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 January 31, 2016

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 31^st Avenue SW, Suite 60

Post Office Box 1988

Minot, ND 58702-1988

(Address of principal executive offices) (Zip code)

(701) 837-4738

(Registrant’s telephone number, including area code)

N/A

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

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

Yes ☑ No ☐

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

Yes ☑ No ☐

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

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

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

Yes ☐ No ☑

The number of common shares of beneficial interest outstanding as of March 3, 2016, was 121,054,247.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements - Third Quarter - Fiscal 2016:	3
Condensed Consolidated Balance Sheets (unaudited) January 31, 2016 and April 30, 2015	3
Condensed Consolidated Statements of Operations  (unaudited) For the Three and Nine Months ended January 31, 2016 and 2015	4
Condensed Consolidated Statements of Equity (unaudited) For the Nine Months ended January 31, 2016 and 2015	5
Condensed Consolidated Statements of Cash Flows  (unaudited) For the Nine Months ended January 31, 2016 and 2015	6
Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	50
Item 4. Controls and Procedures	51
Part II. Other Information
Item 1. Legal Proceedings	52
Item 1A. Risk Factors	52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3. Defaults Upon Senior Securities	52
Item 4. Mine Safety Disclosures	53
Item 5. Other Information	53
Item 6. Exhibits	53
Signatures	55

2

PART I

ITEM 1. FINANCIAL STATEMENTS - THIRD QUARTER - FISCAL 2016

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	(in thousands, except share data)
	January 31, 2016			April 30, 2015
ASSETS
Real estate investments
Property owned	$	1,801,019		$	1,546,367
Less accumulated depreciation		(346,895	)		(313,308	)
		1,454,124			1,233,059
Development in progress		78,341			153,994
Unimproved land		22,304			25,827
Total real estate investments		1,554,769			1,412,880
Assets held for sale		22,064			463,103
Cash and cash equivalents		47,117			48,970
Other investments		50			329
Receivable arising from straight-lining of rents, net of allowance of $766 and $718, respectively		16,778			15,617
Accounts receivable, net of allowance of $163 and $438, respectively		5,118			2,865
Real estate deposits		1,250			2,489
Prepaid and other assets		3,943			3,174
Intangible assets, net of accumulated amortization of $21,214 and $19,610, respectively		23,913			26,213
Tax, insurance, and other escrow		7,834			10,073
Property and equipment, net of accumulated depreciation of $1,116 and $1,464, respectively		1,442			1,542
Goodwill		1,715			1,718
Deferred charges and leasing costs, net of accumulated amortization of $9,078 and $8,077, respectively		9,816			8,864
TOTAL ASSETS	$	1,695,809		$	1,997,837
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES
Liabilities held for sale	$	11,449		$	321,393
Accounts payable and accrued expenses		48,778			56,399
Revolving line of credit		17,500			60,500
Mortgages payable		761,645			668,112
Construction debt and other		140,264			144,111
TOTAL LIABILITIES		979,636			1,250,515
COMMITMENTS AND CONTINGENCIES (NOTE 6)
REDEEMABLE NONCONTROLLING INTERESTS – CONSOLIDATED REAL ESTATE ENTITIES		7,244			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 January 31, 2016 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 January 31, 2016 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, 121,033,647 shares issued and outstanding at January 31, 2016, and 124,455,624 shares issued and outstanding at April 30, 2015)		924,658			951,868
Accumulated distributions in excess of net income		(434,388	)		(438,432	)
Total Investors Real Estate Trust shareholders’ equity		628,944			652,110
Noncontrolling interests – Operating Partnership (13,863,575 units at January 31, 2016 and 13,999,725 units at April 30, 2015)		58,254			58,325
Noncontrolling interests – consolidated real estate entities		21,731			30,519
Total equity		708,929			740,954
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY	$	1,695,809		$	1,997,837

See accompanying Notes to Condensed Consolidated Financial Statements.

3

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)

for the three and nine months ended January 31, 2016 and 2015

	(in thousands, except per share data)
	Three Months Ended January 31						Nine Months Ended January 31
	2016			2015			2016			2015
REVENUE
Real estate rentals	$	50,277		$	46,753		$	142,526		$	135,621
Tenant reimbursement		4,492			5,223			13,466			15,122
TRS senior housing revenue		1,003			963			3,006			2,599
TOTAL REVENUE		55,772			52,939			158,998			153,342
EXPENSES
Depreciation/amortization related to real estate investments		14,789			12,627			42,522			37,700
Utilities		3,427			3,564			9,757			9,533
Maintenance		5,821			5,033			16,979			15,081
Real estate taxes		5,029			5,284			14,948			15,052
Insurance		1,214			1,215			3,558			3,745
Property management expenses		4,676			3,825			13,182			10,970
Other property expenses		169			197			344			753
TRS senior housing expenses		912			825			2,493			2,243
Administrative expenses		2,929			2,754			8,316			9,308
Other expenses		86			488			1,714			1,678
Amortization related to non-real estate investments		130			210			470			647
Impairment of real estate investments		162			540			3,320			4,663
TOTAL EXPENSES		39,344			36,562			117,603			111,373
Operating income		16,428			16,377			41,395			41,969
Interest expense		(10,540	)		(10,009	)		(29,867	)		(29,710	)
Loss on extinguishment of debt		0			0			(106	)		0
Interest income		566			561			1,687			1,681
Other income		135			109			286			371
Income before gain (loss) on sale of real estate and other investments and income from discontinued operations		6,589			7,038			13,395			14,311
Gain (loss) on sale of real estate and other investments		1,446			951			1,271			(811	)
Income from continuing operations		8,035			7,989			14,666			13,500
Income from discontinued operations		35,408			1,162			50,181			1,322
NET INCOME		43,443			9,151			64,847			14,822
Net income attributable to noncontrolling interests – Operating Partnership		(4,227	)		(657	)		(5,940	)		(618	)
Net loss (income) attributable to noncontrolling interests – consolidated real estate entities		581			(123	)		2,096			(870	)
Net income attributable to Investors Real Estate Trust		39,797			8,371			61,003			13,334
Dividends to preferred shareholders		(2,879	)		(2,879	)		(8,636	)		(8,636	)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	36,918		$	5,492		$	52,367		$	4,698
Earnings per common share from continuing operations – Investors Real Estate Trust – basic and diluted	$	.04		$	.04		$	.06		$	.03
Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted		.26			.01			.36			.01
NET INCOME PER COMMON SHARE – BASIC AND DILUTED	$	.30		$	.05		$	.42		$	.04
DIVIDENDS PER COMMON SHARE	$	.13		$	.13		$	.39		$	.39

