Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - CENTERSPACEex32_1.htm
EX-31.1 - EXHIBIT 31.1 - CENTERSPACEex31_1.htm
EX-32.2 - EXHIBIT 32.2 - CENTERSPACEex32_2.htm
EX-31.2 - EXHIBIT 31.2 - CENTERSPACEex31_2.htm

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 July 31, 2015

or

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 31st 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 September 2, 2015, was 125,548,702.
 

 

TABLE OF CONTENTS
 
 
Page
Part I. Financial Information
 
3
3
4
5
6
8
25
42
43
   
Part II. Other Information
 
44
44
44
44
44
44
44
45
 
PART I
ITEM 1. FINANCIAL STATEMENTS - FIRST QUARTER - FISCAL 2016
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 
   
(in thousands, except share data)
 
   
July 31, 2015
   
April 30, 2015
 
ASSETS
       
Real estate investments
       
Property owned
 
$
1,618,948
   
$
1,546,367
 
Less accumulated depreciation
   
(325,536
)
   
(313,308
)
     
1,293,412
     
1,233,059
 
Development in progress
   
133,794
     
153,994
 
Unimproved land
   
24,542
     
25,827
 
Total real estate investments
   
1,451,748
     
1,412,880
 
Assets held for sale
   
453,217
     
463,103
 
Cash and cash equivalents
   
44,770
     
48,970
 
Other investments
   
329
     
329
 
Receivable arising from straight-lining of rents, net of allowance of $689 and $718, respectively
   
15,612
     
15,617
 
Accounts receivable, net of allowance of $135 and $438, respectively
   
3,650
     
2,865
 
Real estate deposits
   
6,614
     
2,489
 
Prepaid and other assets
   
2,224
     
3,174
 
Intangible assets, net of accumulated amortization of $20,643 and $19,610, respectively
   
25,179
     
26,213
 
Tax, insurance, and other escrow
   
8,858
     
10,073
 
Property and equipment, net of accumulated depreciation of $1,482 and $1,464, respectively
   
1,464
     
1,542
 
Goodwill
   
1,718
     
1,718
 
Deferred charges and leasing costs, net of accumulated amortization of $8,301 and $8,077, respectively
   
9,290
     
8,864
 
TOTAL ASSETS
 
$
2,024,673
   
$
1,997,837
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
               
LIABILITIES
               
Liabilities held for sale
 
$
308,812
   
$
321,393
 
Accounts payable and accrued expenses
   
60,506
     
56,399
 
Revolving line of credit
   
83,500
     
60,500
 
Mortgages payable
   
669,734
     
668,112
 
Construction debt and other
   
165,873
     
144,111
 
TOTAL LIABILITIES
   
1,288,425
     
1,250,515
 
COMMITMENTS AND CONTINGENCIES (NOTE 6)
               
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES
   
6,361
     
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 July 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 July 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, 125,519,557 shares issued and outstanding at July 31, 2015, and 124,455,624 shares issued and outstanding at April 30, 2015)
   
957,707
     
951,868
 
Accumulated distributions in excess of net income
   
(452,971
)
   
(438,432
)
Total Investors Real Estate Trust shareholders’ equity
   
643,410
     
652,110
 
Noncontrolling interests – Operating Partnership (13,921,386 units at July 31, 2015 and 13,999,725 units at April 30, 2015)
   
56,120
     
58,325
 
Noncontrolling interests – consolidated real estate entities
   
30,357
     
30,519
 
Total equity
   
729,887
     
740,954
 
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 
$
2,024,673
   
$
1,997,837
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
for the three months ended July 31, 2015 and 2014
 
   
(in thousands, except per share data)
 
   
Three Months Ended
July 31
 
   
2015
   
2014
 
REVENUE
       
Real estate rentals
 
$
45,522
   
$
43,564
 
Tenant reimbursement
   
4,396
     
4,857
 
TRS senior housing revenue
   
1,038
     
793
 
TOTAL REVENUE
   
50,956
     
49,214
 
EXPENSES
               
Depreciation/amortization related to real estate investments
   
13,272
     
12,214
 
Utilities
   
3,206
     
2,945
 
Maintenance
   
5,374
     
4,986
 
Real estate taxes
   
4,917
     
4,987
 
Insurance
   
1,100
     
1,462
 
Property management expenses
   
3,871
     
3,666
 
Other property expenses
   
(68
)
   
206
 
TRS senior housing expenses
   
769
     
693
 
Administrative expenses
   
2,454
     
3,664
 
Other expenses
   
424
     
612
 
Amortization related to non-real estate investments
   
171
     
221
 
Impairment of real estate investments
   
1,285
     
2,320
 
TOTAL EXPENSES
   
36,775
     
37,976
 
Operating income
   
14,181
     
11,238
 
Interest expense
   
(9,196
)
   
(9,747
)
Interest income
   
556
     
560
 
Other income
   
51
     
126
 
Income before loss on sale of real estate and other investments and income from discontinued operations
   
5,592
     
2,177
 
Loss on sale of real estate and other investments
   
(175
)
   
(2,993
)
Income (loss) from continuing operations
   
5,417
     
(816
)
(Loss) income from discontinued operations
   
(690
)
   
617
 
NET INCOME (LOSS)
   
4,727
     
(199
)
Net (income) loss attributable to noncontrolling interests – Operating Partnership
   
(186
)
   
402
 
Net income attributable to noncontrolling interests – consolidated real estate entities
   
(1
)
   
(354
)
Net income (loss) attributable to Investors Real Estate Trust
   
4,540
     
(151
)
Dividends to preferred shareholders
   
(2,879
)
   
(2,879
)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
 
$
1,661
   
$
(3,030
)
Earnings (loss) per common share from continuing operations – Investors Real Estate Trust – basic and diluted
 
$
.02
   
$
(.03
)
Loss per common share from discontinued operations – Investors Real Estate Trust – basic and diluted
   
(.01
)
   
.00
 
NET INCOME (LOSS) PER COMMON SHARE – BASIC AND DILUTED
 
$
.01
   
$
(.03
)
DIVIDENDS PER COMMON SHARE
 
$
.1300
   
$
.1300
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited)
for the three months ended July 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 noncontrolling interests
                                   
(151
)
   
(157
)
   
(308
)
Distributions – common shares and units
                                   
(14,264
)
   
(2,740
)
   
(17,004
)
Distributions – Series A preferred shares
                                   
(593
)
           
(593
)
Distributions – Series B preferred shares
                                   
(2,286
)
           
(2,286
)
Distribution reinvestment and share purchase plan
                   
2,422
     
20,926
                     
20,926
 
Share-based compensation
                   
204
     
1,889
                     
1,889
 
Redemption of units for common shares
                   
3,118
     
18,332
             
(18,332
)
   
0
 
Contributions from nonredeemable noncontrolling interests – consolidated real estate entities
                                           
