Form 8-K INVESTORS REAL ESTATE For: Aug 03

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  August 5, 2015 (August 3, 2015)

 

INVESTORS REAL ESTATE TRUST

(Exact name of Registrant as specified in its charter)

 

 

 

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)

 

Not Applicable

(Former name or former address, if changed from last report)

 

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

 

o                 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o                 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o                 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o                 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 2.01.                                        Completion of Acquisition or Disposition of Assets.

 

On August 3, 2015, IRET Properties, a North Dakota Limited Partnership and the operating partnership of Investors Real Estate Trust (“Trust”), completed the sale (“Sale”) of 34 of its commercial office properties, comprised of approximately 2.5 million square feet (collectively, the “Property”), pursuant to the terms of the Agreement for Sale and Purchase of Property dated June 12, 2015 (“Agreement”).

 

As permitted by the Agreement, LSREF4 Bison Acquisitions, LLC, a Delaware limited liability company, assigned its rights as buyer to LSREF4 Bison (Golden Hills), LLC with respect to one property and to LSREF4 Bison, LLC with respect to all other properties, both of which are under the common control of LSREF4 Bison Acquisitions, LLC (collectively, the “Buyer”).

 

The purchase price, before deducting a credit of $1.5 million for Buyer’s waiver of physical inspection of the Property, was $250.0 million in cash.

 

The above description of the Agreement is a summary only and is qualified in its entirety by reference to the full text of the Agreement, a copy of which was previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on June 18, 2015, and is incorporated herein by reference.

 

In connection with the completion of the Sale, the Trust is filing, as Exhibit 99.1 hereto, pro forma financial information, which is incorporated herein by reference.

 

Item 7.01.                                        Regulation FD Disclosure.

 

On August 5, 2015, the Trust issued a press release announcing the Sale, as described above under Item 2.01, among other things, which is attached hereto as Exhibit 99.2 (“Press Release”), and is hereby incorporated by reference.

 

The information set forth in this Item 7.01, including Exhibit 99.2, is being furnished pursuant to Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (“Securities Act”) or under the Exchange Act, except as expressly provided by specific reference in such a filing.

 

Item 8.01.                                        Other Events.

 

The Press Release also announced that the Trust’s Board of Trustees has authorized a new share repurchase program to repurchase up to $50.0 million worth of its common shares of beneficial interest over a one-year period. A copy of the Press Release is attached as Exhibit 99.2 to this Current Report on Form 8-K and is hereby incorporated by reference.

 

The information set forth in this Item 8.01, including Exhibit 99.2, is being furnished pursuant to Item 8.01 and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or

 

2

 

otherwise subject to the liabilities of that Section, and it shall not be deemed incorporated by reference in any filing under the Securities Act or under the Exchange Act, except as expressly provided by specific reference in such a filing.

 

Item 9.01                                           Financial Statements and Exhibits

 

(b)                                 Pro forma financial information. The following pro forma financial information reflecting the Sale described above is filed herewith as Exhibit 99.1:

 

·                  Summary of Unaudited Pro Forma Financial Statements

 

·                  Unaudited Pro Forma Condensed Consolidated Balance Sheet as of April 30, 2015

 

·                  Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Years Ended April 30, 2015, 2014 and 2013.

 

·                  Notes to Unaudited Pro Forma Financial Information

 

(d)                                 Exhibits. The following exhibits are being filed or furnished, as applicable, herewith.

 

Exhibit
Number		Description
99.1		Unaudited pro forma condensed consolidated financial statements.
99.2		Press Release dated August 5, 2015.