See accompanying Notes to Condensed Consolidated Financial Statements.

4

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY(unaudited)

for the nine months ended January 31, 2016 and 2015

	(in thousands)
	NUMBER OF PREFERRED SHARES		PREFERRED SHARES		NUMBER OF COMMON SHARES			COMMON SHARES			ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INCOME			NONREDEEMABLE NONCONTROLLING INTERESTS			TOTAL EQUITY
Balance April 30, 2014		5,750	$	138,674		109,019		$	843,268		$	(389,758	)	$	128,362		$	720,546
Net income attributable to Investors Real Estate Trust and nonredeemable  noncontrolling interests												13,334			1,351			14,685
Distributions – common shares and units												(45,222	)		(6,753	)		(51,975	)
Distributions – Series A preferred shares												(1,779	)					(1,779	)
Distributions – Series B preferred shares												(6,857	)					(6,857	)
Distribution reinvestment and share purchase plan						6,205			50,875									50,875
Share-based compensation						204			2,632									2,632
Partnership units issued															100			100
Redemption of units for common shares						6,706			38,512						(38,512	)		0
Contributions from nonredeemable noncontrolling interests – consolidated real estate entities															8,540			8,540
Distributions paid to non-controlling interests															(555	)		(555	)
Balance January 31, 2015		5,750	$	138,674		122,134		$	935,287		$	(430,282	)	$	92,533		$	736,212
Balance April 30, 2015		5,750	$	138,674		124,455		$	951,868		$	(438,432	)	$	88,844		$	740,954
Net income attributable to Investors Real Estate Trust and nonredeemable  noncontrolling interests												61,003			4,087			65,090
Distributions – common shares and units												(48,323	)		(5,431	)		(53,754	)
Distributions – Series A preferred shares												(1,779	)					(1,779	)
Distributions – Series B preferred shares												(6,857	)					(6,857	)
Distribution reinvestment and share purchase plan						821			5,619									5,619
Share-based compensation						220			1,191									1,191
Partnership units issued															400			400
Redemption of units for common shares						181			980						(980	)		0
Shares repurchased						(4,643	)		(35,000	)								(35,000	)
Distributions paid to non-controlling interests															(6,935	)		(6,935	)
Balance January 31, 2016		5,750	$	138,674		121,034		$	924,658		$	(434,388	)	$	79,985		$	708,929

See accompanying Notes to Condensed Consolidated Financial Statements.

5

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)

for the nine months ended January 31, 2016 and 2015

	(in thousands)
	Nine Months Ended January 31
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	64,847		$	14,822
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,811			39,198
Depreciation and amortization from discontinued operations		5,425			14,385
(Gain) loss on sale of real estate, land, other investments and discontinued operations		(25,512	)		811
Gain on extinguishment of debt		(35,552	)		0
Share-based compensation expense		1,391			1,935
Impairment of real estate investments		3,760			6,105
Bad debt expense		392			840
Changes in other assets and liabilities:
Receivable arising from straight-lining of rents		(104	)		(244	)
Accounts receivable		301			2,217
Prepaid and other assets		(265	)		(1,140	)
Tax, insurance and other escrow		(193	)		(548	)
Deferred charges and leasing costs		(999	)		(2,716	)
Accounts payable, accrued expenses, and other liabilities		(10,363	)		5,109
Net cash provided by operating activities		46,939			80,774
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from real estate deposits		3,725			575
Payments for real estate deposits		(2,486	)		(7,924	)
Decrease in other investments		279			0
Decrease in lender holdbacks for improvements		3,906			11,063
Increase in lender holdbacks for improvements		(862	)		(913	)
Proceeds from sale of discontinued operations		366,125			0
Proceeds from sale of real estate and other investments		8,580			26,758
Insurance proceeds received		1,035			2,537
Payments for acquisitions of real estate assets		(71,381	)		(24,404	)
Payments for development and re-development of real estate assets		(106,306	)		(143,256	)
Payments for improvements of real estate assets		(20,692	)		(18,203	)
Payments for improvements of real estate assets from discontinued operations		(5,182	)		(6,478	)
Net cash provided (used) by investing activities		176,741			(160,245	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages payable		95,602			78,875
Principal payments on mortgages payable		(218,264	)		(83,198	)
Proceeds from revolving line of credit		43,000			45,000
Principal payments on revolving line of credit and other debt		(110,554	)		(17,000	)
Proceeds from construction debt		62,268			69,051
Proceeds from sale of common shares under distribution reinvestment and share purchase program		1,493			38,819
Proceeds from noncontrolling partner – consolidated real estate entities		1,120			1,916
Repurchase of common shares		(35,000	)		0
Distributions paid to common shareholders		(44,326	)		(33,672	)
Distributions paid to preferred shareholders		(8,636	)		(8,636	)
Distributions paid to noncontrolling interests – Unitholders of the Operating Partnership		(5,301	)		(6,247	)
Distributions paid to noncontrolling interests – consolidated real estate entities		(6,935	)		(556	)
Net cash (used) provided by financing activities		(225,533	)		84,352
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,853	)		4,881
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		48,970			47,267
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	47,117		$	52,148

See accompanying Notes to Condensed Consolidated Financial Statements.

