UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
EXCHANGE ACT OF 1934
For
the quarterly period ended
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | identification number) |
(Address of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number, including area code (
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| New York Stock Exchange | ||||
| New York Stock Exchange |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| 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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of May 1, 2021:
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 2021
C O N T E N T S
| Page No | ||
| PART I | FINANCIAL INFORMATION | |
| Item 1 - | Financial Statements (Unaudited): | |
| Consolidated Balance Sheets | 3 | |
| Consolidated Statements of Income (Loss) | 5 | |
| Consolidated Statements of Comprehensive Income (Loss) | 7 | |
| Consolidated Statements of Shareholders’ Equity | 8 | |
| Consolidated Statements of Cash Flows | 10 | |
| Notes to Consolidated Financial Statements | 11 | |
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 25 |
| Item 3 - | Quantitative and Qualitative Disclosures About Market Risk. | 39 |
| Item 4 - | Controls and Procedures. | 39 |
| PART II - | OTHER INFORMATION | |
| Item 1 - | Legal Proceedings. | 40 |
| Item 1A - | Risk Factors. | 40 |
| Item 2 - | Unregistered Sales of Equity Securities and Use of Proceeds. | 40 |
| Item 3 - | Defaults Upon Senior Securities. | 40 |
| Item 4 - | Mine Safety Disclosures. | 40 |
| Item 5 - | Other Information. | 40 |
| Item 6 - | Exhibits. | 40 |
| SIGNATURES | 41 | |
| 2 |
PART I:
FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2021 AND SEPTEMBER 30, 2020
(in thousands except per share amounts)
March 31, 2021 (Unaudited) | September 30, 2020 | |||||||
| ASSETS | ||||||||
| Real Estate Investments: | ||||||||
| Land | $ | $ | ||||||
| Buildings and Improvements | ||||||||
| Total Real Estate Investments | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Real Estate Investments | ||||||||
| Cash and Cash Equivalents | ||||||||
| Securities Available for Sale at Fair Value | ||||||||
| Tenant and Other Receivables | ||||||||
| Deferred Rent Receivable | ||||||||
| Prepaid Expenses | ||||||||
| Intangible Assets, net of Accumulated Amortization of $ | ||||||||
| Capitalized Lease Costs, net of Accumulated Amortization of $ | ||||||||
| Financing Costs, net of Accumulated Amortization of $ | ||||||||
| Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
See Accompanying Notes to the Consolidated Financial Statements
| 3 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – CONTINUED
AS OF MARCH 31, 2021 AND SEPTEMBER 30, 2020
(in thousands except per share amounts)
March 31, 2021 (Unaudited) | September 30, 2020 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs | $ | $ | ||||||
| Loans Payable | ||||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Shareholders’ Equity: | ||||||||
| Common Stock, $ Par Value Per Share: and Shares Authorized as of March 31, 2021 and September 30, 2020, respectively; and Shares Issued and Outstanding as of March 31, 2021 and September 30, 2020, respectively | ||||||||
| Excess Stock, $ Par Value Per Share: Shares Authorized as of March 31, 2021 and September 30, 2020; Shares Issued or Outstanding as of March 31, 2021 and September 30, 2020 | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Undistributed Income | ||||||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See Accompanying Notes to the Consolidated Financial Statements
| 4 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021 AND 2020
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| INCOME: | ||||||||||||||||
| Rental Revenue | $ | $ | $ | $ | ||||||||||||
| Reimbursement Revenue | ||||||||||||||||
| Lease Termination Income | ||||||||||||||||
| TOTAL INCOME | ||||||||||||||||
| EXPENSES: | ||||||||||||||||
| Real Estate Taxes | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General & Administrative Expenses | ||||||||||||||||
| Non-recurring Strategic Alternative & Proxy Costs | ||||||||||||||||
| Non-recurring Severance Expense | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Amortization of Capitalized Lease Costs and Intangible Assets | ||||||||||||||||
| TOTAL EXPENSES | ||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Dividend Income | ||||||||||||||||
| Realized Gain on Sale of Securities Transactions | ||||||||||||||||
| Unrealized Holding Gains (Losses) Arising During the Periods | ( | ) | ( | ) | ||||||||||||
| Interest Expense, including Amortization of Financing Costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| Less: Preferred Dividends | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See Accompanying Notes to Consolidated Financial Statements
| 5 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021 AND 2020 – CONTINUED
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| BASIC INCOME (LOSS) – PER SHARE | ||||||||||||||||
| Net Income (Loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Less: Preferred Dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income (Loss) Attributable to Common Shareholders - Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| DILUTED INCOME (LOSS) – PER SHARE | ||||||||||||||||
| Net Income (Loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Less: Preferred Dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income (Loss) Attributable to Common Shareholders - Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (in thousands) | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See Accompanying Notes to Consolidated Financial Statements
| 6 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021 AND 2020
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Net Income (Loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other Comprehensive Income: | ||||||||||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| Less: Preferred Dividends | ||||||||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See Accompanying Notes to Consolidated Financial Statements
| 7 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(in thousands, except per share data)
| Common Stock | Preferred Stock Series C | Additional Paid in Capital | Undistributed Income (Loss) | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Shares Issued in Connection with the DRIP (1) | ||||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Distributions To Common Shareholders ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock Option Exercise | ||||||||||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | | ( | ) | |||||||||||||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Common Stock | Preferred Stock Series C | Additional Paid in Capital | Undistributed Income (Loss) | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Shares Issued in Connection with the DRIP (1) | ||||||||||||||||||||||||
| Shares Issued in Connection with At-The-Market Sales Agreement Program of | ( | ) | ||||||||||||||||||||||
| Shares Issued Through the Exercise of Stock Options | ||||||||||||||||||||||||
| Shares repurchased through the Common Stock Repurchase Plan | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Distributions To Common Shareholders ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | Dividend Reinvestment and Stock Purchase Plan |
See Accompanying Notes to the Consolidated Financial Statements
| 8 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2021 AND 2020
(in thousands, except per share data)
| Common Stock | Preferred Stock Series C | Additional Paid in Capital | Undistributed Income (Loss) | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
| Balance September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Shares Issued in Connection with the DRIP (1) | ||||||||||||||||||||||||
| Shares Issued in Connection with At-The-Market Sales Agreement Program of | ( | ) | ||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Distributions To Common Shareholders ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Stock Option Exercise | ||||||||||||||||||||||||
| Net Income | ||||||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Common Stock | Preferred Stock Series C | Additional Paid in Capital | Undistributed Income (Loss) | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
| Balance September 30, 2019 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Shares Issued in Connection with the DRIP (1) | ||||||||||||||||||||||||
| Shares Issued in Connection with At-The-Market Offerings of | ( | ) | ||||||||||||||||||||||
| Shares Issued Through the Exercise of Stock Options | ||||||||||||||||||||||||
| Shares repurchased through the Common Stock Repurchase Plan | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Distributions To Common Shareholders ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 9 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2021 AND 2020
(in thousands)
| Six Months Ended | ||||||||
| 3/31/2021 | 3/31/2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Noncash Items Included in Net Income (Loss): | ||||||||
| Depreciation & Amortization | ||||||||
| Deferred Straight Line Rent | ( | ) | ( | ) | ||||
| Stock Compensation Expense | ||||||||
| Securities Available for Sale Received as Dividend Income | ( | ) | ( | ) | ||||
| Realized Gain on Sale of Securities Transactions | ( | ) | ||||||
| Unrealized Holding (Gains) Losses Arising During the Periods | ( | ) | ||||||
| Changes In: | ||||||||
| Tenant & Other Receivables | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ( | ) | ||||
| Other Assets & Capitalized Lease Costs | ( | ) | ( | ) | ||||
| Accounts Payable, Accrued Expenses & Other Liabilities | ||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Real Estate & Intangible Assets | ( | ) | ( | ) | ||||
| Capital Improvements | ( | ) | ( | ) | ||||
| Return of Deposits on Real Estate | ||||||||
| Deposits Paid on Acquisitions of Real Estate | ( | ) | ( | ) | ||||
| Proceeds from the Sale of Securities Transactions | ||||||||
| Proceeds from Securities Available for Sale Called for Redemption | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net Repayments on Loans Payable | ( | ) | ||||||
| Proceeds from Fixed Rate Mortgage Notes Payable | ||||||||
| Principal Payments on Fixed Rate Mortgage Notes Payable | ( | ) | ( | ) | ||||
| Financing Costs Paid on Debt | ( | ) | ( | ) | ||||
| Proceeds from the Exercise of Stock Options | ||||||||
| Proceeds from At-The-Market Stock, net of offering costs | ||||||||
| Proceeds from Issuance of Common Stock in the DRIP, net of Dividend Reinvestments | ||||||||
| Shares repurchased through the Common Stock Repurchase Plan | ( | ) | ||||||
| Preferred Dividends Paid | ( | ) | ( | ) | ||||
| Common Dividends Paid, net of Reinvestments | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements
| 10 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2021
NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES
Monmouth
Real Estate Investment Corporation, a Maryland corporation, together with its consolidated subsidiaries (we, our, us, the Company
or MREIC), operates as a real estate investment trust (REIT) deriving its income primarily from real estate rental operations.
We were founded in 1968 and are one of the oldest public equity REITs in the world. As of March 31, 2021, we owned
The
future effects of the evolving impact of the COVID-19 Pandemic are uncertain however, at this time COVID-19 has not had a material adverse
effect on our financial condition. We invest in modern single-tenant, industrial buildings, leased primarily to investment-grade tenants
or their subsidiaries on long-term net-leases. Our investments are exclusively situated in the continental United States, and are primarily
located in strategic locations that are mission-critical to our tenants’ needs. In many cases our buildings are highly automated
in order to better serve the omni-channel distribution networks that have become essential today. Approximately
For many years, ecommerce demand has increased, and it has now become an integral part of the retail landscape. The COVID-19 Pandemic has created an even greater move towards on-line shopping. As a result of state and local government-mandated shutdowns, public health guidance and changing consumer demand, ecommerce sales as a percentage of total retail sales has substantially increased during the past year. The COVID-19 Pandemic has also created a need for supply chain reconfiguration. It is estimated that ecommerce sales require three times the warehouse space relative to brick and mortar retail sales. Increased inventory stocking is currently taking place across many industries and it appears that this trend will continue in order to accommodate surges in demand.
