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Section 1: 10-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended       September 30, 2017
 
[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period                                           to                                          

 

Commission File Number: 001-33177

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland   22-1897375
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

3499 Route 9 North, Suite 3-D, Freehold, NJ 07728

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (732)-577-9996

 

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value per share – New York Stock Exchange

 

6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, $25 liquidation value per share – New York Stock Exchange

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X] Yes [No]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes [X] No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

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

[X] Yes [  ] No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( § 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

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

 

  Large accelerated filer [X] Accelerated filer [  ]  
  Non-accelerated filer [  ] Smaller reporting company [  ]  
      Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [  ] No [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

 

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates of the registrant at March 31, 2017 was approximately $980,786,000 (based on the $14.27 closing price per share of common stock on March 31, 2017).

 

There were 76,568,948 shares of common stock outstanding as of November 15, 2017.

 

Documents Incorporated by Reference: None.

 

 

 

 
 

 

TABLE OF CONTENTS

 

Item No.

 

Page No.

  Part I  
1 Business. 3
1A Risk Factors. 9
1B Unresolved Staff Comments. 17
2 Properties. 18
3 Legal Proceedings. 26
4 Mine Safety Disclosures. 26
     
  Part II  
5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

27

6 Selected Financial Data. 30
7 Management’s Discussion and Analysis of Financial Condition and Results of Operations. 32
7A Quantitative and Qualitative Disclosures About Market Risk. 59
8 Financial Statements and Supplementary Data. 61
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 62
9A Controls and Procedures. 62
9B Other Information. 63
     
  Part III  
10 Directors, Executive Officers and Corporate Governance. 64
11 Executive Compensation. 69
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 90
13 Certain Relationships and Related Transactions, and Director Independence. 92
14 Principal Accountant Fees and Services. 93
     
  Part IV  
15 Exhibits, Financial Statement Schedules. 95
     
  Signatures 154

 

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PART I

 

ITEM 1 – BUSINESS

 

General Development of the Business

 

In this 10-K, “we”, “us”, “our”, “MREIC” or “the Company”, refers to Monmouth Real Estate Investment Corporation, together with its predecessors and subsidiaries, unless the context requires otherwise.

 

The Company is a corporation operating as a qualified real estate investment trust (REIT) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the Code). The Company has been a REIT since 1969 and intends to maintain its qualification as a REIT in the future. As a qualified REIT, with limited exceptions, the Company will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that it distributes to its shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code.

 

The Company was established in 1968 as a New Jersey Business Trust (NJBT). In 1990, the NJBT merged into a newly formed Delaware corporation. On May 15, 2003, the Company changed its state of incorporation from Delaware to Maryland by merging with and into a Maryland corporation (the Reincorporation).

 

Narrative Description of Business

 

The Company’s primary business is the ownership of real estate. Its investment focus is to own well-located, modern, single tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net leases. In addition, the Company owns a portfolio of REIT investment securities which the Company generally limits to no more than approximately 10% of its undepreciated assets (which is the Company’s total assets excluding accumulated depreciation).

 

At September 30, 2017, the Company held investments in 108 properties totaling approximately 18,790,000 square feet with an occupancy rate of 99.3% (See Item 2 for a detailed description of the properties). These properties are located in 30 states: Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin. All of these properties are wholly-owned with the exception of the two properties in New Jersey in which the Company owns a majority interest. All properties in which the Company has investments are leased on a net basis except an industrial park in Monaca (Pittsburgh), Pennsylvania and the shopping center located in Somerset, New Jersey.

 

During fiscal 2017, the Company purchased 10 industrial properties totaling approximately 2,784,000 square feet with net-leased terms ranging from seven to fifteen years resulting in a weighted average lease maturity of 13.4 years. Approximately 1,840,000 square feet, or 66%, is leased to FedEx Ground Package System, Inc., a subsidiary of FedEx Corporation (FDX). The aggregate purchase price for the 10 properties was approximately $286,521,000 and they are located in Florida, Michigan, North Carolina, New York, Ohio, Oklahoma, South Carolina and Texas. These 10 properties generate annualized rental income over the life of their leases of approximately $18,953,000. In connection with the 10 properties acquired during the 2017 fiscal year, the Company entered into nine, fifteen-year, fully-amortizing mortgage loans and one twelve-year, fully-amortizing loan. The 10 mortgage loans originally totaled $188,809,000 with an original weighted average loan maturity of 14.9 years and a weighted average interest rate of 3.90%.

 

Subsequent to fiscal yearend, on October 2, 2017, the Company’s Board of Directors approved a 6.25% increase in the Company’s quarterly common stock dividend, raising it to $0.17 per share from $0.16 per share. This represents an annualized dividend rate of $0.68 per share. The Company has maintained or increased its cash dividend for 26 consecutive years.

 

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Subsequent to fiscal yearend, on November 2, 2017, the Company purchased a newly constructed 121,683 square foot industrial building, situated on 16.2 acres, located in Charleston, SC. The building is 100% net-leased to FDX for 15 years through August 2032. The purchase price was $21,872,170. The Company obtained a 15 year fully-amortizing mortgage loan of $14,200,000 at a fixed interest rate of 4.23%. Annual rental revenue over the remaining term of the lease averages approximately $1,312,000.

 

Subsequent to fiscal yearend, on November 1, 2017, the Company leased its previously vacant 36,270 square foot facility located in Urbandale (Des Moines), IA for 10.2 years.

 

The industrial properties purchased, leased and expanded during fiscal 2018 to date increased our current total leasable square feet to approximately 18,912,000 and increased our occupancy rate to 99.5%.

 

In addition to the property purchased subsequent to the fiscal yearend, as described above, the Company has entered into agreements to purchase three new build-to-suit, industrial buildings that are currently being developed in Florida, Georgia and Oklahoma, consisting of approximately 1,531,000 square feet, with net-leased terms of 10 years each. The purchase price for these properties is approximately $117,437,000. Approximately 1,132,000 square feet, or 74%, is leased to an investment grade tenant or its subsidiary. Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing these transactions during fiscal 2018. In connection with the three properties, the Company has entered into commitments to obtain three mortgages totaling $72,400,000 at fixed rates ranging from 3.53% to 4.25%, with a weighted average interest rate of 3.75% and with a weighted average maturity of 13.2 years. The Company may make additional acquisitions in fiscal 2018 and fiscal 2019, and the funds for these acquisitions may come from funds generated from operations, mortgages, draws on our unsecured line of credit facility, cash on hand, sale of marketable securities, other bank borrowings, proceeds from the Dividend Reinvestment and Stock Purchase Plan (DRIP), proceeds from the At-The-Market Preferred Equity Program (Preferred Stock ATM Program), and proceeds from private placements and public offerings of additional common or preferred stock or other securities. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.

 

Currently, the Company derives its income primarily from real estate rental operations. Rental and Reimbursement Revenue (excluding Lease Termination Income in fiscal 2017, 2016 and 2015 of $-0-, $-0- and $238,625, respectively) was $113,545,982, $94,916,110 and $77,775,497 for the years ended September 30, 2017, 2016 and 2015, respectively. Total undepreciated assets (which is the Company’s total assets excluding accumulated depreciation) were $1,615,768,028 and $1,367,982,470 as of September 30, 2017 and 2016, respectively.

 

As of September 30, 2017, the Company had approximately 18,790,000 square feet of property, of which approximately 9,391,000 square feet, or 50%, consisting of 58 separate stand-alone leases, were leased to FDX and its subsidiaries (7% to FDX and 43% to FDX subsidiaries). These properties are located in 24 different states. As of September 30, 2017, the only tenants that leased 5% or more of the Company’s total square footage were FDX and its subsidiaries and Milwaukee Electric Tool Corporation, which leased approximately 862,000 square feet, comprising approximately 5% of the Company’s rental space.

 

During fiscal 2017, the only tenant that accounted for 5% or more of the Company’s rental and reimbursement revenue was FDX (including its subsidiaries). The Company’s rental and reimbursement revenue from FDX and its subsidiaries for the fiscal years ended September 30, 2017, 2016 and 2015, respectively, totaled approximately $68,151,000, $52,793,000 and $41,954,000, or 60% (7% from FDX and 53% from FDX subsidiaries), 56% (7% from FDX and 49% from FDX subsidiaries) and 54% (8% from FDX and 46% from FDX subsidiaries), of total rent and reimbursement revenues.

 

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FDX is a publicly-owned company and financial information related to this entity is available at the SEC’s website, www.sec.gov. FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include or incorporate by reference into this report the information of FDX, S&P Global Ratings or Moody’s on such websites.

 

In addition to real estate property holdings, the Company held $123,764,770 in marketable REIT securities at September 30, 2017, representing 7.7% of the Company’s undepreciated assets (which is the Company’s total assets excluding accumulated depreciation). These liquid real estate holdings are not included in calculating the tenant concentration ratios above and therefore further enhance the Company’s diversification. The securities portfolio provides the Company with additional diversification, liquidity, and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not available.

 

The Company’s weighted-average lease expiration was 7.9 and 7.4 years as of September 30, 2017 and 2016, respectively, and its average annualized rent per occupied square foot as of September 30, 2017 and 2016 was $5.93 and $5.72, respectively. The Company’s occupancy rate as of September 30, 2017 and 2016 was 99.3% and 99.6%, respectively. Subsequent to fiscal yearend, on November 1, 2017, the Company leased its previously vacant 36,270 square foot facility located in Urbandale (Des Moines), IA for 10.2 years which increased our current occupancy rate to 99.5%. In addition, the Company is under contract to sell its only currently vacant building located in Ft. Myers, FL, for $6,400,000.

 

The Company competes with other investors in real estate for attractive investment opportunities. These investors include other equity real estate investment trusts, limited partnerships, syndications and private investors, among others. Competition in the market areas in which the Company operates is significant and affects the Company’s ability to acquire or expand properties, occupancy levels, rental rates, and operating expenses of certain properties. Management has built long-term relationships within the merchant builder community which have historically provided the Company with investment opportunities that fit the Company’s investment policy. The amount of new construction of industrial properties on the national level has been increasing the past five years following several years of historically low levels of new supply. These levels of new supply, although increasing, continue to be below historical norms. Driven to a large extent by the continued growth in ecommerce sales, demand for industrial space remains very strong, driving national occupancy rates to an all-time high of 95% currently. For further discussion of potential impact of competitive conditions on our business, see Item 1A: Risk Factors below.

 

The Company continues to invest in marketable securities of other REITs, which the Company generally limits to no more than approximately 10% of its undepreciated assets (which is the Company’s total assets excluding accumulated depreciation). The Company’s investments in equity securities of other REITs provides the Company with additional diversification, liquidity, and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The Company from time to time may purchase these securities on margin when the interest and dividend yields exceed the cost of funds. In general, the Company may borrow up to 50% of the value of the marketable securities, which was $123,764,770 as of September 30, 2017. As of September 30, 2017, the Company had borrowings of $10,091,417 under its margin line, bearing interest at 2.05%. As of September 30, 2016, there were no draws against the margin. The REIT securities portfolio, to the extent not pledged to secure borrowings, provides the Company with additional liquidity and additional income. Such securities are subject to risks arising from adverse changes in market rates and prices, primarily market price risk relating to equity securities and interest rate risk relating to debt securities. From time to time, the Company may use derivative instruments to mitigate interest rate risk, however, this has not occurred during any periods presented. At September 30, 2017 and 2016, the Company had $123,764,770 and $73,604,894, respectively, of securities available for sale. The unrealized net gain on securities available for sale at September 30, 2017 and 2016 was $6,570,565 and $12,942,267, respectively, resulting in a decrease for the fiscal year of $6,371,702. For the fiscal years ended September 30, 2017, 2016 and 2015, the Company’s net realized gains from the sale of securities were $2,311,714, $4,398,599 and $805,513, respectively.