6

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, continued)

for the nine months ended January 31, 2016 and 2015

	(in thousands)
	Nine Months Ended January 31
	2016			2015
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE PERIOD
Distribution reinvestment plan – shares issued	$	3,997		$	11,550
Operating partnership distribution reinvestment plan – shares issued		130			506
Operating partnership units converted to shares		980			38,512
Real estate assets acquired through the issuance of operating partnership units		400			100
Real estate assets acquired through assumption of indebtedness and accrued costs		0			12,169
(Decrease) increase to accounts payable included within real estate investments		(4,991	)		6,384
Real estate assets contributed by noncontrolling interests – consolidated real estate entities		0			6,624
Construction debt reclassified to mortgages payable		41,649			0
Decrease in real estate assets in connection with transfer of real estate assets in settlement of debt		87,213			0
Decrease in debt in connection with transfer of real estate assets in settlement of debt		122,610			0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized of $4,396 and $3,628, respectively	$	28,990		$	39,073

See accompanying Notes to Condensed Consolidated Financial Statements.

7

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

for the nine months ended January 31, 2016 and 2015

NOTE 1 • ORGANIZATION

Investors Real Estate Trust (“IRET”, “we” or “us”) is a self-advised real estate investment trust engaged in acquiring, owning and leasing multifamily residential and commercial real estate. We have elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. As a REIT, we are subject to a number of organizational and operational requirements, including a requirement to distribute 90% of ordinary taxable income to shareholders, and, generally, are not subject to federal income tax on net income, except for taxes on undistributed REIT taxable income and taxes on the income generated by our taxable REIT subsidiary (“TRS”). Our TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates. We have considered estimated future taxable income and have determined that there were no material income tax provisions or material net deferred income tax items for our TRS for the nine months ended January 31, 2016 and 2015. Our multifamily properties and commercial properties are located mainly in the states of North Dakota and Minnesota, but also in the states of Idaho, Iowa, Kansas, Montana, Nebraska, South Dakota, Wisconsin and Wyoming. As of January 31, 2016, we held for investment 94 multifamily properties with 12,401 apartment units and 83 commercial properties, consisting of healthcare, industrial and other, totaling 4.5 million net rentable square feet. We held for sale 8 multifamily properties, 1 commercial property and 1 parcel of land as of January 31, 2016. We conduct a majority of our business activities through our consolidated operating partnership, IRET Properties, a North Dakota Limited Partnership (the “Operating Partnership”), as well as through a number of other consolidated subsidiary entities.

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

NOTE 2 • BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

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

Our interest in the Operating Partnership was 89.7% of the limited partnership units of the Operating Partnership (“Units”) as of January 31, 2016 and 89.9% as of April 30, 2015. Under the terms of the Operating Partnership’s Agreement of Limited Partnership, limited partners have the right to require the Operating Partnership to redeem their Units for cash any time following the first anniversary of the date they acquired such Units (“Exchange Right”). When a limited partner exercises the Exchange Right, we have the right, in our sole discretion, to acquire such Units by either making a cash payment or exchanging the Units for our common shares of beneficial interest (“Common Shares”), on a one-for-one basis. The Exchange Right is subject to certain conditions and limitations, including the limited partner may not exercise the Exchange Right more than two times during a calendar year and the limited partner may not exercise for less than 1,000 Units, or, if such limited partner holds less than 1,000 Units, for less than all of the Units held by such limited partner. The Operating Partnership and some limited partners have contractually agreed to a holding period of greater than one year, a greater number of redemptions during a calendar year or other limitations to their Exchange Right.

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

UNAUDITED INTERIM FINANCIAL STATEMENTS

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

8

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We do not expect adoption of this update to have a material impact on our operating results or financial position.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends existing accounting standards for lease accounting, including by requiring lessees to recognize most leases on the balance sheet and making certain changes to lessor accounting. The ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018. We are currently evaluating the impact the new standard may have on our consolidated financial statements.

IMPAIRMENT OF LONG-LIVED ASSETS

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

9

During the nine months ended January 31, 2016, we incurred a loss of approximately $3.8 million due to impairment of one office property, two parcels of land and eight multifamily properties. We recognized impairments of approximately $440,000 on an office property in Eden Prairie, Minnesota; $1.3 million on a parcel of land in Grand Chute, Wisconsin; $1.9 million on eight multifamily properties in St. Cloud, Minnesota; and $162,000 on a parcel of land in River Falls, Wisconsin. These properties were written-down to estimated fair value during the first, second and third quarters of fiscal year 2016 based on receipt of individual market offers to purchase and our intent to dispose of the properties or, in the case of the Grand Chute, Wisconsin, the sale listing price and our intent to dispose of the property. The impairment loss of the Eden Prairie, Minnesota property for the first quarter of fiscal year 2016 is reported in discontinued operations. See Note 7 for additional information.