Our
portfolio of modern, net-leased industrial properties continues to provide shareholders with reliable and predictable income streams.
Our resilient occupancy rates and rent collection results during these challenging times highlight the mission-critical nature
of our assets and underscore the essential need for our tenants’ operations. Furthermore, because our weighted average lease
term is 7.4 years and our weighted average fixed rate mortgage debt maturity is
On May 4, 2021, we announced that, following a comprehensive strategic alternatives process, we entered into a definitive merger agreement with Equity Commonwealth, a New York Stock Exchange traded real estate investment trust, by which Equity Commonwealth will acquire MREIC in an all-stock transaction. See Note 10-Subsequent Events.
| 11 |
Income Tax
We have elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the Code), and we intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that we distribute to our shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. We are subject to franchise taxes in several of the states in which we own properties.
In
December 2017, as part of the Tax Cuts and Jobs Act of 2017 (the TCJA), Section 199A was added to the Code and became effective
for tax years beginning after December 31, 2017 and before January 1, 2026. Under the TCJA, subject to certain income limitations,
an individual taxpayer and estates and trusts may deduct
We follow the provisions of ASC Topic 740, Income Taxes, that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on our evaluation, we determined that we have no uncertain tax positions and no unrecognized tax benefits as of March 31, 2021. We record interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of March 31, 2021, the fiscal tax years 2017 through and including 2020 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.
The interim Consolidated Financial Statements furnished herein have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) applicable to interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Use of Estimates
In preparing the financial statements in accordance with U.S. GAAP, we are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates and assumptions.
Reclassification
Certain prior period amounts in the accompanying Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.
Stock Compensation Plan
We account for awards of stock, stock options and restricted stock in accordance with ASC 718-10, “Compensation-Stock Compensation.” ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. The compensation expense for restricted stock is recognized based on the fair value of the restricted stock awards less estimated forfeitures. The fair value of stock awards and restricted stock awards is equal to the fair value of our stock on the grant date. The amortization of compensation costs for the awards of stock, stock option grants and restricted stock are included in General and Administrative Expenses in the accompanying Consolidated Statements of Income and amounted to $ and $ for the three months ended March 31, 2021 and 2020, respectively and amounted to $ and $ for the six months ended March 31, 2021 and 2020, respectively.
| 12 |
Date of Grant | Number of Employees | Number of Shares (in thousands) | Option Price | Expiration Date | ||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| Fiscal 2021 | Fiscal 2020 | |||||||
| Dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected lives (years) | ||||||||
| Estimated forfeitures | ||||||||
The weighted average fair value of options granted during the six months ended March 31, 2021 and 2020 was $ and $ per share subject to the option.
During
the six months ended March 31, 2021 and 2020, shares of restricted stock were granted. During the six months ended March 31,
2021, three participants exercised options to purchase shares of common stock at a weighted average price of $ per
share for total proceeds of $
Lease Termination Income
Lease Termination Income is recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with us.
Effective
October 1, 2020, we entered into a lease termination agreement with RGH Enterprises, Inc. (Cardinal Health) for our
| 13 |
Only
four of our
Gains on Sale of Real Estate Investment
Gains on the sale of real estate investment is recognized when the profit on a given sale is determinable, and the seller is not obliged to perform significant activities after the sale to earn such profit.
Recent Accounting Pronouncements
In
April 2020, FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of the COVID-19
Pandemic that allows entities to treat the concession as if it was a part of the existing contract instead of applying lease modification
accounting. This guidance is only applicable to the COVID-19 Pandemic related lease concessions that do not result in a substantial
increase in the rights of the lessor or the obligations of the lessee. We have elected this option relating to qualifying rent
deferral and rent abatement agreements. For qualifying lease modifications with rent deferrals, this results in no change to our
revenue recognition but an increase in the lease receivable balance until the deferred rent has been repaid. For qualifying lease
modifications that include rent abatement concessions, this results in a direct reduction of rental income in the current period.
As of March 31, 2021,
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements.
Segment Reporting & Financial Information
Our primary business is the ownership and management of real estate properties. We invest in well-located, modern, single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. We review operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. We evaluate 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. We have 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.
| 14 |
Derivative Instruments and Hedging Activities
In
the normal course of business, we are exposed to financial market risks, including interest rate risk on our variable rate debt.
We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use
of derivative financial instruments. Our primary strategy in entering into derivative contracts is to minimize the variability
that changes in interest rates could have on its future cash flows. We generally employ derivative instruments that effectively
convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes.
As further described in “Note 5 – Debt”, in November 2019 we entered into an interest rate swap agreement that
has the effect of fixing the interest rate on our $
The
interest rate for borrowings under the Term Loan will at our election, either i) bear interest at LIBOR plus 130 basis points
to 200 basis points, depending on our leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 30 basis points
to 100 basis points, depending on our leverage ratio. The re-pricing and scheduled maturity dates, payment dates, index and the
notional amounts of the interest rate swap agreement coincides with those of the underlying Term Loan. The interest rate swap
agreement is net settled monthly. The Company has designated this derivative as a cash flow hedge and has recorded the fair value
on the balance sheet in accordance with ASC 815, Derivatives and Hedging (See Note 7 for information on the determination of fair
value). The effective portion of the gain or loss on this hedge will be reported as a component of Accumulated Other Comprehensive
Loss on our Consolidated Balance Sheets. To the extent that the hedging relationship is not effective or does not qualify as a
cash flow hedge, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment
are evaluated for effectiveness at the time that they are designated as well as through the hedging period. As of March 31, 2021,
the Company has determined that this interest rate swap agreement is highly effective as a cash flow hedge. As a result, the fair
value of this derivative of $
Basic Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted average number of common shares outstanding during the period. Diluted Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted average number of common shares outstanding for the period and, when dilutive, the potential net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.
In addition, common stock equivalents of and shares are included in the diluted weighted average shares outstanding for the three months ended March 31, 2021 and 2020, respectively, and common stock equivalents of and shares are included in the diluted weighted average shares outstanding for the six months ended March 31, 2021 and 2020. For the diluted weighted average shares outstanding for the three months ended March 31, 2021 and 2020, and options to purchase shares of common stock were antidilutive. For the diluted weighted average shares outstanding for the six months ended March 31, 2021 and 2020, and options to purchase shares of common stock, respectively, were antidilutive.
| 15 |
NOTE 3 – REAL ESTATE INVESTMENTS
Acquisitions
On
December 17, 2020, we purchased a newly constructed
On
December 24, 2020, we purchased a newly constructed
FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation and Home Depot U.S.A., Inc’s ultimate parent, Home Depot, Inc. are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. The references in this report to the SEC’s website are not intended to and do not include, or incorporate by reference into this report, the information on the www.sec.gov website.
We
evaluated the property acquisitions which took place during the six months ended March 31, 2021, to determine whether an integrated
set of assets and activities meets the definition of a business, pursuant to ASU 2017-01. Acquisitions that do not meet the definition
of a business are accounted for as asset acquisitions. Accordingly, we accounted for the properties purchased during fiscal 2021
as asset acquisitions and allocated the total cash consideration, including transaction costs of approximately $
| Land | $ | |||
| Building | ||||
| In-Place Leases |
The following table summarizes the operating results included in our Consolidated Statements of Income for the properties acquired during the six months ended March 31, 2021 (in thousands):
| Three Months Ended 3/31/2021 | Six Months Ended 3/31/2021 | |||||||
| Rental Revenues | $ | $ | ||||||
| Net Income Attributable to Common Shareholders | ||||||||
Expansions
During
the six months ended March 31, 2021, we completed the first phase of a two-phase parking expansion project for FedEx Ground Package
System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed
for a total cost of $
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Proforma information
The
following unaudited pro-forma condensed financial information has been prepared utilizing our historical financial statements and the
effect of the reduction of revenue and expenses that will no longer be generated from a property that was sold after March 31, 2021 and
the effect of additional revenue and expenses generated from properties acquired and expanded during fiscal 2021 to date, and during
fiscal 2020, assuming that the property acquisitions, completed expansions and the sale of one property had occurred as of October
1, 2019, after giving effect to certain adjustments including: (a) Rental Revenue adjustments resulting from the straight-lining of scheduled
rent increases, (b) Interest Expense resulting from the assumed increase in Fixed Rate Mortgage Notes Payable and Loans Payable related
to the new acquisitions, and (c) Depreciation Expense related to the new acquisitions and expansions. Furthermore, the net proceeds raised
from our Dividend Reinvestment and Stock Purchase Plan (the DRIP) were used to fund property acquisitions and expansions and therefore,
the weighted average shares outstanding used in calculating the pro-forma Basic and Diluted Net Income per Share Attributable to Common
Shareholders has been adjusted to account for the increase in shares issued pursuant to the DRIP, as if all such shares has been issued
on October 1, 2019. Additionally, the net proceeds raised from the issuance of additional shares of our
Three Months Ended (in thousands, except per share amounts) | ||||||||||||||||
| 3/31/2021 | 3/31/2020 | |||||||||||||||
| As Reported | Pro-forma | As Reported | Pro-forma | |||||||||||||
| Rental Revenue | $ | $ | $ | $ | ||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Basic and Diluted Net Income (Loss) per Share Attributable to Common Shareholders | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
Six Months Ended (in thousands, except per share amounts) | ||||||||||||||||
| 3/31/2021 | 3/31/2020 | |||||||||||||||
| As Reported | Pro-forma | As Reported | Pro-forma | |||||||||||||
| Rental Revenue | $ | $ | $ | $ | ||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Basic and Diluted Net Income (Loss) per Share Attributable to Common Shareholders | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
Tenant Concentration
We
have a concentration of properties leased to FedEx Corporation (FDX) and FDX subsidiaries, consisting of 63 separate stand-alone
leases covering
| 17 |
Annualized
Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately
FDX and Amazon are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. FDX and Amazon are rated “BBB” and “AA-”, respectively by S&P Global Ratings (www.standardandpoors.com) and are rated “Baa2” and “A2”, respectively by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings.
