20th ANNUAL REPORT TO THE SHAREHOLDERS

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1 20th ANNUAL REPORT TO THE SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2016

2 DAKOTA REIT BOARD OF TRUSTEES EXECUTIVE OFFICERS Ray Braun Kevin Christianson * Brad Fay * George Gaukler Joe Hauer * Ken Heen * Brion Henderson * Brion Henderson Gene Smestad George Gaukler Jim Knutson Brad Fay Ray Braun Chairman Vice Chairman President Executive Vice President Secretary Treasurer Stan Johnson * Jim Knutson DAKOTA REIT MANAGEMENT, LLC Clarice Liechty * Matthew Pedersen Roy Sheppard * Jerry Slusky * Gene Smestad * * Independent Trustees George Gaukler Jim Knutson Tammy Hauck Jim Haley Mark Richman Natasha Kemmer President / Chief Executive Officer Executive Vice President Vice President / Chief Operating Officer Vice President / Chief Financial Officer Business Development Investor Relations FINANCE COMMITTEE Kevin Christianson George Gaukler Brion Henderson Matt Pedersen Gene Smestad AUDITORS Eide Bailly LLP th Ave. S. Fargo, ND LEGAL COUNSEL Fremstad Law PO Box 3143 Fargo, ND 58108

To our Investors, The foundation of many investment plans is the compounding of the return generated by the investment, and making money not only on the initial investment, but also on the return.

3 To our Investors, The foundation of many investment plans is the compounding of the return generated by the investment, and making money not only on the initial investment, but also on the return. Dakota REIT has, by its success during the past nineteen years, demonstrated this method of wealth creation. A $10,000 investment in Dakota REIT in 1998, where the investor took full advantage of the Dividend Reinvestment Program, is today worth $98,777, 12.8% compounded return. We know that not all our investors are wealth builders, some use the investment for cash flow from quarterly dividends, and those who have not chosen dividend reinvestment have experienced an average yearly rate of return of 11.92% on their investment through the combination of dividends and increases in share value. When we focus on the result of allowing the investment to compound over time, the greater the return the quicker the investment growth. The Dakota REIT has generated a compounded rate of return of 12.8% over the last nineteen years. This return is not just pointing at one or two years of success, it is the accumulation of all nineteen years, some very good and some during the great recession when many investors were bailing out of real estate. The Dakota REIT has stayed the course and it is a story we are proud of. CHAIRMAN S REPORT Another component of the rate of return is Quarterly dividends, which are determined by the Board of Trustees, and are based in part upon the Funds From Operations (FFO) generated by our investments. This past year we paid out about 60% of our FFO which provided a 5.12% dividend return on our share price. The remaining FFO were used to pay down principal on debt, invest in property, and add to our cash reserves. The Board takes a conservative approach to dividends in order to provide long term stability for the company. As we focus on the future, we believe our business model will continue to provide investor returns that are competitive in the market place. We have a dedicated Board of Trustees that actively provides direction to the Advisor who operates the REIT. The Advisor employees the personal necessary for the company to follow the plan established by the Board. This approach has proven that quality real estate, acquired at the right price and managed and maintained to the highest of standards, can provide the necessary cash flow for dividends, and leads to appreciation in property value. We are confident that our proven track record will continue in the future. Thank you for investing in Dakota REIT. We are proud of what has been accomplished and look forward to many years to come. Brion Henderson Chairman of the Board of Trustees 2

TABLE OF CONTENTS CHAIRMAN S REPORT ADVISOR S REPORT FINANCIAL HIGHLIGHTS DISTRIBUTIONS DECLARED SHARE VALUE ANALYSIS DIVIDEND REINVESTMENT PLAN 2016 PROPERTY ACQUISITIONS COMMERCIAL PROPERTY

4 TABLE OF CONTENTS CHAIRMAN S REPORT ADVISOR S REPORT FINANCIAL HIGHLIGHTS DISTRIBUTIONS DECLARED SHARE VALUE ANALYSIS DIVIDEND REINVESTMENT PLAN 2016 PROPERTY ACQUISITIONS COMMERCIAL PROPERTY PORTFOLIO RESIDENTIAL PROPERTY PORTFOLIO SHARE REDEMPTION PROGRAM FEES AND COMPENSATION AUDITED CONSOLIDATED FINANCIAL STATEMENTS MISSION STATEMENT The annual report is prepared for the general information to the shareholders in The Dakota REIT. The annual report is not intended to be used for a purchase or sale of any investments of The Dakota REIT except when accompanied by a prospectus. 1

Dakota REIT began operations in 1997. For the past twenty years we have worked to provide our investors with a stable long term investment.

5 Dakota REIT began operations in For the past twenty years we have worked to provide our investors with a stable long term investment. After a spectacular 2015, 2016 returned to a more average year Investment in Property $470M $376M Shareholder Equity $109M $98M Funds From Operations Per Share (FFO) $1.26 $1.23 Share/Unit Price $14.90 $14.00 Dividend Paid Per Share $0.73 $0.695 Dividend Return on Investment 5.12% 5.66% Compounded Return on Investment 12.92% 28.43% (Dividends Reinvested) Average Compounded Return 12.80% 12.80% the past 20 years (Dividends Reinvested) We currently own and operate 3,235 apartment and townhome units, and 1,747,539 square feet of commercial space. Although over half our assets are located in North Dakota, we also have property in Minnesota, Wisconsin, South Dakota, Nebraska and Iowa. Just after the first of the year, we topped the half billion dollar mark in property value. We intend to continue adding property to our portfolio that meets the requirements of the Board of Trustees for a long term investment. Dakota REIT is an equity REIT that invests in both residential and commercial properties. Commercial meaning office complexes and strip centers, residential meaning primarily multi-family. We acquired over $92 million of property in 2016, which brought our property ratio to 56% residential and 44% commercial. We attempt to keep a majority of our property residential. The diversification provides a hedge against market fluctuation in either sector. In 2000, Dakota REIT formed Dakota UPREIT Limited Partnership. The REIT contributed its property to the UPREIT and we now acquire all our property through the UPREIT. When buying new property, we often exchange operating units of Dakota UPREIT for equity in the property acquired. The units have the same value as REIT shares and receive a distribution the same as dividends paid to Dakota REIT shareholders. This arrangement of units for equity allows the investor to defer capital gain tax on the sale of their property, and if the units are held until death, the estate will receive a stepped up basis and eliminate capital gain tax altogether. Additionally, the investor eliminates daily management responsibility and reinvests in a diversified portfolio of property. An UPREIT transaction also works very well for partnerships. Some partners may take cash in a sale while other partners receive units. Once they are limited partners, they can distribute the units to the individual partners. We continue to re-appraise our property, as loans come due, and refinance based on the new value. That normally provides additional dollars that we in turn use to purchase addition property, which greatly increases our total investment return. This past year we were able to reinvest over $10 million of loan proceeds and purchase $43 million worth of property, all without adding shareholders. As Dakota REIT continues to grow, it is important to note the strong, diversified and dedicated Board of Trustees that direct its operation. Our board consists of individuals with backgrounds in banking, investing, accounting and real estate. They formally meet four times a year and by telephone conference when needed. Considering the REIT does not have employees, daily operations are contracted with Dakota REIT Management LLC, as the advisor. Our trust agreement requires that at least a majority of Trustees be independent, which means they have no affiliation with the advisor. It is the Trustees that determine dividends, set policy, and approve acquisitions. Dakota REIT has filed with the Securities and Exchange Commission a $20 million public offering under Regulation A of the Securities Act of Reg. A is an exemption from a full filing with the SEC and continues our non traded status. Non-traded means our shares are not traded on any of the public exchanges, i.e. NASDAQ. This gives financial stability to the value of the Trust as it doesn t fluctuate with the volatility of the global real estate or investment market. Annually, we calculate the value of our properties, as a real estate appraiser does, and the Board of Trustees sets the price of our shares based upon that value. We are also filing the offering with a number of states to provide investors outside of North Dakota the opportunity to invest in Dakota REIT. The shares will be sold directly by the REIT or through Brokers that have an approved selling agreement with Dakota REIT. Dakota REIT continues to be a viable long term investment. We are pleased with our accomplishments to date and plan to continue in the future. Please contact me, or the office, if you have a potential UPREIT transaction, investor questions or concerns you may have regarding Dakota Real Estate Investment Trust. George Gaukler President REPORT 3 ADVISOR S

6 FINANCIAL HIGHLIGHTS For The Years Ending Residential Investments $261,173,620 $252,917,057 $174,566,979 $130,797,557 $107,745,678 Commercial Investments $209,179,153 $123,195,489 $106,697,055 $75,301,936 $58,332,890 Mortgages Payable $332,106,085 $253,235,248 $190,774,290 $141,209,761 $116,210,301 Total Revenue $50,620,468 $42,369,654 $31,561,702 $24,844,194 $18,873,294 Funds From Operations $16,820,369 $14,666,938 $10,756,630 $7,873,371 $5,356,605 Funds From Operations (1) Per Share $1.26 $1.23 $1.11 $0.95 $0.80 Weighted Average Shares 11,346,269 11,913,298 9,648,473 8,247,619 6,731,794 $300,000,000 Total Investments $1.40 Funds From Operations $250,000,000 $1.20 $200,000,000 $150,000,000 $1.00 $0.80 $0.60 $100,000,000 $0.40 $50,000,000 $ Residential Investments Commercial Investments $0.20 $ Funds From Operations The Declaration of Trust provides that, subject to certain conditions, the Total Operating Expenses of the Trust shall not exceed in any fiscal year the greater of 2% of the Average Invested Assets during the fiscal year or 25% of the Trust s Net Income during such fiscal year. For the year ended December 31, 2016, the Trust s Total Operating Expenses were $1,658,469 or.39% which is less than one percent of the Average Invested Assets and 9.95% of the Net Income, before depreciation and amortization, therefore meeting the limitations. Footnote: (1) Funds From Operations FFO is defined as net income determined in accordance with Generally Accepted Accounting Principles (GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation of real estate assets. 4

DISTRIBUTIONS DECLARED YEAR PRICE* PER SHARE DISTRIBUTIONS PER SHARE PERCENTAGE OF DIVIDENDS TAXABLE AS ORDINARY INCOME 2005 $7.35 $0.44 7% 2006 $7.50 $0.45 0% 2007 $7.50 $0.46 0% 2008 $8.00 $0.

7 DISTRIBUTIONS DECLARED YEAR PRICE* PER SHARE DISTRIBUTIONS PER SHARE PERCENTAGE OF DIVIDENDS TAXABLE AS ORDINARY INCOME 2005 $7.35 $0.44 7% 2006 $7.50 $0.45 0% 2007 $7.50 $0.46 0% 2008 $8.00 $0.47 0% 2009 $8.00 $0.47 0% 2010 $8.75 $ % 2011 $8.75 $ % 2012 $9.75 $ % 2013 $10.50 $ % 2014 $11.50 $ % 2015 $14.00 $ % 2016 $14.90 $ % 1 Distributions are inclusive of dividends paid to shareholders of The Dakota REIT and distributions paid to limited partners of Dakota UPREIT. 2 The Dakota REIT s Dividend Reinvestment Plan allows for the reinvestment of distributions for additional shares at a price equal to 90% of the current asking price. 3 Due to real estate depreciation, a portion of the dividends paid is not taxable to the shareholder in the year received. The non-taxable portion is treated as a return of capital or decrease in cost [basis]. Future taxable gains will be recognized if an Investor sells shares for more than the carrying cost [basis] or if the Investor s dividends received exceed original stock purchase. If dividends are reinvested, the Investor s basis does not change. [The percent taxable column is not applicable to Dakota UPREIT Limited Partners, as each Partner s income is separately determined based on all property contributed.] 5