 

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The Company redeemed all of the 2,139,750 outstanding shares of the 7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (7.625% Series A Preferred Stock), on October 14, 2016, at a redemption price of $25.00 per share, totaling $53,493,750, plus all dividends, in the amount of $498,540, which were accrued and unpaid, up to and including the redemption date. The redemption price for the 7.625% Series A Preferred Stock, including its related accumulated and unpaid dividends, was paid with a portion of the net proceeds from the Company’s issuance on September 13, 2016 of 5,400,000 shares of its 6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125% Preferred Stock) at an offering price and liquidation preference of $25.00 per share in an underwritten public offering. The Company recognized a deemed dividend of $2,942,149 on the Consolidated Statement of Income for the fiscal year ended September 30, 2016, which represents the difference between redemption value and carrying value net of original deferred issuance costs.

 

The Company redeemed all of the 2,300,000 outstanding shares of the 7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (7.875% Series B Preferred Stock) on June 7, 2017, at a redemption price of $25.00 per share, totaling $57,500,000, plus accumulated and unpaid dividends for the period from June 1, 2017 up to and not including, the redemption date, in an amount equal to $0.0328125, totaling $75,469, for a total cash payment of $25.0328125 per share, totaling $57,575,469. The Company recognized a deemed dividend of $2,467,165 on the Consolidated Statement of Income for the fiscal year ended September 30, 2017, which represents the difference between redemption value and carrying value net of original deferred issuance costs.

 

On March 9, 2017, the Company issued an additional 3,000,000 shares of its 6.125% Series C Preferred Stock at a public offering price of $24.50 per share, for gross proceeds of $73,500,000 before deducting the underwriting discount and offering expenses. Net proceeds from the offering, after deducting underwriting discounts and other offering expenses, were approximately $71,003,000. On June 7, 2017, the Company used a portion of the net proceeds from this offering to redeem all of the outstanding shares of its 7.875% Series B Preferred Stock, including its related accumulated and unpaid dividends, as discussed above. The remaining proceeds were used to purchase properties in the ordinary course of business and for general corporate purposes.

 

On June 29, 2017, the Company entered into the Preferred Stock ATM Program with FBR Capital Markets & Co. in which the Company may, from time to time, offer and sell additional shares of its 6.125% Series C Preferred Stock, with a liquidation preference of $25.00 per share, having an aggregate sales price of up to $100,000,000. The Company began selling shares through the Preferred Stock ATM Program on July 3, 2017. As of September 30, 2017, the Company sold 1,439,445 shares under its Preferred Stock ATM Program at a weighted average price of $25.31 per share, and generated net proceeds, after offering expenses, of approximately $35,730,000.

 

As of September 30, 2017, 9,839,445 shares of the 6.125% Series C Preferred Stock were issued and outstanding.

 

Subsequent to fiscal yearend to date, the Company sold 820,290 shares under its Preferred Stock ATM Program at a weighted average price of $25.14 per share, and generated net proceeds, after offering expenses, of approximately $20,296,000.

 

Investment and Other Policies

 

The Company’s investment policy is to concentrate its investments in well-located, modern, single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net leases. The Company’s strategy is to obtain a favorable yield spread between the income from the net-leased industrial properties and interest costs. In addition, management believes that investments in well-located, modern industrial properties provide a potential for long-term capital appreciation. There is the risk that, upon expiration of leases, the properties will become vacant or will be re-leased at lower rents. The results obtained by the Company from re-leasing the properties will depend on the market for industrial properties at that time.

 

In fiscal 2017, approximately 10% of our gross leasable area, representing 13 leases totaling 1,539,526 square feet, was set to expire. The Company has renewed 12 of these 13 leases that were set to expire. One of the 12 leases, (which is with FedEx Ground Package System, Inc. for a property located in Ft. Myers, FL), renewed for only eight months because the tenant moved its operations from our 87,500 square foot facility to our newly constructed facility, which is also located in Ft. Myers, FL. The Company purchased the new facility, consisting of 213,672 square feet on December 30, 2016 and this new facility is leased for 10 years. On September 1, 2017, a parking lot expansion for this property was completed for a cost of approximately $862,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2026 to August 2027. The original Ft. Myers, FL facility is under contract to sell for approximately $6,400,000, which is approximately $2,400,000 above the Company’s U.S. GAAP net book carrying value.

 

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Excluding the eight-month lease renewal at the original Ft. Myers, FL location, the 11 leases that have renewed during fiscal 2017 represent 1,415,756 square feet, or 92% of the expiring square footage and represent 5.7% of the space up for renewal in fiscal 2017. These 11 lease renewals resulted in a weighted average term of 6.8 years and a U.S. GAAP straight-line weighted average lease rate of $5.70 per square foot. The weighted average initial cash rent per square foot is $5.59. This compares to the former weighted average rent of $5.73 per square foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $5.82 per square foot, representing a decrease in the weighted average lease rate of 0.5% on a U.S. GAAP straight-line basis and a decrease in the weighted average lease rate of 4.0% on a cash basis.

 

The one property subject to a lease that expired in fiscal 2017 and was not renewed was our 36,270 square foot facility located in Urbandale (Des Moines), IA. Effective November 1, 2017, the Company entered into a 10.2 year lease agreement with a new tenant for this facility. The lease agreement provides for two months of free rent, after which initial annual rent of $159,588, representing $4.40 per square foot, will commence, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of approximately $172,000, representing $4.74 per square foot over the life of the lease. This compares to the former average straight-lined rent of $3.56 per square foot on a U.S. GAAP straight-line basis and the former cash rent of $3.88 per square foot, representing an increase in the average lease rate of 33.1% on a U.S. GAAP straight-line basis and an increase in the lease rate of 13.4% on a cash basis.

 

The Company seeks to invest in well-located, modern, single tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net leases. In management’s opinion, the newly built facilities meet these criteria. The Company has a concentration of properties leased to FDX and FDX subsidiaries. This is a risk that shareholders should consider. FDX is a publicly-owned company and financial information related to this entity is available at the SEC’s website, www.sec.gov. FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include or incorporate by reference into this report the information of FDX, S&P Global Ratings or Moody’s on such websites.

 

The Company may issue securities for property; however, this has not occurred to date. The Company may repurchase or reacquire its shares from time to time if, in the opinion of the Board of Directors, such acquisition is advantageous to the Company. No shares were repurchased or reacquired during fiscal 2017 and, as of September 30, 2017, the Company does not own any of its own shares.

 

Property Management

 

Currently, all 108 properties owned by the Company, with the exception of three properties that are located in Stow, Ohio, Streetsboro, Ohio and Carlstadt, New Jersey, are self-managed by the Company.

 

The Company paid fees directly to local property management subagents in the amount of $393,622, $356,316 and $306,487 for fiscal years ended September 30, 2017, 2016 and 2015, respectively.

 

The Company’s industrial properties in Stow, Ohio and Streetsboro, Ohio are managed by GEIS Companies (GEIS). Management fees paid to GEIS for the fiscal years ended September 30, 2017, 2016 and 2015 were $52,358, $50,082 and $50,112, respectively. These management fees were reimbursed to the Company by the tenants.

 

The Company’s industrial property in Carlstadt, New Jersey is owned by Palmer Terrace Realty Associates, LLC. The Company owns 51% of Palmer Terrace Realty Associates, LLC. This property is managed by Marcus Associates, an entity affiliated with the owner of the 49% non-controlling interest. Management fees paid by Palmer Terrace Realty Associates, LLC to Marcus Associates were $15,804 for each of the fiscal years ended September 30, 2017, 2016 and 2015.

 

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Environmental Matters

 

Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. Although generally our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of a tenant of such premises to satisfy any obligations with respect to such environmental liability, the Company may be required to satisfy such obligations. In addition, as the owner of such properties, the Company may be held directly liable for any such damages or claims irrespective of the provisions of any lease.

 

From time to time, in connection with managing the properties or upon acquisition of a property, the Company authorizes the preparation of Phase I and, when necessary, Phase II environmental reports with respect to its properties. Based upon such environmental reports and the Company’s ongoing review of its properties, as of the date of this Annual Report, the Company is not aware of any environmental condition with respect to any of its properties which it believes would be reasonably likely to have a material adverse effect on its financial condition and/or results of operations. There can be no assurance, however, that (1) the discovery of environmental conditions, the existence or severity of which were previously unknown; (2) changes in law; (3) the conduct of tenants; or (4) activities relating to properties in the vicinity of our properties, will not expose the Company to material liability in the future.

 

Contact Information

 

Additional information about the Company can be found on the Company’s website which is located at www.mreic.reit. Information contained on or hyperlinked from our Website is not incorporated by reference into and should not be considered part of this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission (SEC). The Company makes available, free of charge, on or through its website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You can also read and copy any materials the Company files with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

Segment Reporting & Financial Information

 

The Company’s primary business is the ownership and management of real estate properties. The Company invests in well-located, modern, single tenant, industrial buildings leased primarily to investment-grade tenants or their subsidiaries on long-term net leases. The Company reviews operating and financial information for each property on an individual basis and, therefore, each property represents an individual operating segment. The Company evaluates financial performance using Net Operating Income (NOI) from property operations. NOI is a non-GAAP financial measure, which we define as recurring Rental and Reimbursement Revenue, less Real Estate Taxes and Operating Expenses, such as insurance, utilities and repairs and maintenance. The Company has aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated as industrial properties subject to long-term net leases primarily to investment-grade tenants or their subsidiaries. For required financial information related to our operations and assets, please refer to our consolidated financial statements, including the notes thereto, included in Item 8 “Financial Statements and Supplementary Data” in this Annual Report.

 

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ITEM 1A – RISK FACTORS

 

The following risk factors address the material risks concerning our business. If any of the risks discussed in this report were to occur, our business, prospects, financial condition, results of operation and our ability to service our debt and make distributions to our shareholders could be materially and adversely affected and the market price per share of our stock could decline significantly. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”

 

Real Estate Industry Risks

 

Our business and financial results are affected by local real estate conditions in areas where we own properties. We may be affected adversely by general economic conditions and local real estate conditions. For example, an oversupply of industrial properties in a local area or a decline in the attractiveness of our properties to tenants and potential tenants could have a negative effect on us.

 

Other factors that may affect general economic conditions or local real estate conditions include but are not limited to:

 

  population and demographic trends;
     
  employment and personal income trends;
     
  zoning, use and other regulatory restrictions;
     
  income tax laws;
     
  changes in interest rates and availability and costs of financing; and
     
  competition from other available real estate.