During the nine months ended January 31, 2015, we incurred a loss of $6.1 million due to impairment of four commercial properties and two parcels of unimproved land. We recognized impairments of approximately $2.1 million on a retail property in Kalispell, Montana; $183,000 on an office property in Golden Valley, Minnesota; $1.8 million on an office property in Minneapolis, Minnesota; $1.4 million on an office property in Boise, Idaho; $98,000 on unimproved land in Eagan, Minnesota; and $442,000 on unimproved land in Weston, Wisconsin. These properties were written-down to estimated fair value during the first, second and third quarters of fiscal year 2015 based on receipt of individual market offers to purchase and our intent to dispose of the properties or, in the case of the Boise, Idaho and Weston, Wisconsin properties, an independent appraisal. The Kalispell and Golden Valley properties were sold in the second quarter of fiscal year 2015, the Weston property was sold in the fourth quarter of fiscal year 2015, the Minneapolis property was sold in the first quarter of fiscal year 2016, and the Boise property was sold in the second quarter of fiscal year 2016.

HELD FOR SALE

We classify properties as held for sale when they meet the U.S. GAAP criteria, which include: (a) management commits to and initiates a plan to sell the asset (disposal group), (b) the sale is probable and expected to be completed within one year under terms that are usual and customary for sales of such assets (disposal groups), and (c) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal costs. Depreciation is not recorded on assets classified as held for sale. Liabilities classified as held for sale consist of liabilities to be included in the transaction and liabilities directly associated with assets that will be transferred in the transaction. At January 31, 2016, we had 8 multifamily properties, one healthcare property and one parcel of land classified as held for sale with assets of $22.1 million and liabilities of $11.4 million. At April 30, 2015, we had 49 office properties, 17 retail properties and two healthcare properties classified as held for sale with assets of $463.1 million and liabilities of $321.4 million.

COMPENSATING BALANCES AND OTHER INVESTMENTS; HOLDBACKS

We maintain compensating balances, not restricted as to withdrawal, with several financial institutions in connection with financing received from those institutions and/or to ensure future credit availability. At January 31, 2016, our compensating balances totaled $13.2 million and consisted of the following:

Financial Institution
First International Bank, Watford City, ND	$	6,000,000
Associated Bank, Green Bay, WI		3,000,000
The PrivateBank, Minneapolis, MN		2,000,000
Bremer Bank, Saint Paul, MN		1,285,000
Dacotah Bank, Minot, ND		350,000
Peoples State Bank, Velva, ND		225,000
American National Bank, Omaha, NE		200,000
Commerce Bank a Minnesota Banking Corporation		100,000
Total	$	13,160,000

A portion of the deposit at Dacotah Bank is held as a certificate of deposit and comprises the approximately $50,000 in other investments on the Condensed Consolidated Balance Sheets. The certificate of deposit has a remaining term of less than six months and we intend to hold it to maturity.

We have a number of mortgage loans under which the lender retains a portion of the loan proceeds or requires a deposit for the payment of construction costs or tenant improvements. The decrease of $3.9 million in holdbacks for improvements reflected in the Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2016 is due primarily to the release of loan proceeds to us upon completion of construction and tenant improvement projects, while the increase of approximately $862,000 represents additional amounts retained by lenders for new projects.

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IDENTIFIED INTANGIBLE ASSETS AND LIABILITIES AND GOODWILL

Upon acquisition of real estate, we record the intangible assets and liabilities acquired (for example, if the leases in place for the real estate property acquired carry rents above the market rent, the difference is classified as an intangible asset) at their estimated fair value separate and apart from goodwill. We amortize identified intangible assets and liabilities that are determined to have finite lives based on the period over which the assets and liabilities are expected to affect, directly or indirectly, the future cash flows of the real estate property acquired (generally the life of the lease). In the nine months ended January 31, 2016 and 2015, respectively, we added approximately $1.3 million and $365,000 of new intangible assets and approximately $101,000 and $0 of new intangible liabilities. The weighted average lives of the intangible assets acquired in the nine months ended January 31, 2016 and 2015 are 0.8 years and 0.5 years, respectively. Amortization of intangibles related to above or below-market leases is recorded in real estate rentals in the Condensed Consolidated Statements of Operations. Amortization of other intangibles is recorded in depreciation/amortization related to real estate investments in the Condensed Consolidated Statements of Operations. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its estimated fair value.

Our identified intangible assets and intangible liabilities at January 31, 2016 and April 30, 2015 were as follows:

	(in thousands)
	January 31, 2016			April 30, 2015
Identified intangible assets (included in intangible assets):
Gross carrying amount	$	45,127		$	45,823
Accumulated amortization		(21,214	)		(19,610	)
Net carrying amount	$	23,913		$	26,213
Identified intangible liabilities (included in other liabilities):
Gross carrying amount	$	159		$	82
Accumulated amortization		(49	)		(61	)
Net carrying amount	$	110		$	21

The amortization of acquired below-market leases and acquired above-market leases reduced rental income by approximately $3,000 and $7,000 for the three months ended January 31, 2016 and 2015, respectively, and approximately $14,000 and $18,000 for the nine months ended January 31, 2016 and 2015, respectively. The estimated annual amortization of acquired below-market leases, net of acquired above-market leases, for each of the five succeeding fiscal years is as follows:

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

Amortization of all other identified intangible assets (a component of depreciation and amortization expense) was $1.4 million and $1.1 million for the three months ended January 31, 2016 and 2015, respectively, and $3.6 million and $4.0 million for the nine months ended January 31, 2016 and 2015, respectively. The estimated annual amortization of all other identified intangible assets for each of the five succeeding fiscal years is as follows:

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

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The excess of the cost of an acquired property over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Our goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The book value of goodwill as of January 31, 2016 and April 30, 2015 was $1.7 million. The annual review at April 30, 2015 indicated no impairment to goodwill and there was no indication of impairment at January 31, 2016.  During the nine months ended January 31, 2016, we disposed of eight commercial properties to which goodwill had been assigned, and as a result, approximately $196,000 of goodwill was derecognized. During the nine months ended January 31, 2015, we recognized approximately $852,000 of goodwill from the acquisition of the Homestead Garden multifamily property and disposed of one multifamily property to which goodwill had been assigned, and as a result, approximately $11,000 of goodwill was derecognized.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.  On the Condensed Consolidated Statements of Operations, we reclassified certain expenses from general and administrative expenses to administrative expenses and other expenses. On the Condensed Consolidated Balance Sheets, we reclassified assets and liabilities related to properties classified as held for sale.

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

PROCEEDS FROM FINANCING LIABILITY

During the first quarter of fiscal year 2014, we sold a non-core assisted living property in exchange for $7.9 million in cash and a $29.0 million contract for deed. The buyer leased the property back to us, and also granted us an option to repurchase the property at a specified price at or prior to July 31, 2018. We accounted for the transaction as a financing liability due to our continuing involvement with the property and recorded the $7.9 million in sales proceeds within other liabilities on the Condensed Consolidated Balance Sheets.  The balance of the liability as of January 31, 2016 was $7.9 million.

VARIABLE INTEREST ENTITY

On November 27, 2012, we entered into a joint venture operating agreement with a real estate development company to construct an apartment project in Minot, North Dakota as IRET – Minot Apartments, LLC, with approximately 69% of the project financed with third-party debt and approximately 7% financed with debt from us to the joint venture entity. The two-phase project was substantially completed in the third quarter of fiscal year 2015. As of January 31, 2016, we are the approximately 51.0% owner of the joint venture and have management and leasing responsibilities and the real estate development company owns approximately 49.0% of the joint venture and was responsible for the development and construction of the property. We have determined that the joint venture is a variable interest entity (“VIE”), primarily based on the fact that the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support. We have also determined that we are the primary beneficiary of the VIE due to the fact that we are providing more than 50% of the equity contributions, the subordinated debt and a guarantee on the third party debt and have the power to direct the most significant activities that impact the entity’s economic performance.

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

NOTE 3 • EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of Common Shares outstanding during the period. We have no outstanding options, warrants, convertible stock or other contractual obligations requiring issuance of additional shares that would result in dilution of earnings. Units can be exchanged for shares on a one-for-one basis after a minimum holding period of one year. The following table presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share reported in the condensed consolidated financial statements for the three and nine months ended January 31, 2016 and 2015:

	(in thousands, except per share data)
	Three Months Ended January 31						Nine Months Ended January 31
	2016			2015			2016			2015
NUMERATOR
Income from continuing operations – Investors Real Estate Trust	$	8,028		$	7,334		$	15,938		$	12,195
Income from discontinued operations – Investors Real Estate Trust		31,769			1,037			45,065			1,139
Net income attributable to Investors Real Estate Trust		39,797			8,371			61,003			13,334
Dividends to preferred shareholders		(2,879	)		(2,879	)		(8,636	)		(8,636	)
Numerator for basic earnings per share – net income available to common shareholders		36,918			5,492			52,367			4,698
Noncontrolling interests – Operating Partnership		4,227			657			5,940			618
Numerator for diluted earnings per share	$	41,145		$	6,149		$	58,307		$	5,316
DENOMINATOR
Denominator for basic earnings per share weighted average shares		121,864			120,855			123,793			116,303
Effect of convertible operating partnership units		13,877			14,461			13,913			17,334
Denominator for diluted earnings per share		135,741			135,316			137,706			133,637
Earnings per common share from continuing operations – Investors Real Estate Trust – basic and diluted	$	.04		$	.04		$	.06		$	.03
Earnings per common share from discontinued operations – Investors Real Estate Trust – basic and diluted		.26			.01			.36			.01
NET INCOME PER COMMON SHARE – BASIC & DILUTED	$	.30		$	.05		$	.42		$	.04

NOTE 4 • EQUITY

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

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

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Share Repurchase Program. In August 2015, we publicly announced the share repurchase program authorized by our Board of Trustees to repurchase up to $50 million of our Common Shares over a one year period.  During the third quarter of fiscal year 2016, we repurchased and retired approximately 1.8 million Common Shares for an aggregate cost of approximately $13.1 million, including commissions, at an average price per share of $7.30. During the nine months ended January 31, 2016, we repurchased and retired approximately 4.6 million Common Shares for an aggregate cost of approximately $35.0 million, including commissions, at an average price per share of $7.54.

DRIP. We have implemented a Distribution Reinvestment and Share Purchase Plan (“DRIP”), which provides our common shareholders and the unitholders of the Operating Partnership an opportunity to invest their cash distributions in Common Shares and to purchase additional Common Shares through voluntary cash contributions. A DRIP participant cannot purchase additional Common Shares in excess of $10,000 per month, unless waived by us. We did not issue any waivers during the three months ended January 31, 2016 and 2015. We did not issue any waivers during the nine months ended January 31, 2016. During the nine months ended January 31, 2015, DRIP participants purchased approximately 926,000 additional Common Shares at an average price of $8.64 per share pursuant to waivers granted by us, for total net proceeds of $8.0 million.