8 SHARE VALUE ANALYSIS Reinvested 90% of Current Share Price Investment of $10,000 in Dakota REIT in 1998 Current Share Price: $14.90 Reinvested Shares Dividend Dividend Share Price Rolling Share Compounded Declared Calculation Calculation Value Price Rate of Return Original Purchase: 2, $10, $5.00 Dividend , $10, % Share Price 2, , $12, $6.00 Dividend , $13, % Share Price 2, $13, $6.00 Dividend , $14, % Share Price 2, $14, $6.00 Dividend , , $15, % Share Price 2, $15, $6.00 Dividend , , $16, % Share Price 2, $17, $6.25 Dividend , , $18, % Share Price 2, , $20, $6.75 Dividend , , $21, % Share Price 3, $22, $7.00 Dividend , , $23, % Share Price 3, , $25, $7.35 Dividend , , $26, % Share Price 3, $27, $7.50 Dividend , , $29, % Share Price 3, $29, $7.50 Dividend , , $31, % Share Price 3, , $33, $8.00 Dividend , , $35, % Share Price 4, $35, $8.00 Dividend , , $37, % Share Price 4, , $41, $8.75 Dividend , , $43, % Share Price 4, $43, $8.75 Dividend , , $46, % Share Price 5, , $51, $9.75 Dividend , , $54, % Share Price 5, , $58, $10.50 Dividend , , $62, % Share Price 5, , $68, $11.50 Dividend , , $72, % Share Price 6, , $87, $14.00 Dividend , , $92, % Share Price 6, , $98, $ % Beginning Value $ 10, Compounded Dividends Paid $41, Rate of Return Share Price Increase $47, Ending Value $98, Increase over 19 years: $88, NOTE: Through 2016, 57% of the Dividends have been tax deferred. Compounded Rate of Return: The calculation is based on an annual calculation versus a quarterly calculation. Dividends are reinvested on a quarterly basis. Quarterly reinvestment will increase the rate of return. Cash Distribution: If dividends were not reinvested, but taken in cash, the investor would have received $18,021 in dividends and $19,800 in share value increase during the same period, for a total investment of $47,821, an average rate of return of 11.92%. The informa on provided in this area is historical in nature. The statements, projec ons, and es mates presented are based on informa on available and circumstances prevalent at the me at which the examples were originally issued. These examples do not necessarily reflect current condi ons or circumstances and should not be relied upon for the purpose of investment decisions or as current fact. 6

DIVIDEND REINVESTMENT PLAN The Dakota REIT offers to its shareholders an opportunity to reinvest their cash dividend in shares of The Dakota REIT.

9 DIVIDEND REINVESTMENT PLAN The Dakota REIT offers to its shareholders an opportunity to reinvest their cash dividend in shares of The Dakota REIT. Shares purchased under the Dividend Reinvestment Plan (the Plan ) are discounted from the current public offering share price by 10%. Shareholders do not pay broker fees to be part of the Plan. Nor does Dakota REIT charge a fee in administering the Plan. A shareholder may elect the Plan at any time. The initial Subscription Agreement provides the shareholder the option to 1) select the dividend paid in cash or 2) reinvest in shares at a discount of 10%. After the initial election, if a shareholder wants to change their Plan status, the change is completed by signing a Shareholder Change Form. The Shareholder Change Form may be obtained by writing to Dakota REIT Management, LLC, nd Avenue South, Fargo, ND or by calling Shareholder Relations at (701) Dividends are paid quarterly, to the Shareholders of Record, within ten (10) days after the Date of Declaration as voted on by The Board of Trustees. If the Plan is elected, the reinvestment in additional shares will also occur within the ten (10) days after the Date of Declaration. Shareholders receive a quarterly statement detailing the amount of dividends declared, the number of shares purchased, the price per share, and cumulative transactions for the year. Annually, each reportable shareholder will receive an IRS Form 1099-Div stating the year s dividend income for tax reporting. 7

10 2016 PROPERTY ACQUISITIONS COMMERCIAL AND RESIDENTIAL COMMERCIAL 655,244 Square Feet 8

11 RESIDENTIAL 72 Apartments

AVE SW MINOT, ND 58701 2012 15,400 SF 100%

EDEN PRAIRIE, MN 55344 2016 56,652 SF 84%

45TH ST S FARGO, ND 58104 2007 56,572 SF

BROADWAY MINOT, ND 58701 2011 15,364 SF 79%

ROAD BISMARCK, ND 58504 2009 40,803 SF 98%

FARGO, ND 58103 2013 28,137 SF 100% D & M

56560 2014 66,152 SF 100% DONEGAL CENTRE

17,354 SF 96% EAGLE POINT II OFFICE CENTER

30,581 SF 83% EAGLE POINT III OFFICE CENTER

2014 39,204 SF 99% FIRST CENTER SOUTH 3051

103,460 SF 92% HARMONY PLAZA 2804 & 2808 S

46,000 SF 77% HASTINGS PLAZA 671 31ST ST E

12 COMMERCIAL PROPERTIES ACQUIRED IN YEARS TOTAL SQUARE FEET 2016 OCCUPANCY 55 WEST FINANCIAL TH AVE N PLYMOUTH, MN ,144 SF 95% BOOTBARN TH AVE SW MINOT, ND ,400 SF 100% CITY WEST FINANCIAL 6500 CITY WEST PARKWAY EDEN PRAIRIE, MN ,652 SF 84% AMBER VALLEY RETAIL CENTER 2501, 2551, TH ST S FARGO, ND ,572 SF 100% BROADWAY OFFICE PLAZA 1809 S. BROADWAY MINOT, ND ,364 SF 79% CUMMINS NPOWER - DEPERE 939 LAWRENCE DR DEPERE, WI ,206 SF 100% BISMARCK INDUSTRIAL PARK AIRPORT ROAD BISMARCK, ND ,803 SF 98% CENTURY MALL EAST CENTURY AVE BISMARCK, ND ,250 SF 100% CUMMINS NPOWER - FARGO TH AVE S FARGO, ND ,137 SF 100% D & M INDUSTRIES TH AVE S MOORHEAD, MN ,152 SF 100% DONEGAL CENTRE 4301 W 57TH ST SIOUX FALLS, SD ,354 SF 96% EAGLE POINT II OFFICE CENTER 8550 HUDSON BLVD LAKE ELMO, MN ,581 SF 83% EAGLE POINT III OFFICE CENTER 8530 EAGLE POINT BLVD LAKE ELMO, MN ,204 SF 99% FIRST CENTER SOUTH 3051 & TH ST S FARGO, ND ,460 SF 92% HARMONY PLAZA 2804 & 2808 S LOUISE AVE SIOUX FALLS, SD ,000 SF 77% HASTINGS PLAZA ST ST E HASTINGS, MN ,600 SF 100% LEEVERS SUPERVALUE 424 2ND AVE NE VALLEY CITY, ND ,882 SF 100% 10

LINDQUIST SQUARE 1933 SOUTH BROADWAY 104

AVENUE BISMARCK, ND 58503 2016 69,119 SF

& 1410 9TH ST E & 1365 PRAIRIE PKWY WEST

13400 15TH AVE N PLYMOUTH, MN 55441 2015

AVE SIOUX FALLS, SD 57108 2015 38,713 SF

AVE SIOUX FALLS, SD 57108 2014 39,120 SF

NEW PRAGUE, MN 56071 2011 25,614 SF 100%

ND 58474 2010 25,614 SF 100% TMI BUILDING

55,619 SF 100% TOWER PLAZA RETAIL 151-425

SF 94% VADNAIS SQUARE 905-955 COUNTY ROAD

SF 96% WF USPS WAREHOUSE 1907 4TH AVE NW

13 LINDQUIST SQUARE 1933 SOUTH BROADWAY TH AVE SW MINOT, ND ,480 SF 92% LOGAN S ON 3RD 120 NORTH 3RD ST BISMARCK, ND ,347 SF 92% MENDOTA HEIGHTS BUSINESS CENTER 2520 PILOT KNOB ROAD MENDOTA HEIGHTS, MN ,631 SF 96% METRO CENTER MALL TH AVE SW MINOT, ND ,902 SF 96% MINOT MINI STORAGE 4807, 4811 & 4815 N BROADWAY MINOT, ND ,800 SF 65% NORTH POINTE RETAIL CENTER & EDGEWOOD DR BAXTER, MN ,743 SF 92% PINEHURST SQUARE WEST 1207 W CENTURY AVENUE BISMARCK, ND ,119 SF 100% PIONEER CENTER TH AVE S & 1380 & TH ST E & 1365 PRAIRIE PKWY WEST FARGO, ND & ,167 SF 93% PIZZA RANCH 1504 CENTER AVE W DILWORTH, MN ,800 SF 100% PLYMOUTH TH AVE N PLYMOUTH, MN ,362 SF 100% RIVER PLAZA 2425 SHIRLEY AVE SIOUX FALLS, SD ,713 SF 89% RIVERWOOD PLAZA S LOUISE AVE SIOUX FALLS, SD ,120 SF 100% SHOPKO - NEW PRAGUE TH AVE SE NEW PRAGUE, MN ,614 SF 100% SHOPKO - OAKES 1420 NORTH 7TH ST OAKES, ND ,614 SF 100% TMI BUILDING ND AVE S FARGO, ND ,619 SF 100% TOWER PLAZA RETAIL NORTH 78TH ST OMAHA, NE ,072 SF 100% TUSCANY SQUARE 107 WEST MAIN AVE BISMARCK, ND ,806 SF 94% VADNAIS SQUARE COUNTY ROAD E VADNAIS HEIGHTS, MN ,626 SF 96% WF USPS WAREHOUSE TH AVE NW WEST FARGO, ND ,000 SF 100% WILLOW CREEK PLAZA 903 & TH ST SE WATERTOWN, SD ,243 SF 100% 11

RESIDENTIAL PROPERTIES ACQUIRED IN YEARS NUMBER OF

4936, 5024, 5200 21ST AVE SW FARGO, ND 58103 2002

3310, 3420, 3540 19TH ST N BISMARCK, ND 58503 2013

2939, 3001 OHIO ST 1715 & 1823 MAPLETON AVE

TOWNE 2103 FRASER COURT BELLEVUE, NE 68005 2015

4450 30TH AVE SW FARGO, ND 58103 2010 84 UNITS 80%

FARGO, ND 58078 2008 24 UNITS 84% BAKKEN HEIGHTS

32ND ST NW WILLISTON, ND 58801 2011-2013 LIMITED

5151, 5231, 5251, 5301, 5331, 5351 AMBER VALLEY

COPPER CREEK APARTMENTS 2704 E KANESVILLE BLVD

MEADOWS 5001 & 5055 AMBER VALLEY PKWY FARGO, ND

4418 16TH AVE W WILLISTON, ND 58801 2013 LIMITED

ST SIOUX FALLS, SD 57018 2012 191 UNITS 88% 12

FARGO ND 58078 2005 162 UNITS 92% HIDDEN POINT

58104 2014-2016 144 UNITS 62% IN RENT-UP HILLVIEW

14 RESIDENTIAL PROPERTIES ACQUIRED IN YEARS NUMBER OF UNITS 2016 OCCUPANCY AMBER FIELDS APARTMENTS 4884, 4936, 5024, ST AVE SW FARGO, ND UNITS 97% CALGARY I, II, & III APARTMENTS 3310, 3420, TH ST N BISMARCK, ND UNITS 80% CENTURY EAST I - V APARTMENTS 2909, 2939, 3001 OHIO ST 1715 & 1823 MAPLETON AVE BISMARCK, ND UNITS 79% BRITAIN TOWNE 2103 FRASER COURT BELLEVUE, NE UNITS 93% CALICO APARTMENTS TH AVE SW TH AVE SW FARGO, ND UNITS 80% COOPERATIVE LIVING CENTER TH AVE E WEST FARGO, ND UNITS 84% BAKKEN HEIGHTS APARTMENTS (LIMITED PARTNERSHIP UNITS) ND ST NW WILLISTON, ND LIMITED PARTNERSHIP CENTRAL PARK APARTMENTS 5101, 5131, 5151, 5231, 5251, 5301, 5331, 5351 AMBER VALLEY PKWY FARGO, ND UNITS 89% COPPER CREEK APARTMENTS 2704 E KANESVILLE BLVD COUNCIL BLUFFS, IA UNITS 95% COUNTRY MEADOWS 5001 & 5055 AMBER VALLEY PKWY FARGO, ND UNITS 84% DAKOTA ROSE APARTMENTS TH AVE W WILLISTON, ND LIMITED PARTNERSHIP DONEGAL POINTE APARTMENTS 4301 W 57TH ST SIOUX FALLS, SD UNITS 88% 12 EAGLE LAKE APARTMENTS TH ST WEST WEST FARGO ND UNITS 92% HIDDEN POINT APARMENTS I - IV TH AVE S FARGO, ND UNITS 62% IN RENT-UP HILLVIEW APARTMENTS 24 HILLVIEW TOWNHOMES , 5005, 5021, 5033 E 26TH ST SIOUX FALLS, SD UNITS 94%