 

SIGNATURE

 

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

 

	INVESTORS REAL ESTATE TRUST
Date: August 5, 2015	By:	/s/ Timothy P. Mihalick
		Timothy P. Mihalick
		President & Chief Executive Officer

 

3

Exhibit 99.1

 

INVESTORS REAL ESTATE TRUST

 

PRO FORMA FINANCIAL INFORMATION

(UNAUDITED)

 

The accompanying unaudited pro forma condensed consolidated financial statements of Investors Real Estate Trust (the “Company”) have been prepared to provide pro forma financial information with respect to:

 

·                  the sale of 34 office properties and 1 parcel of unimproved land (the “Office Portfolio”) for a sale price of $250.0 million in cash, which closed August 3, 2015, as described in Item 2.01 of the Current Report on Form 8-K with which this Exhibit 99.1 is filed and

 

·                  the assumption by the buyer of a $17.3 million mortgage loan and the repayment of $89.6 million in mortgage loans that encumbered certain properties in the Office Portfolio.

 

The unaudited pro forma condensed consolidated balance sheet as of April 30, 2015 gives effect to the transactions described above as if they had occurred on April 30, 2015.

 

The unaudited pro forma condensed consolidated statements of operations for the fiscal years ended April 30, 2015, 2014 and 2013 give effect to the transactions described above as if they had occurred on May 1, 2012.

 

In the opinion of the Company’s management, all adjustments necessary to reflect the effects of the transactions described above have been made. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the Company’s actual results of operations or financial condition would have been had the transactions described above occurred on the dates indicated, nor does it purport to represent the future results of operations or financial condition of the Company.

 

The unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2015.

 

F-1

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

APRIL 30, 2015

(unaudited)

 

		(in thousands, except share data)
		Historical (a)			Office Portfolio (b)			Pro Forma
ASSETS
Real estate investments
Property owned		$	2,098,037		$	(300,573	)	$	1,797,464
Less accumulated depreciation		(448,987		)	84,253			(364,734		)
		1,649,050			(216,320		)	1,432,730
Development in progress		153,994			—			153,994
Unimproved land		25,827			(325		)	25,502
Total real estate investments		1,828,871			(216,645		)	1,612,226
Real estate held for sale		22,912			—			22,912
Cash and cash equivalents		48,970			105,476			154,446
Other investments		329			—			329
Receivable arising from straight-lining of rents, net of allowance		26,211			(6,043		)	20,168
Accounts receivable, net of allowance		3,675			(208		)	3,467
Real estate deposits		2,489			23,090			25,579
Prepaid and other assets		3,907			(418		)	3,489
Intangible assets, net of accumulated amortization		27,267			(929		)	26,338
Tax, insurance, and other escrow		11,249			(277		)	10,972
Property and equipment, net of accumulated depreciation		1,542			—			1,542
Goodwill		1,911			(126		)	1,785
Deferred charges and leasing costs, net of accumulated amortization		18,504			(4,778		)	13,726
TOTAL ASSETS		$	1,997,837		$	(100,858	)	1,896,979
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES
Accounts payable and accrued expenses		$	71,072		$	(6,448	)	64,624
Revolving line of credit		60,500			—			60,500
Mortgages payable		974,828			(122,647		)	852,181
Construction debt and other		144,115			(4		)	144,111
TOTAL LIABILITIES		1,250,515			(129,099		)	1,121,416
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTERESTS — CONSOLIDATED REAL ESTATE ENTITIES		6,368			—			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 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 April 30, 2015, aggregate liquidation preference of $115,000,000)		111,357			—			111,357
Common Shares of Beneficial Interest (Unlimited authorization, no par value, 124,455,624 shares issued and outstanding at April 30, 2015)		951,868			—			951,868
Accumulated distributions in excess of net income		(438,432		)	28,241			(410,191		)
Total Investors Real Estate Trust shareholders’ equity		652,110			28,241			680,351
Noncontrolling interests — Operating Partnership (13,999,725 units at April 30, 2015)		58,325			—			58,325
Noncontrolling interests — consolidated real estate entities		30,519			—			30,519
Total equity		740,954			28,241			769,195
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY		$	1,997,837		$	(100,858	)	1,896,979

 

See accompanying notes to unaudited pro forma financial information.

