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
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Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of February 1, 2022:
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
AND SUBSIDIARIES
FOR THE QUARTER ENDED DECEMBER 31, 2021
CONTENTS
| Page No | ||
| PART I | FINANCIAL INFORMATION | |
| Item 1 - | Financial Statements (Unaudited): | |
| Consolidated Balance Sheets | 3 | |
| Consolidated Statements of Income | 5 | |
| Consolidated Statements of Comprehensive Income | 7 | |
| Consolidated Statements of Shareholders’ Equity | 8 | |
| Consolidated Statements of Cash Flows | 9 | |
| Notes to Consolidated Financial Statements | 10 | |
| Item 2 - | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 25 |
| Item 3 - | Quantitative and Qualitative Disclosures About Market Risk. | 41 |
| Item 4 - | Controls and Procedures. | 41 |
| PART II - | OTHER INFORMATION | |
| Item 1 - | Legal Proceedings. | 42 |
| Item 1A - | Risk Factors. | 43 |
| Item 2 - | Unregistered Sales of Equity Securities and Use of Proceeds. | 43 |
| Item 3 - | Defaults Upon Senior Securities. | 43 |
| Item 4 - | Mine Safety Disclosures. | 43 |
| Item 5 - | Other Information. | 43 |
| Item 6 - | Exhibits. | 43 |
| SIGNATURES | 44 | |
| 2 |
PART I:
FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2021 AND SEPTEMBER 30, 2021
(in thousands except per share amounts)
December 31, 2021 (Unaudited) |
September 30, 2021 | |||||||
| 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 DECEMBER 31, 2021 AND SEPTEMBER 30, 2021
(in thousands except per share amounts)
December 31, 2021 (Unaudited) | September 30, 2021 | |||||||
| 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: Shares Authorized as of December 31, 2021 and September 30, 2021; and Shares Issued and Outstanding as of December 31, 2021 and September 30, 2021, respectively | ||||||||
| Excess Stock, $ Par Value Per Share: Shares Authorized as of December 31, 2021 and September 30, 2021; Shares Issued or Outstanding as of December 31, 2021 and September 30, 2021 | ||||||||
| 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 (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020
(in thousands)
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| INCOME: | ||||||||
| Rental Revenue | $ | $ | ||||||
| Reimbursement Revenue | ||||||||
| Lease Termination Income | ||||||||
| TOTAL INCOME | ||||||||
| EXPENSES: | ||||||||
| Real Estate Taxes | ||||||||
| Operating Expenses | ||||||||
| General & Administrative Expenses | ||||||||
| Non-recurring Strategic Alternatives & Proxy Costs | ||||||||
| Depreciation | ||||||||
| Amortization of Capitalized Lease Costs and Intangible Assets | ||||||||
| TOTAL EXPENSES | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||
| Dividend Income | ||||||||
| Unrealized Holding Gains Arising During the Periods | ||||||||
| Interest Expense, including Amortization of Financing Costs | ( | ) | ( | ) | ||||
| TOTAL OTHER INCOME (EXPENSE) | ||||||||
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS | ||||||||
| Less: Preferred Dividends | ||||||||
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | $ | ||||||
See Accompanying Notes to Consolidated Financial Statements
| 5 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020 – CONTINUED
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| BASIC INCOME – PER SHARE | ||||||||
| Net Income Attributable to Shareholders | $ | $ | ||||||
| Less: Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income Attributable to Common Shareholders – Basic | $ | $ | ||||||
| DILUTED INCOME – PER SHARE | ||||||||
| Net Income Attributable to Shareholders | $ | $ | ||||||
| Less: Preferred Dividends | ( | ) | ( | ) | ||||
| Net Income 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 MONTHS ENDED DECEMBER 31, 2021 AND 2020
(in thousands)
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| Net Income Attributable to Shareholders | $ | $ | ||||||
| Other Comprehensive Income: | ||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||
| TOTAL COMPREHENSIVE INCOME | ||||||||
| Less: Preferred Dividends | ||||||||
COMPREHENSIVE INCOME 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 DECEMBER 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 (Loss) | Total Shareholders’ Equity | |||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Shares Issued in Connection with the DRIP (1) | ||||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||
| Distributions To Common Shareholders ($ per share) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock Option Exercise | ||||||||||||||||||||||||
| Shares Withheld for Employee Taxes in Connection with the Net Exercise of Employee Stock Options | ( | ) | ( | ) | ||||||||||||||||||||
| Net Income Attributable to Shareholders | ||||||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Common Stock | Preferred Stock Series C | Additional Paid in Capital | Undistributed Income (Loss) | Accumulated Other Comprehensive Income (Loss) | 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 Attributable to Shareholders | ||||||||||||||||||||||||
| Preferred Dividends ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Change in Fair Value of Interest Rate Swap Agreement | ||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| (1) |
See Accompanying Notes to the Consolidated Financial Statements
| 8 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 AND 2020
(in thousands)
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income Attributable to Shareholders | $ | $ | ||||||
| Noncash Items Included in Net Income Attributable to Shareholders: | ||||||||
| Depreciation & Amortization | ||||||||
| Deferred Straight Line Rent | ( | ) | ( | ) | ||||
| Stock Compensation Expense | ||||||||
| Securities Available for Sale Received as Dividend Income | ( | ) | ( | ) | ||||
| Unrealized Holding Gains 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 Securities Available for Sale Called for Redemption | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net Draws 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 | ||||||||
| Proceeds from Issuance of Common Stock in the DRIP, net of Dividend Reinvestments | ||||||||
| Preferred Dividends Paid | ( | ) | ( | ) | ||||
| Payment of Taxes for Shares of Common Stock Withheld for Employee Taxes in Connection with the Net Exercise of Employee Stock Options | ( | ) | ||||||
| Common Dividends Paid, net of Reinvestments | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) 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
| 9 |
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 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, Monmouth
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 December 31, 2021, we owned
As
previously announced,
As
discussed in Note 10, subsequent to quarter end, on January 28, 2022, we purchased a newly constructed
| 10 |
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
Our
portfolio of modern, net-leased industrial properties continues to provide shareholders with reliable and predictable income streams.
