.76%
69.70%
76.00%
97.10%
79.00%
Capital Gain
.72%
30.30%
6.30%
 2.90%
 21.00%
Return of Capital
  12.52%
    0.00%
 17.70%
      0.0 %
    0.00%
      Total
100.00%
100.00%
100.00%
100.00%
100.00%

87


Distribution Reinvestment Plan

       IRET currently offers its existing shareholders the option of reinvesting all or a portion of their distributions into additional IRET shares.

 
    Pursuant to its distribution reinvestment plan, IRET may, from time to time, repurchase its shares on the open market for purposes of fulfilling its obligations under the Plan or, if sufficient shares are not available on the open market, IRET will issue additional shares.
 
    Each shareholder shall have the option to use cash distributions to purchase additional shares.  In order to participate in the Distribution Reinvestment Plan, the shareholder must affirmatively elect to do so by notifying the Transfer Agent and Registrar, Investors Real Estate Trust, 12 South Main, Suite 100, Minot, ND 58701, (701) 837-4738.  The shareholder may terminate participation at any time by notifying the Transfer Agent.
 
    The distribution may be taxable to the shareholders whether received in cash or shares.

 
 

Description of IRET's Shares of Beneficial Interest

  The securities being offered pursuant to this prospectus are shares of beneficial interest of Investors Real Estate Trust.  As of the effective date of this prospectus listed on the front cover, each share of beneficial interest has rights and benefits outlined below. None of the items listed may be changed by IRET or its trustees without notice to and the affirmative vote of those shareholders holding a majority of IRET's outstanding shares unless otherwise noted below:
 

       The shares of beneficial interest of IRET are of one class without par value.
 

       There is no limit on the number of shares that may be issued.
 

       All shares participate equally in dividends and distributions when and as declared by the trustees and in net assets upon liquidation.
 

       All shares of beneficial interests are fully paid and non-assessable by IRET upon issuance and will have no preference, conversion, exchange, pre-emptive or redemption rights.
 

       Annual meetings of shareholders shall be held no later than 120 days after April 30th of each year and special meetings may be called by the Chairman of the trustees or by a majority of the trustees or upon written request of shareholders holding not less than 10% of the issued and outstanding shares.
 

       At any meeting a shareholder is entitled to one vote for each share of IRET owned.

88


      All trustees must be elected or re-elected annually by the shareholders holding a majority of the issued and outstanding shares of IRET. With respect to the election of trustees, the shares have cumulative voting rights which allow each shareholder one vote in person or by written proxy for each share registered in his name for as many persons as there are trustees to be elected. For example, if a shareholder owns 10 shares of IRET and there are nine trustees, then the shareholder is entitled to cast a total of 90 votes for any particular or all trustees standing for election.

Ownership and Transfer Restrictions
      The shares of beneficial interests of IRET are fully transferable and alienable subject only to certain restrictions intended to maintain IRET's status as a REIT:
 

To insure compliance with the Internal Revenue Code provision that no more than 50% of the outstanding shares may be owned by five or fewer individuals, IRET may at any time redeem shares from any shareholder at the fair market value thereof as determined in good faith by IRET based on an independent appraisal of IRET's assets made within six months of the redemption date.
 

Also, IRET may refuse to transfer shares to any person whose acquisition of additional shares might, in the opinion of IRET, violate the above requirement.
 

       Since its formation in 1970, IRET has never imposed the restrictions on transfer nor redeemed any of its shares pursuant to the restrictions listed in the preceding paragraph.

 Legal Proceeding

      As of December 19, 2001, we are not aware of any pending or threatened litigation that will have a materially adverse effect on IRET or any of our properties.
 
 

The remainder of this page has been intentionally left blank.

89


Management

Directors and Executive Officers
      The organizational documents of IRET provide that the company is to be supervised by a board of trustees consisting of no fewer than 5 nor more than 11 members.  As of December 18, 2001, IRET had nine trustees.  The trustees delegate the day-to-day management of IRET to four executive officers.

     Trustees as of December 18, 2001, were:
 
  

Name
Title
Principal Activity Last Five Years
Age
First
Elected
Term 
Expires
 
 
 

 
 
Jeffrey L. Miller Chairman
President of M&S Concessions, Inc.;
Former President of Coca-Cola Bottling, Co.
57
1985
09/25/02
C. Morris Anderson
Vice Chairman
Director of Dakota Boys Ranch (26 yrs.);
President of North Hill Bowl, Inc.;
Chairman of the Board, International Inn, Inc.;
Director, Norwest Bank - Minot, N.A.
72
1970
09/25/02
John F. Decker
Trustee
Financial Advisor/Senior Vice President, D.A. Davidson;
59
1998
09/25/02
Daniel L. Feist
Vice Chairman
President- Feist Construction & Realty;
Former Director of First Bank - Minot, N.A.; Director ND Holdings, Inc. - Minot, ND
69
1985
09/25/02
Steven B. Hoyt
Trustee
CEO of Hoyt Properties, Inc,;
Board Member of Stonehaven Realty Trust;
President of Complast, Inc.
49
2001
09/25/02
Patrick G. Jones Trustee
Investor
53
1986
09/25/02
Timothy P. Mihalick
Trustee
Senior Vice President & Chief Operating 
Officer of IRET
42
1999
09/25/02
Stephen L. Stenehjem
Trustee
President & Chief Executive Officer of
Watford City BancShares, Inc.;
President & Chairman of First International
Bank & Trust, Watford City, ND;
Vice President & Director of First International Bank & Trust, Scottsdale, AZ
46
1999
09/25/02
Thomas A. Wentz, Jr.
Trustee
Vice President & General Counsel of IRET;
Director of SRT Communications, Inc.; 
Sole General Partner of Wenco, Ltd.;
Shareholder & Attorney with Pringle 
& Herigstad, P.C. until 12/31/99
35
1996
09/25/02


       As of December 19, 2001, there was no pending or threatened litigation involving and of the above named trustees that would have a materially adverse effect on the ability or the integrity of the listed trustees.

 90


Executive Compensation

      Until July 1, 2000, IRET had no employees and contracted with Odell-Wentz & Associates, L.L.C., to provide all management services.  In addition to the advisory fee paid for these management services, IRET also incurs administrative expenses for Trustees' fees, accountants' fees, printing and postage, filing fees and other related expenses incurred in connection with administering IRET assets and its communications with its shareholders and regulatory authorities. During the past five fiscal years, the following is a summary of the administrative expenses IRET paid to Odell-Wentz, the Trustees and the other administrative expenses:

 
Fiscal Years Ended April 30
2001
2000
1999
1998
1997
 
         
Advisor's and Trustees' Compensation
$   423,227
$1,159,120
$   927,063
$   745,907
$  559,149
Advisory Investigation Fee
$     58,250
$   316,458
$   195,019
$   141,465
$  177,834
Other Administrative Expenses
$1,057,469
$   633,692
$   320,479
$   271,738
$  158,627
Total Fees
$1,538,946
$2,109,270
$1,442,561
 $1,159,110
 $  895,610
Fees as Percent of Net Invested ssets of the Trust
0.3%
0.4%
0.5%
0.5%
0.5%

      As of July 1, 2000, IRET has been internally managed and operated so the calculation for 2001 is based on a combination of the fee paid to the advisor, Odell-Wentz and Associates, L.L.C., as well as all the administrative expenses of IRET after acquisition of Odell-Wentz and Associates, L.L.C. including salaries and other employee costs assumed from Odell-Wentz and Associates, L.L.C.

 The remainder of this page has been intentionally left blank.

91


    The following tables set forth certain information concerning the compensation paid by IRET to its executive officers, who are also the four most highly compensated executive officers.
 

Name and Principal Position
Year
Salary ($)
Bonus ($)
Other Annual Compensation ($) (3)
Restricted Stock Award(s) ($)(4)
Securities Underlying Options/SARs($)(4)
LTIP Payouts ($)(4)
All Other Compensation ($)
 

             
Thomas A.Wentz, Sr.
President & CEO

             
 
2000
$71,500(1)
0
$  5,220
0
0
0
0
 
1999
(5)
(5)
(5)
(5)
(5)
(5)
(5)
 
1998
(5)
(5)
(5)
(5)
(5)
(5)
(5)
Timothy P. Mihalick
Senior Vice President & COO

             
 
2000
$78,000(1)
0
$12,312
0
0
0
0
 
1999
(5)
(5)
(5)
(5)
(5)
(5)
(5)
 
1998
(5)
(5)
(5)
(5)
(5)
(5)
(5)
Thomas A. Wentz, Jr.
Vice President & General Counsel

             
 
2000
$65,000(1)
0
$10,557
0
0
0
0
 
1999
(5)
(5)
(5)
(5)
(5)
(5)
(5)
 
1998
(5)
(5)
(5)
(5)
(5)
(5)
(5)
Diane K.Bryantt
Secretary & CFO

             
 
2000
$32,050(1)
0
$  8,626
0
0
0
0
 
1999
(5)
(5)
(5)
(5)
(5)
(5)
(5)
 
1998
(5)
(5)
(5)
(5)
(5)
(5)
(5)

 
(1)
Calendar year 2000 covers a 6 month compensation period of July 1st through December 31st.
(2)
IRET has no stock option plans or other stock based compensation plans that allocate, award or otherwise grant shares of IRET stock to any employees.
(3)
Consists of employee health, dental, disability, and contributions to the company 401K plan on behalf of named executive officers.  Additionally, includes compensation of $751 annually for vehicle provided to Mr. Mihalick.
(4)
IRET has no long-term incentive plans, restricted stock award plans, option plans or share appreciation rights plans (SARs). 
(5)
Until July 1st, 2000, Investor's Real Estate Trust had no employees and was externally advised by Odell-Wentz, & Associates, L.L.C

       Since the conversion from being managed by the external advisor to being internally managed, IRET has employed and paid its employees directly.  Going forward, IRET plans to pay its officers an annual salary and, depending upon IRET's performance, a bonus as determined annually by the trustees.  No employee has an employment contract, change in control payment plan, or guaranteed bonus plan.  All employees are employed at will and may be terminated by IRET at any time.

92


      As a result of the acquisition of the advisory company, IRET assumed a note receivable from Mr. Mihalick in the amount of $101,001.80.  Proceeds of the note were used to purchase IRET shares of beneficial interest.  The note bears interest at New York Prime less 1%.  The note is current and is repayable upon demand.

Trustee Compensation
      IRET pays an annual fee to its non-employee trustees.  Trustees who are employees of IRET are not paid any annual fees for serving as a trustee beyond their annual salary and other employee compensation.  IRET does not reimburse trustees for travel expenses incurred in connection with their activities on behalf of IRET.  IRET has no option or share grant plans for trustees.  For the past fiscal year, the compensation paid to each trustee was as follows:
 

Name
Title
Compensation for the 
past year 2001 
ending April 30, 2001
 
 
 
Jeffrey L. Miller
Trustee & Chairman
$       17,958
C. Morris Anderson
Trustee & Vice Chairman
$       16,178
Daniel L. Feist
Trustee & Vice Chairman
$       16,078
Patrick G. Jones
Trustee
$       14,420
John F. Decker
Trustee
$       14,220
Stephen L. Stenehjem
Trustee
$       14,420
Steven B. Hoyt (1)
Trustee
$                0
Timothy P. Mihalick (2)
Trustee & COO
$                0
Thomas A. Wentz, Jr. (2)
Trustee & General Counsel
$                0

 
(1)
Mr. Hoyt was appointed to the board on April 1, 2001.  As a result, he has received no compensation for the past year.
(2)
Mr. Mihalick and Mr. Wentz, Jr. are employees of IRET Properties and are not awarded any additional compensation for serving on the Board of Trustees.

Security Ownership of Management and Trustees
      As of date of this prospectus, no persons, or any trustee or officer individually was known by IRET to own beneficially more than 5% of the outstanding shares IRET.

The remainder of this page has been intentionally left blank.

93


      The following tables set forth certain information concerning the compensation paid by IRET to its executive officers, who are also the four most highly compensated executive officers.
 

Trustees & Officers  Shares of Beneficial Interest (1) Limited 
Partnership
Operating
Units (2) 
Total Shares 
and Units 
  Percent 
of Class 
Jeffrey L. Miller, Trustee & Chairman 279,874 6,725 286,599 .87%
Daniel L. Feist, Trustee & Vice Chairman 711,377 1,856 713,233 2.16%
C. Morris Anderson, Trustee & Vice Chairman 4,332 171,170 175,502 .53%
John F. Decker, Trustee 48,856 0 48,856 .15%
Patrick G. Jones, Trustee 235,905 0 235,9058 .72%
Stephen L. Stenehjem, Trustee 16,850 0 16,850 .05%
Steven B. Hoyt, Trustee 0 1,365,094 1,365,094 4.14%
Thomas A. Wentz, Sr., President & CEO 269,147 126,977 396,124 1.20%
Timothy P. Mihalick, Trustee,
Senior Vice President & COO
33,824 0 33,824 .10%
Thomas A. Wentz, Jr., Trustee,
Vice President & General Counsel
184,021 0 184,021 .56%
Diane K. Bryantt, Secretary & CFO        4,442               0        4,442   .01%
Group Total 1,788,628 1,671,822 3,460,450 10.5%

 
(1) The amounts and percentages of shares beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities.  Except as otherwise indicated, each individual has sole voting and sole investment power with regard to the shares owned.
(2) The units do not have voting rights but are exchangeable for shares at the option of the holder upon expiration of an initial mandatory holding period.

The remainder of this page has been intentionally left blank.

94


Certain Relationships and Related Transactions

Management Services
      Through June 30, 2000, the advisor to the Trust was Odell-Wentz & Associates, LLC.  Roger R. Odell and Thomas A. Wentz, Sr. were the owners of Odell-Wentz & Associates LLC and also officers and shareholders of the Trust.  Under the advisory contract between the Trust and Odell-Wentz & Associates, LLC, the Trust paid an advisor's fee based on the net assets of the Trust and a percentage fee for investigating and negotiating the acquisition of new investments. For the year ended April 30, 2001, Odell-Wentz & Associates, LLC received total fees under said agreement of $265,573. The fees for April 30, 2000, were $1,400,973 and for April 30, 1999, were $951,234.

Acquisition of Odell-Wentz & Associates, L.L.C.
      On July 1, 2000, IRET Properties acquired assets from Odell-Wentz & Associates, LLC in exchange for operating partnership units at a total purchase price of $2,083,350.  This acquisition included real estate, furniture, fixtures, equipment and other assets of approximately $675,000, goodwill of approximately $1,645,000, and the assumption of mortgages and other liabilities of approximately $236,000.  Except for Roger R. Odell who retired, all officers and employees of Odell-Wentz & Associates, LLC were retained by IRET Properties.

      Odell-Wentz was owned equally by Thomas A. Wentz, Sr., who is currently IRET's President and Chief Executive Officer and Roger R. Odell, who as of the acquisition on July 1, 2000, was IRET's President.  Mr. Odell retired as an employee of IRET as of July, 2000, and he did not seek re-election to the Board of trustees in August of 2000.  Currently, Mr. Odell has no relationship with IRET as an employee, officer or trustee.

Property Management Services
      Investors Management and Marketing (IMM) provides property management services to the Trust.  Roger R. Odell is a shareholder in IMM.  IMM received $114,421 for services rendered from May 1, 2000 through June 30, 2000,  IMM received $649,729, and $609,783 for services rendered for years ended April 30, 2000, and 1999, respectively.

      With the exception of Hoyt Properties, Inc., none of the firms engaged to provide property management services are affiliated with IRET, its officers or trustees.  As it pertains to Hoyt Properties, it is owned by Steven B. Hoyt who is currently a trustee of IRET.  Hoyt Properties manages the following commercial buildings for IRET pursuant to a written management contract:
 

      Cold Spring Center
St. Cloud, MN
      2030 Cliff Road
Eagan, MN
      Plymouth IV & V
Plymouth, MN
      Nicollet VII
Burnsville, MN
      Burnsville Bluffs
Burnsville, MN
      Pillsbury Business Center
Bloomington, MN
        Bloomington Business Plaza   Bloomington, MN

95


      As compensation for its services, Hoyt properties receives a fee of 5% of the gross rental income provided such management fee is reimbursable by the building's tenants pursuant to the tenant's lease agreement.  If the 5% fee is not payable by the tenant, but must be paid by IRET from rent proceeds, the annual fee is 3.5% of the gross rental proceeds.

      The management contract with Hoyt Properties commenced on April 1, 2001 and may be terminated by either party on 30 days written notice for any reason and without penalty.  As of October 31, 2001, Hoyt Properties has received $144,002 as a management fee from IRET of which 100% has been recovered by IRET from the various building tenants.  It is the opinion of IRET that all the other terms of the management contract are commercially reasonable and are on terms no less favorable to IRET than what could be obtained from an unrelated property management firm.

Security Sales Services
      Inland National Securities is a corporation that provides underwriting services in the sale of additional shares for IRET.  Roger R. Odell is also a shareholder in Inland National Securities. Fees for services from May 1, 2000, through June 30, 2000, were $6,861.  Fees for services totaled $100,081, and $157,392, for the years ended April 30, 2000, and 1999, respectively.

     D.A. Davidson & Co. is a corporation that provides underwriting services in the sale of additional shares for IRET.  John F. Decker is an employee of D.A. Davidson & Co.  John F. Decker is a trustee of IRET.  IRET has paid an investment banking fee to D.A. Davidson of $50,000 during Fiscal 2001.  D.A. Davidson  participated in past offerings and sold 600,000 shares.  IRET paid D.A. Davidson commissions of $420,000 during the third quarter of Fiscal 2002.
 

Legal Services
      The Trust paid fees and expense reimbursements to the law firm in which Thomas A. Wentz, Jr. was, until December 31, 1999, a partner totaling $89,497 and  $33,022 for the years ended April 30, 2000, and 1999, respectively.  Thomas A. Wentz, Jr. is a trustee of the Trust.

Selection, Management, and Custody of IRET's Assets

Real Estate Management
      Under the direction and supervision of IRET employees based in Minot, all of the day to day management of IRET's real estate assets is handled by third party professional real estate management companies, which includes the negotiation of potential leases, preparation of proposed operating budgets and supervision of routine maintenance and capital improvements authorized by IRET.  All activities related to the purchase, sale, insurance coverage, capital improvements, approval of commercial leases and annual operating budgets and major renovations are made exclusively by IRET employees and then implemented by the third party property management companies.
 
 

96


     As it pertains to leases for its multi-tenant commercial properties, IRET relies almost exclusively on third party brokers to locate potential tenants. As compensation, most brokers receive a commission of up to 7% of the total rent to be paid over the term of the lease. This commission rate is the industry standard and in IRET's opinion commercially reasonable.

     As of October 31, 2001, IRET has property management contracts with the following companies:
 

Firm
Address
 
 
Bayport Properties
300 S. Hwy. 169, Suite 120, Minneapolis, MN 55426
 
 
Builder's Management & Investment Company
1445 1st Avenue North, Fargo, ND 58102
 
 
Coast Management
PO Box 2066, Boise, ID 83701-2066;
2610 Wetmore Avenue, Everett, WA 98206
 
 
Coldwell Banker First Realty
PO Box 9379, Fargo, ND 58106-9379
 
 
  ConAm
2301 Ohio Dr., Suite 285, Plano, TX 75093;
10800 E. Bethany Dr., Aurora, Co 80014


Dakota Commercial
1197B S. Columbia Rd., Grand Forks, ND 58201
 
 
Hoyt Properties, Inc.
708 S. 3rd St., Minneapolis, MN 55415
 
 
IMM
PO Box 2064, Minot, ND 58702-2064
 
 
Illies Nohave Heinen Property Management
300 E. Germain St., St. Cloud, MN 56304
 
 
Kahler Property Management
2020 W. Omaha, Rapid City, SD 57702
 
 
Opus Northwest Management, L.L.C.
10350 Bren Rd. W., Minnetonka, MN 55343;
PO Box 59110, Minneapolis, MN 55459-0110
 
 
Sand Companies, Inc.
PO Box 727, Waite Park, MN 56387-0727
 
 
Tamarack Property Management
2929 3rd Ave. N., Suite 538, Billings, MT 59101-1944


United Properties 3500 West 80th Street, Minneapolis, MN 55431
 
 
Weis Management
2227 7th St. NW, Rochester, MN 55901

      All contracts may be terminated by IRET without cause or penalty on no more than a 60-day written notice.  In IRET's opinion all property management companies listed above are properly licensed, insured and bonded to the extent required for each manager's particular duties.

      With the exception of Hoyt Properties, Inc., none of the firms listed above are currently affiliated with IRET, its officers or trustees. As it pertains to Hoyt Properties, it is owned by Steven B. Hoyt who is currently a trustee of IRET.  Hoyt Properties manages the following buildings for IRET pursuant to a written management contract:  See page 93 for list.
 
 

97


      As compensation for its services, Hoyt properties receives a fee of 5% of the gross rental income provided such management fee is reimbursable by the building's tenants pursuant to the tenant's lease agreement. If the 5% fee is not payable by the tenant, but must be paid by IRET from rent proceeds, the annual fee is 3.5% of the gross rental proceeds.

     The management contract with Hoyt Properties commenced on April 1, 2001, and may be terminated by either party on 30 days written notice for any reason and without penalty.  As of October 31, 2001, Hoyt Properties has received $144,002 as a management fee from IRET of which 100% has been recovered by IRET from the various building tenants.  It is the opinion of IRET that all the other terms of the management contract are commercially reasonable and are on terms no less favorable to IRET than what could be obtained from an unrelated property management firms.

Conflicts of Interest

Selling To or Buying Property From IRET
      During the past fiscal year, IRET did not sell or buy any property from a trustee, officer, or employee of IRET.  During the second quarter of Fiscal 2002 ending October 31, 2001, IRET acquired a commercial building from Trustee, Steven B. Hoyt.  Please see pages 5 through 9.  While not prohibited by IRET's organizational documents, there are certain requirements, which must be satisfied before such a transaction may occur.  In the case of the acquisition from Mr. Hoyt, it is management's and the Trustee's opinion that the purchase was fair to IRET.

      Specifically, no trustee, officer or employee of IRET, or any person affiliated with any such persons directly or indirectly, may sell or buy any property or assets to IRET or purchase any property or assets from IRET, directly or indirectly, nor shall any such person receive any commission or other remuneration, directly or indirectly, in connection with the purchase or sale of IRET assets, except pursuant to transactions that are fair and reasonable to IRET and that relate to:
 

 a.
The acquisition of property or assets at the formation of IRET or shortly thereafter and fully disclosed in the prospectus filed with the North Dakota State Securities Commissioner;
 b.
The acquisition of federally insured or guaranteed mortgages at prices not exceeding the currently quoted prices at which the Federal National Mortgage Association is purchasing comparable mortgages;
c.
The acquisition of other mortgages on terms not less favorable to IRET than similar transactions involving unaffiliated parties; or,
d.
The acquisition by IRET of other property at prices not exceeding, or disposition of other property at prices not less than, the fair value thereof as determined by independent appraisal.

 

98


      All such transactions and all other transactions in which trustee, officer or employee has any direct or indirect interest shall be approved by a majority of the trustees having no interest in the particular transaction. All brokerage commissions or remuneration received in connection with any transactions shall be no more than what IRET would pay to an unrelated party or company.