 

F-2

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED APRIL 30, 2015

(unaudited)

 

		(in thousands, except per share data)
		Historical (c)			Office Portfolio (d)			Pro Forma
REVENUE
Real estate rentals		$	235,852		$	(28,071	)	$	207,781
Tenant reimbursement		43,818			(13,761		)	30,057
TRS senior housing revenue		3,520			—			3,520
TOTAL REVENUE		283,190			(41,832		)	241,358
EXPENSES
Depreciation/amortization related to real estate investments		67,112			(9,881		)	57,231
Utilities		20,881			(4,137		)	16,744
Maintenance		30,924			(5,399		)	25,525
Real estate taxes		33,945			(7,385		)	26,560
Insurance		5,839			(581		)	5,258
Property management expenses		18,502			(1,792		)	16,710
Other property expenses		906			—			906
TRS senior housing expenses		2,997			—			2,997
Administrative expenses		11,824			—			11,824
Other expenses		2,010			—			2,010
Amortization related to non-real estate investments		3,495			(1,344		)	2,151
Impairment of real estate investments		6,105			(1,442		)	4,663
TOTAL EXPENSES		204,540			(31,961		)	172,579
Operating income		78,650			(9,871		)	68,779
Interest expense		(59,020		)	7,917			(51,103		)
Interest income		2,238			—			2,238
Other income		723			(1		)	722
Income before gain on sale of real estate and other investments		22,591			(1,955		)	20,636
Gain on sale of real estate and other investments		6,093			—			6,093
Income from continuing operations		28,684			(1,955		)	26,729
Income from continuing operations attributable to noncontrolling interests — Operating Partnership		(1,526		)	197			(1,329		)
Net income attributable to noncontrolling interests — consolidated real estate entities		(3,071		)	—			(3,071		)
Dividends to preferred shareholders		(11,514		)	—			(11,514		)
INCOME FROM CONTINUING OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS		12,573			(1,758		)	10,815
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE — BASIC & DILUTED		$	.11		$	(.02	)	$	.09
Weighted average common shares outstanding — basic		118,004			—			118,004
Weighted average common shares outstanding — diluted		134,598			—			134,598

 

 See accompanying notes to unaudited pro forma financial information.

 

F-3

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED APRIL 30, 2014

(unaudited)

 

		(in thousands, except per share data)
		Historical (c)			Office Portfolio (d)			Pro Forma
REVENUE
Real estate rentals		$	219,921		$	(28,084	)	$	191,837
Tenant reimbursement		45,561			(14,325		)	31,236
TRS senior housing revenue		1,627			—			1,627
TOTAL REVENUE		267,109			(42,409		)	224,700
EXPENSES
Depreciation/amortization related to real estate investments		67,592			(9,850		)	57,742
Utilities		21,864			(4,716		)	17,148
Maintenance		31,158			(5,795		)	25,363
Real estate taxes		32,982			(7,450		)	25,532
Insurance		5,165			(571		)	4,594
Property management expenses		16,961			(1,620		)	15,341
Other property expenses		357			(243		)	114
TRS senior housing expenses		1,331			—			1,331
Administrative expenses		10,743			—			10,743
Other expenses		2,132			(3		)	2,129
Amortization related to non-real estate investments		3,326			(1,336		)	1,990
Impairment of real estate investments		42,566			—			42,566
TOTAL EXPENSES		236,177			(31,584		)	204,593
Gain on involuntary conversion		2,480			—			2,480
Operating income		33,412			(10,825		)	22,587
Interest expense		(59,142		)	8,727			(50,415		)
Interest income		1,908			(2		)	1,906
Other income		483			—			483
Loss before gain on sale of real estate and other investments		(23,339		)	(2,100		)	(25,439		)
Loss on sale of real estate and other investments		(51		)	—			(51		)
Loss from continuing operations		(23,390		)	(2,100		)	(25,490		)
Loss from continuing operations attributable to noncontrolling interests — Operating Partnership		5,792			264			6,056
Net income attributable to noncontrolling interests — consolidated real estate entities		(910		)	—			(910		)
Dividends to preferred shareholders		(11,514		)	—			(11,514		)
LOSS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS		(30,022		)	(1,836		)	(31,858		)
LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE — BASIC & DILUTED		$	(.28	)	$	(.02	)	$	(.30	)
Weighted average common shares outstanding — basic		105,331			—			105,331
Weighted average common shares outstanding — diluted		127,028			—			127,028

 

 See accompanying notes to unaudited pro forma financial information.

