Published:
Investors Real Estate Trust Announces First Quarter Fiscal 2008 Financial Results
Investors Real Estate Trust's (NASDAQ: IRETS)
(NASDAQ: IRETP) financial results for the first three months of its fiscal
year 2008 are summarized below. For the full report, please access our
website at www.iret.com to view the quarterly report on Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended July 31,
2007 (click on "Investor Relations" and then on "SEC Filings").
During the first quarter of fiscal year 2008, IRET's revenues, net
operating income and funds from operations increased from the year-earlier
period, due to property acquisitions, improvements in rental rates and a
decrease in the level of tenant concessions. Net income declined slightly
from the year-earlier period, primarily due to an increase in the minority
interest portion of operating partnership income as a result of
acquisitions completed subsequent to the first quarter of fiscal year 2007
(notably the Company's acquisition in the second quarter of fiscal year
2007 of a sizeable portfolio of properties from Magnum Resources). During
the three months ended July 31, 2007, IRET acquired four office/warehouse
properties and a medical office building for a total purchase price of
approximately $27.2 million, excluding closing costs. The Company did not
dispose of any properties during the three months ended July 31, 2007.
These completed acquisitions brought the Company's property owned (at cost,
before depreciation) to $1.5 billion as of July 31, 2007.
For the three month period ended July 31, 2007, as compared to the same
period of the prior fiscal year:
-- Revenues increased to $53.6 million from $44.3 million.
-- Net Operating Income increased to $32.7 million from $27.4 million.
-- Funds from Operations increased to $15.9 million from $12.6 million
($.23 per share and unit compared to $.21 per share and unit) on 68,947,000
weighted average shares and units outstanding as of July 31, 2007, compared
to 60,805,000 weighted average shares and units outstanding as of July 31,
2006.
-- Net Income Available to Common Shareholders, as computed under
generally accepted accounting principles, was $2.4 million, compared to
$2.5 million.
Occupancy levels in our portfolio declined slightly in four of our five
segments in the first quarter of the current fiscal year compared to the
year-earlier period. Economic occupancy rates on a stabilized property
basis for the three months ended July 31, 2007, as compared to the three
months ended July 31, 2006, were as follows (stabilized properties are
those properties owned for the entirety of both periods being compared;
while results presented on a stabilized property basis are not determined
in accordance with GAAP, management believes that measuring performance on
a stabilized property basis is useful to investors and to management
because it enables evaluation of how the Company's properties are
performing year over year):
(in thousands)
--------------------
2007 2006 Change
Three Months Ended July 31 --------- --------- ---------
Multi-Family Residential 92.6% 92.9% (0.3%)
Commercial-Office 91.9% 92.0% (0.1%)
Commercial-Medical 96.0% 96.6% (0.6%)
Commercial-Industrial 98.3% 91.7% 6.6%
Commercial-Retail 86.7% 89.6% (2.9%)
IRET experienced during the first quarter of fiscal year 2008 an
accelerating demand for industrial space, although as in past periods
rental rates in this segment continue to remain at levels lower than in
prior fiscal years. We have not seen in the first quarter of fiscal year
2008 any consistent sustained demand for commercial office space or for
existing smaller retail developments, which comprise a majority of IRET's
retail portfolio. Our previous expectation was that demand in IRET's
markets for our multi-family, medical, office and industrial locations
would strengthen in the remaining quarters of fiscal year 2008. However,
with the recent volatility in the credit markets and in the single-family
home mortgage market, this may no longer be the case. With the exception of
our multi-family residential segment, in which our overall rental rates
continue to improve and levels of tenant concessions continue to decline,
we are seeing some evidence in our commercial segments of an increased
hesitation on the part of prospective tenants to commit to commercial
space.
Acquisitions for the Three Months Ended July 31, 2007:
During the three months ended July 31, 2007, IRET acquired four
office/warehouse properties and a medical office building. The Company did
not dispose of any properties during the three months ended July 31, 2007.