LAKEWOOD PLACE 2703 3RD AVE SE ABERDEEN, SD

APARTMENTS 1401 14TH ST E, 1515 14TH AVE, 1401

58078 2014 84 UNITS 97% M & I APARTMENTS 2701,

57401 2014 32 UNITS 90% ONE OAK PLACE 1709

IN RENT-UP PACIFIC WEST APARTMENTS 14121

PLACE 2802 3RD AVE SE ABERDEEN, SD 57401 2014

ABERDEEN, SD 57401 2014 16 UNITS 100% PRAIRIE

130 UNITS 86% PRAIRIE VILLAGE 1215 N ROOSEVELT

RENT-UP SUMMER S AT OSGOOD 4452, 4466, 4482

58103 2005-2008 210 UNITS 90% URBAN MEADOWS I

FARGO, ND 58103 2012 & 2013 180 UNITS 74%

3511, 3521, 3531 30TH AVE 3063 34TH ST S,

WHEATLAND & WESTLAKE TOWNHOMES 3301-3337 31ST

15 LAKEWOOD PLACE RD AVE SE ABERDEEN, SD UNITS 90% MAPLE POINT I - IV APARTMENTS TH ST E, TH AVE, TH ST E, TH AVE E WEST FARGO, ND UNITS 97% M & I APARTMENTS 2701, 2721, 2801, & RD AVE SW ABERDEEN, SD UNITS 90% ONE OAK PLACE TH AVE S FARGO, ND UNITS 86% IN RENT-UP PACIFIC WEST APARTMENTS PIERCE PLAZA OMAHA, NE UNITS 93% PARAMOUNT ESTATES 612 PARAMOUNT DR ABERDEEN, SD UNITS 90% PARAMOUNT PLACE RD AVE SE ABERDEEN, SD UNITS 90% PARAMOUNT VILLAS 310 KENMORE ST S ABERDEEN, SD UNITS 100% PRAIRIE SPRINGS 116 WEBER ST ABERDEEN, SD UNITS 86% PRAIRIE VILLAGE 1215 N ROOSEVELT ST ABERDEEN, SD UNITS 91% IN RENT-UP SUMMER S AT OSGOOD 4452, 4466, TH ST S 4522, 4536, TH ST S FARGO, ND UNITS 90% URBAN MEADOWS I - V 4610, 4630, 4640, 4668, RD AVE S FARGO, ND & UNITS 74% WASHINGTON HEIGHTS HAWKEN ST BISMARCK, ND UNITS 97% WHEATLAND PLACE APARTMENTS 3302, 3322, ST AVE 3501, 3511, 3521, TH AVE TH ST S, FARGO, ND UNITS 94% WHEATLAND & WESTLAKE TOWNHOMES ST AVE, ND ST S TH ST S, TH ST S TH AVE SW, FARGO, ND UNITS 97% 13

SHARE REDEMPTION PROGRAM The Dakota REIT (the Trust ) shares are registered with the State of North Dakota. These shares are not listed or quoted on any of the national securities exchanges.

16 SHARE REDEMPTION PROGRAM The Dakota REIT (the Trust ) shares are registered with the State of North Dakota. These shares are not listed or quoted on any of the national securities exchanges. As a shareholder, in the Trust, you have two options to sell your shares for liquidity. The first option is selling your shares through a broker. As a shareholder, you would initiate the process by contacting Dakota REIT for a list of brokers who are approved to sell secondary shares. The broker can arrange a sale to a third party buyer to purchase your shares. A second option is to sell your shares back to the Trust through the Share Redemption Program. The explanation of this program is detailed below. CASH FLOW The Trust may use available cash flow not otherwise dedicated to a particular use to meet redemption requests, including cash proceeds generated from the dividend reinvestment plan, new offerings, operating cash flow not intended for dividends, borrowing, and capital transactions. SHAREHOLDER ELIGIBILTY The following requirements provide eligibility for the shareholder to redeem shares: 1) Shareholders are required to hold their shares for one year in order to receive a benefit of limited liquidity. The Trust may waive the one year holding period in event of a shareholder death. 2) A shareholder may redeem to the Trust up to $150, of their shares every twelve months. 3) A ten percent (10%) redemption fee applies to each transaction. The redemption fee will be deducted from the total value of the transaction. The share price applied to the redemption of shares will be the current offering price or as established by resolution by the Board of Trustees. SHARE REDEMPTION PROCESS The Board of Trustees has authorized Dakota REIT Management, LLC (Advisor) to process redemption requests under the following procedures: 1) Contact your broker/custodian or Dakota REIT Management, LLC at (701) to receive a Share Redemption form. 2) Complete and present the Share Redemption form by mailing it to Dakota REIT Management, LLC. The mailing address is on the Share Redemption form. 3) Share Redemption requests will be processed on a first-come, first-served basis. 4) When the Trust approves a redemption request, it will be processed less the 10% redemption fee, and the check will be mailed to the shareholder. 5) The Board of Trustees and the Advisor have the absolute right to reject any Share Redemption request. The Advisor is required to determine sufficient cash flow to accommodate the Share Redemption request. If the shareholder s redemption request is denied, the following options apply: a. Shareholder withdraws their Share Redemption Request, or b. Shareholder asks the Advisor to honor the redemption of shares, when cash flow becomes available. 14

17 FEES AND COMPENSATION PAID TO TRUSTEES AND AFFILIATES The following fees and/or compensations were paid to Board of Trustees and affiliated parties during ADVISOR S MANAGEMENT FEE Dakota Real Estate Investment Trust paid an advisory management fee of $1,364,400 in 2016 to Dakota REIT Management, LLC, an entity in which George Gaukler and Jim Knutson have a controlling interest. These fees are compensation for the daily operations of the Trust, which includes providing office space, staff to maintain trust records, prepare annual reports, shareholder statements and tax forms, prepare Board of Trustee reports, and advise the Board of Trustees on investment decisions. The fees are based on 1% of net invested assets of the Trust [total assets at cost, less cash and less total liabilities]. PROPERTY ACQUISTION FEES Dakota Real Estate Investment Trust paid Dakota REIT Management, LLC, an entity in which George Gaukler and Jim Knutson have a controlling interest, property acquisition fees in the amount of $1,285,125, financing fees in the amount of $259,621, and UPREIT fees in the amount of $16,000. Fees are compensation for performing due diligence on properties acquired by the REIT, obtain financing for the property and process UPREIT transactions. The fees are based upon 1.5% of the purchase price of the property acquired,.25% of the mortgage obtained, up to $2, per UPREIT transaction, and is capitalized into the basis of the property. PROPERTY MANAGEMENT FEES Dakota Real Estate Investment Trust paid Valley Rental Service, Inc., an entity controlled by George Gaukler and Jim Knutson, property management fees of $867,979 in Property Resource Group, controlled by Kevin Christianson, a Trustee, was paid $142,699 for property management fees. Horizon Real Estate Group, an entity in which Jim Knutson has a controlling interest, was paid $87,070 for commercial property management fees. Dakota REIT Management, LLC an entity in which George Gaukler and Jim Knutson have a controlling interest, was paid $169,621 for commercial property management fees. Fees paid are compensation for property management, which includes collecting rent, paying bills, providing quarterly financial statements, overseeing advertising, maintenance, cleaning, and general operations of the buildings. Fees are based on 3% to 5% of rental revenue. TRUSTEE COMPENSATION The Trust pays the members of the Board of Trustees, both independent and non-independent members, certain remuneration for their services to attend meetings, plus travel and other approved expenses. In 2016, the Trust paid $55,876 in total compensation(directors Fees as stated on the Consolidated Statements of Operations Dakota Real Estate Investment Trust). George Gaukler and Jim Knutson did not receive any compensation because of their affiliation with Dakota REIT Management, LLC. 15

18 16 Consolidated Financial Statements Dakota Real Estate Investment Trust

19 Table of Contents Independent Auditor s Report Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations and Other Comprehensive Income Consolidated Statements of Shareholders Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Supplementary Information Consolidated Schedules of Funds from Operations

Independent Auditor s Report To the Board of Trustees Dakota Real Estate Investment Trust Fargo, North Dakota Report on the Consolidated Financial Statements We have audited the accompanying

20 Independent Auditor s Report To the Board of Trustees Dakota Real Estate Investment Trust Fargo, North Dakota Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Dakota Real Estate Investment Trust, which comprise the consolidated balance sheets as of, and the related consolidated statements of operations and other comprehensive income, shareholders equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 18

21 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dakota Real Estate Investment Trust as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Trust has changed its accounting policy for accounting for debt issuance costs by adopting the provisions of FASB Accounting Standards Update , Simplifying the Presentation of Debt Issuance Costs. Accordingly the 2015 financial statements have been restated to adopt this update. Our opinion is not modified with respect to this matter. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information is presented for the purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Bismarck, North Dakota March 15,

22 Consolidated Balance Sheets Assets (restated) Real Estate Investments Property and Equipment held for rent - Notes 2 and 8 $ 424,518,591 $ 338,937,823 Investments in Partnerships 3,037,932 3,799,773 Total Real Estate Investments 427,556, ,737,596 Cash 8,627,493 6,013,577 Restricted Deposits 7,109,437 6,184,282 Accounts Receivable Tenant, less Allowance for Doubtful Accounts of $723,840 in 2016 and $503,738 in , ,419 Other 57, ,817 Due from Related Party 4,469,033 3,044,108 Prepaid Expenses 1,498,838 1,628,586 Fair value of interest rate swaps 574,491 - $ 450,687,671 $ 359,984,385 Liabilities Mortgage Note Payable less unamortized debt issuance costs of $2,530,400 in 2016 and $1,920,620 in 2015 $ 329,575,686 $ 251,314,628 Special Assessments Payable 3,221,911 2,664,450 Tenant Security Deposits Payable 2,038,979 1,824,989 Accounts Payable 1,497,030 1,259,692 Accrued Expenses Real Estate Taxes 3,710,542 3,513,964 Interest 865, ,945 Other 577, ,595 Total Liabilities 341,486, ,605,263 Shareholders' Equity Noncontrolling Interest in Operating Partnership 59,052,024 52,051,537 Beneficial Interest 49,574,440 46,327,585 Accumulated comprehensive income (loss) 574, ,200,955 98,379,122 $ 450,687,671 $ 359,984,385 See Notes to Consolidated Financial Statements 20

23 Consolidated Statements of Operations and Other Comprehensive Income Years Ended (restated) Income From Rental Operations $ 49,063,315 $ 41,171,146 Expenses Expenses from Rental Operations Interest Expense 12,963,544 10,826,966 Depreciation 9,184,507 7,314,194 Real Estate Taxes 4,954,943 3,925,798 Utilities 4,111,772 3,626,644 Maintenance and Payroll 5,986,590 5,184,525 Property Management Fees 1,864,082 1,630,670 Advertising and Marketing 448, ,793 Insurance 1,112, ,795 Other Administrative 331, ,417 Bad Debts 233, ,932 41,191,426 34,204,734 Administration of REIT Advisory Management Fees 1,364,400 1,125,590 Directors' Fees 55,876 43,435 Administration and Professional Fees 213, ,908 Insurance 24,923 15,651 1,658,469 1,362,584 Total Expenses 42,849,895 35,567,318 Income From Operations 6,213,420 5,603,828 Other Income Gain on Sale of Property 686,441 - Income (Loss) from Equity Investments (714,881) 303,476 Interest Income 150, ,342 Other Income 740,628 4,158, ,264 4,642,802 Net Income 7,075,684 10,246,630 Net Income Attributable to the Noncontrolling Interest 3,265,428 4,406,051 Net Income Attributable to Dakota Real Estate Investment Trust $ 3,810,256 $ 5,840,579 Net Income $ 7,075,684 $ 10,246,630 Other comprehensive income - change in fair value of interest rate swaps 574,491 - Comprehensive income 7,650,175 10,246,630 Comprehensive Income Attributable to the Noncontrolling Interest 4,119,620 4,406,051 Comprehensive Income Attributable to Dakota Real Estate Investment Trust $ 3,530,555 $ 5,840,579 See Notes to Consolidated Financial Statements 21

