Edgar Filing: INVESTORS REAL ESTATE TRUST

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2015

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-35624

INVESTORS REAL ESTATE TRUST

(Exact name of registrant as specified in its charter)

North Dakota		45-0311232
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1400 31^st Avenue SW, Suite 60

Post Office Box 1988

Minot, ND 58702-1988

(Address of principal executive offices) (Zip code)

(701) 837-4738

(Registrant’s telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yes ☑

No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☑	Accelerated filer ☐
	Non-accelerated filer ☐	Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☑

The number of common shares of beneficial interest outstanding as of December 3, 2015, was 122,425,544.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements - Second Quarter - Fiscal 2016:	3
Condensed Consolidated Balance Sheets (unaudited) October 31, 2015 and April 30, 2015	3
Condensed Consolidated Statements of Operations (unaudited) For the Three and Six Months ended October 31, 2015 and 2014	4
Condensed Consolidated Statements of Equity (unaudited) For the Six Months ended October 31, 2015 and 2014	5
Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months ended October 31, 2015 and 2014	6
Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	49

Part II. Other Information
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	50
Item 5. Other Information	50
Item 6. Exhibits	50
Signatures	52

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PART I

ITEM 1. FINANCIAL STATEMENTS - SECOND QUARTER - FISCAL 2016

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	(in thousands, except share data)
	October 31, 2015			April 30, 2015
ASSETS
Real estate investments
Property owned	$	1,763,150		$	1,546,367
Less accumulated depreciation		(333,570	)		(313,308	)
		1,429,580			1,233,059
Development in progress		89,843			153,994
Unimproved land		22,485			25,827
Total real estate investments		1,541,908			1,412,880
Assets held for sale		115,428			463,103
Cash and cash equivalents		55,133			48,970
Other investments		329			329
Receivable arising from straight-lining of rents, net of allowance of $705 and $718, respectively		16,097			15,617
Accounts receivable, net of allowance of $189 and $438, respectively		4,023			2,865
Real estate deposits		444			2,489
Prepaid and other assets		3,289			3,174
Intangible assets, net of accumulated amortization of $19,839 and $19,610, respectively		25,288			26,213
Tax, insurance, and other escrow		7,440			10,073
Property and equipment, net of accumulated depreciation of $1,213 and $1,464, respectively		1,408			1,542
Goodwill		1,715			1,718
Deferred charges and leasing costs, net of accumulated amortization of $8,622 and $8,077, respectively		9,451			8,864
TOTAL ASSETS	$	1,781,953		$	1,997,837
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES
Liabilities held for sale	$	145,565		$	321,393
Accounts payable and accrued expenses		55,460			56,399
Revolving line of credit		17,500			60,500
Mortgages payable		728,973			668,112
Construction debt and other		128,477			144,111
TOTAL LIABILITIES		1,075,975			1,250,515
COMMITMENTS AND CONTINGENCIES (NOTE 6) REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES		7,105			6,368
EQUITY
Investors Real Estate Trust shareholders’ equity
Series A Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, 1,150,000 shares issued and outstanding at October 31, 2015 and April 30, 2015, aggregate liquidation preference of $28,750,000)		27,317			27,317
Series B Preferred Shares of Beneficial Interest (Cumulative redeemable preferred shares, no par value, 4,600,000 shares issued and outstanding at October 31, 2015 and April 30, 2015, aggregate liquidation preference of $115,000,000)		111,357			111,357
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 122,797,516 shares issued and outstanding at October 31, 2015, and 124,455,624 shares issued and outstanding at April 30, 2015)		936,893			951,868
Accumulated distributions in excess of net income		(455,508	)		(438,432	)
Total Investors Real Estate Trust shareholders’ equity		620,059			652,110
Noncontrolling interests – Operating Partnership (13,890,331 units at October 31, 2015 and 13,999,725 units at April 30, 2015)		55,957			58,325
Noncontrolling interests – consolidated real estate entities		22,857			30,519
Total equity		698,873			740,954
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY	$	1,781,953		$	1,997,837

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

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

for the three and six months ended October 31, 2015 and 2014

	(in thousands, except per share data)
	Three Months Ended October 31						Six Months Ended October 31
	2015			2014			2015			2014
REVENUE
Real estate rentals	$	46,727		$	45,304		$	92,249		$	88,868
Tenant reimbursement		4,578			5,042			8,974			9,899
TRS senior housing revenue		965			843			2,003			1,636
TOTAL REVENUE		52,270			51,189			103,226			100,403
EXPENSES
Depreciation/amortization related to real estate investments		14,461			12,859			27,733			25,073
Utilities		3,124			3,024			6,330			5,969
Maintenance		5,784			5,062			11,158			10,048
Real estate taxes		5,002			4,781			9,919			9,768
Insurance		1,244			1,068			2,344			2,530
Property management expenses		4,635			3,479			8,506			7,145
Other property expenses		243			350			175			556
TRS senior housing expenses		812			725			1,581			1,418
Administrative expenses		2,933			2,890			5,387			6,554
Other expenses		1,204			578			1,628			1,190
Amortization related to non-real estate investments		169			216			340			437
Impairment of real estate investments		1,873			1,803			3,158			4,123
TOTAL EXPENSES		41,484			36,835			78,259			74,811
Operating income		10,786			14,354			24,967			25,592
Interest expense		(10,131	)		(9,954	)		(19,327	)		(19,701	)
Loss on extinguishment of debt		(106	)		0			(106	)		0
Interest income		565			560			1,121			1,120
Other income		100			136			151			262
Income before gain (loss) on sale of real estate and other investments and income (loss) from discontinued operations		1,214			5,096			6,806			7,273
Gain (loss) on sale of real estate and other investments		0			1,231			(175	)		(1,762	)
Income from continuing operations		1,214			6,327			6,631			5,511
Income (loss) from discontinued operations		15,463			(457	)		14,773			160
NET INCOME		16,677			5,870			21,404			5,671
Net (income) loss attributable to noncontrolling interests – Operating Partnership		(1,527	)		(363	)		(1,713	)		39
Net loss (income) attributable to noncontrolling interests – consolidated real estate entities		1,516			(393	)		1,515			(747	)
Net income attributable to Investors Real Estate Trust		16,666			5,114			21,206			4,963
Dividends to preferred shareholders		(2,878	)		(2,878	)		(5,757	)		(5,757	)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	13,788		$	2,236		$	15,449		$	(794	)
Earnings (loss) per common share from continuing operations – Investors Real Estate Trust – basic and diluted	$	.00		$	.02		$	.02		$	(.01	)
Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted		.11			.00			.10			.00
NET INCOME (LOSS) PER COMMON SHARE – BASIC AND DILUTED	$	.11		$	.02		$	.12		$	(.01	)
DIVIDENDS PER COMMON SHARE	$	.13		$	.13		$	.26		$	.26

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

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)

for the six months ended October 31, 2015 and 2014

	(in thousands)
	NUMBER OF PREFERRED SHARES		PREFERRED SHARES		NUMBER OF COMMON SHARES			COMMON SHARES			ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME			NONREDEEMABLE NONCONTROLLING INTERESTS			TOTAL EQUITY
Balance April 30, 2014		5,750	$	138,674		109,019		$	843,268		$	(389,758	)	$	128,362		$	720,546
Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests												4,963			538			5,501
Distributions – common shares and units												(29,484	)		(4,878	)		(34,362	)
Distributions – Series A preferred shares												(1,186	)					(1,186	)
Distributions – Series B preferred shares												(4,571	)					(4,571	)
Distribution reinvestment and share purchase plan						4,212			34,821									34,821
Share-based compensation						204			2,432									2,432
Partnership units issued															100			100
Redemption of units for common shares						6,374			37,700						(37,700	)		0
Contributions from nonredeemable noncontrolling interests – consolidated real estate entities															3,757			3,757
Other															(370	)		(370	)
Balance October 31, 2014		5,750	$	138,674		119,809		$	918,221		$	(420,036	)	$	89,809		$	726,668


Balance April 30, 2015		5,750	$	138,674		124,455		$	951,868		$	(438,432	)	$	88,844		$	740,954
Net income attributable to Investors Real Estate Trust and nonredeemable noncontrolling interests												21,206			287			21,493
Distributions – common shares and units												(32,525	)		(3,626	)		(36,151	)
Distributions – Series A preferred shares												(1,186	)					(1,186	)
Distributions – Series B preferred shares												(4,571	)					(4,571	)
Distribution reinvestment and share purchase plan						821			5,619									5,619
Share-based compensation						220			482									482
Partnership units issued															400			400
Redemption of units for common shares						154			855						(855	)		0
Shares repurchased						(2,852	)		(21,931	)								(21,931	)
Other															(6,236	)		(6,236	)
Balance October 31, 2015		5,750	$	138,674		122,798		$	936,893		$	(455,508	)	$	78,814		$	698,873

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

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

for the six months ended October 31, 2015 and 2014

	(in thousands)
	Six Months Ended October 31
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	21,404		$	5,671
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		28,594			26,033
Depreciation and amortization from discontinued operations		5,300			9,441
(Gain) loss on sale of real estate, land, other investments and discontinued operations		(23,733	)		1,762
Loss on extinguishment of debt		904			0
Share-based compensation expense		605			1,675
Impairment of real estate investments		3,598			5,565
Bad debt expense		162			455
Changes in other assets and liabilities:
Receivable arising from straight-lining of rents		512			(270	)
Accounts receivable		1,230			4,457
Prepaid and other assets		379			2,181
Tax, insurance and other escrow		565			323
Deferred charges and leasing costs		(576	)		(1,976	)
Accounts payable, accrued expenses, and other liabilities		(4,626	)		(3,096	)
Net cash provided by operating activities		34,318			52,221
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from real estate deposits		2,837			245
Payments for real estate deposits		(792	)		(5,024	)
Decrease in lender holdbacks for improvements		3,258			4,840
Increase in lender holdbacks for improvements		(578	)		(621	)
Proceeds from sale of discontinued operations		364,559			0
Proceeds from sale of real estate and other investments		6,783			17,106
Insurance proceeds received		432			2,102
Payments for acquisitions of real estate assets		(71,381	)		(23,142	)
Payments for development and re-development of real estate assets		(79,298	)		(87,388	)
Payments for improvements of real estate assets		(13,510	)		(11,311	)
Payments for improvements of real estate assets from discontinued operations		(4,993	)		(4,317	)
Net cash provided (used) by investing activities		207,317			(107,510	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages payable		51,070			43,500
Principal payments on mortgages payable		(205,833	)		(40,922	)
Proceeds from revolving line of credit		43,000			35,000
Principal payments on revolving line of credit and other debt		(106,855	)		(17,000	)
Proceeds from construction debt		46,775			44,560
Proceeds from sale of common shares under distribution reinvestment and share purchase program		1,493			26,731
Proceeds from noncontrolling partner – consolidated real estate entities		826			1,551
Repurchase of common shares		(21,931	)		0
Distributions paid to common shareholders, net of reinvestment of $3,997 and $7,725, respectively		(28,528	)		(21,759	)
Distributions paid to preferred shareholders		(5,757	)		(5,757	)
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership, net of reinvestment of $130 and $365, respectively		(3,496	)		(4,513	)
Distributions paid to noncontrolling interests – consolidated real estate entities		(6,236	)		(370	)
Net cash (used) provided by financing activities		(235,472	)		61,021
NET INCREASE IN CASH AND CASH EQUIVALENTS		6,163			5,732
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		48,970			47,267
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	55,133		$	52,999

(continued)

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, continued)

for the six months ended October 31, 2015 and 2014

	(in thousands)
	Six Months Ended October 31
	2015		2014
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE PERIOD
Distribution reinvestment plan	$	3,997	$	7,725
Operating partnership distribution reinvestment plan		130		365
Operating partnership units converted to shares		855		37,700
Real estate assets acquired through the issuance of operating partnership units		400		100
Real estate assets acquired through assumption of indebtedness and accrued costs		0		12,169
Increase to accounts payable included within real estate investments		1,241		9,569
Real estate assets contributed by noncontrolling interests – consolidated real estate entities		0		2,206
Construction debt reclassified to mortgages payable		41,649		0

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized of $3,367 and $2,232, respectively	$	16,846	$	26,128

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

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INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

for the six months ended October 31, 2015 and 2014

NOTE 1 • ORGANIZATION

Investors Real Estate Trust (“IRET”, “we” or “us”) is a self-advised real estate investment trust engaged in acquiring, owning and leasing multifamily residential and commercial real estate. We have elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. As a REIT, we are subject to a number of organizational and operational requirements, including a requirement to distribute 90% of ordinary taxable income to shareholders, and, generally, are not subject to federal income tax on net income, except for taxes on undistributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiary (“TRS”). Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates. We have considered estimated future taxable income and have determined that there were no material income tax provisions or material net deferred income tax items for our TRS for the six months ended October 31, 2015 and 2014. Our multifamily properties and commercial properties are located mainly in the states of North Dakota and Minnesota, but also in the states of Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, South Dakota, Wisconsin and Wyoming. As of October 31, 2015, we held for investment 94 multifamily properties with 12,269 apartment units and 83 commercial properties, consisting of healthcare, industrial and other, totaling 4.5 million net rentable square feet. We held for sale 8 multifamily and 13 commercial properties as of October 31, 2015. We conduct a majority of our business activities through our consolidated operating partnership, IRET Properties, a North Dakota Limited Partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities.

All references to IRET, we or us refer to Investors Real Estate Trust and its consolidated subsidiaries.

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include our accounts and the accounts of all our subsidiaries in which we maintain a controlling interest, including the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation. Our fiscal year ends April 30th.

Our interest in the Operating Partnership was 89.8% of the limited partnership units of the Operating Partnership (“Units”) as of October 31, 2015 and 89.9% as of April 30, 2015. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their Units for cash any time following the first anniversary of the date they acquired such Units (“Exchange Right”). When a limited partner exercises the Exchange Right, we have the right, in our sole discretion, to acquire such Units by either making a cash payment or exchanging the Units for our common shares of beneficial interest (“Common Shares”), on a one-for-one basis. The Exchange Right is subject to certain conditions and limitations, including the limited partner may not exercise the Exchange Right more than two times during a calendar year and the limited partner may not exercise for less than 1,000 Units, or, if such limited partner holds less than 1,000 Units, for less than all of the Units held by such limited partner. The Operating Partnership and some limited partners have contractually agreed to a holding period of greater than one year, a greater number of redemptions during a calendar year or other limitations to their Exchange Right.

The condensed consolidated financial statements also reflect the ownership by the Operating Partnership of certain joint venture entities in which the Operating Partnership has a general partner or controlling interest. These entities are consolidated into our other operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership and income and expenses.

UNAUDITED INTERIM FINANCIAL STATEMENTS

Our interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP are omitted. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods have been included.

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The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim condensed consolidated financial statements and accompanying notes thereto should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2015, as filed with the SEC on June 29, 2015.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 does not apply to lease contracts accounted for under ASC 840, Leases. The ASU will become effective for fiscal years beginning after December 15, 2017. We do not expect adoption of this update to have a material impact on our operating results or financial position.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidated analysis of reporting entities that are involved with variable interest entities, and (iv) provide a scope exception for certain entities. The ASU will become effective for fiscal years beginning after December 15, 2015. We do not expect adoption of this update to have a material impact on our operating results or financial position.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability to which they relate, consistent with debt discounts, as opposed to being presented as assets. The ASU will become effective for fiscal years beginning after December 15, 2015. We do not expect adoption of this update to have a material impact on our operating results or financial position.

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Under ASU 2015-05, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The ASU will become effective for fiscal years beginning after December 15, 2015. We do not expect adoption of this update to have a material impact on our operating results or financial position.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate our long-lived assets, including investments in real estate, for impairment indicators. The impairment evaluation is performed on assets by property such that assets for a property form an asset group. The judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, expected holding period of each asset group and legal and environmental concerns. If indicators exist, we compare the expected future undiscounted cash flows for the long-lived asset group against the carrying amount of that asset group. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset group, an impairment loss is recorded for the difference between the estimated fair value and the carrying amount of the asset group. If our anticipated holding period for properties, the estimated fair value of properties or other factors change based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

During the six months ended October 31, 2015, we incurred a loss of approximately $3.6 million due to impairment of one office property, one parcel of land and eight multifamily properties. We recognized impairment of approximately $440,000 on an office property in Eden Prairie, Minnesota, which was written-down to estimated fair value during the first quarter of fiscal year 2016 based on receipt of a market offer to purchase and our intent to dispose of the property. Also in the first quarter of fiscal year 2016, we recognized impairment of $1.3 million on a parcel of land in Grand Chute, Wisconsin based on its sale listing price and our intent to dispose of the property. We recognized impairment of $1.9 million on eight multifamily properties in St. Cloud, Minnesota which were written-down to estimated fair value during the second quarter of fiscal year 2016 based on receipt of a market offer to purchase and our intent to dispose of the property. The impairment loss of the Eden Prairie, Minnesota property for the first quarter of fiscal year 2016 is reported in discontinued operations. See Note 7 for additional information.

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During the six months ended October 31, 2014, we incurred a loss of $5.6 million due to impairment of four commercial properties. We recognized impairments of $2.1 million on a retail property in Kalispell, Montana, approximately $183,000 on an office property in Golden Valley, Minnesota, $1.8 million on an office property in Minneapolis, Minnesota, and $1.4 million on an office property in Boise, Idaho. These properties were written-down to estimated fair value during the first and second quarters of fiscal year 2015 based on receipt of individual market offers to purchase and the Company’s intent to dispose of the properties or, in the case of the Boise, Idaho property, an independent appraisal.

HELD FOR SALE

We classify properties as held for sale when they meet the U.S. GAAP criteria, which include: (a) management commits to and initiates a plan to sell the asset (disposal group), (b) the sale is probable and expected to be completed within one year under terms that are usual and customary for sales of such assets (disposal groups), and (c) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. 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. Liabilities classified as held for sale consist of liabilities to be included in the transaction and liabilities directly associated with assets that will be transferred in the transaction. At October 31, 2015, we had 9 office properties, 3 retail properties, 8 multifamily properties and one healthcare property classified as held for sale with assets of $115.4 million and liabilities of $145.6 million. At April 30, 2015, we had 49 office properties, 17 retail properties and two healthcare properties classified as held for sale with assets of $463.1 million and liabilities of $321.4 million.