Our resilient high occupancy rates and rent collection results 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
US
industrial real estate market conditions are as strong as they have ever been with record high asking rents, a robust development pipeline,
and an all-time high occupancy rate of
Income Tax
We have elected to be taxed as a REIT under Sections 856-860 of the Code, and we intend to maintain our qualification as a REIT. 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, the Tax Cuts and Jobs Act of 2017 (the TCJA), Code 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, individual taxpayers
and trusts and estates 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 December 31, 2021. We record interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of December 31, 2021, the fiscal tax years 2018 through and including 2021 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.
| 11 |
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 months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022. 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, 2021.
Use of Estimates
In preparing the financial statements in accordance with accounting principles generally accepted in the United States of America (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. 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 December 31, 2021 and 2020, respectively.
Date of Grant | Number of Employees | Number of Shares (in thousands) | Option Price | Expiration Date | ||||||||||||
| $ | ||||||||||||||||
During the three months ended December 31, 2020, no stock options were granted.
| 12 |
| Fiscal 2022 | ||||
| Dividend yield | % | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected lives (years) | ||||
| Estimated forfeitures | ||||
The weighted average fair value of the option granted during the three months ended December 31, 2021 was $ per share subject to the option.
During
the three months ended December 31, 2021 and 2020, shares of restricted stock were granted. During the three months ended December
31, 2021, two participants exercised options to purchase shares of common stock at a weighted average price of $ per share
for total proceeds of $
Under the terms of the definitive merger agreement with ILPT, upon closing of the merger, each outstanding stock option, whether vested or unvested and each restricted stock award outstanding will become fully vested and converted into the right to receive, in the case of stock options, the spread between $ per share in cash and the exercise price and, in the case of restricted stock awards, $ per share in cash. All outstanding stock options have an exercise price of less than $ per share.
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.
During
the three months ended December 31, 2020, we entered into a lease termination agreement with RGH Enterprises, Inc. (Cardinal Health)
for our
| 13 |
Only
three of our
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.
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.
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 our 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 $
| 14 |
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 is 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 throughout the hedging period. As of December 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 December 31, 2021 and 2020, respectively. For the diluted weighted average shares outstanding for the three months ended December 31, 2021 and 2020, and options to purchase shares of common stock were antidilutive and therefore excluded.
NOTE 3 – REAL ESTATE INVESTMENTS
Acquisitions
On
October 27, 2021, we purchased a newly constructed
FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation is a publicly-listed company and financial information related to this entity is 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 acquisition that took place during the three months ended December 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 property purchased during fiscal 2022 as an
asset acquisition and allocated the total cash consideration, including transaction costs of approximately $
| Land | $ | |||
| Building | ||||
| In-Place Leases |
| 15 |
The following table summarizes the operating results included in our Consolidated Statements of Income for the property acquired during the three months ended December 31, 2021 (in thousands):
| Three Months Ended 12/31/2021 | ||||
| Rental Revenues | $ | |||
| Net Income Attributable to Common Shareholders | ||||
Subsequent
to quarter end, on January 28, 2022, we purchased a newly constructed
Expansions
During
fiscal 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 $
During
the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property
located in Wheeling, IL for a total cost of $
During
the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property
located in Sauget (St. Louis, MO), IL for a total cost of $
During
the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property
located in Orion, MI for a total cost of $
| 16 |
The
four parking expansions completed this quarter, as described above, totaled $
Due to the proliferation of ecommerce sales and last mile deliveries, it is important to take into account the large amounts of real estate utilized for trailer, van, and car parking at many of our properties in determining how our in-place rental rates compare to market rental rates for properties being used in a similar manner. Rents per square foot on properties that may be nearby, but have only limited acreage devoted to parking, are poor comparisons as they cannot accommodate the same tenant needs.
Proforma information
The
following unaudited pro-forma condensed financial information has been prepared utilizing our historical financial statements and the
effect of additional revenue and expenses generated from properties acquired and expanded through December 31, 2021, and during fiscal
2021, assuming that the property acquisitions and completed expansions had occurred as of October 1, 2020, 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 (Loss) 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 have been issued on October 1, 2020. Additionally,
the net proceeds raised from the issuance of additional shares of our
Three Months Ended (in thousands, except per share amounts) | ||||||||||||||||
| 12/31/2021 | 12/31/2020 | |||||||||||||||
| As Reported | Pro-forma | As Reported | Pro-forma | |||||||||||||
| Rental Revenue | $ | $ | $ | $ | ||||||||||||
| Net Income Attributable to Common Shareholders | $ | $ | $ | $ | ||||||||||||
| Basic and Diluted Net Income per Share Attributable to Common Shareholders | $ | $ | $ | $ | ||||||||||||
| 17 |
Tenant Concentration
We
have a concentration of properties leased to FedEx Corporation (FDX) and FDX subsidiaries, consisting of 66 separate stand-alone leases
covering
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 $
As
of December 31, 2021, we had total net unrealized holding losses on our securities portfolio of $
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NOTE 5 – DEBT
For
the three months ended December 31, 2021 and 2020, amortization of financing costs included in interest expense was $
As
of December 31, 2021, we owned 123 properties, of which 59 carried Fixed Rate Mortgage Notes Payable with outstanding principal balances
totaling $
| 12/31/2021 | 9/30/2021 | |||||||||||||||
| 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 December 31, 2021, interest payable on these mortgages were at fixed rates ranging from
On
November 1, 2021, we fully repaid a $
On
December 15, 2021, we entered into a New Term Loan Agreement (the “New Term Loan”), that provides for a $
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Our
existing line of credit facility (the “Facility”), entered into on November 15, 2019, consists 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
As noted in Note 9, in the absence of waivers or consents from holders of our indebtedness, which we, in consultation with ILPT, are currently seeking, the consummation of our merger with ILPT and resulting “change of control” is expected to result in a default or similar event under substantially all of our outstanding indebtedness, permitting the holders of such indebtedness to accelerate such indebtedness and demand immediate repayment at par, together with the applicable “make-whole” premium, if any, following the merger.