3,212
     
3,212
 
Other
                                           
(185
)
   
(185
)
Balance July 31, 2014
   
5,750
   
$
138,674
     
114,763
   
$
884,415
   
$
(407,052
)
 
$
110,160
   
$
726,197
 
                                                         
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 noncontrolling interests
                                   
4,540
     
194
     
4,734
 
Distributions – common shares and units
                                   
(16,200
)
   
(1,815
)
   
(18,015
)
Distributions – Series A preferred shares
                                   
(593
)
           
(593
)
Distributions – Series B preferred shares
                                   
(2,286
)
           
(2,286
)
Distribution reinvestment and share purchase plan
                   
766
     
5,241
                     
5,241
 
Share-based compensation
                   
220
     
22
                     
22
 
Partnership units issued
                                           
0
     
0
 
Redemption of units for common shares
                   
79
     
576
             
(576
)
   
0
 
Other
                                           
(170
)
   
(170
)
Balance July 31, 2015
   
5,750
   
$
138,674
     
125,520
   
$
957,707
   
$
(452,971
)
 
$
86,477
   
$
729,887
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the three months ended July 31, 2015 and 2014
 
   
(in thousands)
 
   
Three Months Ended
July 31
 
   
2015
   
2014
 
CASH FLOWS FROM OPERATING ACTIVITIES
       
Net income (loss)
 
$
4,727
   
$
(199
)
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
13,713
     
12,730
 
Depreciation and amortization from discontinued operations
   
4,996
     
4,733
 
Loss on sale of real estate, land, other investments and discontinued operations
   
175
     
2,993
 
Share-based compensation expense
   
66
     
1,763
 
Impairment of real estate investments
   
1,725
     
2,320
 
Bad debt expense
   
(97
)
   
136
 
Changes in other assets and liabilities:
               
Decrease (increase) in receivable arising from straight-lining of rents
   
269
     
(143
)
Decrease in accounts receivable
   
313
     
1,229
 
Decrease in prepaid and other assets
   
1,215
     
1,197
 
Decrease in tax, insurance and other escrow
   
41
     
146
 
Increase in deferred charges and leasing costs
   
(1,436
)
   
(926
)
Decrease in accounts payable, accrued expenses, and other liabilities
   
(925
)
   
(2,594
)
Net cash provided by operating activities
   
24,782
     
23,385
 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from real estate deposits
   
5
     
140
 
Payments for real estate deposits
   
(4,131
)
   
(3,736
)
Decrease in lender holdbacks for improvements
   
1,354
     
609
 
Increase in lender holdbacks for improvements
   
(292
)
   
(326
)
Proceeds from sale of real estate and other investments
   
6,783
     
6,416
 
Insurance proceeds received
   
20
     
2,054
 
Payments for acquisitions of real estate assets
   
0
     
(13,008
)
Payments for development and re-development of real estate assets
   
(40,678
)
   
(36,892
)
Payments for improvements of real estate assets
   
(7,043
)
   
(5,849
)
Payments for improvements of real estate assets from discontinued operations
   
(1,470
)
   
(1,707
)
Net cash used by investing activities
   
(45,452
)
   
(52,299
)
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from mortgages payable
   
23,123
     
25,000
 
Principal payments on mortgages payable
   
(35,594
)
   
(18,090
)
Proceeds from revolving line of credit and other debt
   
23,000
     
30,000
 
Principal payments on revolving line of credit and other debt
   
0
     
(17,000
)
Proceeds from construction debt
   
21,763
     
20,492
 
Proceeds from sale of common shares under distribution reinvestment and share purchase program
   
1,115
     
16,941
 
Proceeds from noncontrolling partner – consolidated real estate entities
   
0
     
1,006
 
Distributions paid to common shareholders, net of reinvestment of $3,997 and $3,801, respectively
   
(12,203
)
   
(10,463
)
Distributions paid to preferred shareholders
   
(2,879
)
   
(2,879
)
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership, net of reinvestment of $130 and $185, respectively
   
(1,685
)
   
(2,555
)
Distributions paid to noncontrolling interests – consolidated real estate entities
   
(170
)
   
(185
)
Net cash provided by financing activities
   
16,470
     
42,267
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
(4,200
)
   
13,353
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
   
48,970
     
47,267
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
44,770
   
$
60,620
 
 
(continued)
 
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, continued)
for the three months ended July 31, 2015 and 2014
 
   
(in thousands)
 
   
Three Months Ended
July 31
 
   
2015
   
2014
 
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE PERIOD
       
Distribution reinvestment plan
 
$
3,997
   
$
3,801
 
Operating partnership distribution reinvestment plan
   
130
     
185
 
Operating partnership units converted to shares
   
576
     
18,332
 
Real estate assets acquired through assumption of indebtedness and accrued costs
   
0
     
12,169
 
Increase to accounts payable included within real estate investments
   
6,880
     
6,129
 
Real estate assets contributed by noncontrolling interests – consolidated real estate entities
   
0
     
2,206
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid for interest, net of amounts capitalized of $2,310 and $1,030, respectively
 
$
9,268
   
$
13,099
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
for the three months ended July 31, 2015 and 2014
 
NOTE 1 • ORGANIZATION
 
Investors Real Estate Trust (“IRET” or the “Company”) is a self-advised real estate investment trust engaged in acquiring, owning and leasing multi-family and commercial real estate. IRET has 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 three months ended July 31, 2015 and 2014. IRET’s multi-family residential properties and commercial properties are located mainly in the states of North Dakota and Minnesota, but also in the states of Colorado, Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, South Dakota, Wisconsin and Wyoming. As of July 31, 2015, IRET held for investment 100 multi-family residential properties with 12,027 apartment units and 81 commercial properties, consisting of healthcare, industrial and other, totaling 4.4 million net rentable square feet. IRET held for sale 67 commercial properties as of July 31, 2015. IRET conducts a majority of its business activities through its 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 or the Company 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 the accounts of IRET and all subsidiaries in which it maintains a controlling interest. All intercompany balances and transactions are eliminated in consolidation. The Company’s fiscal year ends April 30th.
 
The accompanying condensed consolidated financial statements include the accounts of IRET and its interest in the Operating Partnership. The Company’s interest in the Operating Partnership was 90.0% of the common units of the Operating Partnership as of July 31, 2015 and 89.9% as of April 30, 2015. The limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, IRET has the choice of redeeming the limited partners’ interests (“Units”) for IRET common shares of beneficial interest, on a one-for-one basis, or making a cash payment to the unitholder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units (provided, however, that in general not more than two redemptions by a limited partner may occur during each calendar year, and each limited partner may not exercise the redemption for less than 1,000 Units, or, if such limited partner holds less than 1,000 Units, for 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 and/or a greater number of redemptions during a calendar year.
 
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 IRET’s other operations, with noncontrolling interests reflecting the noncontrolling partners’ share of ownership and income and expenses.
 