COMPENSATING BALANCES AND OTHER INVESTMENTS; HOLDBACKS

We maintain compensating balances, not restricted as to withdrawal, with several financial institutions in connection with financing received from those institutions and/or to ensure future credit availability. At October 31, 2015, our compensating balances totaled $13.4 million and consisted of the following:

Financial Institution
First International Bank, Watford City, ND	$	6,000,000
Associated Bank, Green Bay, WI		3,000,000
The PrivateBank, Minneapolis, MN		2,000,000
Bremer Bank, Saint Paul, MN		1,285,000
Dacotah Bank, Minot, ND		350,000
United Community Bank, Minot, ND		275,000
Peoples State Bank, Velva, ND		225,000
American National Bank, Omaha, NE		200,000
Commerce Bank a Minnesota Banking Corporation		100,000
Total	$	13,435,000

The deposits at United Community Bank and a portion of the deposit at Dacotah Bank are held as certificates of deposit and comprise the approximately $329,000 in other investments on the Condensed Consolidated Balance Sheets. The certificates of deposit have remaining terms of less than one year and we intend to hold them to maturity.

We have a number of mortgage loans under which the lender retains a portion of the loan proceeds or requires a deposit for the payment of construction costs or tenant improvements. The decrease of $3.3 million in holdbacks for improvements reflected in the Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 2015 is due primarily to the release of loan proceeds to us upon completion of construction and tenant improvement projects, while the increase of approximately $578,000 represents additional amounts retained by lenders for new projects.

IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES AND GOODWILL

Upon acquisition of real estate, we record the intangible assets and liabilities acquired (for example, if the leases in place for the real estate property acquired carry rents above the market rent, the difference is classified as an intangible asset) at their estimated fair value separate and apart from goodwill. We amortize identified intangible assets and liabilities that are determined to have finite lives based on the period over which the assets and liabilities are expected to affect, directly or indirectly, the future cash flows of the real estate property acquired (generally the life of the lease). In the six months ended October 31, 2015 and 2014, respectively, we added approximately $1.3 million and $365,000 of new intangible assets and approximately $101,000 and $0 of new intangible liabilities. The weighted average lives of the intangible assets acquired in the six months ended October 31, 2015 and 2014 are 0.8 years and 0.5 years, respectively. Amortization of intangibles related to above or below-market leases is recorded in real estate rentals in the Condensed Consolidated Statements of Operations. Amortization of other intangibles is recorded in depreciation/amortization related to real estate investments in the Condensed Consolidated Statements of Operations. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its estimated fair value.

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Our identified intangible assets and intangible liabilities at October 31, 2015 and April 30, 2015 were as follows:

	(in thousands)
	October 31, 2015			April 30, 2015
Identified intangible assets (included in intangible assets):
Gross carrying amount	$	45,127		$	45,823
Accumulated amortization		(19,839	)		(19,610	)
Net carrying amount	$	25,288		$	26,213

Identified intangible liabilities (included in other liabilities):
Gross carrying amount	$	159		$	82
Accumulated amortization		(44	)		(61	)
Net carrying amount	$	115		$	21

The amortization of acquired below-market leases and acquired above-market leases reduced rental income by approximately $4,000 and $6,000 for the three months ended October 31, 2015 and 2014, respectively, and approximately $11,000 and $11,000 for the six months ended October 31, 2015 and 2014, respectively. The estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding fiscal years is as follows:

Year Ended April 30,	(in thousands)
2017	$	3
2018		(11	)
2019		(20	)
2020		(16	)
2021		(13	)

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $1.2 million and $1.7 million for the three months ended October 31, 2015 and 2014, respectively, and $2.2 million and $2.9 million for the six months ended October 31, 2015 and 2014, respectively. The estimated annual amortization of all other identified intangible assets for each of the five succeeding fiscal years is as follows:

Year Ended April 30,	(in thousands)
2017	$	3,835
2018		3,605
2019		3,507
2020		3,440
2021		3,312

The excess of the cost of an acquired business over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Our goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The book value of goodwill as of October 31, 2015 and April 30, 2015 was $1.7 million. Approximately $3,000 and $193,000 of goodwill is included in assets held for sale at October 31, 2015 and April 30, 2015, respectively. The annual review at April 30, 2015 indicated no impairment to goodwill and there was no indication of impairment at October 31, 2015. During the six months ended October 31, 2015, we disposed of seven commercial properties to which goodwill had been assigned, and as a result, approximately $193,000 of goodwill was derecognized. During the six months ended October 31, 2014, we recognized approximately $852,000 of goodwill from the acquisition of the Homestead Garden multifamily property and disposed of one multifamily property to which goodwill had been assigned, and as a result, approximately $11,000 of goodwill was derecognized.

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USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP 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.

RECLASSIFICATIONS

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. On the Condensed Consolidated Statements of Operations, we reclassified certain expenses from general and administrative expenses to administrative expenses and other expenses.

We report, in discontinued operations, the results of operations and the related gains or losses of properties that have either been disposed of or classified as held for sale and for which the disposition represents a strategic shift that has or will have a major effect on our operations and financial results. As the result of discontinued operations, retroactive reclassifications that change prior period numbers have been made. See Note 7 for additional information. During the first quarter of fiscal year 2016, we classified as discontinued operations 48 office properties, 17 retail properties and 1 healthcare property.

PROCEEDS FROM FINANCING LIABILITY

During the first quarter of fiscal year 2014, we sold a non-core assisted living property in exchange for $7.9 million in cash and a $29.0 million contract for deed. The buyer leased the property back to us, and also granted us an option to repurchase the property at a specified price at or prior to July 31, 2018. We accounted for the transaction as a financing due to our continuing involvement with the property and recorded the $7.9 million in sales proceeds within other liabilities on the Condensed Consolidated Balance Sheets. The balance of the liability as of October 31, 2015 is $7.9 million.

VARIABLE INTEREST ENTITY

On November 27, 2012, we entered into a joint venture operating agreement with a real estate development company to construct an apartment project in Minot, North Dakota as IRET – Minot Apartments, LLC, with approximately 69% of the project financed with third-party debt and approximately 7% financed with debt from us to the joint venture entity. The two-phase project was substantially completed in the third quarter of fiscal year 2015. As of October 31, 2015, we are the approximately 51.0% owner of the joint venture and have management and leasing responsibilities; the real estate development company owns approximately 49.0% of the joint venture and was responsible for the development and construction of the property. We have determined that the joint venture is a variable interest entity (“VIE”), primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support. We have also determined that we are the primary beneficiary of the VIE due to the fact that we are providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and have the power to direct the most significant activities that impact the entity’s economic performance.

On June 12, 2014 we entered into a joint venture operating agreement with a real estate development company and two other partners to construct a three-phase apartment project in Edina, Minnesota as IRET – 71 France, LLC. We estimate total costs for the project at $73.3 million, with approximately 69% of the project financed with third-party debt and approximately 7% financed with debt from us to the joint venture entity. The first phase of the project was substantially completed in the second quarter of fiscal year 2016, the second phase of the project is expected to be completed in the third quarter of fiscal year 2016 and construction of the third phase is expected to be completed in the first quarter of fiscal year 2017. See Development, Expansion and Renovation Projects in Note 6 for additional information. As of October 31, 2015, we are the approximately 52.6% owner of the joint venture and will have management and leasing responsibilities after the project has been in service for 24 months; the real estate development company and the other two partners own approximately 47.4% of the joint venture and are responsible for the development, construction and initial leasing of the property. We have determined that the joint venture is a VIE, primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support. We have also determined that we are the primary beneficiary of the VIE due to the fact that we are providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and have the power to direct the most significant activities that impact the entity’s economic performance.

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NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of Common Shares outstanding during the period. We have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Units can be exchanged for shares on a one-for-one basis after a minimum holding period of one year. The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the condensed consolidated financial statements for the three and six months ended October 31, 2015 and 2014:

	(in thousands, except per share data)
	Three Months Ended October 31						Six Months Ended October 31
	2015			2014			2015			2014
NUMERATOR
Income from continuing operations – Investors Real Estate Trust	$	2,749		$	5,533		$	7,909		$	4,862
Income from discontinued operations – Investors Real Estate Trust		13,917			(419	)		13,297			101
Net income attributable to Investors Real Estate Trust		16,666			5,114			21,206			4,963
Dividends to preferred shareholders		(2,878	)		(2,878	)		(5,757	)		(5,757	)
Numerator for basic earnings per share – net income available to common shareholders		13,788			2,236			15,449			(794	)
Noncontrolling interests – Operating Partnership		1,527			363			1,713			(39	)
Numerator for diluted earnings per share	$	15,315		$	2,599		$	17,162		$	(833	)
DENOMINATOR
Denominator for basic earnings per share weighted average shares		124,665			117,034			124,757			114,033
Effect of convertible operating partnership units		13,900			16,261			13,929			18,565
Denominator for diluted earnings per share		138,565			133,295			138,686			132,598
Earnings (loss) per common share from continuing operations – Investors Real Estate Trust – basic and diluted	$	.00		$	.02		$	.02		$	(.01	)
Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted		.11			.00			.10			.00
NET INCOME (LOSS) PER COMMON SHARE – BASIC & DILUTED	$	.11		$	.02		$	.12		$	(.01	)

NOTE 4 • EQUITY

ATM. During the second quarter of fiscal year 2014, we and our Operating Partnership entered into an At the Market sales agreement (“ATM”) with Robert W. Baird & Co. Incorporated as sales agent, pursuant to which we may from time to time sell our Common Shares having an aggregate offering price of up to $75 million. The shares would be issued pursuant to our currently-effective shelf registration statement on Form S-3ASR. To date, we have not issued any shares under the ATM.

Equity Awards. During the first quarter of fiscal year 2016, we issued approximately 220,000 Common Shares, net of withholding, with a total grant-date value of approximately $1.6 million, under our 2008 Incentive Award Plan, for executive officer and trustee share-based compensation for fiscal year 2015 performance. Of these shares, approximately 108,000 are restricted, and will vest on the one-year anniversary of the grant date (i.e., on April 30, 2016), provided the recipient is still employed with us, and subject to the terms and conditions of our long-term incentive plan (“LTIP”). During the first quarter of fiscal year 2015, we issued approximately 204,000 Common Shares, with a total grant-date value of approximately $1.9 million, under the our 2008 Incentive Award Plan, for executive officer and trustee share-based compensation for fiscal year 2014 performance.

Share Repurchase Program. In August 2015, we publicly announced the share repurchase program authorized by our Board of Trustees to repurchase up to $50 million of our Common Shares over a one year period. During the second quarter of fiscal year 2016, we repurchased and retired approximately 2.9 million Common Shares for an aggregate cost of approximately $21.9 million, including commissions, at an average price per share of $7.69.

DRIP. We have implemented a Distribution Reinvestment and Share Purchase Plan (“DRIP”), which provides our common shareholders and the unitholders of the Operating Partnership an opportunity to invest their cash distributions in Common Shares and to purchase additional Common Shares through voluntary cash contributions. A DRIP participant cannot purchase additional Common Shares in excess of $10,000 per month, unless waived by us. We did not issue any waivers during the three months ended October 31, 2015 and 2014. We did not issue any waivers during the six months ended October 31, 2015. During the six months ended October 31, 2014, DRIP participants purchased approximately 926,000 additional Common Shares at an average price of $8.64 per share pursuant to waivers granted by us, for total net proceeds of $8.0 million.

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As permitted under the DRIP, starting on October 1, 2015, we changed the source from which Common Shares will be purchased under the DRIP to open market transactions, which are not eligible for purchase price discounts. During the three months ended October 31, 2015 and 2014, approximately 55,000 and 1.8 million Common Shares with a total value included in equity of approximately $377,000 and $13.9 million, and an average price per share after applicable discounts of $6.87 and $7.76, respectively, were issued under the DRIP. During the six months ended October 31, 2015 and 2014, approximately 821,000 and 4.2 million Common Shares with a total value included in equity of $5.6 million and $34.8 million, and an average price per share after applicable discounts of $6.85 and $8.27, respectively, were issued under the DRIP.

Exchange Rights. Pursuant to Exchange Rights, during the three months ended October 31, 2015 and 2014, respectively, approximately 75,500 Units and 3.3 million Units were exchanged for Common Shares, with a total value of approximately $279,000 and $19.4 million included in equity. During the six months ended October 31, 2015 and 2014, respectively, approximately 154,000 Units and 6.4 million Units were exchanged for Common Shares, with a total value of approximately $855,000 and $37.7 million included in equity.

NOTE 5 • SEGMENT REPORTING

We report our results in three reportable segments, which are aggregations of similar properties: multifamily, healthcare (including senior housing) and industrial properties. Prior to the first quarter of fiscal year 2016, we had reported our results in five reportable segments, which included the office and retail segments. However, during the first quarter of fiscal year 2016, we classified the majority of the properties in the office and retail segments as held for sale and discontinued operations, and the remaining properties under these segments fell below the quantitative thresholds for reporting as separate reportable segments and are included in “all other.”

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

The revenues and NOI for these reportable segments are summarized as follows for the three and six month periods ended October 31, 2015 and 2014, along with reconciliations to the condensed consolidated financial statements. Segment assets are also reconciled to total assets as reported in the condensed consolidated financial statements.

	(in thousands)
Three Months Ended October 31, 2015	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	32,107	$	16,379	$	1,640	$	1,179	$	51,305
Real estate expenses		15,218		4,163		289		362		20,032
Net operating income	$	16,889	$	12,216	$	1,351	$	817		31,273
TRS senior housing revenue, net of expenses										153
Depreciation/amortization										(14,630	)
Administrative expenses										(2,933	)
Other expenses										(1,204	)
Impairment of real estate investments										(1,873	)
Interest expense										(10,131	)
Loss on extinguishment of debt										(106	)
Interest and other income										665
Income from continuing operations										1,214
Income from discontinued operations										15,463
Net income									$	16,677

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	(in thousands)
Three Months Ended October 31, 2014	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	29,594	$	16,331	$	1,593	$	2,828	$	50,346
Real estate expenses		12,164		4,111		272		1,217		17,764
Net operating income	$	17,430	$	12,220	$	1,321	$	1,611		32,582
TRS senior housing revenue, net of expenses										118
Depreciation/amortization										(13,075	)
Administrative expenses										(2,890	)
Other expenses										(578	)
Impairment of real estate investments										(1,803	)
Interest expense										(9,954	)
Interest and other income										696
Income before gain on sale of real estate and other investments and loss from discontinued operations Gain on sale of real estate and other investments										5,096 1,231
Income from continuing operations Loss from discontinued operations										6,327 (457	)
Net income									$	5,870

	(in thousands)
Six Months Ended October 31, 2015	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	63,487	$	32,085	$	3,262	$	2,389	$	101,223
Real estate expenses		29,142		7,995		683		612		38,432
Net operating income	$	34,345	$	24,090	$	2,579	$	1,777		62,791
TRS senior housing revenue, net of expenses										422
Depreciation/amortization										(28,073	)
Administrative expenses										(5,387	)
Other expenses										(1,628	)
Impairment of real estate investments										(3,158	)
Interest expense										(19,327	)
Loss on extinguishment of debt										(106	)
Interest and other income										1,272
Income before loss on sale of real estate and other investments and income from discontinued operations										6,806
Loss on sale of real estate and other investments										(175	)
Income from continuing operations										6,631
Income from discontinued operations										14,773
Net income									$	21,404

	(in thousands)
Six Months Ended October 31, 2014	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	57,321	$	32,533	$	3,163	$	5,750	$	98,767
Real estate expenses		24,382		8,469		721		2,444		36,016
Net operating income	$	32,939	$	24,064	$	2,442	$	3,306		62,751
TRS senior housing revenue, net of expenses										218
Depreciation/amortization										(25,510	)
Administrative expenses										(6,554	)
Other expenses										(1,190	)
Impairment of real estate investments										(4,123	)
Interest expense										(19,701	)
Interest and other income										1,382
Income before loss on sale of real estate and other investments and income from discontinued operations										7,273
Loss on sale of real estate and other investments										(1,762	)
Income from continuing operations										5,511
Income from discontinued operations									$	160
Net income										5,671

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Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of October 31, 2015, and April 30, 2015, along with reconciliations to the condensed consolidated financial statements:

	(in thousands)
As of October 31, 2015	Multifamily			Healthcare			Industrial			All Other			Total

Segment Assets
Property owned	$	1,097,171		$	558,979		$	60,777		$	46,223		$	1,763,150
Less accumulated depreciation		(191,854	)		(120,010	)		(12,086	)		(9,620	)		(333,570	)
Net property owned	$	905,317		$	438,969		$	48,691		$	36,603			1,429,580
Assets held for sale														115,428
Cash and cash equivalents														55,133
Other investments														329
Receivables and other assets														69,155
Development in progress														89,843
Unimproved land														22,485
Total assets													$	1,781,953

	(in thousands)
As of April 31, 2015	Multifamily			Healthcare			Industrial			All Other			Total

Segment Assets
Property owned	$	946,520		$	495,021		$	60,611		$	44,215		$	1,546,367
Less accumulated depreciation		(180,414	)		(112,515	)		(11,256	)		(9,123	)		(313,308	)
Net property owned	$	766,106		$	382,506		$	49,355		$	35,092			1,233,059
Assets held for sale														463,103
Cash and cash equivalents														48,970
Other investments														329
Receivables and other assets														72,555
Development in progress														153,994
Unimproved land														25,827
Total assets													$	1,997,837

NOTE 6 • COMMITMENTS AND CONTINGENCIES

Litigation. We are not a party to any legal proceedings which are expected to have a material effect on our liquidity, financial position, cash flows or results of operations. We are subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of our business, most of which are covered by liability insurance. Various claims of resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material effect on our liquidity, financial position, cash flows or results of operations.

Insurance. We carry insurance coverage on our properties in amounts and types that we believe are customarily obtained by owners of similar properties and are sufficient to achieve our risk management objectives.