Sales Commissions or Finder Fees
      The organizational documents of IRET prohibit any trustee or affiliate of the trustee from receiving a brokerage commission or other such remuneration in connection with the acquisition or disposition of IRET assets.

Competition with IRET
      The organizational documents of IRET do not preclude the trustees, officers, or employees of IRET from engaging in other business activities that may complete directly with IRET.  See  "Conflict of Interest" section on page 16 for a discussion of this potential competition.

Interests of Named Experts and Counsel

      Pringle & Herigstad, P.C., is named counsel for the registrant.  Until December 31, 1999, Mr. Wentz, Jr., was a member of the law firm of Pringle & Herigstad, P.C., counsel for the Trust.  Mr. Wentz, Jr., as of the date of this registration statement, is a voting trustee and officer of the registrant.

Limitations of Liability

      Indemnification by IRET to trustees, employees, or persons controlling IRET for liabilities arising under the Securities Act of 1933.  IRET has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

      Section 12 of the Declaration of Trust of IRET provides that under certain circumstances IRET will indemnify its trustees and employees against all claims, costs and liabilities incurred as a result of acting as a trustee or employee of IRET provided the following conditions have been satisfied:
 

*
The course of conduct which caused the loss was in the best interests of IRET.
*
The affected trustee or employee was acting on behalf of IRET.
*
The loss was not the result of negligence or misconduct by a trustee or employee or gross negligence or willful misconduct by an independent Trustee.
*
Any indemnification payment is only recoverable from IRET's net assets and not from the shareholders

99


    Trustee and employees shall not be indemnified by IRET for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities unless one or more of the following conditions are met:
 

*
There has been a successful adjudication on the merits of each count involving alleged securities law violations.
*
Such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction.
* A court of competent jurisdiction approves a settlement of the claims against a and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of IRET were offered or sold as to indemnification for violations of securities laws.

        The advancement of IRET funds to a trustee or employee for legal expenses and other costs incurred for which indemnification is being sought is permissible only if all of the following conditions are satisfied:
 

*
The legal action relates to acts or omissions with respect to the performance of duties or services on behalf of IRET.
*
The legal action is initiated by a third party who is not a shareholder or the legal action is initiated by a shareholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement.
*
The trustee or employee undertake to repay the advanced funds to IRET, together with the applicable legal rate of interest thereon, in cases in which such trustee or employee is found not to be entitled to indemnification.

      In addition to providing indemnification to its employees and trustees under certain circumstance, IRET also maintains insurance covering officers and trustees against liability as a result of their actions or inactions on behalf of IRET.

       With the exception of indemnification by IRET and the trustee and officer insurance, there is no other statue, charter provision, by-laws, contract or other arrangements under which a trustee or employee of IRET is insured or indemnified in any manner against liability which he may incur in his capacity as trustee or employee.
 
 

 
100

 Legal Matters

      The validity of the Shares of Beneficial Interest offered under the Prospectus, the federal and state tax aspects of the organization and operation of IRET and the Operating Partnership and other legal matters will be passed upon for IRET by Pringle & Herigstad, P.C., Minot, North Dakota.
 
 

Experts

      The balance sheets of IRET as of April 30, 2000, and April 30, 2001, the statements of income, shareholders' equity, and cash flows for each of the three years in the period ended April 30, 2001, as listed on the Index to Financial Statements on page F-15 through F-57, included in this Prospectus, have been included herein in reliance on the reports of Brady, Martz & Associates, P.C., Minot, North Dakota, independent accountants, given on the authority of that firm as experts in accounting and auditing.

 The remainder of this page has been intentionally left blank.

101


Pro Forma Consolidated Statement of Operations
Acquisitions for the Six Months Ended October 31, 2001
(unaudited)


    The pro forma consolidated statement of operations (unaudited) for the six months ended October 31, 2001, is presented as if the real estate acquisition had been completed at the beginning of the period May 1, 2001, rather than on the actual acquisition or closing date.

    IRET acquired the following real estate during the six months ended October 31, 2001:
 

Property Description
           Date of
Acquisition
         Total Purchase Price
(Including all closing costs)
 
 
 
Cottage Grove Center - 15,217 sq. ft. -    Strip Mall, Cottage Grove, MN
         07/06/01
         $      1,101,550
Interlachen Corporation Center - 105,084 sq. ft. -    Multi-tenant Office Building - Edina, MN
         08/10/01
         $     16,691,307
Canyon Lake Plaza Apartments - 78,701 sq. ft. -    109-unit Apartment Community - Rapid City, SD
         09/27/01
         $      4,270,607
Bloomington Business Plaza - 114,819 sq. ft. -  Multi-tenant Office Building - Bloomington, MN
         10/01/01
         $      7,405,669
Applewood on the Green - 87,200 sq. ft. -  234-unit Apartment Community - Omaha, NE
         10/31/01
         $     10,364,745
         Total
 
         $     39,833,878

The remainder of this page has been intentionally left blank.

Page 102



       Six Months 
Ended
10/31/01
Six Months Ended  AcquisitionsPro Forma
Adjustments
            Total
Consolidated 
      Pro Forma
REVENUE      
   Real Estate Rentals $    44,445,900 $     2,135,490 $    46,581,390
   Interest, Discounts and Fees $        509,235 $                  0        509,235
Total Revenue $   44,955,135 $     2,135,490 $   47,090,625
EXPENSES      
   Interest $    14,795,417 $        681,666 $   15,477,083
   Depreciation       7,375,090         316,002       7,691,092
   Utilities and Maintenance       6,162,434         406,517       6,568,951
   Taxes       4,349,779         248,027       4,597,806
   Insurance         628,398           22,984         651,382
   Property Management Expenses       3,360,223         133,599       3,493,822
   Administrative Expenses and Trustee Services         780,546                  0         780,546
   Operating Expenses         245,295                  0         245,295
   Amortization $        263,672 $                 0 $       263,672
Total Expenses $   37,960,854 $    1,808,795 $    39,769,649
       
INCOME BEFORE GAIN/LOSS OF PROPERTIES AND MINORITY INTEREST $    6,994,281 $      326,695 $    7,320,976
GAIN ON SALE OF PROPERTIES         324,332                  0         324,332
MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME $   -1,596,970 $       -84,941 $   - 1,681,911
       
NET INCOME $   5,721,643 $      241,755 $    5,963,398
       
Net income per share (basic and diluted) $             .24 $            .01 $             .25

     The remainder of this page has been intentionally left blank.

Page 103



 

Investors Real Estate Trust
Unaudited Pro Forma Consolidated Financial Information Fiscal 2001


     During the past fiscal year ending April 30, 2001, IRET acquired or constructed 26 new real estate properties.  See page 68 and 69 for the complete list.  All of those properties are included in the audited balance sheet which is presented on page F-16 and F-17.

Pro Forma Consolidated Statement of Operations as of April 30, 2001 (unaudited)

     The pro forma consolidated statement of operations (unaudited) for the year ended April 30, 2001, is presented as if all real estate acquisitions, developments and the purchase of the Advisor, Odell-Wentz & Associates, L.L.C., had been completed at the beginning of the period May 1, 2000, rather than on the actual acquisition or closing date.

 
 
*Fiscal 2001
HealthEast I & II, Woodbury and Maplewood, MN (1)
Olympic Village,
Billings, MT (2)
Southdale
Medical Center,
Edina, MN (3)
Plymouth 
Tech IV & V
Plymouth, MN (4)
Insignificant 2001 
Acquisitions (5)
Total Consolidated
Pro Forma
REVENUE
 
   
 
 
 
 
      Real estate rentals
  $   74,800,722
n/a See (1)
  $       683,211
  $    2,314,488
  $       1,701,903
  $     5,907,725
  $ 85,408,049
      Interest, discounts and fees
  $       966,428
n/a See (1)
  $                  0
  $                  0
  $                     0
  $                   0
  $      966,428
      Total revenue
  $  75,767,150
n/a See (1)
  $      683,211
  $    2,314,488
  $       1,701,903
  $       5,907,725
  $ 86,374,477
EXPENSES
 
n/a See (1)
 
 
 
 
 
      Interest
  $   25,231,398
n/a See (1)
  $       274,988
  $    1,287,509
  $          695,063
  $       1,564,906
  $ 29,053,864
      Depreciation
  $   12,299,532
n/a See (1)
  $         71,592
  $       180,757
  $            85,625
  $          363,163
  $ 13,000,669
      Utilities and maintenance
  $   11,546,566
n/a See (1)
  $       114,884
  $                 0
  $            75,279
  $         680,992
  $ 12,417,721
      Real Estate Taxes
  $    7,545,182
n/a See (1)
  $         66,497
  $                 0
  $         123,327
  $          593,910
  $  8,328,916
      Insurance
  $       831,963
n/a See (1)
  $          9,068
  $                 0
  $            13,703
  $          238,474
  $  1,093,208
      Property management expenses
  $    5,784,423
n/a See (1)
  $         57,717
  $         73,586
  $                976
  $          173,815
  $  6,090,517
      Loss on Impairment of Properties
  $                 0
n/a See (1)
  $                 0
  $                 0
  $                   0
  $                   0
  $              0
      Administrative Expense
  $    1,057,469
n/a See (1)
  $                 0
  $                 0
  $                    0
  $                   0
  $  1,057,469
      Advisory and trustee services
  $       423,227
n/a See (1)
  $                 0
  $                 0
  $                    0
  $                   0
  $     423,227
Operating expenses
  $       431,390
n/a See (1)
  $                 0
  $                 0
  $                    0
  $                   0
  $     431,390
      Amortization
  $       428,188
n/a See (1)
  $                 0
  $                 0
  $                    0
  $                   0
  $     428,188
      Total expenses
  $  65,579,338
n/a See (1)
  $      594,746
  $   1,541,852
  $         993,973
  $     3,615,260
  $ 72,325,169
INCOME BEFORE GAIN/LOSS ON PROPERTIES AND MINORITY  INTEREST
  $   10,187,812
n/a See (1)
  $         88,465
  $       772,636
  $         707,930
  $    2,292,465
  $ 14,049,308
GAIN ON SALE OF PROPERTIES
  $       601,605
n/a See (1)
  $                0
  $                0
  $                    0
  $                 0
  $     601,605
MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME
  $   -2,095,177
n/a See (1)
  $        -17,693
  $      -154,527
  $        -141,586
  $     -573,338 
  $ -2,982,321
NET INCOME
  $    8,694,240
n/a See (1)
  $        70,772
  $       618,109
  $         566,344
  $    1,719,127
  $ 11,668,592
Net income per share
  $               .38
n/a See (1)
  $            .004
  $               .027
  $               .025
  $            .075
  $              .51

 
(1)
HealthEast was acquired at the beginning of fiscal year May 1, 2000, so is fully reflected in the actual fiscal 2001 column.
(2)
The pro forma income and expense items reflect 0 months of estimated operations as the property was acquired on May 1, 2000.
(3)
The pro forma income and expense items for Southdale Medical Center  reflect 8 months of estimated operations as the property was acquired on January 1, 2000.
(4)
The pro forma income and expense items reflect 3 months of estimated operations as the property was acquired on April 1, 2001.
(5)
The pro forma income and expense items reflect acquisitions which are not significant at the 5% level during fiscal 2001.

104



 

Financial Information for Significant Acquisitions - Fiscal 2001

           During the period from May 1, 2000, to April 30, 2001, we purchased 26 real estate properties as listed on page 66 and 67, which, individually are insignificant as defined in SEC Regulation S-X, but in the aggregate, constitute a "significant amount of assets" as defined in Regulation S-X.  When acquisitions are individually insignificant but significant in the aggregate, Regulation S-X requires the presentation of audited financial statements for assets comprising a substantial majority of the individually insignificant properties for the one year period prior to the date of acquisition by IRET or for the three year period prior to acquisition if the property is acquired from a related party.  None of the properties at the time of acquisition acquired by IRET during Fiscal 2001 ( May 1, 2000 to April 30, 2001) were acquired from a related party.
 
 

Olympic Village - Billings, Montana


Material Factors Considered by IRET at the Time of Acquisition

     We acquired the Olympic Village apartments from an unrelated party on September 20, 2000.  The total purchase price for the property was $11,616,500.   Olympic Village is a 272-unit apartment complex built in 1983 and located at 3900 Victory Circle, Billings, Montana.  We considered the following material factors at the time of acquisition:
 
Revenue Source:  99% of the property's revenue is derived for the rental of the 272 apartment units.
 
Occupancy:  At the time of acquisition, the property was 94% occupied.
 
Comparative Rents:  At the time of acquisition, rents at the property were 10% to 14% below rents charged at comparable properties.
 
Competition:  At the time of acquisition, there was very little competition with the property from other apartment complexes due to Olympic Village's location.  There is unlikely to be extensive competition in the future since there is little available land in the vicinity.
 
Expenses:  All utilities are paid by the individual tenants directly except water, sewer, and garbage.  The property has no unusual maintenance expenses.
 
Capital Improvements:   At the time of acquisition, the property did not need any major capital improvements except a new outdoor lighting system for the common areas which is estimated to cost $40,000.  As of September 19, 2001, this improvement has not been made or scheduled.

105

Typical Lease Terms:  All leases are for three to twelve months.  Month-to-month tenants are generally not allowed.  The tenant is responsible for all utilities except sewer, water and garbage.  A security deposit equal to at least one month's rent is required from all tenants.

Average rent per unit:  For the twelve months prior to IRET's acquisition, the average monthly rent per unit was $464.95.

Real Estate Taxes:  At the time of acquisition, the annual real estate tax was $157,971 per year for 1999.  The rate for 2000 was $166,654 and is estimated to be $168,321 for 2001.

 Depreciation:  Olympic Village is being depreciated as follows:
 
 

 
Federal Tax Basis
Method
Life
 
 
 
 
272-unit complex
$1,279,800
MSL
34 years

     After reasonable inquiry, IRET is not aware of any material factors relating to Olympic Village other than those discussed in the preceding paragraphs that would cause the reported financial information not to be indicative of future operating results for the property.
 
 



The remainder of this page has been intentionally left blank.

106


Independent Auditor's Report
 
 

To the Board of Trustees of Investors Real Estate Trust

             We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Olympic Village ("Historical Summary") for the year ended December 31, 1999.  This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

             We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary.  We believe that our audit provides a reasonable basis for our opinion.

             The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of Olympic Village's revenue and expenses.

             In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Olympic Village for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
 

/S/ Brady Martz and Associates, P.C.
 Brady, Martz and Associates, P.C.

 Minot, North Dakota
October 8, 2001

107


Olympic Village
Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1999


GROSS INCOME
 
     Real estate rentals
      $        1,517,615
     Other rental income
      $             64,665
     Total Gross Income
      $        1,582,280
DIRECT OPERATING EXPENSES
 
     Utilities
      $             63,409
      Repairs & Maintenance
      $             68,841
     Real Estate Taxes
      $           157,971
     Insurance
      $            19,074
       Total Direct Operating Expenses
      $          309,295
 
 
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES
      $        1,272,985

     The Notes to Historical Summary of Gross Income and Direct Operating Expenses are an integral part of this summary.
 
 

The remainder of this page has been intentionally left blank.

108


Olympic Village
Notes To Historical Summary of Gross Income and Direct Operating  Expenses
For the Year Ended December 31, 1999


 

Note 1.
Nature of Business


Olympic Village is a 272-unit, multi-tenant apartment community located in Billings, Montana.  The operations of Olympic Village consists of leasing residential units to various tenants. Leases are generally for terms of one year or less.

 

Note 2.
Basis of Presentation


Investors Real Estate Trust purchased Olympic Village on September 20, 2000.  The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC.  This historical summary includes the historical gross income and direct operating expenses of Olympic Village, exclusive of the following expenses which may not be comparable to the proposed future operations:

      (a)  interest expense on existing mortgage and borrowings
      (b)  depreciation of property and equipment
      (c)   certain administrative expenses
      (d)  provision for income taxes
      (e)  management fees
 

Note 3.
Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.  Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred.

 
 
 

The remainder of this page has been intentionally left blank.

109


Olympic Village
Unaudited Interim Financial Statement
For The Period January 1, 2000 through August 30, 2000


GROSS INCOME
 
     Real estate rentals
      $       1,038,121
     Other rental income
      $            51,530
     Total Gross Income
      $        1,089,651
DIRECT OPERATING EXPENSES
 
     Utilities
      $            38,893
      Repairs & Maintenance
      $            57,818
     Real Estate Taxes
      $          126,298
     Insurance
     $            16,428
      Total Direct Operating Expenses
      $           239,437
 
 
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES
      $           850,214

Unaudited Estimated Taxable Operating Results

     The table below represents estimated taxable operating results of Olympic Village Apartment Community in Billings, Montana for the first twelve-month period of the acquisition.  Said property is a 272-unit apartment community, of which assumptions of 5% annual vacancy.

 
Cash Flow Projections
 
 
Rental Revenue
                  $   1,529,658
Other Revenue
                  $        61,500
Interest Expense
                  $     -644,896
Operating Expenses
                  $     -574,008
Principle Mortgage Reduction
                  $       -68,214
OPERATING CASH FLOW
                  $      304,040

110


Southdale Medical  - Edina, Minnesota

Material Factors Considered by IRET at the Time of Acquisition
     We acquired a 60.31% interest in Southdale Medical Center on January 1, 2001.  Southdale is a 195,983 square foot multi-tenant medical office building that was constructed in three phases in 1957, 1965, and 1972.  The purchase price paid by IRET was $32,421,070.  We considered the following material factors at the time of acquisition:

Revenue:  One hundred percent (100%) of the property's revenue is derived from the rental of real property.

Occupancy:  At the time of acquisition, the property was 94.4% occupied by 79 different tenants.

Significant Tenants:  At the time of acquisition, no one tenant occupied more than 10% of the building.

Average Annual Rental Rate:  At the time of acquisition, the average annual rental rate per square foot was $1.36.

Lease Expirations:  The schedule of lease expiration over the next ten years is as follows:
 

Year
Number
Expiring
Square 
Footage
Expiring
Annual Rental
of Expiring
Leases
% of Annual
Gross Rental
Expiring


     
2001
18
15,094
$       472,895
8%
2002
15
35,054
$    1,116,103
19%
2003
13
30,378
$       976,075
16.4%
2004
6
6,798
 $       218,295
3.6%
2005
12
27,420
$       877,380
14.7%
2006
12
37,767
 $    1,239,003
20.8%
2007
3
4,315
$       132,596
2.2%
2008
1
1,706
 $         54,326
1%
2009
1
855
 $         27,936
.5%
2010
2
13,103
 $       396,852
6.6%

Comparable Rents:  Comparable rents for similar medical office space ranges from $1.70 to $1.08 with $1.35 per square foot per month being the average for the medical office building rental market for Minneapolis, Minnesota.

Competition: At the time of acquisition, there were 19 competing properties and three under construction.  The average rental rate quoted by the competing properties was $1.35.  Southdale Medical's average was $1.36 per square foot.

111


Depreciation:  Southdale Medical is being depreciated as follows:
 
 

 
Federal Tax Basis
Method
Life
 
 
 
 
Southdale Medical
$ 31,487,160
MSL
40 years

 Real Estate Taxes:  At the time of acquisition, the annual real estate tax was $826,940 per year.  The rate for 2001 is $889,872.

Expenses: All operating expenses associated with the property are billed back to and paid by the tenants.

Typical Lease Term:  Leases are for a period of two to ten years.  All operating costs are billed back to the tenant in direct relation to the amount of space leased.  Month-to-month leases are not permitted.
 
 



The remainder of this page has been intentionally left blank.

112


Independent Auditor's Report
 
 

To the Board of Trustees of Investors Real Estate Trust

             We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Southdale Medical Center ("Historical Summary") for the year ended December 31, 2000.  This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

             We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.

             The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of Southdale Medical Center's revenue and expenses.

             In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Southdale Medical Center for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
 

/S/ Brady Martz and Associates, P.C.
Brady, Martz and Associates, P.C.

 Minot, North Dakota
October 8, 2001

113


Southdale Medical Center
Historical Summary of Gross Income and Direct Operating Expenses
For The Year Ended December 31, 2000


GROSS INCOME
 
     Real estate rentals
      $      3,230,324
     Operating Expense Reimbursements
      $      2,464,306
     Total Gross Income
      $      5,694,630
DIRECT OPERATING EXPENSES
 
     Utilities
       $        371,284 
     Repairs and Maintenance
       $         681,617
     Real Estate Taxes
      $         891,796
     Insurance
      $           39,785
     Security
      $           64,839
     Salary and Wages
      $         302,514
     Office Supplies and Expense
      $           61,694
   Total Direct Operating Expenses
      $      2,413,529
EXCESS OF GROSS INCOME OVER 
DIRECT OPERATING EXPENSES
      $      3,281,101

           The Notes to Historical Summary of Gross Income and Direct Operating Expenses are an integral part of this summary.
 
 

The remainder of this page has been intentionally left blank.

114



 

Southdale Medical Center
Notes To Historical Summary of Gross Income and Direct Operating Expenses
For The Year Ended December 31, 2000


Note 1.
Nature of Business
Southdale Medical Center is a multi-tenant commercial property located in Edina, Minnesota, containing 195,983 square feet of rentable space which was acquired on January 1, 2001.

Note 2.
Basis of Presentation
Investors Real Estate Trust purchased Southdale Medical January 1, 2001.  The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission (SEC), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC.  This historical summary includes the historical gross income and direct operating expenses of Southdale Medical, exclusive of the following expenses which may not be comparable to the proposed future operations:
      (a)  interest expense on existing mortgage and borrowings


      (b)  depreciation of property and equipment
      (c)  management and leasing  fees
      (d)  certain administrative and professional  expenses
      (e)  provision for income taxes

Note 3.
Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.  Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred.
Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases.  All leases are classified as operating leases and expire at various dates prior to December 31, 2050.  The following is a schedule by years of future minimum rents receivable on non-cancellable operating leases in effect as of December 31, 2000.
                         Year                                       Amount
                        2001                             $          2,869,869
                        2002                             $          2,415,975
                        2003                             $          1,861,487
                        2004                             $          1,499,524
                        2005                             $          1,201,001
                        Thereafter                    $          8,518,935

 
Expense Reimbursement Expense reimbursements represent operating expenses, including real estate taxes billed to the tenants and are recognized in the period the expenses are incurred.

115



Southdale Medical Center
Unaudited Estimated Taxable Operating Results

     The table below represents estimated taxable operating results of Southdale Medical Center for the first twelve-month period of the acquisition.  Said property is a net lease commercial structure consisting of 195,983 rentable square footage, of which assumptions for net rent is based upon 96% occupancy.

 
Cash Flow Projections
 
 
Rental Revenue
                  $    3,395,394
Other Revenue
                  $         27,132
Interest Expense
                  $   -1,934,400
Non-recoverable expenses
                  $        -45,588
Principle Mortgage Reduction
                  $      -213,293
 OPERATING CASH FLOW
                  $     1,229,245

 

The remainder of this page has been intentionally left blank.

116


HealthEast I & II Woodbury & Maplewood, Minnesota

Material Factors Considered by IRET at the Time of Acquisition
     We acquired HealthEast I and II from an unrelated party on May 1, 2000.  The total purchase price for the property was $21,588,499.  HealthEast is a 2-building, 114,216 square foot medical facility located in Woodbury and Maplewood, Minnesota.  The property is masterleased to a single tenant for a 20-year term expiring in 2019.  We considered the following material factors at the time of acquisition:

Revenue Source:  One hundred percent (100%) of the property's income comes from a single tenant.