 

We may be unable to compete with our larger competitors and other alternatives available to tenants or potential tenants of our properties. The real estate business is highly competitive. We compete for properties with other real estate investors and purchasers, including other real estate investment trusts, limited partnerships, syndications and private investors, some of whom may have greater financial resources, revenues and geographical diversity than we have. Furthermore, we compete for tenants with other property owners. All of our industrial properties are subject to significant local competition. We also compete with a wide variety of institutions and other investors for capital funds necessary to support our investment activities and asset growth. To the extent that we are unable to effectively compete in the marketplace, our business may be adversely affected.

 

We are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private litigants. Future legislation may impose additional requirements. We may incur additional costs to comply with any future requirements.

 

Our investments are concentrated in the industrial distribution sector and our business would be adversely affected by an economic downturn in that sector. Our investments in real estate assets are primarily concentrated in the industrial distribution sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included a more significant portion of other sectors of the real estate industry.

 

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Risks Associated with Our Properties

 

We may be unable to renew or extend leases or re-let space as leases expire. While we seek to invest in well-located, modern, single tenant, industrial buildings, leased to investment-grade tenants or their subsidiaries on long-term net leases, a number of our properties are subject to short-term leases. When a lease expires, a tenant may elect not to renew or extend it. We may not be able to re-let the property on similar terms, if we are able to re-let the property at all. The terms of renewal, extension or re-lease (including the cost of required renovations and/or concessions to tenants) may be less favorable to us than the prior lease. If we are unable to re-let all or a substantial portion of our properties, or if the rental rates upon such re-letting are significantly lower than expected rates, our cash generated before debt repayments and capital expenditures and our ability to make expected distributions, may be adversely affected. We have established an annual budget for renovation and re-letting expenses that we believe is reasonable in light of each property’s operating history and local market characteristics. However, this budget may not be sufficient to cover these expenses.

 

Our business is substantially dependent on FedEx Corporation. FDX, together with its subsidiaries, is our largest tenant, consisting of 58 separate stand-alone leases located in 24 different states as of September 30, 2017. As of September 30, 2017, the Company had approximately 18,790,000 square feet of property, of which approximately 9,391,000 square feet, or 50%, were leased to FDX and its subsidiaries (7% from FDX and 43% from FDX subsidiaries). Rental and reimbursement revenue from FDX and its subsidiaries is approximately 60% (7% from FDX and 53% from FDX subsidiaries) of total rental and reimbursement revenue for fiscal 2017. No other tenant accounted for 5% or more of the Company’s total Rental and Reimbursement revenue for fiscal 2017. As a result of this concentration, our business, financial condition and results of operations, including the amount of cash available for distribution to our stockholders, could be adversely affected if we are unable to do business with FDX or FDX reduces its business with us or FDX and its subsidiaries were to become unable to make lease payments because of a downturn in its business or otherwise.

 

FDX is a publicly-owned company and financial information related to this entity is available at the SEC’s website, www.sec.gov. FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include or incorporate by reference into this report the information of FDX, S&P Global Ratings or Moody’s on such websites.

 

We are subject to risks involved in single tenant leases. We focus our acquisition activities on real properties that are net-leased to single tenants. Therefore, the financial failure of, or other default by, a single tenant under its lease is likely to cause a significant reduction in the operating cash flow generated by the property leased to that tenant and might decrease the value of that property. In addition, we will be responsible for 100% of the operating costs following a vacancy at a single tenant building.

 

We may be affected negatively by tenant financial difficulties and leasing delays. At any time, a tenant may experience a downturn in its business that may weaken its financial condition. Similarly, a general decline in the economy may result in a decline in the demand for space at our industrial properties. As a result, our tenants may delay lease commencement, fail to make rental payments when due, or declare bankruptcy. Any such event could result in the termination of that tenant’s lease and losses to us.

 

We receive a substantial portion of our income as rents under long-term leases. If tenants are unable to comply with the terms of their leases because of rising costs or falling revenues, we, in our sole discretion, may deem it advisable to modify lease terms to allow tenants to pay a lower rental rate or a smaller share of operating costs, taxes and insurance. If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to the tenant. We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises. If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant. A tenant’s default on its obligations to us for any reason could adversely affect our financial condition and the cash we have available for distribution.

 

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We may be unable to sell properties when appropriate because real estate investments are illiquid. Real estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly in response to changes in economic or other conditions. In addition, the Code may limit our ability to sell our properties. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service debt and make distributions to our shareholders.

 

Environmental liabilities could affect our profitability. We face possible environmental liabilities. Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed on, or released from, the property. A conveyance of the property, therefore, does not relieve the owner or operator from liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean up hazardous substances released at or from the properties we currently own or operate or have in the past owned or operated. We may also beliable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as collateral. We are not aware of any environmental liabilities relating to our investment properties which would have a material adverse effect on our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise in the future and that such liabilities will not have a material adverse effect on our business, assets or results of operation.

 

Actions by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties. We compete with other owners and operators of real estate, some of which own properties similar to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, cash flow and cash available for distribution, the market price of our preferred and common stock and our ability to satisfy our debt service obligations could be materially and adversely affected.

 

Coverage under our existing insurance policies may be inadequate to cover losses. Weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can harm our business operations. We generally maintain insurance policies related to our business, including casualty, general liability and other policies, covering our business operations, employees and assets. However, we would be required to bear all losses that are not adequately covered by insurance. In addition, there are certain losses that are not generally insured because it is not economically feasible to insure against them, including losses due to riots or acts of war. If an uninsured loss or a loss in excess of insured limits were to occur with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated future revenue from the properties and, in the case of debt, which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Although we believe that our insurance programs are adequate, we cannot assure you that we will not incur losses in excess of our insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable costs.

 

We may be unable to acquire properties on advantageous terms or acquisitions may not perform as we expect. We have acquired individual properties and intend to continue to do so. However, we may be unable to acquire any of the properties that we may identify as potential acquisition opportunities in the future. Our acquisition activities and their success are subject to the following risks:

 

when we are able to locate a desired property, competition from other real estate investors may significantly increase the purchase price;
   
acquired properties may fail to perform as expected;
   
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
   
acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures;
   
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result, our results of operations and financial condition could be adversely affected; and
   
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, to the seller. As a result, if a claim were asserted against us based upon ownership of those properties, we might have to pay substantial sums to resolve it, which could adversely affect our cash flow and financial condition.

 

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Financing Risks

 

We face inherent risks associated with our debt incurrence. We finance a portion of our investments in properties and marketable securities through the incurrence of debt. We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. In addition, debt creates other risks, including:

 

rising interest rates on our variable rate debt;
   
inability to repay or refinance existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms;
   
one or more lenders under our $200 million unsecured line of credit could refuse to fund their financing commitment to us or could fail, and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all;
   
refinancing terms that are less favorable than the terms of existing debt; and
   
inability to meet required payments of principal and/or interest.

 

We mortgage our properties, which subjects us to the risk of foreclosure in the event of non-payment. We mortgage many of our properties to secure payment of indebtedness and, if we are unable to meet mortgage payments, the property could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. A foreclosure of one or more of our properties could adversely affect our financial condition, results of operations, cash flow, and ability to service debt and make distributions and the market price of our preferred and common stock.

 

We face risks related to “balloon payments” and refinancings. Certain mortgages will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.” There can be no assurance that we will have the funds available to fund the balloon payment or that we will be able to refinance the debt on favorable terms or at all. To the extent we cannot either pay off or refinance this debt on favorable terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which could have an adverse impact on our financial performance and ability to service debt and make distributions.

 

We face risks associated with our dependence on external sources of capital. In order to qualify as a REIT, we are required each year to distribute to our shareholders at least 90% of our REIT taxable income, and we are subject to tax on our income to the extent it is not distributed. Because of this distribution requirement, we may not be able to fund all future capital needs from cash retained from operations. As a result, to fund capital needs, we rely on third-party sources of capital, which we may not be able to obtain on favorable terms, if at all. Our access to third-party sources of capital depends upon a number of factors, including (i) general market conditions; (ii) the market’s perception of our growth potential; (iii) our current and potential future earnings and cash distributions; and (iv) the market price of our capital stock. Additional debt financing may substantially increase our debt-to-total capitalization ratio. Additional equity issuances may dilute the holdings of our current shareholders.

 

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We may become more highly leveraged, resulting in increased risk of default on our obligations and an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions. We have incurred, and may continue to incur, indebtedness in furtherance of our activities. Our governing documents do not limit the amount of indebtedness we may incur. Accordingly, our Board of Directors may authorize us to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT. We could therefore become more highly leveraged, resulting in an increased risk of default on our obligations and an increase in debt service requirements which could adversely affect our financial condition and results of operations and our ability to pay distributions to shareholders.

 

Fluctuations in interest rates could materially affect our financial results. Because a portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense. If the United States Federal Reserve increases short-term interest rates, this may have a significant upward impact on shorter-term interest rates, including the interest rates that our variable rate debt is based upon. Potential future increases in interest rates and credit spreads may increase our interest expense and therefore negatively affect our financial condition and results of operations, and reduce our access to the debt or equity capital markets.

 

Covenants in our loan documents could limit our flexibility and adversely affect our financial condition. The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations. If we were to default under credit agreements or other debt instruments, our financial condition could be adversely affected.

 

Risks Related to our Status as a REIT

 

If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT. To qualify as a REIT, we must, among other things, satisfy two gross income tests, under which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to our leases to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. The determination of whether a lease is a true lease depends upon an analysis of all the surrounding facts and circumstances. We believe that our leases will be respected as true leases for federal income tax purposes. However, there can be no assurance that the Internal Revenue Service (IRS) will agree with this view. If the leases are not respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs, and we could lose our REIT status.

 

Failure to make required distributions would subject us to additional tax. In order to qualify as a REIT, we must, among other requirements, distribute, each year, to our shareholders at least 90 percent of our taxable income, excluding net capital gains. To the extent that we satisfy the 90 percent distribution requirement, but distribute less than 100 percent of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4 percent nondeductible excise tax on the amount, if any, by which our distributions (or deemed distributions) and the amounts of income retained on which we have paid corporate income tax in any year are less than the sum of:

 

  85 percent of our ordinary income for that year;
     
  95 percent of our capital gain net earnings for that year; and
     
  100 percent of our undistributed taxable income from prior years.

 

To the extent we pay out in excess of 100 percent of our taxable income for any tax year, we may be able to carry forward such excess to subsequent years to reduce our required distributions for purposes of the 4 percent excise tax in such subsequent years. We intend to pay out our income to our shareholders in a manner intended to satisfy the 90 percent distribution requirement. Differences in timing between the recognition of income and the related cash receipts, the effects of non-deductible capital expenditures, the creation of reserves or the effect of required debt amortization payments could require us to borrow money or sell assets (potentially during unfavorable market conditions) to pay out enough of our taxable income to satisfy the 90 percent distribution requirement and to avoid corporate income tax.