Purchase Options. We have granted options to purchase certain of our properties to tenants, under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property’s appraised value or an annual compounded increase of a specified percentage of our initial cost for the property. As of October 31, 2015, our total property cost for the 15 properties subject to purchase options was $117.6 million, and the total gross rental revenue from these properties was $4.3 million for the six months ended October 31, 2015. The tenant in the Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. However, we can give no assurance if or when such sale of the property will be completed.

Environmental Matters. 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 of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While we currently have no knowledge of any material violation of environmental laws, ordinances or regulations at any of our properties, there can be no assurance that areas of contamination will not be identified at any of our properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to us.

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Restrictions on Taxable Dispositions. Approximately 78 of our properties, consisting of 2.7 million square feet of our combined commercial properties and 5,372 apartment units, are subject to restrictions on our ability to resell in taxable transactions. These restrictions are contained in agreements we entered into with some of the sellers or contributors of the properties, and are effective for varying periods. The real estate investment amount of these properties (net of accumulated depreciation) was $672.8 million at October 31, 2015. We do not believe that these restrictions materially affect the conduct of our business or decisions whether to dispose of these properties during the restriction periods because we generally hold properties for investment purposes, rather than for sale. Historically, however, where we have deemed it to be in the shareholders’ best interests to dispose of restricted properties, we have done so through tax-deferred transactions under Section 1031 of the Internal Revenue Code.

Exchange Value of Units. Whenever limited partners of the Operating Partnership exercise their Exchange Rights, we have the right, but not the obligation, to acquire such Units in exchange for either cash or our Common Shares on a one-for-one basis. If Units are exchanged for cash, the amount of cash per Unit is equal to the average of the daily market price of a Common Share for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of October 31, 2015 and 2014, the aggregate exchange value of the then-outstanding Units of the Operating Partnership owned by limited partners was approximately $112.6 million and $119.8 million, respectively. All Units receive the same cash distributions as those paid on our Common Shares.

Joint Venture Buy/Sell Options. Several of our joint venture agreements contain buy/sell options in which each party under certain circumstances has the option to acquire the interest of the other party, but do not generally require that we buy our partners’ interests. However, from time to time, we have entered into joint venture agreements which contain options compelling us to acquire the interest of the other parties. We currently have one such joint venture, our Southgate apartment project in Minot, North Dakota, in which our joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, compel us to acquire the partner’s interest for a price to be determined in accordance with the provisions of the joint venture agreement. The joint venture partner’s interest is reflected as a redeemable noncontrolling interest on the Condensed Consolidated Balance Sheets.

Tenant Improvements. In entering into leases with tenants, we may commit to fund improvements or build-outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and we are accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of October 31, 2015, we are committed to fund $4.0 million in tenant improvements within approximately the next 12 months. Of this total, approximately $1.1 million is related to properties classified as held for sale.

Development, Expansion and Renovation Projects. As of October 31, 2015, we had several development, expansion and renovation projects underway or placed in service during the quarter, the costs for which have been capitalized, as follows:

(in thousands)

(in fiscal years)

Project Name and Location

Planned Segment

Rentable

Square Feet

or Number of Units

Anticipated

Total Cost⁽¹⁾

Costs as of

October 31,

2015⁽¹⁾

Anticipated

Construction

Completion

Minot Southgate Retail - Minot, ND

Other

7,963 sq ft

2,923

2,622

In Service

PrairieCare Medical - Brooklyn Park, MN

Healthcare

70,756 sq ft

24,709

In Service

Deer Ridge - Jamestown, ND

Multifamily

163 units

24,519

23,830

3Q 2016

Cardinal Point - Grand Forks, ND⁽²⁾

Multifamily

251 units

44,402

40,361

4Q 2016

71 France - Edina, MN⁽³⁾

Multifamily

241 units

73,290

64,006

1Q 2017

Monticello Crossings - Monticello, MN

Multifamily

202 units

31,784

5,305

2Q 2017

Other

3,095

201,627

163,928

(1)	Includes costs related to development projects that are placed in service in phases (Deer Ridge - $14.3 million, 71 France - $21.3 million, Cardinal Point - $11.1 million).

(2)	Anticipated total cost as of October 31, 2015 includes incremental cost increase due to the replacement of the project’s original general contractor.

(3)

The project will be constructed in three phases by a joint venture entity in which we have an approximately 52.6% interest. The anticipated total cost amount given in the table above is the total cost to the joint venture entity. The anticipated total cost includes approximately 21,772 square feet of retail space.

These development projects are subject to various contingencies, and no assurances can be given that they will be completed within the time frames or on the terms currently expected.

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Construction interest capitalized for the three month periods ended October 31, 2015 and 2014, respectively, was $1.1 million and $1.2 million for development projects completed and in progress. Construction interest capitalized for the six month periods ended October 31, 2015 and 2014, respectively, was $3.4 million and $2.2 million for development projects completed and in progress.

Pending Dispositions. We currently have signed sales agreements for the disposition of the following properties. These pending dispositions are subject to various closing conditions and contingencies, and no assurances can be given that the transactions will be completed on the terms currently proposed, or at all:

two retail properties in Minnesota for a sales price of $1.6 million;

a retail property in Minot, North Dakota for a sales price of $1.9 million; and

a healthcare property in Omaha, Nebraska for a sales price of $24.4 million, pursuant to the tenant exercising its purchase option.

NOTE 7 • DISCONTINUED OPERATIONS

We report in discontinued operations the results of operations and any gain or loss on sale of a property or group of properties that has either been disposed of or is classified as held for sale and for which the disposition represents a strategic shift that has or will have a major effect on our operations and financial results. During the first quarter of fiscal year 2016, we determined that our strategic plan to exit the office and retail segments met the criteria for discontinued operations. Accordingly, 48 office properties, 17 retail properties and 1 healthcare property which were classified as held for sale at July 31, 2015 were also classified as discontinued operations. Of the properties classified as discontinued operations, we sold 39 office properties, 15 retail properties and 1 healthcare property during the second quarter of fiscal year 2016, leaving 9 office properties and 2 retail properties classified as held for sale at October 31, 2015.

The following information shows the effect on net income from the properties classified as discontinued operations for the three and six months ended October 31, 2015 and 2014:

	(in thousands)
	Three Months Ended October 31						Six Months Ended October 31
	2015			2014			2015			2014
REVENUE
Real estate rentals	$	4,776		$	13,531		$	18,390		$	27,093
Tenant reimbursement		1,386			6,165			7,550			12,019
TOTAL REVENUE		6,162			19,696			25,940			39,112
EXPENSES
Depreciation/amortization related to real estate investments		0			3,969			4,239			7,939
Utilities		857			2,069			2,600			3,805
Maintenance		1,204			2,766			4,196			5,544
Real estate taxes		1,166			3,485			4,585			6,999
Insurance		139			277			404			551
Property management expenses		422			876			1,473			1,840
Amortization related to non-real estate investments		273			624			897			1,275
Impairment of real estate investments		0			1,442			440			1,442
TOTAL EXPENSES		4,061			15,508			18,834			29,395
Operating income		2,101			4,188			7,106			9,717
Interest expense⁽¹⁾		(3,631	)		(4,645	)		(9,396	)		(9,562	)
Loss on extinguishment of debt		(7,120	)		0			(7,120	)		0
Other income		203			0			273			5
(Loss) income from discontinued operations before gain on sale		(8,447	)		(457	)		(9,137	)		160
Gain on sale of discontinued operations		23,910			0			23,910			0
INCOME (LOSS) FROM DISCONTINUED OPERATIONS⁽²⁾	$	15,463		$	(457	)	$	14,773		$	160

(1)

Includes $1.6 million and $3.1 million for the three and six months ended October 31, 2015, respectively, of default interest related to a $122.6 million non-recourse loan by one of our subsidiaries, for which we received a default notice from the special servicer on April 14, 2015 due to nonpayment on April 6, 2015.

(2)

Discontinued operations include a noncontrolling interest for our Mendota joint venture entity. Income (loss) from discontinued operations attributable to IRET was $16.5 million and $(327,000) for the three months ended October 31, 2015 and 2014, respectively, and $16.0 million and $386,000 for the six months ended October 31, 2015and 2014, respectively.

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The following information reconciles the carrying amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale that are presented separately on the Condensed Consolidated Balance Sheets:

	(in thousands)
	October 31, 2015		April 30, 2015
Carrying amounts of major classes of assets included as part of discontinued operations
Property owned and intangible assets, net of accumulated depreciation and amortization	$	88,283	$	417,045
Receivable arising from straight-lining of rents		2,398		10,078
Accounts receivable		391		566
Prepaid and other assets		73		699
Tax, insurance and other escrow		0		1,176
Goodwill		0		193
Deferred charges and leasing costs		1,883		9,606
Total major classes of assets of the discontinued operations		93,028		439,363
Other assets included in the disposal group classified as held for sale		22,400		23,740
Total assets of the disposal group classified as held for sale on the balance sheet	$	115,428	$	463,103

Carrying amounts of major classes of liabilities included as part of discontinued operations
Accounts payable and accrued expenses	$	11,320	$	13,952
Mortgages payable		122,610		295,677
Other		0		4
Total major classes of liabilities of the discontinued operations		133,930		309,633
Other liabilities included in the disposal group classified as held for sale		11,635		11,760
Total liabilities of the disposal group classified as held for sale on the balance sheet	$	145,565	$	321,393

NOTE 8 • ACQUISITIONS, DEVELOPMENTS PLACED IN SERVICE AND DISPOSITIONS

PROPERTY ACQUISITIONS

We added $71.8 million new real estate properties to our portfolio through property acquisitions during the six months ended October 31, 2015, compared to $36.7 million in the six months ended October 31, 2014. We expensed approximately $153,000 and $104,000 of transaction costs related to the acquisitions in the six months ended October 31, 2015 and 2014, respectively. Our acquisitions during the six months ended October 31, 2015 and 2014 are detailed below.

Six Months Ended October 31, 2015

			(in thousands)
			Total Acquisition Cost		Form of Consideration				Investment Allocation
Acquisitions	Date Acquired		Total Acquisition Cost		Cash		Units⁽¹⁾		Land		Building		Intangible Assets

Multifamily
74 unit - Gardens - Grand Forks, ND		2015-09-10	$	9,250	$	8,850	$	400	$	518	$	8,672	$	60
276 unit - GrandeVille at Cascade Lake - Rochester, MN		2015-10-29		56,000		56,000		0		5,003		50,363		634
				65,250		64,850		400		5,521		59,035		694

Healthcare
27,819 sq ft Lakeside Medical Plaza - Omaha, NE		2015-08-20		6,500		6,500		0		903		5,109		488

Total Property Acquisitions			$	71,750	$	71,350	$	400	$	6,424	$	64,144	$	1,182

(1)	Value of Units of the Operating Partnership at the acquisition date.

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Six Months Ended October 31, 2014

			(in thousands)
			Total Acquisition Cost		Form of Consideration						Investment Allocation
Acquisitions	Date Acquired		Total Acquisition Cost		Cash		Units⁽¹⁾		Other⁽²⁾		Land		Building		Intangible Assets

Multifamily
152 unit - Homestead Garden - Rapid City, SD⁽³⁾		2014-06-02	$	15,000	$	5,092	$	0	$	9,908	$	655	$	14,139	$	206
52 unit - Silver Springs - Rapid City, SD		2014-06-02		3,280		1,019		0		2,261		215		3,006		59
68 unit - Northridge - Bismarck, ND		2014-09-12		8,500		8,400		100		0		884		7,516		100
				26,780		14,511		100		12,169		1,754		24,661		365
Unimproved Land
Creekside Crossing - Bismarck, ND		2014-05-22		4,269		4,269		0		0		4,269		0		0
PrairieCare Medical - Brooklyn Park, MN		2014-06-05		2,616		2,616		0		0		2,616		0		0
71 France Phase I - Edina, MN⁽⁴⁾		2014-06-12		1,413		0		0		1,413		1,413		0		0
Monticello 7^th Addition - Monticello, MN		2014-10-09		1,660		1,660		0		0		1,660		0		0
				9,958		8,545		0		1,413		9,958		0		0

Total Property Acquisitions			$	36,738	$	23,056	$	100	$	13,582	$	11,712	$	24,661	$	365

(1)	Value of Units of the Operating Partnership at the acquisition date.

(2)	Consists of assumed debt (Homestead Garden I - $9.9 million, Silver Springs - $2.3 million) and value of land contributed by the joint venture partner (71 France - $1.4 million).

(3)	At acquisition, we adjusted the assumed debt to fair value and recognized approximately $852,000 of goodwill.

(4)	Land was contributed to a joint venture in which we have an approximately 52.6% interest. The joint venture is consolidated in our financial statements.

Acquisitions in the six months ended October 31, 2015 and 2014 are immaterial to our real estate portfolio both individually and in the aggregate, and consequently no proforma information is presented. The results of operations from acquired properties are included in the Condensed Consolidated Statements of Operations as of their acquisition date. The revenue and net income of our acquisitions in the six months ended October 31, 2015 and 2014, respectively, (excluding development projects placed in service) are detailed below.

	(in thousands)
Six Months Ended October 31,	2015				2014
Total revenue		$	268			$	1,003
Net income (loss)		$	(219	)		$	(38	)

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DEVELOPMENT PROJECTS PLACED IN SERVICE

The Operating Partnership placed $137.0 million and $10.3 million of development projects in service during the six months ended October 31, 2015 and 2014, respectively, as detailed below.

Six Months Ended October 31, 2015

			(in thousands)
Development Projects Placed in Service⁽¹⁾	Date Placed in Service		Land		Building		Development Cost

Multifamily
72 unit – Chateau II - Minot, ND⁽²⁾		2015-06-01	$	240	$	14,401	$	14,641
288 unit – Renaissance Heights - Williston, ND⁽³⁾		2015-07-27		3,080		59,440		62,520
				3,320		73,841		77,161
Healthcare
57,624 sq ft Edina 6565 France SMC III - Edina, MN⁽⁴⁾		2015-06-01		0		32,495		32,495
70,756 sq ft PrairieCare Medical – Brooklyn Park, MN⁽⁵⁾		2015-09-08		2,610		22,099		24,709
				2,610		54,594		57,204

Other
7,963 sq ft Minot Southgate Retail - Minot, ND⁽⁶⁾		2015-10-01		889		1,733		2,622

Total Development Projects Placed in Service			$	6,819	$	130,168	$	136,987

(1)

Development projects that are placed in service in phases are excluded from this table until the entire project has been placed in service. See Note 6 for additional information on the Deer Ridge, 71 France, and Cardinal Point projects, which were partially placed in service during the three months ended October, 2015.

(2)	Costs paid in prior fiscal years totaled $12.3 million. Additional costs paid in fiscal year 2016 totaled $2.3 million, for a total project cost at October 31, 2015 of $14.6 million.

(3)

Costs paid in prior fiscal years totaled $57.7 million. Additional costs paid in fiscal year 2016 totaled $4.8 million, for a total project cost at October 31, 2015 of $62.5 million. The project is owned by a joint venture entity in which we have an approximately 70.0% interest. The joint venture is consolidated in our financial statements.

(4)	Costs paid in prior fiscal years totaled $20.8 million. Additional costs paid in fiscal year 2016 totaled $11.7 million, for a total project cost at October 31, 2015 of $32.5 million.

(5)	Costs paid in prior fiscal years totaled $17.3 million. Additional costs paid in fiscal year 2016 totaled $7.4 million, for a total project cost at October 31, 2015 of $24.7 million.

(6)	Costs paid in prior fiscal years totaled $2.1 million. Additional costs paid in fiscal year 2016 totaled approximately $500,000, for a total project cost at October 31, 2015 of $2.6 million.

Six Months Ended October 31, 2014

			(in thousands)
Development Projects Placed in Service	Date Placed in Service		Land		Building		Development Cost

Multifamily
44 unit – Dakota Commons - Williston, ND⁽¹⁾		2014-07-15		823		9,452		10,275

Total Development Projects Placed in Service			$	823	$	9,452	$	10,275

(1)	Costs paid in prior fiscal years totaled $8.1 million. Additional costs paid in fiscal year 2015 totaled $2.2 million, for a total project cost at October 31, 2014 of $10.3 million.

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PROPERTY DISPOSITIONS

During the second quarter of fiscal year 2016, we sold 39 office properties, 1 healthcare property and 15 retail properties for a total sales price of $371.9 million. During the second quarter of fiscal year 2015, we sold one multifamily property, one office property and one retail property, along with the adjacent unimproved land for a total sales price of $10.9 million. The following table details our dispositions during the six months ended October 31, 2015 and 2014:

Six Months Ended October 31, 2015

			(in thousands)
Dispositions	Date Disposed		Sales Price		Book Value and Sales Cost		Gain/(Loss)

Other
117,144 sq ft Thresher Square - Minneapolis, MN		2015-05-18	$	7,000	$	7,175	$	(175	)
2,549,222 sq ft Office Sale Portfolio⁽¹⁾		2015-08-03		250,000		231,537		18,463
420,216 sq ft Mendota Office Center Portfolio – Mendota Heights, MN⁽²⁾		2015-08-12		40,000		41,574		(1,574	)
1,027,208 sq ft Retail Sale Portfolio⁽³⁾		2015-09-30		78,960		71,913		7,047
48,700 sq ft Eden Prairie 6101 Blue Circle Drive – Eden Prairie, MN		2015-10-19		2,900		2,928		(28	)

Total Property Dispositions			$	378,860	$	355,127	$	23,733

(1)

The properties included in this portfolio disposition are: 610 Business Center, 7800 West Brown Deer Road, Ameritrade, Barry Pointe Office Park, Benton Business Park, Brenwood, Brook Valley I, Crosstown Centre, Golden Hills Office Center, Granite Corporate Center, Great Plains, Highlands Ranch I, Highlands Ranch II, Interlachen Corporate Center, Intertech Building, Minnesota National Bank, Northpark Corporate Center, Omaha 10802 Farnam Dr, Plaza VII, Plymouth 5095 Nathan Lane, Prairie Oak Business Center, Rapid City 900 Concourse Drive, Spring Valley IV, Spring Valley V, Spring Valley X, Spring Valley XI, Superior Office Building, TCA Building, Three Paramount Plaza, UHC Office, US Bank Financial Center, Wells Fargo Center, West River Business Park and Westgate.