UNAUDITED INTERIM FINANCIAL STATEMENTS
 
The interim condensed consolidated financial statements of IRET have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“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 the Company’s financial position, results of operations and cash flows for the interim periods have been included.
 
The current period’s results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 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 FASB recently delayed the effective date of the standard by one year. It is now effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. The Company does not expect adoption of this update to have a material impact on the Company’s 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 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The Company does not expect adoption of this update to have a material impact on the Company’s 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 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The Company does not expect adoption of this update to have a material impact on the Company’s 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 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. The Company does not expect adoption of this update to have a material impact on the Company’s operating results or financial position.
 
IMPAIRMENT OF LONG-LIVED ASSETS
 
The Company periodically evaluates its long-lived assets, including its 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, the Company compares 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 three months ended July 31, 2015, the Company incurred a loss of approximately $1.7 million due to impairment of one office property and one parcel of land. The Company 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 the Company’s intent to dispose of the property.  The Company recognized impairment of $1.3 million on a parcel of land in Grand Chute, Wisconsin based on its sale listing price and the Company’s 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. During the three months ended July 31, 2014, the Company incurred a loss of $2.3 million due to impairment of two commercial properties. The Company recognized impairments of approximately $2.1 million on a retail property in Kalispell, Montana and approximately $183,000 on an office property in Golden Valley, Minnesota. These properties were written-down to estimated fair value during the first quarter of fiscal year 2015 based on receipt of individual market offers to purchase and the Company’s intent to dispose of the properties.
 
HELD FOR SALE
 
The Company classifies 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 July 31, 2015, the Company had 48 office properties, 17 retail properties and two healthcare properties classified as held for sale with assets of $453.2 million and liabilities of $308.8 million. At April 30, 2015, the Company 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
 
The Company maintains 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 July 31, 2015, the Company’s compensating balances totaled $14.2 million and consisted of the following: First International Bank, Watford City, North Dakota, deposit of $6.0 million; Private Bank, Minneapolis, Minnesota, deposit of $2.0 million; Associated Bank, Green Bay, Wisconsin, deposit of $3.6 million; American National Bank, Omaha, Nebraska, deposit of $400,000; Dacotah Bank, Minot, North Dakota, deposit of $350,000; United Community Bank, Minot, North Dakota, deposit of $275,000; Peoples State Bank of Velva, North Dakota, deposit of $225,000, Commerce Bank, a Minnesota Banking Corporation, deposit of $100,000,and Bremer Bank, Saint Paul, Minnesota, deposit of $1.3 million. 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 the Company intends to hold them to maturity.
 
The Company has 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 $1.4 million in holdbacks for improvements reflected in the Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2015 is due primarily to the release of loan proceeds to the Company upon completion of construction and tenant improvement projects, while the increase of approximately $292,000 represents additional amounts retained by lenders for new projects.
 
IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES AND GOODWILL
 
Upon acquisition of real estate, the Company records 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. The Company amortizes 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 three months ended July 31, 2015 and 2014, respectively, the Company added approximately $0 and $265,000 of new intangible assets and no new intangible liabilities. The weighted average lives of the intangible assets acquired in the three months ended July 31, 2015 and 2014 are 0 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.
 
The Company’s identified intangible assets and intangible liabilities at July 31, 2015 and April 30, 2015 were as follows:
 
   
(in thousands)
 
   
July 31, 2015
   
April 30, 2015
 
Identified intangible assets (included in intangible assets):
       
Gross carrying amount
 
$
45,822
   
$
45,823
 
Accumulated amortization
   
(20,643
)
   
(19,610
)
Net carrying amount
 
$
25,179
   
$
26,213
 
                 
Identified intangible liabilities (included in other liabilities):
               
Gross carrying amount
 
$
82
   
$
82
 
Accumulated amortization
   
(63
)
   
(61
)
Net carrying amount
 
$
19
   
$
21
 
 
The amortization of acquired below-market leases and acquired above-market leases reduced rental income by approximately $6,000 for the three months ended July 31, 2015 and 2014. 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
 
$
11
 
2018
   
(3
)
2019
   
(3
)
2020
   
(1
)
2021
   
0
 
 
Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $1.0 million and $1.2 million for the three months ended July 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
 
$
3,698
 
2018
   
3,469
 
2019
   
3,433
 
2020
   
3,390
 
2021
   
3,268
 
 
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.  The Company’s 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 July 31, 2015 and April 30, 2015 was $1.7 million. Approximately $193,000 of goodwill is included in assets held for sale at July 31, 2015 and April 30, 2015. The annual review at April 30, 2015 indicated no impairment to goodwill and there was no indication of impairment at July 31, 2015.  During the three months ended July 31, 2014, the Company recognized approximately $852,000 of goodwill from the acquisition of the Homestead Garden residential property.
 
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 Balance Sheets, the Company reclassified assets and liabilities held for sale to assets held for sale and liabilities held for sale, respectively, for 48 office properties, 17 retail properties and 2 healthcare properties. On the Condensed Consolidated Statements of Operations, the Company reclassified advisory and trustee services to administrative expenses.
 
The Company reports, 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 the Company’s 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, the Company 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, the Company 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 the Company, and also granted an option to the Company to repurchase the property at a specified price at or prior to July 31, 2018. IRET accounted for the transaction as a financing due to the Company’s 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 July 31, 2015 is $7.9 million.
 
VARIABLE INTEREST ENTITY
 
On November 27, 2012, the Company 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 IRET to the joint venture entity. The two-phase project was substantially completed in the third quarter of fiscal year 2015. As of July 31, 2015, IRET is the approximately 52.9% owner of the joint venture and has management and leasing responsibilities; the real estate development company owns approximately 47.1% of the joint venture and was responsible for the development and construction of the property. The Company has 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. The Company has also determined that IRET is the primary beneficiary of the VIE due to the fact that IRET is providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and has the power to direct the most significant activities that impact the entity’s economic performance.
 
On June 12, 2014 the Company 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. The Company estimates 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 IRET to the joint venture entity. The first and second phases of the project are expected to be completed in the second and third quarters of fiscal year 2016, respectively. 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 July 31, 2015, IRET is 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. The Company has 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. The Company has also determined that IRET is the primary beneficiary of the VIE due to the fact that IRET is providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and has the power to direct the most significant activities that impact the entity’s economic performance.