 

F-4

 

INVESTORS REAL ESTATE TRUST AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED APRIL 30, 2013

(unaudited)

 

		(in thousands, except per share data)
		Historical (c)			Office Portfolio (d)			Pro Forma
REVENUE
Real estate rentals		$	204,719		$	(27,972	)	$	176,747
Tenant reimbursement		43,339			(13,781		)	29,558
TOTAL REVENUE		248,058			(41,753		)	206,305
EXPENSES
Depreciation/amortization related to real estate investments		59,306			(9,362		)	49,944
Utilities		18,792			(4,246		)	14,546
Maintenance		28,340			(5,551		)	22,789
Real estate taxes		32,182			(7,315		)	24,867
Insurance		3,734			(499		)	3,235
Property management expenses		15,003			(1,654		)	13,349
Other property expenses		1,008			—			1,008
Administrative expenses		8,494			—			8,494
Other expenses		2,173			(2		)	2,171
Amortization related to non-real estate investments		3,027			(1,167		)	1,860
TOTAL EXPENSES		172,059			(29,796		)	142,263
Gain on involuntary conversion		5,084			—			5,084
Operating income		81,083			(11,957		)	69,126
Interest expense		(61,154		)	9,411			(51,743		)
Interest income		222			(2		)	220
Other income		526			(8		)	518
Income from continuing operations		20,677			(2,556		)	18,121
Income from continuing operations attributable to noncontrolling interests — Operating Partnership		(2,365		)	472			(1,893		)
Net income attributable to noncontrolling interests — consolidated real estate entities		(809		)	—			(809		)
Dividends to preferred shareholders		(9,229		)	—			(9,229		)
INCOME FROM CONTINUING OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS		8,274			(2,084		)	6,190
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE — BASIC & DILUTED		$	.09		$	(.02	)	$	.07
Weighted average common shares outstanding — basic		93,344			—			93,344
Weighted average common shares outstanding — diluted		114,535			—			114,535

 

 See accompanying notes to unaudited pro forma financial information.

 

F-5

 

Notes to Unaudited Pro Forma Financial Information

 

The following pro forma adjustments are included in the unaudited pro forma condensed balance sheet and/or the unaudited pro forma condensed consolidated statements of operations:

 

(a)  Reflects the consolidated historical balance sheets of the Company as of April 30, 2015, as contained in the historical consolidated financial statements and notes thereto presented in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2015.

 

(b)  Represents the pro forma adjustments to the Company’s consolidated balance sheet as of April 30, 2015 to reflect the sale of the Office Portfolio as follows:

 

·                  The elimination of the assets and liabilities of the Office Portfolio as if the sale had occurred on April 30, 2015.

 

·                  The receipt of net proceeds of approximately $105.6 million, which reflects the repayment of mortgage indebtedness secured by the Office Portfolio and the payment of transaction costs and the deposit of approximately $23.1 million of net proceeds that are being held by a qualified intermediary in order to facilitate a potential tax-free exchange under Section 1031 of the Internal Revenue Code in the event the Company identifies an acquisition opportunity.

 

·                  A gain of approximately $19.0 million on the sale of the Office Portfolio, which was partially offset by $4.1 million in penalties on the prepayment of indebtedness secured by the Office Portfolio.

 

(c)  Reflects the consolidated statements of operations of the Company for the fiscal years ended April 30, 2015, 2014 and 2013, as contained in the historical financial statements and notes thereto presented in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2015.

 

(d)  Represents the pro forma adjustments to the Company’s consolidated statements of operations for the fiscal years ended April 30, 2015, 2014 and 2013 to reflect the sale of the Office Portfolio as follows:

 

·                  The elimination of revenues and expenses of the Office Portfolio for the periods presented.