NOTE 4 – SECURITIES AVAILABLE FOR SALE AT FAIR VALUE
Our
Securities Available for Sale at Fair Value consists primarily of marketable common and preferred stock of other REITs with a
fair value of $
We
recognized dividend income on our investments in securities of $
In
addition to the $2.5 million of UMH 8.00% Series B Cumulative Redeemable Preferred Stock that was redeemed during the six months
ended March 31, 2021, we also sold marketable REIT securities for gross proceeds totaling $
| 18 |
As
of March 31, 2021, we had total net unrealized holding losses on our securities portfolio of $
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Unrealized Holding Gains (Losses) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Reclassification Adjustment for Net Gains Realized in Income | ( | ) | ( | ) | ||||||||||||
| Unrealized Holding Gains (Losses) Arising During the Period | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
NOTE 5 – DEBT
For
the three months ended March 31, 2021 and 2020, amortization of financing costs included in interest expense was $
As
of March 31, 2021, we owned 121 properties, of which 62 carried Fixed Rate Mortgage Notes Payable with outstanding principal balances
totaling $
| 3/31/2021 | 9/30/2020 | |||||||||||||||
| Amount | Weighted Average Interest Rate (1) | Amount | Weighted Average Interest Rate (1) | |||||||||||||
| Fixed Rate Mortgage Notes Payable | $ | % | $ | % | ||||||||||||
| Debt Issuance Costs | $ | $ | ||||||||||||||
| Accumulated Amortization of Debt Issuance Costs | ( | ) | ( | ) | ||||||||||||
| Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||
| Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs | $ | $ | ||||||||||||||
| (1) |
As
of March 31, 2021, interest payable on these mortgages were at fixed rates ranging from
In
connection with the two properties acquired during the six months ended March 31, 2021, which are located in the Columbus, OH
and Atlanta, GA MSAs (as described in Note 3), we obtained a
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On
January 26, 2021, we fully prepaid a $
On
November 15, 2019, we entered into a new line of credit facility (the “New Facility”) consisting of a $
From
time to time we may use a margin loan for temporary funding of acquisitions and for working capital purposes. This loan is due
on demand and is collateralized by our securities portfolio. We must maintain a coverage ratio of approximately
NOTE 6 – SHAREHOLDERS’ EQUITY
Our authorized stock as of March 31, 2021 consisted of million shares of common stock, of which million shares were issued and outstanding, million authorized shares of 6.125% Series C Preferred Stock, of which million shares were issued and outstanding, and million authorized shares of Excess Stock, $ par value per share, of which were issued or outstanding.
| 20 |
Common Stock
We
raised $
On
January 14, 2021, our Board of Directors approved a
On
February 6, 2020, we entered into a Common Stock ATM Program with BMO Capital Markets Corp., B. Riley FBR, Inc., D.A. Davidson
& Co., Janney Montgomery Scott LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC (together the “Distribution
Agents”) under which we may offer and sell shares of our common stock, $ par value per share, having an aggregate sales
price of up to $
Our
Common Stock Repurchase Program (the “Program”) authorizes us to purchase up to $
Under
the Program, during fiscal 2020, we repurchased shares of our common stock for $
6.125% Series C Cumulative Redeemable Preferred Stock
During
the six months ended March 31, 2021, we paid $
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At-the-Market Sales Agreement Program for our 6.125% Series C Cumulative Redeemable Preferred Stock
On
June 29, 2017, we entered into a Preferred Stock At-The-Market Sales Agreement Program with B. Riley FBR, Inc., or B. Riley (formerly
FBR Capital Markets & Co.), that provided for the offer and sale of shares of our
On
August 2, 2018, we replaced this program with a new Preferred Stock At-The-Market Sales Agreement Program that provides for the
offer and sale from time to time of $
On
December 4, 2019, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on August 2, 2018 with another
Preferred Stock At-The-Market Sales Agreement Program that provides for the offer and sale from time to time of $
On
November 25, 2020, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on December 4, 2019 with
another new Preferred Stock At-The-Market Sales Agreement Program (Preferred Stock ATM Program) that provides for the offer and
sale from time to time of up to $
Sales
of shares of our
As of March 31, 2021, 22.0 million shares of our 6.125% Series C Preferred Stock were outstanding.
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NOTE 7 - FAIR VALUE MEASUREMENTS
We follow ASC 825, Financial Instruments, for financial assets and liabilities recognized at fair value on a recurring basis. We measure certain financial assets and liabilities at fair value on a recurring basis, including Securities Available for Sale at Fair Value. Our financial assets consist mainly of marketable REIT securities. The fair value of these financial assets was determined using the following inputs at March 31, 2021 and September 30, 2020 (in thousands):
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| As of March 31, 2021: | ||||||||||||||||
| Equity Securities – Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Equity Securities – Common Stock | ||||||||||||||||
| Mortgage Backed Securities | ||||||||||||||||
| Interest Rate Swap | ( | ) | ( | ) | ||||||||||||
| Total Securities Available for Sale at Fair Value | $ | $ | $ | ( | ) | $ | ||||||||||
| As of September 30, 2020: | ||||||||||||||||
| Equity Securities – Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Equity Securities – Common Stock | ||||||||||||||||
| Mortgage Backed Securities | ||||||||||||||||
| Interest Rate Swap | ( | ) | ( | ) | ||||||||||||
| Total Securities Available for Sale at Fair Value | $ | $ | $ | ( | ) | $ | ||||||||||
In addition to our investments in Securities Available for Sale at Fair Value, we are required to disclose certain information about fair values of other financial instruments. Estimates of fair value are made at a specific point in time based upon, where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time our entire holdings of financial instruments. For a portion of our other financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions, many of which involve events outside the control of management. Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties; future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only, and therefore cannot be compared to the historical accounting model. The use of different assumptions or methodologies is likely to result in significantly different fair value estimates.
The
fair value of Cash and Cash Equivalents approximates their current carrying amounts since all such items are short term in nature.
The fair value of variable rate Loans Payable approximates their current carrying amounts, since such amounts payable are at approximately
a weighted average current market rate of interest. The estimated fair value of Fixed Rate Mortgage Notes Payable is based on
discounting the future cash flows at a yearend risk adjusted borrowing rate currently available to us for issuance of debt with
similar terms and remaining maturities. These fair value measurements fall within level 2 of the fair value hierarchy. At March
31, 2021, the Fixed Rate Mortgage Notes Payable fair value (estimated based upon expected cash outflows discounted at current
market rates) amounted to $
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NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash
paid for interest during the six months ended March 31, 2021 and 2020 was $
During
the six months ended March 31, 2021 and 2020, we had dividend reinvestments of $
NOTE 9 – CONTINGENCIES AND COMMITMENTS
We
have entered into agreements to purchase six new build-to-suit, industrial buildings that are currently being developed in Alabama (2),
Georgia, Tennessee, Texas and Vermont. These six future acquisitions total
We
have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are eight parking
expansion projects underway which we expect to cost approximately $
From time to time, we may be subject to claims and litigation in the ordinary course of business. We do not believe that any such claim or litigation will have a material adverse effect on the Consolidated Balance Sheets or results of operations.
NOTE 10 – SUBSEQUENT EVENTS
As announced on May 4, 2021, following a comprehensive strategic alternatives process, we entered into a definitive merger agreement with Equity Commonwealth pursuant to which Equity Commonwealth will acquire the Company in an all-stock transaction. Under the terms of the merger agreement, our common stockholders will receive shares of Equity Commonwealth stock for every share of our common stock they own. The transaction is expected to close during the second half of calendar 2021, subject to customary closing conditions, including the approval of common stockholders of both Equity Commonwealth and Monmouth.
On April 1, 2021, our Board of Directors declared a dividend of $ per share to be paid to common shareholders of record as of the close of business on .
On April 1, 2021, our Board of Directors declared a dividend of $ per share to be paid June 15, 2021 to the % Series C Preferred shareholders of record as of the close of business on May 17, 2021.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements that are not historical facts. Forward-looking statements can be identified by their use of forward-looking words, such as “may,” “will,” “anticipate,” “expect,” “believe,” “intend,” “plan,” “should,” “seek” or comparable terms, or the negative use of those words, but the absence of these words does not necessarily mean that a statement is not forward-looking.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described below and are described under the above heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above and the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. These and other risks, uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from our expectations include, among others:
| ● | the ability of our tenants to make payments under their respective leases; |
| ● | our reliance on certain major tenants; |
| ● | our ability to re-lease properties that are currently vacant or that become vacant; |
| ● | our ability to obtain suitable tenants for our properties; |
| ● | changes in real estate market conditions, economic conditions in the industrial sector, the markets in which our properties are located and general economic conditions; |
| ● | the inherent risks associated with owning real estate, including local real estate market conditions, governing laws and regulations and illiquidity of real estate investments; |
| ● | our ability to acquire, finance and sell properties on attractive terms; |
| ● | our ability to repay debt financing obligations; |
| ● | our ability to refinance amounts outstanding under our debt obligations at maturity on terms favorable to us, or at all; |
| ● | the loss of any member of our management team; |
| ● | our ability to comply with debt covenants; |
| ● | our ability to integrate acquired properties and operations into existing operations; |
| ● | continued availability of proceeds from issuances of our debt or equity securities; |
| ● | the availability of other debt and equity financing alternatives; |
| ● | changes in interest rates, including the replacement of the LIBOR reference rate, under our current credit facility and under any additional variable rate debt arrangements that we may enter into in the future; |
| ● | our ability to successfully implement our selective acquisition strategy; |
| ● | our ability to maintain internal controls and procedures to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected; |
| ● | changes in federal or state tax rules or regulations that could have adverse tax consequences; |
| ● | declines in the market prices of our investment securities; |
| 25 |
| ● | the effect of COVID-19 on our business and general economic conditions; |
| ● | our ability to qualify as a REIT for federal income tax purposes; |
| ● | potential adverse effects on our business as a result of a publicly announced proxy contest for the election of directors at our annual meeting or other shareholder activism; |
| ● | inability to complete the proposed transaction with Equity Commonwealth because, among other reasons, one or more conditions to the closing of the proposed transaction may not be satisfied or waived; | |
| ● | uncertainty as to the timing of completion of the proposed transaction; | |
| ● | potential adverse effects or changes to relationships with Equity Commonwealth’s or Monmouth’s respective tenants, employees, service providers or other parties resulting from the announcement or completion of the proposed transaction; | |
| ● | the outcome of any legal proceedings that may be instituted against the parties and others related to the merger agreement; | |
| ● | possible disruptions from the proposed transaction that could harm Equity Commonwealth’s or Monmouth’s respective business, including current plans and operations; | |
| ● | unexpected costs, charges or expenses resulting from the proposed transaction; and | |
| ● | uncertainty of the expected financial performance of Equity Commonwealth following completion of the proposed transaction, including the possibility that the benefits anticipated from the proposed transaction will not be realized or will not be realized within the expected time period. |
You should not place undue reliance on these forward-looking statements, as events described or implied in such statements may not occur. Although we have entered into the merger agreement with Equity Commonwealth, there can be no assurance that the merger and other transactions contemplated by the merger agreement will be completed.