NOTE 6 – SHAREHOLDERS’ EQUITY
Our
authorized stock as of December 31, 2021 consisted of million shares of common stock, of which million shares were issued
and outstanding, million authorized shares of
Common Stock
During
the three months ended December 31, 2021, we paid $
On
January 14, 2021, our Board of Directors approved a
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Our
Common Stock Repurchase Program (the “Program”) authorizes us to purchase up to $
6.125% Series C Cumulative Redeemable Preferred Stock
During
the three months ended December 31, 2021, we paid $
Under
the terms of our merger agreement with ILPT,
As
of December 31, 2021, million shares of our
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 December 31, 2021 and September 30, 2021 (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 December 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, 2021: | ||||||||||||||||
| Equity Securities – Preferred Stock | $ | $ | $ | $ | ||||||||||||
| Equity Securities – Common Stock | ||||||||||||||||
| Mortgage Backed Securities | ||||||||||||||||
| Interest Rate Swap | ( | ) | ( | ) | ||||||||||||
| Total Securities Available for Sale at Fair Value | $ | $ | $ | ( | ) | $ | ||||||||||
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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 December 31, 2021, the Fixed
Rate Mortgage Notes Payable fair value (estimated based upon expected cash outflows discounted at current market rates) amounted to $
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash
paid for interest during the three months ended December 31, 2021 and 2020 was $
Since
the start of our strategic alternative process in early 2021, the DRIP program has been suspended and therefore, during the three months
ended December 31, 2021, we had
NOTE 9 – CONTINGENCIES, COMMITMENTS AND LEGAL MATTERS
In
addition to the property purchased subsequent to the quarter end, as described in Note 10, we have entered into agreements to purchase
two, new build-to-suit, industrial buildings that are currently being developed in Georgia and Texas, totaling
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In
addition to the four recently completed FedEx Ground parking expansion projects, as described in Note 3, we have several FedEx Ground
parking expansion projects in progress with more under discussion. Currently there are six parking expansion projects underway, which
we expect to cost approximately $
As
described in Note 6, pursuant to our merger agreement with ILPT, upon consummation of the pending merger, the million outstanding shares of our
In addition, in the absence of waivers or consents from holders of our indebtedness, which we, in consultation with ILPT, are currently seeking, the consummation of the merger with ILPT and resulting “change of control” is expected to result in a default or similar event under substantially all of our outstanding indebtedness, permitting the holders of such indebtedness to accelerate such indebtedness and demand immediate repayment at par, together with the applicable “make-whole” premium, if any, following the merger.
Consummation of the merger will also result in the vesting of unvested equity awards held by certain executive officers, directors and employees and the payment of amounts provided for under change of control or similar agreements or arrangements with certain executive officers, directors and employees. Information about amounts payable to our executive officers, directors and employees in connection with the merger is contained in the definitive proxy statement we filed with the SEC on December 21, 2021 in connection with the merger.
We and the members of our Board of Directors are defendants in several lawsuits filed by purported shareholders whereby they allege, among other things, that we and our directors violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by causing the filing of a proxy statement with the SEC relating to the proposed merger with ILPT that misstates or omits certain allegedly material information. We and the members of our Board of Directors are also defendants in a purported class action lawsuit filed by a purported shareholder that alleges, among other things, that the defendants violated fiduciary duties by misrepresenting or omitting allegedly material information in the proxy statement relating to the proposed merger with ILPT and seeks attorneys’ fees and expenses in connection with disclosures related to a previous merger agreement we had entered into with another party which was terminated after it failed to receive approval from our shareholders. We believe that the claims asserted in these lawsuits are without merit. We intend to vigorously defend against these actions. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the defense of the actions will be successful.
On
November 4, 2021, we entered into a Release and Settlement Agreement with our former general counsel and Blackwells Capital LLC (“Blackwells”)
resolving legal proceedings that we had commenced against our former general counsel and Blackwells in the Superior Court of New Jersey
relating to, among other things, our former general counsel having been named as a nominee of Blackwells for election to our Board of
Directors at our 2021 annual meeting, and also resolving our former general counsel’s counterclaim against us seeking indemnification
and advancement of expenses. In connection with the settlement, the parties exchanged mutual releases, whereby, among other things, Blackwells
agreed to release claims, including those it had previously demanded that we assert against the members of our Board for alleged breach
of their legal duties relating to the Board’s rejection of an unsolicited acquisition offer that we received from Blackwells in
December 2020 and subsequent actions taken by the Board in connection with its review of strategic alternatives in fiscal 2021. In addition,
the parties agreed to mutual partial reimbursement of litigation expenses, with net reimbursement payment by us to Blackwells of $
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Simultaneous
with the Release and Settlement Agreement, we and Blackwells entered into a Cooperation Agreement that, among other things, resolved
a potential proxy contest to elect directors at our 2021 annual meeting of shareholders (the “2021 Annual Meeting”). Under
the Cooperation Agreement, Blackwells also agreed, among other things, to withdraw its slate of proposed nominees and various shareholder
proposals for consideration at the 2021 Annual Meeting and committed to vote all its shares of our common stock at each annual and special
meeting of shareholders until December 31, 2029 in favor of all of the Board’s director nominees and in support of all Board-recommended
proposals. Blackwells also agreed to comply with certain additional standstill, non-disparagement and affirmative solicitation commitments
and terms through December 31, 2029. The Cooperation Agreement also provides for us to provide partial expense reimbursement to Blackwells
of $
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
Subsequent
to quarter end, on January 28, 2022, we purchased a newly constructed
Subsequent
to the quarter end, on January 28, 2022 we drew down $
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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, 2021. 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; |
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| ● | 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; |
| ● | the effect of COVID-19 on our business and general economic conditions; |
| ● | our ability to qualify as a REIT for federal income tax purposes; |
| ● | inability to complete the proposed merger with ILPT 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 merger; |
| ● | potential adverse effects or changes to relationships with our tenants, employees, service providers or other parties conducting business with us resulting from the announcement or completion of the proposed merger; |
| ● | 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 merger that could harm our business, including current plans and operations; |
| ● | unexpected costs, charges or expenses resulting from the proposed merger; and |
| ● | the possibility that the benefits anticipated from the proposed merger 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 ILPT, there can be no assurance that the merger and other transactions contemplated by the merger agreement will be completed.