(2)

The properties included in this portfolio disposition are: Mendota Office Center I, Mendota Office Center II, Mendota Office Center III, Mendota Office Center IV and American Corporate Center.

(3)

The properties included in this portfolio disposition are: Champlin South Pond, Chan West Village, Duluth 4615 Grand, Duluth Denfeld Retail, Forest Lake Auto, Forest Lake Westlake Center, Grand Forks Medpark Mall, Jamestown Buffalo Mall, Jamestown Business Center, Monticello C Store & vacant land, Omaha Barnes & Noble, Pine City Evergreen Square, Rochester Maplewood Square and St. Cloud Westgate.

Six Months Ended October 31, 2014

			(in thousands)
Dispositions	Date Disposed		Sales Price			Book Value and Sales Cost		Gain/(Loss)

Multifamily
83 unit - Lancaster - St. Cloud, MN		2014-09-22		4,451			3,033		1,418

Industrial
198,600 sq ft Eagan 2785 & 2795 - Eagan, MN		2014-07-15		3,600			5,393		(1,793	)

Other
73,338 sq ft Dewey Hill - Edina, MN		2014-05-19		3,100			3,124		(24	)
25,644 sq ft Weston Retail - Weston, WI		2014-07-28		n/	a		1,176		(1,176	)
74,568 sq ft Wirth Corporate Center - Golden Valley, MN		2014-08-29		4,525			4,695		(170	)
52,000 sq ft Kalispell Retail - Kalispell, MT		2014-10-15		1,230			1,229		1
				8,855			10,224		(1,369	)
Unimproved Land
Kalispell Unimproved - Kalispell, MT		2014-10-15		670			670		0

Total Property Dispositions			$	17,576		$	19,320	$	(1,744	)

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NOTE 9 • MORTGAGES PAYABLE AND LINE OF CREDIT

Most of the properties we own serve as collateral for separate mortgage loans on single properties or groups of properties. The majority of these mortgages payable are non-recourse to us, other than for standard carve-out obligations such as fraud, waste, failure to insure, environmental conditions and failure to pay real estate taxes. Interest rates on mortgages payable range from 2.70% to 8.25%, and the mortgages have varying maturity dates from the current fiscal year through July 1, 2036. As of October 31, 2015, our management believes there are no defaults or material compliance issues in regard to any mortgages payable other than one $122.6 million non-recourse loan by one of our subsidiaries, for which we received a default notice from the special servicer on April 14, 2015 due to nonpayment on April 6, 2015. This loan is related to assets held for sale. The aggregate estimated fair value of the assets securing this loan is less than the outstanding loan balance of $122.6 million. This loan matures in October 2016 and has an interest rate of 5.93%. We are currently discussing a deed in lieu agreement with the lender, but we can give no assurance that such resolution will be entered into or that another mutually acceptable resolution will be reached.

Of the mortgages payable, the balances of fixed rate mortgages totalled $639.1 million at October 31, 2015 and $629.8 million at April 30, 2015. The balances of variable rate mortgages totalled $89.8 million and $38.3 million as of October 31, 2015 and April 30, 2015, respectively. We do not utilize derivative financial instruments to mitigate our exposure to changes in market interest rates. Most of the fixed rate mortgages have substantial pre-payment penalties. As of October 31, 2015, the weighted average rate of interest on our mortgage debt was 5.04%, compared to 4.95% on April 30, 2015. The aggregate amount of required future principal payments on mortgages payable as of October 31, 2015, excluding $133.4 million in outstanding mortgage indebtedness related to assets held for sale, is as follows:

Fiscal year ended April 30,	(in thousands)
2016 (remainder)	$	58,971
2017		43,389
2018		41,008
2019		116,390
2020		110,690
Thereafter		358,525
Total payments	$	728,973

In addition to the individual first mortgage loans comprising our $728.9 million of mortgage indebtedness, we also have a revolving, multi-bank line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank, which had, as of October 31, 2015, lending commitments of $100.0 million. This line of credit is not included in our mortgage indebtedness total. As of October 31, 2015, the line of credit was secured by mortgages on 16 properties. Under the terms of the line of credit, properties may be added and removed from the collateral pool with the agreement of the lenders. Participants in this credit facility as of October 31, 2015 included, in addition to First International Bank, the following financial institutions: The Bank of North Dakota; First Western Bank and Trust; Dacotah Bank; Highland Bank; American State Bank & Trust Company; Town & Country Credit Union, WoodTrust Bank, and United Community Bank. As of October 31, 2015, the line of credit had an interest rate of 4.75% and a minimum outstanding principal balance requirement of $17.5 million. As of October 31, 2015 and April 30, 2015, we had borrowed $17.5 million and $60.5 million, respectively. The line of credit includes covenants and restrictions requiring us to achieve on a fiscal and calendar quarter basis a debt service coverage ratio on borrowing base collateral of 1.25x in the aggregate and 1.00x on individual assets in the collateral pool. We are also required to maintain minimum depository account(s) totaling $6.0 million with First International Bank, of which $1.5 million is to be held in a non-interest bearing account. As of October 31, 2015, we believe we were in compliance with the line of credit’s covenants.

NOTE 10 • FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement and Disclosures defines and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels, as follows:

Level 1: Quoted prices in active markets for identical assets

Level 2: Significant other observable inputs

Level 3: Significant unobservable inputs

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Fair value estimates may be different than the amounts that may ultimately be realized upon sale or disposition of the assets and liabilities.

Fair Value Measurements on a Recurring Basis

We had no assets or liabilities recorded at fair value on a recurring basis at October 31, 2015 and April 30, 2015.

Fair Value Measurements on a Nonrecurring Basis

Non-financial assets and liabilities measured at fair value on a nonrecurring basis at October 31, 2015 consisted of real estate held for sale that was written-down to estimated fair value during the six months ended October 31, 2015. Non-financial assets measured at fair value on a nonrecurring basis at April 30, 2015 consisted of real estate held for sale that was written-down to estimated fair value during fiscal year 2015. See Note 2 for additional information on impairment losses recognized during fiscal years 2016 and 2015. The aggregate fair value of these assets by their levels in the fair value hierarchy is as follows:

	(in thousands)
	Total		Level 1		Level 2		Level 3
October 31, 2015
Real estate held for sale	$	5,615	$	0	$	0	$	5,615

April 30, 2015
Real estate held for sale		7,100		0		0		7,100

Financial Assets and Liabilities Not Measured at Fair Value

The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities. The fair values of our financial instruments approximate their carrying amount in the consolidated financial statements except for debt.

Cash and Cash Equivalents. The carrying amount approximates fair value because of the short maturity.

Other Investments. The carrying amount, or cost plus accrued interest, of the certificates of deposit approximates fair value.

Other Debt. 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 relevant treasury interest rates plus credit spreads (Level 2).

Lines of Credit. The carrying amount approximates fair value because the variable rate debt re-prices frequently.

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 relevant treasury interest rates plus credit spreads (Level 2).

The estimated fair values of our financial instruments as of October 31, 2015 and April 30, 2015, are as follows:

	(in thousands)
	October 31, 2015				April 30, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
FINANCIAL ASSETS
Cash and cash equivalents	$	55,133	$	55,133	$	48,970	$	48,970
Other investments		329		329		329		329
FINANCIAL LIABILITIES
Other debt		128,362		128,007		144,090		143,749
Line of credit		17,500		17,500		60,500		60,500
Mortgages payable		728,973		783,921		668,112		749,604
Mortgages payable related to assets held for sale		133,398		163,117		306,716		374,818

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NOTE 11 • REDEEMABLE NONCONTROLLING INTERESTS

Redeemable noncontrolling interests on the Condensed Consolidated Balance Sheets represent the noncontrolling interest in joint ventures in which our unaffiliated partner, at its election, could require us to buy its interest at a purchase price to be determined by an appraisal conducted in accordance with the terms of the agreement, or at a negotiated price. Redeemable noncontrolling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the value from period to period are charged to Common Shares on the Condensed Consolidated Balance Sheets. We currently have one joint venture, the Southgate apartment project in Minot, North Dakota, in which our joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, compel us to acquire the partner’s interest for a price to be determined in accordance with the provisions of the joint venture agreement.

As of October 31, 2015 and 2014, the estimated redemption value of the redeemable noncontrolling interests was $7.1 million and $6.4 million, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.

	(in thousands)
Balance at April 30, 2015	$	6,368
Contributions		826
Net loss		(89	)
Balance at October 31, 2015	$	7,105

	(in thousands)
Balance at April 30, 2014	$	6,203
Net income		170
Balance at October 31, 2014	$	6,373

NOTE 12 • SHARE BASED COMPENSATION

Share based awards are provided to officers, non-officer employees and trustees under our 2015 Incentive Plan approved by shareholders on September 15, 2015, which allows for awards in the form of cash and unrestricted and restricted Common Shares, up to an aggregate of 4,250,000 shares, over the ten year period in which the plan will be in effect. Through October 31, 2015, awards under the 2015 Incentive Plan consisted of restricted and unrestricted Common Shares.

Prior to the approval of our 2015 Incentive Plan, share based awards were provided to officers, non-officer employees and trustees under the our 2008 Incentive Award Plan, which was approved by shareholders on September 16, 2008, which allowed for awards in the form of cash and unrestricted and restricted Common Shares, up to an aggregate of 2,000,000 shares, over the period in which the plan will be in effect. Through October 31, 2015, awards under the 2008 Incentive Award Plan consisted of cash and restricted and unrestricted Common Shares.

Long-Term Incentive Plan

Under the 2008 Incentive Award Plan, our officers and non-officer employees could earn share awards under the Long-Term Incentive Plan (“LTIP”) adopted pursuant to the plan, which was a backward-looking program that measured performance over a one-year performance period beginning on the first day of each fiscal year. Such awards were payable to the extent deemed earned in shares, 50% of which vested on the last day of the performance period and 50% of which vested on the first anniversary of the end of the performance period. Such awards utilized the sole performance metric of the three-year average of the annual absolute total shareholder return (“TSR”).

Under the 2015 Incentive Plan, our officers and non-officer employees may earn share awards under a revised long-term incentive plan, a forward-looking program that measures long-term performance over the stated performance period. Such awards are payable to the extent deemed earned in shares, 50% of which will vest at the conclusion of the performance period and 50% of which will vest on the first anniversary of the end of the performance period. To accommodate the transition from the 2008 Incentive Award Plan to the 2015 Incentive Plan, performance periods for such awards granted on September 16, 2015 (“2016 LTIP Awards”) included one-year, two-year and three-year periods beginning on May 1, 2015. Going forward, it is anticipated that LTIP awards will be issued with a three-year performance period. The 2016 LTIP Awards utilize the performance metrics of relative TSR for 67% of the award and absolute TSR for 33% of the award. The 2016 LTIP Awards for performance periods of one, two and three years were 380,498; 353,535 and 353,535 shares, respectively.

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In connection with the LTIP awards, we recognize compensation expense ratably (over 31.5 months for the 50% unrestricted shares and over 43.5 months for the 50% restricted shares) based on the grant date fair value, as determined using a binomial model employing the Monte Carlo simulation, and regardless of whether the market conditions are achieved and the LTIP awards ultimately vest. The market conditions utilized for the 2016 LTIP Awards are absolute TSR (1/3 weighting) and relative TSR measured against the MSCI US REIT Index (2/3 weighting). The model evaluates the LTIP awards for changing TSR over the vesting periods, and uses random simulations that are based on past share characteristics as well as distribution growth and other factors. The assumptions used to value the LTIP awards were an expected volatility of 16.6%, a risk-free interest rate of 1.13% and an expected life of 3 years. We based the expected volatility on the historical volatility of our daily closing share price. The share price at the grant date, September 16, 2015, was $7.13. We based the risk-free interest rate on the interest rates on U.S. treasury bonds with a maturity equal to the remaining performance period of the LTIP award. We based the expected term on the performance period of the LTIP award.

The calculated grant date fair value as a percentage of the officers’ base salary for the 2016 LTIP Awards with a three-year performance period that beginning on May 1, 2015 ranged from approximately 42% to 85% for the portion of the awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR. For the transition 2016 LTIP Awards with a one-year performance period beginning on May 1, 2015, the calculated grant date fair value as a percentage of the officers’ base salary ranged from approximately 46% to 96% for the portion of the awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR. For the transition 2016 LTIP Awards with a two-year performance period beginning on May 1, 2015, the calculated grant date fair value as a percentage of the officers’ base salary ranged from approximately 43% to 86% for the portion of the awards based on relative TSR and from 5% to 10% for the portion of the awards based on absolute TSR.

Total Compensation Expense

Share-based compensation expense recognized in the consolidated financial statements for all outstanding share based awards was approximately $539,000 and $601,000 for the three months ended October 31, 2015 and 2014, respectively, and approximately $605,000 and $1.7 million for the six months ended October 31, 2015 and 2014, respectively.

Restricted Share Awards

No share awards vested during the six months ended October 31, 2015 and 2014. The total unvested restricted share awards at October 31, 2015 was 107,536, which had a weighted average grant date fair value of $7.17 per share.

As of October 31, 2015, the total compensation cost related to non-vested share awards not yet recognized was approximately $193,000, which we expect to recognize during the remainder of fiscal year 2016.

NOTE 13 • SUBSEQUENT EVENTS

Common and Preferred Share Distributions. On December 3, 2015, our Board of Trustees declared the following distributions:

Class of shares/units	Quarterly Amount per Share or Unit		Record Date	Payment Date
Common shares and limited partnership units	$	0.1300	January 4, 2016	January 15, 2016
Preferred shares:
Series A	$	0.5156	December 15, 2015	December 31, 2015
Series B	$	0.4968	December 15, 2015	December 31, 2015

Executed Lease. In November 2015, a new 89-month lease was executed for 143,956 square feet at the Roseville 3075 Long Lake Road property, a newly redeveloped industrial property located in Roseville, MN. The lease accounts for approximately 11.8% of the rentable square footage for our industrial segment.

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ITEM 2. MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements included in this report, as well as our audited financial statements for the fiscal year ended April 30, 2015, which are included in our Form 10-K filed with the SEC on June 29, 2015.

Forward Looking Statements. Certain matters included in this discussion are forward looking statements within the meaning of the federal securities laws. Although we believe that the expectations reflected in the following statements are based on reasonable assumptions, we can give no assurance that the expectations expressed will actually be achieved. Many factors may cause actual results to differ materially from our current expectations, including general economic conditions, local real estate conditions, the general level of interest rates and the availability of financing and various other economic risks inherent in the business of owning and operating investment real estate.

Overview

We are a self-advised equity REIT engaged in owning and operating income-producing real estate properties. Our investments include multifamily residential properties and commercial properties located primarily in the upper Midwest states of Minnesota and North Dakota. As of October 31, 2015, we held for investment 94 multifamily properties containing 12,269 apartment units and having a total real estate investment amount net of accumulated depreciation of $905.3 million, and 83 commercial properties containing approximately 4.5 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $524.3 million. We held for sale 8 multifamily and 13 commercial properties as of October 31, 2015.

Our primary source of income and cash is rents associated with multifamily and commercial leases. Our business objective is to increase shareholder value by employing a disciplined investment strategy. This strategy is implemented by growing income-producing assets in desired geographical markets in real estate classes we believe will provide a consistent return on investment for our shareholders. We have paid quarterly distributions continuously since our first distribution in 1971.

Critical Accounting Policies

In preparing the condensed consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. A summary of our critical accounting policies is included in our Form 10-K for the fiscal year ended April 30, 2015, filed with the SEC on June 29, 2015, under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to those policies during the three months ended October 31, 2015.

Significant Events and Transactions during the Three Months Ended October 31, 2015

Summarized below are significant transactions and events that occurred during the second quarter of our fiscal year 2016:

The acquisition of a 27,819 square foot healthcare property in Omaha, Nebraska for a purchase price of $6.5 million, a 74-unit multifamily property in Grand Forks, North Dakota for a purchase price of $9.3 million, and a 276-unit multifamily property in Rochester, Minnesota, for a purchase price of $56.0 million.

The placement into service of the 70,756 square foot PrairieCare Medical project in Brooklyn Park, Minnesota and the 7,963 square foot Minot Southgate Retail project in Minot, North Dakota.

The dispositions of 39 office properties, one healthcare property and 15 retail properties for sales prices totaling $371.9 million.

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Market Conditions and Outlook

The demand for investment and institutional quality real estate in our markets is strong. Investors have abundant equity and access to debt to facilitate acquisitions. Prices and sales volumes are up over last year. Fundamentals are also favorable with flat or declining vacancies and rising rents in most of our markets. The exception for us is in the Bakken Oil impacted markets of Williston and Minot, North Dakota where we are experiencing rising apartment vacancies and concessions to attract residents.

We experienced generally stable trends across our apartment investments during the first two quarters of fiscal year 2016. Same-store net operating income was flat and occupancy slipped from 96.0 to 95.4% from one year ago on same store properties. According to AXIOMetrics Inc., the national apartment occupancy rate improved 0.1% to 95.1% from one year ago, October 31, 2014. Our ability to maintain occupancy levels and raise rents remains dependent on continued healthy employment and wage growth. We have continued to observe considerable multifamily development activity in our markets, and as this new construction is completed and leased, we will experience increased competition for residents. However, based on information available to us, apartment developers in our markets are currently seeing increases in construction costs for potential new apartment developments, which may slow new developments in our markets. The U.S. economic outlook through 2017 is forecasted to be good according to U.S. Bureau of Labor Statistics and Moody’s Analytics. Businesses are adding jobs and for the first time in this phase of the economic cycle we are seeing meaningful wage growth. There is an attitudinal shift also occurring toward renting by professional millennials and to lesser, although growing degree, by baby boomers. These trends are beneficial to apartment owners.

Our healthcare segment consists of medical office properties and senior housing facilities. The medical office component remains stable with high occupancy at 96.0% (same store) and modest rent increases.