Merger with Equity Commonwealth
As previously announced, in January 2021, our Board of Directors unanimously decided to explore strategic alternatives to maximize shareholder value. Following a comprehensive strategic alternatives process, on May 4, 2021, we entered into a definitive merger agreement with Equity Commonwealth under which, on the terms and subject to the conditions set forth in the merger agreement, the Company will merge with and into a new wholly-owned subsidiary of Equity Commonwealth, resulting in Equity Commonwealth acquiring the Company in an all-stock transaction. The merger agreement provides that, upon closing of the merger, our common stockholders will receive 0.67 shares of Equity Commonwealth stock for every share of our common stock they own. We plan to continue to pay our regular quarterly common stock dividend and our Series C Cumulative Redeemable Preferred Stock dividend until closing of the transaction. The transaction is expected to close during the second half of calendar 2021, subject to customary closing conditions, including approval by common stockholders of both Equity Commonwealth and the Company.
This proposed merger is the culmination of the comprehensive strategic alternatives review conducted by our Board. As part of the review, our Board of Directors, working with the Company’s legal and financial advisors, carefully considered a full range of strategic alternatives. The Company and its advisors engaged with and solicited proposals from a broad range of highly reputable strategic and financial counterparties, all with significant access to capital, comprising approximately 100 different potential buyers, including industrial, triple-net and other REITs, private equity sponsors, sovereign wealth funds and pension funds, among other domestic and international investors. At the conclusion of this process, the Board unanimously concluded that the merger with Equity Commonwealth is the best outcome to maximize long-term value for the Company’s stockholders.
Overview and Recent Activity
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto provided elsewhere herein and our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
We operate as a real estate investment trust (REIT). We seek to invest in well-located, modern single-tenant industrial buildings leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. We were founded in 1968 and are one of the oldest public equity REITs in the world.
During the six months ended March 31, 2021, we purchased two new built-to-suit, net-leased, industrial properties, located in the Columbus, OH, and Atlanta, GA Metropolitan Statistical Areas (MSAs) totaling approximately 1.1 million square feet, for $170.0 million. The two properties are net-leased for terms of 15 and 20 years, respectively resulting in a weighted average lease term of 17.9 years and are expected to generate annualized rental income over the life of their leases of $10.1 million. In connection with the two properties acquired during the six months ended March 31, 2021, we obtained a 15 year, fully-amortizing mortgage loan and a 17 year, fully-amortizing mortgage loan, respectively. The two mortgage loans originally totaled $104.0 million with a weighted average maturity of 16.1 years and a weighted average fixed interest rate of 3.11%. As of March 31, 2021, we owned 121 properties with total square footage of 24.6 million. These properties are located in 31 states. Subsequent to quarter end, on April 15, 2021, we sold our 60,400 square foot building located in Carlstadt (New York, NY), NJ. As of the quarter ended March 31, 2021, our weighted average lease term was 7.4 years, our occupancy rate was 99.7%, and our annualized average base rent per occupied square foot was $6.51. As of March 31, 2021, the weighted average building age, based on the square footage of our buildings, was 9.9 years. In addition, total gross real estate investments, excluding marketable REIT securities investments of $131.7 million, were $2.2 billion as of March 31, 2021.
See PART I, Item 1 – Business in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for a more complete discussion of the economic and industry-wide factors relevant to us and the opportunities, challenges, and risks on which we are focused.
The future effects of the COVID-19 Pandemic are uncertain, however, at this time COVID-19 has not had a material adverse effect on our financial condition. We invest in modern single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. Our investments are exclusively situated in the continental United States, and are primarily located in strategic locations that are mission-critical to our tenants’ needs. In many cases our buildings are highly automated in order to better serve the omni-channel distribution networks that have become essential today. Approximately 83% of our revenue is derived from investment-grade tenants, or their subsidiaries as defined by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). The references in this report to S&P Global Ratings and Moody’s are not intended to and do not include, or incorporate by reference into this report, the information of S&P Global Ratings or Moody’s on such websites.
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For many years, ecommerce demand has increased, and it has now become an integral part of the retail landscape. The COVID-19 Pandemic has created an even greater move towards on-line shopping. As a result of state and local government-mandated shutdowns, public health guidance and changing consumer demand, ecommerce sales as a percentage of total retail sales has substantially increased during the past year. The COVID-19 Pandemic has also created a need for supply chain reconfiguration. It is estimated that ecommerce sales require three times the warehouse space relative to brick and mortar retail sales. Increased inventory stocking is currently taking place across many industries and it appears that this trend will continue in order to accommodate surges in demand.
Our portfolio of modern, net-leased industrial properties, continues to provide shareholders with reliable and predictable income streams. Our resilient occupancy rates and rent collection results during these challenging times, highlight the mission-critical nature of our assets and underscore the essential need for our tenants’ operations. Furthermore, because our weighted average lease term is 7.4 years and our weighted average fixed rate mortgage debt maturity is 11.3 years, we expect our cash flow to remain resilient over long periods of time.
Our overall occupancy rate and our base rent collections have remained strong throughout the COVID-19 Pandemic. Our base rent collections have averaged 99.9% throughout the COVID-19 Pandemic and we expect future months to be consistent with this trend. Our overall occupancy rate and our base rent collections during the COVID-19 Pandemic were as follows:
| Month | Occupancy | Percentage of Base Rent Collected | ||||||
| March 2020 | 99.4 | % | 100.0 | % | ||||
| April 2020 | 99.4 | % | 99.9 | % | ||||
| May 2020 | 99.4 | % | 99.9 | % | ||||
| June 2020 | 99.4 | % | 99.9 | % | ||||
| July 2020 | 99.4 | % | 99.9 | % | ||||
| August 2020 | 99.4 | % | 99.7 | % | ||||
| September 2020 | 99.4 | % | 99.8 | % | ||||
| October 2020 | 99.4 | % | 99.8 | % | ||||
| November 2020 | 99.4 | % | 99.9 | % | ||||
| December 2020 | 99.7 | % | 99.9 | % | ||||
| January 2021 | 99.7 | % | 99.9 | % | ||||
| February 2021 | 99.7 | % | 99.9 | % | ||||
| March 2021 | 99.7 | % | 99.9 | % | ||||
| April 2021 | 99.7 | % | 99.9 | % | ||||
We evaluate our financial performance using Net Operating Income (NOI) from property operations, which we believe is a useful indicator of our operating performance. NOI is a non-GAAP financial measure that we define as Net Income Attributable to Common Shareholders plus Preferred Dividend Expense, General and Administrative Expenses, Non-recurring Severance Expense, Depreciation, Amortization of Capitalized Lease Costs and Intangible Assets, Interest Expense, including Amortization of Financing Costs, Unrealized Holding (Gains) Losses Arising During the Periods, less Dividend Income and Lease Termination Income. The components of NOI are recurring Rental and Reimbursement Revenue, less Real Estate Taxes and Operating Expenses, such as insurance, utilities, and repairs and maintenance. Other REITs may use different methodologies to calculate NOI and, accordingly, our NOI may not be comparable to all other REITs.
| 27 |
The following is a reconciliation of our Net Income Attributable to Common Shareholders to our NOI for the three and six months ended March 31, 2021 and 2020 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | 25,913 | $ | (75,078 | ) | $ | 51,659 | $ | (71,551 | ) | ||||||
| Plus: Preferred Dividend Expense | 8,416 | 6,764 | 16,587 | 12,862 | ||||||||||||
| Plus: General & Administrative Expenses | 2,091 | 2,396 | 4,117 | 4,660 | ||||||||||||
| Plus: Non-recurring Strategic Alternative & Proxy Costs | 1,993 | -0- | 2,239 | -0- | ||||||||||||
| Plus: Non-recurring Severance Expense | -0- | -0- | -0- | 786 | ||||||||||||
| Plus: Depreciation | 13,064 | 11,475 | 25,141 | 22,907 | ||||||||||||
| Plus: Amortization of Capitalized Lease Costs and Intangible Assets | 879 | 767 | 1,687 | 1,521 | ||||||||||||
| Plus: Interest Expense, including Amortization of Financing Costs | 9,387 | 9,050 | 18,546 | 18,259 | ||||||||||||
| Less/Plus: Unrealized Holding (Gains) Losses Arising During the Periods | (19,186 | ) | 83,075 | (38,906 | ) | 86,710 | ||||||||||
| Less: Dividend Income | (1,587 | ) | (3,404 | ) | (3,195 | ) | (6,642 | ) | ||||||||
| Less: Gain on Sale of Securities Transactions | (2,248 | ) | -0- | (2,248 | ) | -0- | ||||||||||
| Less: Lease Termination Income | -0- | -0- | (377 | ) | -0- | |||||||||||
| Net Operating Income- NOI | $ | 38,722 | $ | 35,045 | $ | 75,250 | $ | 69,512 | ||||||||
The components of our NOI for the three and six months ended March 31, 2021 and 2020 are as follows (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Rental Revenue | $ | 39,246 | $ | 35,114 | $ | 76,091 | $ | 69,983 | ||||||||
| Reimbursement Revenue | 7,119 | 6,594 | 13,856 | 13,424 | ||||||||||||
| Total Rental and Reimbursement Revenue | 46,365 | 41,708 | 89,947 | 83,407 | ||||||||||||
| Real Estate Taxes | (5,604 | ) | (5,029 | ) | (10,922 | ) | (10,064 | ) | ||||||||
| Operating Expenses | (2,039 | ) | (1,634 | ) | (3,775 | ) | (3,831 | ) | ||||||||
| Net Operating Income- NOI | $ | 38,722 | $ | 35,045 | $ | 75,250 | $ | 69,512 | ||||||||
NOI from property operations increased $3.7 million, or 10%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. NOI from property operations increased $5.7 million, or 8%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. This increase was due to the acquisition of two new built-to-suit, net-leased, industrial properties, located in the Columbus, OH and Atlanta, GA MSAs totaling approximately 1.1 million square feet purchased during the six-month period ended March 31, 2021 and the fiscal 2020 acquisitions consisting of five new built-to-suit, net-leased, industrial properties, located in the Indianapolis, IN, Columbus, OH, Greensboro, NC, Salt Lake City, UT and Oklahoma City, OK MSAs totaling approximately 1.2 million square feet.