We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.
Merger Agreement with Industrial Logistics Properties Trust
As previously announced, on November 5, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ILPT and Maple Delaware Merger Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of ILPT (“Merger Sub”). Pursuant to the Merger Agreement, subject to the terms and conditions set forth in the Merger Agreement, we would be acquired by ILPT in an all-cash transaction for $21.00 per common share, representing an aggregate equity value of approximately $2.1 billion. The Merger Agreement provides, among other things, that we will be merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving entity and as a wholly owned subsidiary of ILPT. Following the Merger, our common stock would no longer be traded on the New York Stock Exchange.
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The Merger Agreement provides that each share of our common stock, par value $0.01 per share (“Common Stock”) outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than shares of Common Stock owned by ILPT, Merger Sub or any wholly owned subsidiary of us or ILPT) will, at the Effective Time, be converted into the right to receive $21.00 in cash (the “Common Stock Merger Consideration”), without interest and subject to applicable withholding taxes. Pursuant to the Merger Agreement, as of the Effective Time, (i) each outstanding stock option issued pursuant to our equity incentive plan, whether vested or unvested, will be cancelled and the holder will be entitled to receive an amount in cash equal to the product of (A) the excess, if any, of the Common Stock Merger Consideration over the applicable exercise price of such option, multiplied by (B) the number of shares subject to such option, subject to applicable withholding taxes, and (ii) each unvested restricted stock award issued pursuant to our equity incentive plan that is outstanding immediately prior to the Effective Time will be cancelled and the holder will be entitled to receive the Common Stock Merger Consideration in respect of each underlying share of Common Stock, subject to applicable withholding taxes. Upon closing of the merger with ILPT, holders of our outstanding 6.125% Series C Preferred Stock will receive $25.00 in cash per share plus any accumulated and unpaid dividends to, but not including, the date the merger is completed. The Merger Agreement permits us to, and we plan to, continue to pay our regular quarterly common stock dividend and our Series C Preferred Stock dividend for each full quarterly dividend period completed prior to the closing of the transaction, in amounts not exceeding $0.18 per share for our common stock and equal to $0.3828125 per share for our 6.125% Series C Preferred Stock.
The obligation of the parties to complete the Merger is subject to customary closing conditions, including (i) the approval of the Merger by holders of at least two-thirds of our outstanding shares of Common Stock entitled to vote thereon (the “Company Stockholder Approval”), the special meeting of shareholders for which is scheduled to take place on February 17, 2022 (ii) the absence of any law, regulation, order or injunction of a court or governmental entity of competent jurisdiction making illegal or prohibiting the consummation of the Merger, (iii) the accuracy of the other party’s representations and warranties contained in the Merger Agreement (subject to certain qualifications), (iv) the other party’s performance in all material respects of its obligations under the Merger Agreement that are required to be performed prior to the closing of the Merger and (v) in the case of ILPT, the receipt of customary tax opinion from our tax counsel.
We have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants (i) to use our commercially reasonable efforts to conduct our business in all material respects in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement and the closing of the Merger, and not to engage in specified types of transactions during this period, subject to certain exceptions and (ii) to convene a meeting of our shareholders for the purpose of obtaining the requisite approval of our common shareholders of the Merger. The Merger Agreement contains customary no-shop restrictions that limit our and our representatives’ ability to solicit alternative acquisition proposals from third parties, subject to customary “fiduciary out” provisions.
Our Merger Agreement with ILPT represents the culmination of the publicly announced comprehensive strategic alternatives review processes conducted during 2021 by our Board of Directors. Our Board re-initiated its strategic alternatives review process in September 2021 after a previous agreement for a stock-for-stock merger that we entered into with another party, following a strategic alternatives review process in the first half of calendar year 2021, did not receive the requisite approval of our shareholders and was terminated.
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, 2021.
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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 three months ended December 31, 2021, we purchased one new built-to-suit, net-leased, industrial property, located in the Birmingham, AL Metropolitan Statistical Area (MSA) with approximately 291,000 square feet, for $30.2 million. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through July 2036. Annual rental revenue over the remaining term of the lease averages $1.7 million. As of December 31, 2021, we owned 123 properties with total square footage of 25.2 million. These properties are located in 32 states. As of December 31, 2021, our weighted average lease term was 7.1 years, our occupancy rate was 99.7%, and our annualized average base rent per occupied square foot was $6.69. As of December 31, 2021, the weighted average building age, based on the square footage of our buildings, was 10.2 years. In addition, total gross real estate investments, excluding marketable REIT securities investments of $160.3 million, were $2.3 billion as of December 31, 2021.
Subsequent to quarter end, on January 28, 2022, we purchased a newly constructed 530,000 square foot industrial building, situated on 53.5 acres, located in the Birmingham, AL Metropolitan Statistical Area (MSA). The building is 100% net-leased to Mercedes Benz US International, Inc. for 10 years through November 2031. The property was acquired for a purchase price of $51.7 million. Annual rental revenue over the remaining term of the lease averages $3.3 million. With the addition of this new acquisition, we currently have 124 properties consisting of 25.7 million rentable square feet which are located in 32 states with a weighted average lease term of 7.2 years and an annualized average base rent per occupied square foot of $6.69.