The industrial property market continues to improve as vacancies have come down across the country and in our principal market of Minneapolis. Our industrial properties are located primarily in the Minneapolis market, and same-store occupancy remained at 100%. The demand for bulk warehouse and manufacturing space in our markets is healthy, with rents generally rising.

Same-store and Non-same-store Properties

Throughout this Quarterly Report on Form 10-Q, we have provided certain information on a same-store and non-same-store properties basis. Information provided on a same-store properties basis includes the results of properties that we have owned and operated for the entirety of both periods being compared (except for properties for which significant redevelopment or expansion occurred during either of the periods being compared, and properties sold or classified as held for sale), and which, in the case of development or re-development properties, have achieved a target level of occupancy of 90% for multifamily properties and 85% for healthcare, industrial and other properties.

For the comparison of the three and six months ended October 31, 2015 and 2014, all or a portion of 52 properties were non-same-store, of which 16 were redevelopment or in-service development properties.

While there are judgments to be made regarding changes in designation, we typically remove properties from same-store to non-same-store when redevelopment has or is expected to have a significant impact on property net operating income within the fiscal year. Acquisitions are moved to same-store once we have owned the property for the entirety of comparable periods and the property is not under significant redevelopment or expansion. Our development projects in progress are not included in our non-same-store properties category until they are placed in-service, which occurs upon the substantial completion for a commercial development property and upon receipt of a certificate of occupancy for a multifamily development project. They are then subsequently moved from non-same-store to same-store when the property has been in-service for the entirety of both periods being compared and has reached the target level of occupancy specified above.

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RESULTS OF OPERATIONS

Consolidated Results of Operations for the Three and Six Months Ended October 31, 2015 and 2014

The discussion that follows is based on our consolidated results of operations for the three and six months ended October 31, 2015 and 2014.

	(in thousands, except percentages)
	Three Months Ended												Six Months Ended
	October 31						2015 vs 2014						October 31						2015 vs 2014
	2015			2014			$ Change			% Change			2015			2014			$ Change			% Change
Real estate rentals	$	46,727		$	45,304		$	1,423			3.1	%	$	92,249		$	88,868		$	3,381			3.8	%
Tenant reimbursement		4,578			5,042			(464	)		(9.2	)%		8,974			9,899			(925	)		(9.3	)%
TRS senior housing revenue		965			843			122			14.5	%		2,003			1,636			367			22.4	%
TOTAL REVENUE		52,270			51,189			1,081			2.1	%		103,226			100,403			2,823			2.8	%
Depreciation/amortization related to real estate investments		14,461			12,859			1,602			12.5	%		27,733			25,073			2,660			10.6	%
Utilities		3,124			3,024			100			3.3	%		6,330			5,969			361			6.1	%
Maintenance		5,784			5,062			722			14.3	%		11,158			10,048			1,110			11.1	%
Real estate taxes		5,002			4,781			221			4.6	%		9,919			9,768			151			1.6	%
Insurance		1,244			1,068			176			16.5	%		2,344			2,530			(186	)		(7.4	)%
Property management expenses		4,635			3,479			1,156			33.2	%		8,506			7,145			1,361			19.1	%
Other property expenses		243			350			(107	)		(30.6	)%		175			556			(381	)		(68.5	)%
TRS senior housing expenses		812			725			87			12.0	%		1,581			1,418			163			11.5	%
Administrative expenses		2,933			2,890			43			1.5	%		5,387			6,554			(1,167	)		(17.8	)%
Other expenses		1,204			578			626			108.3	%		1,628			1,190			438			36.8	%
Amortization related to non-real estate investments		169			216			(47	)		(21.8	)%		340			437			(97	)		(22.2	)%
Impairment of real estate investments		1,873			1,803			70			3.9	%		3,158			4,123			(965	)		(23.4	)%
TOTAL EXPENSES		41,484			36,835			4,649			12.6	%		78,259			74,811			3,448			4.6	%
Operating income		10,786			14,354			(3,568	)		(24.9	)%		24,967			25,592			(625	)		(2.4	)%
Interest expense		(10,131	)		(9,954	)		(177	)		1.8	%		(19,327	)		(19,701	)		374			(1.9	)%
Loss on debt extinguishment		(106	)		0			(106	)		(100.0	)%		(106	)		0			(106	)		(100.0	)%
Interest income		565			560			5			0.9	%		1,121			1,120			1			0.1	%
Other income		100			136			(36	)		(26.5	)%		151			262			(111	)		(42.4	)%
Income before gain (loss) on sale of real estate and other investments and income from discontinued operations		1,214			5,096			(3,882	)		(76.2	)%		6,806			7,273			(467	)		(6.4	)%
Gain (loss) on sale of real estate and other investments		0			1,231			(1,231	)		(100.0	)%		(175	)		(1,762	)		1,587			(90.1	)%
Income from continuing operations		1,214			6,327			(5,113	)		(80.8	)%		6,631			5,511			1,120			20.3	%
Income (loss) from discontinued operations		15,463			(457	)		15,920			(3,483.6	)%		14,773			160			14,613			9,133.1	%
NET INCOME		16,677			5,870			10,807			184.1	%		21,404			5,671			15,733			277.4	%
Net (income) loss attributable to noncontrolling interests – Operating Partnership		(1,527	)		(363	)		(1,164	)		320.7	%		(1,713	)		39			(1,752	)		(4,492.3	)%
Net loss (income) attributable to noncontrolling interests – consolidated real estate entities		1,516			(393	)		1,909			(485.8	)%		1,515			(747	)		2,262			(302.8	)%
Net income attributable to Investors Real Estate Trust		16,666			5,114			11,552			225.9	%		21,206			4,963			16,243			327.3	%
Dividends to preferred shareholders		(2,878	)		(2,878	)		0			0.0	%		(5,757	)		(5,757	)		0			0.0	%
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	13,788		$	2,236			11,552			516.6	%	$	15,449		$	(794	)		16,243			(2,045.7	)%

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Revenues. Revenues for the three months ended October 31, 2015 were $52.3 million compared to $51.2 million in the three months ended October 31, 2014, an increase of $1.1 million or 2.1%. The increase in revenue for the three months ended October 31, 2015 resulted primarily from properties acquired and development projects placed in service in fiscal years 2016 and 2015, as shown in the table below.

	(in thousands)
	Increase in Total Revenue Three Months ended October 31, 2015
Rent in Fiscal 2016 primarily from properties acquired and development projects placed in service in Fiscal 2016	$	980
Rent in Fiscal 2016 primarily from properties acquired and development projects placed in service in Fiscal 2015 in excess of that received in Fiscal 2015 from the same properties		2,413
Decrease in rent on same-store properties, excluding straight line rent⁽¹⁾		(89	)
Net change in straight line rent on same-store properties⁽¹⁾		(224	)
Decrease in rent from properties sold or classified as held for sale in Fiscal 2016 and 2015		(2,121	)
TRS senior housing revenue in excess of that received in Fiscal 2015⁽²⁾		122
Net increase in total revenue	$	1,081

(1)	See analysis of NOI by segment below for additional information.

(2)	See discussion in TRS Senior Housing Expenses paragraph below.

Revenues for the six months ended October 31, 2015 were $103.2 million compared to $100.4 million in the six months ended October 31, 2014, an increase of $2.8 million or 2.8%. The increase in revenue for the six months ended October 31, 2015 resulted primarily from properties acquired and development projects placed in service in fiscal years 2016 and 2015, as shown in the table below.

	(in thousands)
	Increase in Total Revenue Six Months ended October 31, 2015
Rent in Fiscal 2016 primarily from properties acquired and development projects placed in service in Fiscal 2016	$	1,116
Rent in Fiscal 2016 primarily from properties acquired and development projects placed in service in Fiscal 2015 in excess of that received in Fiscal 2015 from the same properties		5,931
Increase in rent on same-store properties, excluding straight line rent⁽¹⁾		276
Net change in straight line rent on same-store properties⁽¹⁾		(537	)
Decrease in rent from properties sold or classified as held for sale in Fiscal 2016 and 2015		(4,330	)
TRS senior housing revenue in excess of that received in Fiscal 2015⁽²⁾		367
Net increase in total revenue	$	2,823

(1)	See analysis of NOI by segment below for additional information.

(2)	See discussion in TRS Senior Housing Expenses paragraph below.

Depreciation/Amortization Related to Real Estate Investments. Depreciation/amortization related to real estate investments increased by 12.5% to $14.5 million in the second quarter of fiscal year 2016, compared to $12.9 million in the same period of the prior fiscal year. This increase was primarily due to depreciation on new developments placed in service.

Depreciation/amortization related to real estate investments decreased by 10.6% to $27.7 million in the six months ended October 31, 2015, compared to $25.1 million in the same period of the prior fiscal year. This increase was primarily due to depreciation on new developments placed in service.

Utilities. Utilities increased by 3.3% to $3.1 million in the second quarter of fiscal year 2016, compared to $3.0 million in the same period of the prior fiscal year. Same-store properties realized an increase of $114,000 due to increased heating costs while a decrease of $14,000 was attributable to non-same-store properties.

Utilities increased by 6.1% to $6.3 million in the six months ended October 31, 2015 compared to $6.0 million in the same period of the prior fiscal year. Same-store properties realized an increase of $211,000 primarily due to increased water and sewer costs while an increase of $150,000 at non-same-store properties was attributable to new income producing real estate properties.

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Maintenance. Maintenance expenses increased by 14.3% to $5.8 million in the second quarter of fiscal year 2016, compared to $5.1 million in the same period of the prior fiscal year. An increase of $512,000 was attributable to same-store properties primarily due to an increase in labor and benefit costs as a result of the ability to hire in previously under-staffed markets. Non-same-store properties realized an increase of $210,000 due to the addition of new income producing real estate properties.

Maintenance expenses increased by 11.1% to $11.2 million in the six months ended October 31, 2015 compared to $10.0 million in the same period of the prior fiscal year. An increase of $796,000 was attributable to same-store properties primarily due to an increase in labor and benefit costs as a result of the ability to hire in previously under-staffed markets. Non-same-store properties realized an increase of $314,000 due to the addition of new income producing real estate properties.

Real Estate Taxes. Real estate taxes increased by 4.6% to $5.0 million in the second quarter of fiscal year 2016, compared to $4.8 million in the same period of the prior fiscal year. An increase of $131,000 was attributable to non-same-store properties due to new income producing real estate properties and increased property valuations in our North Dakota markets. An increase of $90,000 was attributable to same-store properties primarily due to increased property valuations in our North Dakota markets.

Real estate taxes increased by 1.6% to $9.9 million in the six months ended October 31, 2015 compared to $9.8 million in the same period of the prior fiscal year. An increase of $234,000 was attributable to same-store properties primarily due to increased property valuations in our North Dakota markets while non-same-store properties realized a decrease of 83,000.

Insurance. Insurance expense increased by 16.5% to $1.2 million in the second quarter of fiscal year 2016, compared to $1.1 million in the same period of the prior fiscal year. Deductibles paid on insurance claims at same-store properties increased by $100,000 when compared to the prior year while insurance premiums at same-store properties increased by $7,000. An increase of $69,000 was attributable to the addition of new income-producing real estate properties.

Insurance expense decreased by 7.4% to $2.3 million in the six months ended October 31, 2015 compared to $2.5 million in the same period of the prior fiscal year. Deductibles paid on insurance claims at same-store properties decreased by $300,000 when compared to the prior year while insurance premiums at same-store properties decreased by $8,000. These decreases were offset by an increase of $122,000 which was attributable to the addition of new income-producing real estate properties.

Property Management Expenses. Property management expenses increased by 33.2% to $4.6 million in the second quarter of fiscal year 2016, compared to $3.5 million in the same period of the prior fiscal year. An increase of $629,000 was attributable primarily to increases in internal property management costs, labor and benefits and marketing costs at same-store properties while an increase of $527,000 was primarily due to marketing costs at new income-producing real estate properties.

Property management expenses increased by 19.1% to $8.5 million in the six months ended October 31, 2015 compared to $7.1 million in the same period of the prior fiscal year. An increase of $505,000 was attributable primarily to increased marketing costs and internal property management expenses at same-store properties while an increase of $856,000 was primarily due to marketing costs at new income-producing real estate properties.

Other Property Expenses. Other property expense, consisting primarily of bad debt provision expense, decreased to approximately $243,000 in the second quarter of fiscal year 2016, compared to approximately $350,000 in the same period of the prior fiscal year. Other property expense decreased to approximately $175,000 in the six months ended October 31, 2015, compared to approximately $556,000 in the same period of the prior fiscal year. The decrease for both the three and six months is primarily due to a decrease in the provision for bad debt.

TRS Senior Housing Expenses. We have one TRS, acquired during the second quarter of fiscal year 2014, which is the tenant in the Legends at Heritage Place senior housing facility. Property management expenses for the Heritage Place property are paid by the TRS, as the tenant in the property, and revenue from the Heritage Place facility is shown as TRS senior housing revenue on the Condensed Consolidated Statements of Operations. TRS senior housing expense increased to approximately $812,000 in the second quarter of fiscal year 2016, compared to $725,000 in the same period of the prior year. TRS senior housing expense for the six months ended October 31, 2015 increased $163,000 compared to the same period of the prior year.

Administrative Expenses. Administrative expenses increased by 1.5% in the second quarter of fiscal year 2016 compared to the same period of the prior fiscal year. Administrative expenses decreased by 17.8% to $5.4 million in the six months ended October 31, 2015, compared to $6.6 million in the same period of the prior fiscal year. This change was primarily due to decreases of approximately $736,000 in short term incentive plan expense and $1.1 million in share-based compensation expense, offset by increases in salary and bonus expenses.

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Other Expenses. Other expenses increased 108.3% to $1.2 million in the second quarter of fiscal year 2016 and increased 36.8% to $1.6 million in the six months ended October 31, 2015, compared to the same periods of the prior fiscal year, respectively. The increase for the quarter and year to date periods was primarily due to increased acquisition and disposition costs and costs related to withdrawn projects

Impairment of Real Estate Investments. We recognized $1.9 million and $1.8 million of impairment in continuing operations during the three months ended October 31, 2015 and 2014, respectively and $3.2 million and $4.1 million during the six months ended October 31, 2015 and 2014, respectively. See Note 2 of the Notes to the Condensed Consolidated Financial Statements in this report for additional information.

Interest Expense. Components of interest expense in the three and six months ended October 31, 2015 and 2014 were as follows.

	(in thousands, except percentages)
	Three Months Ended													Six Months Ended
	October 31						2015 vs 2014							October 31						2015 vs 2014
	2015			2014			$ Change				% Change			2015			2014			$ Change				% Change
Mortgage debt		$	9,189		$	9,026		$	163			1.8	%		$	17,543		$	17,909		$	(366	)		(2.0	%)
Line of credit			241			447			(206	)		(46.1	%)			1,155			868			287			33.1	%
Other			701			481			220			45.7	%			629			924			(295	)		(31.9	%)
Total interest expense		$	10,131		$	9,954		$	177			1.8	%		$	19,327		$	19,701		$	(374	)		(1.9	%)

Mortgage interest increased by 1.8% to $9.2 million in the second quarter of fiscal year 2016, compared to $9.0 million in the same period of the prior fiscal year. Mortgages on non-same-store properties added approximately $848,000 and $930,000 to our mortgage interest expense in the three months and six months ended July October 31, 2015, respectively, while mortgage interest on same-store properties decreased approximately $363,000 and $612,000 compared to the three and six months ended October 31, 2014, primarily due to loan payoffs and refinancings.

Interest expense on our line of credit decreased to approximately $241,000 in the three months ended October 31, 2015, compared to approximately $447,000 in the same period of the prior fiscal year, primarily due to a lower average outstanding balance during the second quarter of fiscal year 2016. Interest expense on our line of credit increased to $1.2 million in the six months ended October 31, 2015, compared to approximately $868,000 in the same period of the prior fiscal year, primarily due to a higher average outstanding balance during the fiscal year 2016.

Other interest consists of interest on construction loans, a financing liability, security deposits and special assessments, as well as amortization of loan costs, offset by capitalized construction interest. Other interest increased to approximately $701,000 in the second quarter of fiscal year 2016, compared to approximately $481,000 in the same period of the prior fiscal year, primarily due to a decrease in capitalized construction interest. Other interest decreased to approximately $629,000 in the six months ended October 31, 2015, compared to approximately $924,000 in the same period of the prior fiscal year, primarily due to an increase in capitalized construction interest.

Gain (Loss) on Sale of Real Estate and Other Investments. We recorded no gain or loss in continuing operations in the three months ended October 31, 2015, compared to a net gain of $1.2 million in the same period of the prior year. We recorded in continuing operations a net loss of approximately $175,000 and $1.8 million in the six months ended October 31, 2015 and 2014, respectively. Properties sold in the six months ended October 31, 2015 and 2014 are detailed below in the section captioned “Property Acquisitions and Dispositions.”

Income (Loss) from Discontinued Operations. During the first quarter of fiscal year 2016, we determined that our strategic plan to exit the office and retail segments met the criteria for discontinued operations. Accordingly, 48 office properties, 1 healthcare property and 17 retail properties which were classified as held for sale at July 31, 2015 were also classified as discontinued operations. Of the properties classified as discontinued operations, we sold 39 office properties, 15 retail properties and 1 healthcare property during the second quarter of fiscal year 2016, leaving 9 office properties and 2 retail properties classified as held for sale at October 31, 2015.We recorded income from discontinued operations of $15.5 million in the three months ended October 31, 2015, compared to loss from discontinued operations of approximately $457,000 in the same period of the prior fiscal year. During the six months ended October 31, 2015, we recorded income from continuing operations of $14.8 million and approximately $160,000, respectively. See Note 7 of the Notes to the Condensed Consolidated Financial Statements in this report for further information on discontinued operations.

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Occupancy

Occupancy as of October 31, 2015 compared to October 31, 2014 decreased in our multifamily and healthcare segments and remained stable in our industrial segment on a same-store basis. Occupancy represents the actual number of units or square footage leased divided by the total number of units or square footage at the end of the period.