 

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We may not have sufficient cash available from operations to pay distributions, and, therefore, distributions may be made from borrowings. The actual amount and timing of distributions will be determined by our Board of Directors in its discretion and typically will depend on the amount of cash available for distribution, which will depend on items such as current and projected cash requirements, limitations on distributions imposed by law or our financing arrangements and tax considerations. As a result, we may not have sufficient cash available from operations to pay distributions as required to maintain our status as a REIT. Therefore, we may need to borrow funds to make sufficient cash distributions in order to maintain our status as a REIT, which may cause us to incur additional interest expense as a result of an increase in borrowed funds for the purpose of paying distributions.

 

We may be required to pay a penalty tax upon the sale of a property. The federal income tax provisions applicable to REITs provide that any gain realized by a REIT on the sale of property, other than foreclosure property, held as inventory or other property held primarily for sale to customers in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to a 100 percent penalty tax. Under current law, unless a sale of real property qualifies for a safe harbor, the question of whether the sale of real estate or other property constitutes the sale of property held primarily for sale to customers is generally a question of the facts and circumstances regarding a particular transaction. It is our intent that we and our subsidiaries will hold the interests in the real estate for investment with a view to long-term appreciation, engage in the business of acquiring and owning real estate, and make occasional sales as are consistent with our investment objectives. We do not intend to engage in prohibited transactions. We cannot assure you, however, that we will only make sales that satisfy the requirements of the safe harbors or that the IRS will not successfully assert that one or more of such sales are prohibited transactions. The 100% tax will not apply to gains from the sale of property that is held through a taxable REIT subsidiary or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular U.S. federal income tax rates.

 

We may be adversely affected if we fail to qualify as a REIT. If we fail to qualify as a REIT, we will not be allowed to deduct distributions to shareholders in computing our taxable income and will be subject to federal income tax, including any applicable alternative minimum tax, at regular corporate rates and possibly increased state and local taxes. In addition, we might be barred from qualification as a REIT for the four years following disqualification. The additional tax incurred at regular corporate rates would reduce significantly the cash flow available for distribution to shareholders and for debt service. Furthermore, we would no longer be required to make any distributions to our shareholders as a condition to REIT qualification. Any distributions to shareholders would be taxable as ordinary income to the extent of our current and accumulated earnings and profits, although such dividend distributions would be subject to a top federal income tax rate of 20% (and potentially a Medicare tax of 3.8%), provided applicable requirements of the Internal Revenue Code are satisfied. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Code.

 

To qualify as a REIT, we must comply with certain highly technical and complex requirements. We cannot be certain we have complied, and will always be able to comply, with the requirements to qualify as a REIT because there are few judicial and administrative interpretations of these provisions. In addition, facts and circumstances that may be beyond our control may affect our ability to continue to qualify as a REIT. We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income tax consequences of qualification. We believe that we have qualified as a REIT since our inception and intend to continue to qualify as a REIT. However, we cannot assure you that we are qualified or will remain qualified.

 

There is a risk of changes in the tax law applicable to real estate investment trusts. Because the IRS, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any of such legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory, judicial or administrative developments and proposals and their potential effect on an investment in our securities.

 

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We may be unable to comply with the strict income distribution requirement applicable to REITs. As noted above, to maintain qualification as a REIT under the Code, a REIT must annually distribute to its shareholders at least 90% of its REIT taxable income, excluding the dividends paid deduction and net capital gains. This requirement limits our ability to accumulate capital. We may not have sufficient cash or other liquid assets to meet the 90% distribution requirements. Difficulties in meeting the 90% distribution requirement might arise due to competing demands for our funds or to timing differences between tax reporting and cash receipts and disbursements, because income may have to be reported before cash is received, because expenses may have to be paid before a deduction is allowed, because deductions may be disallowed or limited or because the IRS may make a determination that adjusts reported income. In those situations, we might be required to borrow funds or sell properties on adverse terms in order to meet the 90% distribution requirement and interest and penalties could apply which could adversely affect our financial condition. If we fail to satisfy the 90% distribution requirement, we would cease to be taxed as a REIT.

 

Notwithstanding our status as a REIT, we are subject to various federal, state and local taxes on our income and property. For example, we will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains; provided, however, that properly designated undistributed capital gains will effectively avoid taxation at the shareholder level. We may be subject to other federal income taxes and may also have to pay some state income or franchise taxes because not all states treat REITs in the same manner as they are treated for federal income tax purposes. In addition, any taxable REIT subsidiary that we may form will be subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.

 

Other Risks

 

We may not be able to access adequate cash to fund our business. Our business requires access to adequate cash to finance our operations, distributions, capital expenditures, debt service obligations, development and redevelopment costs and property acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily with operating cash flow, borrowings under secured and unsecured term loans, proceeds from sales of strategically identified assets and, when market conditions permit, through the issuance of debt and equity securities from time to time. We may not be able to generate sufficient cash to fund our business, particularly if we are unable to renew or extend leases, lease vacant space or re-lease space as leases expire according to expectations.

 

We are dependent on key personnel. Our executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely affect our financial condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.

 

We may amend our business policies without shareholder approval. Our Board of Directors determines our growth, investment, financing, capitalization, borrowing, operations and distributions policies. In addition, our charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. Although our Board of Directors has no present intention to amend or reverse any of these policies, they may be amended or revised without notice to shareholders. Accordingly, shareholders may not have control over changes in our policies. We cannot assure you that changes in our policies will serve fully the interests of all shareholders.

 

The market value of our preferred and common stock could decrease based on our performance and market perception and conditions. The market value of our preferred and common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends, and may be secondarily based upon the real estate market value of our underlying assets. The market price of our preferred and common stock is influenced by their respective distributions relative to market interest rates. Rising interest rates may lead potential buyers of our stock to expect a higher distribution rate, which could adversely affect the market price of our stock. In addition, rising interest rates could result in increased expense, thereby adversely affecting cash flow and our ability to service our indebtedness and pay distributions.

 

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There are restrictions on the ownership and transfer of our capital stock. To maintain our qualification as a REIT under the Code, no more than 50% in value of our outstanding capital stock may be owned, actually or by attribution, by five or fewer individuals, as defined in the Code to also include certain entities, during the last half of a taxable year. Accordingly, our charter contains provisions restricting the ownership and transfer of our capital stock. These restrictions may discourage a tender offer or other transaction, or a change in management or of control of us that might involve a premium price for our common stock or preferred stock or that our shareholders otherwise believe to be in their best interests, and may result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.

 

Our earnings are dependent, in part, upon the performance of our investment portfolio. As permitted by the Code, we invest in and own marketable securities of other REITs, which we generally limit to no more than approximately 10% of our undepreciated assets (which is our total assets excluding accumulated depreciation). To the extent that the value of those investments declines or those investments do not provide an attractive return, our earnings and cash flow could be adversely affected.

 

We are subject to restrictions that may impede our ability to effect a change in control. Certain provisions contained in our charter and bylaws and certain provisions of Maryland law may have the effect of discouraging a third party from making an acquisition proposal for us and thereby inhibit a change in control. These provisions include the following:

 

Our charter provides for three classes of directors with the term of office of one class expiring each year, commonly referred to as a “staggered board.” By preventing common shareholders from voting on the election of more than one class of directors at any annual meeting of shareholders, this provision may have the effect of keeping the current members of our Board of Directors in control for a longer period of time than shareholders may desire.
   
Our charter generally limits any stockholder from acquiring more than 9.8% (in value or in number of shares, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock, except our excess stock). While this provision is intended to assist us in qualifying as a REIT for federal income tax purposes, the ownership limit may also limit the opportunity for shareholders to receive a premium for their shares of common stock that might otherwise exist if an investor was attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of equity stock or otherwise effect a change in control.
   
The request of shareholders entitled to cast a majority of the votes entitled to be cast at such meeting is necessary for shareholders to call a special meeting. We also require advance notice from shareholders for the nomination of directors or proposals of business to be considered at a meeting of shareholders.
   
Our Board of Directors may authorize and cause us to issue securities without shareholder approval. Under our charter, our Board of Directors has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the Board of Directors may determine.
   
“Business combination” provisions that provide that, unless exempted, a Maryland corporation may not engage in certain business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an “interested shareholder” or an affiliate of an interested shareholder for five years after the most recent date on which the interested shareholder became an interested shareholder, and thereafter unless specified criteria are met. An interested shareholder is defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within the two-year period immediately prior to the date in question. In our charter, we have expressly elected that the Maryland Business Combination Act not govern or apply to any transaction with a related company, UMH Properties, Inc. (UMH), a Maryland corporation.
   
The duties of directors of a Maryland corporation do not require them to, among other things (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any shareholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act to exempt any person or transaction from the requirements of those provisions, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the shareholders in an acquisition.

 

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We cannot assure you that we will be able to pay distributions regularly. Our ability to pay distributions in the future is dependent on our ability to operate profitably and to generate cash from our operations and the operations of our subsidiaries and is subject to limitations under our financing arrangements and Maryland law. Under the Maryland General Corporation Law, or the MGCL, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts became due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the charter permits otherwise, the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution. Accordingly, we cannot guarantee that we will be able to pay distributions on a regular quarterly basis in the future.

 

Future terrorist attacks and military conflicts could have a material adverse effect on general economic conditions, consumer confidence and market liquidity. Among other things, it is possible that interest rates may be affected by these events. An increase in interest rates may increase our costs of borrowing, leading to a reduction in our earnings. Terrorist acts could also result in significant damages to, or loss of, our properties. We and our tenants may be unable to obtain adequate insurance coverage on acceptable economic terms for losses resulting from acts of terrorism. Our lenders may require that we carry terrorism insurance even if we do not believe this insurance is necessary or cost effective. We may also be prohibited under the applicable lease from passing all or a portion of the cost of such insurance through to the tenant. Should an act of terrorism result in an uninsured loss or a loss in excess of insured limits, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. Any loss of these types could adversely affect our financial condition.

 

Disruptions in the financial markets could affect our ability to obtain financing on reasonable terms and have other adverse effects on us and the market price of our capital stock. Over the last several years, the United States stock and credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks and debt securities to fluctuate substantially and the spreads on prospective debt financing to widen considerably. Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing at reasonable terms, which may negatively affect our ability to acquire properties and otherwise pursue our investment strategy. A prolonged downturn in the stock or credit markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our investment strategy accordingly. These types of events in the stock and credit markets may make it more difficult or costly for us to raise capital through the issuance of the common stock, preferred stock or debt securities. The potential disruptions in the financial markets may have a material adverse effect on the market value of the common stock and preferred stock and the return we receive on our properties and investments, as well as other unknown adverse effects on us or the economy in general.

 

We are subject to risks arising from litigation. We may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We may not have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and to the extent we resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts we believe are owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning.

 

Dividends on our capital stock do not qualify for the reduced tax rates available for some dividends. Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Although these rules do not adversely affect our taxation or the dividends payable by us, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may perceive an investment in us to be relatively less attractive than an investment in the stock of a non-REIT corporation that pays dividends, which could materially and adversely affect the value of the shares of, and per share trading price of, our capital stock.

 

ITEM 1B – UNRESOLVED STAFF COMMENTS

 

None.