See PART I, Item 1 – Business in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 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.
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 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 7.1 years and our weighted average fixed rate mortgage debt maturity is 10.7 years, we expect our cash flow to remain resilient over long periods of time. Our overall occupancy rate has been over 99% throughout the COVID-19 Pandemic and is 99.7%. as of the quarter end. Our base rent collections remained strong, averaging 99.9% throughout the COVID-19 Pandemic and we expect future months to be consistent with this trend.
US industrial real estate market conditions are as strong as they have ever been with record high asking rents, a robust development pipeline, and an all-time high occupancy rate of 97%. Companies are leasing space at record levels to handle the large increase in ecommerce sales as well as the need for safety stock to counter supply chain disruptions. Construction costs are rising dramatically due to the long lead times for sourcing materials. The amount of new construction for US industrial real estate has been increasing for several years as more industrial space is needed to handle direct-to-consumer distribution. It is estimated that ecommerce sales require three times the amount of warehouse space relative to brick and mortar retail sales. These new buildings are often highly automated and have much larger truck courts and parking requirements. Because modern industrial buildings are built to handle both wholesale distribution as well as direct to consumer distribution, they are known as omni-channel facilities. The West coast ports are continuing to experience severe bottlenecks in processing imports and therefor, container traffic is being diverted towards the Gulf and East coast ports. The West coast ports are continuing to experience severe bottlenecks in processing imports and as a result much container traffic is being diverted towards the Gulf and East coast ports. Given our geographic footprint, this trend is a very favorable one for us.
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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 Strategic Alternatives & Proxy Costs, Depreciation, Amortization of Capitalized Lease Costs and Intangible Assets, Interest Expense, including Amortization of Financing Costs, Unrealized Holding Gains 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.
The following is a reconciliation of our Net Income Attributable to Common Shareholders to our NOI for the three months ended December 31, 2021 and 2020 (in thousands):
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| Net Income Attributable to Common Shareholders | $ | 11,417 | $ | 25,746 | ||||
| Plus: Preferred Dividend Expense | 8,416 | 8,170 | ||||||
| Plus: General & Administrative Expenses | 2,442 | 2,272 | ||||||
| Plus: Non-recurring Strategic Alternatives & Proxy Costs | 12,274 | -0- | ||||||
| Plus: Depreciation | 13,728 | 12,078 | ||||||
| Plus: Amortization of Capitalized Lease Costs and Intangible Assets | 894 | 809 | ||||||
| Plus: Interest Expense, including Amortization of Financing Costs | 9,822 | 9,159 | ||||||
| Less/Plus: Unrealized Holding Gains Arising During the Periods | (16,508 | ) | (19,721 | ) | ||||
| Less: Dividend Income | (1,729 | ) | (1,607 | ) | ||||
| Less: Lease Termination Income | -0- | (377 | ) | |||||
| Net Operating Income- NOI | $ | 40,756 | $ | 36,529 | ||||
The components of our NOI for the three months ended December 31, 2021 and 2020 are as follows (in thousands):
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| Rental Revenue | $ | 40,999 | $ | 36,846 | ||||
| Reimbursement Revenue | 7,475 | 6,737 | ||||||
| Total Rental and Reimbursement Revenue | 48,474 | 43,583 | ||||||
| Real Estate Taxes | (5,956 | ) | (5,318 | ) | ||||
| Operating Expenses | (1,762 | ) | (1,736 | ) | ||||
| Net Operating Income- NOI | $ | 40,756 | $ | 36,529 | ||||
NOI from property operations increased $4.2 million, or 12%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. This increase was due to the acquisition of four new built-to-suit, net-leased, industrial properties, totaling approximately 1.6 million square feet purchased during fiscal 2021 and the acquisition of one new built-to-suit, net-leased, industrial property with approximately 291,000 square feet purchased during fiscal 2022.
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Acquisitions
On October 27, 2021, we purchased a newly constructed 291,000 square foot industrial building, situated on 46.0 acres, located in the Birmingham, AL MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through July 2036. The property was acquired for a purchase price of $30.2 million. Annual rental revenue over the remaining term of the lease averages $1.7 million.
FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation is a publicly-listed company and financial information related to this entity is 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.
Subsequent to quarter end, on January 28, 2022, we purchased a newly constructed 530,000 square foot industrial building, situated on 53.5 acres, located in the Birmingham, AL MSA. The building is 100% net-leased to Mercedes Benz US International, Inc. for 10 years through November 2031. The property was acquired for a purchase price of $51.7 million. Annual rental revenue over the remaining term of the lease averages $3.3 million.
Expansions
During fiscal 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, resulting in an initial increase in annual rent effective November 5, 2020 of approximately $340,000 from approximately $2.14 million, or $6.83 per square foot, to approximately $2.48 million, or $7.91 per square foot. Furthermore, annual rent increased by 2.1% on June 1, 2021 and was to continue to increase 2.1% every five years, resulting in an annualized rent of $2.56 million, or $8.15 per square foot, from November 5, 2020 through May 2031, the remaining term of the lease. During the three months ended December 31, 2021, we completed the second phase of this parking expansion project at this location for a total cost of $2.3 million, resulting in an initial increase in annual rent effective November 19, 2021 of approximately $185,000 from approximately $2.53 million, or $8.08 per square foot, to approximately $2.72 million, or $8.67 per square foot. In addition, the expansion resulted in a new 14.5 year lease which extended the prior lease expiration date from May 2031 to May 2036. Furthermore, annual rent will increase by 1.9% on June 1, 2026 resulting in an annualized rent of approximately $2.76 million, or $8.78 per square foot from November 19, 2021 through the remaining term of the lease.
During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Wheeling, IL for a total cost of $1.0 million, resulting in an initial increase in annual rent effective October 28, 2021 of approximately $105,000 from approximately $1.27 million, or $10.34 per square foot, to approximately $1.38 million, or $11.19 per square foot. In addition, the expansion resulted in a new 9.8 year lease which extended the prior lease expiration date from May 2027 to August 2031.