Occupancy Levels on a Same-Store Property and All Property Basis:

	Same-Store Properties						All Properties
	As of October 31,						As of October 31,
Segments	2015			2014			2015			2014
Multifamily		95.4	%		96.0	%		91.9	%		94.6	%
Healthcare		96.0	%		96.1	%		94.9	%		96.1	%
Industrial		100.0	%		100.0	%		84.3	%		100.0	%

Net Operating Income

Net Operating Income (“NOI”) is a non-US GAAP measure which we define as total real estate revenues and gain on involuntary conversion less real estate expenses (which consist of utilities, maintenance, real estate taxes, insurance, property management expenses and other property expenses). We believe that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with US GAAP and should not be considered an alternative to net income, net income available for common shareholders or cash flow from operating activities as a measure of financial performance.

The following tables show real estate revenues, real estate operating expenses, gain on involuntary conversion and NOI by reportable operating segment for the three and six months ended October 31, 2015 and 2014. For a reconciliation of NOI of reportable segments to net income as reported, see Note 5 of the Notes to the Condensed Consolidated Financial Statements in this report.

The tables also show NOI by reportable operating segment on a same-store property and non-same-store property basis. This comparison allows us to evaluate the performance of existing properties and their contribution to net income. Management believes that measuring performance on a same-store property basis is useful to investors because it enables evaluation of how our properties are performing year over year. Management uses this measure to assess whether or not it has been successful in increasing NOI, renewing the leases of existing tenants, controlling operating costs and appropriately handling capital improvements. The discussion below focuses on the main factors affecting real estate revenue and real estate expenses from same-store properties. Since changes from one fiscal year to another in real estate revenue and expenses from non-same-store properties are due to the addition of those properties to our real estate portfolio, such information is less useful for evaluating the ongoing operational performance of our real estate portfolio.

Table of Contents

All Segments

The following table of selected operating data reconciles NOI to net income and provides the basis for our discussion of NOI by segment in the three and six months ended October 31, 2015 and 2014.

	(in thousands, except percentages)
	Three Months Ended October 31												Six Months Ended October 31
	2015			2014			$ Change			% Change			2015			2014			$ Change			% Change
All Segments

Real estate revenue
Same-store	$	43,941		$	44,254		$	(313	)		(0.7	)%	$	87,607		$	87,868		$	(261	)		(0.3	)%
Non-same-store⁽¹⁾		7,364			6,092			1,272			20.9	%		13,616			10,899			2,717			24.9	%
Total	$	51,305		$	50,346		$	959			1.9	%	$	101,223		$	98,767		$	2,456			2.5	%

Real estate expenses
Same-store	$	16,827		$	15,513		$	1,314			8.5	%	$	32,589		$	31,662		$	927			2.9	%
Non-same-store⁽¹⁾		3,205			2,251			954			42.4	%		5,843			4,354			1,489			34.2	%
Total	$	20,032		$	17,764		$	2,268			12.8	%	$	38,432		$	36,016		$	2,416			6.7	%

Net operating income
Same-store	$	27,114		$	28,741		$	(1,627	)		(5.7	)%	$	55,018		$	56,206		$	(1,188	)		(2.1	)%
Non-same-store⁽¹⁾		4,159			3,841			318			8.3	%		7,773			6,545			1,228			18.8	%
Total	$	31,273		$	32,582		$	(1,309	)		(4.0	)%	$	62,791		$	62,751		$	40			0.1	%
TRS senior housing revenue		965			843									2,003			1,636
TRS senior housing expenses		(812	)		(725	)								(1,581	)		(1,418	)
Depreciation/amortization		(14,630	)		(13,075	)								(28,073	)		(25,510	)
Administrative expenses		(2,933	)		(2,890	)								(5,387	)		(6,554	)
Other expenses		(1,204	)		(578	)								(1,628	)		(1,190	)
Impairment of real estate investments		(1,873	)		(1,803	)								(3,158	)		(4,123	)
Interest expense		(10,131	)		(9,954	)								(19,327	)		(19,701	)
Loss on extinguishment of debt		(106	)		0									(106	)		0
Interest and other income		665			696									1,272			1,382
Income before gain (loss) on sale of real estate and other investments and income (loss) from discontinued operations		1,214			5,096									6,806			7,273
Gain (loss) on sale of real estate and other investments		0			1,231									(175	)		(1,762	)
Income from continuing operations		1,214			6,327									6,631			5,511
Income (loss) from discontinued operations⁽²⁾		15,463			(457	)								14,773			160
Net income	$	16,677		$	5,870								$	21,404		$	5,671

(1)	Non-same-store properties consist of the following properties (re-development and in-service development properties are listed in bold type):
Held for Investment -	Multifamily -	71 France, Edina, MN; Arcata, Golden Valley, MN; Cardinal Point, Grand Forks, ND; Chateau II, Minot, ND; Colonial Villa, Burnsville, MN; Commons at Southgate, Minot, ND; Cypress Court I and II, St. Cloud, MN; Dakota Commons, Williston, ND; Deer Ridge, Jamestown, ND; Gardens, Grand Forks, ND; GrandeVille at Cascade Lake, Rochester, MN; Homestead Garden, Rapid City, SD; Legacy Heights, Bismarck, ND; Northridge, Bismarck, ND; Red 20, Minneapolis, MN; Renaissance Heights, Williston, ND and Silver Springs, Rapid City, SD. Total number of units, 2,392.
	Healthcare -	Edina 6565 France SMC III, Edina, MN; Lakeside Medical Plaza, Omaha, NE and PrairieCare Medical, Brooklyn Park, MN. Total rentable square footage, 156,199.
	Industrial -	Roseville 3075 Long Lake Road, Roseville, MN. Total rentable square footage, 220,557.
	Other -	Minot Southgate Retail, Minot, ND and Minot Southgate Wells Fargo Bank, Minot, ND. Total rentable square footage, 12,961.

Held for Sale -	Multifamily -	Campus Center, St. Cloud, MN; Campus Heights, St. Cloud, MN; Campus Knoll, St. Cloud, MN; Campus Plaza, St. Cloud, MN; Campus Side, St. Cloud, MN; Campus View, St. Cloud, MN; Cornerstone, St. Cloud, MN and University Park Place, St. Cloud, MN. Total number of units, 391.
	Healthcare -	Nebraska Orthopaedic Hospital, Omaha, NE. Total rentable square footage, 61,758.
	Other -	Minot Plaza, Minot, ND. Total rentable square footage, 11,003.
	Total NOI for held for sale properties for the three months ended October 31, 2015 and 2014, respectively, $684 and $682. Total NOI for held for sale properties for the six months ended October 31, 2015 and 2014, respectively, $1,194 and $1,135.

Table of Contents

Sold -	Multifamily -	Lancaster, St. Cloud, MN.
	Healthcare -	Jamestown Medical Office Building, Jamestown, ND.
	Industrial -	Eagan 2785 & 2795 Hwy 55, Eagan, MN.
	Other -	2030 Cliff Road, Eagan, MN; Burnsville Bluffs II, Burnsville, MN; Dewey Hill Business Center, Edina, MN; Fargo Express Community, Fargo, ND; Kalispell Retail Center, Kalispell, MT; Northgate I, Maple Grove, MN; Northgate II, Maple Grove, MN; Plymouth I, Plymouth, MN; Plymouth II, Plymouth, MN; Plymouth III, Plymouth, MN; Plymouth IV-V, Plymouth, MN; Southeast Tech, Eagan, MN; Thresher Square, Minneapolis, MN; Weston Retail, Weston, WI; Whitewater Plaza, Minnetonka, MN and Wirth Corporate Center, Golden Valley, MN.
	Total NOI for sold properties for the three months ended October 31, 2015 and 2014, respectively, $0 and $1,199. Total NOI for sold properties for the six months ended October 31, 2015 and 2014, respectively, $8 and $2,441.

(2)	Discontinued operations include gain on disposals and income from operations for:

2016 Held for Sale – Burnsville Strip Center, Corporate Center West, Farnam Executive Center, Flagship Corporate Center, Gateway Corporate Center, Miracle Hills One, Pacific Hills, Pine City C-Store, Riverport, Timberlands, and Woodlands Plaza IV.

2016 Dispositions – 610 Business Center, 7800 West Brown Deer Road, American Corporate Center, Ameritrade, Barry Pointe Office Park, Benton Business Park, Brenwood, Brook Valley I, Champlin South Pond, Chan West Village, Crosstown Centre, Duluth 4615 Grand, Duluth Denfeld Retail, Eden Prairie 6101 Blue Circle Drive, Forest Lake Auto, Forest Lake Westlake Center, Golden Hills Office Center, Grand Forks Medpark Mall, Granite Corporate Center, Great Plains, Highlands Ranch I and II, Interlachen Corporate Center, Intertech Building, Jamestown Buffalo Mall, Jamestown Business Center, Lakeville Strip Center, Mendota Office Center I-IV, Minnesota National Bank, Monticello C-Store, Northpark Corporate Center, Omaha 10802 Farnam Dr, Omaha Barnes & Noble, Pine City Evergreen Square, Plaza VII, Plymouth 5095 Nathan Lane, Prairie Oak Business Center, Rapid City 900 Concourse Drive, Rochester Maplewood Square, Spring Valley IV, V, X and XI, St.Cloud Westgate, Superior Office Building, TCA Building, Three Paramount Plaza, UHC Office, US Bank Financial Center, Wells Fargo Center, West River Business Park and Westgate.

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An analysis of NOI by segment follows.

Multifamily

Real estate revenue from same-store properties in our multifamily segment decreased by 0.7% or $188,000 in the three months ended October 31, 2015 compared to the same period in the prior fiscal year. An increase of $342,000 was realized due to increased rental rates, but was offset by an increase in vacancy of $375,000. Other fee items combined decreased by $155,000.

Real estate expenses at same-store properties increased by 13.5% or $1.5 million in the three months ended October 31, 2015 compared to the same period in the prior fiscal year. The primary factors were increased property management expenses of $658,000 and increased maintenance expenses of $516,000. The increase in property management expenses was primarily attributable to an increase in internal property management costs, increased labor and benefits and increased marketing costs. The increase in maintenance costs was primarily attributable to an increase in labor and benefits and an increase in under deductible insurance claims. All other real estate expenses combined increased by $286,000.

Real estate revenue from same-store properties in our multifamily segment increased by 0.2% or $78,000 in the six months ended October 31, 2015 compared to the same period in the prior fiscal year. An increase of $813,000 was realized due to increased rental rates, but was offset by an increase in vacancy of $657,000. Other fee items combined decreased by $78,000.

Real estate expenses at same-store properties increased by 8.0% or $1.8 million in the six months ended October 31, 2015 compared to the same period in the prior fiscal year. The primary factors were increased maintenance expenses of $731,000, increased property management expenses of $576,000 and increased real estate taxes of $452,000. The increase in maintenance expenses was primarily attributable to an increase in labor and benefit costs. The increase in property management expenses was primarily due to increased internal property management costs, and increased marketing costs while the increase in real estate taxes was due to increased property valuations in our North Dakota markets. All other real estate expenses combined increased by $3,000.

	(in thousands, except percentages)
	Three Months Ended October 31,										Six Months Ended October 31,
	2015		2014		$ Change			% Change			2015		2014		$ Change			% Change
Multifamily

Real estate revenue
Same-store	$	25,973	$	26,161	$	(188	)		(0.7	)%	$	51,889	$	51,811	$	78			0.2	%
Non-same-store		6,134		3,433		2,701			78.7	%		11,598		5,510		6,088			110.5	%
Total	$	32,107	$	29,594	$	2,513			8.5	%	$	63,487	$	57,321	$	6,166			10.8	%

Real estate expenses
Same-store	$	12,297	$	10,837	$	1,460			13.5	%	$	23,798	$	22,036	$	1,762			8.0	%
Non-same-store		2,921		1,327		1,594			120.1	%		5,344		2,346		2,998			127.8	%
Total	$	15,218	$	12,164	$	3,054			25.1	%	$	29,142	$	24,382	$	4,760			19.5	%

Net operating income
Same-store	$	13,676	$	15,324	$	(1,648	)		(10.8	)%	$	28,091	$	29,775	$	(1,684	)		(5.7	)%
Non-same-store		3,213		2,106		1,107			52.6	%		6,254		3,164		3,090			97.7	%
Total	$	16,889	$	17,430	$	(541	)		(3.1	)%	$	34,345	$	32,939	$	1,406			4.3	%

Occupancy	2015			2014
Same-store		95.4	%		96.0	%
Non-same-store		79.5	%		84.7	%
Total		91.9	%		94.6	%

Number of Units	2015		2014
Same-store		9,877		9,878
Non-same-store		2,783		1,414
Total		12,660		11,292

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Healthcare

Real estate revenue from same-store properties in our healthcare segment decreased by 1.2% or $184,000 in the three months ended October 31, 2015 compared to the same period in the prior fiscal year. The decrease in revenue was attributable to a decrease in the straight-line receivable of $248,000 while all other real estate revenues items combined increased by $64,000.

Real estate expenses from same-store properties decreased by 1.7% or $69,000 in the three months ended October 31, 2015 compared to the same period in the prior fiscal year. The primary factor was decreased real estate taxes of $157,000, while all other real estate expenses combined increased by $88,000.

Real estate revenue from same-store properties in our healthcare segment decreased by 1.5% or $450,000 in the six months ended October 31, 2015 compared to the same period in the prior fiscal year. The decrease in revenue was attributable to a decrease in the straight-line receivable of $534,000 while all other real estate revenues items combined increased by $84,000.

Real estate expenses from same-store properties decreased by 6.8% or $553,000 in the six months ended October 31, 2015 compared to the same period in the prior fiscal year. The primary factors were decreased other property expenses of $310,000 and decreased real estate taxes of $258,000. The decrease in other property expenses, consisting of bad debt provision expenses, was due to a decrease in the estimated uncollectible accounts receivable. All other real estate expenses combined increased by $15,000.

	(in thousands, except percentages)
	Three Months Ended October 31,										Six Months Ended October 31,
	2015		2014		$ Change			% Change			2015		2014		$ Change			% Change
Healthcare

Real estate revenue
Same-store	$	15,323	$	15,507	$	(184	)		(1.2	)%	$	30,430	$	30,880	$	(450	)		(1.5	)%
Non-same-store		1,056		824		232			28.2	%		1,655		1,653		2			0.1	%
Total	$	16,379	$	16,331	$	48			0.3	%	$	32,085	$	32,533	$	(448	)		(1.4	)%

Real estate expenses
Same-store	$	3,900	$	3,969	$	(69	)		(1.7	)%	$	7,629	$	8,182	$	(553	)		(6.8	)%
Non-same-store		263		142		121			85.2	%		366		287		79			27.5	%
Total	$	4,163	$	4,111	$	52			1.3	%	$	7,995	$	8,469	$	(474	)		(5.6	)%

Net operating income
Same-store	$	11,423	$	11,538	$	(115	)		(1.0	)%	$	22,801	$	22,698	$	103			0.5	%
Non-same-store		793		682		111			16.3	%		1,289		1,366		(77	)		(5.6	)%
Total	$	12,216	$	12,220	$	(4	)		0.0	%	$	24,090	$	24,064	$	26			0.1	%

Occupancy	2015			2014
Same-store		96.0	%		96.1	%
Non-same-store		80.0	%		96.5	%
Total		94.9	%		96.1	%

Rentable Square Footage	2015		2014
Same-store		2,870,116		2,870,234
Non-same-store		217,957		106,980
Total		3,088,073		2,977,214

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Industrial

Real estate revenue from same-store properties in our industrial segment increased by 1.5% or $24,000 in the three months ended October 31, 2015 compared to the same period in the prior fiscal year. Tenant reimbursements increased by $23,000 while all other revenue items combined increased by $1,000.

Real estate expenses from same-store properties decreased by 5.3% or $16,000 in the three months ended October 31, 2015 compared to the same period of the prior fiscal year. The decrease was primarily due to a decrease in maintenance expenses of $25,000 resulting from fewer general maintenance items being completed during the quarter while all other real estate expenses items combined increased by $9,000.

Real estate revenue from same-store properties in our industrial segment increased by 3.2% or $99,000 in the six months ended October 31, 2015 compared to the same period in the prior fiscal year. Tenant reimbursements increased by $101,000 while all other revenue items combined decreased by $2,000.

Real estate expenses from same-store properties decreased by 7.3% or $47,000 in the six months ended October 31, 2015 compared to the same period of the prior fiscal year. The decrease was primarily due to a decrease in maintenance expenses of $25,000 resulting from fewer general maintenance items being completed during the period while all other real estate expenses items combined decreased by $22,000.

	(in thousands, except percentages)
	Three Months Ended October 31,											Six Months Ended October 31,
	2015		2014			$ Change			% Change			2015		2014		$ Change			% Change
Industrial

Real estate revenue
Same-store	$	1,580	$	1,556		$	24			1.5	%	$	3,152	$	3,053	$	99			3.2	%
Non-same-store		60		37			23			62.2	%		110		110		0			0
Total	$	1,640	$	1,593		$	47			3.0	%	$	3,262	$	3,163	$	99			3.1	%

Real estate expenses
Same-store	$	287	$	303		$	(16	)		(5.3	)%	$	600	$	647	$	(47	)		(7.3	)%
Non-same-store		2		(31	)		33			106.5	%		83		74		9			12.2	%
Total	$	289	$	272		$	17			6.3	%	$	683	$	721	$	(38	)		(5.3	)%

Net operating income
Same-store	$	1,293	$	1,253		$	40			3.2	%	$	2,552	$	2,406	$	146			6.1	%
Non-same-store		58		68			(10	)		(14.7	)%		27		36		(9	)		(25.0	)%
Total	$	1,351	$	1,321		$	30			2.3	%	$	2,579	$	2,442	$	137			5.6	%

Occupancy	2015			2014
Same-store		100.0	%		100.0	%
Non-same-store		12.9	%		100.0	%
Total		84.3	%		100.0	%

Rentable Square Footage	2015		2014
Same-store		1,002,361		1,002,361
Non-same-store		220,557		17,750
Total		1,222,918		1,020,111

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Analysis of Commercial Segments’ Credit Risk and Leases

Credit Risk

The following table lists our top ten commercial tenants on October 31, 2015, for all commercial properties owned by us, including those held for sale, measured by percentage of total commercial segments’ minimum rents as of October 1, 2015. Our results of operations are dependent on, among other factors, the economic health of our tenants. We attempt to mitigate tenant credit risk by working to secure creditworthy tenants that meet our underwriting criteria and monitoring our portfolio to identify potential problem tenants. We believe that our credit risk is also mitigated by the fact that no individual tenant accounts for more than 10% of our total real estate rentals, although affiliated entities of Edgewood Vista together accounted for approximately 23.5% of our total commercial segments’ minimum rents as of October 1, 2015, and they accounted for approximately 8.6% of our total real estate rentals as of October 31, 2015.