Occupancy:  The property was 100% leased at the time of acquisition.

Comparative Rents:  At the time of acquisition, the rental rate was equal to the rate charged at comparable properties.

Competition:   At the time of acquisition, there was very little competition with the property from other apartment complexes due to HealthEasts location.  There is unlikely to be extensive competition in the future since there is little available land in the vicinity.

Expenses: All utilities are paid by the individual tenants directly except water, sewer, and garbage.  The property has no unusual maintenance expenses.

Capital Improvements:   Since the property was built in 2000, no capital improvements are planned for the next three to five years.

Major Tenant and Lease Terms:   The property is 100% leased to a nonprofit medical provider.  The lease term expires on   March, 2019.  The tenant has 4 five-year renewal options with an increased rental rate with each option.  The annual rental is $1,916,636 for the first five years.  The tenant is responsible for all expenses and costs associated with the property.

Average Rent Per Square Foot:  For the twelve months prior to IRETs acquisition, the average monthly rent per square foot was $1.54.

Depreciation:   HealthEast is being depreciated as follows:
 
 

 
Federal Tax Basis
Method
Life
 
 
 
 
HealthEast I - Maplewood
$  6,366,915
MSL
40
HealthEast II Woodbury
$14,695,983
MSL
40

117


 Independent Auditors Report
 
 

To the Board of Trustees of Investors Real Estate Trust

             We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of HealthEast I & II ("Historical Summary") for the year ended December 31, 1999.  This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

             We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.

             The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of HealthEast I & IIs revenue and expenses.

             In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of HealthEast I & II for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
 

/S/ Brady Martz and Associates, P.C.
Brady, Martz and Associates, P.C.

 Minot, North Dakota
October 8, 2001

118


HealthEast I & II
Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1999


GROSS INCOME
 
     Real estate rentals
      $       2,057,149
DIRECT OPERATING EXPENSES
      $                     0
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES
      $       2,057,149

           The Notes to Historical Summary of Gross Income and Direct Operating Expenses are an integral part of this summary.

The remainder of this page has been intentionally left blank.

119


HealthEast I & II
Notes To Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 1999


Note 1.
Nature of Business
HealthEast I & II  consists of two buildings  containing 114,216 square feet of rentable space which is leased to HealthEast. The tenant is directly responsible for all costs and expenses, including structural.  Therefore, the landlord did not incur any direct operating expenses for the year ended December 31, 1999.

Note 2.
Basis of Presentation
Investors Real Estate Trust purchased HealthEast I & II on May 1, 2000.  The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission (SEC), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC.  This historical summary includes the historical gross income and direct operating expenses of HealthEast I & II, exclusive of the following expenses which may not be comparable to the proposed future operations:
      (a)  interest expense on existing mortgage and borrowings


      (b)  depreciation of property and equipment
      (c)  management fees

Note 3.
Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.  Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred.
Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the lease.  The lease is classified as an  operating lease and expires on February 28, 2019, unless a five year renewal option is exercised.  The following is a schedule by years of future minimum rents receivable on this non-cancellable operating lease as of December 31, 1999.
                                       Year                           Amount

                                    2000                 $            1,916,636
                                    2001                 $            1,916,636
                                    2002                 $            1,916,636
                                    2003                 $            1,916,636
                                   2004                  $            2,012,468
                                   Thereafter         $          30,646,510

120


HealthEast I & II
Unaudited Interim Financial Statements
For The Period January 1, 2000 through April 30, 2000


GROSS INCOME
 
     Real Estate Rentals
      $         638,879
DIRECT OPERATING EXPENSE
      $                    0
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSE
      $         638,879

 

Unaudited Estimated Taxable Operating Results

    The table below represents estimated taxable operating results of Health East I & II for the first twelve-month period of the acquisition.  Said property is a net lease commercial structure 100% leased to HealthEast Inc, consisting of 114,216 net rentable square footage, of which assumptions for net rent is based upon 100% occupancy.

 
 
 
    Cash Flow Projections
Rental Revenue
                  $     1,916,636
Interest Expense
                  $    -1,510,836
Principle Mortgage Reduction
                  $      -330,514
OPERATING CASH FLOW
                  $          75,286

The remainder of this page has been intentionally left blank.

121


Plymouth Techcenter IV & V Plymouth, Minnesota

Material Factors Considered by IRET at the Time of Acquisition
     We acquired Plymouth Techcenter  IV & V5 on April 1, 2001, from an unrelated party.  The total purchase price for the property was $13,750,000.  Plymouth Techcenter IV & V is a 2-building, multi-tenant commercial property built in 1999 and located at 5000 and 5010 Chelshire Lane, North Plymouth, Minnesota.  We considered the following material factors at the time of acquisition:

Revenue Source:  One hundred percent (100%) of the propertys revenue is derived from six different tenants.

Occupancy:  At the time of acquisition, the property was 100% occupied and as of September 20, 2001, is still 100% occupied.

Comparative Rents: At the time of acquisition, rental rates for the property were equal to the area market or 2% to 3% higher.

Competition:  There is a significant amount of competing space for rent in the immediate vicinity.

Expenses:  All expenses, repairs, maintenance, and operating costs are paid by the tenants.

Capital Improvements:  Since the property was built new in 1999, no capital improvements are planned for the next three to five years.

Typical Lease Terms:  All leases are triple net with all property operating expenses paid by the tenants.  All leases are for a term of three to eight years.

Major Tenants:  The following tenants occupy 10% or more of the rentable square footage:
 

Tenant
Square Footage
% of
Total
Annual
Rent
Lease
Term
Business
Plymouth IV
   
 

 
    Miracle Ear, Inc.
32,543
61%
    $ 404,367
06/30/07
medical
    Simplex Time Recorder, Inc
13,612
26%
$   73,734
06/30/05
manufacturing
    Ondeo Nalco Chemical Co.
3,365
6%
   $     4,324
10/31/01
chemical sales
    Hoyt Properties Master Lease
  3,789
   7%
    $   32,585
03/31/06
n/a
Total Plymouth IV
53,309
100%
  $ 915,707

 
Plymouth V
   
 

 
    Miracle Ear, Inc.
52,547
71%
$ 651,922
06/04/07
medical
    New Horizons
9,975
14%
   $ 119,196
09/30/06
childcare
    Hoyt Properties Master Lease
11,068
 15%
    $ 144,589
03/31/06
n/a
Total Plymouth V
73,590
100%
   $ 832,891

 

122


Average Rent Per Square Foot:   For the 12 months prior to IRETs acquisition, the average monthly rent per square foot was $0.96 for Plymouth IV and $0.73 for Plymouth V.

Lease Expiration Schedule:   For the next ten years the current leases will expire as follows:
 

Year
Leases
Expiring
Sq. Ft.
Expiring
Annual Revenue
of Expiring Leases
Percentage of Gross
Revenue of 
Expiring Leases 
 
 
 
 
 
2001
0
0
$                  0
0%
2002
0
0
$                  0
0%
2003
0
0
$                  0
0%
2004
0
0
$                  0
0%
2005
0
0
$                  0
0%
2006
2
31,834
$       395,234
25%
2007
1
9975
$       119,196
8%
2008
2
85,090
$    1,056,289
67%
2009
0
0
$                  0
0%
2010
0
0
$                  0
0%

Depreciation:  Plymouth IV & V are being depreciated as follows:
 

Asset
Federal Tax Basis
Method
Life
 



Plymouth 4
$4,456,135
SL
39 years
Plymouth 5
$4,783,353
SL
39 years

 Real Estate Taxes:  At the time of acquisition, the annual real estate tax was $128,937 per year.  The rate for 2001 is $135,585.
 
 

The remainder of this page has been intentionally left blank.

123


Independent Auditors Report
 
 
 

To the Board of Trustees of Investors Real Estate Trust

             We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Plymouth Techcenter IV & V ("Historical Summary") for the year ended December 31, 2000.  This Historical Summary is the responsibility of the management.  Our responsibility is to express an opinion on the Historical Summary based on our audit.

             We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summary. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Historical Summary. We believe that our audit provides a reasonable basis for our opinion.

             The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of Plymouth Techcenter IV & Vs revenue and expenses.

             In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Plymouth Techcenter IV & V for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
 
 

/S/ Brady Martz and Associates, P.C.
Brady, Martz and Associates, P.C.

Minot, North Dakota
October 8, 2001

124


Plymouth Techcenter IV & V
Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 2000


GROSS INCOME
 
     Real Estate Rentals
      $         637,758
     Operating Expense Recoveries
       $           84,910
     Other rental income
      $             4,854
     Total Gross Income
      $         727,522
DIRECT OPERATING EXPENSE
 
     Utilities
      $           37,668
     Real Estate Taxes
      $           64,469
    Insurance
      $             8,418
     Repairs and Maintenance
     $           51,943
     Total Direct Operating Expenses
      $         162,498
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES
      $         565,024

            The Notes to Historical Summary of Gross Income and Direct Operating Expenses are an integral part of this summary.
 
 


The remainder of this page has been intentionally left blank.

125



Plymouth Techcenter IV & V
Notes To Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 2000


Note 1.
Nature of Business
Plymouth Techcenter IV & V is multi-tenant commercial property consisting of 128,809 rentable square feet.  Construction of the property was completed in calendar year 2000, lease-up began June, 2000.   Accordingly, the above audited report only covers seven (7) months of operation.  The property was acquired from an entity controlled by Steven B. Hoyt who is a Trustee of IRET.  However, at the time of acquisition, Mr. Hoyt was not a member of the board or a related party.

Note 2.
Basis of Presentation
Investors Real Estate Trust purchased Plymouth Techcenter IV & V  on April 1, 2001.  The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission (SEC), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC.  This historical summary includes the historical gross income and direct operating expenses of Techcenter IV & V, exclusive of the following expenses which may not be comparable to the proposed future operations:

        (a)  interest expense on existing mortgage and borrowings
        (b)  depreciation of property and equipment

        (c)  management fees
        (d)  certain corporate expenses
        (e)  provision for income taxes

Note 3.
Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.  Expenditures for maintenance and repairs which do not add to the value or extend useful lives are charged to expense as incurred.
Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases.  All leases are classified as operating leases and expense at various dates prior to June 30, 2007.  The following is a schedule by years of future minimum rents receivable on non-cancellable operating leases in effect as of December 31, 2000.

                                     Year                       Amount

                                    2001                 $          1,254,425
                                    2002                 $          1,254,715
                                    2003                 $          1,256,165
                                    2004                 $          1,256,165
                                    2005                 $          1,163,713
                                    Thereafter        $          1,563,150

126



Plymouth Techcenter IV & V
Notes To Historical Summary of Gross Income and Direct Operating Expenses
For the Year Ended December 31, 2000


Note 3.  continued
During the year ended December 31, 2000 four tenants accounted for all of the base rents.  Approximately 24,700 square feet was still vacant as of December 31, 2000.
Expense Reimbursement - Expense reimbursements represent operating expenses, including real estate taxes billed to the tenants and are recognized in the period the expenses are incurred.

 
 

The remainder of this page has been intentionally left blank.

127



 

Plymouth Techcenter IV & V
Unaudited  Interim Financial Statement
For The Period January 1, 2001 through March 31, 2001


GROSS INCOME
 
     Real estate rentals
      $         425,172
     Operating Expense Recovery
      $           25,725
     Total revenue
      $         450,897
DIRECT OPERATING EXPENSE
 
     Utilities
      $            1,744
     Real Estate Taxes
      $          33,896
     Insurance
      $            3,476
     Repairs and Maintenance
      $            9,041
     Total Direct Operating expenses
      $          48,157
EXCESS OF GROSS INCOME OVER DIRECT OPERATING EXPENSES
         402,740

Unaudited Estimated Taxable Operating Results

     The table below represents estimated taxable operating results of Plymouth IV & V  for the first twelve-month period of the acquisition.  Said property is a net lease commercial structure consisting 126,809 net rentable square footage, of which assumptions for net rent is based upon 100% occupancy.

 
Cash Flow Projections
Rental Revenue
                  $   1,465,911
Interest Expense
                  $    -753,818
Non-recoverable expenses
                  $    -111,459
Principle Mortgage Reduction
                  $    -120,134
OPERATING CASH FLOW
                  $     480,500

The remainder of this page has been intentionally left blank.

128



 
 
TABLE OF CONTENTS


CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX 
MONTHS ENDED OCTOBER 31, 2001 AND 2000
 
      Consolidated Balance Sheets...........................................................................
F-1
      Consolidated Statement of Operations for Three Months and Six Months 
                Ended October 31, 2001 and 2000........................................................
F-2
      Consolidated Statements of Cash Flows for Three Months and Six Months 
                Ended October 31, 2001 and 2000........................................................
  F-3 to F-4
      Consolidated Statements of Shareholders' Equity for the Periods 
                Ended October 31, 2001 and 2000........................................................
  F-5 
      Notes to Consolidated Financial Statements - Six Months 
                Ended October 31, 2001 and 2000........................................................
F-6 to F-14
CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL YEARS
ENDED APRIL 30, 2001, 2000, AND 1999
 


INDEPENDENT AUDITOR'S REPORT........................................................
F-15
      Consolidated Balance Sheets - April 30, 2001 and 2000.................................
F-16 to F-17
      Consolidated Statements of Operations for the years ended 
                April 30, 2001 and 2000......................................................................
F-18
      Consolidated Statements of Shareholders' Equity for the years ended 
                April 30, 2001 and 2000......................................................................
F-19
      Consolidated Statements of Cash Flows for the years ended 
                April 30, 2001 and 2000......................................................................
F-20 to F-21
      Notes to Consolidated Financial Statements.....................................................
F-22 to F-37
ADDITIONAL INFORMATION
 
      Independent Auditor's Report on Additional Information...................................
F-38
      Marketable Securities - April 30, 2001 and 2000............................................ 
F-39
      Supplemental Income Statement Information for the years ended 
                April 30, 2001 and 2000......................................................................
F-40
      Real Estate and Accumulated Depreciation - April 30, 2001............................
F-41 to F-49
      Investments in Mortgage Loans on Real Estate - April 30, 2001.......................
F-50
      Selected Financial Data....................................................................................
F-51
      Gain From Property Dispositions - April 30, 2001, 2000 and 1999.................. 
F-52
      Mortgage Loans Payable - April 30, 2001 .......................................................
F-53 to F-55
      Significant Property Acquisitions - April 30, 2001.............................................
F-56
      Quarterly Results of Consolidated Operations (unaudited).................................
F-57

Schedules other than those listed above are omitted since they are not required or are not applicable, or the required information is shown in the financial statement or notes thereof.
 
 

Page 129


INVESTORS REAL ESTATE TRUST
CONSOLIDATED FINANCIAL STATEMENTS
for the Six Months Ended October 31, 2001
 

Balance Sheet
(unaudited)

ASSETS
    10/31/01
    04/30/01
Real Estate Investments    
   Real Estate Owned $     637,805,923 $      591,636,468
   Less Accumulated Depreciation $      -51,047,799 $      -44,093,145
  $     586,758,124 $     547,543,323
   Mortgage Loans Receivable $         5,942,897 $         1,037,095
Total Real Estate Investments $     592,701,021 $     548,580,418
     
OTHER ASSETS
   
   Cash $      19,994,239 $       6,356,063
   Marketable Securities - Held to Maturity                     0           2,351,248
   Marketable Securities - Available for Sale                     0             660,865
   Rent Receivable           2,583,619           1,925,429
   Real Estate Deposits             184,000             522,500
   Prepaid and Other Assets           1,111,081             799,973
   Tax and Insurance Escrow           4,568,060           4,323,960
   Deferred Charges and Leasing Costs           3,398,461           3,064,109
   Furniture & Fixtures, Net             204,211             187,313
   Goodwill, Net $         1,495,532 $         1,550,246
     TOTAL ASSETS $     626,240,224 $     570,322,124
     
LIABILITIES    
   Accounts Payable and Accrued Expenses $        8,486,962 $         8,252,758
   Mortgages Payable        401,345,146        368,956,930
   Investment Certificates Issued $       25,875,441 $       11,876,417
     TOTAL LIABILITIES $     435,707,549 $     389,086,105
     
Minority Interest in Partnerships
   Limited Partner - NSCM
             3,430,974           3,287,665
Minority Interest in Operating Partnership
   Limited Partnership Units
     8,433,295 on 10/31/01
     7,527,151 on 04/30/01
$      65,523,274 $      59,003,194
SHAREHOLDERS' EQUITY
   Shares of Beneficial Interest
     24,530,009 on 10/31/01
     24,068,346 on 04/30/01
$     136,002,301 $     132,148,768
   Accumulated Distributions in Excess of Net Income        -14,423,874        -13,073,157
   Accumulated Other Comprehensive Income/Loss $                     0 $           -130,451
        Total Shareholders' Equity $     121,578,427 $     118,945,160
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $     626,240,224 $     570,322,124

 
 

F-1


Statement of Operations
for Three Months and Six Months Ended October 31, 2001 and 2000
(unaudited)


 
 

        3 Months
         Ended 10/31/01
      3 Months
         Ended 10/31/00
      6 Months
         Ended 10/31/01
      6 Months
         Ended 10/31/00
REVENUE        
   Real Estate Rentals $ 22,877,520 $ 18,216,163 $ 44,445,900 $ 35,508,138
   Interest, Discounts and Fees $      297,521 $      188,097 $      509,235 $      327,766
Total Revenue $ 23,175,041 $ 18,404,260 $ 44,955,135 $ 35,835,904
         
OPERATING EXPENSE        
   Interest $  7,597,039 $  6,087,438 $ 14,795,417 $ 11,778,403
   Depreciation     3,718,328     3,042,137     7,375,090     5,698,346
   Utilities and Maintenance     3,190,626     2,775,648     6,162,434     5,388,844
   Taxes     2,234,148     1,712,556     4,349,779     3,400,798
   Insurance        313,713        174,471        628,398        341,752
   Property Management Expenses     1,730,144     1,369,059     3,360,223     2,779,561
Administrative Expense & Trustee 
   Services
394,240
295,827
780,546 759,789
   Operating Expenses        118,672        124,078        245,295        204,555
   Amortization $      134,716 $      115,235 $      263,672 $      210,914
Total Expenses $ 19,431,626 $ 15,696,449 $ 37,960,854 $ 30,562,962
INCOME BEFORE GAIN/LOSS ON PROPERTIES AND MINORITY INTEREST 3,743,415  2,707,811     6,994,281     5,272,942
GAIN ON SALE OF INVESTMENT         16,398                0        324,332                0
MINORITY INTEREST OTHER  PARTNERSHIP
-86,554 0 -143,309           0
MINORITY INTEREST PORTION OF OPERATING PARTNERSHIP INCOME $    -727,344
 $     -538,618
$  -1,453,661 $    -964,285
NET INCOME $  2,945,915 $  2,169,193 $  5,721,643 $  4,308,657
PER SHARE        
   Net Income Per Share $      0.1200 $      0.0900 $      0.2400 $      0.1900
   Dividends Paid Per Share $      0.1475 $      0.1350 $      0.2925 $      0.2675
   Average Number of Shares 
   Outstanding
  24,362,151   22,972,664   24,252,467   22,790,637

F-2



 

Consolidated Statement of Cash Flows
For the Six Months Ended October 31, 2001 and 2000
(unaudited)


      10/31/01     10/31/00
CASH FLOWS FROM OPERATING ACTIVITIES    
NET INCOME $        5,721,643 $        4,308,657
Adjustments to reconcile net income to net cash 
provided by operating activities
   
Depreciation and Amortization           7,638,762           5,909,260
Minority interest portion of operating partnership income           1,596,970             964,285
Gain on Sale of Properties           -324,332                     0
Interest reinvested in investment certificates             164,654             134,650
Changes in other assets and liabilities:    
    (Increase) decrease in real estate deposits           346,000              -31,450
    (Increase) decrease in other assets            -448,096            -224,407
    (Increase) decrease in rent receivable            -658,190            -405,903
    (Increase) decrease in tax and insurance escrow            -244,100            -859,525
    (Increase) decrease in deferred charges            -543,309            -896,868
    Increase (decrease) in accounts payable 
    & accrued expenses
$           244,321 $           432,125
Net cash provided from operating activities $      13,494,323 $        9,330,824
     
CASH FLOWS FROM INVESTING ACTIVITIES    
Proceeds from sale of marketable securities
held to maturity
$        3,085,209 $          151,516
Proceeds from sale of property             269,501                     0
Principal payments on mortgage loans receivable                7,505             610,464
Payments for acquisition and improvements of properties        -31,575,245        -20,888,179
Investment in Mortgage loan receivable $       -4,913,307 $       -2,079,264
Net Cash used for investing activities $     -33,126,337 $     -22,205,463
     
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from sale of shares $                     0 $        3,617,279
Proceeds from sale of minority interest units
345,603
0
Proceeds from investment certificates issued         14,257,866           1,180,030
Proceeds from mortgages payable         27,513,766         21,571,148
Proceeds from short-term lines of credit           1,000,000         10,286,888
Repurchase of shares/minority interest              -20,107          -2,716,868
Dividends/Distributions Paid          -5,866,380          -4,071,222
Prepaid Advances to DRIP                     0            -760,000
Redemption of investment certificates            -423,497          -1,353,614
Principal payments on mortgage loans          -2,537,061          -3,189,077
Payments on short-term lines of credit $       -1,000,000 $       -9,752,420
Net cash provided from financing activities $      33,270,190 $      14,812,144
     
NET INCREASE (DECREASE) IN CASH $      13,638,176 $        1,937,505
CASH AT BEGINNING OF YEAR $        6,356,063 $        3,449,264
CASH AT END OF 2nd PERIOD $      19,994,239 $        5,386,769

F-3


Consolidated Statement of Cash Flows - continued
 

      10/31/01     10/31/00
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES 2001 and 2000    
     
Dividends reinvested $        3,481,394 $       3,346,687
Real estate investment and mortgage loans receivable
      acquired through assumption of mortgage loans
      payable and accrual of costs
7,721,134   22,901,205
Proceeds from Sale of Properties deposited directly
       with escrow agent
711,777   0
Properties acquired through the issuance of minority
     interest units in the operating partnership
          7,523,461         10,629,518
Interest reinvested directly in investment certificates             164,654             134,650
Goodwill acquired                     0           1,604,961
     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW 
       INFORMATION
   
Cash paid during the year for:    
     Interest paid on mortgages $      13,417,626 $      10,254,870
     Interest paid on margin account and other                1,438             181,565
     Interest paid on investment certificates             207,805             207,039

F-4


Consolidated Statements of Shareholders' Equity
For the Periods Ended October 31, 2001 and  April 30, 2001
(unaudited)


      NUMBER
OF SHARES
                        SHARES OF BENEFICIAL
      INTEREST
                       DISTRIBUTIONS
IN EXCESS OF
NET INCOME
   ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
   TOTAL
SHAREHOLDER'S
      EQUITY
           
Balance April 30, 2000 22,452,069 $119,233,172
$ -9,094,076
$       -218,505
$  109,920,591
Comprehensive Income          
   Net income 0          0 8,694,240                   0        8,694,294
Unrealized loss on securities available for sale 0 0 0 -88,054          -88,054
Total comprehensive income    
  $     8,782,294
Dividends distributed     0 0 -12,673,321        -12,673,321
Dividend reinvested   273,155    2,230,445 0                   0        2,230,445
Sale of shares 1,383,908 11,001,509 0                   0       11,001,509
Fractional Shares repurchased      -40,786      -316,358                  0                   0         -316,358
Balance April 30, 2001 24,068,346 $132,148,768 $ -13,073,157 $       -130,451 $  118,945,160
           
           
Balance April 30, 2001 24,068,346               $132,148,768 $ -13,073,157 $       -130,451 $  118,945,160
Comprehensive Income          
   Net income              0 0 5,721,643 0        5,721,643
   Unrealized gain on 
     securities available for sale
             0 0 0           130,451         130,451
Totalcomprehensive income         $     5,852,094
Dividends distributed              0 0 -7,072,360 0       -7,072,358
Dividend reinvestment plan      462,779 3,863,207 0 0        3,863,207
Sale of shares              0 0 0 0                   0
Fractional Shares repurchased        -1,116           -9,674                      0                 0            -9,675
Balance October 31, 2001 24,530,009 $136,002,301 $ -14,423,874 $                0 $  121,578,427

F-5


Notes to Consolidated Financial Statements
Six Months Ended October 31, 2001 and 2000

Note 1  - Organization
 Investors Real Estate Trust ("IRET") elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended April 30, 1971.  REITs are subject to a number of organization and operational requirements, including a requirement to contribute 90% of ordinary taxable income and, generally, are not subject to Federal income tax on net income.  IRET is engaged in the acquisition and ownership of residential apartment communities and commercial properties located mainly in the state of North Dakota and Minnesota but also in the states of Colorado, Idaho, Iowa, Georgia, Kansas, Montana, Nebraska, South Dakota, Texas, and Washington.  As of October 31, 2001, IRET owned 59 apartment communities with 8,248 apartments and 62 commercial buildings totaling 2,928,338 square feet.  IRET conducts a majority of its business activities through its operating partnership, IRET Properties, a North Dakota Limited Partnership, as well as through a number of other subsidiary entities.