24 Consolidated Statements of Shareholders Equity Years Ended Accumulated Total Other Common Shares Common Shares Amount Accumulated Syndication Beneficial Noncontrolling Comprehensive Class A Class B Class A Class B Deficit Costs Interest Interest Income Total Balance, December 31, ,199,355 1,254,905 $ 41,113,578 $ 11,800,786 $ (10,171,796) $ (3,086,100) $ 39,656,468 $ 30,224,100 $ - $ 69,880,568 Shares of Beneficial Interest 109,071 95,502 1,237,868 1,061,632 2,299,500 2,299,500 issued Contribution of Assets in exchange for the issuance of Noncontrolling Interest Units 21,618,667 21,618,667 Repurchase of Shares/Units (13,536) (17,139) (140,882) (181,931) (322,814) (947,710) (1,270,524) Dividends and Distributions (4,577,619) (4,577,619) (3,249,571) (7,827,190) Dividends Reinvested 250,721 72,732 2,726, ,789 3,517,014 3,517,014 Syndication Costs (85,543) (85,543) (85,543) Net Income 5,840,579 5,840,579 4,406,051 10,246,630 Balance, December 31, ,545,611 1,406,000 $ 44,936,788 $ 13,471,276 $ (8,908,836) $ (3,171,643) $ 46,327,585 $ 52,051,537 $ - $ 98,379,122 See Notes to Consolidated Financial Statements 22

25 Consolidated Statements of Shareholders Equity Years Ended Accumulated Total Other Common Shares Common Shares Amount Accumulated Syndication Beneficial Noncontrolling Comprehensive Class A Class B Class A Class B Deficit Costs Interest Interest Income Total Balance, December 31, ,545,611 1,406,000 44,936,788 13,471,276 (8,908,836) (3,171,643) 46,327,585 52,051,537-98,379,122 Shares of Beneficial Interest issued Contribution of Assets in exchange for the issuance of Noncontrolling Interest Units 8,510,787 8,510,787 Repurchase of Shares/Units (14,775) (5,832) (197,642) (74,407) (272,049) (370,357) (642,406) Dividends and Distributions (5,191,546) (5,191,546) (4,405,371) (9,596,917) Dividends and Distributions Reinvested 256, ,162 3,279,243 1,623,891 4,903,134 4,903,134 Syndication Costs (2,940) (2,940) (2,940) Net Income 3,810,256 3,810,256 3,265,428 7,075,684 Change in Fair Value of Interest Rate SWAP 574, ,491 Balance, December 31, ,787,446 1,527,330 $ 48,018,389 $ 15,020,760 $ (10,290,126) $ (3,174,583) $ 49,574,440 $ 59,052,024 $ 574,491 $ 109,200,955 See Notes to Consolidated Financial Statements 23

26 Consolidated Statements of Cash Flows Years Ended (restated) Operating Activities Net Income $ 7,075,684 $ 10,246,630 Charges and Credits to Net Income Not Affecting Cash Depreciation 9,184,507 7,314,193 Interest Expense Attributable to Amortization of Debt Issuance Costs 411, ,707 Gain on Acquisitions of Property and Equipment (1,233,000) (2,020,367) Gain on Sale of Property and Equipment (686,441) - Conversion of Equity Method Investment - (2,006,991) TIF Gain - (149,952) Noncash Portion of Loss (Income) from Equity Investments 714,881 (303,476) Changes in Assets and Liabilities Accounts Receivable (475,620) 49,571 Due from Related Party 75,075 (28,616) Prepaid Expenses 129,748 (1,208,431) Tenant Security Deposits (246,483) (354,174) Real Estate Tax and Insurance Escrows 121,805 (147,449) Accounts Payable 237,337 (171,969) Accrued Expenses 611,606 (94,623) Tenant Security Deposits Payable 213, ,812 Net Cash from Operating Activities 16,134,430 11,816,865 Investing Activities Purchase of Property and Equipment (15,456,032) (3,880,164) Proceeds from Investment 46,960 3,413,861 Net Withdrawal from (deposits to) the Replacement Reserve (482,812) (935,050) Withdrawal from (deposits to) Trust Reserve (317,665) 71,005 Withdrawal from (deposits to) Earn Out Reserve - 100,000 Issuance of Related Party Notes Receivable (1,500,000) - Proceeds from Related Party Notes Receivable - 1,000,000 Proceeds from Non Related Party Notes Receivable - 14,783 Distributions received from Partnership Investments - 543,701 Net Cash from (used for) Investing Activities (17,709,549) 328,136 Financing Activities Payments for Debt Issuance Costs (1,021,121) (912,164) Principal Payments on Special Assessments Payable (183,213) (140,428) Proceeds from Long-Term Debt Borrowing 18,045,069 13,491,619 Principal Payments on Long-Term Debt (7,312,571) (18,137,192) Proceeds from Issuance of Shares of Beneficial Interest - 2,299,500 Dividends/Distributions Paid (4,693,783) (4,310,176) Repurchase of Shares of Beneficial Interest (272,049) (322,814) Repurchase of Noncontrolling Interest Units (370,357) (947,710) Payment of Syndication Costs (2,940) (85,543) Net Cash from (used for) Financing Activities 4,189,035 (9,064,908) See Notes to Consolidated Financial Statements 24

27 Consolidated Statements of Cash Flows Years Ended Net Change in Cash 2,613,916 3,080,093 Cash at Beginning of Period 6,013,577 2,933,484 Cash at End of Period $ 8,627,493 $ 6,013,577 Supplemental Disclosure of Cash Flow Information Cash payments for Interest $ 12,427,879 $ 10,294,960 Supplemental Schedule of Noncash Financing and Investing Activities Acquisition of Assets in exchange for the issuance of Noncontrolling Interest Shares in UPREIT $ 8,510,787 $ 21,618,667 Acquisition of Assets in exchange for assumption/issuance of Long-Term Debt and issuance of Related Party Payable $ 69,363,210 $ 67,106,531 Proceeds of Long-Term Debt in exchange for refinancing existing outstanding debt $ 23,276,750 $ 7,750,954 Acquistion of Assets with 1031 Exchange proceeds from sale of property $ 1,392,735 $ - Reduction of Debt associated with sale of property $ 1,224,871 $ - Increase in Land Improvements due to increase in Special Assessments Payable $ 740,674 $ 72,938 Dividends Declared 5,191,546 4,577,619 Dividends Reinvested (4,903,134) (3,517,014) Dividends paid to Shareholders 288,412 1,060,605 Distributions paid to Noncontrolling Interest in UPREIT 4,405,371 3,249,571 Total Dividends/Distributions Paid $ 4,693,783 $ 4,310,176 See Notes to Consolidated Financial Statements 25

28 Notes to Consolidated Financial Statements Note 1 - Organization Dakota Real Estate Investment Trust (the Trust) is organized as a real estate investment trust (REIT) incorporated under the laws of North Dakota. Internal Revenue Code Section 856 requires that 75 percent of the assets of a real estate investment trust must consist of real estate assets and that 75 percent of its gross income must be derived from real estate. The net income of the REIT is allocated in accordance with the stock ownership in the same fashion as a regular corporation. Dakota Real Estate Investment Trust is the general partner in Dakota UPREIT, a North Dakota limited partnership, with ownership of approximately 54% and 57% as of, respectively. Dakota UPREIT is the 100% owner of DPC Apartments, LLC, CalAm 2, LLC, WPA 2, LLC, First Center South of North Dakota, LLC, Central Park, LLC, Apartments at Eagle Lake, LLC, Amber Valley, LLC, Prairie Springs Aberdeen, LLC, Britain, LLC, th Avenue South, LLC, and Copper Creek Condominiums. Note 2 - Principal Activity and Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Dakota REIT, and its operating partnership, Dakota UPREIT. The consolidated financial statements also include the accounts of DPC Apartments, LLC, CalAm 2, LLC, WPA 2, LLC, First Center South of North Dakota, LLC, Central Park, LLC, Apartments at Eagle Lake, LLC, Amber Valley, LLC, Prairie Springs Aberdeen, LLC, Britain, LLC, th Avenue South, LLC, and Copper Creek Condominiums, wholly-owned subsidiaries of Dakota UPREIT. All significant intercompany transactions and balances have been eliminated in consolidation. Principal Business Activity Dakota REIT has a general partner interest in Dakota UPREIT, which owns and operates 1,539 apartment units, 104 townhome units, and 1,570,153 of commercial square feet in Fargo, West Fargo, Bismarck, Minot, Oakes, and Valley City, North Dakota; in DePere, WI; in New Prague, Moorhead, Lake Elmo, Baxter, Hastings, Plymouth, Mendota Heights, Vadnais Heights, Eden Prairie and Dilworth, Minnesota; Council Bluffs, Iowa; Omaha and Bellevue, Nebraska; and in Aberdeen, Watertown, and Sioux Falls, South Dakota. Dakota UPREIT is also the 100% owner of DPC Apartments, LLC, which owns and operates 191 apartment units and 17,354 of commercial square feet, CalAm 2, LLC, which owns and operates 192 apartment units, WPA 2, LLC, which owns 18 townhome units and 96 apartment units, First Center South of North Dakota, LLC, which owns a 103,460 square foot retail strip center, Central Park, LLC, which owns a 265 unit apartment complex, Apartments at Eagle Lake, LLC, which owns a 162 unit apartment complex, Amber Valley, LLC, which owns a 56,572 square foot retail strip center, Copper Creek Condominiums, which owns and operates 96 apartment units, Prairie Springs Aberdeen, LLC which owns a 130 unit apartment complex, Britain, LLC which owns a 168 unit apartment complex and th Avenue South, LLC which owns a 274 unit apartment complex. In total, the Trust owns 3,113 apartment units, 122 townhome units, and 1,747,539 of commercial square feet. 26

29 Notes to Consolidated Financial Statements In addition Dakota UPREIT owns the following limited partnership interests: In 2015, the Trust had Thirteen and one half (13.5) limited partner units of South Washington Real Estate Investment Limited Partnership (SWREILP). SWREILP owned an interest in the Richard P. Stadter Psychiatric Hospital in Grand Forks, ND. SWREILP finalized operations and disbursed all funds to investors in In 2015, the Fifty (50) limited partner units in the One Oak II Limited Liability Limited Partnership were converted to equity in th Avenue South, LLC, a wholly owned subsidiary of Dakota UPREIT, which purchased One Oak Place. See Note 13 Related Party Transactions and Note 17 Business Combinations for additional information on the transaction. 34% limited partner interest in the Bakken Heights V Limited Liability Limited Partnership. The Limited Liability Limited Partnership owns a 36-unit apartment building in Williston, North Dakota. Under the terms of the partnership agreement, the Trust is allocated approximately 34% of the net gains and losses. 40% total limited partner interest in the Bakken Heights VIII & X Limited Liability Limited Partnership. The Limited Liability Limited Partnership owns two, 36-unit apartment buildings in Williston, North Dakota. Under the terms of the partnership agreement, the Trust is allocated approximately 40% of the net gains and losses. 49% total partnership interest in Williston Real Estate Partners Limited Liability Company. The Limited Liability Company owns two, 36-unit apartment buildings in Williston, North Dakota. Under the terms of the partnership agreement, the Trust is allocated approximately 49% of the net gains and losses. 50% total partnership interest in Dakota Roseland Apartments I, Limited Liability Limited Partnership. The Limited Liability Limited Partnership owns one, 36-unit apartment building in Williston, North Dakota. Under the terms of the Partnership agreement, the Trust is allocated approximately 50% of the net gains and losses. As general partner of Dakota UPREIT, Dakota REIT has full and exclusive management responsibility for the properties held by the UPREIT. Concentration of Credit Risk The Trust's cash balances are maintained in various bank deposit accounts. The deposit accounts may exceed federally insured limits at various times throughout the year. Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. 27