As of October 31, 2015, 50 of our properties held for investment, including all 20 of our Edgewood Vista properties, all eight of our Idaho Spring Creek senior housing properties, and all five of our Wyoming senior housing properties, and one of our properties held for sale were leased under triple net leases under which the tenant pays a monthly lump sum base rent as well as all costs associated with the property, including property taxes, insurance, replacement, repair or restoration, in addition to maintenance. The failure by any of our triple net tenants to effectively conduct their operations or to maintain and improve our properties in accordance with the terms of their respective triple net leases could adversely affect their business reputations and ability to attract and retain residents and customers to our properties, which could have an indirect adverse effect on us.

We regularly monitor the relative credit risk of our significant tenants, including our triple net tenants. The metrics we use to evaluate a significant tenant’s liquidity and creditworthiness depend on facts and circumstances specific to that tenant and to the industry in which it operates, and include the tenant’s credit history and economic conditions related to the tenant, its operations and the markets in which it operates. These factors may change over time. Prior to signing a lease with a tenant, we generally assesses the prospective tenant’s credit quality through review of its financial statements and tax returns, and the result of that review is a factor in establishing the rent to be charged (e.g., higher risk tenants will be charged higher rent). Over the course of a lease, our property management and asset management personnel have regular contact with tenants and tenant employees, and, where the terms of the lease permit, receive tenant financial information for periodic review or review publicly-available financial statements in the case of public company tenants or non-profit entities, such as hospital systems, whose financial statements are required to be filed with state agencies. Through these means we monitor tenant credit quality.

Lessee	% of Total Commercial Segments’ Minimum Rents as of October 1, 2015
Affiliates of Edgewood Vista		23.5	%
Fairview Health Services		6.4	%
St. Luke’s Hospital of Duluth, Inc.		5.6	%
Applied Underwriters		4.0	%
PrairieCare Medical LLC		3.6	%
HealthEast Care System		2.8	%
Nebraska Orthopaedic Hospital⁽¹⁾		2.2	%
Affiliates of Siemens USA (NYSE: SI)		1.8	%
Quality Manufacturing Corp		1.6	%
Ascension Health		1.4	%
All Others		47.1	%
Total Monthly Commercial Rent as of October 1, 2015		100.0	%

(1)	The tenant in the Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. However, we can give no assurance if or when the sale of the property will be completed.

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Commercial Leasing Activity

During fiscal year 2016, we have executed new and renewal commercial leases for our same-store rental properties on 258,027 square feet for the three months ended October 31, 2015 and 319,399 square feet for the six months ended October 31, 2015. Due to our leasing efforts, occupancy in our same-store healthcare and industrial portfolios has remained strong at 97.1% as of October 31, 2015, compared to 97.1% as of October 31, 2014.

The total leasing activity for our same-store healthcare and industrial properties, expressed in square feet of leases signed during the period, and the resulting occupancy levels, are as follows:

Three Months Ended October 31, 2015 and 2014

	Square Feet of New Leases⁽¹⁾				Square Feet of Leases Renewed⁽¹⁾				Total Square Feet of Leases Executed⁽¹⁾				Occupancy
Segments	2015		2014		2015		2014		2015		2014		2015			2014
Healthcare		2,831		2,632		60,121		61,672		62,952		64,304		96.0	%		96.1	%
Industrial		0		0		195,075		0		195,075		0		100.0	%		100.0	%
Total		2,831		2,632		255,196		61,672		258,027		64,304		97.1	%		97.1	%

(1)

The leasing activity presented is based on leases signed or executed for our same-store rental properties during the period and is not intended to coincide with the commencement of rental revenue in accordance with US GAAP. Prior periods reflect amounts previously reported and exclude retroactive adjustments for properties reclassified to discontinued operations or non-same-store in the current period.

Six Months Ended October 31, 2015 and 2014

	Square Feet of New Leases⁽¹⁾				Square Feet of Leases Renewed⁽¹⁾				Total Square Feet of Leases Executed⁽¹⁾				Occupancy
Segments	2015		2014		2015		2014		2015		2014		2015			2014
Healthcare		4,455		11,579		106,543		100,688		110,998		112,267		96.0	%		96.1	%
Industrial		0		0		208,401		0		208,401		0		100.0	%		100.0	%
Total		4,455		11,579		314,944		100,688		319,399		112,267		97.1	%		97.1	%

(1)

New Leases

The following table sets forth the average effective rents and the estimated costs of tenant improvements and leasing commissions, on a per square foot basis, that we are obligated to fulfill under the new leases signed for our same-store healthcare and industrial properties:

Three Months Ended October 31, 2015 and 2014

	Square Feet of New Leases⁽¹⁾				Average Term in Years				Average Effective Rent⁽²⁾							Estimated Tenant Improvement Cost per Square Foot⁽¹⁾								Leasing Commissions per Square Foot⁽¹⁾
	2015		2014		2015		2014		2015			2014			2015			2014			2015			2014
Healthcare		2,831		2,632		2.5		3.4			19.52			19.89			24.15			9.25			2.01			0
Industrial		0		0		0		0			0			0			0			0			0			0
Total		2,831		2,632		2.5		3.4		$	19.52		$	19.89		$	24.15		$	9.25		$	2.01		$	0

(1)

(2)

Effective rents represent average annual base rental payments, on a straight-line basis for the term of each lease, excluding operating expense reimbursements. The underlying leases contain various expense structures including gross, modified gross, net and triple net.

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Six Months Ended October 31, 2015 and 2014

	Square Feet of New Leases⁽¹⁾				Average Term in Years				Average Effective Rent⁽²⁾							Estimated Tenant Improvement Cost per Square Foot⁽¹⁾								Leasing Commissions per Square Foot⁽¹⁾
	2015		2014		2015		2014		2015			2014			2015			2014			2015			2014
Healthcare		4,455		11,579		7.2		5.5			21.02			20.82			28.11			25.05			4.92			7.03
Industrial		0		0		0		0			0			0			0			0			0			0
Total		4,455		11,579		7.2		5.5		$	21.02		$	20.82		$	28.11		$	25.05		$	4.92		$	7.03

(1)

(2)

Lease Renewals

The following table summarizes our lease renewal activity within our same-store healthcare and industrial segments (square feet data in thousands):

Three Months Ended October 31, 2015 and 2014

	Square Feet of Leases Renewed⁽¹⁾				Percent of Expiring Leases Renewed⁽²⁾						Average Term in Years				Weighted Average Growth (Decline) in Effective Rents⁽³⁾						Estimated Tenant Improvement Cost per Square Foot⁽¹⁾						Leasing Commissions per Square Foot⁽¹⁾
	2015		2014		2015			2014			2015		2014		2015			2014			2015			2014			2015			2014
Healthcare		60,121		61,672		86.3	%		38.0	%		3.7		5.6		(2.1	%)		(8.5	%)			7.05			11.77			0.95			0.46
Industrial		195,075		0		100.0	%		0	%		5.0		0		19.2	%		0	%			0.56			0			0			0
Total		255,196		61,672		94.6	%		38.0	%		3.9		5.6		8.1	%		(8.5	%)		$	2.09		$	11.77		$	0.22		$	0.46

(1)

(2)	Renewal percentage of expiring leases is based on square footage of renewed leases and not the number of leases renewed. The category of renewed leases does not include leases that have become month-to-month leases, as the month-to-month leases are considered lease amendments.

(3)

Represents the percentage change in effective rent between the original leases and the renewal leases. Effective rents represent average annual base rental payments, on a straight-line basis for the term of each lease, excluding operating expense reimbursements. The underlying leases contain various expense structures including gross, modified gross, net and triple net.

Six Months Ended October 31, 2015 and 2014

	Square Feet of Leases Renewed⁽¹⁾				Percent of Expiring Leases Renewed⁽²⁾						Average Term in Years				Weighted Average Growth (Decline) in Effective Rents⁽³⁾						Estimated Tenant Improvement Cost per Square Foot⁽¹⁾						Leasing Commissions per Square Foot⁽¹⁾
	2015		2014		2015			2014			2015		2014		2015			2014			2015			2014			2015			2014
Healthcare		106,543		100,688		86.4	%		61.3	%		5.4		5.6		6.0	%		(3.9	%)			10.62			9.16			3.28			1.06
Industrial		208,401		0		100.0	%		0	%		5.0		0		18.1	%		0	%			0.59			0			0.07			0
Total		314,944		100,688		93.3	%		61.3	%		5.3		5.6		10.2	%		(3.9	%)		$	3.98		$	9.16		$	1.16		$	1.06

(1)

(2)	Renewal percentage of expiring leases is based on square footage of renewed leases and not the number of leases renewed. The category of renewed leases does not include leases that have become month-to-month leases, as the month-to-month leases are considered lease amendments.

(3)

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Our ability to maintain or increase occupancy rates is a principal driver of maintaining and increasing the average effective rents in our commercial segments. The increase in the average growth in effective rents for the industrial segment for the three months ended October 31, 2015 and the six months ended October 31, 2015 when compared to the same periods in the prior fiscal year is due to a 195,075 square foot lease renewal executed at our Stone Container property in Fargo, North Dakota. This lease was renewed at a 19.2% increase in effective rent primarily due to improved market conditions in the property location.

Lease Expirations

Our ability to maintain and improve occupancy rates, and base rents, primarily depends upon our continuing ability to re-lease expiring space. The following table reflects the in-service portfolio lease expiration schedule of our consolidated healthcare and industrial properties, including square footage and annualized base rent for expiring leases, as of October 31, 2015.

Fiscal Year of Lease Expiration	# of Leases		Square Footage of Expiring Leases⁽²⁾		Percentage of Total Commercial Segments Leased Square Footage			Annualized Base Rent of Expiring Leases at Expiration⁽³⁾		Percentage of Total Commercial Segments Annualized Base Rent
2016 (remainder)⁽¹⁾		37		593,167		15.0	%	$	6,295,188		11.3	%
2017		30		201,842		5.1	%		3,069,721		5.5	%
2018		20		177,701		4.5	%		4,207,706		7.6	%
2019		23		363,803		9.2	%		5,004,303		9.0	%
2020		13		166,159		4.2	%		1,933,197		3.5	%
2021		19		104,879		2.7	%		2,023,510		3.6	%
2022		39		1,296,621		32.7	%		17,010,303		30.7	%
2023		12		480,309		12.1	%		2,312,762		4.2	%
2024		25		194,209		4.9	%		3,982,194		7.2	%
2025		5		76,691		1.9	%		1,636,358		3.0	%
Thereafter		18		304,965		7.7	%		7,994,627		14.4	%
Totals		241		3,960,346		100.0	%	$	55,469,869		100.0	%

(1)	Includes month-to-month leases. As of October 31, 2015, month-to-month leases accounted for 309,255 square feet of which 286,854 square feet were located in five senior housing facilities in Wyoming.

(2)	Assuming that none of the tenants exercise renewal or termination options, and including leases renewed prior to expiration. Also excludes 99,535 square feet of space occupied by us.

(3)	Annualized Base Rent is monthly scheduled rent as of October 1, 2015, multiplied by 12.

Because of the different property types in our commercial portfolio and the dispersed locations of a substantial portion of the portfolio’s properties in secondary and tertiary markets, information on current market rents is difficult to obtain, is highly subjective, and is often not directly comparable between properties. As a result, we believe that the increase or decrease in effective rent on our recent leases is the most objective and meaningful information available regarding rent trends and the relationship between rents on leases expiring in the near term and current market rents across our markets. We believe that rents on our new and renewed leases generally approximate market rents.

PROPERTY ACQUISITIONS AND DISPOSITIONS

During the second quarter of fiscal year 2016, we closed on our acquisitions of:

a 27,819 sq ft healthcare property in Omaha, Nebraska, on approximately 1.8 acres of land, for a purchase price of $6.5 million paid in cash;

a 74-unit multifamily property in Grand Forks, North Dakota, on approximately 4.7 acres of land, for a purchase price of $9.3 million, of which $4.1 million was paid in cash, and the remainder in limited partnership units of the Operating partnership valued at $5.2 million; and

a 276-unit multifamily property in Rochester, Minnesota, on approximately 21.2 acres of land, for a purchase price of $56.0 million paid in limited partnership units of the Operating partnership.

During the second quarter of fiscal year 2016, we sold 39 office properties, one healthcare property and 15 retail properties for a total sales price of $371.9 million. See Note 8 of the Notes to Condensed Consolidated Financial Statements in this report for a table detailing our acquisitions and dispositions during the six month periods ended October 31, 2015 and 2014.

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Development and Re-Development Projects

The following tables provide additional detail, as of October 31, 2015, on our in-service (completed) development and re-development projects and development and re-development projects in progress. All of these projects are excluded from the same-store pool. We measure initial yield on our development projects upon completion and achievement of target lease-up levels by measuring net operating income from the development against the cost of the project. Estimated initial yields on the projects in progress listed below range from an estimated approximate 5.9% to an estimated approximate 6.3% initial yield.

Projects Placed in Service in the Six Months Ended October 31, 2015

						(in thousands)						(in fiscal years)
Project Name and Location	Segment	Rentable Square Feet or Number of Units	Percentage Leased or Committed			Anticipated Total Cost⁽¹⁾		Costs as of October 31, 2015⁽¹⁾		Cost per Square Foot or Unit⁽¹⁾		Date Placed in Service	Anticipated Same-Store Date
Chateau II - Minot, ND	Multifamily	72 units		77.8	%	$	14,711	$	14,641	$	204,319	1Q 2016	1Q 2018
Edina 6565 France SMC III - Edina, MN⁽²⁾	Healthcare	57,624 sq ft		24.5	%		36,752		32,495		638	1Q 2016	1Q 2018
Renaissance Heights - Williston, ND⁽³⁾	Multifamily	288 units		40.3	%		62,362		62,520		216,535	1Q 2016	1Q 2018
Minot Southgate Retail - Minot, ND	Other	7,963 sq ft		0	%		2,923		2,622		367	2Q 2016	1Q 2018
PrairieCare Medical - Brooklyn Park, MN	Healthcare	70,756 sq ft		100	%		24,709		24,709		343	2Q 2016	1Q 2018
						$	141,457	$	136,987

(1)	Excludes tenant improvements and leasing commissions.

(2)	Anticipated total cost includes estimated tenant improvement costs that have not been incurred as of October 31, 2015.

(3)	We are currently an approximately 70.0% partner in the joint venture entity constructing this project. The anticipated total cost amount given is the total cost to the joint venture entity.

Projects in Progress at October 31, 2015

								(in thousands)				(in fiscal years)
Project Name and Location	Planned Segment		Rentable Square Feet or Number of Units		Percentage Leased or Committed			Anticipated Total Cost⁽¹⁾		Costs as of October 31, 2015⁽¹⁾		Anticipated Construction Completion
Deer Ridge - Jamestown, ND	Multifamily		163 units			17.8	%		24,519		23,830	3Q 2016
Cardinal Point - Grand Forks, ND⁽²⁾	Multifamily		251 units			19.1	%		44,402		40,361	4Q 2016
71 France - Edina, MN⁽³⁾	Multifamily		241 units			20.8	%		73,290		64,006	1Q 2017
Monticello Crossings - Monticello, MN	Multifamily		202 units			0	%		31,784		5,305	2Q 2017
Other		n/a		n/a		n/a			n/a		3,095		n/a
								$	173,995	$	136,597

(1)	Includes costs related to development projects that are placed in service in phases (Deer Ridge - $14.3 million, 71 France - $21.3 million, Cardinal Point - $11.1 million).

(2)	Anticipated total cost as of October 31, 2015 includes incremental cost increase due to the replacement of the project’s original general contractor.

(3)	The project will be constructed in three phases by a joint venture entity in which we have an approximately 52.6% interest. The anticipated total cost amount given is the total cost to the joint venture entity. The anticipated total cost includes approximately 21,772 square feet of retail space.

FUNDS FROM OPERATIONS

We consider Funds from Operations (“FFO”) a useful measure of performance for an equity REIT. We use the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO to mean “net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.” In addition, in October 2011, NAREIT clarified its computation of FFO to exclude impairment charges for all periods presented. Because of limitations of the FFO definition adopted by NAREIT, we have made certain interpretations in applying the definition. We believe all such interpretations not specifically provided for in the NAREIT definition are consistent with the definition.

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Management considers that FFO, by excluding depreciation costs, impairment write-downs, the gains or losses from the sale of operating real estate properties and extraordinary items as defined by US GAAP, is useful to investors in providing an additional perspective on our operating results. Historical cost accounting for real estate assets in accordance with US GAAP assumes, through depreciation, that the value of real estate assets decreases predictably over time. However, real estate asset values have historically risen or fallen with market conditions. NAREIT’s definition of FFO, by excluding depreciation costs, reflects the fact that real estate, as an asset class, generally appreciates over time and that depreciation charges required by US GAAP may not reflect underlying economic realities. Additionally, the exclusion in NAREIT’s definition of FFO of impairment write-downs and gains and losses from the sales of previously depreciated operating real estate assets, assists our management and investors in identifying the operating results of the long-term assets that form the core of our investments, and assists in comparing those operating results between periods. FFO is used by our management and investors to identify trends in occupancy rates, rental rates and operating costs.

While FFO is widely used by us as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies. FFO should not be considered as an alternative to net income as determined in accordance with US GAAP as a measure of our performance, but rather should be considered as an additional, supplemental measure, and should be viewed in conjunction with net income as presented in the consolidated financial statements included in this report. FFO does not represent cash generated from operating activities in accordance with US GAAP, and is not necessarily indicative of sufficient cash flow to fund all of our needs or our ability to service indebtedness or make distributions.

