UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

  

FORM 8-K/A 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 

Date of Report (date of earliest event reported): September 15, 2006 

INVESTORS REAL ESTATE TRUST
(Exact name of registrant as specified in its charter) 

(701) 837-4738
(Registrant's telephone number, including area code) 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

□    Written communications pursuant to Rule 425 under the Securities Act

□    Soliciting material pursuant to Rule 14a-12 under the Exchange Act

□    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

□    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 

_________________________________________________________________________________________

Item 2.01        Completion of Acquisition or Disposition of Assets. 

On September 18, 2006, Investors Real Estate Trust (“IRET”) filed a Current Report on Form 8-K with regard to the acquisition on September 15, 2006 by a wholly-owned special-purpose subsidiary of IRET of a portfolio of nine office complexes, consisting of 15 buildings totaling approximately 936,568 rentable square feet (the “Magnum Portfolio”), from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm founded by W. David Scott, for an aggregate consideration of approximately $140.8 million. IRET hereby amends the Form 8-K filed September 18, 2006 to provide the required financial information related to the acquisition of the Magnum Portfolio. The financial statements of the Magnum Portfolio that are included in the current report on the Form 8-K/A are provided for only the most recent fiscal year, since IRET acquired the Magnum Portfolio from an unrelated party. IRET is not aware of any material factors relating to the Magnum Portfolio not otherwise disclosed that would cause the reported financial information not to be necessarily indicative of future operating results. 

Item 9.01        Financial Statements and Exhibits. 

(a)                Financial Statements of Real Estate Acquired. The following financial statements are submitted at the end of this Current Report on Form 8-K/A and are filed herewith and incorporated herein by reference:

(b)               Pro Forma Financial Information. The following financial information is submitted at the end of this Current Report on Form 8-K/A and is furnished herewith and incorporated herein by reference:

(c)        Exhibits. None.

 

 2

---

SIGNATURE 

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 hereunto duly authorized.

  

		INVESTORS REAL ESTATE TRUST
		(Registrant)
	By:	/s/ Timothy P. Mihalick
		Timothy P. Mihalick
		Senior Vice President &
		Chief Operating Officer

Dated: November 3, 2006

 3

---

INDEX TO FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION

 

 5

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Pacific Hills ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Pacific Hills for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 6

---

Pacific Hills Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 7

---

Pacific Hills Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Pacific Hills office complex consisting of three multi-story and two single-story buildings, which contain approximately 143,061 rentable square feet, is located at 120th and Pacific Street, Omaha, Nebraska. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Pacific Hills for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Pacific Hills on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Pacific Hills, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to December 2011. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 8

---

Pacific Hills Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Pacific Hills receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 9

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Corporate Center West ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Corporate Center West for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 10

---

Corporate Center West Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 11

---

Corporate Center West Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Corporate Center West office complex consisting of three two-story buildings, which contain approximately 141,724 rentable square feet, is located at Old Mill Road in Omaha, Nebraska. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Corporate Center West for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Corporate Center West on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Corporate Center West, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to February 2017. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 12

---

Corporate Center West Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Corporate Center West receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 13

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Farnam Executive Center ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Farnam Executive Center for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 14

---

Farnam Executive Center Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 15

---

Farnam Executive Center Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Farnam Executive Center office building, which contains approximately 94,832 rentable square feet, is located at Farnam Drive in Omaha, Nebraska. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Farnam Executive Center for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Farnam Executive Center on September 15, 2006 .The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Farnam Executive Center, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to July 2012. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 16

---

Farnam Executive Center Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Certain expenses, including real estate taxes, utilities, and maintenance, are paid directly by the tenants in accordance with the leases. These expenses are not reflected in the Historical Summaries.

 

 

 

The remainder of this page has been left intentionally blank.

 

 17

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Miracle Hills One ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Miracle Hills One for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 18

---

Miracle Hills One Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

The remainder of this page has been intentionally left blank.

 19

---

Miracle Hills One Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Miracle Hills One office building, which contains approximately 84,475 rentable square feet, is located at Miracle Hills Drive in Omaha, Nebraska. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Miracle Hills One for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Miracle Hills One on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Miracle Hills One, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to June 2012. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 20

---

Miracle Hills One Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Miracle Hills One receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 21

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Woodlands Plaza IV ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Woodlands Plaza IV for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 22

---

Woodlands Plaza IV Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

The remainder of this page has been intentionally left blank.

 23

---

Woodlands Plaza IV Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Woodlands Plaza IV office building, which contains approximately 60,942 rentable square feet, is located at Borman Drive in St. Louis, Missouri. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Woodlands Plaza IV for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Woodlands Plaza IV on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Woodlands Plaza IV, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to August 2010. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 24

---

Woodlands Plaza IV Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Woodlands Plaza IV receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

The remainder of this page has been left intentionally blank.

 

 25

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Riverport ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Riverport for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 26

---

Riverport Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 27

---

Riverport Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Riverport office building, which contains approximately 122,567 reportable square feet, is located at Riverport Drive in Maryland Heights, Missouri. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Riverport for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Riverport on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Riverport, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to September 2011. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 28

---

Riverport Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Riverport receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 29

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Timberlands ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Timberlands for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 30

---

Timberlands Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 31

---

Timberlands Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Timberlands office building, which contains approximately 90,315 rentable square feet, is located at West 114th Street in Leawood, Kansas. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Timberlands for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Timberlands on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Timberlands, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to June 2010. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 32

---

Timberlands Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Timberlands receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 33

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Flagship ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Flagship for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 34

---

Flagship Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005 

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 35

---

Flagship Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Flagship office building, which contains approximately 138,825 rentable square feet, is located at Prairie Center Drive in Eden Prairie, Minnesota. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Flagship for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Flagship on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC. This historical summary includes the historical gross income and direct operating expenses of Flagship, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to August 2015. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 36

---

Flagship Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Flagship receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

 

 

The remainder of this page has been left intentionally blank.