(in thousands)
--------------
Acquisition
Acquisitions Cost
--------------
Commercial Property - Office
20,528 sq. ft. Plymouth 5095 Nathan Lane Office Building -
Plymouth, MN $ 2,000
--------------
Commercial Property - Medical (including senior
housing/assisted living)
18,502 sq. ft. Barry Pointe Medical Building -
Kansas City, MO 3,200
--------------
Commercial Property - Industrial
50,400 sq. ft. Cedar Lake Business Center -
St. Louis Park, MN 4,040
519,813 sq. ft. Urbandale Warehouse Building -
Urbandale, IA 14,000
69,600 sq. ft. Woodbury 1865 Woodlane - Woodbury, MN 4,000
--------------
Total Property Acquisitions $ 27,240
==============
Development Projects
IRET continues to pursue development and redevelopment projects at existing
and newly-acquired sites. As of July 31, 2007, ongoing or newly-commenced
projects include the following:
Stevens Point Assisted Living: During fiscal year 2006, IRET purchased an
existing senior housing complex and adjoining vacant parcel of land in
Stevens Point, Wisconsin. IRET committed to fund construction of an
expansion to the existing facility on the adjoining parcel of land, to be
leased to the tenant of the existing senior housing complex. The
construction costs to be paid by IRET were capped at approximately $10.7
million. Construction on this project began in May 2006 and was
substantially completed in June 2007. As of July 31, 2007, IRET had funded
approximately $9.3 million of the construction cost. The expansion facility
is now in lease-up.
Fox River Senior Living: During fiscal year 2006, IRET purchased a
partially-completed senior housing project and adjoining vacant land
located in Grand Chute, Wisconsin. IRET has committed to fund the
completion of eight senior living villas and the construction of ten new
senior living cottages. The construction costs to be paid by IRET are
capped at approximately $2.2 million. Construction on this project began
in August 2006 and is expected to be completed in the fall of 2007. As of
July 31, 2007, IRET had funded approximately $780,000 of the construction
cost.
Southdale Medical Building Expansion Project: In June 2007, the Company
signed a lease with an anchor tenant committing the Company to construct an
approximately 26,000 square foot addition to the Company's existing
Southdale Medical Building located in Edina, Minnesota. The estimated cost
of this expansion project is approximately $7.5 million, with an additional
approximately $2 million in relocation, tenant improvement and leasing
costs expected to be incurred to relocate tenants in the existing facility.
Minot Mixed-Use Project: During fiscal year 2007, the Company purchased an
unimproved parcel of land in Minot, North Dakota for approximately $1.75
million. The Company is in the preliminary stages of construction of a
mixed-use project for this site, to consist of apartments and office and
retail space. The Company currently expects that it will move its Minot,
North Dakota offices to this location, occupying approximately one-third of
the proposed office/retail space. Current estimates are that the project
would be completed in the second quarter of the Company's fiscal year 2009.
No firm cost estimates have yet been developed for this project, and no
assurances can be given that this project will be completed as currently
proposed.
2828 Chicago Avenue Medical Building: In fiscal year 2006, IRET purchased
an approximately 55,000 square foot, five-story medical office building
located in Minneapolis, Minnesota. During fiscal year 2007, IRET committed
to construct an approximately 56,000 square foot medical office building
adjacent to the existing structure, and an adjoining parking ramp, with a
planned project completion date of August 2008 and an estimated total
project cost of $15.7 million. Approximately 60% of this new medical office
building has been pre-leased to an anchor tenant. As of July 31, 2007,
construction on this project had not yet commenced, but project planning
was near completion. Construction on the project began in mid-August.
Cottonwood Apartments: During fiscal year 2007, the Company began
construction of a multi-family residential property adjacent to three
existing apartment buildings owned by the Company in Bismarck, North
Dakota. The 67-unit Cottonwood IV apartment complex is expected to cost
approximately $6.1 million to construct, and is targeted for completion in
the third quarter of fiscal year 2008. As of July 31, 2007, the Company has
funded approximately $2.6 million of the estimated construction cost of
this project.