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. The Company has 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 months ended July 31, 2015 and 2014:
 
   
(in thousands, except per share data)
 
   
Three Months Ended
July 31
 
   
2015
   
2014
 
NUMERATOR
       
Income (loss) from continuing operations – Investors Real Estate Trust
 
$
5,161
   
$
(671
)
(Loss) income from discontinued operations – Investors Real Estate Trust
   
(621
)
   
520
 
Net income (loss) attributable to Investors Real Estate Trust
   
4,540
     
(151
)
Dividends to preferred shareholders
   
(2,879
)
   
(2,879
)
Numerator for basic earnings per share – net income (loss) available to common shareholders
   
1,661
     
(3,030
)
Noncontrolling interests – Operating Partnership
   
186
     
(402
)
Numerator for diluted earnings per share
 
$
1,847
   
$
(3,432
)
DENOMINATOR
               
Denominator for basic earnings per share weighted average shares
   
124,855
     
111,039
 
Effect of convertible operating partnership units
   
13,951
     
20,293
 
Denominator for diluted earnings per share
   
138,806
     
131,332
 
Earnings (loss) per common share from continuing operations – Investors Real Estate Trust – basic and diluted
 
$
.02
   
$
(.03
)
Loss per common share from discontinued operations – Investors Real Estate Trust – basic and diluted
   
(.01
)
   
.00
 
NET INCOME (LOSS) PER COMMON SHARE – BASIC & DILUTED
 
$
.01
   
$
(.03
)
 
NOTE 4 • EQUITY
 
During the second quarter of fiscal year 2014, the Company and its Operating Partnership entered into an ATM sales agreement with Robert W. Baird & Co. Incorporated as sales agent, pursuant to which the Company may from time to time sell the Company’s common shares of beneficial interest having an aggregate offering price of up to $75 million. The shares would be issued pursuant to the Company’s currently-effective shelf registration statement on Form S-3ASR. The Company to date has issued no shares under the ATM program.
 
During the first quarter of fiscal year 2016, the Company issued approximately 220,000 common shares, net of withholding, with a total grant-date value of approximately $1.6 million, under the Company’s 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 the Company, and subject to the terms and conditions of the Company’s long-term incentive plan (“LTIP”).   During the first quarter of fiscal year 2015, the Company issued approximately 204,000 common shares, with a total grant-date value of approximately $1.9 million, under the Company’s 2008 Incentive Award Plan, for executive officer and trustee share-based compensation for fiscal year 2014 performance.
 
The Company has a Distribution Reinvestment and Share Purchase Plan (“DRIP”). The DRIP provides common shareholders of the Company and Unitholders of the Operating Partnership an opportunity to invest their cash distributions in common shares of the Company, and purchase additional shares through voluntary cash contributions. The maximum monthly voluntary cash contribution permitted without prior Company approval is currently $10,000. The Company can issue waivers to DRIP participants to provide for investments in excess of the $10,000 maximum monthly investment. There were no waivers issued during the three months ended July 31, 2015. During the three months ended July 31, 2014, the Company issued approximately 926,000 shares at an average price of $8.64 per share pursuant to such waivers, for total net proceeds to the Company of $8.0 million.
 
During the three months ended July 31, 2015 and 2014, approximately 766,000 and 2.4 million common shares with a total value included in equity of $5.2 million and $20.9 million, and an average price per share after applicable discounts of $6.84 and $8.64, respectively, were issued under the DRIP plan.
 
During the three months ended July 31, 2015 and 2014, respectively, approximately 78,000 Units and 3.1 million Units were converted to common shares, with a total value of approximately $576,000 and $18.3 million included in equity.
 
NOTE 5 • SEGMENT REPORTING
 
IRET reports its results in three reportable segments: multi-family residential, healthcare (including senior housing) and industrial properties. The Company’s reportable segments are aggregations of similar properties.  The Company also has office and retail segments which fall below the quantitative thresholds for reporting as reportable segments.  The office and retail segments met the quantitative threshold for determining reportable segments prior to the first quarter of fiscal year 2016, at which time the Company classified the majority of the properties in those segments as held for sale and discontinued operations.
 
IRET measures the performance of its segments based on net operating income (“NOI”), which the Company defines 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). IRET believes that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of core operations that is unaffected by depreciation, amortization, financing and general and administrative expense. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders or cash flow from operating activities as a measure of financial performance.
 
The revenues and NOI for these reportable segments are summarized as follows for the three month periods ended July 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 July 31, 2015
 
Multi-Family
Residential
   
Healthcare
   
Industrial
   
All Other(1)
   
Total
 
                     
Real estate revenue
 
$
31,379
   
$
15,706
   
$
1,622
   
$
1,211
   
$
49,918
 
Real estate expenses
   
13,922
     
3,832
     
396
     
250
     
18,400
 
Net operating income
 
$
17,457
   
$
11,874
   
$
1,226
   
$
961
     
31,518
 
TRS senior housing revenue
                                   
1,038
 
TRS senior housing expenses
                                   
(769
)
Depreciation/amortization
                                   
(13,443
)
Administrative expenses
                                   
(2,454
)
Other expenses
                                   
(424
)
Impairment of real estate investments
                                   
(1,285
)
Interest expense
                                   
(9,196
)
Interest and other income
                                   
607
 
Income before loss on sale of real estate and other investments and income from discontinued operations
     
5,592
 
Loss on sale of real estate and other investments
     
(175
)
Income from continuing operations
     
5,417
 
Loss from discontinued operations
     
(690
)
Net income
   
$
4,727
 
 
 
(in thousands)
 
Three Months Ended July 31, 2014
 
Multi-Family
Residential
   
Healthcare
   
Industrial
   
All Other(1)
   
Total
 
                     
Real estate revenue
 
$
27,727
   
$
16,202
   
$
1,570
   
$
2,922
   
$
48,421
 
Real estate expenses
   
12,221
     
4,356
     
450
     
1,225
     
18,252
 
Net operating income
 
$
15,506
   
$
11,846
   
$
1,120
   
$
1,697
     
30,169
 
TRS senior housing revenue
                                   
793
 
TRS senior housing expenses
                                   
(693
)
Depreciation/amortization
                                   
(12,435
)
Administrative expenses
                                   
(3,664
)
Other expenses
                                   
(612
)
Impairment of real estate investments
                                   
(2,320
)
Interest expense
                                   
(9,747
)
Interest and other income
                                   
686
 
Income before loss on sale of real estate and other investments and income from discontinued operations
     
2,177
 
Loss on sale of real estate and other investments
     
(2,993
)
Loss from continuing operations
     
(816
)
Income from discontinued operations
     
617
 
Net loss
   
$
(199
)
 
(1) NOI from segments below the quantitative thresholds is attributable to the Company’s office and retail segments. Both of these segments met the quantitative threshold for determining reportable segments prior to the first quarter of fiscal year 2016, at which time the Company classified the majority of the properties in these segments as held for sale and discontinued operations.
 