During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Sauget (St. Louis, MO), IL for a total cost of $3.8 million, resulting in an initial increase in annual rent effective November 10, 2021 of approximately $346,000 from approximately $1.04 million, or $5.21 per square foot, to approximately $1.38 million, or $6.95 per square foot. In addition, the expansion resulted in a new 13.8 year lease which extended the prior lease expiration date from May 2029 to August 2035. Furthermore, annual rent will increase by 3.7% on June 1, 2029 resulting in an annualized rent from November 10, 2021 through the remaining term of the lease of approximately $1.40 million, or $7.07 per square foot.
During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Orion, MI for a total cost of $6.5 million, resulting in an initial increase in annual rent effective November 24, 2021 of approximately $651,000 from approximately $1.91 million, or $7.77 per square foot, to approximately $2.56 million, or $10.42 per square foot. In addition, the expansion resulted in a new 9.9 year lease which extended the prior lease expiration date from June 2023 to October 2031.
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The four parking expansions completed this quarter, as described above, totaled $13.7 million and resulted in total increased rent of $1.3 million and a weighted average lease extension of 6.7 years.
Commitments
In addition to the property purchased subsequent to the quarter end, we have entered into agreements to purchase two, new build-to-suit, industrial buildings that are currently being developed in Georgia and Texas, totaling 563,000 square feet. Both of these future acquisitions have net-leased terms of 15 years. The total purchase price for these two properties is $78.8 million. Both of these properties are leased to FedEx Ground Package System, Inc. Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing both of these transactions during fiscal 2022. FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation is a publicly-listed company and financial information related to this entity is 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.
In addition to the four parking expansions completed this quarter, we have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are six 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 seven additional locations bringing the total recently completed and likely future parking lot expansion projects to 18 currently.
Due to the proliferation of ecommerce sales and last mile deliveries, it is important to take into account the large amounts of real estate utilized for trailer, van, and car parking at many of our properties in determining how our in-place rental rates compare to market rental rates for properties being used in a similar manner. Rents per square foot on properties that may be nearby, but have only limited acreage devoted to parking, are poor comparisons as they cannot accommodate the same tenant needs.
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, 2021.
Changes in Results of Operations
As of December 31, 2021, we owned 123 properties with total square footage of 25.2 million, as compared to 121 properties with total square footage of 24.5 million, as of December 31, 2020, representing an increase in square footage of 2.7%. At quarter end, the Company’s weighted average lease term was approximately 7.1 years, as compared to 7.5 years at the end of the prior year period. Our occupancy rate has remained steady at 99.7% for the quarters ended December 31, 2021 and December 31, 2020. Our weighted average building age was 10.2 years as of December 31, 2021, as compared to 9.5 years as of December 31, 2020.
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Fiscal 2022 Renewals
In fiscal 2022, approximately 5% of our gross leasable area, representing seven leases totaling 1.2 million square feet, are scheduled to expire. Three of these seven leases were renewed thus far, for a weighted average term of 6.7 years, at a rental rate decrease of 3.1% on a GAAP basis and at a rental rate decrease of 7.2% on a cash basis. These three lease renewals represent 277,113 square feet, or 24% of the square footage scheduled to expire in fiscal 2022.
We have incurred or we expect to incur leasing commission costs of $361,000 in connection with two of the three lease renewals and we have incurred or we expect to incur tenant improvement costs of $50,000 in connection with one of the lease renewals. The table below summarizes the terms of the three 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) | |||||||||||||||||||||||||||
| Houston, TX | National Oilwell Varco | 91,925 | $ | 8.26 | $ | 8.44 | 9/30/22 | $ | 8.88 | $ | 8.44 | 9/30/29 | 7.0 | $ | -0- | $ | 0.34 | |||||||||||||||||||||
| Burr Ridge, IL | Sherwin-Williams | 12,500 | 12.80 | 12.94 | 10/31/21 | 12.99 | 12.94 | 10/31/26 | 5.0 | 0.80 | -0- | |||||||||||||||||||||||||||
| Livonia, MI | FedEx Ground | 172,688 | 6.91 | 6.91 | 3/31/22 | 6.17 | 6.03 | 10/31/28 | 6.6 | -0- | 0.12 | |||||||||||||||||||||||||||
| Total | 277,113 | |||||||||||||||||||||||||||||||||||||
| Weighted Average | $ | 7.62 | $ | 7.69 | $ | 7.38 | $ | 7.14 | 6.7 | $ | 0.03 | $ | 0.20 | |||||||||||||||||||||||||
| (1) | Amount calculated based on the total cost divided by the square feet, divided by the renewal term. |
Our 105,000 square foot facility located in Cheektowaga (Buffalo), NY was leased to Sonwil Distribution Center, Inc. through January 31, 2022. This tenant informed us that they will not be renewing their lease. We recently entered into a new seven-year lease agreement for this facility with UPS which became effective February 1, 2022 through January 31, 2029. The lease with UPS provides for initial annual rent of $683,000, representing $6.50 per square foot with 2.0% annual increases thereafter, resulting in a U.S. GAAP straight-line annualized rent of $725,000, representing $6.91 per square foot over the life of the lease. This compares to the former U.S. GAAP straight-line rent and former cash rent of $6.00 per square foot, resulting in an increase in the average lease rate of 15.0% on a U.S. GAAP straight-line basis and an increase of 8.3% on a cash basis.
The lease to UPS, along with the three lease renewals in the table above, results in a weighted average lease term of 6.7 years, at a rental rate increase of 1.0% on a GAAP basis and a decrease of 3.7% on a cash basis. These four leases represent 382,000 square feet, or 33% of the expiring square footage for fiscal 2022.