30 Notes to Consolidated Financial Statements Property and Equipment Held For Rent Acquisitions of property and equipment held for rent purchased prior to January 1, 2009, are stated at cost less accumulated depreciation. Effective January 1, 2009, the Trust adopted guidance that requires property acquisitions to be recognized at their fair value as of the acquisition date and as such, property acquired by the Trust after January 1, 2009, is stated at the fair value as of the acquisition date less accumulated depreciation. The Trust accounts for its property acquisitions by allocating the purchase price of a property to the property s assets based on management s estimates of their fair value. Techniques used to estimate fair value include an appraisal of the property by a certified independent appraiser at the time of acquisition. Equipment, furniture, and fixtures purchased by the Trust are stated at cost less accumulated depreciation. Costs associated with the development and construction of real estate investments, including interest, are capitalized as a cost of the property. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for routine maintenance and repairs, which do not add to the value or extend useful lives, are charged to expense as incurred. The Trust reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there was no impairment at. Depreciation is computed using the straight-line and declining-balance methods over the following estimated useful lives: Land Improvements Buildings and Improvements Furniture and Fixtures 20 years years 7-12 years Investments in Partnerships Investments consist of limited partnership interests in entities owning real estate. Investments in limited partnership interests of more than 20 percent are accounted for under the equity method. Investments are stated at cost, plus the company s equity in net earnings since acquisition, less any distributions received. Noncontrolling Interest Interests in the operating partnership held by limited partners are represented by operating partnership units. The operating partnerships income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the operating partnership agreement. 28

31 Notes to Consolidated Financial Statements Debt Issuance Costs Debt issuance costs incurred in connection with financing have been capitalized and are being amortized over the life of the loan using the effective interest method. Unamortized debt issuance costs are reported on the balance sheet as a reduction of Mortgage Notes Payable. Syndication Costs Syndication costs consist of costs paid to attorneys, accountants, and selling agents, related to the raising of capital. Syndication costs are recorded as a reduction to equity. Income Taxes Dakota REIT is organized as a real estate investment trust (REIT), which calculates taxable income similar to other domestic corporations, with the major difference being that a REIT is entitled to a deduction for dividends paid. A REIT is generally required to distribute each year at least 90 percent of its taxable income. If it chooses to retain the remaining 10 percent of taxable income, it may do so, but it will be subject to a corporate tax on such income. REIT shareholders are taxed on REIT distributions of ordinary income in the same manner as they are taxed on other corporate distributions. For the years ended, distributions have been determined to be treated as the following for income taxes: Tax Status of Distributions Ordinary Income 65.00% 90.00% Return of Capital 35.00% 10.00% % % The Trust intends to continue to qualify as a real estate investment trust as defined by the Internal Revenue Code and, as such, will not be taxed on the portion of the income that is distributed to the shareholders. In addition, the Trust intends to distribute all of its taxable income, therefore, no provision or liability for income taxes have been recorded in the financial statements. Dakota UPREIT is organized as a limited partnership. Income or loss of the UPREIT is allocated to the partners in accordance with the provisions of the Internal Revenue Code 704(c). UPREIT status allows non-recognition of gain by an owner of appreciated real estate if that owner contributes the real estate to a partnership in exchange for partnership interest. The conversion of partnership interest to shares of beneficial interest in the REIT will be a taxable event to the limited partner. Dakota REIT has adopted the provisions of FASB Accounting Standards Codification Topic ASC As of, the unrecognized tax benefit accrual was zero. The Trust will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. 29

32 Notes to Consolidated Financial Statements Revenue Recognition Housing units are rented under operating lease agreements with terms of one year or less. Commercial space is rented under long-term operating lease agreements and rent income related to commercial space is recorded on a straight-line basis. Rent income from tenants is recognized in the month in which it is earned rather than received. Advertising and Marketing Costs incurred for advertising and marketing are expensed as incurred. Advertising and marketing expense totaled $448,275 and $307,793 for the years ended, respectively. Tax Increment Financing Tax Increment Financing (TIF) is a public financing method used by municipalities to assist with infrastructure, redevelopment or other projects that benefit the municipality. Through a TIF program future real estate tax revenue is dedicated to offset the cost of improvements. During 2015, the Trust acquired the balance of a TIF for One Oak Place in Fargo, North Dakota. The purchase price for the TIF was $1,000,000 with an estimated remaining benefit period of 36 months. The TIF was appraised for $1,149,952 by a certified independent appraiser and a TIF gain of $149,952 was recognized. The Trust recorded the TIF as a prepaid expense and is recognizing the expense over the remaining benefit period. The balance of the TIF was $665,547 and $998,231 as of, respectively. Financial Instruments and Fair Value Measurements The Trust has determined the fair value of certain assets and liabilities in accordance with the provisions of FASB ASC Topic , which provides a framework for measuring fair value under generally accepted accounting principles. ASC Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability. Level 3 inputs are unobservable inputs related to the asset or liability. 30

33 Notes to Consolidated Financial Statements Interest Rate Contracts and Hedging Activities For asset/liability management purposes, the Trust uses interest rate swap agreements to hedge various exposures or to modify interest rate characteristics of various balance sheet accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period. The notional amount on which the interest payments are based is not exchanged. These swap agreements are derivative instruments and generally convert a portion of the Trust s variable-rate debt to a fixed rate (cash flow hedge), and convert a portion of its fixed-rate loans to a variable rate (fair value hedge). The gain or loss on a derivative designated and qualifying as a fair value hedging instrument, as well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is recognized currently in earnings in the same accounting period. The effective portion of the gain or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently in earnings. For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the hedged debt is deferred and amortized into net interest income over the life of the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the loans adjusts the basis of the loans and is deferred and amortized to loan interest income over the life of the loans. The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in noninterest income. Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Trust to risk. Those derivative financial instruments that do not meet specified hedging criteria would be recorded at fair value with changes in fair value recorded in income. If periodic assessment indicates derivatives no longer provide an effective hedge, the derivative contracts would be closed out and settled, or classified as a trading activity. Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged. Note 3 Change in Accounting Policy As of January 1, 2016, the Trust adopted the provisions of Accounting Standards Update (ASU) , Simplifying the Presentation of Debt Issuance Costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability. Adoption of this accounting standard update requires retroactive application by restating the financial statements of all prior periods presented. The Trust has adopted this standard as management believes this presentation more accurately reflects the costs of borrowing for arrangements in which debt issuance costs are incurred. The implementation resulted in the decrease of assets and long-term debt of $1,920,620 as of December 31, 2015, and an increase of interest expense and a decrease of amortization expense of $340,707 for the year ended December 31,

34 Notes to Consolidated Financial Statements Following is a summary of the effects of the change in accounting policy in the Trust s December 31, 2015, consolidated financial statements: Consolidated Balance Sheet Change in As Previously Accounting Reported Principle As Restated As of December 31, 2015 Financing Cost, less Accumulated Amortization $ 1,920,620 $ (1,920,620) $ - Total Assets 361,905,005 (1,920,620) 359,984,385 Mortgage Notes Payable, net of debt issuance costs 253,235,248 (1,920,620) 251,314,628 Total Liabilities 263,525,883 (1,920,620) 261,605,263 Total Liabilities and Shareholder's Equity 361,905,005 (1,920,620) 359,984,385 Consolidated Statement of Operations and Other Comprehensive Income Change in As Previously Accounting Reported Principle As Restated Year ended December 31, 2015 Depreciation and Amortization $ 7,654,901 $ (340,707) $ 7,314,194 Interest Expense 10,486, ,707 10,826,966 Income from Operations 25,485,082-25,485,082 Consolidated Statement of Cash Flows Change in As Previously Accounting Reported Principle As Restated Year ended December 31, 2015 Amortization $ 340,707 $ (340,707) $ - Interest expense attributable to amortization of debt issuance costs - 340, ,707 Note 4 - Interest Rate Contracts Interest rate swap contracts are entered into primarily as an asset/liability management strategy of the Trust to modify interest rate risk. The primary risk associated with all swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contract. The Trust is exposed to losses if the counterparty fails to make its payments under a contract in which the Trust is in a receiving status. The Trust minimizes its risk by monitoring the credit standing of the counterparties. The Trust anticipates the counterparties will be able to fully satisfy their obligations under the remaining agreements. These contracts are typically designated as cash flow hedges. 32

35 Notes to Consolidated Financial Statements The Trust has outstanding interest rate swap agreements with notional amounts totaling $12,767,689 to convert 1 variable-rate trust preferred security into a fixed-rate instrument. The agreement has a maturity of 9.5 years and has a fixed rate of 3.54%. The fair value of the derivatives was an unrealized loss (gain) of $(574,491) at December 31, There was no unrealized loss at December 31, No deferred net gains on interest rate swaps in other comprehensive income at December 31, 2016, are expected to be reclassified into net income during the next fiscal year. The following table summarizes the derivative financial instruments utilized at : December 31, 2016 Notional Estimated Fair Value Balance Sheet Location Amount Gain Loss Cash flow hedge Assets $ 12,767,689 $ 574,491 $ - $ 12,767,689 $ 574,491 $ - December 31, 2015 Cash flow hedge Assets $ - $ - $ - $ - $ - $ - The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received at December 31, 2016: Average Fair Notional Maturity Value Value (Years) (Loss) Receive Pay Loan interest rate swaps $ 12,767, $ 574, % % $ 12,767,689 $ 574,491 The following table summarizes the amount of gains (losses) included in the consolidated statements of operations and other comprehensive income for the years ended : Location Cash flow hedge Comprehensive Income $ 574,491 $ - 33

36 Notes to Consolidated Financial Statements Note 5 Accumulated Other Comprehensive Income The changes in accumulated other comprehensive income for the years ended. Are as follows: Year Ended December 31, 2016: Gains and Loses on Cash Flow Hedges Beginning balance $ - Other comprehensive income 574,491 Net current period other comprehensive income 574,491 Ending balance $ 574,491 Year Ended December 31, 2015: Beginning balance $ - Other comprehensive income - Net current period other comprehensive income - Ending balance $ - Note 6 - Fair Value Measurements Fair Value Measurements on a Recurring Basis There are three general valuation techniques that may be used to measure fair value on a recurring basis, as described below: 1. Market approach Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources; 2. Cost approach Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and 3. Income approach Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate. 34

37 Notes to Consolidated Financial Statements Interest rate swaps are generally classified as Level 2 inputs. The fair values of interest rate swap contracts relate to specific borrower interest rate swap contracts. The fair value is estimated by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy. These fair value estimations include primarily market observable inputs, such as yield curves, and include the value associated with counterparty credit risk. Management reviews this third party analysis and has approved the values estimated for the fair values. The Trust had Level 2 assets valued at $574,491 as of December 31, Fair Value Measurements on a Nonrecurring Basis The Trust had no assets or liabilities recorded at fair value on a nonrecurring basis as of December 31, 2016 and The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities. The fair values of financial instruments approximate their carrying amount in the consolidated financial statements. Cash and Cash Equivalents The carrying amount approximates fair value due to the short maturity. Mortgage Note Payables The carrying amount approximates fair value due to the estimated discounted future cash flows using the current rates at which similar loans would be made. Interest Rate SWAP Agreements The carry amount approximates fair value using the Market approach of valuation. The Market approach of valuation uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sales transactions, market trades, or other sources. The estimated fair values of the Trust s financial instruments as of are as follows: 2016 Carrying Amount Fair Value Assets Cash $ 8,627,493 $ 8,627,493 Fair value of interest rate swaps 574, ,491 Liabilities Mortgage Note Payables $ 329,575,686 $ 329,575, Carrying Amount Fair Value Assets Cash $ 6,013,577 $ 6,013,577 Fair value of interest rate swaps - - Liabilities Mortgage Note Payables $ 251,314,628 $ 251,314,628 35

38 Notes to Consolidated Financial Statements Note 7 - Restricted Deposits Tenant Security Deposits $ 2,071,403 $ 1,824,920 Real Estate Tax and Insurance Escrows 1,443,614 1,565,419 Replacement Reserves 3,142,170 2,659,358 Trust Reserves 452, ,585 Tenant Security Deposits Pursuant to management policy, the Trust has set aside funds to repay tenant security deposits after lease termination, in accordance with requirements established by the state where the property is located. Real Estate Tax and Insurance Escrows Pursuant to the terms of certain mortgages and management policy, the Trust established and maintains a real estate tax escrow and insurance escrow to pay real estate taxes and insurance. The Trust is to contribute to the account monthly an amount equal to 1/12 of the estimated real estate taxes and insurance premiums. Replacement Reserves Pursuant to the terms of certain mortgages and Board policy, the Trust established and maintains several replacement reserve accounts. The Trust makes monthly deposits into the replacement reserve accounts to be used for repairs and replacements on the property. Certain replacement reserve accounts require authorization from the mortgage company for withdrawals. Trust Reserves $ 7,109,437 $ 6,184,282 Pursuant to the terms of the mortgage on the AAA Storage Units, a trust reserve in the amount of $131,000 was established to be used for the construction of two additional storage buildings. The funds were held in an interest bearing account by the mortgage holder. In 2016, the balance of the reserve was applied to the principal balance of the outstanding mortgage note payable. The balance of the trust reserve was $0 and $131,265 as of December 31, 2016 and 2015, respectively. The Trust had estimated tax deposits with the State of Minnesota in the amount of $11,160 and $3,320 as of, respectively. The Trust had earnest money and closing expense deposits for the future purchase of two commercial properties. The balance of those deposits was $441,090 and $0 as of 36