 

·                  The adjustment of interest expense to reflect the Company’s statement of operations as if the repayment of mortgage indebtedness secured by the Office Portfolio occurred on May 1, 2012. The consolidated statements of operations do not assume any interest income on the estimated net cash proceeds from the sale of the Office Portfolio.

 

F-6

Exhibit 99.2

 

INVESTORS REAL ESTATE TRUST (NYSE-IRET)

NEWS RELEASE

 

INVESTORS REAL ESTATE TRUST COMPLETES SALE OF COMMERCIAL OFFICE ASSETS FOR $250 MILLION AND ANNOUNCES STOCK REPURCHASE AUTHORIZATION

 

MINOT, N.D., August 5, 2015 /PRNewswire/ — Investors Real Estate Trust (NYSE: IRET) (NYSE:IRET PR) (NYSE:IRET PRB) (“IRET” or the “Company”) announced today that it successfully closed on the sale of 34 commercial office properties for $250 million, netting the Company approximately $129 million in cash.

 

This announced closing was the first of several portfolio sales the Company anticipates will occur in its fiscal 2016 second quarter, which began August 1, 2015.  IRET previously announced it is divesting of its Office and Retail portfolios with the objective of focusing its portfolio strategy.  Proceeds from this first sale will be reinvested in several projects including acquiring a $56 million multifamily property, commencing construction on a $31.5 million multifamily development and paying down $66 million on the Company’s line of credit.  IRET’s CEO Tim Mihalick commented, “We are excited to be able to fully deploy our energy and focus on growing our multifamily segment.  We see an excellent opportunity to be a best-in-class owner operator in this property segment.”

 

ACQUISITIONS/DEVELOPMENTS:  The Company announced the signing of a purchase agreement for a 276-unit multifamily community in Rochester, MN for $56 million.  This Class A townhome-style property will add to the Company’s growing portfolio in this robust market. The Company also announced it will commence construction on a 202-unit Class A apartment community in a suburban market in Minneapolis, MN.

 

SHARE REPURCHASE AUTHORIZATION:  The Company’s Board of Trustees has authorized a share repurchase program of up to $50 million of its common shares. “Our Board of Trustees and executive management strongly believe that the value of our strategy  to focus the portfolio, deliver on our development plan and grow earnings with a stronger balance sheet are not reflected by the Company’s current stock price”, said Mihalick.  “This authorization demonstrates our confidence in the strength of our business and commitment to delivering shareholder value.”

 

Under a share repurchase program, the Company may repurchase its common shares in open-market purchases including pursuant to Rule 10b5-1 plans, as determined by the Company’s management and in accordance with the requirements of the Securities and Exchange Commission. Due to applicable securities laws, the Company’s repurchase of shares will not begin before the release of the Company’s financial statements for the first quarter ended July 31, 2015, which is expected to be in early September. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company’s executive management team. The repurchase program may be suspended or discontinued at any time.

 

 

About Investors Real Estate Trust

 

Investors Real Estate Trust is a self-advised equity real estate investment trust. Its business consists of owning and operating income-producing multifamily residential, healthcare, and commercial properties located primarily in the upper Midwest states of Minnesota and North Dakota. Investors Real Estate Trust is based in Minot, North Dakota, and has additional offices in Minneapolis and St. Cloud, Minnesota.

 

Safe Harbor

 

Statements about IRET’s future expectations and all other statements in this press release other than historical facts, including statements regarding the potential sale of the Company’s commercial office and retail properties and expected benefits from this update of the Company’s strategic plan, are subject to various risks and uncertainties, and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and as that term is defined in the Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. Since these statements involve risks and uncertainties and are subject to change at any time, the Company’s actual results could differ materially from expected results.

 

CONTACT:	Cindy Bradehoft
	Director of Investor Relations
	10050 Crosstown Circle, Suite 105
	Eden Prairie, MN 55344
	Phone: 952.401.4835
	Fax: 952.401.7058
	E-Mail: [email protected]