Also not included in the table above is our 185,000 square foot facility located in Granite City (St. Louis, MO), IL that was leased to Anheuser-Busch through November 30, 2021. Anheuser-Busch renewed for only four months, until March 31, 2022, after which it is expected that they will be moving out. The four-month extension provides for rent at an annualized rate of 150% of its former rent, resulting in an annualized rent of $1.3 million, representing $7.04 per square foot. This compares to the former U.S. GAAP straight-line rent of $4.36 and former cash rent of $4.70 per square foot.
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Our 368,000 square foot facility located in Streetsboro (Cleveland), OH was leased to Best Buy Warehousing Logistics, Inc. through January 31, 2022. This tenant informed us that they will not be renewing their lease and we are in discussions with several prospective tenants for this space.
Rental Revenue increased $4.2 million, or 11%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. This increase was due to the acquisition of one new built-to-suit, net-leased, industrial property located in the Birmingham, AL MSA with approximately 291,000 square feet during the three months ended December 31, 2021 and the fiscal 2021 acquisitions of four new built-to-suit, net-leased, industrial properties, located in the Columbus, OH, Atlanta, GA, Burlington, VT and Knoxville, TN MSAs totaling approximately 1.6 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 $738,000, or 11%, Real Estate Tax Expense increased $638,000, or 12%, and Operating Expenses increased $26,000, or 1% for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the three months ended December 31, 2021 was 97% compared to 95% for the three months ended December 31, 2020.
General and Administrative Expenses increased $170,000, or 7%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. General and Administrative Expenses, as a percentage of gross revenue (which includes Rental Revenue, Reimbursement Revenue and Dividend Income) was 4.9% for the three months ended December 31, 2021 as compared to 5.0% for the three months ended December 31, 2020. Annualized General and Administrative Expenses, as a percentage of undepreciated assets (which is our total assets excluding accumulated depreciation) was 38 basis points for the three months ended December 31, 2021 as compared to 37 basis points for the three months ended December 31, 2020.
During the three months ended December 31, 2021, we incurred Non-recurring Strategic Alternatives & Proxy Costs of $12.3 million related to the evaluation of strategic alternatives approved by our Board of Directors and the related proxy process.
Depreciation increased $1.7 million, or 14%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. Amortization of Capitalized Lease Costs and Intangible Assets increased $85,000, or 11%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. This increase was primarily due to the acquisition of one industrial property purchased during the first three months of fiscal 2022 and four industrial properties purchased during fiscal 2021. In addition, the increases in depreciation and amortization expenses were also the result of the expansions, capital improvements and leasing costs incurred over the last four quarters.
The recognition of Unrealized Holding Gains (Losses) Arising During the Periods is due to the adoption of ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” whereby 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. Net Unrealized Holding Gains arising during the three months ended December 31, 2021 and 2020 were $16.5 million and $19.7 million, respectively.
We recognized dividend income on our investments in securities of $1.7 million and $1.6 million for the three months ended December 31, 2021 and 2020, respectively, representing a $122,000 increase. The REIT securities portfolio’s weighted average yield for the three months ended December 31, 2021 was approximately 4.6% as compared to 5.0% for the three months ended December 31, 2020. We held $160.3 million in marketable REIT securities as of December 31, 2021, representing 6.2% of our undepreciated assets.
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Interest Expense, including Amortization of Financing Costs, increased by $663,000, or 7%, for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020. The increase in Interest Expense, including Amortization of Financing Costs, was mostly due to an increase in Loans Payable of $225.0 million partially offset with a decrease in our Fixed Rate Mortgages Notes Payable, Net of Unamortized Debt Issuance Costs of $79.5 million.
Changes in Financial Condition
We generated Net Cash from Operating Activities of $8.4 million and $29.7 million for the three months ended December 31, 2021 and 2020, respectively.
Real Estate Investments increased by $24.6 million from September 30, 2021 to December 31, 2021. This increase was mainly due to the purchase of one net-leased industrial property, located in the Birmingham, AL MSA, totaling approximately 291,000 square feet, for $30.2 million. The increase was partially offset by Depreciation Expense on Real Estate Investments for the three months ended December 31, 2021 of $13.7 million.
Securities Available for Sale increased by $16.8 million from September 30, 2021 to December 31, 2021. The increase was primarily due to net Unrealized Holding Gains of $16.5 million for the three months ended December 31, 2021.
Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs (Mortgage Notes Payable), decreased by $23.5 million from September 30, 2021 to December 31, 2021. The decrease was mainly due to scheduled payments of principal of $16.4 million. Additionally, on November 1, 2021, we fully repaid $7.3 million mortgage loan for our property located in Streetsboro (Cleveland), OH. The loan had an interest rate of 5.5%.
Excluding Debt Issuance Costs, the weighted average interest rate on the Fixed Rate Mortgage Notes Payable decreased by 3 basis points from the prior year quarter, from 3.88% at December 31, 2020 to 3.85% at December 31, 2021.
We are scheduled to repay a total of $74.5 million in mortgage principal payments over the next 12 months. We may make these principal payments from funds generated from operations, draws on our unsecured line of credit facility and term loan, cash on hand, sales of marketable securities, other bank borrowings, proceeds from the DRIP, proceeds from the sale of common stock in a possible future at-the-market public offering and proceeds from private placements and other public offerings of additional common or preferred stock or other securities.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities was $8.4 million and $29.7 million for the three months ended December 31, 2021 and 2020, respectively. Dividends paid on common stock for the three months ended December 31, 2021 and 2020 were $17.7 million and $16.7 million, respectively (of which $-0- and $1.0 million, respectively, were reinvested). We pay dividends from cash generated from operations.
As of December 31, 2021, we held $160.3 million in marketable REIT securities, representing 6.2% of our undepreciated assets, which we define as total assets excluding accumulated depreciation. Total assets excluding accumulated depreciation were $2.6 billion as of December 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 December 31, 2021. At December 31, 2021, there was no amount drawn down under the margin loan. As of December 31, 2021, we had net Unrealized Holding Losses on our portfolio of $60.1 million as compared to net Unrealized Holding Losses of $76.6 million as of September 30, 2021, representing net Unrealized Holding Gains of $16.5 million for the three months ended December 31, 2021. There have been no open market purchases or sales of securities during the three months ended December 31, 2021. We recognized dividend income on our investments in securities of $1.7 million for the three months ended December 31, 2021.