Acquisitions
On December 17, 2020, we purchased a newly constructed 488,000 square foot industrial building, situated on 99.0 acres, located in the Columbus, OH MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through September 2035. The purchase price was $73.3 million. We obtained a 15 year, fully-amortizing mortgage loan of $47.0 million at a fixed interest rate of 2.95%. Annual rental revenue over the remaining term of the lease averages $4.6 million.
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On December 24, 2020, we purchased a newly constructed 658,000 square foot industrial building, situated on 129.9 acres, located in the Atlanta, GA MSA. The building is 100% net-leased to Home Depot U.S.A., Inc. for 20 years through November 2040. The purchase price was $96.7 million. We obtained a 17 year, fully-amortizing mortgage loan of $57.0 million at a fixed interest rate of 3.25%. Annual rental revenue over the remaining term of the lease averages $5.5 million.
FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation and Home Depot U.S.A., Inc’s ultimate parent, Home Depot, Inc. are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. The references in this report to the SEC’s website are not intended to and do not include, or incorporate by reference into this report, the information on the www.sec.gov website.
Expansions
During the six months ended March 31, 2021, we completed the first phase of a two-phase parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed for a total cost of $3.4 million, which resulted in a $340,000 increase in annualized rent effective November 5, 2020 increasing the annualized rent from $2.2 million to $2.6 million. We will soon be starting the second phase of this parking expansion project at this location, which will increase the rental rate further and extend the lease term.
Commitments
We have entered into agreements to purchase six new build-to-suit, industrial buildings that are currently being developed in Alabama (2), Georgia, Tennessee, Texas and Vermont. These six future acquisitions total 1.8 million square feet, with net-leased terms ranging from 10 to 15 years, resulting in a weighted average lease term of 13.5 years. The aggregate purchase price for these six properties is $238.1 million. Five of these six properties, consisting of approximately 1.3 million square feet, or 70%, are leased for 15 years to FedEx Ground Package System, Inc., with the remaining property, consisting of approximately 530,000 square feet or 30%, leased for 10 years to Mercedes Benz US International, Inc. All properties are leased to companies, or subsidiaries of companies, that are considered Investment Grade by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing three of these transactions during fiscal 2021, two in the first half of fiscal 2022 and one in the second half of fiscal 2022. In connection with five of the six properties, we have entered into commitments to obtain five, 15 year, fully-amortizing mortgage loans, totaling $128.1 million with fixed interest rates ranging from 2.5% to 3.05%, resulting in a weighted average fixed interest rate of 2.74%.
We have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are eight parking expansion projects underway which we expect to cost approximately $31.4 million. These parking expansion projects will enable us to capture additional rent while lengthening the terms of these leases. We are also in discussions to expand the parking at nine additional locations bringing the total recently completed and potential parking lot expansion projects to 18 currently.
Significant Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP). The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.
On a regular basis, we evaluate our assumptions, judgments and estimates. We believe that there have been no material changes to the items that we disclosed as our significant accounting policies and estimates under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for fiscal year ended September 30, 2020.
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Changes in Results of Operations
As of March 31, 2021, we owned 121 properties with total square footage of 24.6 million, as compared to 116 properties with total square footage of 23.0 million, as of March 31, 2020, representing an increase in square footage of 7.0%. Subsequent to quarter end, on April 15, 2021, we sold our 60,400 square foot building located in Carlstadt (New York, NY), NJ. At quarter end, the Company’s weighted average lease term was approximately 7.4 years, as compared to 7.4 years at the end of the prior year period. Our occupancy rate was 99.7% as of March 31, 2021, as compared to 99.4% as of March 31, 2020, representing an increase of 30 basis points. Our weighted average building age was 9.9 years as of March 31, 2021, as compared to 9.4 years as of March 31, 2020.
Fiscal 2021 Renewals
In fiscal 2021, approximately 5% of our gross leasable area, representing ten leases totaling 1.2 million square feet, is set to expire. Eight of these ten leases have been renewed thus far, for a weighted average term of 4.1 years, at a rental rate increase of 7.2% on a GAAP basis and an increase of 0.4% on a cash basis. These eight lease renewals represent 1.1 million square feet, or 91% of the expiring square footage for fiscal 2021.
We have incurred or we expect to incur leasing commission costs of $536,000 in connection with four of these lease renewals and we have incurred or we expect to incur tenant improvement costs of $436,000 in connection with three of these lease renewals. The table below summarizes the lease term of the leases that 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 annually over the renewal terms.
| 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) | |||||||||||||||||||||||||||
| Griffin (Atlanta), GA | Rinnai America Corporation | 218,120 | $ | 3.81 | $ | 3.93 | 12/31/20 | $ | 4.22 | $ | 4.22 | 12/31/22 | 2.0 | $ | -0- | $ | 0.13 | |||||||||||||||||||||
| Fayetteville, NC | Victory Packaging, L.P. | 148,000 | 3.33 | 3.50 | 2/28/21 | 3.40 | 3.25 | 2/28/25 | 4.0 | -0- | 0.20 | |||||||||||||||||||||||||||
| Winston-Salem, NC | Style Crest, Inc. | 106,507 | 3.39 | 3.77 | 3/31/21 | 4.10 | 3.90 | 3/31/26 | 5.0 | 0.30 | -0- | |||||||||||||||||||||||||||
| Augusta, GA | FedEx Ground | 59,358 | 8.64 | 8.64 | 6/30/21 | 8.64 | 8.64 | 6/30/23 | 2.0 | -0- | -0- | |||||||||||||||||||||||||||
| O’Fallon, MO | Pittsburgh Glass Works, LLC | 102,135 | 4.37 | 4.44 | 6/30/21 | 5.05 | 4.88 | 6/30/26 | 5.0 | 0.20 | -0- | |||||||||||||||||||||||||||
| Corpus Christi, TX | FedEx Ground | 46,253 | 9.03 | 9.42 | 8/31/21 | 9.89 | 9.89 | 8/31/26 | 5.0 | -0- | -0- | |||||||||||||||||||||||||||
| Kansas City, MO | Bunzl Distribution | 158,417 | 4.65 | 4.86 | 9/30/21 | 4.44 | 4.26 | 9/30/26 | 5.0 | -0- | 0.27 | |||||||||||||||||||||||||||
| St. Joseph, MO | Woodstream Corporation | 256,000 | 3.57 | 3.70 | 9/30/21 | 3.89 | 3.75 | 9/30/26 | 5.0 | 0.14 | 0.12 | |||||||||||||||||||||||||||
| Total | 1,094,790 | |||||||||||||||||||||||||||||||||||||
| Weighted Average | $ | 4.30 | $ | 4.47 | $ | 4.61 | $ | 4.49 | 4.1 | $ | 0.10 | $ | 0.12 | |||||||||||||||||||||||||
| (1) | Amount calculated based on the total cost divided by the square feet, divided by the renewal term. |
These eight lease renewals have a U.S. GAAP straight-line lease rate of $4.61 per square foot. The renewed initial cash rent per square foot is $4.49. This compares to the former rent of $4.30 per square foot on a U.S. GAAP straight-line basis and the former cash rent of $4.47 per square foot, resulting in an increase of 7.2% on a U.S. GAAP straight-line basis and an increase of 0.4% on a cash basis.
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Effective October 1, 2020, we entered into a lease termination agreement with RGH Enterprises, Inc. (Cardinal Health) for our 75,000 square foot facility located in Halfmoon (Albany), NY whereby we received a termination fee in the amount of $377,000 representing approximately 50% of the then remaining rent due under the lease, which was set to expire in 1.2 years on November 30, 2021. We simultaneously entered into a 10.4 year lease agreement with United Parcel Service, Inc. (UPS) which became effective November 1, 2020. The lease agreement with UPS provides for five months of free rent, after which, on April 1, 2021, initial annual rent of $510,000, representing $6.80 per square foot, will commence, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of $541,000, representing $7.21 per square foot over the life of the lease, which expires March 31, 2031. This compares to the former U.S GAAP straight-line rent of $574,000, representing $7.65 per square foot and former cash rent of $8.19 per square foot, resulting in a decrease of $33,000, representing a 5.8% decrease on a U.S GAAP straight-line basis and a decrease of 17.0% on a cash basis. The new 10.4 year lease agreement with UPS provides for an additional 9.3 years of lease term versus the old lease with Cardinal Health.
Effective December 15, 2020, we entered into a 10.3 year lease with Hartford HealthCare Corporation for our previously vacant 55,000 square foot facility located in Newington (Hartford), CT, thereby increasing our current overall occupancy rate to 99.7%. The new lease has free rent for the first four months, after which initial annual rent will be $288,000, representing $5.25 per square foot with 2.0% annual increases thereafter, resulting in a U.S. GAAP straight-line annualized rent of $307,000, representing $5.60 per square foot over the life of the lease. Hartford HealthCare Corporation is rated “investment-grade” as defined by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com).
Rental Revenue increased $4.1 million, or 12%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Rental Revenue increased $6.1 million, or 9%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. These increases were due to the acquisition of two new built-to-suit, net-leased, industrial properties located in the Columbus, OH and Atlanta, GA MSAs totaling approximately 1.1 million square feet during the six months ended March 31, 2021 and the increase was due to the fiscal 2020 acquisitions of five new built-to-suit, net-leased, industrial properties, located in the Indianapolis, IN, Columbus, OH, Greensboro, NC, Salt Lake City, UT and Oklahoma City, OK MSAs totaling approximately 1.2 million square feet.
