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COMMITMENTS AND CONTINGENCIES | 6 Months Ended
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Oct. 31, 2013
COMMITMENTS AND CONTINGENCIES [Abstract] |
COMMITMENTS AND CONTINGENCIES | NOTE 6 • COMMITMENTS AND CONTINGENCIES Litigation. The Company is not a party to any legal proceedings which are expected to have a material effect on the Company's liquidity, financial position, cash flows or results of operations. The Company is subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by liability insurance. Various claims of resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material effect on the Company's liquidity, financial position, cash flows or results of operations. Insurance. IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties and are sufficient to achieve IRET's risk management objectives. Purchase Options. The Company has granted options to purchase certain IRET properties to tenants in these properties, under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property's appraised value or an annual compounded increase of a specified percentage of the initial cost of the property to IRET. As of October 31, 2013, the total property cost of the 15 properties subject to purchase options was $114.9 million, and the total gross rental revenue from these properties was $4.8 million for the six months ended October 31, 2013. Environmental Matters. Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While IRET currently has no knowledge of any material violation of environmental laws, ordinances or regulations at any of its properties, there can be no assurance that areas of contamination will not be identified at any of the Company's properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to the Company. Restrictions on Taxable Dispositions. Approximately 114 of IRET's properties, consisting of 5.9 million square feet of the Company's combined commercial segments' properties and 5,068 apartment units, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties. The real estate investment amount of these properties (net of accumulated depreciation) was $876.0 million at October 31, 2013. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally prevent the Company from selling the properties in taxable transactions. The Company does not believe that the agreements materially affect the conduct of the Company's business or decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and the Company's other properties for investment purposes, rather than for sale. Historically, however, where IRET has deemed it to be in the shareholders' best interests to dispose of restricted properties, it has done so through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code. Redemption Value of UPREIT Units. The limited partnership units ("UPREIT Units") of the Company's operating partnership, IRET Properties, are redeemable at the option of the holder for cash, or, at our option, for the Company's common shares of beneficial interest on a one-for-one basis, after a minimum one-year holding period. All UPREIT Units receive the same cash distributions as those paid on common shares. UPREIT Units are redeemable for an amount of cash per Unit equal to the average of the daily market price of an IRET common share for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of October 31, 2013 and 2012, the aggregate redemption value of the then-outstanding UPREIT Units of the operating partnership owned by limited partners was approximately $194.1 million and $177.8 million, respectively. Joint Venture Buy/Sell Options. Certain of IRET's joint venture agreements contain buy/sell options in which each party under certain circumstances has the option to acquire the interest of the other party, but do not generally require that the Company buy its partners' interests. The Company currently has no joint ventures in which its joint venture partner can require the Company to buy the partner's interest. Tenant Improvements. In entering into leases with tenants, IRET may commit itself to fund improvements or build-outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and IRET is accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of October 31, 2013, the Company is committed to fund $10.1 million in tenant improvements, within approximately the next 12 months. Development, Expansion and Renovation Projects. As of October 31, 2013, the Company had several development, expansion and renovation projects underway or recently completed, the costs for which have been capitalized, as follows: River Ridge, Bismarck, ND: During the second quarter of fiscal year 2013, the Company began construction of its 146-unit River Ridge Apartments project in Bismarck, North Dakota. River Ridge is located near IRET's Cottonwood Apartments in Bismarck, and will offer amenities including a pool, exercise facility and underground parking. The Company estimates that the total cost to construct the project will be $25.9 million. Completion of the project is currently expected in the third quarter of the Company's fiscal year 2014. A portion of the building was substantially completed in August 2013, and a certificate of occupancy issued for 60 units. As of October 31, 2013, the Company had incurred $23.5 million of the total estimated project costs. Cypress Court, St. Cloud, Minnesota: In August 2012, the Company entered into a joint venture agreement with a real estate development and contracting company in St. Cloud, Minnesota, to construct a two-building, 132-unit multi-family residential property in St. Cloud, Minnesota, for an estimated total project cost of $14.3 million. The Company owns approximately 79% of the joint venture entity, and the Company consolidates the joint venture's results in its financial statements; the remaining approximately 21% interest is owned by its joint venture partner. Completion of the apartment project is currently expected in the third quarter of the Company's fiscal year 2014. As of October 31, 2013, the Company had incurred $13.5 million of the total estimated project costs. The first building of the planned two-building project was substantially completed in August 2013. Southgate, Minot, North Dakota: In January 2013, the Company entered into a joint venture agreement to construct an apartment project in Minot, North Dakota. The Company owns approximately 51% of the joint venture entity, and the Company consolidates the joint venture's results in its financial statements; the remaining approximately 49% of the joint venture entity is owned by its joint venture partner. The project is expected to be completed in two phases, with a total of approximately 341 units as described below: The Landing at Southgate consists of three approximately 36-unit buildings and was substantially completed in the second quarter of fiscal year 2014. As of October 31, 2013, the joint venture had incurred $15.1 million of the total estimated