 

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ITEM 2 - PROPERTIES

 

The Company operates as a REIT. Our portfolio is primarily comprised of real estate holdings, some of which have been long-term holdings carried on our financial statements at depreciated cost. We believe that their current market values exceed both the original cost and the depreciated cost.

 

The following table sets forth certain information concerning the Company’s real estate investments as of September 30, 2017:

 

                Mortgage 
      Fiscal Year     Square   Balance 
State  City (MSA)  Acquisition  Type  Footage   9/30/2017 
AL  Huntsville  2005  Industrial   88,653   $589,073 
AZ  Tolleson (Phoenix)  2003  Industrial   283,358    4,525,118 
CO  Colorado Springs  2006  Industrial   68,370    1,043,704 
CO  Colorado Springs  2016  Industrial   225,362    17,632,728 
CO  Denver  2005  Industrial   69,865    746,617 
CT  Newington (Hartford)  2001  Industrial   54,812    -0- 
FL  Cocoa  2008  Industrial   144,138    -0- 
FL  Davenport (Orlando)  2016  Industrial   310,922    25,077,642 
FL  Ft. Myers (Vacant)  2003  Industrial   87,500    -0- 
FL  Ft. Myers (FDX Ground)  2017  Industrial   213,672    14,021,964 
FL  Homestead (Miami)  2017  Industrial   237,756    24,591,465 
FL  Jacksonville (FDX)  1999  Industrial   95,883    -0- 
FL  Jacksonville (FDX Ground)  2015  Industrial   297,579    17,370,102 
FL  Lakeland  2006  Industrial   32,105    -0- 
FL  Orlando  2008  Industrial   110,638    4,098,856 
FL  Punta Gorda  2007  Industrial   34,624    -0- 
FL  Tampa (FDX Ground)  2004  Industrial   170,779    5,910,953 
FL  Tampa (FDX)  2006  Industrial   95,662    3,654,913 
FL  Tampa (Tampa Bay Grand Prix)  2005  Industrial   68,385    -0- 
GA  Augusta (FDX Ground)  2005  Industrial   59,358    562,454 
GA  Augusta (FDX)  2006  Industrial   30,184    -0- 
GA  Griffin (Atlanta)  2006  Industrial   218,120    -0- 
IA  Urbandale (Des Moines) (Vacant)  1994  Industrial   36,270    -0- 
IL  Burr Ridge (Chicago)  1997  Industrial   12,500    -0- 
IL  Elgin (Chicago)  2002  Industrial   89,052    -0- 
IL  Granite City (St. Louis, MO)  2001  Industrial   184,800    -0- 
IL  Montgomery (Chicago)  2004  Industrial   171,200    -0- 
IL  Rockford (Collins Aerospace Systems)  2015  Industrial   38,833    -0- 
IL  Rockford (Sherwin-Williams Co.)  2011  Industrial   66,387    -0- 
IL  Sauget (St. Louis, MO)  2015  Industrial   198,773    9,145,097 
IL  Schaumburg (Chicago)  1997  Industrial   73,500    -0- 
IL  Wheeling (Chicago)  2003  Industrial   123,000    -0- 
IN  Greenwood (Indianapolis)  2015  Industrial   671,354    21,485,141 
IN  Indianapolis  2014  Industrial   327,822    11,381,906 
KS  Edwardsville (Kansas City) (Carlisle Tire)  2003  Industrial   179,280    -0- 
KS  Edwardsville (Kansas City) (International Paper)  2014  Industrial   280,000    9,931,292 
KS  Olathe (Kansas City)  2016  Industrial   313,763    21,108,249 
KS  Topeka  2009  Industrial   40,000    1,119,836 
KY  Buckner (Louisville)  2014  Industrial   558,600    16,014,719 
KY  Frankfort (Lexington)  2015  Industrial   599,840    17,560,855 
KY  Louisville  2016  Industrial   137,500    6,914,142 
LA  Covington (New Orleans)  2016  Industrial   175,315    11,814,941 
MD  Beltsville (Washington, DC)  2001  Industrial   148,881    -0- 
MI  Livonia (Detroit)  2013  Industrial   172,005    6,912,375 
MI  Orion  2007  Industrial   245,633    -0- 
MI  Romulus (Detroit)  1998  Industrial   71,933    -0- 
MI  Walker (Grand Rapids)  2017  Industrial   343,483    20,530,135 
MN  Stewartville (Rochester) (1)  2013  Industrial   60,398    2,369,334 
MO  Kansas City (Bunzl Distribution Midcentral, Inc.)  2015  Industrial   158,417    6,799,803 
MO  Kansas City (Kellogg Sales Co.)  2007  Industrial   65,067    -0- 
MO  Liberty (Kansas City)  1998  Industrial   95,898    -0- 

 

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                Mortgage 
      Fiscal Year     Square   Balance 
State  City (MSA)  Acquisition  Type  Footage   9/30/2017 
MO  O’Fallon (St. Louis)  1994  Industrial   102,135   $-0- 
MO  St. Joseph  2001  Industrial   382,880    -0- 
MS  Olive Branch (Memphis, TN) (Anda Pharmaceuticals, Inc.)  2012  Industrial   234,660    8,171,480 
MS  Olive Branch (Memphis, TN) (Milwaukee Tool)  2013  Industrial   861,889    23,461,936 
MS  Richland (Jackson)  1994  Industrial   36,000    -0- 
MS  Ridgeland (Jackson)  1993  Industrial   26,340    -0- 
NC  Concord (Charlotte)  2016  Industrial   330,717    18,928,835 
NC  Concord (Charlotte)  2017  Industrial   354,482    26,184,000 
NC  Fayetteville  1997  Industrial   148,000    -0- 
NC  Winston-Salem  2002  Industrial   106,507    -0- 
NE  Omaha  1999  Industrial   89,115    -0- 
NJ  Carlstadt (New York, NY) (2)  2001  Industrial   60,400    1,743,353 
NJ  Somerset (3)  1970  Shopping Center   64,220    -0- 
NY  Cheektowaga (Buffalo)  2000  Industrial   104,981    -0- 
NY  Halfmoon (Albany)  2012  Industrial   75,000    -0- 
NY  Hamburg (Buffalo)  2017  Industrial   338,584    22,532,881 
NY  Orangeburg (New York)  1993  Industrial   50,400    -0- 
OH  Bedford Heights (Cleveland)  2007  Industrial   82,269    -0- 
OH  Cincinnati  2015  Industrial   63,840    -0- 
OH  Kenton  2017  Industrial   298,472    12,000,000 
OH  Lebanon (Cincinnati)  2012  Industrial   51,130    -0- 
OH  Monroe (Cincinnati)  2015  Industrial   232,200    7,608,083 
OH  Richfield (Cleveland)  2006  Industrial   131,152    2,724,856 
OH  Stow  2017  Industrial   219,765    12,700,000 
OH  Streetsboro (Cleveland)  2012  Industrial   368,060    9,887,817 
OH  West Chester Twp. (Cincinnati)  1999  Industrial   103,818    1,820,753 
OK  Oklahoma City (Bunzl Distribution Oklahoma, Inc.)  2017  Industrial   110,361    5,935,346 
OK  Oklahoma City (FDX Ground)  2012  Industrial   158,340    3,919,663 
OK  Tulsa  2014  Industrial   46,240    1,812,575 
PA  Altoona (1)  2014  Industrial   122,522    3,642,839 
PA  Imperial (Pittsburgh)  2016  Industrial   125,860    11,963,800 
PA  Monaca (Pittsburgh)  1988  Industrial   255,658    -0- 
SC  Aiken (Augusta, GA)  2017  Industrial   315,560    15,227,062 
SC  Ft. Mill (Charlotte, NC)  2010  Industrial   176,939    1,346,845 
SC  Hanahan (Charleston) (SAIC)  2005  Industrial   302,400    -0- 
SC  Hanahan (Charleston) (FDX Ground)  2005  Industrial   91,776    773,234 
TN  Chattanooga  2007  Industrial   60,637    -0- 
TN  Lebanon (Nashville)  2011  Industrial   381,240    7,446,653 
TN  Memphis  2010  Industrial   449,900    5,882,668 
TN  Shelby County  2007  Land   N/A    -0- 
TX  Carrollton (Dallas)  2010  Industrial   184,317    7,233,486 
TX  Corpus Christi  2012  Industrial   46,253    -0- 
TX  Edinburg  2011  Industrial   164,207    -0- 
TX  El Paso  2006  Industrial   144,149    -0- 
TX  Ft. Worth (Dallas)  2015  Industrial   304,608    22,116,268 
TX  Houston  2010  Industrial   91,295    2,619,835 
TX  Lindale (Tyler)  2015  Industrial   163,378    6,016,758 
TX  Mesquite (Dallas)  2017  Industrial   351,874    32,623,355 
TX  Spring (Houston)  2014  Industrial   181,176    8,537,878 
TX  Waco  2012  Industrial   150,710    4,524,045 
VA  Charlottesville  1999  Industrial   48,064    -0- 
VA  Mechanicsville (Richmond)  2001  Industrial   112,799    -0- 
VA  Richmond  2004  Industrial   60,000    -0- 
VA  Roanoke (CHEP USA)  2007  Industrial   83,000    -0- 
VA  Roanoke (FDX Ground)  2013  Industrial   103,402    4,867,194 
WA  Burlington (Seattle/Everett)  2016  Industrial   210,445    18,839,050 
WI  Cudahy (Milwaukee)  2001  Industrial   139,564    -0- 
WI  Green Bay (1)  2013  Industrial   99,102    2,956,605 
             18,790,021   $598,962,567 

 

(1) One loan is secured by the properties located in Green Bay, WI, Stewartville, MN and Altoona, PA.

(2) The Company owns a 51% controlling equity interest.

(3) The Company owns a 67% controlling equity interest.