Our single-tenant properties are subject to net-leases, which require the tenants to reimburse us for the cost of Real Estate Taxes as well as certain Operating Expenses such as insurance and the majority of repairs and maintenance. Reimbursement Revenue increased $525,000, or 8%, Real Estate Tax Expense increased $575,000, or 11%, and Operating Expenses increased $405,000, or 25% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. For the six months ended March 31, 2021, Reimbursement Revenue increased $432,000, or 3%, Real Estate Tax Expense increased $858,000, or 9%, and Operating Expenses decreased $56,000, or 1% as compared to the six months ended March 31, 2020. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the three months ended March 31, 2021 was 93% compared to 99% for the three months ended March 31, 2020. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the six months ended March 31, 2021 was 94% compared to 97% for the six months ended March 31, 2020.
General and Administrative Expenses decreased $305,000, or 13%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. General and Administrative Expenses decreased $543,000, or 12%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. General and Administrative Expenses, as a percentage of gross revenue (which includes Rental Revenue, Reimbursement Revenue and Dividend Income) was 4.4% for the three months ended March 31, 2021 as compared to 5.3% for the three months ended March 31, 2020 and was 4.4% for the six months ended March 31, 2021 as compared to 5.2% for the six months ended March 31, 2020. Annualized General and Administrative Expenses, as a percentage of undepreciated assets (which is our total assets excluding accumulated depreciation) was 34 basis points for the six months ended March 31, 2021 as compared to 43 basis points for the six months ended March 31, 2020.
During the six months ended March 31, 2021, we have incurred Non-recurring Strategic Alternative & Proxy Costs of $2.2 million related to the evaluation of strategic alternatives approved by our Board of Directors and the related proxy process.
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On December 23, 2019, our former General Counsel, Allison Nagelberg, announced her retirement effective December 31, 2019. In accordance with her severance package, during the first quarter of fiscal 2020, we incurred a one-time, Non-recurring Severance Expense of $786,000.
Depreciation increased $1.6 million, or 14%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Depreciation increased $2.2 million, or 10%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. Amortization of Capitalized Lease Costs and Intangible Assets increased $112,000, or 15%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Amortization of Capitalized Lease Costs and Intangible Assets increased $166,000, or 11%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. These increases were primarily due to the acquisition of two industrial properties purchased during the first half of fiscal 2021 and five industrial properties purchased during fiscal 2020. In addition, the increases in depreciation and amortization expenses were also the result of the capital improvements and leasing costs incurred over the last four quarters.
The recognition of Unrealized Holding Gains (Losses) Arising During the Periods was due to the adoption of ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which became effective at the beginning of the prior fiscal year. With the adoption of ASU 2016-01, the changes in net unrealized holding gains and losses are recognized through net income. Therefore, the implementation of this accounting rule has resulted in increased volatility in our reported earnings and some of our key performance metrics. Unrealized Holding Gains arising during the three and six months ended March 31, 2021 were $19.2 million and $38.9 million, respectively and Unrealized Holding Losses arising during the three and six months ended March 31, 2020 were $83.1 million and $86.7 million, respectively. The components of the Unrealized Holding Gains (Losses) Arising During the Periods included in the accompanying Consolidated Statements of Income are as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Unrealized Holding Gains (Losses) | $ | 21,434 | $ | (83,075 | ) | $ | 41,154 | $ | (86,710 | ) | ||||||
| Reclassification Adjustment for Net (Gains) Realized in Income | (2,248 | ) | -0- | (2,248 | ) | -0- | ||||||||||
| Unrealized Holding Gains (Losses) Arising During the Period | $ | 19,186 | $ | (83,075 | ) | $ | 38,906 | $ | (86,710 | ) | ||||||
We recognized dividend income on our investments in securities of $1.6 million and $3.4 million for the three months ended March 31, 2021 and 2020, respectively, representing a $1.8 million decrease. We recognized dividend income on our investments in securities of $3.2 million and $6.6 million for the six months ended March 31, 2021 and 2020, respectively, representing a $3.4 million decrease. This decrease is due to reduced dividends from our REIT securities portfolio. The REIT securities portfolio’s weighted average yield for the six months ended March 31, 2021 was approximately 4.9% as compared to 8.9% for the six months ended March 31, 2020. We held $131.7 million in marketable REIT securities as of March 31, 2021, representing 5.4% of our undepreciated assets.
Interest Expense, including Amortization of Financing Costs, increased by $337,000, or 4%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Interest Expense, including Amortization of Financing Costs, increased by $287,000, or 2%, for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. We had a decrease of 17 basis points in the weighted average interest rate of the Fixed Rate Mortgage Notes Payable, which decreased from 4.04% at March 31, 2020 to 3.87% at March 31, 2021. The decrease in Interest Expense, including Amortization of Financing Costs, was partially offset by an increase in the Fixed Rate Mortgage Notes Payable balance, which increased by $86.6 million from March 31, 2020 to March 31, 2021.
Preferred Dividend Expense increased $1.7 million, or 24%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 and increased $3.7 million, or 29% for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020. These increases were due to the additional $120.4 million of 6.125% Series C Cumulative Redeemable Preferred Stock issued between March 31, 2020 and March 31, 2021.
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Changes in Financial Condition
We generated Net Cash from Operating Activities of $54.4 million and $47.9 million for the six months ended March 31, 2021 and 2020, respectively.
Real Estate Investments increased by $143.8 million from September 30, 2020 to March 31, 2021. This increase was mainly due to the purchase of two net-leased industrial properties, located in the Columbus, OH MSA and the Atlanta, GA MSA, totaling approximately 1.1 million square feet, for $170.0 million. The increase was partially offset by Depreciation Expense on Real Estate Investments for the six months ended March 31, 2021 of $25.1 million.
Securities Available for Sale increased by $22.8 million from September 30, 2020 to March 31, 2021. The increase was primarily due to an Unrealized Holding Gain of $38.9 million for the six months ended March 31, 2021. There were also sales and redemptions of securities during the six month period totaling $18.8 million which resulted in a realized gain of $2.2 million.
Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs (Mortgage Notes Payable), increased by $66.7 million from September 30, 2020 to March 31, 2021. The increase was mostly due to the origination of two fully-amortizing mortgage loans for $104.0 million, with a weighted average interest rate of 3.11%, obtained in connection with the two industrial properties purchased during the first half of fiscal 2021. Details on these two fixed rate mortgages are as follows:
| Property (MSA) | Mortgage amount (in thousands) | Maturity Date | Interest Rate | |||||||
| Columbus, OH | $ | 47,000 | 1/1/2036 | 2.95 | % | |||||
| Atlanta, GA | $ | 57,000 | 1/1/2038 | 3.25 | % | |||||
The increase in Mortgage Notes Payable was also partially due to the amortization of financing costs associated with the Mortgage Notes Payable of approximately $482,000. This increase was partially offset by scheduled payments of principal of $37.2 million and we fully prepaid two Mortgage loans. One mortgage loan was a $6.2 million mortgage loan for our property located in Kansas City, MO that was originally set to mature on December 1, 2021 and had an interest rate of 5.18%. The second mortgage loan was a $159,000 mortgage loan for our property located in Topeka, KS that was originally set to mature on August 10, 2021 and had an interest rate of 6.50%. In addition, the increase in Mortgage Notes Payable was partially offset by the addition of deferred financing costs of approximately $569,000, which is associated with two mortgages obtained in connection with two industrial properties purchased during the first quarter of fiscal 2021.
Excluding Debt Issuance Costs, the weighted average interest rate on the Fixed Rate Mortgage Notes Payable decreased by 17 basis points from the prior year quarter, from 4.04% at March 31, 2020 to 3.87% at March 31, 2021.
We are scheduled to repay a total of $73.6 million in mortgage principal payments over the next 12 months. We may make these principal payments from the cash on hand, funds generated from Cash from Operations, the DRIP, the At-The-Market Sales Agreement Program (Preferred Stock ATM Program), the Equity Distribution Agreement (Common Stock ATM Program), and draws from the unsecured line of credit facility.
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Liquidity and Capital Resources
Net Cash Provided by Operating Activities was $54.4 million and $47.9 million for the six months ended March 31, 2021 and 2020, respectively. Dividends paid on common stock for the six months ended March 31, 2021 and 2020 were $34.4 million and $33.1 million, respectively (of which $1.0 million and $5.6 million, respectively, were reinvested). We pay dividends from cash generated from operations.
As of March 31, 2021, we held $131.7 million in marketable REIT securities, representing 5.4% of our undepreciated assets, which we define as total assets excluding accumulated depreciation. Total assets excluding accumulated depreciation were $2.4 billion as of March 31, 2021. In general, we may borrow up to 50% of the value of the marketable securities. The interest rate charged on the margin loan is the bank’s margin rate and was 0.75% as of March 31, 2021. At March 31, 2021, there was no amount drawn down under the margin loan. As of March 31, 2021, we had net Unrealized Holding Losses on our portfolio of $87.9 million as compared to net Unrealized Holding Losses of $126.8 million as of September 30, 2020, representing an Unrealized Holding Gain of $38.9 million for the six months ended March 31, 2021. There have been no open market purchases of securities during the six months ended March 31, 2021. We recognized dividend income on our investments in securities of $1.6 million and $3.2 million for the three and six months ended March 31, 2021. During the six months ended March 31, 2021, UMH Properties, Inc. (UMH), a related REIT, redeemed all of its outstanding 8.00% Series B Cumulative Redeemable Preferred Stock at a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends, of which we owned 100,000 shares at a total cost of $2.5 million. In addition to the $2.5 million of UMH 8.00% Series B Cumulative Redeemable Preferred Stock that was redeemed during the six months ended March 31, 2021, we also sold marketable REIT securities for gross proceeds totaling $16.3 million with an original cost basis of $14.1 million, resulting in a realized gain of $2.2 million.