As permitted under the DRIP, starting on October 1, 2015, we changed the source from which Common Shares will be purchased under the DRIP to open market transactions, which are not eligible for purchase price discounts. During the three months ended January 31, 2016, no shares were issued under the DRIP. During the three months ended January 31, 2015, 2.0 million Common Shares with a total value included in equity of $16.1 million, and an average price per share after applicable discounts of $8.06, were issued under the DRIP. During the nine months ended January 31, 2016 and 2015, approximately 821,000 and 6.2 million Common Shares with a total value included in equity of $5.6 million and $50.9 million, and an average price per share after applicable discounts of $6.85 and $8.20, respectively, were issued under the DRIP.

Exchange Rights. Pursuant to Exchange Rights, during the three months ended January 31, 2016 and 2015, respectively, approximately 26,800 Units and 333,000 Units were exchanged for Common Shares, with a total value of approximately $125,000 and $811,000 included in equity. During the nine months ended January 31, 2016 and 2015, respectively, approximately 180,600 Units and 6.7 million Units were exchanged for Common Shares, with a total value of approximately $981,000 and $38.5 million included in equity.

NOTE 5 • SEGMENT REPORTING

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

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

The revenues and NOI for these reportable segments are summarized as follows for the three and nine month periods ended January 31, 2016 and 2015, 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.

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	(in thousands)
Three Months Ended January 31, 2016	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	33,296	$	18,350	$	1,650	$	1,473	$	54,769
Real estate expenses		15,460		4,208		453		215		20,336
Net operating income	$	17,836	$	14,142	$	1,197	$	1,258		34,433
TRS senior housing revenue, net of expenses										91
Depreciation/amortization										(14,919	)
Administrative expenses										(2,929	)
Other expenses										(86	)
Impairment of real estate investments										(162	)
Interest expense										(10,540	)
Interest and other income										701
Income before gain on sale of real estate and other investments and income from discontinued operations										6,589
Gain on sale of real estate and other investments										1,446
Income from continuing operations										8,035
Income from discontinued operations										35,408
Net income									$	43,443

	(in thousands)
Three Months Ended January 31, 2015	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	30,256	$	17,491	$	1,741	$	2,488	$	51,976
Real estate expenses		13,318		4,260		501		1,039		19,118
Net operating income	$	16,938	$	13,231	$	1,240	$	1,449		32,858
TRS senior housing revenue, net of expenses										138
Depreciation/amortization										(12,837	)
Administrative expenses										(2,754	)
Other expenses										(488	)
Impairment of real estate investments										(540	)
Interest expense										(10,009	)
Interest and other income										670
Income before gain on sale of real estate and other investments and income from discontinued operations										7,038
Gain on sale of real estate and other investments										951
Income from continuing operations										7,989
Income from discontinued operations										1,162
Net income									$	9,151

	(in thousands)
Nine Months Ended January 31, 2016	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	96,782	$	50,435	$	4,913	$	3,862	$	155,992
Real estate expenses		44,602		12,202		1,138		826		58,768
Net operating income	$	52,180	$	38,233	$	3,775	$	3,036		97,224
TRS senior housing revenue, net of expenses										513
Depreciation/amortization										(42,992	)
Administrative expenses										(8,316	)
Other expenses										(1,714	)
Impairment of real estate investments										(3,320	)
Interest expense										(29,867	)
Loss on extinguishment of debt										(106	)
Interest and other income										1,973
Income before gain on sale of real estate and other investments and income from discontinued operations										13,395
Gain on sale of real estate and other investments										1,271
Income from continuing operations										14,666
Income from discontinued operations										50,181
Net income									$	64,847

15

	(in thousands)
Nine Months Ended January 31, 2015	Multifamily		Healthcare		Industrial		All Other		Total
Real estate revenue	$	87,576	$	50,024	$	4,904	$	8,239	$	150,743
Real estate expenses		37,700		12,726		1,223		3,485		55,134
Net operating income	$	49,876	$	37,298	$	3,681	$	4,754		95,609
TRS senior housing revenue, net of expenses										356
Depreciation/amortization										(38,347	)
Administrative expenses										(9,308	)
Other expenses										(1,678	)
Impairment of real estate investments										(4,663	)
Interest expense										(29,710	)
Interest and other income										2,052
Income before loss on sale of real estate and other investments and income from discontinued operations										14,311
Loss on sale of real estate and other investments										(811	)
Income from continuing operations										13,500
Income from discontinued operations										1,322
Net income									$	14,822

Segment Assets and Accumulated Depreciation

Segment assets are summarized as follows as of January 31, 2016, and April 30, 2015, along with reconciliations to the condensed consolidated financial statements:

	(in thousands)
As of January 31, 2016	Multifamily			Healthcare			Industrial			All Other			Total
Segment Assets
Property owned	$	1,133,560		$	559,997		$	61,238		$	46,224		$	1,801,019
Less accumulated depreciation		(200,363	)		(123,992	)		(12,494	)		(10,046	)		(346,895	)
Net property owned	$	933,197		$	436,005		$	48,744		$	36,178			1,454,124
Assets held for sale														22,064
Cash and cash equivalents														47,117
Other investments														50
Receivables and other assets														71,809
Development in progress														78,341
Unimproved land														22,304
Total assets													$	1,695,809