 

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The following table sets forth certain information concerning the principal tenants and leases for the Company’s properties shown above as of September 30, 2017:

 

State  City (MSA)  Tenant  Annualized Rent   Lease Expiration   
AL  Huntsville  FedEx Ground Package System, Inc.  $605,000   07/31/26   
AZ  Tolleson (Phoenix)  Western Container Corp. (Coca-Cola)   1,352,000   04/30/27  (1)
CO  Colorado Springs  FedEx Ground Package System, Inc.   644,000   09/30/18   
CO  Colorado Springs  FedEx Ground Package System, Inc.   1,832,000   01/31/26   
CO  Denver  FedEx Ground Package System, Inc.   564,000   07/31/18   
CT  Newington (Hartford)  Kellogg Sales Company   329,000   02/29/20  (1)
FL  Cocoa  FedEx Ground Package System, Inc.   1,112,000   09/30/24   
FL  Davenport (Orlando)  FedEx Ground Package System, Inc.   2,605,000   04/30/31   
FL  Ft. Myers (Vacant)  FedEx Ground Package System, Inc.   325,000   06/30/17  (1)(2)
FL  Ft. Myers  FedEx Ground Package System, Inc.   1,415,000   08/31/27  (3)
FL  Homestead (Miami)  FedEx Ground Package System, Inc.   2,282,000   03/31/32   
FL  Jacksonville  FedEx Corporation   518,000   05/31/19   
FL  Jacksonville  FedEx Ground Package System, Inc.   1,999,000   12/31/29   
FL  Lakeland  FedEx Corporation   155,000   11/30/17   
FL  Orlando  FedEx Corporation   666,000   11/30/27  (1)
FL  Punta Gorda  FedEx Corporation   286,000   06/30/27  (1)
FL  Tampa  FedEx Corporation   603,000   11/30/27  (1)
FL  Tampa  FedEx Ground Package System, Inc.   1,624,000   07/31/26   
FL  Tampa  Tampa Bay Grand Prix   293,000   09/30/20   
GA  Augusta  FedEx Ground Package System, Inc.   453,000   06/30/18   
GA  Augusta  FedEx Corporation   121,000   11/30/22   
GA  Griffin (Atlanta)  Caterpillar Logistics Services, Inc.   1,169,000   12/31/17  (4)
IA  Urbandale (Des Moines) (Vacant)  Keystone Automotive Industries MN, Inc.   94,000   05/31/17  (5)
IL  Burr Ridge (Chicago)  Sherwin-Williams Company   161,000   10/31/21   
IL  Elgin (Chicago)  Joseph T. Ryerson and Son, Inc.   506,000   01/31/20  (1)
IL  Granite City (St. Louis, MO)  Anheuser-Busch, Inc.   810,000   11/30/21   
IL  Montgomery (Chicago)  Home Depot USA, Inc.   988,000   06/30/20   
IL  Rockford  Collins Aerospace Systems (United Technologies)   362,000   06/30/27  (6)
IL  Rockford  Sherwin-Williams Company   479,000   12/31/23   
IL  Sauget (St. Louis, MO)  FedEx Ground Package System, Inc.   1,036,000   05/31/29   
IL  Schaumburg (Chicago)  FedEx Corporation   480,000   03/31/27  (1)
IL  Wheeling (Chicago)  FedEx Ground Package System, Inc.   1,279,000   05/31/27  (1)
IN  Greenwood (Indianapolis)  ULTA, Inc.   2,677,000   07/31/25   
IN  Indianapolis  FedEx Ground Package System, Inc.   1,533,000   04/30/24   
KS  Edwardsville (Kansas City)  Carlisle Tire & Wheel Company   787,000   05/31/18   
KS  Edwardsville (Kansas City)  International Paper Company   1,337,000   08/31/23   
KS  Olathe (Kansas City)  FedEx Ground Package System, Inc.   2,196,000   05/31/31   
KS  Topeka  Heartland Coca-Cola Bottling Co., LLC (Coca-Cola)   332,000   09/30/21   
KY  Buckner (Louisville)  TreeHouse Private Brands, Inc.   2,186,000   10/31/33   
KY  Frankfort (Lexington)  Jim Beam Brands Company   2,032,000   01/31/25   
KY  Louisville  Challenger Lifts, Inc. (Snap-on Inc.)   831,000   06/07/26   
LA  Covington (New Orleans)  FedEx Ground Package System, Inc.   1,260,000   06/30/25   
MD  Beltsville (Washington, DC)  FedEx Ground Package System, Inc.   1,426,000   07/31/18   
MI  Livonia (Detroit)  FedEx Ground Package System, Inc.   1,194,000   03/31/22   
MI  Orion  FedEx Ground Package System, Inc.   1,908,000   06/30/23   
MI  Romulus (Detroit)  FedEx Corporation   370,000   05/31/21   
MI  Walker (Grand Rapids)  FedEx Ground Package System, Inc.   2,102,000   01/31/32   
MN  Stewartville (Rochester)  FedEx Ground Package System, Inc.   372,000   05/30/23   
MO  Kansas City  Bunzl Distribution Midcentral, Inc.   747,000   09/30/21   
MO  Kansas City  Kellogg Sales Company   325,000   07/31/18  (2)
MO  Liberty (Kansas City)  Holland 1916 Inc.   345,000   06/30/19   
MO  O’Fallon (St. Louis)  Pittsburgh Glass Works, LLC   427,000   06/30/18  (7)
MO  St. Joseph  Woodstream Corporation   910,000   09/30/21  (1)(8)
MO  St. Joseph  Altec Industries, Inc.   367,000   02/28/23  (1)(8)
MS  Olive Branch (Memphis, TN)  Anda Pharmaceuticals, Inc.   1,200,000   07/31/22   

 

20
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State  City (MSA)  Tenant  Annualized Rent   Lease Expiration   
MS  Olive Branch (Memphis, TN)  Milwaukee Electric Tool Corporation  $3,010,000   07/31/28   
MS  Richland (Jackson)  FedEx Corporation   120,000   03/31/24   
MS  Ridgeland (Jackson)  Graybar Electric Company   109,000   07/31/19  (9)
NC  Concord (Charlotte)  FedEx Ground Package System, Inc.   2,234,000   07/31/25   
NC  Concord (Charlotte)  FedEx Ground Package System, Inc.   2,537,000   05/31/32   
NC  Fayetteville  Victory Packaging, L.P.   496,000   02/28/21   
NC  Winston-Salem  Style Crest, Inc.   381,000   03/31/21   
NE  Omaha  FedEx Corporation   446,000   10/31/23   
NJ  Carlstadt (New York, NY)  SOFIVE, Inc.   548,000   01/31/25  (10)
NJ  Somerset  Various Tenants at Retail Shopping Center   792,000   Various  (11)
NY  Cheektowaga (Buffalo)  FedEx Ground Package System, Inc.   966,000   08/31/19   
NY  Halfmoon (Albany)  RGH Enterprises, Inc. (Cardinal Health)   601,000   11/30/21   
NY  Hamburg (Buffalo)  FedEx Ground Package System, Inc.   2,309,000   03/31/31   
NY  Orangeburg (New York)  Kellogg Sales Company   328,000   02/28/18  (2)
OH  Bedford Heights (Cleveland)  FedEx Corporation   408,000   08/31/18   
OH  Cincinnati  The American Bottling Company (Dr Pepper Snapple)   479,000   09/30/29   
OH  Kenton  International Paper Company   1,243,000   08/31/27   
OH  Lebanon (Cincinnati)  Siemens Real Estate   479,000   04/30/19   
OH  Monroe (Cincinnati)  UGN, Inc.   1,060,000   02/28/30   
OH  Richfield (Cleveland)  FedEx Ground Package System, Inc.   1,493,000   09/30/24   
OH  Stow  Mickey Thompson (Cooper Tire)   1,500,000   08/31/27   
OH  Streetsboro (Cleveland)  Best Buy Warehousing Logistics, Inc.   1,660,000   01/31/22   
OH  West Chester Twp. (Cincinnati)  FedEx Ground Package System, Inc.   537,000   08/31/23   
OK  Oklahoma City  Bunzl Distribution Oklahoma, Inc.   721,000   08/31/24   
OK  Oklahoma City  FedEx Ground Package System, Inc.   1,048,000   06/30/25   
OK  Tulsa  The American Bottling Company (Dr Pepper Snapple)   260,000   02/28/24   
PA  Altoona  FedEx Ground Package System, Inc.   651,000   08/31/23   
PA  Imperial (Pittsburgh)  General Electric Company   1,315,000   12/31/25   
PA  Monaca (Pittsburgh)  NF&M International, Inc.   833,000   12/31/24  (8)
PA  Monaca (Pittsburgh)  Datatel Resources Corporation   244,000   11/30/17  (8)
SC  Aiken (Augusta, GA)  Autoneum North America, Inc.   1,700,000   04/30/32   
SC  Ft. Mill (Charlotte, NC)  FedEx Ground Package System, Inc.   1,415,000   10/31/23   
SC  Hanahan (Charleston)  FedEx Ground Package System, Inc.   675,000   07/31/18   
SC  Hanahan (Charleston)  Science Applications International Corporation   1,476,000   04/30/19   
TN  Chattanooga  FedEx Corporation   317,000   10/31/22  (1)
TN  Lebanon (Nashville)  CBOCS Distribution, Inc. (Cracker Barrel)   1,433,000   06/30/24   
TN  Memphis  FedEx Corporation   1,327,000   05/31/19   
TN  Shelby County  N/A- Land   -0-   N/A   
TX  Carrollton (Dallas)  United Technologies Corporation   1,576,000   01/11/19   
TX  Corpus Christi  FedEx Ground Package System, Inc.   469,000   08/31/21   
TX  Edinburg  FedEx Ground Package System, Inc.   1,097,000   09/30/26  (12)
TX  El Paso  FedEx Ground Package System, Inc.   1,345,000   09/30/23   
TX  Ft. Worth (Dallas)  FedEx Ground Package System, Inc.   2,367,000   04/30/30   
TX  Houston  National Oilwell Varco, Inc.   750,000   09/30/22   
TX  Lindale (Tyler)  FedEx Ground Package System, Inc.   725,000   06/30/24   
TX  Mesquite (Dallas)  FedEx Ground Package System, Inc.   3,194,000   03/31/32   
TX  Spring (Houston)  FedEx Ground Package System, Inc.   1,581,000   09/30/24   
TX  Waco  FedEx Ground Package System, Inc.   1,078,000   08/31/25   
VA  Charlottesville  FedEx Corporation   329,000   08/31/27  (1)
VA  Mechanicsville (Richmond)  FedEx Corporation   541,000   04/30/23   
VA  Richmond  Carrier Enterprise, LLC (United Technologies)   320,000   11/30/18   
VA  Roanoke  CHEP USA, Inc.   497,000   02/28/25  (13)
VA  Roanoke  FedEx Ground Package System, Inc.   755,000   04/30/23   
WA  Burlington (Seattle/Everett)  FedEx Ground Package System, Inc.   1,962,000   08/31/30   
WI  Cudahy (Milwaukee)  FedEx Ground Package System, Inc.   832,000   06/30/27  (1)
WI  Green Bay  FedEx Ground Package System, Inc.   468,000   05/30/23   
         $111,048,000       

 

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  (1) Extension has been executed. See fiscal 2017 and fiscal 2018 renewal and extension chart.
  (2) Property is under contract to sell.
  (3) On September 1, 2017, a parking lot expansion for a property leased to FedEx Ground Package System, Inc. located in Ft. Myers, FL was completed for a cost of approximately $862,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2026 to August 2027. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $53,000 from approximately $1,365,000, or $6.39 per square foot to approximately $1,418,000, or $6.64 per square foot.
  (4) Entered into a new 3-year lease with Rinnai America Corporation, effective 1/1/2018.
  (5) Entered into a new 10.2 year lease with FBM Gypsum Supply of Illinois, LLC, effective 11/1/2017.
  (6) Lease has an early termination option which may be exercised after June 2022, on the condition that the Company is provided with six months notice and the tenant pays the Company a $1,102,097 termination fee.
  (7) The lease has an early termination option which may be exercised on the condition that the Company is provided with six months notice and the tenant pays the Company a $106,731 termination fee.
  (8) Property is leased to two tenants.
  (9) Lease has an early termination option which may be exercised if tenant gives six months notice at any time.
  (10) Estimated annual rent is the full annual rent per the lease. The Company consolidates the results of this property due to its 51% controlling equity interest.
  (11) The Company owns a 67% controlling equity interest. Estimated annual rent reflects the Company’s proportionate share of the total rent.
  (12) On October 1, 2016, a 50,625 square foot expansion of the building was completed for a cost of approximately $4,762,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2021 through September 2026 and increased the building size from 113,582 to 164,207 square feet. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $499,000 from approximately $598,000, or $5.26 per square foot, to approximately $1,097,000, or $6.68 per square foot.
  (13) Lease has an early termination option which may be exercised after August 2021, on the condition that the Company is provided with six months notice and the tenant pays the Company a $500,000 termination fee.