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
for the three months ended July 31, 2007 and 2006
Three Months Ended
July 31
------------------
(in thousands,
except per share
data)
------------------
2007 2006
-------- --------
REVENUE
Real estate rentals $ 44,160 $ 36,351
Tenant reimbursement 9,482 7,991
-------- --------
TOTAL REVENUE 53,642 44,342
-------- --------
OPERATING EXPENSE
Interest 15,442 12,931
Depreciation/amortization related to real estate
investments 12,205 9,929
Utilities 3,956 2,877
Maintenance 6,011 4,974
Real estate taxes 6,439 5,315
Insurance 651 569
Property management expenses 3,848 3,251
Administrative expenses 1,122 908
Advisory and trustee services 74 72
Other operating expenses 253 279
Amortization related to non-real estate investments 343 218
-------- --------
TOTAL OPERATING EXPENSE 50,344 41,323
-------- --------
Operating income 3,298 3,019
Interest income 354 165
Other non-operating income 281 113
-------- --------
Income before minority interest and discontinued
operations and (loss) gain on sale of other
investments 3,933 3,297
Loss on sale of other investments (1) 0
Minority interest portion of operating partnership
income (987) (612)
Minority interest portion of other partnerships' loss 36 12
-------- --------
Income from continuing operations 2,981 2,697
Discontinued operations, net of minority interest 0 416
-------- --------
NET INCOME 2,981 3,113
Dividends to preferred shareholders (593) (593)
-------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,388 $ 2,520
======== ========
Earnings per common share from continuing operations $ .05 $ .04
Earnings per common share from discontinued operations .00 .01
-------- --------
NET INCOME PER COMMON SHARE - BASIC AND DILUTED $ .05 $ .05
======== ========
NET OPERATING INCOME RECONCILIATION
(in thousands)
----------------------------------------------------------------
Three Months Multi-
Ended July Family Commercial Commercial Commercial Commercial
31, 2007 Residential -Office -Medical -Industrial -Retail Total
---------- ---------- ---------- ---------- ---------- --------
Real
estate
revenue $ 17,781 $ 20,601 $ 8,966 $ 2,662 $ 3,632 $ 53,642
Real
estate
expenses 8,310 8,721 2,273 499 1,102 20,905
---------- ---------- ---------- ---------- ---------- --------
Net
operating
income $ 9,471 $ 11,880 $ 6,693 $ 2,163 $ 2,530 32,737
========== ========== ========== ========== ========== --------
Interest (15,442)
Depreciation
/amortization (12,548)
Administrative,
advisory
and
trustee
fees (1,196)
Operating
expenses (253)
Non-operating
income 635
---------- ---------- ---------- ---------- ---------- --------
Income
before
minority
interest
and
discontinued
operations
and
(loss)
gain on
sale of
other
investments $ 3,933
========== ========== ========== ========== ========== ========
(in thousands)
----------------------------------------------------------------
Three Months Multi-
Ended July Family Commercial Commercial Commercial Commercial
31, 2006 Residential -Office -Medical -Industrial -Retail Total
---------- ---------- ---------- ---------- ---------- --------
Real
estate
revenue $ 15,983 $ 14,828 $ 8,450 $ 1,735 $ 3,346 $ 44,342
Real
estate
expenses 7,577 5,960 2,109 307 1,033 16,986
---------- ---------- ---------- ---------- ---------- --------
Net
operating
income $ 8,406 $ 8,868 $ 6,341 $ 1,428 $ 2,313 27,356
========== ========== ========== ========== ========== --------
Interest (12,931)
Depreciation
/amortization (10,147)
Administrative,
advisory
and
trustee
fees (980)
Operating
expenses (279)
Non-operating
income 278
---------- ---------- ---------- ---------- ---------- --------
Income
before
minority
interest
and
discontinued
operations
and
(loss)
gain on
sale of
other
investments $ 3,297
========== ========== ========== ========== ========== ========
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
(in thousands, except per share amounts)
----------------------------------------------------------
Three Months
Ended July 31, 2007 2006
---------------------------- ----------------------------
Weighted Weighted
Avg Avg
Shares Per Shares Per
and Share and and Share and
Amount Units(2) Unit (3) Amount Units(2) Unit (3)
-------- --------- --------- -------- --------- ---------
Net income $ 2,981 $ $ 3,113 $
Less dividends
to preferred
shareholders (593) (593)
-------- --------
Net income
available to
common
shareholders 2,388 48,663 .05 2,520 47,043 .05
Adjustments:
Minority
interest in
earnings of
Unitholders 987 20,284 733 13,762
Depreciation
and
amortization(1) 12,485 10,205
(Gains)/loss on
depreciable
property sales 1 (820)
-------- --------- --------- -------- --------- ---------
Funds from
operations
applicable to
common shares
and Units $ 15,861 68,947 $ .23 $ 12,638 60,805 $ .21
======== ========= ========= ======== ========= =========
(1) Real estate depreciation and amortization consists of the sum of
depreciation/amortization related to real estate investments and
amortization related to non-real estate investments from the Condensed
Consolidated Statements of Operations, totaling $12,548 and $10,147,
and depreciation/amortization from Discontinued Operations of $0 and
$119, less corporate-related depreciation and amortization on office
equipment and other assets of $63 and $61, for the three months ended
July 31, 2007 and 2006, respectively.
(2) UPREIT Units of the Operating Partnership are exchangeable for common
shares of beneficial interest on a one-for-one basis.
(3) Net income is calculated on a per share basis. FFO is calculated on a
per share and unit basis.
Certain statements in this press release are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements involve known and unknown risks, uncertainties and other
factors that may cause actual results to differ materially from projected
results. Such risk, uncertainties and other factors include, but are not
limited to: potential fluctuations in our operating results; the need for
additional capital; the direction of interest rates and their subsequent
effect on our business; competition; our ability to attract and retain
skilled personnel; and those risk and uncertainties discussed in filings
made by us with the Securities and Exchange Commission.
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