39 Notes to Consolidated Financial Statements Note 8 - Property and Equipment Held for Rent Property and Equipment held for rent as of December 31, 2016 is as follows: Residential Commercial Total Land and Land Improvements $ 28,292,832 $ 55,473,390 $ 83,766,222 Building and Improvements 228,479, ,330, ,809,851 Furniture and Fixtures 4,401, ,532 4,776, ,173, ,179, ,352,773 Less Accumulated Depreciation (31,594,624) (14,239,558) (45,834,182) $ 229,578,996 $ 194,939,595 $ 424,518,591 Property and Equipment held for rent as of December 31, 2015 is as follows: Residential Commercial Total Land and Land Improvements $ 27,138,347 $ 31,179,157 $ 58,317,504 Building and Improvements 221,696,321 91,661, ,357,845 Furniture and Fixtures 4,082, ,808 4,437, ,917, ,195, ,112,546 Less Accumulated Depreciation (25,865,238) (11,309,485) (37,174,723) $ 227,051,819 $ 111,886,004 $ 338,937,823 The Trust expensed $1,353,397 and $733,016 for transaction costs related to property acquisitions for the years ended, respectively. The Trust recognized $1,233,000 and $2,020,367 of income related to property acquisitions for the years ended, respectively. Note 9 - Investments in Partnerships The Trust s investments in partnerships as of consist of the following: Investment accounted for under the equity method (Note 2) South Washington Real Estate Investment Limited Partnership (SWREILP) $ - $ 46,960 Bakken Heights V Limited Liability Limited Partnership 211, ,941 Bakken Heights VIII and X Limited Liability Limited Partnership 811,574 1,006,460 Williston Real Estate Partners Limited Liability Company 1,214,298 1,543,419 Dakota Roseland Apartments I, Limited Liability Limited Partnership 800, ,993 Total Investments $ 3,037,932 $ 3,799,773 37

40 Notes to Consolidated Financial Statements Condensed unaudited financial information for the Trust s investments in partnerships accounted for under the equity method as of December 31, 2016 is as follows: Bakken Heights Bakken Heights Williston Real Dakota Roseland V LLLP VIII & X LLLP Estate Partners Apartments I Total Total Assets $ 3,161,268 $ 7,823,328 $ 9,289,172 $ 4,862,749 $ 25,136,517 Total Liabilities 2,546,112 5,794,933 6,161,182 3,266,633 17,768,860 Partnership Equity $ 615,156 $ 2,028,395 $ 3,127,990 $ 1,596,116 $ 7,367,657 Income $ 268,227 $ 580,285 $ 611,922 $ 349,029 $ 1,809,463 Expenses 494,743 1,068,041 1,117, ,901 3,263,006 Net Income (Loss) $ (226,516) $ (487,756) $ (505,399) $ (233,872) $ (1,453,543) Condensed unaudited financial information for the Trust s investments in partnerships accounted for under the equity method as of December 31, 2015 is as follows: Bakken Heights Bakken Heights Williston Real Dakota Roseland SWREILP V LLLP VIII & X LLLP Estate Partners Apartments I Total Total Assets $ 237,508 $ 3,442,225 $ 8,567,639 $ 9,132,204 $ 5,187,235 $ 26,566,811 Total Liabilities - 2,600,597 6,051,487 5,498,815 3,357,248 17,508,147 Partnership Equity $ 237,508 $ 841,628 $ 2,516,152 $ 3,633,389 $ 1,829,987 $ 9,058,664 Income $ - $ 624,949 $ 1,526,660 $ 1,203,363 $ 732,416 $ 4,087,388 Expenses 91, ,667 1,300,488 1,130, ,364 3,704,465 Net Income (Loss) $ (91,911) $ 13,282 $ 226,172 $ 73,328 $ 162,052 $ 382,923 Note 10 - Short-Term Notes Payable The Trust has an $850,000 variable line of credit through First International Bank & Trust at December 31, The line has a variable interest rate (4.50% at December 31, 2016), interest payments are due monthly, unpaid principal and interest is due April 2017, and the line is secured by a mortgage on property. The Trust did not have an outstanding balance due on the line of credit at. The Trust has a $650,000 variable line of credit through First International Bank & Trust at December 31, The line has a variable interest rate (4.75% at December 31, 2016), interest payments are due monthly, unpaid principal and interest is due April 2017, and the line is secured by a mortgage on property. The Trust did not have an outstanding balance due on the line of credit at. The Trust has a $1,000,000 variable line of credit through American Bank Center at December 31, The line has a variable interest rate (5% at December 31, 2016), interest payments are due monthly, unpaid principal and interest is due December 2017, and the line is unsecured. The Trust did not have an outstanding balance due on the line of credit at. 38

41 Notes to Consolidated Financial Statements The Trust has a $1,000,000 line of credit through Choice Financial Group. The line has an interest rate of 5.25%, interest payments are due monthly, unpaid principal and interest is due January 2018, and the line is secured by a mortgage on property. The Trust did not have an outstanding balance due on the line of credit at December 31, 2016 and The Trust has a $3,000,000 variable line of credit through Western State Bank. The line has a variable interest rate (4.75% at December 31, 2016), interest payments are due monthly, unpaid principal and interest is due October 2017, and the line is secured by a mortgage on property and personal guaranty by George Gaukler. The Trust did not have an outstanding balance due on the line of credit at. Note 11 - Special Assessments Payable At, special assessments payable totaled $3,221,911 and $2,664,450, respectively. Future principal payments related to special assessments payable over the next five years are as follows: Years ending December 31, Amount 2017 $ 174, , , , ,836 Thereafter 2,470,576 $ 3,221,911 39

42 Notes to Consolidated Financial Statements Note 12 - Mortgage Notes Payable Terms on mortgage notes payable outstanding at December 31, 2016 are as follows: Effective Stated Maturity Monthly Interest Interest Rate Date Payment Rate Residential Properties: Wheatland Place 1-4, Wheatland TH 1, Westlake TH 1 (d) 7.10% April 2024 $ 30, % Central Park Apartments (a) 3.78% July , % Eagle Lake Apartments (a) 3.81% August , % Osgood % December , % Cooperative Living Center ( e ) (v) 4.00% May , % Cooperative Living Center ( e ) (v) 3.75% May % WPA 2, LLC (d) 5.60% June , % CAL AM 2, LLC (d) 5.76% April , % Osgood % June , % Country Meadows 4.35% March , % Donegal Apartments 4.84% October , % Washington Heights I 4.01% October , % Urban Meadows 1 & 2 (d) 4.25% December , % Westlake II Townhomes (v) 4.45% April , % Wheatland Townhomes IV 4.00% May , % Hillview Complex 4.13% August , % Century East II and III 4.50% April , % Calgary Century East IV and V 4.26% September , % Century East I 4.50% April , % Urban Meadows % May , % Urban Meadows % September , % Urban Meadows 5 (v) 4.50% October , % Copper Creek 3.95% September , % Hidden Point I 4.25% February , % Hidden Point IV 4.25% July , % Pacific West Premier 3.95% September , % Pacific West Apartments 3.95% September , % Paramount Apartments (b) 4.10% October , % Maple Point I, II, and IV (v) 3.97% March , % Wheatland Townhomes III 4.00% December , % Britain Towne ( c ) 3.80% June , % One Oak Place 4.38% August , % Prairie Springs 3.96% December , % Prairie Village I 4.05% September , % Prairie Village II 4.06% September , % 40

43 Notes to Consolidated Financial Statements Effective Stated Maturity Monthly Interest Interest Rate Date Payment Rate Maple Point III 4.00% February 2021 $ 2, % Hidden Pointe II ( e ) 3.90% October , % Hidden Pointe III ( e ) 3.90% October , % Commercial Properties: Amber Valley Retail (d) 6.02% June 2017 $ 36, % Minot Metro Center 4.00% June , % 1228 Airport Road 4.26% January , % Leevers Building (a) ( e ) 4.35% November , % Shopko Building - ND ( e ) (v) 4.50% March , % Lindquist Square 4.25% December , % Logans on Third 4.26% December , % Tuscany Square 4.26% December , % Century Plaza 4.26% December , % Pioneer Center (a)(b) 3.80% April , % South Broadway Plaza (a) 4.25% July , % AAA Storage (a) 5.25% December , % Shopko Building - MN 4.50% May , % Pizza Ranch Building 4.75% March , % Minot Metro Boot Barn 4.35% June , % TMI Building 4.40% October , % Willow Creek 4.25% July , % D&M Building 4.10% October , % Harmony Plaza 4.16% February , % North Pointe Plaza 4.00% December , % Riverwood Plaza 4.16% February , % Cummins Building - Wis 4.17% April , % Cummins Building - ND 4.17% April , % First Center South 4.10% May , % First Center South 4.10% May , % Eagle Pointe III 3.92% January , % Hastings Warehouse 4.00% February , % River Plaza (v) 4.10% October , % Plymouth 6-61 (v) 4.00% October , % Eagle Pointe II (v) 4.00% October , % Mendota Heights Office Park (v) 4.00% May , % ATD - USPO Warehouse (f) (v) 3.54% July , % Vadnais Square (v) 3.99% August , % Pinehurst West 4.40% November , % Tower Plaza ( e ) (v) 4.00% December , % City West 55 West (v) 3.80% January , % 41

44 Notes to Consolidated Financial Statements Mortgage notes payable consist of: Mortgage Balance Mortgage Balance Mortgage Less Unamortized Mortgage Less Unamortized Balance Loan Costs Balance Loan Costs Residential Properties: Wheatland Place 1-4, Wheatland TH 1, Westlake TH 1 (d) $ 2,111,146 $ 2,111,146 $ 2,323,149 $ 2,323,149 Central Park Apartments (a) 15,675,000 15,488,862 Eagle Lake Apartments (a) 9,956,210 9,842,798 Osgood ,214,801 5,187,975 5,358,314 5,318,075 Cooperative Living Center( e ) 924, , , ,952 Cooperative Living Center( e ) 91,283 91,283 94,927 94,926 WPA 2, LLC (d) 5,258,089 5,191,702 5,348,579 5,268,690 CAL AM 2, LLC (d) 8,299,215 8,214,739 8,439,615 8,334,865 Osgood ,350,305 4,338,220 4,533,527 4,515,138 Country Meadows 3,623,142 3,622,089 3,731,408 3,724,038 Donegal Apartments 16,138,342 15,940,693 16,426,903 16,216,770 Washington Heights I 768, , , ,883 Urban Meadows 1 & 2 (d) 3,884,199 3,877,882 4,047,454 4,034,246 Westlake II Townhomes 1,676,855 1,676,178 1,750,513 1,747,128 Wheatland Townhomes IV 1,780,988 1,780,380 1,861,919 1,858,878 Hillview Complex 1,471,803 1,465,267 1,512,568 1,504,398 Century East II and III 1,818,267 1,814,160 1,892,080 1,884,687 Calgary Century East IV and V 4,850,124 4,834,516 4,980,720 4,955,747 Century East I 909, , , ,450 Urban Meadows 3 2,262,434 2,260,574 2,326,088 2,322,988 Urban Meadows 4 2,133,959 2,132,118 2,191,090 2,188,087 Urban Meadows 5 2,099,771 2,096,428 2,157,385 2,152,880 Copper Creek 4,729,365 4,713,073 4,854,622 4,832,823 Hidden Point I 2,201,320 2,195,362 2,266,591 2,258,080 Hidden Point IV 2,225,052 2,217,915 2,288,308 2,278,787 Pacific West Premier 3,396,123 3,385,238 3,484,734 3,470,168 Pacific West Apartments 3,785,386 3,773,112 3,884,154 3,867,730 Paramount Apartments (b) 10,350,000 10,293,402 4,525,000 4,448,426 Maple Point I, II, and IV 2,204,284 2,196,238 2,264,099 2,252,340 Wheatland Townhomes III 1,133,647 1,125,153 1,162,906 1,151,499 Britain Towne ( c ) 5,746,453 5,691,171 5,844,548 5,787,297 One Oak Place 33,507,588 33,306,961 34,270,024 34,046,023 Prairie Springs 6,304,014 6,203,784 6,435,028 6,317,166 Prairie Village I 4,652,352 4,582,975 4,765,254 4,688,172 Prairie Village II 4,501,807 4,432,968 4,609,741 4,532,659 Maple Point III 549, ,790 Hidden Pointe II ( e ) 2,554,486 2,547,256 Hidden Pointe III ( e ) 2,495,279 2,487,427 42