Segment Assets and Accumulated Depreciation
 
Segment assets are summarized as follows as of July 31, 2015, and April 30, 2015, along with reconciliations to the condensed consolidated financial statements:
 
 
(in thousands)
 
As of July 31, 2015
 
Multi-Family
Residential
   
Healthcare
   
Industrial
   
All Other(1)
   
Total
 
                     
Segment Assets
                   
Property owned
 
$
989,958
   
$
524,414
   
$
60,361
   
$
44,215
   
$
1,618,948
 
Less accumulated depreciation
   
(188,062
)
   
(116,254
)
   
(11,676
)
   
(9,544
)
   
(325,536
)
Net property owned
 
$
801,896
   
$
408,160
   
$
48,685
   
$
34,671
     
1,293,412
 
Assets held for sale
                                   
453,217
 
Cash and cash equivalents
                                   
44,770
 
Other investments
                                   
329
 
Receivables and other assets
                                   
74,609
 
Development in progress
                                   
133,794
 
Unimproved land
                                   
24,542
 
Total assets
   
$
2,024,673
 

 
(in thousands)
 
As of April 31, 2015
 
Multi-Family
Residential
   
Healthcare
   
Industrial
   
All Other(1)
   
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
 

(1) Property owned from segments below the quantitative thresholds is attributable to the Company’s office and retail segments. Both of these segments met the quantitative threshold for determining reportable segments prior to the first quarter of fiscal year 2016, at which time the Company classified the majority of the properties in these segments as held for sale and discontinued operations.
 
NOTE 6 • COMMITMENTS AND CONTINGENCIES
 
Litigation.  The Company is not a party to any legal proceedings which are expected to have a material effect on the Company’s liquidity, financial position, cash flows or results of operations. The Company is subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its 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 the Company’s liquidity, financial position, cash flows or results of operations.
 
Insurance.  IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties and are sufficient to achieve IRET’s risk management objectives.
 
Purchase Options.  The Company has granted options to purchase certain IRET properties to tenants in these properties, 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 the initial cost of the property to IRET. As of July 31, 2015, the total property cost of the 15 properties subject to purchase options was $114.9 million, and the total gross rental revenue from these properties was $2.5 million for the three months ended July 31, 2015.  The tenant in the Company’s Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. The Company and its tenant are currently engaged in an arbitration proceeding pursuant to the lease agreement to determine the purchase price. The Company currently can give no assurance if or when such sale of the property pursuant to the purchase option 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 IRET currently has no knowledge of any material violation of environmental laws, ordinances or regulations at any of its properties, there can be no assurance that areas of contamination will not be identified at any of the Company’s properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to the Company.
 
Restrictions on Taxable Dispositions.  Approximately 93 of IRET’s properties, consisting of 4.2 million square feet of the Company’s combined commercial segments’ properties and 5,022 apartment units, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties. The real estate investment amount of these properties (net of accumulated depreciation) was $741.9 million at July 31, 2015. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally prevent the Company from selling the properties in taxable transactions. The Company does not believe that the agreements materially affect the conduct of the Company’s business or decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and the Company's other properties for investment purposes, rather than for sale. Historically, however, where IRET has deemed it to be in the shareholders’ best interests to dispose of restricted properties, it has done so through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code. Of the 93 restricted properties, 17 are classified as discontinued operations at July 31, 2015, with at least $37.3 million of estimated sale proceeds expected to be exchanged under Section 1031.
 
Redemption Value of Units.  The Units of the Operating Partnership are redeemable at the option of the holder for cash, or, at the Company’s option, for the Company’s common shares on a one-for-one basis, after a minimum one-year holding period.  All Units receive the same cash distributions as those paid on common shares.  Units are redeemable for an amount of cash per Unit equal to the average of the daily market price of an IRET common share for the ten consecutive trading days immediately preceding the date of valuation of the Unit.  As of July 31, 2015 and 2014, the aggregate redemption value of the then-outstanding Units of the Operating Partnership owned by limited partners was approximately $100.3 million and $154.4 million, respectively.
 
Joint Venture Buy/Sell Options.  Several of IRET's 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 the Company buy its partners’ interests. However, from time to time, the Company has entered into joint venture agreements which contain options compelling the Company to acquire the interest of the other parties. The Company currently has one such joint venture, the Company’s Southgate apartment project in Minot, North Dakota, in which the Company’s joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, compel the Company 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, IRET may commit itself 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 IRET is 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 July 31, 2015, the Company is committed to fund $7.8 million in tenant improvements, within approximately the next 12 months. Of this total, approximately $5.2 million is related to properties classified as held for sale.
 
Development, Expansion and Renovation Projects.  As of July 31, 2015, the Company 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
   
Costs as of
July 31, 2015
 
Anticipated
Construction
Completion
Chateau II - Minot, ND
Multi-Family Residential
72 units
 
$
14,711
   
$
14,600
 
In Service
Edina 6565 France SMC III - Edina, MN(1)
Healthcare
57,624 sq ft
   
36,752
     
28,816
 
In Service
Renaissance Heights - Williston, ND(2)
Multi-Family Residential
288 units
   
62,362
     
62,339
 
In Service
Minot Southgate Retail - Minot, ND
Other
7,963 sq ft
   
2,923
     
2,550
 
2Q 2016
PrairieCare Medical - Brooklyn Park, MN
Healthcare
70,756 sq ft
   
24,251
     
23,424
 
2Q 2016
Cardinal Point - Grand Forks, ND
Multi-Family Residential
251 units
   
40,042
     
33,704
 
3Q 2016
Deer Ridge – Jamestown, ND
Multi-Family Residential
163 units
   
24,519
     
20,627
 
3Q 2016
71 France Phase I, II & III - Edina, MN(3)
Multi-Family Residential
241 units
   
73,290
     
50,455
 
1Q 2017
Monticello Crossings Phase I – Monticello, MN(4)
Multi-Family Residential
136 units
   
19,097
     
1,978
 
2Q 2017
Other
n/a
n/a
   
n/
a
   
2,790
 
n/a
         
$
297,947
   
$
241,283
   

(1) Anticipated total cost includes estimated tenant improvement costs that have not been incurred as of July 31, 2015.
(2) The Company is 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.
(3) The project will be constructed in three phases by a joint venture entity in which the Company has 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.
(4) This project will be constructed in two phases with approximately 202 units and an anticipated total cost of $31.5 million.

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.
 
Construction interest capitalized for the three month periods ended July 31, 2015 and 2014, respectively, was $2.3 million and $1.0 million for development projects completed and in progress.
 
Pending Acquisitions. The Company currently has signed purchase agreements for the acquisition of the following properties. These pending acquisitions 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:
 
·
a 74-unit multi-family residential property in Grand Forks, North Dakota, for a purchase price of $9.3 million, of which approximately $8.9 million is to be paid in cash with the remainder in Units of the Operating Partnership valued at approximately $400,000; and
 
·
a 276-unit multi-family residential property in Rochester, Minnesota, for a purchase price of $56.0 million, to be paid in cash.
 
Pending Dispositions. The Company currently has 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:
 
·
a portfolio of 17 retail properties in Minnesota, Nebraska and North Dakota for a sales price of $80.6 million; and
 
· an office property in Eden Prairie, Minnesota, for a sales price of $2.9 million.
 