FFO applicable to Common Shares and Units for the three months ended October 31, 2015 decreased to $8.1 million compared to $22.2 million for the comparable period ended October 31, 2014, a decrease of 63.4%. FFO applicable to Common Shares and Units for the six months ended October 31, 2015 decreased by 26.8% to $30.1 million, compared to $41.2 million for the six months ended October 31, 2014.

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO

INVESTORS REAL ESTATE TRUST TO FUNDS FROM OPERATIONS

	(in thousands, except per share amounts)
Three Months Ended October 31,	2015							2014
	Amount			Weighted Avg Shares and Units⁽¹⁾		Per Share And Unit⁽²⁾		Amount			Weighted Avg Shares and Units⁽¹⁾		Per Share And Unit⁽²⁾
Net income attributable to Investors Real Estate Trust	$	16,666						$	5,114
Less dividends to preferred shareholders		(2,878	)						(2,878	)
Net income available to common shareholders		13,788			124,665	$	0.11		2,236			117,034	$	0.02
Adjustments:
Noncontrolling interest – Operating Partnership		1,527			13,900				363			16,261
Depreciation and amortization of real property		14,860							17,624
Impairment of real estate investments		1,873							3,245
Loss on depreciable property sales		(23,909	)						(1,231	)
FFO applicable to common shares and Units⁽¹⁾⁽³⁾	$	8,139			138,565	$	0.06	$	22,237			133,295	$	0.17

	(in thousands, except per share amounts)
Six Months Ended October 31,	2015							2014
	Amount			Weighted Avg Shares and Units⁽¹⁾		Per Share And Unit⁽²⁾		Amount			Weighted Avg Shares and Units⁽¹⁾		Per Share And Unit⁽²⁾
Net income attributable to Investors Real Estate Trust	$	21,206						$	4,963
Less dividends to preferred shareholders		(5,757	)						(5,757	)
Net income (loss) available to common shareholders		15,449			124,757	$	0.12		(794	)		114,033	$	(0.01	)
Adjustments:
Noncontrolling interest – Operating Partnership		1,713			13,929				(39	)		18,565
Depreciation and amortization of real property		33,119							34,661
Impairment of real estate investments		3,598							5,565
Gain (loss) on depreciable property sales		(23,733	)						1,762
FFO applicable to common shares and Units⁽¹⁾⁽³⁾	$	30,146			138,686	$	0.22	$	41,155			132,598	$	0.31

(1)	Units of the Operating Partnership are exchangeable for cash, or, at our discretion, for Common Shares on a one-for-one basis.

(2)	Net income attributable to Investors Real Estate Trust is calculated on a per share basis. FFO is calculated on a per share and unit basis.

(3)	Excluding loss on extinguishment of debt and default interest, FFO would have been $16.9 million and $0.12 per share and unit for the three months ended October 31, 2015 and $40.5 million and $0.29 per share and unit for the six months ended October 31, 2015.

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DISTRIBUTIONS

The following distributions per Common Share and Unit were paid during the six months ended October 31 of fiscal years 2016 and 2015:

Month	Fiscal Year 2016		Fiscal Year 2015
July	$	.1300	$	.1300
October	$	.1300	$	.1300

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our principal liquidity demands are maintaining distributions to the holders of Common Shares, preferred shares and Units; capital improvements and repairs and maintenance to properties; acquisition of additional properties; property development; tenant improvements; and debt service and repayments.

We have historically met our short-term liquidity requirements through net cash flows provided by our operating activities, and, from time to time, through draws on secured and unsecured lines of credit. As of October 31, 2015, we had one multi-bank line of credit with a total commitment capacity of $100.0 million, secured by mortgages on 16 properties. Management considers our ability to generate cash from property operating activities, cash-out refinancing of existing properties and, from time to time, draws on our line of credit to be adequate to meet all operating requirements and to make distributions to our shareholders in accordance with the REIT provisions of the Internal Revenue Code. Budgeted expenditures for ongoing maintenance and capital improvements and renovations to our real estate portfolio are also generally expected to be funded from existing cash on hand, cash flow generated from property operations, cash-out refinancing of existing properties, and/or new borrowings. However, the commercial real estate market continues to be subject to various market factors that can result in reduced tenant demand, occupancies and rental rates. In the event of deterioration in property operating results, or absent our ability to successfully continue cash-out refinancing of existing properties and/or new borrowings, we may need to consider additional cash preservation alternatives, including scaling back development activities, capital improvements and renovations and reducing the level of distributions to shareholders.

To the extent we do not satisfy our long-term liquidity requirements, which consist primarily of maturities under long-term debt, construction and development activities and potential acquisition opportunities, through net cash flows provided by operating activities and our credit facilities, we intend to satisfy such requirements through a combination of funding sources which we believe will be available to us, including the issuance of Units, additional common or preferred equity, proceeds from the sale of properties, and additional long-term secured or short-term unsecured indebtedness.

SOURCES AND USES OF CASH

Credit markets continue to be stable, with credit availability relatively unconstrained and benchmark interest rates remaining at or near historic lows. While to date there has been no material negative impact on our ability to borrow in our multifamily segment, we continue to monitor the roles of the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) in financing multifamily properties and their general capacity to lend given allocations set by the Federal Housing Finance Agency. We consider that one of the consequences of a modification in the agencies’ roles in recent years could potentially lead to a narrowing of their lending focus away from the smaller secondary or tertiary markets which we generally target, to multifamily properties in major metropolitan markets. We have historically obtained a significant portion of our multifamily debt from Freddie Mac, and we continue to plan to refinance portions of our maturing multifamily debt with these two entities, so any change in their ability or willingness to lend going forward could result in higher loan costs and/or more constricted availability of financing for us. Underwriting on commercial real estate continues to be more conservative compared to the underwriting standards employed prior to the recessionary period and we continue to find recourse security more frequently required, lower amounts of proceeds available and lenders limiting the amount of financing available in an effort to manage capital allocations and credit risk. While we continue to expect to be able to refinance our debt maturing in the next twelve months without significant issues, we also expect lenders to continue to employ conservative underwriting regarding asset quality, occupancy levels and tenant creditworthiness. Accordingly, we remain cautious regarding our ability in fiscal year 2016 to rely on cash-out refinancing at levels we had achieved in recent years to provide funds for investment opportunities and other corporate purposes.

As of October 31, 2015 approximately 13.6%, or $6.6 million, of our mortgage debt maturing in the third and fourth quarters of fiscal year 2016 is debt placed on multifamily assets, and approximately 86.4%, or approximately $42.0 million, is debt placed on properties in our commercial segments. Of this $48.6 million, we expect to pay off $97,000, we expect to refinance $6.6 million and we expect to renew $41.9 million, in the second and third quarters of fiscal year 2016. As of October 31, 2015, approximately 26.1%, or $14.9 million, of our mortgage debt maturing in the next twelve months is debt placed on multifamily assets, and approximately 73.9%, or $42.4 million, is debt placed on properties in our healthcare and industrial segments.

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Our revolving, multi-bank line of credit with First International Bank as lead bank had, as of October 31, 2015, lending commitments of $100.0 million at an interest rate of 4.75%. As of October 31, 2015, the line of credit was secured by mortgages on 16 properties and had a minimum outstanding principal balance requirement of $17.5 million. As of October 31, 2015 and April 30, 2015, we had borrowed $17.5 million and $60.5 million, respectively.

Financial Institution	Compensating Balance
First International Bank and Trust, Watford City, ND	$	6,000,000
Associated Bank, Green Bay, WI		3,000,000
The PrivateBank, Minneapolis, MN		2,000,000
Bremer Bank, Saint Paul, MN		1,285,000
Dacotah Bank, Minot, ND		350,000
United Community Bank, Minot, ND		275,000
Peoples State Bank, Velva, ND		225,000
American National Bank, Omaha, NE		200,000
Commerce Bank a Minnesota Banking Corporation		100,000
Total	$	13,435,000

Current anticipated total project costs for development projects in progress at October 31, 2015 total approximately $174.0 million (including costs incurred by project joint venture entities), of which approximately $136.6 million has been incurred as of October 31, 2015. As of October 31, 2015, the Operating Partnership (or the project joint venture entities) had entered into construction loans totaling approximately $87.3 million for development projects in progress. In addition to current planned expenditures for development projects in progress, as of October 31, 2015, we are committed to fund $4.0 million in tenant improvements within approximately the next 12 months. Of this total, approximately $1.1 million is related to properties classified as held for sale.

The issuance of Units for property acquisitions continues to be an expected source of capital for us. In the three and six months ended October 31, 2015, approximately 44,000 Units, valued at issuance at $400,000 were issued in connection with our acquisition of property. In the three and six months ended October 31, 2014, approximately 11,000 Units, valued at issuance at $100,000 were issued in connection with our acquisition of property.

Under our DRIP, common shareholders and Unitholders have an opportunity to use their cash distributions to purchase additional Common Shares, and to purchase additional shares through voluntary cash contributions. During the six months ended October 31, 2015 and 2014, approximately 821,000 and 4.2 million Common Shares with a total value included in equity of $5.6 million and $34.8 million, and an average price per share after applicable discounts of $6.85 and $8.27, respectively, were issued under the DRIP plan.

Cash and cash equivalents at October 31, 2015 totaled $55.1 million, compared to $53.0 million at October 31, 2014, an increase of $2.1 million. Net cash provided by operating activities for the three months ended October 31, 2015 decreased by $17.9 million, primarily due to an increase in adjusted net income compared to the six months ended October 31, 2014 offset by an increase in gain on sale of real estate and discontinued operations. Net cash provided by investing activities increased by $314.8 million for the six months ended October 31, 2015 compared to the six months ended October 31, 2014, primarily due to an increase in proceeds from sale of discontinued operations net of an increase in payments for acquisitions of real estate. Net cash used by financing activities for the six months ended October 31, 2015 decreased by $296.5 million compared to the six months ended October 31, 2014, primarily due to an increase in payments on mortgage debt and payments on revolving line of credit and other debt, an increase in repurchases of common shares net of a decrease in proceeds from sale of common shares.

FINANCIAL CONDITION

Mortgage Loan Indebtedness. Mortgage loan indebtedness increased by approximately $60.9 million as of October 31, 2015, compared to April 30, 2015, due to new loans. As of October 31, 2015, approximately 87.7% of our $728.9 million of mortgage debt is at fixed rates of interest, with staggered maturities. This limits our exposure to changes in interest rates, which minimizes the effect of interest rate fluctuations on our results of operations and cash flows. As of October 31, 2015, the weighted average rate of interest on our mortgage debt was 5.04%, compared to 4.95% on April 30, 2015.

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Property Owned. Property owned was $1.8 billion at October 31, 2015 compared to $1.5 billion at April 30, 2015. During the six months ended October 31, 2015, we had three new acquisitions and disposed of 55 properties, as described above in the “Property Acquisitions and Dispositions” subsection of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cash and Cash Equivalents. Cash and cash equivalents on hand on October 31, 2015 were $55.1 million, compared to $49.0 million on April 30, 2015.

Other Investments. Other investments, consisting of certificates of deposit held primarily for compensating balances, totaled approximately $329,000 on October 31, 2015 and on April 30, 2015.

Operating Partnership Units. Outstanding Units in the Operating Partnership decreased to 13.9 million Units at October 31, 2015 compared to 14.0 million Units outstanding at April 30, 2015. The decrease resulted primarily from Unitholders exercising their Exchange Right, receiving in exchange an equal number of Common Shares.

Common and Preferred Shares of Beneficial Interest. Common Shares outstanding on October 31, 2015 totaled 122.8 million, compared to 124.5 million outstanding on April 30, 2015. We issued Common Shares pursuant to our DRIP, consisting of approximately 821,000 Common Shares issued during the six months ended October 31, 2015, for a total value of $5.6 million. Exchanges of approximately 154,000 Units for Common Shares, for a total of approximately $855,000 in shareholders’ equity, also increased the number of Common Shares outstanding during the six months ended October 31, 2015. We issued approximately 220,000 Common Shares, net of withholding, with a total grant-date value of approximately $1.6 million, under our 2008 Incentive Award Plan for executive officer and trustee share-based compensation for fiscal year 2015 performance. During the second quarter of fiscal year 2016, we repurchased and retired approximately 2.9 million Common Shares for an aggregate cost of approximately $21.9 million, including commissions.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is limited primarily to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations.

Approximately 87.7% and 92.8% of our mortgage debt, excluding mortgage debt related to held for sale assets, as of October 31, 2015 and April 30, 2015, respectively, is at fixed interest rates. Therefore, we have little exposure to interest rate fluctuation risk on our existing mortgage debt. Accordingly, interest rate fluctuations during the second quarter of fiscal year 2016 did not have a material effect on us. Even though our goal is to maintain a fairly low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future repricing or refinancing of our fixed or variable rate debt and on future debt.

We primarily use long-term (more than nine years) and medium term (five to seven years) debt as a source of capital. We do not currently use derivative securities, interest rate swaps or any other type of hedging activity to manage our interest rate risk. As of October 31, 2015, we had the following amounts of future principal and interest payments due on mortgages, including mortgages held for sale, secured by our real estate:

	(in thousands)
	Future Principal Payments
Mortgages	Remaining Fiscal 2016			Fiscal 2017			Fiscal 2018			Fiscal 2019			Fiscal 2020			Thereafter		Total		Fair Value
Fixed Rate	$	57,993		$	33,868		$	38,910		$	86,001		$	63,850		$	358,525	$	639,147	$	694,095
Avg Fixed Interest Rate⁽¹⁾		4.94	%		5.01	%		4.95	%		4.74	%		4.58	%

Variable Rate	$	978		$	9,521		$	2,098		$	30,389		$	46,840		$	0	$	89,826	$	89,826
Avg Variable Interest Rate⁽¹⁾		4.08	%		4.04	%		4.16	%		4.69	%		4.81	%

Held for Sale	$	258		$	123,151		$	576		$	9,413		$	0		$	0		133,398		163,117
Avg Fixed Interest Rate⁽¹⁾		9.08	%		6.03	%%		6.13	%		6.10	%		0	%
																		$	862,371	$	947,038

	(in thousands)
	Future Interest Payments
Mortgages	Remaining Fiscal 2016			Fiscal 2017			Fiscal 2018			Fiscal 2019			Fiscal 2020			Thereafter			Total
Fixed Rate		$	15,762		$	29,067		$	27,062		$	24,097		$	19,332		$	34,179		$	149,499
Variable Rate			1,833			3,588			3,298			2,549			1,452			0			12,720
Held for Sale			6,055			4,339			612			574			0			0			11,580
																				$	173,799

(1)	Interest rate given is for the entire year.

The weighted average interest rate on our fixed rate and variable rate debt, excluding mortgages related to assets held for sale, as of October 31, 2015, was 5.04%. Any fluctuations in variable interest rates could increase or decrease our interest expenses. For example, an increase of one percent per annum on our $89.8 million of variable rate mortgage indebtedness would increase our annual interest expense by approximately $898,000.

Exposure to interest rate fluctuation risk on our $100.0 million secured line of credit is limited by a cap on the interest rate of 8.65% with a floor of 4.75%. The line of credit has an interest rate equal to the Wall Street Journal Prime Rate plus 1.25%, matures in September 2017 and had an outstanding balance of $17.5 million at October 31, 2015.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures:

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of October 31, 2015, such disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting:

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

None

Item 1A.

Risk Factors

None

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Securities

During the second quarter of fiscal year 2016, we issued an aggregate of 12,500 unregistered Common Shares to limited partners of the Operating Partnership, upon exercise of their Exchange Rights regarding an equal number of Units. All such issuances of Common Shares were exempt from registration as private placements under Section 4(2) of the Securities Act, including Regulation D promulgated thereunder. We have registered the re-sale of such Common Shares under the Securities Act.

Share Repurchase Program

Our Board of Trustees has authorized a share repurchase program of up to $50.0 million worth of our Common Shares over a one year period. Effective September 14, 2015, as part of the implementation of the program, we established a written trading plan (“Plan”) that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The extent to which shares are repurchased and the timing of such repurchases will depend upon a variety of factors, including prevailing market conditions, regulatory requirements and other factors. The program does not obligate us to repurchase any specific number of shares and may be suspended at any time in our discretion. The following is a summary of the Common Shares repurchased under the Plan during the second quarter of fiscal year 2016:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs¹		Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
August 1 - 31, 2015		0	$	0		0	$	50,000,000
September 1 - 30, 2015		1,226,784		7.42		1,226,784		40,901,487
October 1 - 30, 2015		1,625,682		7.89		1,625,682		28,068,572
Total		2,852,466	$	7.69		2,852,466	$	28,068,572

(1)	On August 8, 2015, we publicly announced the share repurchase program to repurchase up to $50.0 million worth of our Common Shares over a one year period.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

Not Applicable

Item 5.

Other Information

None

Item 6.

Exhibits

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EXHIBIT INDEX

Exhibit No.	Description

3.2	Fourth Restated Trustee’s Regulations (Bylaws) of Investors Real Estate Trust, adopted on September 15, 2015 (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Commission on September 21, 2015).

10.1	Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on September 21, 2015).

10.2	Form of Stock Award Agreement (one-year measurement period) (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Commission on September 21, 2015).

10.3	Form of Stock Award Agreement (two-year measurement period) (incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Commission on September 21, 2015).

10.4	Form of Stock Award Agreement (three-year measurement period) (incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Commission on September 21, 2015).

31.1*	Section 302 Certification of President and Chief Executive Officer

31.2*	Section 302 Certification of Executive Vice President and Chief Financial Officer

32.1*	Section 906 Certifications of President and Chief Executive Officer

32.2*	Section 906 Certifications of Executive Vice President and Chief Financial Officer

101*	The following materials from our Quarterly Report on Form 10-Q for the quarter ended October 31, 2015 formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) notes to these condensed consolidated financial statements.

* Filed herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INVESTORS REAL ESTATE TRUST

(Registrant)

/s/ Timothy P. Mihalick
Timothy P. Mihalick
President and Chief Executive Officer

/s/ Ted E. Holmes
Ted E. Holmes
Executive Vice President and Chief Financial Officer

Date: December 10, 2015