45 Notes to Consolidated Financial Statements Commercial Properties: Mortgage Balance Mortgage Balance Mortgage Less Unamortized Mortgage Less Unamortized Balance Loan Costs Balance Loan Costs Amber Valley Retail (d) $ 5,709,588 $ 5,705,804 $ 5,800,512 $ 5,785,998 Minot Metro Center 5,468,665 5,454,057 5,691,269 5,666, Airport Road 1,624,746 1,622,385 1,684,084 1,680,936 Leevers Building (a) ( e ) 759, , , ,720 Shopko Building - ND ( e ) 1,237,893 1,217,454 1,279,674 1,255,875 Lindquist Square 643, , , ,312 Logans on Third 1,194,998 1,187,266 1,237,500 1,227,794 Tuscany Square 2,172,717 2,160,600 2,250,000 2,234,789 Century Plaza 1,652,248 1,642,568 1,710,000 1,697,848 Pioneer Center (a)(b) 8,097,187 8,053,208 South Broadway Plaza (a) 587, , , ,276 AAA Storage (a) 930, ,310 1,112,016 1,108,598 Shopko Building - MN 1,533,534 1,529,949 1,603,752 1,599,119 Pizza Ranch Building 551, , , ,447 Minot Metro Boot Barn 1,296,082 1,296,082 1,354,009 1,349,714 TMI Building 5,639,918 5,615,688 5,788,703 5,758,882 Willow Creek 3,205,854 3,190,181 3,336,257 3,324,503 D&M Building 3,054,573 3,028,066 3,134,284 3,098,137 Harmony Plaza 3,147,855 3,133,088 3,229,686 3,207,536 North Pointe Plaza 3,217,938 3,194,704 3,299,016 3,267,815 Riverwood Plaza 5,385,813 5,362,134 5,526,024 5,490,506 Cummins Building - Wis 914, , , ,968 Cummins Building - ND 1,783,089 1,771,252 1,848,769 1,831,450 First Center South 4,874,960 4,852,452 5,000,576 4,968,422 First Center South 2,517,743 2,506,658 2,582,620 2,566,783 Eagle Pointe III 4,236,646 4,173,882 4,346,182 4,275,572 Hastings Warehouse 621, , , ,717 River Plaza 3,331,887 3,302,000 3,411,782 3,378,378 Plymouth ,238,673 3,174,285 3,317,032 3,245,556 Eagle Pointe II 3,911,265 3,840,611 4,005,897 3,927,169 Mendota Heights Office Park 5,547,647 5,448,931 ATD - USPO Warehouse (f) 12,767,689 12,681,689 Vadnais Square 15,330,444 15,157,588 Pinehurst West 8,460,195 8,391,855 Tower Plaza ( e ) 12,262,500 12,203,426 City West 55 West 9,560,250 9,428,718 Notes paid in full 24,099,348 24,078,312 $ 332,106,085 $ 329,575,686 $ 253,235,248 $ 251,314,628 43

46 Notes to Consolidated Financial Statements (a) The Trust refinanced the terms of these loans in (b) Step down revolving mortgage loan that allows for principal to be advanced and paid down multiple times during the term of the loan. (c) The Trust has entered into an agreement with the U.S. Department of Housing and Urban Development (HUD) that contains the following provisions: During the term of the regulatory agreement, the Trust is obligated to make monthly deposits in the amount of $7,000 to a replacement reserve. Disbursements from the reserve are to be used for the replacement of property and other necessary project expenditures and are to be made only with HUD approval. The funds may also be used as payment on the mortgage in the event of default. All distributions to the Trust can be made only after the end of the semiannual or annual fiscal period. Distributions may be made only to the extent sufficient surplus cash is available after payment of all operating expenses, escrow deposits required by HUD, and principal and interest on the HUD-insured mortgage. In the event of a default on the mortgage, all rents, profits, and income of the project are to be assigned to HUD. Under the terms of the regulatory agreement, the Company is required to maintain an account to hold security deposits collected from tenants. This account is required to be separate and apart from all other funds of the project in a trust account and the amount shall be at all times equal to or exceed the aggregate of all outstanding obligations under said account. (d) Mortgage loan secured by a limited personal guarantee of George Gaukler. (e) Mortgage loan secured by a full personal guarantee of George Gaukler. (f) Mortgage loan interest rate tied to a cash flow hedge interest rate swap. (v) Variable rate mortgage note payable. Stated interest rate is rate charged as of December 31, All mortgage notes payable above are secured by a mortgage on property and equipment and an assignment of rents and leases on commercial properties where appropriate in addition to the items (a) through (f) listed above. Long-term debt maturities are as follows: Years ending December 31, 2017 $ 26,489, ,323, ,209, ,397, ,964,687 Thereafter 157,190,294 $ 329,575,686 The Trust has loan agreements containing certain covenants related to, among other matters, the maintenance of debt coverage ratios. As of December 31, 2016, the Trust was in violation of two of these covenants; however, the lenders waived the covenant violation for the year ended December 31,

47 Notes to Consolidated Financial Statements Note 13 - Related Party Transactions Due from Related Party Due from Related Party as of is as follows: Valley Rental Service, Inc. $ 469,033 $ 544,108 George Gaukler - Notes Receivable 2,500,000 2,500,000 8th Street Retail Center, LLC 1,500,000 - $ 4,469,033 $ 3,044,108 Valley Rental Service, Inc., an entity controlled by George Gaukler, President and Trustee of the Trust, is a management company hired by the Trust. Rental payments collected from tenants are deposited in bank accounts in Valley Rental Service, Inc. s name and are subsequently transferred to the Trust throughout the year. Valley Rental Service, Inc. held funds totaling $469,033 and $544,108 that were due to the Trust as of December 31, 2016 and 2015, respectively. Advisory Management Fee The Trust incurred advisory management fees of $1,364,400 and $1,125,590 in 2016 and 2015, respectively, to Dakota REIT Management, LLC. Dakota REIT Management, LLC is partially owned by George Gaukler, President and Trustee of the Trust, and Jim Knutson, Executive Vice President and Trustee of the Trust. Acquisition Fees During 2016 and 2015, the Trust incurred $1,285,125 and $696,938, respectively, to Dakota REIT Management, LLC for acquisition fees relating to the purchase of new properties. Financing Fees During 2016 and 2015, the Trust incurred $259,621 and $197,620, respectively, to Dakota REIT Management, LLC for financing fees related to the financing of mortgage notes payable. UPREIT Fees During 2016 and 2015, the Trust incurred $16,000 and $36,079, respectively, to Dakota REIT Management, LLC for UPREIT fees related to the UPREIT transactions on property acquisitions. 45

48 Notes to Consolidated Financial Statements Notes Receivable During 2014, the Trust loaned $2,500,000 to Dakota Roseland Apartments #9-12, LLLP, an entity partially owned by George Gaukler, for the construction of four, 36 unit residential buildings in Williston, North Dakota. The note receivable has an interest rate of 5% and will be converted to equity when the Trust is approved as a Limited Partner. During 2016 and 2015, the Trust earned interest on the note receivable in the amount of $125,000. The balance of the note receivable was $2,500,000 as of, respectively. There was accrued interest receivable of $31,250 as of. During 2016, the Trust loaned $1,500,000 to 8 th Street Retail Center, LLC, an entity that constructed Azool Plaza, in Moorhead, Minnesota. The building was constructed by Paces Lodging Corporation, which Kevin Christianson a member of the board of trustees, holds a majority ownership. The note receivable has an interest rate of 6%. During 2016, the Trust earned interest on the note receivable in the amount of $9,370. The Trust has an agreement to purchase the Azool Plaza. During 2015, a $1,000,000 note to One Oak Limited Liability Partnership, an entity that constructed One Oak Place, of which George Gaukler was a partner, was paid in full. The note receivable had an interest rate of 7%. During 2015, the Trust earned interest on the note receivable in the amount of $43,438. Investments During 2016, the Trust acquired the Hidden Pointe II apartment complex for a purchase price of $3,450,000 from Valley Realty, Inc., of which George Gaukler holds a majority ownership. The property was appraised at $3,500,000 by a certified independent appraiser. During 2016, the Trust acquired the Hidden Pointe III apartment complex for a purchase price of $3,450,000 from Valley Realty, Inc., of which George Gaukler holds a majority ownership. The property was appraised at $3,500,000 by a certified independent appraiser. During 2015, the Trust acquired One Oak Place and the balance of the Tax Increment Financing (TIF) for a purchase price of $45,700,000 and $1,000,000, respectively, from One Oak Limited Liability Partnership an entity partially owned by George Gaukler, the late Gorman King, Jr., Stan Johnson and Jim Knutson, members of the Board of Trustees. Prior to August 2015, the Trust held a 45% limited partnership interest in One Oak II Limited Liability Partnership which was the limited partner in One Oak Limited Liability Partnership. The equity in One Oak II Limited Liability Partnership was converted to equity in th Avenue South, LLC, a wholly owned subsidiary of The Trust, which purchased One Oak Place. The result of the purchase and conversion of equity was a recognized gain of $2,006,991. The property and the TIF were appraised at $46,200,000 and $1,149,952 respectively, by a certified independent appraiser. During 2015 and 2014, the Trust acquired Copper Creek Condominiums, Britain, LLC and Pacific West Apartments for a combined purchase price of $25,000,000 from entities partially owned by Jerry Slusky. Subsequent to the purchase of these properties Jerry Slusky was elected to the Board of Trustees. The properties were appraised at $25,900,000 by a certified independent appraiser. The Trust holds a 49% limited partner interest in Williston Real Estate Partners, LLC, an entity partially owned by George Gaukler, with an original investment of $1,700,000. During 2016 and 2015, Williston Real Estate Partners distributed $0 and $183,766, respectively to the Trust for return on the investment. See Note 9 Investments in Partnerships for additional information. 46

49 Notes to Consolidated Financial Statements The Trust holds a 50% limited partner interest in Dakota Roseland Apartments I, LLLP, an entity partially owned by George Gaukler, with an original investment of $750,000. During 2016 and 2015, Dakota Roseland Apartments I disbursed $0 and $50,625 respectively to the Trust for return on the investment. See Note 9 Investments in Partnerships for additional information. The Trust holds a 40% limited partner interest in Bakken Heights VIII and X Limited Liability Limited Partnerships, an entity partially owned by George Gaukler, with an original investment of $1,000,000. During 2016 and 2015, Bakken Heights VIII and X Limited Liability Limited Partnerships disbursed $0 and $90,000, respectively, to the Trust for return on the investment. See Note 9 Investments in Partnerships for additional information. The Trust holds a 34% limited partner interest in Bakken Heights V Limited Liability Limited Partnership, an entity partially owned by George Gaukler, with an original investment of $325,000. During 2016 and 2015, Bakken Heights V Limited Liability Limited Partnership disbursed $0 and $21,938, respectively, to the Trust for return on the investment. See Note 9 Investments in Partnerships for additional information. During part of 2015 the Trust held a 45% limited partner interest in One Oak II Limited Liability Partnership with an original investment of $2,500,000. The One Oak II Limited Liability Partnership was the Limited Partner in One Oak LLLP, which constructed One Oak Place in Fargo, North Dakota. One Oak Place was purchased by th Avenue South, LLC, a wholly owned subsidiary of Dakota UPREIT, in August During 2016 and 2015, One Oak II Limited Liability Limited Partnership disbursed $0 and $166,848 respectively to the Trust for return on the investment. See Note 9 Investments in Partnerships for additional information. Property Management Fees During 2016 and 2015, the Trust incurred property management fees of 3 to 5 percent of rents, depending on the property, to Valley Rental Service, an entity controlled by George Gaukler. For the years ended December 31, 2016 and 2015, the Trust paid management fees of $867,979 and $803,307, respectively, to Valley Rental Service. During 2016 and 2015, the Trust incurred property management fees of 4 to 5 percent of rents, depending on the property, to Property Resources Group, an entity in which Kevin Christianson is a principal. The Trust paid management fees of $142,699 and $142,615, respectively, to Property Resources Group for the years ended. During 2016 and 2015, the Trust incurred property management fees of 5 percent of rents to Horizon Real Estate. George Gaukler and Jim Knutson are partial owners of Horizon Real Estate. The Trust paid management fees of $87,070 and $83,402, respectively, to Horizon Real Estate for the years ended. During 2016 and 2015, the Trust incurred property management fees of 2 to 5 percent of rents, depending on the property, to Dakota REIT Management, LLC, an entity in which George Gaukler and Jim Knutson hold an ownership interest. The Trust paid management fees of $169,621 and $155,998, respectively, to Dakota REIT Management, LLC, for the years ended. 47