NOTE 7 • DISCONTINUED OPERATIONS
 
The Company reports 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 the Company’s operations and financial results. During the first quarter of fiscal year 2016, the Company determined that its 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. The Company expects to dispose of the bulk of these properties in portfolio sales in the remainder of fiscal year 2016. In connection with the 9 properties encumbered by a $122.6 million CMBS loan, the Company is currently discussing a deed in lieu agreement with the lender, but the Company can give no assurance that such resolution will be entered into or that another mutually acceptable resolution will be reached.
 
The following information shows the effect on net income from the properties classified as discontinued operations for the three months ended July 31, 2015 and 2014:
 
   
(in thousands)
 
   
Three Months Ended
July 31
 
   
2015
   
2014
 
REVENUE
       
Real estate rentals
 
$
13,614
   
$
13,562
 
Tenant reimbursement
   
6,164
     
5,854
 
TOTAL REVENUE
   
19,778
     
19,416
 
EXPENSES
               
Depreciation/amortization related to real estate investments
   
4,239
     
3,970
 
Utilities
   
1,743
     
1,736
 
Maintenance
   
2,992
     
2,778
 
Real estate taxes
   
3,419
     
3,514
 
Insurance
   
265
     
274
 
Property management expenses
   
1,051
     
964
 
Amortization related to non-real estate investments
   
624
     
651
 
Impairment of real estate investments
   
440
     
0
 
TOTAL EXPENSES
   
14,773
     
13,887
 
Operating income
   
5,005
     
5,529
 
Interest expense(1)
   
(5,765
)
   
(4,917
)
Other income
   
70
     
5
 
(LOSS) INCOME FROM DISCONTINUED OPERATIONS
 
$
(690
)
 
$
617
 
 
(1) Includes $1.5 million  and $0, respectively, of default interest related to a $122.6 million non-recourse loan by a Company subsidiary, for which we received a default notice from the special servicer on April 14, 2015 due to nonpayment on April 6, 2015.

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)
 
   
July 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
 
$
414,380
   
$
417,045
 
Receivable arising from straight-lining of rents
   
9,843
     
10,078
 
Accounts receivable
   
759
     
566
 
Prepaid and other assets
   
443
     
699
 
Tax, insurance and other escrow
   
1,017
     
1,176
 
Goodwill
   
193
     
193
 
Deferred charges and leasing costs
   
9,918
     
9,606
 
Total major classes of assets of the discontinued operations
   
436,553
     
439,363
 
Other assets included in the disposal group classified as held for sale
   
16,664
     
23,740
 
Total assets of the disposal group classified as held for sale on the balance sheet
 
$
453,217
   
$
463,103
 
                 
Carrying amounts of major classes of liabilities included as part of discontinued operations
               
Accounts payable and accrued expenses
 
$
15,173
   
$
13,952
 
Mortgages payable
   
282,106
     
295,677
 
Other
   
0
     
4
 
Total major classes of liabilities of the discontinued operations
   
297,279
     
309,633
 
Other liabilities included in the disposal group classified as held for sale
   
11,533
     
11,760
 
Total liabilities of the disposal group classified as held for sale on the balance sheet
 
$
308,812
   
$
321,393
 
 
NOTE 8 • ACQUISITIONS, DEVELOPMENTS PLACED IN SERVICE AND DISPOSITIONS
 
PROPERTY ACQUISITIONS
 
The Company added no new real estate properties to its portfolio through property acquisitions during the three months ended July 31, 2015, compared to $26.6 million in the three months ended July 31, 2014. The Company expensed approximately $75,000 of transaction costs related to the acquisitions in the three months ended July 31, 2014. The Company’s acquisitions during the three months ended January 31, 2014 are detailed below.
 
Three Months Ended July 31, 2014
 
       
(in thousands)
 
       
Total
   
Form of Consideration
   
Investment Allocation
 
Acquisitions
 
Date Acquired
   
Acquisition
Cost
   
Cash
   
Other(1)
   
Land
   
Building
   
Intangible
Assets
 
                             
Multi-Family Residential
                           
152 unit - Homestead Garden - Rapid City, SD(2)
   
2014-06-02
   
$
15,000
   
$
5,092
   
$
9,908
   
$
655
   
$
14,139
   
$
206
 
52 unit - Silver Springs - Rapid City, SD
   
2014-06-02
     
3,280
     
1,019
     
2,261
     
215
     
3,006
     
59
 
             
18,280
     
6,111
     
12,169
     
870
     
17,145
     
265
 
                                                         
Unimproved Land
                                                       
Creekside Crossing - Bismarck, ND
   
2014-05-22
     
4,269
     
4,269
     
0
     
4,269
     
0
     
0
 
PrairieCare Medical - Brooklyn Park, MN
   
2014-06-05
     
2,616
     
2,616
     
0
     
2,616
     
0
     
0
 
71 France Phase I - Edina, MN(3)
   
2014-06-12
     
1,413
     
0
     
1,413
     
1,413
     
0
     
0
 
             
8,298
     
6,885
     
1,413
     
8,298
     
0
     
0
 
                                                         
Total Property Acquisitions
         
$
26,578
   
$
12,996
   
$
13,582
   
$
9,168
   
$
17,145
   
$
265
 
 
(1) 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).
(2) At acquisition, the Company adjusted the assumed debt to fair value and recognized approximately $852,000 of goodwill.
(3) Land was contributed to a joint venture in which the Company has an approximately 52.6% interest. The joint venture is consolidated in IRET’s financial statements.
 
There were no acquisitions in the three months ended July 31, 2015.  Acquisitions in the three months ended July 31, 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 three months ended July 31, 2014, respectively, (excluding development projects placed in service) are detailed below.
 
   
(in thousands)
 
Three Months Ended July 31,
 
2014
 
Total revenue
 
$
362
 
Net income
 
 
20
 
 
DEVELOPMENT PROJECTS PLACED IN SERVICE
 
The Operating Partnership placed $105.8 million and $10.3 million of development projects in service during the three months ended July 31, 2015 and 2014, respectively, as detailed below.
 
Three Months Ended July 31, 2015
 
       
(in thousands)
 
Development Projects Placed in Service
 
Date Placed in
Service
   
Land
   
Building
   
Development
Cost
 
                 
Multi-Family Residential
               
72 unit – Chateau II - Minot, ND(1)
   
2015-06-01
   
$
240
   
$
14,360
   
$
14,600
 
288 unit – Renaissance Heights - Williston, ND(2)
   
2015-07-27
     
3,080
     
59,259
     
62,339
 
             
3,320
     
73,619
     
76,939
 
                                 
Healthcare
                               
57,624 sq ft Edina 6565 France SMC III - Edina, MN(3)
   
2015-06-01
     
0
     
28,816
     
28,816
 
                                 
Total Development Projects Placed in Service
         
$
3,320
   
$
102,435
   
$
105,755
 
 
(1) 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 July 31, 2015 of $14.6 million.
(2) Costs paid in prior fiscal years totaled $57.7 million. Additional costs paid in fiscal year 2016 totaled $4.6 million, for a total project cost at July 31, 2015 of $62.3 million. The project is owned by a joint venture entity in which the Company has an approximately 70.0% interest. The joint venture is consolidated in IRET’s financial statements.
(3) Costs paid in prior fiscal years totaled $20.8 million. Additional costs paid in fiscal year 2016 totaled $8.0 million, for a total project cost at July 31, 2015 of $28.8 million.
 