Note 2 - Basis of Presentation and Significant Account Policies

Basis of Presentation
 The consolidated financial statements include the accounts of IRET and all its subsidiaries in which it maintains a controlling interest.  The financial statements have been prepared on the basis of accounting principles that are in effect as of the financial statement date.  IRET operates on a fiscal year commencing May 1 and ending April 30.

 The accompanying consolidated financial statements include the accounts of IRET and its 74.4% (76.2% at April 30,2001) partnership interest in the operating partnership.  Such interest has been calculated as the percentage of outstanding common shares divided by the total outstanding common shares and operating partnership units ("UPREIT Units") outstanding.  The remaining 25.6% (23.8% at April 30, 2001) is reflected as minority interest in these consolidated financial statements.

 IRET's investment in the NSCM Partnership is a controlling interest and IRET has financial and operating control and accounted for using the equity method.  All significant intercompany balances and transactions have been eliminated in these consolidated financial statements.

Unaudited Interim Financial Statements
 The interim consolidated financial statements of IRET have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission.  Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America are omitted.  The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
 
 

F-6


Note 2 - continued

In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the consolidated financial statements for the interim periods have been included.

The current period's results of operations are not necessarily indicative of results which ultimately may be achieved for the year.  The interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the company's form 10-K405 for the year ended April 30, 2001.

Significant Accounting Policies
 IRET has not made any significant changes in accounting policy and practices since the most recent audited financial statements.

Recent Accounting Pronouncements
 In June, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.  This Statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No., 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises.  The provisions of this Statement provide that all business combinations under the scope of this Statement are to be accounted for using one method - the purchase method.  The provisions of this Statement apply to all business combinations initiated after June 30, 2001, and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later.  The Trust has not entered into any business combinations since June 30, 2001, and therefore the provisions of this statement do not yet impact the Trust's financial position, results of operations and cash flows.  The Trust will be adopting this Statement for any future business combinations.

 In June, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.  This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisitions.  This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements.  The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001.  Although the Statement allows for early adoption by entities with fiscal years beginning after March 15, 2001, provided that the first interim financial statements have not previously been issued, the Trust has no plans to adopt the provisions of SFAS No. 142 prior to the effective date.  Therefore, this Statement is will be adopted by the Trust at the beginning of fiscal year May 1, 2002.  The provisions of SFAS No. 142 will be applied to all goodwill and other intangible assets reflected on its financial statements at that date.

F-7


Note 2 - continued

 SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives will not be amortized as in the past, but will instead be tested at least annually for impairment.  SFAS No. 142 adopts a more aggressive view of goodwill and bases the accounting for goodwill on the units of the combined entity into which an acquired entity is integrated (referred to as reporting units).  This statement provides specific guidance for testing goodwill for impairment.  The Trust will follow this guidance and goodwill will be tested for impairment at least annually using a two-step process that begins with an estimation of the fair value of a reporting unit.

The first step is a screen for potential impairment, and the second step measures the amount of impairment, if any.  If certain criteria are met, the requirement to test goodwill for annual impairment can be satisfied without remeasurement of the fair value of a reporting entity.

 Impairment losses for goodwill and indefinite -lived intangible assets that arise due to the initial application of this Statement (resulting from a transitional impairment test) are to be reported as resulting from a change in accounting principle.  As of October 31, 2001, the impact of adopting the provisions of SFAS No. 142 on the Trust's financial position, results of operations and cash flows would not be material since as of this date the Trust's goodwill and indefinite intangibles are not determined to be impaired.  The impact of adopting this Statement on its effective date is not yet estimable since fact and circumstances that could impact the impairment estimation will need to be evaluated as of that date.

 In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations.  The provisions of this statement address the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.  The provisions of this Statement become effective for fiscal years beginning after June 15, 2002.  Although the Statement allows for early adoption prior to becoming effective, the Trust has no plans for to adopt the provision of SFAS No. 143 prior to the effective date.  Therefore, this Statement will be adopted by the Trust at the beginning of fiscal year May 1, 2003.  As of October 31, 2001 the impact of adopting the provisions of this Statement on the Trust's financial position, results of operations and cash flow would not be material as the Trust did not currently retire any tangible long-lived assets.  The impact of adopting this Statement on its effective date is not yet estimable since fact and circumstances that could impact retirement costs and obligations will depend on future retirements of long-lived assets.

 In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets.

F-8


Note 2 - continued

This Statement supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of, and the accounting and reporting provision of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in the Opinion).  This Statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.  The provisions of this statement become effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years.  Although the statement provides for early adoption prior to becoming effective, the Trust has no plans to adopt this Statement prior to the effective date.  Therefore, this Statement is will be adopted by the Trust at the beginning of fiscal year May 1, 2002.

 This statement does not materially change the measurement of impairment for long-lived assets to "be held or used".  Instead, it provides guidance on measuring impairment of long-lived assets to "be held and used".  As of October 31, 2001, the Trust did have long-lived assets that are being "held and used" (primarily real estate) as part of its normal business operations of a REIT.  The Trust has implemented its measuring of impairment for assets "held and used" in accordance with the implementation guidance in SFAS No. 144 which is consistent with SFAS No. 121 and therefore this Statement has no material impact on the Trust's financial position, results of operations and cash flows.

 SFAS No. 144 also has some provisions, primarily guidance, on implementation of the provisions of SFAS No. 122, that apply to long-lived assets to be disposed of "other than by sale" and long-lived assets to be disposed of "by sale".  As of October 31, 2001, the Trust did not have any long-lived assets within these categories and therefore the application as of that date does not have any material impact on the financial position, results of operations, and cash flows.  The impact of adopting the provisions of  this Statement for long-lived assets to be disposed of "other than by sale" or "by sale" on its effective date is not yet estimable since facts and circumstances have not yet occurred that would cause the Trust to classify properties in either of these categories.

Note 3 - Earnings Per Share
 Earnings per share  ("EPS") is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding for the period.  The company has no outstanding warrants, convertible stock, or other contractual obligations requiring issuance of additional common shares that would result in a dilution of earnings.

 The exchange of outstanding operation partnership units for common shares will have no effect on EPS as unitholders and shareholders presently share equally in the net income of the operating partnership.  Thus, diluted EPS is not shown because there is no potential dilution.
 
 

F-9


Note 3 - continued

 The weighted average shares and operating partnership units outstanding for the three months and six months ended October 31, 2001, and 2000 are as follows:
 
 

Three Months Ended     10/31/01     10/31/00
     
Weighted average shares outstanding         24,362,151         22,972,664
Weighted average operating partnership units          outstanding           8,148,596           5,569,012
         Total         32,510,747         28,541,676
     
     
Six Months Ended     10/31/01     10/31/00
     
Weighted average shares outstanding         24,252,467         22,790,637
Weighted average operating partnership units         outstanding           7,870,182           5,160,743
         Total         32,122,649         27,951,380

Note 4 - Mortgage Loan Receivable
Mortgage loans receivable consist of eight contracts, which are collateralized by real estate.  Contract terms call for monthly payments of principals and interest.  Interest rates range from 7% to 11%.  Mortgage loans receivable have been evaluated for possible losses considering repayment history, market value of underlying collateral, and economic conditions.

 Future principal payments due under the mortgage loan contracts as of October 31, 2001, are as follows:
 
 

Year Ended April 30  
2002 $      5,671,332
2003 $          98,252
2004 $          43,313
2005 $                  0
2006 $                  0
Later years $        130,000
  $     5,942,897

 

There were no significant non-performing mortgage loans receivable as of October 31, 2001.  Non-performing loans are recognized as impaired in conformity with FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan.  The average balance of impaired loans for the period ended October 31, 2001, was not significant.  For impairment recognized in conformity with FASB statement No. 114, the entire change in present value of expected cash flows is reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported.  Additional interest income that would have been earned on loans if they had not been non-performing was not significant in this period.  There was not interest income on non-performing loans recognized on a cash basis for the period ended October 31, 2001.
 
 

F-10


Note 5 - Investment Certificates Issued
 The trust has placed investment certificates with the public.  The interest rates vary from 6% to 9% per annum, depending on the term of the security.  Total securities maturing within fiscal years ended April 30, are shown below.  Interest is paid annually, semiannually, or quarterly on the anniversary date of the security.
 
 

Year Ended April 30  
2002 $     14,294,281
2003 $       4,606,210
2004 $       1,922,323
2005 $       1,296,574
2006 $       3,421,758
Later years $          334,295
  $     25,875,441

Note 6 - Segment Reporting
     The following information summarizes IRET's segment reporting for residential and commercial properties along with reconciliations to the consolidated financial statements:

    Three Months Ended October 31, 2001
 
 

    Commercial   Residential        Total
Segment Revenue      
   Rental Revenue $      7,554,280 $     15,323,240 $     22,877,520
Segment Expenses      
   Mortgage Interest         3,341,519         3,776,404         7,117,923
   Utilities and Maintenance             410,110         2,780,516         3,190,626
   Real Estate Taxes            553,805         1,680,343         2,234,148
   Insurance              40,205            273,508            313,713
   Property Management $         219,244 $       1,510,900 $       1,730,144
Total Segment Expense $      4,564,883 $     10,021,671 $     14,586,554
Segment Gross Profit $      2,989,397 $       5,301,569 $       8,290,966

 
  Reconciliation to consolidated operations:  
   Interest Discounts and Fee Revenue $        297,521
   Other Interest Expense          -479,116
   Depreciation        -3,718,328
   Administrative Expense and Trustee Fees          -394,240
   Operating Expenses           -118,672
   Amortization  $        -134,716
Income Before Gain/Loss on Properties and Minority Interest $      3,743,415

 
 
 

F-11


Note 6 - continued 

 Three Months Ended October 31, 2000

    Commercial   Residential        Total
Segment Revenue      
   Rental Revenue $      4,031,487 $    14,184,676 $    18,216,163
Segment Expenses      
   Mortgage Interest         1,970,431         3,930,180         5,900,611
   Utilities and Maintenance            225,545         2,550,103         2,775,648
   Taxes           240,445         1,472,111         1,712,556
   Insurance             23,780           150,691           174,471
   Property Management $          96,614 $      1,272,445 $      1,369,059
Total Segment Expense $      2,556,815 $      9,375,530 $    11,932,345
Segment Gross Profit $      1,474,672 $      4,809,146 $      6,283,818
       
Reconciliation to consolidated operations:      
   Interest Discounts and Fee Revenue     $        188,097
   Other Interest Expense              -186,827
   Depreciation            -3,042,137
   Advisory and Trust Fees              -295,827
   Operating Expenses               -124,078
   Amortization      $        -115,235
Income Before Gain/Loss on Properties 
   and Minority Interest
    $      2,707,811

Six Months Ended October 31, 2001
 

    Commercial   Residential        Total
Segment Revenue      
   Rental Revenue $    14,993,811 $     29,452,089 $     44,445,900
Segment Expenses      
   Mortgage Interest         5,991,223         8,147,417       14,138,640
   Utilities and Maintenance            821,176         5,341,258         6,162,434
   Real Estate Taxes         1,087,504         3,262,275         4,349,779
   Insurance             86,458           541,940           628,398
   Property Management $         405,069 $      2,955,154 $      3,360,223
Total Segment Expense $      8,391,430 $    20,248,044 $    28,639,474
Segment Gross Profit $      6,602,381 $      9,204,045 $    15,806,426
  Reconciliation to consolidated operations:  
   Interest Discounts and Fee Revenue $         509,235
   Other Interest Expense          -656,777
   Depreciation        -7,375,090
   Administrative Expense and Trustee Fees          -780,546
   Operating Expenses           -245,295
   Amortization         -263,672
Income Before Gain/Loss on Properties and Minority Interest $      6,994,281

 

F-12


Six Months Ended October 31, 2000
 

    Commercial   Residential        Total
Segment Revenue      
   Rental Revenue $         8,433,133 $       27,075,005 $       35,508,138
Segment Expenses      
   Mortgage Interest         3,716,448         7,693,327       11,409,775
   Utilities and Maintenance            420,135         4,968,709         5,388,844
   Taxes           499,981         2,900,817         3,400,798
   Insurance             40,905           300,847           341,752
   Property Management $           179,885 $        2,599,676 $         2,779,561
Total Segment Expense
$        4,857,354
  $      18,463,376
$       23,320,730
Segment Gross Profit
      $        3,575,779
     $        8,611,629
$       12,187,408

     
Reconciliation to consolidated operations:      
     Interest Discounts and Fee Revenue    
$           327,766
     Other Interest Expense    
  -368,628
     Depreciation    
  -5,698,346
     Advisory and Trust Fees    
  -759,789
      Operating Expenses    
  -204,555
     Amortization    
$           -210,914
Income Before Gain/Loss on Properties
     and Minority Interest
   
  $      5,272,942

Segment Assets and Accumulated Depreciation

Quarter Ended October 31, 2001
 

    Commercial   Residential        Total
Segment Assets      
   Property Owned $   257,124,967 $   380,680,956 $   637,805,923
   Less Accumulated Depreciation $   - 14,423,580 $   - 36,624,219 $   - 51,047,799
Total Property Owned $   242,701,387 $   344,056,737 $   586,758,124

Year Ended April 30, 2001
 

    Commercial   Residential        Total
Segment Assets      
   Property Owned $   230,058,846 $ 361,577,6229 $   591,636,468
   Less Accumulated Depreciation $   - 11,796,966 $   - 32,296,179 $   - 44,093,145
Total Property Owned $   218,216,880 $   329,281,443 $   547,543,323

 F-13



Note 8 - Subsequent Events
 

1.)
On November 14, 2001, the Board of Trustees of IRET declared a dividend of $0.15 per share, payable January 17, 2002, to shareholders of record at the close of business on January 2, 2002.
   
2.)
IRET's Form S-11/A Registration Statement for 2,500,000 of its shares of beneficial interest became effective on December 3, 2001, under which statement said shares will be offered for sale to the public for $8.75 per share by broker/dealers on a best-efforts basis.

F-14



 
 

INDEPENDENT AUDITOR'S REPORT


Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North Dakota

We have audited the accompanying consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended April 30, 2001, 2000 and 1999. These consolidated financial statements are the responsibility of the Trust's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis of our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Investors Real Estate Trust and Subsidiaries as of April 30, 2001 and 2000, and the consolidated results of its operations and cash flows for the years ended April 30, 2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America.
 

/S/ Brady Martz and Associates, P.C.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota, USA

May 23, 2001

F-15


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and 2000

ASSETS

 
2001
2000
REAL ESTATE INVESTMENTS


   Property owned
$  591,636,468
$  449,919,890
   Less accumulated depreciation
  - 44,093,145
  - 33,232,952
 
$  547,543,323
$  416,686,938
 
   
   Mortgage loans receivable
     1,037,095
     1,529,578
   Total real estate investments
$  548,580,418
$  418,216,516
 
   
OTHER ASSETS
   
   Cash
$      6,356,063
$      3,449,264
   Marketable securities -held-to-maturity
2,351,248
2,601,420
   Marketable securities -available for sale
660,865
572,811
   Rent receivable
1,925,429
1,055,922
   Real estate deposits
522,500
768,850
   Prepaid and other assets
799,973
577,624
   Tax and insurance escrow
4,323,960
3,218,603
   Furniture & Fixtures
187,313
0
   Goodwill
1,550,246
0
   Deferred charges and Leasing Costs
      3,064,109
      2,517,289
TOTAL ASSETS
$  570,322,124
$  432,978,299

F-16


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
April 30, 2001 and 2000

LIABILITIES AND SHAREHOLDERS' EQUITY

 
2001
2000
LIABILITIES


     Accounts payable and accrued expenses
$     8,252,758
$     6,343,595
     Notes payable
0
6,452,420
     Mortgages payable
368,956,930
265,056,767
     Investment certificates issued
   11,876,417
   10,087,256
          Total Liabilities
$ 389,086,105
$ 287,940,038
 
   
MINORITY INTEREST IN  PARTNERSHIPS
      $     3,287,665
          $                   0
MINORITY INTEREST OF UNIT HOLDERS IN
   OPERATING PARTNERSHIP
$    59,003,194
$    35,117,670
 
   
SHAREHOLDER'S EQUITY
   
   Shares of beneficial interest (unlimited authorization, no 
    par value, 24,068,346 shares outstanding in 2001 and 
   22,452,069 shares outstanding in 2000)
$ 132,148,768
$ 119,233,172
   Accumulated distributions in excess of net income
-13,073,157
-9,094,076
   Accumulated other comprehensive loss
       -130,451
      - 218,505
   Total shareholders' equity
$ 118,945,160
$ 109,920,591
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 570,322,124
$ 432,978,299

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-17


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended April 30, 2001, 2000 and 1999

 
2001
2000
1999
REVENUE
     
   Real estate rentals
$  74,800,722
$  54,257,881
$  38,785,287
   Interest, discounts and fees
       966,428
    1,187,312
    1,141,975
   Total revenue
$   75,767,150
$   55,445,193
$   39,927,262
 
     
EXPENSES
     
   Interest
$  25,231,398
$  17,014,170
$  12,101,981
   Depreciation
12,299,532
8,460,112
5,966,874
   Utilities and maintenance
11,546,566
8,044,530
6,356,483
   Taxes
7,545,182
5,282,361
4,025,559
   Insurance
831,963
476,962
384,203
   Property management expenses
5,784,423
4,290,275
3,288,267
   Loss on Impairment of Properties
0
1,319,316
0
   Administrative Expenses
1,057,469
0
0
   Advisory and trustee services
423,227
1,159,120
844,901
   Operating expenses
431,390
633,692
402,641
   Amortization
        428,188
        216,097
       154,677
   Total expenses
$   65,579,338
$   46,896,635
$   33,525,586
 
     
INCOME BEFORE GAIN/LOSS ON 
    PROPERTIES AND MINORITY INTEREST
$  10,187,812
$    8,548,558
$    6,401,676
GAIN ON SALE OF PROPERTIES
601,605
1,754,496
1,947,184
MINORITY INTEREST PORTION OF
   OPERATING PARTNERSHIP INCOME
   -2,095,177
   -1,495,209
     - 744,725
NET INCOME
$    8,694,240
$    8,807,845
$    7,604,135
 
     
Net income per share (basic and diluted)
$               .38 
$              .42 
$               .44

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-18


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended April 30, 2001, 2000 and 1999


NUMBER OF 
SHARES
SHARES OF 
BENEFICIAL
INTEREST
DISTRIBUTIONS IN 
EXCESS OF NET 
INCOME
ACCUMULATED 
OTHER
COMPREHENSIVE
INCOME (LOSS)
TOTAL 
SHAREHOLDER'S 
EQUITY
BALANCE May 1, 1998
16,391,412
$ 74,708,559
$ -6,666,555
$       110,622
$   68,152,626
Comprehensive Income
         
   Net income
0
0
7,604,135
0
7,604,135
   Unrealized loss on 
 securities available for sale
0
0
0
-167,189
       -167,189
Totalcomprehensive income
       
$     7,436,946
Dividends distributed
0
0
-8,193,538
0
-8,193,538
Dividends reinvested
762,051
5,389,464
0
0
5,389,464
Sale of shares
2,368,504
16,284,684
0
0
16,284,684
Shares repurchased
    -455,013
  -3,286,888
               0
                 0
_  -3,286,888
BALANCE APRIL 30, 1999
19,066,954
$ 93,095,819
$ -7,255,958
$      - 56,567
$   85,783,294
Comprehensive income
         
   Net income
0
0
8,807,845
0
8,807,845
   Unrealized loss on
   securities available for sale
0
0
0
-161,938
     -161,938
Total comprehensive income
       
$8,645,907
Dividends distributed
0
0
-10,645,963
0
-10,645,963
Dividend reinvestment plan
803,192
6,330,301
0
0
6,330,301
Sales of shares
3,115,789
24,022,246
0
0
24,022,246
Shares repurchased
   -533,866
    -4,215,194
                0
                  0
     -4,215,194
BALANCE APRIL 30, 2000
22,452,069
$ 119,233,172
$ -9,094,076
$      -218,505
$  109,920,591
Comprehensive Income
         
   Net income
0
0
 8,694,240
0
8,694,240
   Unrealized gain on 
   securities available for sale
0
0
0
88,054
          88,054
Totalcomprehensive income
       
$     8,782,294
Dividends distributed
0
0
-12,673,321
0
-12,673,321
Dividend reinvestment plan
273,155
2,230,445
0
0
2,230,445
Sale of shares
1,383,908
11,001,509
0
0
11,001,509
Fractional Shares repurchased
    -40,786
       -316,358
                   0
                  0
       - 316,358
BALANCE APRIL 30, 2001
24,068,346
$ 132,148,768
$  -13,073,157
$      -130,451
   $  118,945,160

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-19


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 2001, 2000 and 1999

 
2001
2000
1999
CASH FLOWS FROM OPERATING ACTIVITIES
     
   Net Income
$     8,694,240 
$      8,807,845
$     7,604,135
   Adjustments to reconcile net income to net cash 
      provided by operating activities:
     