On November 15, 2020, we entered into a new line of credit facility (the “New Facility”) consisting of a $225.0 million unsecured line of credit facility (the “Revolver”) and a new $75.0 million unsecured term loan (the “Term Loan”), resulting in the total potential availability under both the Revolver and the Term Loan of $300.0 million, which is an additional $100.0 million over the former line of credit facility. In addition, the Revolver includes an accordion feature that will allow the total potential availability under the New Facility to further increase to $400.0 million, under certain conditions. The $225.0 million Revolver matures in January 2024 with two options to extend for additional six-month periods. Availability under the New Facility is limited to 60% of the value of the borrowing base properties. The value of the borrowing base properties is determined by applying a capitalization rate to the NOI generated by our unencumbered, wholly-owned industrial properties. Under the New Facility, the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties was lowered from 6.5% under the former line of credit facility to 6.25%, thus increasing the value of the borrowing base properties under the terms of the New Facility. In addition, the interest rate for borrowings under the Revolver was lowered by a range of 5 basis points to 35 basis points, depending on our leverage ratio, and will, at our election, either i) bear interest at LIBOR plus 135 basis points to 205 basis points, depending on our leverage ratio, or ii) bear interest at Bank of Montreal’s (BMO) prime lending rate plus 35 basis points to 105 basis points, depending on our leverage ratio. Currently, our borrowings bear interest under the Revolver at LIBOR plus 145 basis points, which results in an interest rate of 1.56%. As of the quarter end and currently, we do not have any amount drawn down under our Revolver, resulting in the full $225.0 million being currently available. The $75.0 million Term Loan matures January 2025. The interest rate for borrowings under the Term Loan will at our election, either i) bear interest at LIBOR plus 130 basis points to 200 basis points, depending on our leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 30 basis points to 100 basis points, depending on our leverage ratio. To reduce floating interest rate exposure under the Term Loan, we also entered into an interest rate swap agreement to fix LIBOR on the entire $75.0 million for the full duration of the Term Loan resulting in an all-in rate of 2.92%.
As of March 31, 2021, we owned 121 properties, of which 62 carried mortgage loans with outstanding principal balances totaling $874.2 million. Subsequent to quarter end, on April 15, 2021, we sold our 60,400 square foot building located in Carlstadt (New York, NY), NJ and we paid off the mortgage in the amount of $1.1 million. The 59 unencumbered properties could be refinanced to raise additional funds, although covenants in our New Facility limit the amount of unencumbered properties that can be mortgaged. As of March 31, 2021, Loans Payable represented $75.0 million outstanding under our Term Loan.
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As of March 31, 2021, we had total assets of $2.1 billion and liabilities of $972.3 million. Our net debt (net of unamortized debt issuance costs and net of cash and cash equivalents) to total market capitalization as of March 31, 2021 was approximately 29% and our net debt, less marketable securities (net of unamortized debt issuance costs, net of cash and cash equivalents and net of marketable securities) to total market capitalization as of March 31, 2021 was approximately 24%. Our debt consists of 92% amortizing fixed rate debt with a weighted average interest rate of 3.87% and a weighted average loan maturity of 11.3 years. We believe that we have the ability to meet our obligations and to generate funds for new investments.
On January 14, 2021, our Board of Directors unanimously decided to explore strategic alternatives to maximize shareholder value. Following a comprehensive strategic alternatives process, we entered into a definitive merger agreement by which Equity Commonwealth (NYSE: EQC) will acquire Monmouth in an all-stock transaction. Under the terms of the merger agreement, Monmouth shareholders will receive 0.67 shares of Equity Commonwealth stock for every share of Monmouth stock they own. Under the terms of the merger agreement, Monmouth plans to continue to pay its regular quarterly common stock dividend and its Series C Cumulative Redeemable Preferred Stock dividend between signing and closing of the transaction. The transaction is expected to close during the second half of calendar 2021, subject to customary closing conditions, including the approval of both Equity Commonwealth and Monmouth stockholders.
On February 6, 2020, we entered into a Common Stock ATM Program with BMO Capital Markets Corp., B. Riley FBR, Inc., D.A. Davidson & Co., Janney Montgomery Scott LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC (together the “Distribution Agents”) under which we may offer and sell shares of our common stock, $0.01 par value per share, having an aggregate sales price of up to $150.0 million from time to time through the Distribution Agents. Sales of the shares of Common Stock under the Agreement, if any, will be in “at the market offerings” as defined in Rule 415 under the Securities Act, including, without limitation, sales made directly on or through the NYSE, or on any other existing trading market for the Common Stock, or to or through a market maker or any other method permitted by law, including, without limitation, negotiated transactions and block trades. We implemented the Common Stock ATM program for the flexibility that it provides to opportunistically access the capital markets and to best time our equity capital needs as we close on acquisitions. To date, we have elected to not raise any equity though our Common Stock Equity Program.
On June 29, 2017, we entered into a Preferred Stock At-The-Market Sales Agreement Program with B. Riley FBR, Inc., or B. Riley (formerly FBR Capital Markets & Co.), that provided for the offer and sale of shares of our 6.125% Series C Preferred Stock, having an aggregate sales price of up to $100.0 million.
On August 2, 2018, we replaced this program with a new Preferred Stock At-The-Market Sales Agreement Program that provides for the offer and sale from time to time of $125.0 million of our 6.125% Series C Preferred Stock, representing an additional $96.5 million, with $28.5 million being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on June 29, 2017.
On December 4, 2019, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on August 2, 2018 with another Preferred Stock At-The-Market Sales Agreement Program that provides for the offer and sale from time to time of $125.0 million of our 6.125% Series C Preferred Stock, representing an additional $101.0 million, with $24.0 million being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on August 2, 2018.
On November 25, 2020, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on December 4, 2019 with another new Preferred Stock At-The-Market Sales Agreement Program (Preferred Stock ATM Program) that provides for the offer and sale from time to time of up to $150.0 million of our 6.125% Series C Preferred Stock, representing an additional $149.3 million, with $747,000 being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on December 4, 2019.
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Sales of shares of our 6.125% Series C Preferred Stock under the Preferred Stock ATM Program are in “at the market offerings” as defined in Rule 415 under the Securities Act, including, without limitation, sales made directly on or through the NYSE, or on any other existing trading market for the 6.125% Series C Preferred Stock, or to or through a market maker, or any other method permitted by law, including, without limitation, negotiated transactions and block trades. We began selling shares through these programs on July 3, 2017. Since inception through March 31, 2021, we sold 13.6 million shares of our 6.125% Series C Preferred Stock under these programs at a weighted average price of $24.91 per share, and generated net proceeds, after offering expenses, of $332.4 million, of which 3.1 million shares were sold during the six months ended March 31, 2021 at a weighted average price of $24.88 per share, generating net proceeds after offering expenses of $76.0 million. As of March 31, 2021, there is $108.3 million remaining that may be sold under the Preferred Stock ATM Program. No shares have been sold pursuant to the Preferred Stock ATM Program since December 2020.
As of March 31, 2021, 22.0 million shares of our 6.125% Series C Preferred Stock were outstanding.
We raised $1.3 million (including dividend reinvestments of $1.0 million) from the issuance of 87,000 shares of common stock under our DRIP during the six months ended March 31, 2021. Of this amount, UMH made total purchases of 13,000 common shares under our DRIP for a total cost of $205,000, or a weighted average cost of $15.68 per share.
During the six months ended March 31, 2021, we paid $34.4 million in total cash dividends, or $0.35 per share to common shareholders, of which $1.0 million was reinvested in the DRIP.
On January 14, 2021, our Board of Directors approved a 5.9% increase in our quarterly common stock dividend, raising it to $0.18 per share from $0.17 per share. This represents a 5.9% increase in our quarterly common stock dividend, raising it to $0.18 per share from $0.17 per share and represents an annualized dividend rate of $0.72 per share. This increase is the third dividend increase in the past five years, representing a total increase of 20%. We have maintained or increased our common stock cash dividend for 30 consecutive years. We are one of the few REITs that maintained our dividend throughout the Global Financial Crisis. We are also one of the few REITs that is paying out a higher per share dividend today than prior to the Global Financial Crisis. On April 1, 2021, our Board of Directors declared a dividend of $0.18 per common share to be paid on June 15, 2021 to common shareholders of record as of the close of business on May 17, 2021.
During the six months ended March 31, 2021, we paid $16.2 million in Preferred Dividends, or $0.765625 per share, on our outstanding 6.125% Series C Preferred Stock for the period September 1, 2020 through February 28, 2021. As of March 31, 2021, we had accrued Preferred Dividends of $2.8 million covering the period March 1, 2021 to March 31, 2021. Dividends on the 6.125% Series C Preferred Stock are cumulative and payable quarterly at an annual rate of $1.53125 per share.
On April 1, 2021, our Board of Directors declared a dividend of $0.3828125 per share to be paid June 15, 2021 to the 6.125% Series C Preferred shareholders of record as of the close of business on May 17, 2021.
We have used a variety of sources to fund our cash needs in addition to cash generated from operations. In the past, we considered selling marketable securities from our investment portfolio, borrowing on our unsecured line of credit facility or securities margin loans, finance or refinance debt, or raising capital through the DRIP, the Preferred Stock ATM Program, the Common Stock ATM Program or capital markets.
We have been raising capital through our DRIP, the Preferred Stock ATM Program, mortgage loans, draws on our unsecured line of credit, sale of marketable securities and funds generated from our investments in net-leased industrial properties. We may also raise capital through registered direct placements, public offerings of common and preferred stock and through our Common Stock ATM Program.
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We have a concentration of properties leased to FedEx Corporation (FDX) and FDX subsidiaries, consisting of 63 separate stand-alone leases covering 11.2 million square feet as of March 31, 2021 and 60 separate stand-alone leases covering 10.4 million square feet as of March 31, 2020. FDX is experiencing record demand due to the continued strong growth in ecommerce. Additionally, in periods of unprecedented turbulence, the services of FedEx are essential in keeping supply chains moving and in delivering critically needed supplies throughout the world. As of March 31, 2021, the 63 separate stand-alone leases that are leased to FDX and FDX subsidiaries are located in 26 different states and have a weighted average lease maturity of 7.8 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental space was 46% (5% to FDX and 41% to FDX subsidiaries) as of March 31, 2021 and 45% (5% to FDX and 40% to FDX subsidiaries) as of March 31, 2020.