Three Months Ended July 31, 2014
 
       
(in thousands)
 
Development Projects Placed in Service
 
Date Placed in
Service
   
Land
   
Building
   
Development
Cost
 
                 
Multi-Family Residential
               
44 unit - Dakota Commons - Williston, ND(1)
   
2014-07-15
   
$
823
   
$
9,442
   
$
10,265
 
                                 
Total Development Projects Placed in Service
         
$
823
   
$
9,442
   
$
10,265
 
 
(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 July 31, 2014 of $10.3 million.
 
PROPERTY DISPOSITIONS
 
During the first quarter of fiscal year 2016, the Company sold one office property for a total sales price of $7.0 million. During the first quarter of fiscal year 2015, the Company sold one office property and one industrial property for a total sales price of $6.7 million. The Company also demolished a building at a retail property in Weston, Wisconsin. The following table details the Company’s dispositions during the three months ended July 31, 2015 and 2014:
 
Three Months Ended July 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
)
                                 
Total Property Dispositions
         
$
7,000
   
$
7,175
   
$
(175
)
 
Three Months Ended July 31, 2014
 
       
(in thousands)
 
Dispositions
 
Date
Disposed
   
Sales Price
   
Book Value
and Sales Cost
   
Gain/(Loss)
 
                 
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
)
             
3,100
     
4,300
     
(1,200
)
                                 
Total Property Dispositions
         
$
6,700
   
$
9,693
   
$
(2,993
)

NOTE 9 • MORTGAGES PAYABLE AND LINE OF CREDIT
 
Most of the properties owned by the Company serve as collateral for separate mortgage loans on single properties or groups of properties. The majority of these mortgages payable are non-recourse to the Company, 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 2.69% to 8.25%, and the mortgages have varying maturity dates from the current fiscal year through July 1, 2036. As of July 31, 2015, the management of the Company 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 a Company subsidiary, 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%. The Company is currently discussing a deed in lieu agreement with the lender, but the Company 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 $619.2 million at July 31, 2015 and $629.8 million at April 30, 2015. The balances of variable rate mortgages totalled $50.6 million and $38.3 million as of July 31, 2015 and April 30, 2015, respectively. The Company does not utilize derivative financial instruments to mitigate its exposure to changes in market interest rates. Most of the fixed rate mortgages have substantial pre-payment penalties. As of July 31, 2015, the weighted average rate of interest on the Company’s mortgage debt was 4.89%, compared to 4.95% on April 30, 2015. The aggregate amount of required future principal payments on mortgages payable as of July 31, 2015, excluding $293.0 million in outstanding mortgage indebtedness related to assets held for sale, is as follows:
 
Fiscal year ended April 30,
 
(in thousands)
 
2016 (remainder)
 
$
65,336
 
2017
   
41,973
 
2018
   
39,278
 
2019
   
116,848
 
2020
   
72,598
 
Thereafter
   
333,701
 
Total payments
 
$
669,734
 
 
In addition to the individual first mortgage loans comprising the Company’s $669.7 million of mortgage indebtedness, the Company also has a revolving, multi-bank line of credit with First International Bank and Trust, Watford City, North Dakota, as lead bank, which had, as of July 31, 2015, lending commitments of $100.0 million. This facility is not included in the Company’s mortgage indebtedness total. As of July 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 July 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 July 31, 2015, the line of credit had an interest rate of 4.75% and a minimum outstanding principal balance requirement of $17.5 million, and as of July 31, 2015 and April 30, 2015, the Company had borrowed $83.5 million and $60.5 million, respectively. The facility includes covenants and restrictions requiring the Company 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, and the Company is also required to maintain minimum depository account(s) totaling $6.0 million with First International, of which $1.5 million is to be held in a non-interest bearing account. As of July 31, 2015, the Company believes it was in compliance with the facility 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
 
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
 
The Company had no assets or liabilities recorded at fair value on a recurring basis at July 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 July 31, 2015 consisted of real estate investments and real estate held for sale that were written-down to estimated fair value during the three months ended July 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 are as follows:
 
   
(in thousands)
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
July 31, 2015
               
Real estate investments
 
$
575
   
$
0
   
$
0
   
$
575
 
Real estate held for sale
   
2,900
     
0
     
0
     
2,900
 
                                 
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 the Company’s 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 the Company’s financial instruments as of July 31, 2015 and April 30, 2015, are as follows:
 
   
(in thousands)
 
   
July 31, 2015
   
April 30, 2015
 
   
Carrying Amount
   
Fair Value
   
Carrying Amount
   
Fair Value
 
FINANCIAL ASSETS
               
Cash and cash equivalents
 
$
44,770
   
$
44,770
   
$
48,970
   
$
48,970
 
Other investments
   
329
     
329
     
329
     
329
 
FINANCIAL LIABILITIES
                               
Other debt
   
165,854
     
165,511
     
144,090
     
143,749
 
Line of credit
   
83,500
     
83,500
     
60,500
     
60,500
 
Mortgages payable
   
669,743
     
778,990
     
668,112
     
749,604
 
Mortgages payable related to assets held for sale
   
293,021
     
409,931
     
306,716
     
374,818
 
 
NOTE 11 • REDEEMABLE NONCONTROLLING INTERESTS
 
Redeemable noncontrolling interests on the Condensed Consolidated Balance Sheets represent the noncontrolling interest in a joint venture of the Company in which the Company’s unaffiliated partner, at its election, could require the Company 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 of beneficial interest on the Condensed Consolidated Balance Sheets. The Company currently has one joint venture, the Southgate apartment project in Minot, North Dakota, in which the Company’s joint venture partner can, for the four-year period from February 6, 2016 through February 5, 2020, compel the Company to acquire the partner’s interest, for a price to be determined in accordance with the provisions of the joint venture agreement.
 
As of July 31, 2015 and 2014, the estimated redemption value of the redeemable noncontrolling interests was $6.4 million and $6.3 million, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.
 