 

All improved properties were 100% occupied at September 30, 2017 except for one property consisting of a 36,270 square foot building located in Urbandale (Des Moines), IA and one property consisting of an 87,500 square foot building located in Ft. Myers, FL. Subsequent to fiscal yearend, on November 1, 2017, the Company leased its previously vacant 36,270 square foot facility located in Urbandale (Des Moines), IA for 10.2 years which increased our current occupancy rate to 99.5%. In addition, the Company is under contract to sell its only currently vacant building located in Ft. Myers, FL, for $6,400,000. We anticipate closing the sale of this building during fiscal 2018, subject to customary closing conditions and requirements.

 

The Company’s weighted-average lease expiration was 7.9 and 7.4 years as of September 30, 2017 and 2016, respectively.

 

Our average occupancy rates as of the years ended September 30, 2017, 2016, 2015, 2014 and 2013 were 99.3%, 99.6%, 97.7%, 95.9% and 96.0%, respectively. The average effective annualized rent per square foot for the years ended September 30, 2017, 2016, 2015, 2014 and 2013 was $5.93, $5.72, $5.48, $5.51 and $5.53, respectively.

 

Completed expansions that have resulted in increased rents over the fiscal years ended September 30, 2016 and 2017

 

Ecommerce has been a major catalyst driving increased demand for the industrial property type. The shift from traditional brick and mortar retail shopping to shopping on-line has resulted in record occupancy rates for industrial real estate throughout the U.S. Due to the increased demand for industrial space, we have been experiencing an increase in expansion activity at our existing properties.

 

On July 29, 2016, a 246,434 square foot expansion of a building leased to Milwaukee Electric Tool Corporation (Milwaukee Tool) located in Olive Branch, MS, which is located in the Memphis, TN MSA, was completed for a cost of approximately $9,785,000. This resulted in a new 12 year lease which extended the original lease expiration date from April 2023 to July 2028 and increased the building size from 615,455 to 861,889 square feet. In addition, the expansion resulted in an initial increase in annual rent effective on the date of completion of approximately $847,000 from approximately $1,943,000, or $3.16 per square foot, to approximately $2,790,000, or $3.24 per square foot. Furthermore, annual rent will increase each year by 1.5% resulting in an annualized rent over the new 12 year period of approximately $3,020,000, or $3.50 per square foot. In September 2016, in connection with the expansion, the Company refinanced its prior 3.76% interest rate mortgage with its existing lender of this property. At the time of the refinancing, the prior amortizing loan was approximately $13,158,000 and was set to mature in January 2023. The new loan is a 12 year fully-amortizing mortgage of $25,000,000 and will mature in October 2028. The interest rate of the new loan remained the same as the prior loan at a fixed interest rate of 3.76%.

 

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On August 1, 2016, a parking lot expansion for a property leased to FedEx Ground Package System, Inc. located in Tampa, FL was completed for a cost of approximately $1,303,000, resulting in a new 10 year lease which extended the prior lease expiration date from June 2024 to July 2026. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $131,000 from approximately $1,493,000, or $8.74 per square foot to approximately $1,624,000, or $9.51 per square foot.

 

On August 1, 2016, a 14,941 square foot expansion of a building leased to FedEx Ground Package System, Inc. located in Huntsville, AL was completed for a cost of approximately $1,948,000, resulting in a new 10 year lease which extended the prior lease expiration date from August 2022 to July 2026. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $193,000 from approximately $412,000, or $5.59 per square foot, to approximately $605,000 or $6.82 per square foot.

 

On October 1, 2016, a 50,625 square foot expansion of the building leased to FedEx Ground Package System, Inc. located in Edinburg, TX was completed for a cost of approximately $4,762,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2021 to September 2026. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $499,000 from approximately $598,000, or $5.26 per square foot, to approximately $1,097,000, or $6.68 per square foot.

 

On September 1, 2017, a parking lot expansion for a property leased to FedEx Ground Package System, Inc. located in Ft. Myers, FL was completed for a cost of approximately $862,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2026 to August 2027. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $53,000 from approximately $1,365,000, or $6.39 per square foot to approximately $1,418,000, or $6.64 per square foot.

 

Fiscal 2017 Renewals

 

In fiscal 2017, approximately 10% of our gross leasable area, representing 13 leases totaling 1,539,526 square feet, was set to expire. The Company has renewed 12 of these 13 leases that were set to expire in fiscal 2017. One of the 12 leases (which is with FedEx Ground Package System, Inc. for a property located in Ft. Myers, FL), renewed for only eight months because the tenant moved its operations from our 87,500 square foot facility to our newly constructed facility, which is also located in Ft. Myers, FL. On December 30, 2016, we purchased this newly constructed 213,672 square foot industrial building which is leased for 10 years through September 2026. On September 1, 2017, a parking lot expansion for this property was completed, resulting in a new 10 year lease which extended the prior lease expiration date from September 2026 to August 2027. The original 87,500 square foot Ft. Myers, FL facility is under contract to sell for approximately $6,400,000, which is approximately $2,400,000 above the Company’s U.S. GAAP net book carrying value, and is anticipated to close during fiscal 2018, subject to customary closing conditions and requirements.

 

Excluding the eight-month lease renewal at the original Ft. Myers, FL location, the 11 leases that have renewed during fiscal 2017 represent 1,415,756 square feet, or 92% of the expiring square footage, and have a weighted average lease term of 6.8 years. We have incurred or we expect to incur tenant improvement costs of approximately $3,251,000 and leasing commission costs of approximately $1,383,000 in connection with these 11 lease renewals. The table below summarizes the lease terms of the 11 leases which were renewed. In addition, the table below includes both the tenant improvement costs and the leasing commission costs, which are presented on a per square foot (PSF) basis averaged over the renewal term.

 

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Property  Tenant  Square
Feet
   Former
U.S. GAAP Straight- Line Rent
PSF
   Former
Cash Rent
PSF
   Former
Lease
Expiration
  Renewal
U.S GAAP Straight- Line Rent
PSF
   Renewal
Initial
Cash Rent
PSF
   Renewal
Lease
Expiration
  Renewal
Term
(years)
   Tenant
Improvement
Cost
PSF over
Renewal
Term (1)
   Leasing
Commission Cost
PSF over
Renewal
Term (1)
 
                                          
Ft. Myers, FL (3)  FedEx Ground   87,500   $4.95   $4.95   10/31/16  $4.95   $4.95   6/30/17   0.7   $-0-   $-0- 
                                                  
                                                  
Griffin, GA  Caterpillar   218,120   $5.36   $5.36   11/30/16  $5.36   $5.36   11/30/17   1.0   $-0-   $0.11 
Elgin, IL  Joseph T. Ryerson   89,052    5.68    5.68   1/31/17   5.68    5.68   1/31/20   3.0    0.17    0.17 
Newington, CT  Kellogg Sales Co.   54,812    6.00    6.00   2/28/17   6.00    6.00   2/29/20   3.0    0.30    0.24 
Schaumburg, IL  FedEx Express   73,500    6.88    7.00   3/31/17   6.50    6.50   3/31/27   10.0    0.24    0.13 
Tolleson, AZ  Western Container   283,358    4.33    4.59   4/30/17   4.78    4.33   4/30/27   10.0    0.58    0.14 
Wheeling, IL  FedEx Ground   123,000    11.26    11.26   5/31/17   10.34    10.34   5/31/27   10.0    0.41    0.21 
Punta Gorda, FL  FedEx Express   34,624    8.78    8.78   6/30/17   8.21    8.21   6/30/27   10.0    0.08    0.16 
Cudahy, WI  FedEx Ground   139,564    6.45    6.45   6/30/17   5.92    5.92   6/30/27   10.0    0.36    0.12 
Charlottesville, VA  FedEx Express   48,064    6.85    6.85   8/31/17   6.85    6.85   8/31/27   10.0    0.29    0.14 
Tampa, FL  FedEx Express   95,662    5.91    6.30   9/30/17   6.30    6.30   11/30/27   10.2    0.15    0.12 
St. Joseph, MO  Woodstream Corp.   256,000    3.50    3.50   9/30/17   3.57    3.50   9/30/21   4.0    0.01    0.11 
   Total (2)   1,415,756                                          
                                                  
Weighted Average (2)          $5.73   $5.82      $5.70   $5.59       6.8   $0.34   $0.14 

 

(1)Amount calculated based on the total cost divided by the square feet, divided by the renewal term.
(2)Total and Weighted Average amounts exclude the Ft. Myers, FL property.
(3)Renewed for only eight months because the tenant moved its operations from our 87,500 square foot facility to our newly constructed 213,672 square foot facility, which is also located in Ft. Myers, FL. The original 87,500 square foot location is under contract to sell for approximately $6,400,000, which is approximately $2,400,000 above the Company’s U.S. GAAP net book carrying value.

 

Excluding the eight-month lease renewal at the original Ft. Myers, FL location, representing 6% of the space coming up for renewal in fiscal 2017, the remaining 11 lease renewals resulted in a weighted average term of 6.8 years and a U.S. GAAP straight-line weighted average lease rate of $5.70 per square foot. The renewed weighted average initial cash rent per square foot is $5.59. This compares to the former weighted average rent of $5.73 per square foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $5.82 per square foot, representing a decrease in the weighted average lease rate of 0.5% on a U.S. GAAP straight-line basis and a decrease in the weighted average lease rate of 4.0% on a cash basis.

 

Regarding the remaining lease that expired during fiscal 2017, we were informed by the tenant that they would not be renewing its lease. This tenant leased our 36,270 square feet facility in Urbandale (Des Moines), IA through May 31, 2017. This facility represents 2% of the space that was up for renewal in fiscal 2017. In July 2017, we entered into a 10.2 year lease agreement with FBM Gypsum Supply of Illinois, LLC through December 31, 2027 for this 36,270 square foot building located in Urbandale (Des Moines), IA. The new lease commenced on November 1, 2017, with two months of free rent, after which initial annual rent of $159,588, representing $4.40 per square foot, will commence, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of approximately $172,000, representing $4.74 per square foot over the life of the lease. This compares to the former average straight-lined rent of $3.56 per square foot on a U.S. GAAP straight-line basis and the former cash rent of $3.88 per square foot, representing an increase in the average lease rate of 33.1% on a U.S. GAAP straight-line basis and an increase in the lease rate of 13.4% on a cash basis. The tenant will have a one-time early termination option that may be exercised on December 31, 2025, provided that the tenant gives us six months notice and pays a termination fee equal to three months of rent, plus operating and other costs.