	(in thousands)
As of April 31, 2015	Multifamily			Healthcare			Industrial			All Other			Total
Segment Assets
Property owned	$	946,520		$	495,021		$	60,611		$	44,215		$	1,546,367
Less accumulated depreciation		(180,414	)		(112,515	)		(11,256	)		(9,123	)		(313,308	)
Net property owned	$	766,106		$	382,506		$	49,355		$	35,092			1,233,059
Assets held for sale														463,103
Cash and cash equivalents														48,970
Other investments														329
Receivables and other assets														72,555
Development in progress														153,994
Unimproved land														25,827
Total assets													$	1,997,837

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NOTE 6 • COMMITMENTS AND CONTINGENCIES

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

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

Purchase Options.  We have granted options to purchase certain of our properties to tenants under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property’s appraised value or an annual compounded increase of a specified percentage of our initial cost for the property. As of January 31, 2016, our total property cost for the 15 properties subject to purchase options was $117.6 million, and the total gross rental revenue from these properties was $6.8 million for the nine months ended January 31, 2016.  The tenant in the Nebraska Orthopaedic Hospital property has exercised its option to purchase the property, which accounts for $16.0 million of the total property cost and $1.3 million of the total gross rental revenue subject to purchase options. However, we can give no assurance if or when such sale of the property will be completed.

Environmental Matters.  Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While we currently have no knowledge of any material violation of environmental laws, ordinances or regulations at any of our properties, there can be no assurance that areas of contamination will not be identified at any of our properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to us.

Restrictions on Taxable Dispositions.  Approximately 78 of our properties, consisting of 2.7 million square feet of our combined commercial properties and 5,372 apartment units, are subject to restrictions on our ability to resell in taxable transactions. These restrictions are contained in agreements we entered into with some of the sellers or contributors of the properties, and are effective for varying periods. The real estate investment amount of these properties (net of accumulated depreciation) was $670.6 million at January 31, 2016. We do not believe that these restrictions materially affect the conduct of our business or decisions whether to dispose of these properties during the restriction periods because we generally hold properties for investment purposes, rather than for sale. Historically, however, where we have deemed it to be in the shareholders’ best interests to dispose of restricted properties, we have done so through tax-deferred transactions under Section 1031 of the Internal Revenue Code.

Exchange Value of Units.  Whenever limited partners of the Operating Partnership exercise their Exchange Rights, we have the right, but not the obligation, to acquire such Units in exchange for either cash or our Common Shares on a one-for-one basis. If Units are exchanged for cash, the amount of cash per Unit is equal to the average of the daily market price of a Common Share for the ten consecutive trading days immediately preceding the date of valuation of the Unit.  As of January 31, 2016 and 2015, the aggregate exchange value of the then-outstanding Units of the Operating Partnership owned by limited partners was approximately $89.4 million and $122.0 million, respectively. All Units receive the same cash distributions as those paid on our Common Shares.

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

Tenant Improvements. In entering into leases with tenants, we may commit to fund improvements or build-outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and we are accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of January 31, 2016, we are committed to fund $4.5 million in tenant improvements within approximately the next 12 months.

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Development, Expansion and Renovation Projects.  As of January 31, 2016, we had several development, expansion and renovation projects underway or placed in service during the quarter, the costs for which have been capitalized, as follows:

					(in thousands)				(in fiscal years)
Project Name and Location	Planned Segment		Rentable Square Feet or Number of Units		Anticipated Total Cost(1)		Costs as of January 31, 2016(1)		Anticipated Construction Completion
Deer Ridge - Jamestown, ND	Multifamily		163 units			24,874		24,874	4Q 2016
Cardinal Point - Grand Forks, ND(2)	Multifamily		251 units			48,242		48,242	4Q 2016
71 France - Edina, MN(3)	Multifamily		241 units			73,290		69,105	1Q 2017
Monticello Crossings - Monticello, MN	Multifamily		202 units			31,784		11,210	2Q 2017
Other		n/a		n/a		n/a		3,524		n/a
					$	178,190	$	156,955

(1) Includes costs related to development projects that are placed in service in phases (Deer Ridge - $14.3 million, 71 France - $41.3 million, Cardinal Point - $23.0 million).

(2) Anticipated total cost as of January 31, 2016 includes incremental cost increase due to the replacement of the project’s original general contractor. There may be additional costs for this project as it nears completion in the fourth quarter of fiscal year 2016.

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

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

Construction interest capitalized for the three month periods ended January 31, 2016 and 2015, respectively, was $1.0 million and $1.4 million for development projects completed and in progress. Construction interest capitalized for the nine month periods ended January 31, 2016 and 2015, respectively, was $4.4 million and $3.6 million for development projects completed and in progress.

Pending Acquisitions. We currently have 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:

● four multifamily properties with 393 units in Rochester, Minnesota, for a purchase price of $72.5 million, of which approximately $47.5 million is to be paid in cash with the remainder in Units of the Operating Partnership valued at approximately $25.0 million.

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

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

● eight multifamily properties in St. Cloud, Minnesota for a sales price of $5.6 million; and

● a parcel of unimproved land in River Falls, Wisconsin for a sales price of $20,000.