 

 37

---

Independent Auditor’s Report

To the Board of Trustees of Investors Real Estate Trust

We have audited the accompanying Historical Summary of Gross Income and Direct Operating Expenses of Gateway Corporate Center ("Historical Summary") for the year ended December 31, 2005. This Historical Summary is the responsibility of the management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

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

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

In our opinion, the Historical Summary referred to above presents fairly, in all material respects, the gross income and direct operating expenses described in Note 2 of Gateway Corporate Center for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Brady Martz & Associates, P.C.
Brady, Martz, and Associates, P.C.
Minot, North Dakota, USA
October 31, 2006

 38

---

Gateway Corporate Center Historical Summary of Gross Income and Direct Operating Expenses for the Year Ended December 31, 2005

 

See Notes to Historical Summary of Gross Income and Direct Operating Expenses.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

 39

---

Gateway Corporate Center Notes to Historical Summary of Gross Income and Direct Operating Expenses for the Years Ended December 31, 2005 

Note 1.	Nature of Business The Gateway Corporate Center office building, which contains approximately 59,827 rentable square feet, is located at Bielenberg Drive in Woodbury, Minnesota. The property was acquired on September 15, 2006, as part of a portfolio of nine office complexes consisting of 15 buildings purchased from subsidiaries of Omaha-based Magnum Resources, Inc., a real estate services and investment firm. The Historical Summary of Gross Income and Direct Operating Expenses includes information related to the operations of Gateway Corporate Center for the year ended December 31, 2005, as recorded by the property’s previous owner, subject to the exclusions described below.
Note 2.	Basis of Presentation IRET, Inc., purchased Gateway Corporate Center on September 15, 2006. The historical summary has been prepared for the purpose of complying with Regulation S-X, Rule 3-14 of the Securities and Exchange Commission ("SEC"), which requires certain information with respect to real estate operations acquired to be included with certain filings with the SEC .This historical summary includes the historical gross income and direct operating expenses of Gateway Corporate Center, exclusive of the following expenses, which may not be comparable to the corresponding amounts reflected in proposed future operations: (a)     depreciation of property and equipment (b)     interest expense (c)     management fees (d)     insurance expense (e)     non-pass through administrative expenses Because insurance expense and management fees have not been included as operating expenses in the historical summary, revenue reported as tenant reimbursements in the historical summary has also been adjusted to exclude amounts equal to management fees and insurance expenses.
Note 3.	Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capitalization Policy - Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. Revenue Recognition - Rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. All leases are classified as operating leases and expire at various dates prior to September 2010. The following is a schedule by years of future actual minimum rents receivable on non-cancelable operating leases in effect as of December 31, 2005.

 

 

 

 

The remainder of this page has been intentionally left blank.

 

 40

---

Gateway Corporate Center Notes to Historical Summary of Gross Income and Direct Operating Expenses – continued 

Expense Reimbursement – Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenditures are incurred. Gateway Corporate Center receives payments for these reimbursements from substantially all its multi-tenant commercial tenants throughout the year based on estimates. Differences between estimated recoveries and the final billed amounts are recognized in the current year.

 

 

 

 

 

The remainder of this page has been left intentionally blank.

 41

---

INVESTORS REAL ESTATE TRUST
Unaudited Pro Forma Consolidated Balance Sheet as of July 31, 2006 

  

(a)    The IRET historical balance sheet reflects the financial position of the Company as of July 31, 2006, as reported in the Company’s Form 10-Q filed September 11, 2006.

(b)   Represents the necessary adjustments to reflect the acquisition of the Magnum Portfolio on September 15, 2006, as if such acquisition had occurred on July 31, 2006. 

(c)    Represents the necessary adjustments to reflect the acquisition of a real estate property (an apartment complex located in Rochester, MN), other than the Magnum Portfolio, that was acquired on September 21, 2006, as if such acquisition had occurred on July 31, 2006.

 

 

 

 

 

The remainder of this page has been intentionally left blank.

Investors Real Estate Trust
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months Ended July 31, 2006, and Twelve Months Ended April 30, 2006

The unaudited pro forma Consolidated Statement of Operations for the three months ended July 31, 2006, and for the year ended April 30, 2006, is presented as if the acquisitions had occurred on May 1, 2005. The unaudited pro forma Consolidated Statement of Operations for the three months ended July 31, 2006, and for the twelve months ended April 30, 2006, is not necessarily indicative of what the actual results of operations would have been assuming the transactions had occurred as of the beginning of the period presented, nor does it purport to represent the results of operations for future periods.

Unaudited Pro Forma Consolidated Statement of Operations for Three Months Ended July 31, 2006 (unaudited) 

 

 45

---

Unaudited Pro Forma Consolidated Statement of Operations for Twelve Months Ended April 30, 2006 (unaudited) 

  

(1)  The pro forma income and expense items reflect estimated operations which were acquired on September 15, 2006.

(2)  The real estate assets acquired by IRET in fiscal year 2007 during the period from May 1, 2006, to September 30, 2006, are as follows: Arbors Apartments (acquired July 11, 2006), Fox River Cottages (acquired July 25, 2006) and Quarry Ridge Apartments (acquired September 21, 2006).

 47

---