project cost of $15.8 million. The Commons at Southgate will consist of an approximately 233-unit building to be completed in the second quarter of fiscal 2015 for an estimated total cost of $36.4 million. As of October 31, 2013, the joint venture had incurred $17.2 million of the total estimated project costs. Renaissance Heights I, Williston, North Dakota: In February 2013, the Company entered into a joint venture agreement to construct the first phase of an apartment project in Williston, North Dakota. The Company's joint venture partner in the Renaissance Heights project is also the Company's partner in its Williston Garden Apartments Project. The Company will own approximately 70% of the project, subject to final project costs, and the joint venture's results are consolidated in the Company's financial statements. The first phase of the Renaissance Heights Apartments project, consisting of five buildings with a total of 288 units, commenced construction in April 2013, with construction completion expected in the second quarter of fiscal year 2015. The site of the first phase of this development project is approximately 14.5 acres of an approximately 40-acre parcel of land purchased by the Company in April 2012. The total cost of this first phase of the Renaissance Heights project is estimated at $62.4 million, including the purchase price of the land. As of October 31, 2013, the joint venture had incurred $26.9 million of the total estimated project cost. The remaining two phases of the project are, if constructed, expected to consist of an additional total of approximately 462 units, for a total of approximately 750 units in all three phases. Arcata, Golden Valley, Minnesota: In April 2013, the Company acquired approximately two acres of vacant land in Golden Valley, Minnesota for a purchase price of $2.1 million. The parcel of land is located near the Company's Golden Hills Office Center. The Company has signed a development services agreement with Trammell Crow Company and a construction contract to develop on this parcel an approximately 165-unit apartment building. Construction commenced in August 2013 and is currently expected to conclude in the second quarter of fiscal year 2015, with a total project cost of $34.4 million, including the purchase price of the land. As of October 31, 2013, the Company had incurred $5.9 million of the total estimated project cost. Dakota Commons, Williston, North Dakota: In May 2013 the Company commenced construction of a 44-unit apartment building in Williston, North Dakota, on land purchased for approximately $823,000 in fiscal year 2013. The project is currently expected to be completed in the first quarter of fiscal year 2015 at an estimated total cost of $10.7 million, including the cost of the land. As of October 31, 2013, the Company had incurred $3.8 million of the total estimated project cost. Chateau II, Minot, North Dakota: Construction of two buildings at the Company's Chateau Apartments property in Minot, North Dakota, of 15 units and 57 units, respectively, commenced in June 2013, following a fire in February 2012 which destroyed a 32-unit building under redevelopment at that site. The 15-unit building had been expected to be completed in the fourth quarter of the current fiscal year, with the 57-unit building expected to be completed in the first quarter of fiscal year 2015. As of October 31, 2013, the Company had incurred $6.5 million of the total estimated project cost of $14.7 million. Subsequent to the end of the quarter, in December 2013, these additional 72 units, under construction and unoccupied, were destroyed by fire. See Note 11 for additional information. RED 20, Minneapolis, Minnesota: In August 2013, the Company entered into a joint venture agreement to construct a 130-unit apartment building with approximately 10,000 square feet of commercial space in northeast Minneapolis, Minnesota. The Company owns approximately 58.6% of the joint venture entity and consolidates the joint venture's results in the Company's financial statements. The remaining approximately 41.4% of the joint venture entity is owned by entities formed by the Company's joint venture partner. The joint venture entity acquired the project site on August 20, 2013. Total costs for the project are currently estimated at $29.5 million, including the purchase price of the land, and the project is currently expected to be completed in the second quarter of fiscal year 2015. As of October 31, 2013, the joint venture had incurred $5.9 million of the total estimated project cost. During the second quarter of fiscal year 2014, the joint venture entity closed on a construction loan of approximately $21.7 million. Cardinal Point, Grand Forks, North Dakota: In the second quarter of fiscal year 2014, the Company commenced construction of an approximately 251-unit multi-family residential project in Grand Forks, North Dakota, on land purchased by the Company for $1.6 million in the fourth quarter of fiscal year 2013. The estimated total cost of the project is $40.0 million, including the cost of the land, with projected completion in the fourth quarter of fiscal year 2015. As of October 31, 2013, the Company had incurred $4.5 million of the total estimated project cost. 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 October 31, 2013 and 2012, respectively, was approximately $781,000 and $120,000 for development projects completed and in progress. Construction interest capitalized for the six month periods ended October 31, 2013 and 2012, respectively, was $1.4 million and approximately $281,000 for development projects completed and in progress. Pending Acquisitions. As of October 31, 2013, the Company had 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:
· | two parcels of vacant land in Rapid City, South Dakota, totaling approximately 10.8 acres, for a purchase price of $1.4 million, to be paid in cash; and
· | an approximately 5.0 acre parcel of vacant land in Monticello, Minnesota, for a purchase price of approximately $656,000, to be paid in cash.
Pending Dispositions. As of October 31, 2013, the Company had signed sales agreements for the disposition of the following properties. All of these pending dispositions are subject to various closing conditions and contingencies, and no assurances can be given that any of these dispositions will be completed on the terms currently proposed, or at all:
· | a commercial industrial property in Clive, Iowa for a sale price of $2.7 million;
· | a commercial retail property in Burnsville, Minnesota for a sale price of approximately $650,000;
· | two multi-family residential properties in Sioux Falls, South Dakota for a sale price of $3.5 million;
· | a commercial retail property in Anoka, Minnesota for a sale price of approximately $325,000; and
· | a commercial industrial property in Winsted, Minnesota for a sale price of approximately $725,000.

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