         Depreciation and amortization
12,727,720
8,676,209
6,121,551
         Minority interest portion of operating     partnership income
2,095,177
1,495,209
744,725
         Accretion of discount on contracts
0
-1,506
-2,920
         Gain on sale of properties
-601,605
-1,754,496
-1,947,184
         Loss on impairment of properties
0
1,319,316
0
         Interest reinvested in investment certificates
360,181
363,935
408,097
  Effects on operating cash flows due to changes in:
     
         Real estate deposits
246,350
-467,950
2,192,813
         Rent receivable
-990,213
-1,055,922
0
         Other assets
-201,547
-283,838
-11,884
         Tax and insurance escrow
-1,105,357
-1,457,408
-507,127
         Deferred charges
-805,364
-1,319,634
-480,413
         Accounts payable and accrued expenses
       1,909,163
       1,955,325
       1,541,190
Net cash provided from operating activities
$      22,328,745
$      16,277,085
$      15,662,983
CASH FLOWS FROM INVESTING ACTIVITIES
     
   Proceeds from maturity of marketable securities 
       held-to-maturity
 $          250,172
$          363,014
$         572,104
   Principal payments on mortgage loans receivable
613,934
492,547
372,155
   Proceeds from sale of property
0
7,326,563
435,787
   Payments for acquisitions and improvement 
      of properties
-72,319,419
-121,931,571
-45,325,061
   Purchase of marketable securities available-for-sale
0
0
-181,250
   Investment in mortgage loans receivable
     -4,709,838
     - 6,291,617
      -7,655,061
   Net cash used for investing activities
$   - 76,165,151
$ -120,041,064
$    -51,781,326

F-20


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended April 30, 2001, 2000 and 1999

 
2001
2000
1999
CASH FLOWS FROM FINANCING ACTIVITIES
     
   Proceeds from sale of shares, net of issue costs
$    11,001,509
$    24,022,246
$    16,284,684
   Proceeds from investment certificates issued
3,257,574
3,769,003
4,591,528
   Proceeds from mortgages payable
79,369,000
93,969,098
32,326,973
   Repurchase of shares and minority interest units
-5,497,952
-4,832,012
-3,534,813
   Dividends paid
-5,963,290
-4,315,662
-2,804,074
   Distributions paid to minority interest unitholders
-3,059,078
-1,846,104
-791,458
   Redemption of investment certificates
-1,828,594
-5,815,818
-3,599,050
   Principal payments on mortgage loans
-14,083,544
-7,902,981
-3,774,614
   Net increase (decrease) in shor-tterm lines of credit
      -6,452,420
       6,452,420
    - 1,000,000
   Net cash provided from financing activities
$       56,743,205
$    103,500,190
$     37,699,176
NET INCREASE (DECREASE) IN CASH
$         2,906,799
$          -263,789
$       1,580,833
CASH AT BEGINNING OF YEAR
         3,449,264
       3,713,053
       2,132,220
CASH AT END OF YEAR
$        6,356,063
$        3,449,264
$       3,713,053
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
     
   Dividend reinvestment plan
$       2,230,445
$        6,330,301
$      5,389,464
   Real estate investment and mortgage loans
   receivable acquired through assumption of
   mortgage loans payable and accrual of costs
38,611,547
4,049,568
12,458,735
   Mortgage loan receivable transferred to property owned
4,709,838
15,000,000
0
   Proceeds from sale of properties deposited directly
  with escrow agent
4,093,684
0
6,863,691
   Properties and goodwill acquired through the issuance 
  of Minority interest units in the operating partnership
25,543,524
21,602,841
6,485,927
   Minority partner interest in Southdale Medical Center
3,287,655
0
0
   Interest reinvested directly in investment certificates
360,181
363,935
408,097
 
     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW          INFORMATION
     
   Cash paid during the year for:
     
      Interest paid on mortgages
$      23,763,584
$    15,670,488
$    10,998,722
      Interest paid on investment certificates
          745,391
         544,977
         895,214
 
$      24,508,975
$     16,215,465
$     11,893,936

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-21


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001, 2000 and 1999

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS  Investors Real Estate Trust qualifies under Section 856 of the Internal Revenue Code as a real estate investment trust. The Trust has properties located primarily throughout the Upper Midwest, with principal offices located in Minot, North Dakota. The Company invests in commercial and residential real estate, real estate contracts, real estate related governmental backed securities (GNMA), and equity securities in other real estate investment trusts. Rental revenue from residential properties represents the major source of revenues for the Trust.

Effective February 1, 1997, the Trust reorganized its structure in order to convert to Umbrella Partnership Real Estate Investment Trust (UPREIT) status. The Trust established an operating partnership (IRET Properties, a North Dakota Limited Partnership) with a wholly owned corporate subsidiary acting as its sole general partner (IRET, Inc., a North Dakota Corporation). At that date, the Trust transferred substantially all of its assets and liabilities to the operating partnership in exchange for general partnership units.

The general partner has full and exclusive management responsibility for the real estate investment portfolio owned by the operating partnership. The partnership is operated in a manner that allows IRET to continue its qualification as a real estate investment trust under the Internal Revenue Code.

All limited partners of the operating partnership have "exchange rights" allowing them, at their option, to exchange their limited partnership units for shares of the Trust on a one for one basis. The exchange rights are subject to certain restrictions including no exchanges for at least one year following the acquisition of the limited partnership units. The operating partnership distributes cash on a quarterly basis in the amounts determined by the Trust, which results in each limited partner receiving a distribution equivalent to the dividend received by a Trust shareholder.

Effective July 1, 2000, the Trust became self-administered as a result of the acquisition of its former advisory company, Odell-Wentz & Associates, LLC.  Virtually all officers and employees of Odell-Wentz & Associates, LLC were retained by the Trust.  Please refer to Note 9 for information concerning the impact of this acquisition on the accompanying financial statements.

BASIS OF PRESENTATION  The consolidated financial statements include the accounts of Investors Real Estate Trust and all of its subsidiaries in which it maintains a controlling interest.  The Trust is the sole shareholder of IRET, Inc., which is the general partner of the operating partnership, IRET Properties. The trust is also the sole shareholder of Miramont  IRET Inc. and Pine Cone  IRET Inc., both of which are invested in real estate.

The Trust is the sole shareholder of the following entities:  Forest Park -IRET, Inc., Thomasbrook -IRET, Inc., Dakota -IRET, Inc., MedPark -IRET, Inc., Flying Cloud -IRET, Inc.,  Meadows 2 -IRET, Inc., and IRET -Ridge Oaks, LLC.  These entities are the sole general partners and IRET Properties is the sole limited partner for the following limited partnerships, respectively:  Forest Park Properties, a North Dakota Limited Partnership; Thomasbrook Properties, a Nebraska Limited Partnership; Dakota Hill Properties, a Texas Limited Partnership; MedPark Properties, a North Dakota Limited Partnership; and 7901 Properties L.P., a Minnesota

F-22


NOTE 1 - (continued)

Limited Partnership, Meadows 2 Properties, LP, a North Dakota Limited Partnership, and Ridge Oaks, LP an Iowa Limited Partnership.  IRET Properties is also the sole owner of Health Investors Business Trust.  These entities are all invested in real estate and are primarily formed and acquired for the beneficial ownership of certain properties that may be encumbered by mortgage indebtedness.

The consolidated financial statements also include the ownership of a controlling interest in Minnesota Medical Investors LLC, SMB Operating Company LLC, and SMB MM LLC, collectively known as Southdale Medical Center.  These companies are accounted for under the consolidation method of accounting.

All material inter-company transactions and balances have been eliminated in the consolidated financial statements.

ACCOUNTING POLICIES

NEW ACCOUNTING PRONOUNCEMENTS  The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements.  The Trust's accounting policies comply with SAB 101 in all material respects.

Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value.  The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.  Certain provisions of SFAS 133 were amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities"  an amendment of Statement 133."  SFAS 133 has no impact as the Trust does not currently use derivatives.

USE OF ESTIMATES  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

PROPERTY OWNED  Real estate is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Refurbishment type costs such as property-wide painting, carpeting, wallpaper, tiling, replacement of worn out appliances, replacement of worn out bathroom fixtures, replacement of worn out windows, siding, roofs, walkways, parking lots or landscaping, and any other type of refurbishment activity is capitalized.  Interest, real estate taxes, and other development costs relating to the acquisition and development of certain qualifying properties are also capitalized. Expenditures for routine maintenance and repairs, such as individual apartment painting, wallpapering, cleaning, and appliance repair, which do not add to the value or extend useful lives are charged to expense as incurred.

The Trust assesses whether there has been an impairment in the value of its real estate by comparing its carrying amount to the aggregate undiscounted future cash flows without interest charges.  Such cash flows consider factors such as expected future operating income, trends and prospects as well as the effects of demand, competition and other economic factors.  Such market factors include a lessee's ability to pay rent under the terms of the lease.  If a property is leased at a significantly lower rent, the Trust may recognize a loss if the income stream is not sufficient to recover its investment.  If impairment is determined to be present, the loss is measured as the amount by which the carrying value exceeds the property's fair value.

F-23


NOTE 1- (continued)

The fair value of the property is the amount  which would be recoverable upon the disposition of the property.  Techniques used to establish fair value include present value of estimated expected future cash flows using a discount rate commensurate with the risks involved, or appraised value.

REAL ESTATE HELD FOR SALE is stated at the lower of its carrying amount or estimated fair value less disposal costs.  Depreciation is not recorded on assets classified as held for sale.

In the normal course of business the Trust will receive offers for sale of its properties, either solicited or unsolicited.  For those offers that are accepted, the prospective buyer will usually acquire a due diligence period before consummation of the transaction.  It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process.  As a result, real estate is not classified as "held for sale" until it is likely, in the opinion of management, that a property will be disposed of in the near term, even if sale negotiations for such property are currently under way.  There were no properties considered "held for sale" at April 30, 2001 or 2000.

FURNITURE AND FIXTURES consists of office furniture, fixtures, and equipment located at the Trust's operational head quarters and are stated at cost net of accumulated depreciation.  Accumulated depreciation was $215,757 and $0 at April 30, 2001 and 2000, respectively.

DEPRECIATION is provided to amortize the cost of individual assets over their estimated useful lives using principally the straight-line method. Useful lives range from 5 - 12 years for furniture and fixtures to 20 - 40 years for buildings and improvements.

MORTGAGE LOANS RECEIVABLE are shown at cost.  Interest income is accrued and reflected in the related balance.

ALLOWANCE FOR DOUBTFUL ACCOUNTS  The Trust evaluates the need for an allowance for doubtful accounts periodically. In performing its evaluation, management assesses the recoverability of individual real estate mortgage loans and rent receivables by a comparison of their carrying amount with their estimated net realizable value.

MARKETABLE SECURITIES  The Trust's investments in securities are classified as securities "held-to-maturity" and securities "available-for-sale."  The securities classified as "available-for-sale" consist of equity shares in other real estate investment trusts and are stated at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in shareholders' equity. Cost of securities sold are recognized on the basis of specific identification. The securities classified as "held-to-maturity" consist of Government National Mortgage Association securities for which the Trust has positive intent and ability to hold to maturity. They are reported at cost, adjusted by amortization of premiums and accretion of discounts which are recognized in interest income using the straight-line method over the period to maturity which approximates the effective interest method.

REAL ESTATE DEPOSITS consist of funds held by an escrow agent to be applied toward the purchase of real estate qualifying for gain deferral as a like-kind exchange of property under section 1031 of the Internal Revenue Code. It also consists of earnest money, or "good faith deposits," to be used by the Trust toward the purchase of property or the payment of loan costs associated with loan refinancing.

F-24


NOTE 1- (continued)

GOODWILL is amortized on a straight-line basis over a period of 15 years.  The Trust periodically reviews goodwill for impairment and if a permanent decline in value has occurred, the Trust will reduce its goodwill balance to fair value.  Accumulated amortization of goodwill was $91,191 and $0 at April 30, 2001 and 2000, respectively.

DEFERRED LEASING AND LOAN ACQUISITION COSTS -Costs and commissions incurred in obtaining tenant leases are amortized on the straight-line method over the terms of the related leases.  Costs incurred in obtaining long-term financing are amortized over the life of the loan and charged to amortization expense over the terms of the related debt agreements.

MINORITY INTEREST  Interests in the operating partnership held by limited partners are represented by operating partnership units. The operating partnerships' income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to minority interests in accordance with the terms of the operating partnership agreement.

The Trust reflects minority interests in the Southdale Medical Center on the balance sheet for the portion of properties consolidated by the Trust that are not wholly owned by the Trust.  The earnings or losses from these properties attributable to the minority interests are reflected as limited partner minority interests in the consolidated statements of operations.

NET INCOME PER SHARE  Effective May 1, 1998, the Trust adopted Statement of Financial Accounting Standard No. 128, Earnings Per Share. Basic net income per share is computed using the weighted average number of shares outstanding. There is potential for dilution of net  income per share due to the conversion option of operating partnership units. However, basic and diluted net income per  share are the same. The computation of basic and diluted net income per share can be found in Note 12.

INCOME TAXES  The Trust intends to continue to qualify as a real estate investment trust as defined by the Internal Revenue Code and, as such, will not be taxed on the portion of the income that is distributed to the shareholders, provided at least 90% of its real estate investment trust taxable income is distributed and other requirements are met. The Trust intends to distribute all of its taxable income and realized capital gains from property dispositions within the prescribed time limits and, accordingly, there is no provision or liability for income taxes shown on the financial statements.

UPREIT status allows non-recognition of gain by an owner of appreciated real estate if that owner contributes the real estate to a partnership in exchange for a partnership interest. The UPREIT concept was born when the non-recognition provisions of Section 721 of the Internal Revenue Code were combined with "Exchange Rights" which allow the contributing partner to exchange the limited partnership interest received in exchange for the appreciated real estate for the Trust stock. Upon conversion of the partnership units to Trust shares, a taxable event occurs for that limited partner. Income or loss of the operating partnership shall be allocated among its partners in compliance with the provisions of the Internal Revenue Code Section 701(b) and 704(c).

REVENUE RECOGNITION  Residential rental properties are leased under operating leases with terms generally of one year or less. Commercial properties are leased under operating leases to tenants for various terms exceeding one year. Lease terms often include renewal options. Rental revenue is recognized on the straight-line basis, which averages minimum required rents over the terms of the leases.  Rents recognized in advance of collection is reflected as rent receivable, net of allowance for doubtful accounts of $120,314 and $0 as of April 30, 2001 and 2000, respectively.

F-25


NOTE 1 - (continued)

A number of the commercial leases provide for a base rent plus a percentage rent based on gross sales in excess of a stipulated amount. These percentage rents are recorded once the required sales level is achieved and are included in rental income at that time.  These leases also typically provide for tenant reimbursement of common area maintenance and other operating expenses.

Profit on sales of real estate shall be recognized in full when real estate is sold, provided the profit is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will be collectible can be estimated and the earnings process is virtually complete, that is, the seller is not obliged to perform significant activities after the sale to earn the profit.  Any gain or loss on the sale of disposition is recognized in accordance with accounting principles generally accepted in the United States of America.

Interest on mortgage loans receivable is recognized in income as it accrues during the period the loan is outstanding. In the case of non-performing loans, income is recognized as discussed in Note 4.

RECLASSIFICATIONS  Certain previously reported amounts have been reclassified to conform with the current financial statement presentation.

THE DIVIDEND REINVESTMENT PLAN is available to all shareholders of the Trust. Under the Dividend Reinvestment Plan, shareholders may elect for their dividends to be used by the plan administrator to acquire additional shares on the NASDAQ Small Cap Market or, if not available, directly from the Trust.  Amounts are deposited with the plan administrator in advance of the dividend date to acquire shares for dividend reinvestment.

NOTE 2 - OFF-BALANCE-SHEET RISK

The Trust had deposits at First Western Bank, Bremer Bank, and First International Bank which exceeded Federal Deposit Insurance Corporation limits by $3,844,663, $785,073 and $561,155, respectively, at April 30, 2001.

NOTE 3 - PROPERTY OWNED UNDER LEASE

Property consisting principally of real estate owned under lease is stated at cost less accumulated depreciation and is summarized as follows:
 

 
April 30, 2001
April 30, 2000
Residential
$   361,577,622
$   329,205,116
   Less accumulated depreciation
    -32,296,179
    -25,029,645
 
$    329,281,443
$    304,175,471
 
   
Commercial
$   230,058,846
$   120,714,774
   Less accumulated depreciation
    -11,796,966
      -8,203,307
 
$    218,261,880
$    112,511,467
 
   
Remaining Cost
$   547,543,323
$   416,686,938

            There were no repossessions during the years ended April 30, 2001 and 2000.

F-26


NOTE 3 - (continued)

The above cost of residential real estate owned included construction in progress of $6,307,018 and $6,190,287 as of April 30, 2001 and 2000, respectively. As of April 30, 2001, the trust expects to fund approximately $3,500,000 during the upcoming year to complete these construction projects. The Trust also has outstanding offers to purchase selected properties as part of their normal operations.  As of April 30, 2001, significant signed purchase commitments are estimated at $23,400,000 for the upcoming year.

Construction period interest of $316,644, $404,089 and $211,882 has been capitalized for the years ended April 30, 2001, 2000 and 1999, respectively.

Residential apartment units are rented to individual tenants with lease terms up to one year. Gross revenues from residential rentals totaled $55,806,712, $42,379,855 and $33,010,126 for the years ended April 20, 2001, 2000 and 1999, respectively.

Gross revenues from commercial property rentals totaled $18,994,010, $11,878,026 and $5,775,161 for the years ended April 30, 2001, 2000 and 1999, respectively. Commercial properties are leased to tenants under terms of leases expiring at various dates through 2024. Lease terms often include renewal options. In addition, a number of the commercial leases provide for a base rent plus a percentage rent based on gross sales in excess of a stipulated amount. Rents based on a percentage of sales totaled $124,092, $102,659 and $101,032 for the years ended April 30, 2001, 2000 and 1999, respectively.

The future minimum lease payments to be received under these operating leases for the commercial properties as of April 30, 2000, are as follows:
 

Year ending April 30,
 
     2002
$    20,379,372
     2003
19,239,427
     2004
18,626,368
     2005
17,681,872
     2006
16,268,305
     Thereafter
  126,659,158
 
$  218,854,502

Loss on impairment of two commercial properties totaled $1,319,316 for the year ended April 30, 2000.  Impairment losses were determined based on present value of estimated expected future cash flows from each property.  The carrying value of First Avenue Building, located in Minot, North Dakota, was reduced by $311,202.  The carrying value of a commercial building located in Boise, Idaho was reduced by $1,008,114.  There were no losses on impairment of properties for the years ended April 30, 2001 and 1999.

NOTE 4 - MORTGAGE LOANS RECEIVABLE

Mortgage loans receivable consists of seven contracts which are collateralized by real estate. Contract terms call for monthly payments of principals and interest. Interest rates range from 7% to 11%. Mortgage loans receivable have been evaluated for possible losses considering repayment history, market value of underlying collateral, and economic conditions.

F-27


NOTE 4- (continued)

Future principal payments due under the mortgage loans contracts as of April 30, 2001, are as follows:
 

Year ending April 30,

    2002
$    765,530
    2003
98,252
    2004
43,313
    2005
0
    2006
0
    Later years
   _ 130,000
 
$   1,037,095

There were no significant non-performing mortgage loans receivable as of April 30, 2001 and 2000. Non-performing loans are recognized as impaired in conformity with FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan. The average balance of impaired loans for the years ended April 30, 2001 and 2000 was not significant. For impairment recognized in conformity with FASB Statement No. 114, the entire change in present value of expected cash flows is reported as bad debt expense in the same manner in which impairment initially was recognized or as a reduction in the amount of bad debt expense that otherwise would be reported. Additional interest income that would have been earned on loans if they had not been non-performing was not significant in 2001, 2000, or 1999. There was no interest income on non-performing loans recognized on a cash basis for 2001, 2000, and 1999.

NOTE 5 - MARKETABLE SECURITIES

The amortized cost and estimated market values of marketable securities held-to-maturity at April 30, 2001 and 2000 are as follows:
 

2001
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 ISSUER GNMA
$     2,351,248
$         80,159
$         77,389
$    2,354,018
2000
       
 ISSUER GNMA
$     2,601,420
$         34,608
$       159,785
$    2,476,243

The remainder of this page has been intentionally left blank.

F-28


NOTE 5 - (continued)

The amortized cost and estimated market values of marketable securities available-for-sale at April 30, 2001 and 2000 are as follows:


2001
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Equity shares in other REIT's
$   791,316
$     97,209
$   227,660
$   660,865
2000
       
Equity shares in other REIT's
$   791,316
$     65,338
$   283,843
$   572,811

There were no realized gains or losses on sales of securities for the years ended April 30, 2001, 2000 and 1999.

Marketable securities held-to-maturity consists of Governmental National Mortgage Association (GNMA) securities bearing interest from 6.5% to 9.5% with maturity dates ranging from May 15, 2016, to September 15, 2023. The following is a summary of the maturities of securities held-to-maturity at April 30, 2001 and 2000:
 

 
2001
2000
 
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due After 10 years
$  2,351,248
$  2,354,018
$  2,601,420
$  2,476,243

NOTE 6 - NOTES PAYABLE

As of April 30, 2001, the trust had lines of credit available from three financial institutions. An unsecured line of credit was issued by First Western Bank & Trust in the amount of $4,000,000 carrying an interest rate equal to prime and maturing August 15, 2002, the weighted average interest rate for year ended April 30, 2001 was 9.46%.  A second unsecured line of credit from First International Bank & Trust was issued in the amount of $3,500,000 carrying an interest rate equal to prime and maturing October 15, 2002, the weighted average interest rate for year ended April 30, 2001 was 8.15%.  A third unsecured line of credit from Bremer Bank was issued in the amount of $10,000,000 carrying an interest rate equal to Bremer Financial Corp.'s reference rate and maturing August 1, 2002, the weighted average interest rate for year ended April 30, 2001 was 8.99%. Interest payments are due monthly on all three notes. As of April 30, 2001, the Trust had no unpaid balances on any of their lines of credit. As of April 30, 2000, the trust had an unpaid balance of $6,452,420 on the line of credit at Bremer Bank.

NOTE 7 - MORTGAGES PAYABLE

Mortgages payable as of April 30, 2001, included mortgages on properties owned totaling $368,956,930. The carrying value of the related real estate owned was $577,045,712.

Mortgages payable as of April 30, 2000, included mortgages on properties owned totaling $265,054,767. The carrying value of the related real estate owned was $410,776,553.

F-29


NOTE 7- (continued)

Monthly installments are due on the mortgages with interest rates ranging from 6.47% to 9.75% and with varying maturity dates through November 30, 2036.

Of the mortgages payable, the balances of fixed rate mortgages totaled $337,364,781 and $232,919,354, and the balances of variable rate mortgages totaled $31,592,149 and $32,137,413 as of April 30, 2001 and 2000, respectively.

The aggregate amount of required future principal payments on mortgages payable is as follows:
 

 Year ending April 30,
 
   2002
$     14,474,108
   2003
8,298,146
   2004
8,940,912
   2005
9,746,970
   2006
13,133,365
   Later years
 314,363,429
   Total payments
$ 368,956,930

NOTE 8 - INVESTMENT CERTIFICATES ISSUED

The Trust has placed investment certificates with the public. The interest rates vary from 6% to 9% per annum, depending on the term of the security. Total securities maturing within fiscal years ending April 30, are shown below. Interest is paid annually, semiannually, or quarterly on the anniversary date of the security.
 

