During fiscal year 2004, Karin M. Wentz, daughter of Thomas A. Wentz, Sr.,
the Company’s President and Chief Executive Officer, and sister of Thomas A.
Wentz, Jr., a Trustee and Senior Vice President of the Company, was employed by
the Company as Assistant General Counsel. Ms. Wentz was paid a salary and
bonus totaling $62,775 for her services during fiscal year 2004. Ms. Wentz also
received in fiscal year 2004 the standard benefits provided to other Company
employees.
Security Sale Services
D.A. Davidson & Co. is an investment banking firm that has participated in
offerings of the Company’s shares of beneficial interest, and may in the future
continue to participate in sales of the Company’s shares and provide investment
banking services to the Company. John F. Decker, currently a member of the
Board of Trustees, is an employee of D.A. Davidson, and Mr. Decker’s son, Jeff
Decker, is a registered broker-dealer also employed by D.A. Davidson. In the
first of the Company’s two offerings of common shares of beneficial interest
during fiscal year 2004, conducted in September 2003, D.A. Davidson
participated, on a best-efforts basis, as a member of the selling syndicate,
and sold 250,000 shares. In connection with this offering, the Company
authorized and paid D.A. Davidson commissions in the amount of $150,000. D.A.
Davidson did not participate in the Company’s second offering of common shares
of beneficial interest in April 2004.
D.A. Davidson served as book-running manager and representative of the
underwriters for the Company’s April 2004 offering of Series A cumulative
redeemable preferred shares of beneficial interest. In connection with this
offering, the Company paid D.A. Davidson a fee of $1,078,125 and reimbursed
D.A. Davidson for legal and other expenses in the amount of $100,000.
In October 2003 and April 2004, the Company paid D.A. Davidson fees of
$19,499.27 and $77,848.82, respectively, for Jeff Decker’s services as a
broker-dealer in representing certain clients who contributed real property in
exchange for limited partnership units of IRET Properties, a North Dakota
limited partnership (the Company’s operating partnership). Jeff Decker received
70% of these fees and D.A. Davidson retained 30% of these fees.
COMPENSATION COMMITTEE REPORT
ON COMPENSATION OF EXECUTIVE OFFICERS
General
The Compensation Committee of the Board (the “Committee”) administers the
Company’s executive compensation program. The Committee is composed entirely of
non-employee trustees, all of whom are independent under the listing standards
of the NASDAQ.
The objective of the Company’s executive compensation program is to
develop and maintain executive reward programs that contribute to the
enhancement of shareholder value while attracting, motivating and retaining key
executives who are essential to the long-term success of the Company. As
discussed in detail below, the Company’s executive compensation program
consists of both fixed (base salary) and variable (incentive) annual
compensation. Variable compensation consists of an annual cash bonus awarded
from the annual incentive bonus program described below. Each year, the
Committee evaluates executive compensation by reviewing the following: (i) the
Company’s performance during the year, (ii) individual performance during the
year based on previously defined objectives, and (iii) compensation data of
companies that are considered to be similar to the Company for performance
purposes.
Base salaries for the executive officers of the Company, including the
Chief Executive Officer, are designed to compensate such individuals for their
sustained performance. For the calendar year ended December 31, 2003, base
salaries were established by evaluating the responsibilities of the position
held, the experience of the particular individual, a comparison of salaries
paid for comparable positions by other companies in the real estate industry
and the Committee’s desire to achieve the appropriate mix between fixed
compensation and incentive based compensation. Salary information for companies
that are similar to the Company was obtained by reference to the public
disclosures made in the Securities and Exchange Commission (“SEC”) filings by
such companies.
It is currently the Company’s policy that base salaries of the executive
officers, including the Chief Executive Officer, will generally be increased on
January 1 of each year at the discretion of the Committee, based on, among
other things, the individual’s performance over the past year, changes in the
individual’s responsibility or necessary adjustments to maintain base salaries
that are competitive with industry practices and similar companies. For the
calendar year beginning January 1, 2004, executive base salaries were increased
by an average of 23.5%.
Incentive Bonus Program
The annual cash incentive bonus program is designed to provide incentive
compensation to the Company’s employees, including the Chief Executive Officer,
by linking bonus compensation to the Company’s annual performance. The Company
considers Funds From Operations (“FFO”) to be a useful measure of performance
for an equity real estate investment trust (“REIT”). As such, the Company has
created an incentive bonus program wherein a bonus pool is established in an
amount equal to ten percent (10%) of the Company’s increase in FFO per diluted
Share over the prior fiscal year. Such increase in FFO is based on an
equivalent basis each fiscal year, with such calculation approved by the
Committee. The bonus pool is capped at an amount equal to the total base
salaries of the top three highly compensated executive officers and no one
person may be awarded more than 40% of the total bonus pool in any one year.
The Chief Executive Officer and the Chief Operating Officer are responsible for
determining the amount to be granted to each executive officer and each
employee based on the achievement of predetermined objectives agreed upon by
the employee and the Committee prior to the start of each fiscal year.
Approximately 75% of the bonus pool is paid out on or before May 15 of each
year, with the remaining 25% paid out upon the completion of the Company’s
annual report on Form 10-K. The Summary Compensation Table shows the bonuses
paid under the annual cash incentive bonus program to the Company’s Chief
Executive Officer and the other Named Executive Officers during the year ended
April 30, 2004.