 

Fiscal 2018 Renewals

 

In fiscal 2018, approximately 8% of our gross leasable area, representing 16 leases totaling 1,546,637 square feet, is set to expire. As of the date of this Annual Report, 3 of the 16 leases have renewed. The three leases that have renewed thus far represent 298,155 square feet, or 19% of the expiring square footage, and have a weighted average lease term of 6.9 years.

 

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Table of Contents 

 

We have incurred or we expect to incur tenant improvement costs of approximately $265,000 and leasing commission costs of approximately $249,000 in connection with these three lease renewals. The table below summarizes the lease terms of the three leases which were renewed. In addition, the table below includes both the tenant improvement costs and the leasing commission costs, which are presented on a per square foot (PSF) basis averaged over the renewal term.

 

Property  Tenant  Square
Feet
   Former
U.S. GAAP Straight- Line Rent
PSF
   Former
Cash Rent
PSF
   Former
Lease
Expiration
  Renewal
U.S GAAP Straight- Line Rent
PSF
   Renewal
Initial
Cash Rent
PSF
   Renewal
Lease
Expiration
  Renewal
Term
(years)
   Tenant
Improvement
Cost
PSF over
Renewal
Term (1)
   Leasing
Commission Cost
PSF over
Renewal
Term (1)
 
                                          
Chattanooga, TN  FedEx Express   60,637   $5.13   $5.13   10/31/17  $5.26   $5.26   10/31/22   5.0   $0.43   $0.11 
Orlando, FL  FedEx Express   110,638    5.69    6.02   11/30/17   6.02    6.02   11/30/27   10.0    0.12    0.12 
St. Joseph, MO  Altec Industries   126,880    2.75    2.75   2/28/18   2.94    2.87   2/28/23   5.0    0.01    0.13 
   Total   298,155                                          
                                                  
Weighted Average          $4.32   $4.45      $4.55   $4.52       6.9   $0.13   $0.12 

 

(1)Amount calculated based on the total cost divided by the square feet, divided by the renewal term.

 

These three lease renewals result in a weighted average term of 6.9 years and a U.S. GAAP straight-line weighted average lease rate of $4.55 per square foot. The renewed weighted average initial cash rent per square foot is $4.52. This compares to the former weighted average rent of $4.32 per square foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $4.45 per square foot, representing an increase in the weighted average lease rate of 5.3% on a U.S. GAAP straight-line basis and an increase in the weighted average lease rate of 1.6% on a cash basis.

 

Two of the remaining leases set to expire during fiscal 2018 are leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility located in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg has informed us that they will not be renewing their leases at these two properties. We have entered into separate agreements to sell these two properties and anticipate the sales will close during fiscal 2018, subject to customary closing conditions and requirements. We have entered into an agreement to sell the Kansas City, MO property for approximately $4,900,000, which is approximately $1,200,000 above the Company’s U.S. GAAP net book carrying value and we have entered into an agreement to sell the Orangeburg, NY property for approximately $6,170,000, which is approximately $4,700,000 above the Company’s U.S. GAAP net book carrying value. In conjunction with the sale of these two properties, we expect to enter into a lease termination agreement for each property whereby the Company will receive a termination fee from Kellogg in an amount equal to a percentage (95% for the Orangeburg, NY property and 75% for the Kansas City, MO property) of the then remaining rent due under each lease for the period from the closing date for the respective sale transactions (which will be the dates of the respective lease terminations) to the end of the respective lease terms.

 

Another remaining lease set to expire during fiscal 2018 is leased to Caterpillar Logistics Services, Inc. (Caterpillar) at our 218,120 square foot facility located in Griffin, GA through December 31, 2017. In September 2017, we entered into a three year lease agreement with Rinnai America Corporation through December 31, 2020 for this location. The new lease will commence on January 1, 2018, with initial annual rent of $807,044, representing $3.70 per square foot, with 3.0% annual increases thereafter, resulting in a straight-line annualized rent of $831,000, representing $3.81 per square foot over the life of the lease. This compares to the former U.S. GAAP straight-line and the former cash rent of $5.36 per square foot, representing a decrease in the average lease rate of 28.9% on a U.S. GAAP straight-line basis and a decrease in the lease rate of 31.0% on a cash basis.

 

One of our tenants that leases 80,856 square feet at our 255,658 square foot building located in Monaca (Pittsburg), PA has informed us that they will not be renewing their lease, which is set to expire on November 30, 2017.

 

The remaining nine leases that are still set to expire during fiscal 2018 are currently under discussion.

 

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Table of Contents 

 

On September 30, 2017, the Company had a weighted average lease maturity of 7.9 years with weighted average gross annualized rent scheduled to expire each year of 7.5%.

 

The following table presents certain information as of September 30, 2017, with respect to the Company’s leases expiring over the future fiscal years ended September 30th:

 

Expiration of Fiscal Year Ended September 30th  Property Count  Total Area
Expiring
(square feet)
   Annualized
Rent
   Percent of Gross
Annualized Rent
 
                
Vacant (1)  2   123,770   $419,000    0%
Shopping Center (2)  1   64,220    792,000    1%
2018  13   1,248,482    7,605,000    7%
2019  9   1,370,849    7,116,000    6%
2020  4   383,449    2,116,000    2%
2021  7   827,110    3,705,000    3%
2022  7   1,138,320    6,376,000    6%
2023  12   1,489,524    8,719,000    8%
2024  12   1,853,948    11,318,000    10%
2025  9   2,404,478    12,207,000    11%
2026  6   912,361    7,304,000    7%
2027  10   1,472,852    9,078,000    8%
2028  3   1,068,189    4,279,000    4%
2029  2   262,613    1,515,000    1%
2030  4   1,044,832    7,388,000    7%
2031  3   963,269    7,110,000    6%
2032  5   1,603,155    11,815,000    11%
2033  1   558,600    2,186,000    2%
Total (3)  108   18,790,021   $111,048,000    100%

 

(1)“Vacant” represents two properties. One property represents a 36,270 square foot building located in Urbandale (Des Moines), IA for which the Company entered into a 10.2 year lease agreement which commenced on November 1, 2017, and generates approximately $172,000 in annualized rent. The other property represents an 87,500 square foot building in Ft. Myers, FL that is under contract to sell for approximately $6,400,000, which is approximately $2,400,000 above the Company’s U.S. GAAP net book carrying value. Annualized Rent of “Vacant” represents rent recognized during fiscal 2017 prior to becoming vacant.
(2)“Shopping Center” represents a multi-tenanted property which has lease expirations ranging from month-to-month to 2029.
(3)Included in 2018 is Datatel Resources and included in 2025 is NF&M International, which both occupy one property and therefore are counted as one property in the property count total. Included in 2021 is Woodstream Corporation and included in 2023 is Altec Industries, Inc., which both occupy one property and therefore are counted as one property in the property count total.

 

ITEM 3 – LEGAL PROCEEDINGS

 

None.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

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PART II

 

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Since June 1, 2010, the common stock of Monmouth Real Estate Investment Corporation, $0.01 par value per share (common stock), has been traded on the New York Stock Exchange (NYSE), under the symbol “MNR”. Previously, the common stock was traded on the NASDAQ Global Select Market. The per share range of high and low market prices and distributions paid to common shareholders during each fiscal quarter of the last two fiscal years ended September 30th were as follows:

 

   Fiscal 2017          Fiscal 2016     
   Market Price          Market Price     
Fiscal Qtr.  High   Low   Distrib.   Fiscal Qtr.  High   Low   Distrib. 
                            
First  $15.36   $12.89   $0.16   First  $10.72   $9.50   $0.16 
Second   15.35    13.68    0.16   Second   12.03    9.63    0.16 
Third   15.34    13.95    0.16   Third   13.26    11.22    0.16 
Fourth   16.56    14.44    0.16   Fourth   14.92    13.15    0.16 
             $0.64                $0.64 

 

On November 15, 2017, the closing price of our common stock was $17.07 per share.

 

Shareholder Information

 

As of November 15, 2017, 1,317 shareholders of record held shares of our common stock.

 

Distributions and Dividends

 

On October 2, 2017, the Company’s Board of Directors approved a 6.25% increase in the Company’s quarterly common stock dividend, raising it to $0.17 per share from $0.16 per share. On October 2, 2017, the Company’s Board of Directors approved a cash dividend of $0.17 per share, to be paid on December 15, 2017, to shareholders of record at the close of business on November 15, 2017. This represents an annualized dividend rate of $0.68 per share. The Company has maintained or increased its cash dividend for 26 consecutive years. The Company paid the distributions from cash flows from operations. The Company’s common stock dividend policy is dependent upon the Company’s earnings, capital requirements, financial condition, availability and cost of bank financing and other factors considered relevant by the Board of Directors. It is the Company’s intention to continue making comparable quarterly distributions in the future and to grow its distributions over time.

 

Recent Sales of Unregistered Securities

 

None.

 

Purchases of Equity Securities

 

On January 17, 2017, the Board of Directors reaffirmed its Share Repurchase Program (Repurchase Program) that authorizes the Company to purchase up to $10,000,000 in the aggregate of the Company’s common stock. The Repurchase Program was originally created on March 3, 2009 and is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The Repurchase Program does not require the Company to acquire any particular amount of common stock, and the program may be suspended, modified or discontinued at any time at the Company’s discretion without prior notice. During the fiscal year ended September 30, 2017, the Company did not reacquire any of its shares of common stock. The maximum dollar value that may be purchased under the Repurchase Program as of September 30, 2017 is $10,000,000.

 

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Table of Contents 

 

Equity Compensation Plan Information

 

On March 13, 2017, upon recommendation of the Compensation Committee of the Company’s Board of Directors, the Board approved the Amended and Restated 2007 Incentive Award Plan (the Plan), conditioned upon shareholder approval. At the Company’s Annual Meeting held on May 18, 2017, the Company’s common shareholders approved the Plan. The Plan constitutes an amendment and restatement of the 2007 Plan, extends the term of the 2007 Plan for an additional 10 years, adds 1,600,000 shares of common stock to the share reserve, expands the types of awards available for grant under the Plan and makes other improvements to the 2007 Plan. As of September 30, 2017, there were 1,753,042 shares available for grant as stock options, restricted stock and other equity-based awards under the Plan. During fiscal 2017, options to purchase 280,000 shares were granted with a weighted average exercise price of $14.43 and options to purchase 65,000 shares were exercised at an exercise price of $7.22 per share for total proceeds of $469,300. In addition, during fiscal 2017, 11,000 shares of restricted common stock were granted with a fair value on the grant date of $15.92 per share. In addition, during fiscal 2017, 836 unrestricted shares of common stock were granted with a fair value on the grant date of $15.92 per share. See Note 9 in the Notes to the Consolidated Financial Statements included in this Form 10-K for a description of the plan. See Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for a table of beneficial ownership of the Company’s common stock.

 

The following table summarizes information, as of September 30, 2017, relating to the equity compensation plan of the Company (including individual compensation arrangements) pursuant to which equity securities of the Company are authorized for issuance:

 

   Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights   Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights   Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plan (excluding Securities reflected in column (a)) 
Plan Category  (a)   (b)   (c) 
             
Equity Compensation Plan Approved by Security Holders   670,000   $11.75    1,753,042 
                
Equity Compensation Plan not Approved by Security Holders   -    -    -