50 Notes to Consolidated Financial Statements Note 14 - Noncontrolling Interest of Unitholders in Operating Partnerships As of, noncontrolling limited partnership units totaled 6,544,044 and 5,972,627, respectively. During 2016 and 2015, the Trust paid distributions of $4,405,371 and $3,249,571 respectively, to noncontrolling interest limited partners, which were $0.73 and $0.70, respectively, per unit. Note 15 - Beneficial Interest The Trust is authorized to issue 15,000,000 Class A common shares and 5,000,000 Class B common shares with $1 par values, which collectively represent the beneficial interest of the Trust. Holders of Class A shares have the right to vote regarding amendments to the Declaration of Trust, changes to the Bylaws, election of Trustees, liquidation, roll-up transactions, sale of the Trust, and the term of the Trust. Class A shareholders also have the right to demand a special meeting of shareholders. The primary distinction between Class A and Class B shares is that Class B shares do not have the voting rights which Class A shares have. As of, there were 5,787,446 and 5,545,611, respectively, shares of Class A common shares outstanding. As of, there were 1,527,330 and 1,406,000, respectively, shares of Class B common shares outstanding. Distributions paid to holders of beneficial interest were $ 0.73 and $0.70, respectively, per unit for the years ending. Note 16 - Commercial Rental Income Commercial space is rented under long-term operating lease agreements. Minimum future rentals on noncancelable operating leases as of December 31 are as follows: Years ending December 31, Amount 2017 $ 17,595, ,518, ,601, ,888, ,378,240 Thereafter 16,641,872 $ 77,624,327 48

51 Notes to Consolidated Financial Statements Note 17 - Business Combinations The Trust continued to implement its strategy of acquiring properties in desired markets. It is impractical for the Trust to obtain historical financial information on acquired properties and accordingly, proforma statements have not been presented. Purchases During 2016, the Trust purchased a 71,631 square foot commercial building in Mendota Heights, Minnesota. The approximate purchase price of the complex was $7,500,000. During 2016, the Trust purchased a 180,000 square foot industrial warehouse in West Fargo, North Dakota. The approximate purchase price of the complex was $17,200,000. During 2016, the Trust purchased a 123,626 square foot retail complex in Vadnais Heights, Minnesota. The approximate purchase price of the complex was $20,600,000. During 2016, the Trust purchased a 36-unit apartment building in Fargo, North Dakota. The approximate purchase price of the building was $3,450,000. During 2016, the Trust purchased a 36-unit apartment building in Fargo, North Dakota. The approximate purchase price of the building was $3,450,000. During 2016, the Trust purchased a 69,119 square foot retail complex in Bismarck, North Dakota. The approximate purchase price of the complex was $11,300,000. During 2016, the Trust purchased a 51,144 square foot office building in Plymouth, Minnesota. The approximate purchase price of the complex was $5,725,000. During 2016, the Trust purchased a 56,652 square foot office building in Eden Prairie, Minnesota. The approximate purchase price of the complex was $7,000,000. During 2016, the Trust purchased a 103,072 square foot retail complex in Omaha, Nebraska. The approximate purchase price of the complex was $16,350,

52 Notes to Consolidated Financial Statements The following table summarizes the property and equipment acquired and liabilities assumed during the year ended December 31, 2016: Purchase Price Mortgages Consideration Fair Value of Property Assumed Given Mendota Heights $ 7,640,000 $ 7,500,000 $ (5,625,000) $ 1,875,000 ATD-USPS Warehouse 17,300,000 17,200,000 (12,900,000) 4,300,000 Vadnais Square 21,000,000 20,600,000 (15,450,000) 5,150,000 Hidden Pointe II 3,500,000 3,450,000 (2,572,419) 877,581 Hidden Pointe III 3,500,000 3,450,000 (2,518,041) 931,959 Pinehurst West 11,518,000 11,300,000 (8,475,000) 2,825, West Building 5,750,000 5,725,000 (4,310,250) 1,414,750 City West Building 7,100,000 7,000,000 (5,250,000) 1,750,000 Tower Plaza 16,500,000 16,350,000 (12,262,500) 4,087,500 $ 93,808,000 $ 92,575,000 $ (69,363,210) $ 23,211,790 During 2015, the Trust purchased a 168-unit apartment complex in Bellevue, Nebraska. The approximate purchase price of the complex was $8,204,633. During 2015, the Trust purchased a 274-unit apartment building in Fargo, North Dakota. The approximate purchase price of the building was $45,700,000. During 2015, the Trust purchased a 130-unit apartment complex in Aberdeen, South Dakota. The approximate purchase price of the complex was $10,315,000. During 2015, the Trust purchased a 152-unit apartment complex in Aberdeen, South Dakota. The approximate purchase price of the complex was $12,585,000. During 2015, the Trust purchased a 38,713 square foot commercial building in Sioux Falls, South Dakota. The approximate purchase price of the building was $4,500,000. During 2015, the Trust purchased a 45,362 square foot commercial building in Plymouth, Minnesota. The approximate purchase price of the building was $4,400,000. During 2015, the Trust purchased a 30,581 square foot commercial building in Lake Elmo, Minnesota. The approximate purchase price of the building was $5,350,

53 Notes to Consolidated Financial Statements The following table summarizes the property and equipment acquired and liabilities assumed during the year ended December 31, 2015: Purchase Price Mortgages Consideration Fair Value of Property Assumed Given Britain Towne $ 8,500,000 $ 8,204,633 $ (5,938,991) $ 2,265,642 One Oak Place 46,200,000 45,700,000 (34,500,000) 11,200,000 Prairie Springs 10,375,000 10,315,000 (6,477,540) 3,837,460 Prairie Village 12,780,000 12,585,000 (9,427,500) 3,157,500 River Plaza 5,370,000 4,500,000 (3,427,500) 1,072,500 Plymouth ,500,000 4,400,000 (3,322,500) 1,077,500 Eagle Point II 5,350,000 5,350,000 (4,012,500) 1,337,500 $ 93,075,000 $ 91,054,633 $ (67,106,531) $ 23,948,102 Note 18 - Commitments and Contingencies Environmental Matters Federal law (and the laws of some states in which the Trust may acquire properties) imposes liability on a landowner for the presence on the premises of hazardous substances or wastes (as defined by present and future federal and state laws and regulations). This liability is without regard to fault or knowledge of the presence of such substances and may be imposed jointly and severally upon all succeeding landowners. If such hazardous substance is discovered on a property acquired by the Trust, the Trust could incur liability for the removal of the substances and the cleanup of the property. There can be no assurance that the Trust would have effective remedies against prior owners of the property. In addition, the Trust may be liable to tenants and may find it difficult or impossible to sell the property either prior to or following such a cleanup. Risk of Uninsured Property Losses The Trust maintains property damage, fire loss, and liability insurance. However, there are certain types of losses (generally of a catastrophic nature), which may be either uninsurable or not economically insurable. Such excluded risks may include war, earthquakes, tornados, certain environmental hazards, and floods. Should such events occur, (i) the Trust might suffer a loss of capital invested, (ii) tenants may suffer losses and may be unable to pay rent for the spaces, and (iii) the Trust may suffer a loss of profits which might be anticipated from one or more properties. 51

54 Notes to Consolidated Financial Statements Note 19 - Subsequent Events Subsequent to year-end, the Trust declared a dividend to be paid at $0.19 per share for shareholders of record on December 31, Subsequent to year-end, the Trust purchased an 114,102 square foot retail complex in Bismarck, North Dakota, for $19,200,000. The Trust assumed long-term debt of $14,400,000 and paid $4,800,000 in cash for the balance of the purchase. Subsequent to year-end, the Trust purchased a 44,498 square foot retail complex in Moorhead, Minnesota, for $9,435,000. The Trust assumed long-term debt of $7,076,250, issued 57,157 limited partnership units and paid $1,507,108 in cash for the balance of the purchase. Subsequent to year-end, the Trust signed a $2,000,000 unsecured line of credit but did not draw any funds. Subsequent to year-end, the Trust extended the maturity date to June 2017 on the note for Country Meadows which came due in March 2017, with all remaining terms and covenants the same. The extension of the maturity date was to provide additional time to evaluate financing options. Subsequent to year-end, the $2,500,000 loan to Dakota Roseland Apartments #9-12, LLLP, an entity partially owned by George Gaukler, was converted to an equity position of approximately 39% of Dakota Roseland Apartments #9-12, LLLP. 52

55 Supplementary Information Dakota Real Estate Investment Trust 53

56 Consolidated Schedules of Funds from Operations Years Ended Funds from Operations * Net Income before Noncontrolling Interest $ 7,075,684 $ 10,246,630 Plus Depreciation 9,184,507 7,314,194 Plus Amortization of Debt Issuance Costs 411, ,707 Plus Distributions from Investment Partnerships - 513,177 Less Gain on sale of Property (686,441) Less noncash portion of Loss (Income) from Equity Investments 714,881 (303,476) Plus Net Loss (Less Net Gain) on Acquisitions 120,397 (3,444,294) Funds from Operations (FFO) $ 16,820,369 $ 14,666,938 FFO per REIT Share/UPREIT Unit (on annual basis) $ 1.26 $ 1.23 Share Price ($14.00 for 01/01/ /30/2016 and $14.90 for 07/01/2016 to 12/31/2016 $11.50 for 01/01/2015 to 06/30/15 and $14.00 for 07/01/2015 to 12/31/2015) FFO Ratio (on annual basis) Weighted Average Shares 13,346,269 11,913,298 * Funds from operations (FFO) are a supplemental non-gaap financial measurement used as a standard in the real estate industry to measure and compare the operating performance of real estate companies. The Price/FFO Ratio is similar to the Price-Earnings (P-E) ratio. 54

57 MISSION STATEMENT The mission of The Dakota REIT is to consistently meet shareholder investment performance expectations by investing in quality real estate that will allow for attractive dividend payments and increased long-term share value. Goals Investment in a diversified real estate portfolio of approximately 51% or greater in multifamily residential and the balance being commercial retail, office, and warehouse space. Maximize return on investment potential by leveraging up to 75% loan to value of overall investments. Underwrite properties with allowances for vacancy, replacement reserves and professional management that are appropriate for the types of property being purchased. Invest in properties that provided cash flow adequate to pay dividends and allow for long-term capital investment gains through principal payback and property appreciation. Pay dividends that return a rate greater than a five-year certificate of deposit. 55

Copyright 1997 by Dakota Real Estate Investment Trust. 3003 32nd Avenue South Fargo, ND 58103 Phone 701-239-6879 Fax 701-239-3317 www.dakotareit.

58 Copyright 1997 by Dakota Real Estate Investment Trust nd Avenue South Fargo, ND Phone Fax This material constitutes neither an offer to sell nor solicitation of an offer to buy the securities described herein. Shares can only be purchased after receiving and reviewing the Prospectus.

19th ANNUAL REPORT TO THE SHAREHOLDERS

19th ANNUAL REPORT TO THE SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2015 DAKOTA REIT BOARD OF TRUSTEES EXECUTIVE OFFICERS Ray Braun Kevin Christianson * Brad Fay * George Gaukler Joe Hauer * Ken Heen