Executive base salary is not based on the Company’s annual performance.
Rather, base salary is based on what pay level is necessary to attract and
retain executives capable of properly managing the Company’s daily operations
and functions. Regardless of the Company’s performance, base salary will only
increase or decrease to the extent necessary to attract and retain executives
who possess the skills necessary to effectively manage the Company’s daily
operations. The Board does not use base salary as a reward for performance. The
annual bonus program as described above is the only form of compensation tied
to company performance. If the Company increases its FFO from the prior year,
the executives are rewarded accordingly. If the Company’s performance does not
improve, there is no bonus
.
For the fiscal year ending April 30, 2004, the
Company’s FFO did not increase from the prior year. As a result, the
Compensation Committee has determined that there will be no incentive bonus
paid for the fiscal year ended April 30, 2004.
The current compensation program is policy only and may be changed by the
Board at anytime without notice to or approval by the shareholders. The Company
is in a very competitive industry where success is based largely on the ability
of senior management to properly identify, acquire, and manage real estate
properties. Therefore, to properly manage and grow the Company, it may be
necessary to increase the base salary and cash incentive bonus program in order
to attract and retain qualified executives.
Daniel L. Feist
Jeffrey L. Miller
Patrick G. Jones
Stephen L. Stenehjem
COMPARATIVE STOCK PERFORMANCE
Set forth below is a graph that compares, for the five fiscal years
commencing May 1, 1999 and ending April 30, 2004, the cumulative total returns
for the Company’s common shares with the comparable cumulative total return of
two indexes:
•
Standard and Poor’s (“S&P”) 500 Stock Index; and
•
The NAREIT Equity Index, which is an index prepared by the
National Association of Real Estate Investment Trusts (“NAREIT”),
which includes all tax qualified equity REITs listed on the New York
Stock Exchange, the American Stock Exchange and the NASDAQ National
Market.
The performance graph assumes that on May 1, 1999, $100 was invested in
the common shares (at the closing price of the previous trading day) and in
each of the indexes. The comparison assumes the reinvestment of all
distributions. CoreData, Inc. supplied this data. Cumulative total shareholder
returns for the Company’s common shares, the S&P 500 and the NAREIT Equity
Index are based on the Company’s fiscal year ending April 30.
Section 16(a) of the Securities Exchange Act of 1934, as amended (“Section
16(a)”) requires that the trustees and executive officers of the Company file
with the SEC, within specified due dates, initial reports of ownership of the
Company’s shares of beneficial interest and Units, and reports of changes in
ownership of shares and Units. As a matter of practice, the Company’s
administrative staff assists our trustees and executive officers with these
reporting requirements, and typically files these reports on their behalf. The
Company is required to disclose whether it has knowledge that any person
required to file such reports may have failed to do so in a timely manner.
Based solely on a review of the copies of the fiscal year 2004 reports in the
Company’s possession, and on written representations from the Company’s
reporting persons that no other reports were required during the year ended
April 30, 2004, the Company believes that during fiscal year 2004, all of the
trustees and executive officers of the Company have timely satisfied their
Section 16(a) reporting obligations for the year ended April 30, 2004, except
that Mr. Thomas A. Wentz, Jr., Trustee and Senior Vice President of the
Company, inadvertently did not file a Form 4 to report a conversion of Units to
common shares of beneficial interest in November 2003, and Mr. Steven B. Hoyt,
Trustee of the Company, inadvertently did not file Forms 4 to report the
conversion of Units to common shares of beneficial interest in May and in
August of 2003. Each of these transactions was subsequently reported on Forms 5
filed for Mr. Wentz and Mr. Hoyt for the fiscal year ended April 30, 2004.
PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has approved Deloitte & Touche LLP (“Deloitte &
Touche”) as the Company’s independent auditors for the current fiscal year
ending April 30, 2005. Deloitte & Touche completed the audit for the Company’s
fiscal year ended April 30, 2004. The Company’s fiscal year 2004 was the first
year that Deloitte & Touche has audited the Company’s financial statements. As
a matter of good corporate governance, the Audit Committee has determined to
submit its selection to shareholders for ratification. In the event that this
selection of auditors is not ratified by a majority of the voting power of the
shareholders present in person or by proxy at the Annual Meeting, the Audit
Committee will review its future selection of independent auditors.
Brady, Martz & Associates, P.C. (“Brady, Martz”) was previously engaged to
audit the Company’s financial statements, and had done so since 1972. In July
2003, the Board, upon the recommendation of the Audit Committee, terminated the
engagement of Brady, Martz and engaged Deloitte & Touche as the Company’s
independent auditors. This termination was not related to the quality of
services provided by Brady, Martz, and the Company continues to retain Brady,
Martz for various types of non-audit services, primarily tax services and
internal audit functions. Brady, Martz issued an unqualified opinion for each
of the years that it audited the Company’s financial statements. During Brady,
Martz’s tenure as independent accountants of the Company, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
The Company expects that a representative of Deloitte & Touche will be
present at the Annual Meeting. The representative will have the opportunity to
make a statement if he or she so desires. The representative will also be
available to respond to questions from shareholders.
Fees Paid to the Company’s Principal Independent Accountants
The following table shows the aggregate fees billed to date for the audit
and other services provided by the Company’s principal independent accountants
for fiscal years 2004 (Deloitte & Touche) and 2003 (Brady, Martz):
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