   
(in thousands)
 
Balance at April 30, 2015
 
$
6,368
 
Net loss
   
(7)
 
Balance at July 31, 2015
 
$
6,361
 
 
   
(in thousands)
 
Balance at April 30, 2014
 
$
6,203
 
Net income
   
110
 
Balance at July 31, 2014
 
$
6,313
 
 
NOTE 12 • SHARE BASED COMPENSATION

Share based awards are provided to officers, non-officer employees and trustees, under the Company’s 2008 Incentive Award Plan approved by shareholders on September 16, 2008, which allows for awards in the form of cash and unrestricted and restricted common shares, up to an aggregate of 2,000,000 shares, over the ten year period in which the plan will be in effect. Through July 31, 2015, awards under the 2008 Incentive Award Plan consisted of cash and restricted and unrestricted common shares.

Total Compensation Expense
 
Share-based compensation expense recognized in the consolidated financial statements for all outstanding share based awards was approximately $66,000 and $1.1 million for the three months ended July 31, 2015 and 2014, respectively.  The decrease in expense was due to the delay in granting long term incentive share awards for fiscal year 2016 until the 2015 Shareholder Meeting on September 15, 2015, when it is expected that if the shareholders approve the new 2015 Incentive Plan, such awards will be granted under the 2015 Incentive Plan.
 
Restricted Share Awards
 
No share awards vested during the three months ended July 31, 2015 and 2014.  The total unvested restricted share awards at July 31, 2015 was 107,536, which had a weighted average grant date fair value of $7.17 per share.
 
As of July 31, 2015, the total compensation cost related to non-vested share awards not yet recognized was approximately $289,000, which the Company expects to recognize during the remainder of fiscal year 2016.
 
NOTE 13 • SUBSEQUENT EVENTS
 
Common and Preferred Share Distributions. On September 2, 2015, the Company’s 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
 
September 15, 2015
October 1, 2015
Preferred shares:
             
Series A
 
$
0.5156
 
September 15, 2015
September 30, 2015
Series B
 
$
0.4968
 
September 15, 2015
September 30, 2015
 
Completed Acquisition.  On August 20, 2015, the Company closed on its acquisition of an approximately 28,000 square foot healthcare property in Omaha, Nebraska, for a purchase price of $6.5 million, paid in cash. The purchase price accounting is incomplete for this acquisition.
 
Completed Dispositions.  On August 3, 2015, the Company sold a portfolio of 33 office properties, one healthcare property and one parcel of unimproved land, for a sale price of $250.0 million at a gain of approximately $18.1 million with a related loss on debt extinguishment of approximately $4.8 million. On August 12, 2015, a joint venture entity in which the Company has an approximately 51% interest sold a portfolio of 5 office properties in Mendota Heights, Minnesota, for a sale price of $40.0 million.
 
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 multi-family residential properties and commercial properties located primarily in the upper Midwest states of Minnesota and North Dakota.  As of July 31, 2015, we held for investment 100 multi-family residential properties containing 12,027 apartment units and having a total real estate investment amount net of accumulated depreciation of $801.9 million, and 81 commercial properties containing approximately 4.4 million square feet of leasable space and having a total real estate investment amount net of accumulated depreciation of $491.5 million. We held for sale 67 commercial properties as of July 31, 2015.
 
Our primary source of income and cash is rents associated with multi-family residential 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 July 31, 2015.
 
Significant Events and Transactions during the Three Months Ended July 31, 2015
 
Summarized below are significant transactions and events that occurred during the first quarter of our fiscal year 2016:
 
·
The placement into service of the following: the 72-unit Chateau II multi-family residential property in Minot, North Dakota; the 57,624 square foot Edina 6565 France SMC III healthcare expansion project in Edina, Minnesota; and the final 72 units of the 288-unit Renaissance Heights multi-family residential property in Williston, North Dakota, in which we have an approximately 70% interest.
 
· The disposition of an office property in Minneapolis, Minnesota, for a sale price of $7.0 million.
 
· On June 12, 2015, our Operating Partnership entered in an agreement to sell 33 office properties, one healthcare property and a parcel of unimproved land.
 
· On June 23, 2015, Jeff P. Caira was appointed as a Trustee of our Board of Trustees.
 
· On June 25, 2015, our Operating Partnership entered into an agreement to sell 17 retail properties and a parcel of unimproved land.
 
Market Conditions and Outlook
 
We experienced generally stable trends across our apartment investments during the first quarter of fiscal year 2016. Same-store net operating income was flat and occupancy slipped 0.5% to 93.5% at quarter end on same store-assets when compared to the same period in the prior fiscal year.  According to AXIOMetrics Inc., the national apartment occupancy rate declined 0.11% to 95.2% during July 2015, which matches the level of three months ago.  However, our ability to maintain occupancy levels and raise rents remains dependent on continued healthy employment and wage growth. We have continued to observe considerable multi-family 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 sector remains stable with high occupancy and modest rent increases.  Our senior housing assets continue to benefit from the strengthening recovery in the housing market, as occupancy trends are closely aligned with the ability of seniors to sell their homes in anticipation of moving to a senior care facility.
 
The industrial property market continues to improve.  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.
 
We are in process of selling substantially all of our office and retail properties.  In an update to our previously-announced strategic plan, we are narrowing our property focus.  Sale proceeds are intended to be used toward portfolio deleveraging and investments in multi-family residential and healthcare.
 
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 multi-family residential properties and 85% for office, healthcare, industrial and retail properties.
 
For the comparison of the three months ended July 31, 2015 and 2014, all or a portion of 35 properties were non-same-store, of which non-same-store properties 11 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 of a commercial property, and upon receipt of a certificate of occupancy, in the case of a multi-family residential 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.
 
RESULTS OF OPERATIONS
 
Consolidated Results of Operations for the Three Months Ended July 31, 2015 and 2014
 
The discussion that follows is based on our consolidated results of operations for the three months ended July 31, 2015 and 2014.
 
   
(in thousands, except percentages)
 
   
Three Months Ended July 31
   
2015 vs 2014
 
   
2015
   
2014
   
$ Change
   
% Change
 
Real estate rentals
 
$
45,522
   
$
43,564
   
$
1,958
     
4.5
%
Tenant reimbursement
   
4,396
     
4,857
     
(461
)
   
(9.5
)%
TRS senior housing revenue
   
1,038
     
793
     
245
     
30.9
%
TOTAL REVENUE
   
50,956
     
49,214
     
1,742
     
3.5
%
Depreciation/amortization related to real estate investments
   
13,272
     
12,214
     
1,058
     
8.7
%
Utilities
   
3,206
     
2,945
     
261
     
8.9
%
Maintenance
   
5,374
     
4,986
     
388
     
7.8
%
Real estate taxes
   
4,917
     
4,987
     
(70
)
   
(1.4
)%
Insurance
   
1,100
     
1,462
     
(362
)
   
(24.8
)%
Property management expenses
   
3,871
     
3,666
     
205
     
5.6
%
Other property expenses
   
(68
)
   
206
     
(274
)
   
(133.0
)%
TRS senior housing expenses