NOTE 7 • DISCONTINUED OPERATIONS

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

18

The following information shows the effect on net income and the gains or losses from the sales of properties classified as discontinued operations for the three and nine months ended January 31, 2016 and 2015:

	(in thousands)
	Three Months Ended January 31						Nine Months Ended January 31
	2016			2015			2016			2015
REVENUE
Real estate rentals	$	3,576		$	13,687		$	21,966		$	40,780
Tenant reimbursement		718			6,290			8,268			18,309
TOTAL REVENUE		4,294			19,977			30,234			59,089
EXPENSES
Depreciation/amortization related to real estate investments		0			4,207			4,239			12,146
Utilities		416			1,803			3,016			5,608
Maintenance		588			2,766			4,784			8,310
Real estate taxes		756			3,532			5,341			10,531
Insurance		58			264			462			815
Property management expenses		468			921			1,941			2,761
Other property expenses		0			30			0			30
Amortization related to non-real estate investments		105			706			1,002			1,981
Impairment of real estate investments		0			0			440			1,442
TOTAL EXPENSES		2,391			14,229			21,225			43,624
Operating income		1,903			5,748			9,009			15,465
Interest expense(1)		(3,436	)		(4,586	)		(12,832	)		(14,148	)
Gain on extinguishment of debt(1)		36,456			0			29,336			0
Other income		154			0			427			5
Income from discontinued operations before gain on sale		35,077			1,162			25,940			1,322
Gain on sale of discontinued operations		331			0			24,241			0
INCOME FROM DISCONTINUED OPERATIONS(2)	$	35,408		$	1,162		$	50,181		$	1,322

(1) Interest expense includes $1.6 million and $4.7 million for the three and nine months ended January 31, 2016, respectively, of default interest related to a$122.6 million non-recourse loan by one of our subsidiaries.  Gain on extinguishment of debt in the three and nine months ended January 31, 2016, respectively, includes $36.5 million of gain on extinguishment of debt recognized in connection with our transfer of ownership to the mortgage lender of the nine properties serving as collateral for the $122.6 million non-recourse loan and the removal of the debt obligation and accrued interest from our balance sheet.

(2) Discontinued operations for the nine months ended January 31, 2016 and 2015 includes a noncontrolling interest for our Mendota joint venture entity.  Income from discontinued operations attributable to us was $51.4 million and $1.7 million for the nine months ended January 31, 2016 and 2015, respectively.

19

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)
	January 31, 2016		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	$	0	$	417,045
Receivable arising from straight-lining of rents		0		10,078
Accounts receivable		0		566
Prepaid and other assets		0		699
Tax, insurance and other escrow		0		1,176
Goodwill		0		193
Deferred charges and leasing costs		0		9,606
Total major classes of assets of the discontinued operations		0		439,363
Other assets included in the disposal group classified as held for sale		22,064		23,740
Total assets of the disposal group classified as held for sale on the balance sheet	$	22,064	$	463,103
Carrying amounts of major classes of liabilities included as part of discontinued operations
Accounts payable and accrued expenses	$	0	$	13,952
Mortgages payable		0		295,677
Other		0		4
Total major classes of liabilities of the discontinued operations		0		309,633
Other liabilities included in the disposal group classified as held for sale		11,449		11,760
Total liabilities of the disposal group classified as held for sale on the balance sheet	$	11,449	$	321,393

NOTE 8 • ACQUISITIONS, DEVELOPMENTS PLACED IN SERVICE AND DISPOSITIONS

PROPERTY ACQUISITIONS

We added $71.8 million of new real estate properties to our portfolio through property acquisitions during the nine months ended January 31, 2016, compared to $41.3 million in the nine months ended January 31, 2015. We expensed approximately $162,000 and $104,000 of transaction costs related to the acquisitions in the nine months ended January 31, 2016 and 2015, respectively. Our acquisitions during the nine months ended January 31, 2016 and 2015 are detailed below.

Nine Months Ended January 31, 2016

			(in thousands)
			Total Acquisition Cost		Form of Consideration				Investment Allocation
Acquisitions	Date Acquired				Cash		Units(1)		Land		Building		Intangible Assets
Multifamily
74 unit - Gardens - Grand Forks, ND		2015-09-10	$	9,250	$	8,850	$	400	$	518	$	8,672	$	60
276 unit - GrandeVille at Cascade Lake - Rochester, MN		2015-10-29		56,000		56,000		0		5,003		50,363		634
				65,250		64,850		400		5,521		59,035		694
Healthcare
27,819 sq ft Lakeside Medical Plaza - Omaha, NE		2015-08-20		6,500		6,500		0		903		5,109		488
Total Property Acquisitions			$	71,750	$	71,350	$	400	$	6,424	$	64,144	$	1,182

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

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Nine Months Ended January 31, 2015

			(in thousands)
			Total Acquisition Cost		Form of Consideration						Investment Allocation
Acquisitions	Date Acquired				Cash		Units(1)		Other(2)		Land		Building		Intangible Assets
Multi-Family
152 unit - Homestead Garden - Rapid City, SD(3)		2014-06-02	$	15,000	$	5,092	$	0	$	9,908	$	655	$	14,139	$	206
52 unit - Silver Springs - Rapid City, SD		2014-06-02		3,280		1,019		0		2,261		215		3,006		59
68 unit - Northridge - Bismarck, ND		2014-09-12		8,500		8,400		100		0		884		7,516		100
				26,780		14,511		100		12,169		1,754		24,661		365
Unimproved Land
Creekside Crossing - Bismarck, ND		2014-05-22		4,269		4,269		0		0		4,269		0		0
PrairieCare Medical - Brooklyn Park, MN		2014-06-05		2,616		2,616		0		0		2,616		0		0
71 France Phase I - Edina, MN(4)		2014-06-12		1,413		0		0		1,413		1,413		0		0
Monticello 7th Addition - Monticello, MN		2014-10-09		1,660		1,660		0		0		1,660		0		0
71 France Phase II & III - Edina, MN(4)		2014-11-04		3,309		0		0		3,309		3,309		0		0
Minot 1525 24th Ave SW - Minot, ND		2014-12-23		1,250		1,250		0		0		1,250		0		0
				14,517		9,795		0		4,722		14,517		0		0