As of March 31, 2021, the only tenants, other than FDX and its subsidiaries, that leased 5% or more of our total square footage were subsidiaries of Amazon.com, Inc (Amazon), which consists of five separate stand-alone leases for properties located in four different states, containing 1.5 million total square feet, comprising 6% of our total leasable square feet. None of our properties are subject to a master lease or any cross-collateralization agreements.
Annualized Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 55% (5% to FDX and 50% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2021, and was 58% (5% to FDX and 53% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2020. The only tenants, other than FDX and its subsidiaries, that we estimate will comprise 5% or more of our total Rental and Reimbursement Revenue for fiscal 2021 are subsidiaries of Amazon, which is estimated to be 7% of our Annualized Rental and Reimbursement Revenue for fiscal 2021 and was 6% for of our Annualized Rental and Reimbursement Revenue for fiscal 2020. For the six months ended March 31, 2021, no other tenant accounted for 5% or more of our total Rental and Reimbursement Revenue.
FDX and Amazon are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. FDX and Amazon are rated “BBB” and “AA-”, respectively by S&P Global Ratings (www.standardandpoors.com) and are rated “Baa2” and “A2”, respectively by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings.
During the six months ended March 31, 2021, we completed the first phase of a two-phase parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed for a total cost of $3.4 million which resulted in a $340,000 increase in annualized rent effective November 5, 2020 increasing the annualized rent from $2.2 million to $2.6 million. We will soon be starting the second phase of this parking expansion project at this location, which will increase the rental rate further and extend the lease term.
We have entered into agreements to purchase six new build-to-suit, industrial buildings that are currently being developed in Alabama (2), Georgia, Tennessee, Texas and Vermont. These six future acquisitions total 1.8 million square feet, with net-leased terms ranging from 10 to 15 years, resulting in a weighted average lease term of 13.5 years. The aggregate purchase price for these six properties is $238.1 million. Five of these six properties, consisting of approximately 1.3 million square feet, or 70%, are leased for 15 years to FedEx Ground Package System, Inc., with the remaining property, consisting of approximately 530,000 square feet or 30%, leased for 10 years to Mercedes Benz US International, Inc. All properties are leased to companies, or subsidiaries of companies, that are considered Investment Grade by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing three of these transactions during fiscal 2021, two in the first half of fiscal 2022 and one in the second half of fiscal 2022. In connection with five of the six properties, we have entered into commitments to obtain five, 15 year, fully-amortizing mortgage loans, totaling $128.1 million with fixed interest rates ranging from 2.50% to 3.05%, resulting in a weighted average fixed interest rate of 2.74%.
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We have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are eight parking expansion projects underway which we expect to cost approximately $31.4 million. In addition, the first phase of a parking expansion project was completed during the prior quarter at our property located in Olathe (Kansas City), KS for a total project cost of $3.4 million. This first phase of the expansion resulted in a $340,000 increase in annualized rent effective November 5, 2020 increasing the annualized rent from $2.2 million to $2.6 million. We will soon be starting the second phase of this parking expansion project at this location, which will increase the rental rate further and extend the lease term. These parking expansion projects will enable us to capture additional rent while lengthening the terms of these leases. We are also in discussions to expand the parking at nine additional locations bringing the total recently completed and potential parking lot expansion projects to 18 currently.
We intend to acquire additional net-leased industrial properties on long-term leases, primarily to investment grade tenants or their subsidiaries, and, when needed, expand our current properties. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Funds From Operations and Adjusted Funds From Operations
We assess and measure our overall operating results based upon an industry performance measure referred to as Funds From Operations (FFO), which we believe is a useful indicator of our operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. FFO, as defined by the National Association of Real Estate Investment Trusts (Nareit), represents net income attributable to common shareholders, as defined by accounting principles generally accepted in the United States of America (U.S. GAAP), excluding extraordinary items, as defined under U.S. GAAP, gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization. Included in the Nareit FFO White Paper - 2018 Restatement, is an option pertaining to assets incidental to our main business in the calculation of Nareit FFO to make an election to include or exclude mark-to-market changes in the value recognized on these marketable equity securities. In conjunction with the adoption of the FFO White Paper - 2018 Restatement, for all periods presented, we have elected to exclude unrealized gains and losses from our investments in marketable equity securities from our FFO calculation. Nareit created FFO as a non-GAAP supplemental measure of REIT operating performance. We define Adjusted Funds From Operations (AFFO) as FFO, excluding stock based compensation expense, depreciation of corporate office tenant improvements, amortization of deferred financing costs, lease termination income, non-recurring strategic alternative & proxy costs, non-recurring severance expense, effect of non-cash U.S. GAAP straight-line rent adjustments and subtracting recurring capital expenditures. We define recurring capital expenditures as all capital expenditures that are recurring in nature, excluding capital expenditures related to expansions at our current locations or capital expenditures that are incurred in conjunction with obtaining a new lease or a lease renewal. We believe that, as widely recognized measures of performance used by other REITs, FFO and AFFO may be considered by investors as supplemental measures to compare our operating performance to those of other REITs. FFO and AFFO exclude historical cost depreciation as an expense and may facilitate the comparison of REITs which have a different cost basis. However, other REITs may use different methodologies to calculate FFO and AFFO and, accordingly, our FFO and AFFO may not be comparable to all other REITs. The items excluded from FFO and AFFO are significant components in understanding our financial performance.
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FFO and AFFO are non-GAAP performance measures and (i) do not represent Cash Flow from Operations as defined by U.S. GAAP; (ii) should not be considered as an alternative to Net Income or Net Income Attributable to Common Shareholders as a measure of operating performance or to Cash Flows from Operating, Investing and Financing Activities; and (iii) are not an alternative to Cash Flows from Operating, Investing and Financing Activities as a measure of liquidity. FFO and AFFO, as calculated by us, may not be comparable to similarly titled measures reported by other REITs.
The following is a reconciliation of our U.S. GAAP Net Income (Loss) Attributable to Common Shareholders to our FFO and AFFO for the three and six months ended March 31, 2021 and 2020 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 3/31/2021 | 3/31/2020 | 3/31/2021 | 3/31/2020 | |||||||||||||
| Net Income (Loss) Attributable to Common Shareholders | $ | 25,913 | $ | (75,078 | ) | $ | 51,659 | $ | (71,551 | ) | ||||||
| Less/Plus: Unrealized Holding (Gains) Losses Arising During the Periods | (19,186 | ) | 83,075 | (38,906 | ) | 86,710 | ||||||||||
| Plus: Depreciation Expense (excluding Corporate Office Capitalized Costs) | 13,007 | 11,409 | 25,026 | 22,788 | ||||||||||||
| Plus: Amortization of Intangible Assets | 600 | 508 | 1,132 | 1,016 | ||||||||||||
| Plus: Amortization of Capitalized Lease Costs | 305 | 285 | 606 | 557 | ||||||||||||
| FFO Attributable to Common Shareholders | 20,639 | 20,199 | 39,517 | 39,520 | ||||||||||||
| Plus: Depreciation of Corporate Office Capitalized Costs | 57 | 66 | 116 | 118 | ||||||||||||
| Plus: Stock Compensation Expense | 77 | 114 | 134 | 270 | ||||||||||||
| Plus: Amortization of Financing Costs | 346 | 322 | 676 | 758 | ||||||||||||
| Plus: Non-recurring Strategic Alternative & Proxy Costs | 1,993 | -0- | 2,239 | -0- | ||||||||||||
| Plus: Non-recurring Severance Expense | -0- | -0- | -0- | 786 | ||||||||||||
| Less: Gain on Sale of Securities Transactions | (2,248 | ) | -0- | (2,248 | ) | -0- | ||||||||||
| Less: Lease Termination Income | -0- | -0- | (377 | ) | -0- | |||||||||||
| Less: Recurring Capital Expenditures | (403 | ) | (717 | ) | (563 | ) | (936 | ) | ||||||||
| Less: Effect of Non-cash U.S. GAAP Straight-line Rent Adjustment | (1,043 | ) | (632 | ) | (1,661 | ) | (1,232 | ) | ||||||||
| AFFO Attributable to Common Shareholders | $ | 19,418 | $ | 19,352 | $ | 37,833 | $ | 39,284 | ||||||||
The following are the Cash Flows provided (used) by Operating, Investing and Financing Activities for the six months ended March 31, 2021 and 2020 (in thousands):
| Six Months Ended | ||||||||
| 3/31/2021 | 3/31/2020 | |||||||
| Operating Activities | $ | 54,426 | $ | 47,854 | ||||
| Investing Activities | (153,511 | ) | (101,388 | ) | ||||
| Financing Activities | 94,951 | 69,268 | ||||||
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
There have been no material changes to information required regarding quantitative and qualitative disclosures about market risk from the end of the preceding fiscal year to March 31, 2021 (the date of this Quarterly Report on Form 10-Q).
ITEM 4. Controls and Procedures.
Our President and Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial and accounting officer) with the assistance of other members of our management, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of such period.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal controls over financial reporting during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II:
OTHER INFORMATION
| Item 1. | Legal Proceedings. – None | |
| Item 1A. | Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (the “10-K”) and the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2020 (the “10-Q”) which could materially affect the Company’s business, financial condition or future results. The risks described in the 10-K and the 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results. | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. - None | |
| Item 3. | Defaults Upon Senior Securities. – None | |
| Item 4. | Mine Safety Disclosures. – None | |
| Item 5. | Other Information. - None | |
| Item 6. | Exhibits | |
| 31.1 | Certification of Michael P. Landy, President and Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith). | |
| 31.2 | Certification of Kevin S. Miller, Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith). | |
| 32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Michael P. Landy, President and Chief Executive Officer, and Kevin S. Miller, Chief Financial Officer (Furnished herewith). | |
| 101 | The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MONMOUTH REAL ESTATE INVESTMENT CORPORATION | ||
| Date: May 6, 2021 | By: | /s/ Michael P. Landy |
| Michael P. Landy, President and Chief Executive Officer, | ||
| its principal executive officer | ||
| Date: May 6, 2021 | By: | /s/ Kevin S. Miller |
| Kevin S. Miller, Chief Financial Officer, its principal | ||
| financial officer and principal accounting officer | ||
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