Year ending April 30,
 
    2002
$    5,820,502
    2003
1,326,062
    2004
1,932,291
    2005
669,657
    2006
2,116,601
    Thereafter
         11,304
 
$   11,876,417

NOTE 9 - TRANSACTIONS WITH RELATED PARTIES

Through June 30, 2000, the advisor to the Trust  was Odell-Wentz & Associates, LLC.  Roger R. Odell and Thomas A. Wentz, Sr. were the owners of Odell-Wentz & Associates LLC and also officers and shareholders of the Trust.  Under the advisory contract between the Trust and Odell-Wentz & Associates, LLC, the Trust paid an advisor's fee based on the net assets of the Trust and a percentage fee for investigating and negotiating the acquisition of new investments. For the year ended April 30, 2001, Odell-Wentz & Associates, LLC received total fees under said agreement of $265,573. The fees for April 30, 2000, were $1,400,973 and for April 30, 1999, were $951,234.

F-30


NOTE 9 - (continued)

For the years ended April 30, 2001, 2000 and 1999, the Trust has capitalized $58,250, $316,458, and $195,019 respectively, of these fees, with the remainder of 207,323, $1,084,515, and $756,215, respectively, expensed as advisory fees on the statement of operations. The advisor was obligated to provide office space, staff, office equipment, computer services and other services necessary to conduct the business affairs of the Trust.

On July 1, 2000, IRET Properties acquired assets from Odell-Wentz & Associates, LLC in exchange for operating partnership units at a total purchase price of $2,083,350.  This acquisition included real estate, furniture, fixtures, equipment and other assets of approximately $675,000, goodwill of approximately $1,645,000, and the assumption of mortgages and other liabilities of approximately $236,000.  Except for Roger R. Odell who retired, all officers and employees of Odell-Wentz & Associates, LLC were retained by IRET Properties.

As part of the acquisition of Odell-Wentz & Associates, LLC, IRET Properties acquired a note receivable due from Timothy P. Mihalick of approximately $100,000.   Timothy P. Mihalick was an officer of Odell Wentz & Associates, LLC and is currently an officer of the Trust.

Investors Management and Marketing (IMM) provides property management services to the Trust. Roger R. Odell is a shareholder in IMM.  IMM received $114,421 for services rendered from May 1, 2000 through June 30, 2000,  IMM received $649,729, and $609,783 for services rendered for years ended April 30, 2000, and 1999, respectively.

Hoyt Properties Inc . provides property management services to the Trust. Steven B. Hoyt is the owner of Hoyt Properties Inc., and is also a trustee of IRET. Hoyt Properties received $533 for services rendered from April 1, 2001 through April 30, 2001,  The management contract with Hoyt Properties commenced on April 1, 2001.

Inland National Securities is a corporation that provides underwriting services in the sale of additional shares for the Trust. Roger R. Odell is also a shareholder in Inland National Securities. Fees for services from May 1, 2000 through June 30, 2000 were $6,861. Fees for services totaled $100,081, and $157,392, for the years ended April 30, 2000 and 1999, respectively.

The Trust paid fees and expense reimbursements to the law firm in which Thomas A. Wentz, Jr. was, until December 31, 1999, a partner totaling $89,497 and  $33,022 for the years ended April 30, 2000, and 1999, respectively. Thomas A. Wentz, Jr. is a trustee of the Trust.

Investment certificates issued by the Trust to officers and trustees totaled $80,000, $200,000, and $2,138,758 at April 30, 2001, 2000 and 1999, respectively.

Management believes that all activity with related parties were transacted at amounts consistent with current fair market prices.

NOTE 10 - MARKET PRICE RANGE OF SHARES

For the year ended April 30, 2001, a total of 3,668,819 shares were traded in 4,692 separate trades.  The high trade price during the period was 8.980, low was 7.375, and the closing price on April 30, 2001 was 8.770. For the year ended April 30, 2000, a total of 4,058,018 shares were traded in 3,414 separate trades.  The high trade price during the period was 17.875, low was 7.681, and the closing price on April 30, 2000 was 7.875. For the year ended April 30, 1999, a total of 1,862,187 shares were traded in 1,017 separate trades. The high trade price during the period was 14.00, low was 6.50, and the closing price on April 30, 1999 was 7.50.

F-31


NOTE 11 - OPERATING SEGMENTS

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated by the chief decision makers in deciding how to allocate resources and in assessing performance. Operating segments of the Trust are determined to be commercial and residential rental operations. All properties falling into these categories have similar economic characteristics, as well as similar production processes, type of customers, distribution methods, and regulatory environments.  Although information is available on a property-by-property basis, including rental income and operating expenses, analysis and decisions are primarily made based on residential and commercial segments.  Generally, segmental information follows the same accounting policies utilized for consolidated reporting, except, certain expenses, such as depreciation, are not allocated to segments for management purposes.

The following information summarizes the Trust's segment reporting for residential and commercial properties along with reconciliations to the consolidated financial statements:
 
 

  YEAR ENDING APRIL 30, 2001
Commercial
Residential
Total
 Segment Revenue



   Rental revenue
$     18,994,010
$     55,806,712
$     74,800,722
Segment Expenses
     
   Mortgage interest
8,043,382
16,398,046
24,441,428
   Utilities and maintenance 
1,012,658
10,533,905
11,546,563
   Taxes
1,083,759
6,461,423
7,545,182
   Insurance
161,941
670,022
831,963
   Property management
         347,748
      5,436,675
      5,784,423
      Total Segment Expense
 $     10,649,488
$     39,500,071
$     50,149,559
Segment Gross Profit
$      8,344,522
$    16,306,641
$    24,651,163


Reconciliation to consolidated operations:
 
   Interest discounts and fee revenue
966,428
   Other interest expense
-789,973
   Depreciation
-12,299,532
   Advisory and trust fees
-1,480,696
   Operating expenses 
-431,390
   Amortization 
       -428,188
Consolidated income before gain/loss on properties and minority interest
$   10,187,812


F-32


NOTE 11 - (continued)
 

APRIL 30, 2001
Commercial
Residential
Total
Segment Assets



   Property owned
$   230,058,846
$   361,577,622
$   591,636,468
   Less accumulated depreciation
    -11,796,966
    -32,296,179
   -44,093,145
Total consolidated property owned
$   218,216,880
$   329,281,443
$   547,543,323

 
YEAR ENDING APRIL 30, 2000
Commercial
Residential
Total
 Segment Revenue



   Rental revenue
$    11,878,026
$    42,379,855
$    54,257,881
Segment Expenses
     
   Mortgage interest
3,980,450
12,312,038
16,292,488
   Utilities and maintenance 
452,229
7,592,301
8,044,530
   Taxes
481,191
4,801,170
5,282,361
   Insurance
52,288
424,674
476,962
   Property management
      132,435
   4,157,840
   4,290,275
   Loss on impairment of properties
    1,319,316
                   0
     1,319,316
      Total Segment Expense
 $     6,417,909
$    29,288,023
$    35,705,932
Segment Gross Profit
$    5,460,117
$   13,091,832
$   18,551,949

Reconciliation to consolidated operations:
 
   Interest discounts and fee revenue
1,187,312
   Other interest expense
-721,682
   Depreciation
-8,460,112
   Advisory and trust fees
-1,159,120
   Operating expenses 
-633,692
   Amortization 
      -216,097
Consolidated income before gain/loss on properties and minority interest
$    8,548,558


F-33


NOTE 11 - (continued)
 

APRIL 30, 2000
Commercial
Residential
Total
Segment Assets



   Property owned
$  120,714,774
$   329,205,116
$   449,919,890
   Less accumulated depreciation
     -8,203,307
    -25,029,645
    -33,232,952
Total consolidated property owned
$  112,511,467
$   304,175,471
$   416,686,938

 
YEAR ENDING APRIL 30, 1999
Commercial
Residential
Total
Segment Revenue



   Rental revenue
$      5,775,161
$   33,010,126
$   38,785,287
Segment Expenses
     
   Mortgage interest
2,417,316
8,782,600
11,199,916
   Utilities and maintenance 
113,374
6,243,109
6,356,483
   Taxes
192,930
3,832,629
4,025,559
    Insurance
30,067
354,136
384,203
   Property management
         60,612
    3,227,655
   3,288,267
      Total Segment Expense
 $     2,814,299
$   22,440,129
$ 25,254,428
Segment Gross Profit 
$    2,960,862
$  10,569,997
$ 13,530,859


Reconciliation to consolidated operations:
 
   Interest discounts and fee revenue
1,141,975
   Other interest expense
-902,065
   Depreciation
-5,966,874
   Advisory and trust fees
-927,063
   Operating expenses 
-320,479
   Amortization 
      -154,677
Consolidated income before gain/loss on properties and minority interest
$    6,401,676


F-34


NOTE 11 - (continued)
 

APRIL 30, 1999
Commercial
Residential
Total
Segment Assets



   Property owned
$   67,250,863
$   228,574,976
$  295,825,839
   Less accumulated depreciation
    -7,109,615
    -19,002,784
   -26,112,399
Total consolidated property owned
$   60,141,248
$   209,572,192
$  269,713,440

NOTE 12 - EARNINGS PER SHARE

Basic earnings per share are computed by dividing the earnings available to stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if potential dilutive securities had been converted to shares. Operating partnership units can be exchanged for shares on a one for one basis. The following tables reconciles amounts reported in the consolidated financial statements for the years ended April 30, 2001, 2000, and 1999:
 

 
2001
2000
1999
NUMERATOR
 
 
 
Net income applicable to shares 
$     8,694,240
$     8,807,845
$     7,604,135
Numerator for basic earnings per share
8,694,240
8,807,845
7,604,135
Minority interest portion of operating 
   partnership income 
   2,095,177
   1,495,209
      744,725
Numerator for diluted earnings per share
$ 10,789,417
$ 10,303,054
$    8,348,860
DENOMINATOR
     
Denominator for basic earnings per share 
   Weighted average shares
23,071,500
20,899,848
17,441,976
Effect of dilutive securities 
   Convertible operating partnership units 
   5,506,200
   3,577,136
   1,662,489
Denominator for diluted earnings per share
 28,577,700
 24,476,984
 19,104,465
Basic earnings per share
$               .38
$               .42
 $             0.44
Diluted earnings per share 
$               .38
$               .42
$             0.44

NOTE 13 - RETIREMENT PLAN

As part of the acquisition on July 1, 2000 of Odell-Wentz & Associates, LLC, the Trust assumed a defined contribution profit sharing retirement plan and a defined contribution 401K retirement plan.  Employees over the age of 21 and after completion of one year of service are eligible to participate in the profit sharing plan.  Contributions to the profit sharing plan are at the discretion of the management. All employees are immediately eligible to participate in the 401K plan and may contribute up to 15% of their compensation subject to maximum levels.  The Trust matches up to 3% of participating employees' wages.  Pension expense of the Trust for the year ended April 30, 2001 was $45,301.

F-35


NOTE 14 - COMMITMENTS AND CONTINGENCIES

The Trust, as an owner of real estate, is subject to various environmental laws of Federal and local governments.  Compliance by the Trust with existing laws has not had a material adverse effect on the Trust's financial condition and results of operations.  However, the Trust cannot predict the impact of new or changed laws or regulations on its current properties or on properties that it may acquire in the future.

NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Mortgage loans receivable - Fair values are based on the discounted value of future cash flows expected to be received for a loan using current rates at which similar loans would be made to borrowers with similar credit risk and the same remaining maturities.

Cash - The carrying amount approximates fair value because of the short maturity of those instruments.

Marketable securities - The fair values of these instruments are estimated based on quoted market prices for these instruments.

Notes payable - The carrying amount approximates fair value because of the short maturity of those notes.

Mortgages payable - For variable rate loans that re-price frequently, fair values are based on carrying values. The fair value of fixed rate loans is estimated based on the discounted cash flows of the loans using current market rates.

Investment certificates issued - The fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered on deposits with similar remaining maturities.

Accrued interest payable - The carrying amount approximates fair value because of the short-term nature of which interest will be paid.

This remainder of this page has been intentionally left blank.

F-36


NOTE 15 - (continued)

The estimated fair values of the Company's financial instruments are as follows:
 


     2001
            2000
 
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
FINANCIAL ASSETS
       
Mortgage loan receivable
$      1,037,095
$       1,037,095
$      1,650,284
$      1,650,284
Cash 
6,356,063
6,356,063
3,449,264
3,449,264
Marketable securities 
    held-to-maturity 
2,351,248
2,354,018
2,601,420
2,476,243
Marketable securities 
    available-for-sale 
660,865
660,865
572,811
572,811
FINANCIAL LIABILITIES
       
Notes payable 
$                    0
$                     0
$      6,452,420
$      6,452,420
Mortgages payable 
368,956,930
356,434,028
265,057,767
250,897,221
Investment certificates issued 
11,876,417
11,804,535
10,087,256
10,810,160
Accrued interest payable
2,369,454
2,369,454
1,679,000
1,679,000

This remainder of this page has been intentionally left blank.

F-37


INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION



Board of Trustees
Investor Real Estate Trust
and Subsidiaries
Minot, North Dakota
 

Our report on our audit of the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 2001 and 2000, and the related consolidated  statements of operations, shareholders' equity, and cash flows for the years ended April 30, 2001, 2000 and 1999, appears on page F-13. Those audits were made for the purpose of forming an opinion on such consolidated financial statements taken as a whole. The information on pages F-37 through F-54 related to the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 2001 and 2000, and the related consolidated  statements of operations, shareholders' equity, and cash flows for the years ended April 30, 2001, 2000 and 1999 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information, except for information on page F-55 that is marked "unaudited" on which we express no opinion, has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements, and, in our opinion, the information is fairly stated in all material respects in relation to the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 2001 and 2000, and the related consolidated  statements of operations, shareholders' equity, and cash flows for the years ended April 30, 2001, 2000 and 1999, taken as a whole.

We also have previously audited, in accordance with auditing standards generally accepted in the United State of America, the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 1999, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years ended April 30, 1998 and 1997, none of which is presented herein, and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information on page F-49 relating to the consolidated balance sheets of Investors Real Estate Trust and Subsidiaries as of April 30, 1999, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years ended April 30, 1998 and 1997, is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived.
 
 

/S/ Brady, Martz & Associates, P.C.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota, USA

May 23, 2001

F-38


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001 and 2000

Schedule I
MARKETABLE SECURITIES



April 30, 2001
April 30, 2000

Principal
Amount
Fair
Value
Principal
Amount
Fair
Value
GNMA Pools
$   2,351,248
$   2,354,018
$   2,601,420
$   2,476,243
 




 
Cost
Fair Value
Cost
Fair Value
Equity shares in other REIT's
$      791,316
$     660,865
$      791,316
$      572,811

F-39



INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
for the years ended April 30, 2001, 2000 and 1999

Schedule X
SUPPLEMENTAL INCOME STATEMENT INFORMATION
 

 
Charges to Costs and Expenses
ITEM
2001
2000
1999
Maintenance and repairs
$  6,436,205
$  4,564,693
$  3,470,202
Taxes, other than payroll and income taxes 
$  7,545,182
$  5,282,361
$  4,025,560
Royalties 
*
Advertising costs
*

*Less than 1 percent of total revenues

F-40


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001


Schedule XI


REAL ESTATE AND ACCUMULATED DEPRECIATION

INITIAL COST TO TRUST
COST CAPITALIZATION
SUBSEQUENT TO ACQUISITION
APARTMENTS
ENCUMBRANCES
LAND
BUILDINGS & 
IMPROVEMENTS
IMPROVEMENTS
CARRYING
COSTS
BEULAH CONDOS - BEULAH, ND
$                    0
$                6,360
$              468,620
$             8,154
$                          0
BISON PROPERTIES - CARRINGTON, ND
0
100,210
508,151
6,180
0
CANDLELIGHT APTS - FARGO, ND
411,529
80,040
852,030
45,013
0
CASTLE ROCK - BILLINGS, MT
3,857,473
736,000
4,973,639
32,895
0
CENTURY APTS. - DICKINSON, ND
1,393,489
100,000
2,105,494
116,320
0
CENTURY APTS. - WILLISTON, ND
2,358,883
200,000
3,754,445
171,302
0
CHATEAU APTS. - MINOT, ND
1,528,906
  122,000
2,322,200
24,785
0
CLEARWATER - BOISE, ID
2,589,905
  585,000
3,245,486
20,151
COLTON HEIGHTS - MINOT, ND
256,077
80,000
877,199
10,354
COTTONWOOD LAKE - BISMARCK, ND
5,540,374
1,055,862
10,644,946
1,917,474
114,353
COUNTRY MEADOWS PHASE I - BILLINGS, MT
2,522,888
245,624
3,990,795
3,895
120,821
COUNTRY MEADOWS PHASE II - BILLINGS, MT
2,564,285
245,624
4,086,664
27,430
0
CRESTVIEW APTS. - BISMARCK, ND
3,245,760
235,000
4,569,503
157,332
0
CROWN COLONY - TOPEKA, KS
7,253,424
620,000
10,023,038
174,052
0
DAKOTA ARMS - MINOT, ND
309,303
50,000
571,189
4,298
0
DAKOTA HILL AT VALLEY RANCH - IRVING, TX
25,293,305
3,650,000
33,823,258
143,849
0
EASTGATE PROPERTIES - MOORHEAD, MN
1,601,726
23,917
2,099,972
301,848
0
EASTWOOD - DICKINSON, ND
210,961
40,000
405,272
27,122
0
FOREST PARK ESTATES. - GRAND FORKS, ND
7,386,895
810,000
6,494,715
178,122
0
HERITAGE MANOR - ROCHESTER, MN
4,749,593
403,256
7,194,917
99,608
0
IVY CLUB - VANCOUVER, WA
6,910,101
 1,274,000
10,463,597
90,266
0
JENNER PROPERTIES - GRAND FORKS, ND
1,103,784
220,000
1,971,033
40,151
0
KIRKWOOD APTS. - BISMARCK, ND
2,267,110
449,290
3,171,933
110,178
0
LANCASTER APTS. - ST. CLOUD, MN
1,716,664
289,000
2,899,120
38,506
0
LEGACY APTS. - GRAND FORKS, ND
6,171,186
 1,361,855
9,307,090
104,274
224,180
LEGACY IV  - GRAND FORKS, ND
2,958,788
725,277
6,119,239
186,610
0
LONETREE APTS. - HARVEY, ND
0
 13,584
213,792
1,471
0
MAGIC CITY APTS. - MINOT, ND
1,879,730
532,000
4,627,059
98,148
0
MEADOWS PHASE I & II - JAMESTOWN, ND
1,965,867
111,550
3,607,059
38,663
0
MEADOWS PHASE III - JAMESTOWN, ND
0
55,775
1,990,680
0
0
MIRAMONT - FORT COLLINS, CO
11,381,741
1,470,000
12,845,599
47,939
0
NEIGHBORHOOD APTS. - CO. SPRINGS, CO
7,044,910
1,033,592
10,258,092
131,097
0
NORTH POINTE  - BISMARCK, ND
1,640,483
143,500
2,151,277
28,211
123,687
OAK MANOR APTS.  - DICKINSON, ND
0
25,000
336,033
13,697
0
OAKWOOD ESTATES - SIOUX FALLS, SD
  1,965,736
342,800
3,257,671
116,585
  0
OLYMPIC VILLAGE - BILLINGS, MT
8,377,235
1,164,000
10,618,852
0
0
OXBOW - SIOUX FALLS, SD
3,114,600
404,072
4,606,469
20,148
0
PARK EAST APTS. - FARGO, ND
3,385,258
83,000
4,983,651
70,302
0
PARK MEADOWS - WAITE PARK, MN
8,081,923
 1,143,450
10,257,185
272,948
0
PARKWAY APTS. - BEULAH, ND
0
   7,000
136,980
6,932
0

F-41


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
 


INITIAL COST TO TRUST
COST CAPITALIZATION
   SUBSEQUENT TO
ACQUISITION
APARTMENTS
ENCUMBRANCES
LAND
BUILDINGS & 
IMPROVEMENTS
IMPROVEMENTS
CARRYING
COSTS
PEBBLE CREEK - BISMARCK, ND
$            448,744
$                7,200
$            749,493
$              28,269
$                      0
PINE CONE APTS. - FORT COLLINS, CO
10,315,861
904,545
12,325,605
33,711
0
POINTE WEST APTS. - MINOT, ND
2,291,125
240,000
3,757,816
63,245
0
PRAIRIE WINDS APTS. - SIOUX FALLS, SD
1,300,993
144,097
1,858,747
10,212
0
PRAIRIEWOOD MEADOWS - FARGO, ND
2,059,583
280,000
2,559,271
0
0
RIDGE OAKS APTS. - SIOUX CITY, IA
2,895,279
178,100
4,103,867
0
0
RIMROCK APTS. - BILLINGS, MT
2,599,093
   329,708
3,537,917
32,055
0
ROCKY MEADOWS 96 - BILLINGS, MT
3,693,447
655,985
5,956,386
21,360
103,378
ROSEWOOD/OAKWOOD - SIOUX FALLS, SD
1,172,698
200,000
1,747,935
0
0
SHERWOOD APTS. - TOPEKA, KS
10,880,136
1,150,000
14,748,882
102,324
0
SOUTH POINTE - MINOT, ND
6,272,436
   550,000
9,358,131
  34,233
402,672
SOUTHVIEW APTS. - MINOT, ND
 0 
185,000
539,212
4,464
0
SOUTHWIND APTS. - GRAND FORKS, ND
3,956,460
400,000
5,378,731
193,342
0
SUNCHASE - FARGO, ND
309,623
52,870
986,975
2,365
0
SUNSET TRAIL PHASE I - ROCHESTER, MN
4,346,961
168,188
7,403,527
0
0
SUNSET TRAIL PHASE II & III - ROCHESTER, MN
0
336,376
4,006,932
0
0
SWEETWATER PROPERTIES - DEVILS LAKE, ND
87,079
90,767
1,183,071
52,460
0
THOMASBROOK - LINCOLN, NE
6,070,287
600,000
8,972,130
384,743
0
VALLEY PARK MANOR - GRAND FORKS, ND
2,990,184
293,500
4,226,508
193,684
0
VAN MALL WOODS - VANCOUVER, WA
3,858,149
600,000
5,518,313
33,449
0
WEST STONEHILL - ST. CLOUD, MN
7,544,370
939,000
10,710,087
122,053
0
WESTWOOD PARK - BISMARCK, ND
1,180,304
161,114
2,011,049
33,325
0
WOODRIDGE APTS. - ROCHESTER, MN
          3,941,271
           370,000
          6,353,956
             51,178
                        0 
 
 $    221,253,971
 $      29,074,087
 $       325,131,485
 $       6,282,959
$          1,089,091

F-42


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
 

 
INITIAL COST TO TRUST
COST CAPITALIZATION 
SUBSEQUENT TO ACQUISITION
OFFICE BUILDINGS
ENCUMBRANCES
LAND
BUILDINGS & 
IMPROVEMENTS
IMPROVEMENTS
CARRYING 
COSTS
 1ST AVENUE BUILDING  - MINOT, ND
 $                          0
 $                   30,000
 $                 500,462
$                      3,303
 $                         0 
12 SOUTH MAIN  - MINOT, ND
0
29,000
360,205
0
0
17 SOUTH MAIN  - MINOT, ND
0
15,000
75,000
0
0
401 SOUTH MAIN  - MINOT, ND
0
 70,600
542,707
0
0
408 1ST STREET SE  - MINOT, ND
0
 10,000
 36,907
0
0
2030 CLIFF ROAD  - EAGAN, MN
650,000
145,900
834,966
0
0
7901 FLYING CLOUD DR - EDEN PRAIRIE, MN
3,812,804
1,062,000
3,859,181
153,629
0
BURNSVILLE BLUFFS - BURNSVILLE, MN
1,641,798
300,300
2,156,349
0
0
COLD SPRING CENTER  - ST. CLOUD, MN
5,250,000
588,000
7,807,539
0
0
CREEKSIDE OFF BLDG.  - BILLINGS, MT
1,106,166
311,310
1,427,832
129,428
0
LESTER CHIROPRACTIC CLINIC  - BISMARCK, ND
0
 25,000
 243,917
300
0
LEXINGTON COMMERCE CENTER - EAGAN, MN
3,379,724
453,400
5,035,922
401
0
NICOLLETT VII  - BURNSVILLE, MN
4,779,722
429,400
6,931,270
0
0
NORTHGATE II  - MAPLE GROVE, MN
1,552,846
357,800
1,982,264
8,915
0
PILLSBURY BUSINESS CENTER - EDINA, MN
1,260,000
284,400
1,558,570
0
0
PLYMOUTH IV & V  - PLYMOUTH, MN
9,271,270
640,500
13,387,829
0
0
SOUTHDALE MEDICAL CENTER - EDINA, MN
23,949,215
3,500,000
28,921,070
0
0
SOUTHEAST TECH CENTER - EAGAN, MN
4,201,819
559,500
5,551,871
4,146
0
WALTERS 214 SO MAIN - MINOT, ND
                           0
                   27,055
                   84,941
                            0
                          0
 
 $         60,855,364
 $               8,839,165
 $            81,298,798
 $                 299,523
 $                          0
COMMERCIAL
 
 
 
 
 
AMERICA'S BEST WAREHOUSE  - BOISE, ID
 $           3,303,018
 $                 765,000
 $              4,023,094
 $                       200
 $                           0 
AMERITRADE   - OMAHA, NE
5,854,994
 326,500
7,980,035
0
0
ARROWHEAD SHOPPING CENTER - MINOT, ND
1,290,671
100,359
2,812,463
60,965
0
BARNES & NOBLE - FARGO, ND
1,800,608
 540,000
2,752,012
32,119
0
BARNES & NOBLE - OMAHA, NE
1,950,659
 600,000
3,099,197
0
0
CARMIKE THEATRE - GRAND FORKS, ND
1,845,233
183,515
2,295,154
0
67,068
COMPUSA  - KENTWOOD, MI
1,365,519
 225,000
1,888,574
7,900
0
CONSECO BLDG - RAPID CITY, SD
4,682,203
285,000
6,759,870
0
0
CORNER EXPRESS - MINOT, ND
798,550
 195,000
1,386,260
0
 0
DEWEY HILL BUSINESS CENTER - EDINA, MN
3,114,964
985,000
3,507,381
0
0
EAST GRAND STATION - EAST GRAND FORKS, ND
948,989
150,000
 1,235,315
6,936
0
EDGEWOOD VISTA - BELGRADE, MT
0
 14,300
 434,596
4,598
0
EDGEWOOD VISTA   - BILLINGS, MT
645,737
 130,000
850,218
0
0
EDGEWOOD VISTA  - COLUMBUS, NE
304,367
 14,300
 434,480
6,846
0
EDGEWOOD VISTA   - DULUTH, MN
2,719,619
 390,000
 3,822,400
1,468,787
0
EDGEWOOD VISTA  - EAST GRAND FORKS, MN
549,604
 25,000
 874,821
516,700
0
EDGEWOOD VISTA  - FREMONT, ND
0
56,000
490,410
0
0
EDGEWOOD VISTA  - GRAND ISLAND, NE
304,367
 14,300
 434,480
6,846
0
EDGEWOOD VISTA - HASTINGS, NE
0
13,971
551,805
0
0
EDGEWOOD VISTA - KALISPELL, MT
0
70,000
498,150
0
0

F-43


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
 

 
INITIAL COST TO TRUST
COST CAPITALIZATION 
SUBSEQUENT TO ACQUISITION
OFFICE BUILDINGS
ENCUMBRANCES
LAND
BUILDINGS & 
IMPROVEMENTS
IMPROVEMENTS
CARRYING
COSTS
COMMERCIAL continued





  EDGEWOOD VISTA - MINOT, ND
  $          3,815,498
  $             260,000
  $          6,010,707
  $                         0
  $                       0
EDGEWOOD VISTA  - MISSOULA, MT
917,342
 108,900
 853,528
0
0
EDGEWOOD VISTA  - OMAHA, NE
0
88,567
522,803
0
0
EDGEWOOD VISTA   - SIOUX FALLS, SD
649,494
 130,000
 844,739
0
0
HEALTHEAST MED CTR -WDBRY & ST JHNS, MN
19,176,624
3,238,275
18,362,724
0
0
HOSPITALITY ASSOCIATES

MINNETONKA, MN

280,000
40,000
360,898
0
0
GREAT PLAINS SOFTWARE  - FARGO, ND
8,870,861
 125,501
 15,249,652
0
0
LINDBERG BLDG. - EDEN PRAIRIE, MN
1,140,863
 198,000
1,410,535
0
0
MAPLEWOOD SQUARE - ROCHESTER, MN
7,154,199
3,275,000
8,623,946
0
0
MED PARK MALL - GRAND FORKS, ND
3,381,663
 680,500
4,811,862
150,587
0
MINOT PLAZA  - MINOT, ND
0
 50,000
 459,079
 0
0
PETCO WAREHOUSE - FARGO, ND
901,454
 324,148
 927,541
0
27,245
PIONEER SEED - MOORHEAD, MN
221,367
 56,925
 596,951
0
0
STERNER LIGHTING - WINSTED, MN
700,000
100,000
900,789
   
STONE CONTAINER -FARGO, ND
2,567,688
 440,251
 4,469,078
2,001,878
89,156
STONE CONTAINER - WACONIA, MN
1,303,763
165,000
1,501,518
0
0
VIROMED  - EDEN PRAIRIE, MN
2,866,820
 666,000
 4,197,634
0
0
WEDGEWOOD - SWEETWATER, GA
            1,420,859
               334,346
            3,637,532
                          0
                          0
 
 $          86,847,595
 $          15,364,658
 $        119,873,108
 $            4,200,125
$                183,469
 
         
 
$        368,956,930
$           53,277,910
$         526,303,391
$           10,782,607
$             1,272,560

F-44


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
 

APARTMENTS
LAND
BUILDING & 
IMPROVEMENTS
TOTAL
ACCUMULATED
DEPRECIATION
DATE 
ACQUIRED
LIFE ON WHICH 
LATEST INCOME 
STATEMENT IS 
COMPUTED
BEULAH CONDOS - BEULAH, ND
$       6,360
$            476,774
$       483,134
$            329,273
1983
15-40 years
BISON PROPERTIES - CARRINGTON, ND
100,210
514,331
614,541
364,035
1972
25-40 years
CANDLELIGHT APTS. - FARGO, ND
80,040
897,043
977,083
179,684
1993
24-40 years
CASTLE ROCK  - BILLINGS, MT
736,000
5,006,534
5,742,534
304,436
1999
40 years
CENTURY APTS. - DICKINSON, ND
100,000
2,221,814
2,321,814
757,085
1986
35-40 years
CENTURY APTS. - WILLISTON, ND
200,000
3,295,747
4,125,747
1,488,381
1986
35-40 years
CHATEAU APTS. - MINOT, ND
122,000
2,346,984
2,468,984
187,074
1997
12-40 years
CLEARWATER - BOISE, ID
585,000
3,268,838
3,853,638
217,307
1999
40 years
COUNTRY MEADOWS PHASE I - BILLINGS, MT
245,624
4,115,511
4,361,135
249,483
1996
40 years
COUNTRY MEADOWS PHASE II   - BILLINGS, MT
245,623
4,114,095
4,359,718
249,483
1999
40 years
COLTON HEIGHTS - MINOT, ND
80,000
887,773
967,733
415,053
1984
33-40 years
COTTONWOOD LAKE - BISMARCK, ND
1,055,862
12,676,773
13,732,636
696,954
1997
40 years
CRESTVIEW APTS. - BISMARCK, ND
235,000
4,726,835
4,961,835
853,823
1994
24-40 years
CROWN COLONY - TOPEKA, KS
620,000
10,197,090
10,817,090
402,287
2000
40 years
DAKOTA ARMS - MINOT, ND
50,000
575,487
625,487
80,729
1996
24-40 years
DAKOTA HILLS - IRVING, TX
3,650,000
33,967,106
37,617,106
1,035,419
2000
40 years
EASTGATE PROPERTIES - MOORHEAD, MN
23,917
2,401,820
2,425,737
1,529,752
1970
33-40 years
EASTWOOD - DICKINSON, ND
40,000
432,394
472,394
112,860
1989
24-40 years
FOREST PARK ESTATES - GRAND FORKS, ND
810,000
6,672,837
7,482,837
1,341,702
1993
24-40 years
HERITAGE MANOR - ROCHESTER, MN
403,256
7,294,524
7,697,780
499,892
1999
40 years
IVY CLUB - VANCOUVER, WA
1,274,000
10,553,863
11,827,863
591,803
1999
40 years
JENNER PROPERTIES - GRAND FORKS, ND
220,000
2,011,184
2,231,184
193,431
1996
40 years
KIRKWOOD APTS. - BISMARCK, ND
449,290
3,282,111
3,731,401
311,091
1997
12-40 years
LANCASTER APTS. - ST. CLOUD, MN
289,000
2,937,626
3,226,626
80,316
2000
40 years
LEGACY APTS. - GRAND FORKS, ND
1,361,855
9,635,543
10,997,398
1,031,588
1996
24-40 years
LEGACY IV  - GRAND FORKS, ND
725,277
6,305,848
7,031,125
228,341
2000
40 years
LONETREE APTS. - HARVEY, ND
13,584
215,262
228,846
49,155
1991
24-40 years
MAGIC CITY APTS. - MINOT, ND
532,000
4,725,208
5,257,208
442,011
1997
12-40 years
MEADOWS PHASE I & II - JAMESTOWN, ND
111,550
3,645,722
3,757,272
136,508
2000
40 years
MEADOWS PHASE III - JAMESTOWN, ND
55,775
1,990,680
2,046,455
1,595
2001
N/A -construction
 in progress
MIRAMONT - FT. COLLINS, CO
1,470,000
12,893,539
14,363,529
1,457,970
1996
40 years
NEIGHBORHOOD APTS. - COLORADO SPRINGS, CO
1,033,592
10,389,189
11,422,781
1,206,581
1996
40 years
NORTH POINTE  - BISMARCK, ND
143,500
2,303,175
2,446,675
310,289
1995
24-40 years
OAK MANOR APTS. - DICKINSON, ND
25,000
349,730
374,730
84,069
1989
24-40 years
OAKWOOD ESTATES - SIOUX FALLS, SD
342,800
3,374,256
3,717,056
688,361
1993
24-40 years

F-45


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION(continued)
 

APARTMENTS
LAND
BUILDING & 
IMPROVEMENTS
TOTAL
ACCUMULATED 
DEPRECIATION
DATE 
ACQUIRED
LIFE ON WHICH
LATEST INCOME 
STATEMENT IS 
COMPUTED
OLYMPIC VILLAGE - BILLINGS, MT
$   1,164,000
$    10,618,852
$    11,782,852
$          175,258
2001
40 years
OXBOW - SIOUX FALLS, SD
404,072
4,626,617
5,030,689
750,715
1994
24-40 years
PARK EAST APTS. - FARGO, ND
83,000
5,053,953
5,136,953
381,418
1997
12-40 years
PARK MEADOWS - WAITE PARK, MN
1,143,450
10,530,133
11,673,583
1,293,868
1997
40 years
PARKWAY APTS. - BEULAH, ND
7,000
143,912
150,912
27,623
1988
540 years
PEBBLE CREEK - BISMARCK, ND
7,200
777,792
784,962
31,282
2000
40 years
PINE CONE APTS. - FT. COLLINS, CO
904,545
12,359,315
13,263,861
           1,539,847
1994
40 years
POINTE WEST APTS. - MINOT, ND
240,000
3,821,061
4,061,061
714,954
1994
24-40 years
PRAIRIE WINDS APTS. - SIOUX FALLS, SD
144,097
1,868,958
2,013,055
393,585
1993
24-40 years
PRAIRIEWOOD MEADOWS - FARGO, ND
280,000
2,559,271
2,839,271
47,763
2001
40 years
RIDGE OAKS APTS. - SIOUX CITY, IA
178,100
4,103,867
4,281,967
105,045
2001
40 years
RIMROCK APTS. - BILLINGS, MT
329,708
3,569,972
3,899,680
162,211
2000
40 years
ROCKY MEADOWS 96 - BILLINGS, MT
 655,985
6,081,124
6,737,109
697,830
1996
40 years
ROSEWOOD/OAKWOOD - SIOUX FALLS, SD
200,000
           1,747,935
 1,947,935
196,245
1996
40 years
SHERWOOD APTS. - TOPEKA, KS
1,150,000
14,851,205
16,001,205
587,097
2000
40 years
SOUTH POINTE - MINOT, ND
550,000
9,795,036
10,345,036
1,220,817
1995
24-40 years
SOUTHVIEW APTS. - MINOT, ND
185,000
543,676
728,676
94,340
1994
24-40 years
SOUTHWIND APTS  - GRAND FORKS, ND
400,000
5,572,073
5,972,073
749,522
1996
24-40 years
SUNCHASE  - FARGO, ND
52,870
989,340
1,042,210
304,382
1988
5-40 years
SUNSET TRAIL PHS I  - ROCHESTER, MN
168,188
7,403,527
7,571,715
106,602
2001
40 years
SUNSET TRAIL - PHS II & III ROCHESTER, MN
336,376
4,006,932
4,343,308
0
N/a
N/A -construction
 in progress
SWEETWATER PROP. - DEVILS LAKE, ND
90,767
     1,535,531
  1,626,298
      907,394
1972
5-40 years
THOMASBROOK APTS. - LINCOLN, NE
         600,000
9,356,873
9,956,873
411,582
2000
40 years
VALLEY PARK MANOR - GRAND FORKS, ND
         293,500
4,420,192
4,713,692
210,317
2000
40 years
VAN MALL WOODS  - VANCOUVER -WA
         600,000
5,551,761
6,151,761
354,296
1999
40 years
WEST STONEHILL  - ST CLOUD, MN
       939,000
10,832,140
11,771,140
1,523,900
1995
40 years
WESTWOOD PARK - BISMARCK, ND
        161,114
2,044,374
2,205,488
151,269
1999
40 years
WOODRIDGE APTS. - ROCHESTER, MN
       370,000
       6,405,134
       6,775,134
          728,810
1996
40 years
 
$  29,074,087
$    332,503,535
$ 361,577,622
$      32,296,179


F-46


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI

REAL ESTATE AND ACCUMULATED DEPRECIATION
 

OFFICE BUILDINGS
LAND
BUILDING & 
IMPROVEMENTS
TOTAL
ACCUMULATED 
DEPRECIATION
DATE
ACQUIRED
LIFE ON WHICH 
LATEST INCOME 
STATEMENT IS 
COMPUTED
 
       

1ST AVENUE BUILDING - MINOT, ND
 $     30,000
$               503,765
 $    533,765
$              386,191
1981
33-40 years
12 SOUTH MAIN - MINOT, ND
29,000
360,205
389,205
7,618
2001
40 years
17 SOUTH MAIN - MINOT, ND
15,000
75,000
90,000
1,484
2001
40 years
401 SOUTH MAIN - MINOT, ND
 70,600
             542,707
 613,307
167,206
1987
24-40 years
2030 CLIFF ROAD - EAGAN, MN
145,900
834,966
980,866
870
2001
40 years
408 1ST STREET SE - MINOT, ND
 10,000
               36,907
 46,907
27,691
1986
19-40 years
7901 FLYING CLOUD DR - EDEN PRAIRIE, MN
1,062,000
4,012,810
5,074,810
140,051
2000
40 years
BURNSVILLE BLUFFS - BURNSVILLE, MN
300,300
2,156,346
2,456,646
2,246
2001
40 years
COLD SPRINGS CENTER  - ST. CLOUD, MN
588,000
7,807,539
8,395,539
8,133
2001
40 years
CREEKSIDE OFF BLDG. - BILLINGS, MT
 311,310
1,557,260
1,868,570
319,016
1992
40 years
LESTER CHIROPRACTIC CLINIC - BISMARCK, ND
 25,000
             243,917
 268,617
76,401
1988
40 years
LEXINGTON COMMERCE CENTER - EAGAN, MN
 453,400
5,036,323
5,489,723
171,926
2000
40 years
NICOLLETT VII - BURNSVILLE, MN
429,400
6,931,270
7,360,670
7,220
2001
40 years
NORTHGATE II - MAPLE GROVE, MN
 357,800
1,991,179
2,348,979
68,024
2000
40 years
PILLSBURY BUSINESS CENTER - EDINA, MN
284,400
1,558,570
1,842,970
1,624
2001
40 years
PLYMOUTH IV & V  - PLYMOUTH, MN
640,500
13,387,829
14,028,329
13,221
2001
40 years
SOUTHDALE MEDICAL CENTER - EDINA, MN
3,500,000
28,921,070
32,421,070
191,582
2001
40 years
SOUTHEAST TECH CENTER - EAGAN, MN
 559,500
5,556,017
6,115,517
191,582
2000
40 years
WALTERS 214 SO MAIN - MINOT, ND
        27,055
                   84,941
      111,996
               76,960
1978
20-40 years
 
$  8,839,165
$          81,598,321
$ 90,437,486
$          1,878,349


 
       

COMMERCIAL
 
 
 
 


AMERICA'S BEST WAREHOUSE - BOISE, ID
$     765,000
$            4,023,294
$   4,788,294
$             924,442
1994
40 years
AMERITRADE - OMAHA, NE
326,500
7,980,035
8,306,535
407,220
1999
40 years
ARROWHEAD SHOPPING CENTER - MINOT, ND
100,359
2,873,427
2,973,786
2,216,168
1973
15 1/2-40 years
BARNES & NOBLE - FARGO, ND
540,000
2,719,893
3,259,893
447,202
1994
40 years
BARNES & NOBLE - OMAHA, NE
600,000
3,099,197
3,699,197
426,131
1995
40 years
CARMIKE THEATRE - GRAND FORKS, ND
183,515
2,362,222
2,545,737
383,798
1994
40 years
COMPUSA  - KENTWOOD, MI
225,000
1,896,474
2,121,474
212,473
1996
40 years
CONSECO - RAPID CITY, SD
285,000
6,759,870
7,044,870
133,740
2001
40 years
CORNER EXPRESS - MINOT, ND
195,000
1,386,260
1,581,260
88,411
1999
40 years
DEWEY HILL BUSINESS CENTER - EDINA, MN
985,000
3,507,381
4,492,381
32,882
2001
40 years
EAST GRAND STATION  - EAST GRAND FORKS, ND
150,000
1,242,251
1,392,251
45,160
2000
40 years
EDGEWOOD VISTA  - BELGRADE, MT
14,300
439,194
453,494
19,462
2000
40 years
EDGEWOOD VISTA  - BILLINGS, MT
130,000
850,218
980,218
61,015
1999
40 years
EDGEWOOD VISTA  - COLUMBUS, NE
14,300
441,326
455,626
19,456
2000
40 years
EDGEWOOD VISTA  - DULUTH, MN
390,000
5,291,187
5,681,187
115,553
2000
40 years
EDGEWOOD VISTA  - EAST GRAND FORKS, MN
25,000
1,391,521
1,416,521
85,608
1997
40 years
EDGEWOOD VISTA  - FREMONT, NE
56,000
490,410
546,410
4,598
2001
40 years
EDGEWOOD VISTA  - GRAND ISLAND, NE
14,300
441,326
455,626
19,456
2000
40 years
EDGEWOOD VISTA  - HASTINGS, NE
13,971
551,805
565,777
5,677
2001
40 years

F-47


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI

REAL ESTATE AND ACCUMULATED DEPRECIATION  (continued)
 

OFFICE BUILDINGS
LAND
BUILDING & 
IMPROVEMENTS
TOTAL
ACCUMULATED 
DEPRECIATION
DATE
ACQUIRED
LIFE ON WHICH 
LATEST INCOME 
STATEMENT IS 
COMPUTED
COMMERCIAL continued
       

EDGEWOOD VISTA - KALISPELL, MT
$        70,000
$          498,150
$       568,150
$                2,578
2001
40 years
EDGEWOOD VISTA  - MINOT, ND
260,000
6,010,707
6,270,707
528,442
1997
40 years
EDGEWOOD VISTA  - MISSOULA, MT
108,900
853,528
962,428
96,022
1997
40 years
EDGEWOOD VISTA  - OMAHA, NE
88,567
522,803
611,370
3,812
2001
40 years
EDGEWOOD VISTA  - SIOUX FALLS, SD
130,000
844,739
974,739
60,674
1999
40 years
HEALTHEAST MED CNTR - WDBRY & ST. JHNS, MN
3,238,275
18,362,724
21,600,999
439,868
2001
40 years
HOSPITALITY ASSOCIATES - MINNETONKA, MN
40,000
360,898
400,898
1,671
2001
40 years
GREAT PLAINS SOFTWARE - FARGO, ND
125,501
15,249,652
15,375,154
651,141
2000
40 years
LINDBERG BLDG.  - EDEN PRAIRIE, MN
198,000
1,410,535
1,608,535
293,633
1992
40 years
MAPLEWOOD SQUARE - ROCHESTER, MN
3,275,000
8,623,946
11,898,946
386,937
2000
40 years
MEDPARK MALL  - GRAND FORKS, ND
680,500
4,962,450
5,642,950
149,361
2000
40 years
MINOT PLAZA  - MINOT, ND
50,000
459,954
509,954
97,496
1993
40 years
PETCO - FARGO, ND
324,148
954,786
1,278,934
154,418
1994
40 years
PIONEER SEED - MOORHEAD, MN
56,925
596,951
653,876
136,955
1992
40 years
STERNER LIGHTING - WINSTED, MN
100,000
900,789
1,000,789
3,208
2001
40 years
STONE CONTAINER - FARGO, ND
440,251
6,560,113
7,000,364
624,306
1995
40 years
STONE CONTAINER - WACONIA, MN
165,000
1,501,518
1,666,518
26,589
2001
40 years
VIROMED - EDEN PRAIRIE, MN
666,000
4,197,634
4,863,634
231,669
1999
40 years
WEDGEWOOD - SWEETWATER, GA
       334,346
       3,637,532
     3,971,878
           381,386
1996
40 years
 
$ 15,364,658
$        4,256,702
$ 139,621,360
$         9,918,617


 
       

 
$ 53,277,910
$    538,358,558
$ 591,636,468
$       44,093,145


F-48


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION

Reconciliations of total real estate carrying value for the three years ending April 30, 2001, 2000 and 1999 are as follows:
 

 
2001
2000
1999
Balance at beginning of year
$   449,919,890
$   295,825,839
$   231,416,322
Additions during year
     
    acquisitions
141,040,413
155,284,745
62,455,508
    improvements and other
       5,583,148
       7,041,248
       4,780,853
 
$   596,543,451
$   458,151,832
$   298,652,683
Deduction during year
     
    cost of real estate sold
-4,906,983
-6,912,626
   -2,826,844
    impairment valuation
                     0
        -1,319,316
                      0
Balance at close of year
$    591,636,468
$    449,919,890
$    295,825,839

Reconciliations of accumulated depreciation for the three years ended April 30, 2001, 2000 and 1999 are as follows:
 

 
2001
2000
1999
Balance at beginning of year
$ 33,232,952
$ 26,112,399
$ 21,516,129
Additions during year
     
    provisions for depreciation
12,299,532
8,460,112
5,966,874
Deduction during year
     
    accumulated depreciation on real estate sold
  -1,439,339
  -1,339,559
  -1,370,604
Balance at close of year
$ 44,093,145
$ 33,232,952
$ 26,112,399

F-49


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

Schedule XII

INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
 

 
Interest 
Rate
Final 
Maturity
Date
Payment 
Terms
Prior 
Liens
Face 
Amt. of Mortgages
Carrying Amt. of Mortgages
Prin. Amt of 
Loans Subject to Delinquent 
Prin. or Int.
RESIDENTIAL
 
 
 
 
 
 
 
   Fricke
7.00%
01/01/02
Monthly

$         7,470
$           954
$                       0
   Rolland Hausmann
9.00%
02/01/16
Monthly

315,659
278,527
0
   Diamond T -Scottsbluff, NE
8.00%
11/01/02
Monthly
/Balloon

115,000
106,926
0
   KMOX -Prior Lake, MN
8.00%
01/01/04
Monthly
/Balloon

46,500
43,313
0
   Duane Peterson
Variable

Quarterly

130,000
130,000
0
   Edgewood Norfolk, NE
11.00%
04/01/01
Balloon

       477,375
      477,375
                       0
 




$     1,092,004
$    1,037,095
$                        0


 
2001
2000
MORTGAGE LOANS RECEIVABLE, BEGINNING OF YEAR
$        1,650,284
$       10,721,214
New participations in and advances on mortgage loans
                      0
           607 ,375
 
$        1,650,284
$       11,328,589
Collections
         -613,189
       -9,678,305
MORTGAGE LOANS RECEIVABLE, END OF YEAR
$       1,037,095
$        1,650,284


F-50


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

SELECTED FINANCIAL DATA


 
2001
2000
1999
1998
1997
Consolidated Income Statement Data
         
     Revenue 
$   75,767,150
$   55,445,193
$   39,927,262
$   32,407,545
$   23,833,981
     Income before gain/loss on properties
           and minority interest
10,187,812
8,548,558
6,401,676
4,691,198
3,499,443
     Gain on repossession/ Sale of 
                properties
601,605
1,754,496
1,947,184
 465,499
398,424
     Minority interest of portion of operating 
                partnership income 
-2,095,177
-1,495,209
-744,725
 -141,788
-18
 
         
      Net income
8,694,240
8,807,845
7,604,135
5,014,909
 3,897,849
Consolidated Balance Sheet Data
         
     Total real estate investments
$ 548,580,418
$ 418,216,516
$ 280,311,442
$ 213,211,369
$ 177,891,168
     Total assets 
570,322,124
432,978,299
291,493,311
224,718,514
186,993,943
     Shareholders' equity 
118,945,160
109,920,591
85,783,294
68,152,626
59,997,619
Consolidated Per Share Data 
     (basic and diluted)
         
     Net Income 
.38
.42
.44
.32
.28
     Dividends 
.55
.51
.47
.42
.39
 
         
CALENDAR YEAR
2001
2000
1999
1998
1997
Tax status of dividend
         
     Capital gain
.72%
30.3%
6.3%
 2.9%
 21.0%
     Ordinary income 
86.76%
69.7%
76.0%
97.1%
79.0%
     Return of capital 
12.52%
0%
17.7%
0.0%
0.0%

F-51


INVESTORS REAL ESTATE TRUST AND AFFILIATED PARTNERSHIPS
April 30, 2001, 2000 and 1999

GAIN FROM PROPERTY DISPOSITIONS
 

 
Total
Original
Gain(Loss)
Unrealized
04/30/01
Realized
04/30/01
Realized
04/30/00
Realized
04/30/99
 
         
Brooklyn Addition - Minot, ND
$       25,000
$                0
$                0
$         1,000
$         1,000
Superpumper - Grand Forks, ND
86,479
0
0
86,479
0
Superpumper - Crookston, ND
89,903
0
0
89,903
0
Superpumper - Langdon, ND
64,352
0
0
64,352
0
Superpumper - Sidney, MT
17,161
0
0
17,161
0
Mandan Apartments - Mandan, ND
75,612
0
0
75,612
0
Sweetwater Apts. - Devils Lake, ND
335,303
0
0
335,303
0
Hutchinson Technology  - Hutchinson, MN
1,109,003
0
0
1,109,003
0
Jenner 18-Plex  - Devils Lake, ND
14,009
0
0
14,009
0
Virginia Apartments  - Minot, ND
10,308
0
0
10,308
0
Fairfield Apts - Marshall, MN
80,121
 0
 0
0
80,121
Superpumper - Emerado, ND
158,146
0
0
0
158,146
Park Place Apts - Waseca, MN
366,018
0
0
0
366,018
Bison Properties - Jamestown, ND
1,341,899
0
0
0
1,341,899
Evergreen Shopping Center - Evergreen, CO
1,690
0
1,690
0
0
Chalet Apartments - Minot, ND
23,434
0
23,434
0
0
Hill Park Apts - Bismarck, ND
576,482
                  0
       576,482
                 0
                 0
 
 
$                 0
$       601,605
$  1,754,496
$  1,947,184

F-52


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

MORTGAGE LOANS PAYABLE
 


Interest
Rate
Final
Maturity
Date
Periodic
Payment
Terms
Face Amount
of Mortgage
Carrying
Amount of
Mortgage
Delinquent
Principal or
Interest
 
 

     
 1112 32nd Ave SW - Minot, ND
7.50%
07/20/10
Monthly
 $             425,000
 $            309,303
$                    0
 177 10th Ave East - Dickinson, ND
9.00%
11/01/18
Monthly
 250,963
210,961
0
 2030 Cliff Road - Eagan, MN
7.40%
04/01/11
Monthly
           650,000
650,000
0
 4301 9th Ave Sunchase II - Fargo, ND
9.04%
09/01/02
Monthly
 364,765
32,534
0
 4313 9th Ave Sunchase II - Fargo, ND
8.706%
02/01/14
Monthly
 370,000
277,089
0
 America's Best Furniture - Boise, ID
9.75%
03/29/03
Monthly
 3,750,000
3,303,018
0
 Ameritrade - Omaha, NE
7.25%
050/1/19
Monthly
 6,150,000
5,854,993
0
 Arrowhead Shopping Center - Minot, ND
8.25%
01/01/20
Monthly
 1,325,000
1,290,671
0
 Barnes & Noble Stores - ND & NE
7.98%
12/01/10
Monthly
 4,900,000
3,751,267
0
 Burnsville Bluffs - Burnsville, MN
8.25%
01/01/21
Monthly
1,644,551
1,641,798
0
 Candlelight Apts. - Fargo, ND
7.50%
12/01/99
Monthly
 578,000
411,529
0
 Carmike - Grand Forks, ND
7.75%
020/1/07
Monthly
2,000,000
1,845,233
0
 Castle Rock - Billings, ND
6.66%
030/1/09
Monthly
 3,950,000
3,857,473
0
 Century Apts. - Dickinson, ND
7.003%
03/01/06
Monthly
 1,595,000
1,393,489
0
 Century Apts.  - Williston, ND
7.003%
03/01/06
Monthly
 2,700,000
2,358,883
0
 Chateau Apts.   - Minot, ND
7.003%
03/01/06
Monthly
 1,674,350
1,528,906
0
 Clearwater Apts.  - Boise, ID
6.47%
01/01/09
Monthly
 2,660,000
2,589,905
0
 Cold Springs Center -St. Cloud, MN
7.40%
04/01/11
Monthly
5,250,000
5,250,000
0
 Colton Heights - Minot, ND
8.35%
03/01/07
Monthly
730,000
256,077
0
 Cottonwood Phase I - Bismarck, ND
6.59%
01/01/09
Monthly
 2,800,000
2,727,822
0
 Cottonwood Phase II - Bismarck, ND
7.55%
11/01/09
Monthly
 2,850,000
2,812,552
0
 Country Meadows Phase I - Billings, MT
7.51%
01/01/08
Monthly
 2,660,000
2,522,888
0
 Country Meadows Phase II - Billings, MT
8.10%
01/01/08
Monthly
2,600,000
2,564,285
0
 Creekside - Billings, MT
7.375%
06/01/13
Monthly
 1,250,000
1,106,166
0
 Crestview Apts. - Bismarck, ND
6.91%
070/1/08
Monthly
 3,400,000
3,245,760
0
 CompUSA - Kentwood, MI
7.75%
02/01/11
Monthly
 1,565,361
1,365,519
0
 Conseco Bldg - Rapid City, SD
8.07%
08/01/15
Monthly
4,795,000
4,682,203
0
 Corner Express - East Grand Forks, MN
7.52%
10/01/13
Monthly
 885,000
798,550
0
 Crown Colony Apts. - Topeka, KS
7.55%
08/01/09
Monthly
 7,350,000
7,253,424
0
 Dakota Hill - Irving TX
7.88%
01/01/10
Monthly
 25,550,000
25,293,305
0
 Dewey Hill Business Center - Edina, MN
7.93%
12/01/10
Monthly
3,125,000
3,114,964
0
 East Grand Station - East Grand Forks, ND
8.60%
08/1/15
Monthly
970,000
948,989
0
 Eastgate - Moorhead, MN
7.19%
090/1/09
Monthly
 1,627,500
1,601,726
0
 Edgewood Vista  - Missoula, MT
8.65%
04/15/12
Monthly
945,000
917,342
0
 Edgewood Vista - East Grand Forks, MN
8.88%
07/05/12
Monthly
 650,000
549,604
0
 Edgewood Vista - Minot, ND
7.52%
08/01/12
Monthly
4,510,000
3,815,498
0
 Edgewood Vista  - Sioux Falls, SD
7.52%
070/1/13
Monthly
 720,000
649,494
0
 Edgewood Vista  - Billings, MT
7.13%
10/01/13
Monthly
 720,000
645,737
0
 Edgewood Vista - Columbus & G. I., NE
8.65%
07/01/15
Monthly
624,000
608,733
0
 Edgewood Vista - Duluth, MN
8.86%
05/01/15
Monthly
3,600,000
2,719,619
0
 Flying Cloud - Eden Prairie, MN
8.61%
07/01/09
Monthly
3,830,000
3,812,804
0
 Forest Park Estates - Grand Forks, ND
7.33%
080/1/09
Monthly
 7,560,000
7,386,895
0

F-53


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

MORTGAGE LOANS PAYABLE (continued)
 


Interest
Rate
Final
Maturity
Date
Periodic
Payment
Terms
Face Amount
of Mortgage
Carrying
Amount of
Mortgage
Delinquent
Principal or
Interest
 
 

     
 Great Plains Software - Fargo, ND
7.08%
10/01/13
Monthly
 9,500,000
8,870,861
0
 Health Investors Business Trust
7.94%
02/01/19
Monthly
19,482,851
19,176,624
0
 Heritage Manor - Rochester, MN
6.80%
10/01/18
Monthly
 5,075,000
4,749,593
0
 Hospitality Associates - Minnetonka, MN
7.50%
04/01/06
Monthly
280,000
280,000
0
 Ivy Club Apts.  - Vancouver, WA
7.355%
12/01/01
Monthly
 7,092,443
6,910,101
0
 Jenner Properties - Grand Forks, ND
9.50%
11/01/04
Monthly
 1,391,585
1,103,784
0
 Kirkwood Manor - Bismarck, ND
8.15%
05/01/10
Monthly
 2,293,900
2,267,110
0
 Lancaster Apts.  - St. Cloud, MN
7.04%
08/01/18
Monthly
 1,769,568
1,716,664
0
 Legacy Apts. Phase I - Grand Forks, ND
7.07%
01/01/05
Monthly
 4,000,000
3,714,145
0
 Legacy Apts. Phase II - Grand Forks, ND
7.07%
05/29/08
Monthly
 2,575,000
2,457,041
0
 Legacy Apts. Phase IV - Grand Forks, ND
8.10%
07/31/20
Monthly
3,000,000
2,958,788
0
 Lexington Commerce Center - Eagan, MN
8.09%
02/01/10
Monthly
 3,431,750
3,379,724
0
 Lindberg Bldg. - Eden Prairie, MN
7.625%
02/01/07
Monthly
1,200,000
1,140,863
0
 Magic City Apts. - Minot, ND
7.50%
10/10/10
Monthly
2,794,299
1,879,730
0
 Maplewood Square - Rochester, MN
6.90%
08/01/09
Monthly
 7,670,000
7,154,199
0
 Meadows I & II - Jamestown, ND
8.155%
07/01/10
Monthly
1,975,000
1,965,867
0
 MedPark Mall - Grand Forks, ND
8.075%
02/01/10
Monthly
 3,425,000
3,381,663
0
 Miramont  Apts. - Ft. Collins, CO
8.25%
08/01/36
Monthly
 11,582,472
11,381,741
0
 Neighborhood Apts. - Colorado Springs, CO
7.98%
0101/07
Monthly
 7,525,000
7,044,910
0
 Nicollett VII - Burnsville, MN
8.05%
11/29/10
Monthly
4,784,880
4,779,772
0
 NorthGate II - Maple Grove, MN
8.09%
02/01/10
Monthly
 1,576,750
1,552,846
0
 North Pointe - Bismarck, ND
7.12%
02/01/07
Monthly
 1,700,000
1,640,483
0
 Oakwood Estates - Sioux Falls, SD
7.003%
03/01/06
Monthly
 2,250,000
1,965,736
0
 Olympic Village - Billings, MT
7.62%
11/01/10
Monthly
8,400,000
8,377,235
0
 Oxbow - Sioux Falls, SD
7.003%
030/1/06
Monthly
 3,565,000
3,114,600
0
 Park East Apts. - Fargo, ND
6.82%
050/1/08
Monthly
 3,500,000
3,385,258
0
 Park Meadows Phase I - Waite Park, MN
7.19%
10/01/13
Monthly
 3,022,500
2,974,635
0
 Park Meadows Phase II - Waite Park, MN
7.899%
10/01/05
Monthly
 2,214,851
2,052,288
0
 Park Meadows Phase III - Waite Park, MN
4.00%
30 yr bond
Monthly
 3,235,000
3,055,000
0
 Pebblecreek - Bismarck, ND
8.10%
07/30/20
Monthly
455,000
448,744
0
 PETCO Warehouse - Fargo, ND
7.28%
09/01/08
Monthly
 1,100,000
901,454
0
 Pillsbury Business Center - Bloomington, MN
7.40%
04/01/11
Monthly
1,260,000
1,260,000
0
 Pinecone - Ft. Collins, CO
7.125%
12/01/33
Monthly
 10,685,215
10,315,861
0
 Pioneer Building - Fargo, ND
8.00%
12/01/06
Monthly
 425,000
221,367
0
 Plymouth IV & V - Plymouth, MN
8.17%
01/01/11
Monthly
9,280,912
9,271,270
0
 Pointe West Apts. - Minot, ND
6.91%
07/01/08
Monthly
 2,400,000
2,291,125
0
 Prairie Winds Apts. - Sioux Falls, SD
7.04%
07/01/09
Monthly
 1,325,000
1,300,993
0
 Prairiewood Meadows - Fargo, ND
7.70%
11/01/20
Monthly
2,088,973
2,059,583
0
 Ridge Oaks Apts. - Sioux City, IA
7.05%
01/01/31
Monthly
2,900,000
2,895,279
0
 Rimrock Apts. - Billing, MT
7.33%
08/01/09
Monthly
 2,660,000
2,599,093
0
 Rocky Meadows - Billings, MT
7.33%
08/01/09
Monthly
 3,780,000
3,693,447
0

F-54


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

         MORTGAGE LOANS PAYABLE (continued)
 


Interest
Rate
Final
Maturity
Date
Periodic
Payment
Terms
Face Amount
of Mortgage
Carrying
Amount of
Mortgage
Delinquent
Principal or
Interest
 
 

     
 RoseWood/Oakwood - Sioux Falls, SD
8.85%
09/01/96
Monthly
 1,323,000
1,172,698
0
 Southdale Medical Center - Edina, MN
7.80%
01/01/11
Monthly
24,000,000
23,949,215
0
 Sherwood Apts. - Topeka, KS
7.55%
08/01/09
Monthly
 11,025,000
10,880,136
0
 SouthEast Tech Center - Eagan, MN
8.09%
02/01/10
Monthly
 4,266,500
4,201,819
               0
 South Pointe - Minot, ND
7.12%
02/01/07
Monthly
 6,500,000
6,272,436
0
 Southwind Apts. - Grand Forks, ND
7.12%
02/01/07
Monthly
4,100,000
3,956,460
0
 Sunset Trail Phase I - Rochester, MN
7.80%
03/01/11
Monthly
4,350,000
4,346,961
0
 Sterner Lighting - Winsted, MN
7.50%
04/01/06
Monthly
700,000
700,000
0
 Stone Container - Fargo, ND
8.25%
02/01/11
Monthly
 3,300,000
2,567,688
0
 Stone Container - Waconia, MN
8.79%
10/15/06
Monthly
1,329,381
1,303,763
0
 Sweetwater 24-Plex - Grafton, ND
9.75%
02/01/03
Monthly
 270,000
36,840
0
 Sweetwater 18-Plex - Grafton, ND
9.75%
020/1/03
Monthly
 198,000
50,240
0
 Thomasbrook - Lincoln, NE
7.22%
10/01/09
Monthly
 6,200,000
6,070,287
0
 Valley Park Manor - Grand Forks, ND
8.375%
10/01/01
Monthly
3,000,000
2,990,184
0
 Van Mall Woods - Vancouver, WA
6.86%
12/01/03
Monthly
 4,070,426
3,858,149
0
 VIROMED  - Eden Prairie, MN
6.98%
040/1/14
Monthly
 3,120,000
2,866,820
0
  Wedgewood Retirement -Sweetwater, GA
9.17%
05/01/17
Monthly
 1,566,720
1,420,809
0
 West Stonehill - St. Cloud, MN
7.93%
06/01/17
Monthly
 8,232,569
7,544,371
0
 Westwood Park - Bismarck, ND
7.88%
12/01/09
Monthly
 1,200,000
1,180,304
0
 Woodridge Apts. - Rochester, MN
7.85%
010/1/17
Monthly
           4,410,000
        3,941,271
                     0
TOTALS
 

$       387,389,035
$    368,956,930
$                     0

F-55


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
April 30, 2001

SIGNIFICANT PROPERTY ACQUISITIONS

Acquisitions for cash, assumptions of mortgages, and issuance of units in the operating partnership.
 

COMMERCIAL
 
     Healtheast Medical Center - Woodbury & St. Johns, MN
$     21,588,498
     Conseco Financial Bldg. - Rapid City, SD
6,850,000
     12 South Main - Minot, ND
385,000
     17 South Main - Minot, ND
90,000
     Stone Container - Waconia, MN
1,666,500
     Dewey Hill Business Center - Edina, MN
4,472,895
     Edgewood Vista - Fremont, NE
535,550
     Edgewood Vista - Hastings, NE
550,800
     Edgewood Vista   Omaha, NE
610,800
     Edgewood Vista Alzheimer Addition - East Grand Forks,  MN
516,700
     Edgewood Vista Addition - Duluth, MN
2,200,000
     Edgewood Vista - Kalispell, MT
560,000
     Southdale Medical Center (60.31% partnership interest) - Edina, MN
32,421,070
     Hospitality Associates - Minnetonka, MN
400,000
     Sterner Lighting - Winsted, MN
1,000,000
     2030 Cliff Road - Eagan, MN
950,000
     Burnsville Bluffs - Burnsville, MN
2,400,000
     Cold Springs Center - St. Cloud, MN
8,250,000
     Nicollett VII - Burnsville, MN
7,200,000
     Pillsbury Business Center - Bloomington, MN
1,800,000
     Plymouth IV & V - Plymouth, MN
     13,750,000
 
$    108,197,813
RESIDENTIAL
 
     Olympic Village - Billings, MT
11,616,500
     Prairiewood Meadows - Fargo, ND
2,811,000
     Sunset Trail, Phase I - Rochester, MN
6,493,150
     Cottonwood Phase III - Bismarck, ND***
1,854,800
     Ridge Oaks - Sioux City, IA
4,195,036
     Meadows Phase III - Jamestown, ND***
1,865,182
    Sunset Trail, Phase II - Rochester, MN**
       4,006,932
 
$      32,842,600
TOTAL
$   141,040,413

 **Property not placed in service at April 30, 2001. Additional costs are still to be incurred.
***Represents costs to complete a project started in year ending April 30, 2000.

F-56


INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)


                                                                                       QUARTER ENDED
 
07-31-00
10-31-00
01-31-01
04-30-01
Revenues
$ 17,431,644
$ 18,404,260
$ 19,004,737
$ 20,926,509
Income before gain on properties and minority interest
2,565,131
2,707,811
2,719,679
2,195,191
Net gain on sale of properties
0
0
25,124
576,481
Minority interest of unitholders in operating partnership
-425,667
-538,618
-426,316
-704,576
Net Income
2,139,464
2,169,193
2,327,262
2,058,321
Per share
       
   Net Income
.09
.10
.10
.09
                                                                                       QUARTER ENDED
 
07-31-99
10-31-99
01-31-00
04-30-00
Revenues
$ 11,201,913
$ 12,900,697
$ 14,054,660
$ 17,287,923
Income before gain(loss) on properties and minority interest
1,801,322
2,478,912
2,390,868
1,877,456
Net gain(loss) on sale of properties
257,895
1,519,918
0
-23,317
Minority interest of unitholders in operating partnership
-235,935
-579,625
-369,028
-310,621
Net Income
1,823,282
3,419,205
2,021,840
1,543,518
Per share
       
   Net Income
.09
.16
.11
.06
                                                                                           QUARTER ENDED
 
7-31-98
10-31-98
01-31-99
04-30-99
Revenues
$ 9,102,179
$ 9,836,370
$10,236,797
$10,151,916
Income before gain on properties and minority interest
1,327,851
1,760,067
1,732,928
1,580,830
Net gain on sale of properties
366,017
1,341,899
80,122
158,146
Minority interest of unitholders in operating partnership
-133,863
-287,579
-158,820
-164,463
Net Income
1,560,005
2,814,387
1,654,228
1,575,515
Per share
       
   Net Income
.09
.17
.09
.09

The above financial information is unaudited. In the opinion of management, all adjustments (which are of a normal recurring nature) have been included for a fair presentation.

F-57