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On December 15, 2021, we entered into a New Term Loan Agreement (the “New Term Loan”), that provides for a $175.0 million, unsecured, delayed-draw term loan facility. The interest rate for borrowings under the New 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 the Federal Reserve Board’s Prime Rate plus 30 basis points to 100 basis points, depending on our leverage ratio. The New Term Loan matures on June 15, 2022 with two options to extend for additional three-month periods. Availability under the New Term Loan is limited to 60% of the value of the unencumbered real estate 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 Term Loan the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties is 6.25%. Currently, our borrowings bear interest at LIBOR plus 140 basis points, which results in an interest rate of 1.51%. As of the quarter end, we did not have any amounts drawn down under our New Term Loan. Subsequent to the quarter end, on January 28, 2022 we drew down $60.0 million, resulting in $115.0 million being currently available.
Our existing line of credit facility (the “Facility”), entered into on November 15, 2019, consists of a $225.0 million unsecured line of credit facility (the “Revolver”) and a $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. In addition, the Revolver includes an accordion feature that will allow the total potential availability under the 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 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 Facility the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties is 6.25%. In addition, borrowings under the Revolver 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 1.54%. As of the quarter end and currently, we have the full $225.0 million drawn down under our Revolver. The $75.0 million Term Loan matures January 2025. The 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%.
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 50%. The interest rate charged on the margin loan is the bank’s margin rate and was 0.75% as of December 31, 2021 and 2020. At December 31, 2021 and 2020, there were no amounts drawn down under the margin loan.
In the absence of waivers or consents from holders of our indebtedness, which we, in consultation with ILPT, are currently seeking, the consummation of our merger with ILPT and resulting “change of control” is expected to result in a default or similar event under substantially all of our outstanding indebtedness, permitting the holders of such indebtedness to accelerate such indebtedness and demand immediate repayment at par, together with the applicable ‘make-whole’ premium, if any, following the merger.
As of December 31, 2021, we owned 123 properties, of which 59 carried mortgage loans with outstanding principal balances totaling $815.9 million. The 64 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 December 31, 2021, Loans Payable represented $225.0 million drawn down on our Revolver and $75.0 million outstanding under our Term Loan.
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As of December 31, 2021, we had total assets of $2.2 billion and liabilities of $1.1 billion. Our net debt (net of unamortized debt issuance costs and net of cash and cash equivalents) to total market capitalization as of December 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 December 31, 2021 was approximately 25%. Our debt consists of 73% amortizing fixed rate debt with a weighted average interest rate of 3.85% and a weighted average loan maturity of 10.7 years. We believe that we have the ability to meet our obligations and to generate funds for new investments.
As previously announced, on November 5, 2021, we entered into a definitive merger agreement with ILPT, under which, on the terms and subject to the conditions set forth in the merger agreement, ILPT will acquire us in an all-cash transaction, with our common shareholders receiving $21.00 in cash per share upon the consummation of the transaction. ILPT’s acquisition of us is subject to obtaining the requisite approval of our common shareholders, the special meeting of shareholders for which is scheduled to take place on February 17, 2022, and the satisfaction of other customary closing conditions. Upon closing of the merger with ILPT, holders of our outstanding 6.125% Series C Preferred Stock will receive $25.00 in cash per share plus accumulated and unpaid dividends to, but not including, the date the merger is completed. As permitted by the Merger Agreement, we plan to continue to pay our regular quarterly common stock dividend and our 6.125% Series C Preferred Stock dividend for each full quarterly dividend period completed prior to the closing of the transaction, in amounts not exceeding $0.18 per share for our common stock and equal to $0.3828125 per share for our 6.125% Series C Preferred Stock. This transaction with ILPT represents the culmination of the publicly announced comprehensive strategic alternatives review processes conducted by our Board of Directors during fiscal 2021. Our Board re-initiated its strategic alternatives review process in September 2021 after a previous agreement for a stock-for-stock merger that we entered into with another party, following a strategic alternatives review process in the first half of calendar year 2021, did not receive the requisite approval of our shareholders.
As of December 31, 2021, 22.0 million shares of our 6.125% Series C Preferred Stock were outstanding.
During the three months ended December 31, 2021, we paid $17.7 million in total cash dividends, or $0.18 per share to common shareholders.
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 representing an annualized dividend rate of $0.72 per share. This increase was the third dividend increase in six years, representing a total increase of 20%. We have maintained or increased our common stock cash dividend for 31 consecutive years. We are one of the few REITs that maintained our dividend throughout the Global Financial Crisis.
During the three months ended December 31, 2021, we paid $8.4 million in Preferred Dividends, or $0.3828125 per share, on our outstanding 6.125% Series C Preferred Stock for the period September 1, 2021 through November 30, 2021. As of December 31, 2021, we had accrued Preferred Dividends of $2.8 million covering the period December 1, 2021 to December 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.
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, term loan or securities margin loans, finance or refinance debt, or raising capital through registered direct placements and public offerings of common and preferred stock.
We have a concentration of properties leased to FedEx Corporation (FDX) and FDX subsidiaries, consisting of 66 separate stand-alone leases covering 11.9 million square feet as of December 31, 2021 and 63 separate stand-alone leases covering 11.2 million square feet as of December 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 December 31, 2021, the 66 separate stand-alone leases we have with FDX and FDX subsidiaries are located in 27 different states and have a weighted average lease maturity of 8.1 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental space was 47% (4% to FDX and 43% to FDX subsidiaries) as of December 31, 2021 and 46% (5% to FDX and 41% to FDX subsidiaries) as of December 31, 2020.
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As of December 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 57% (4% to FDX and 53% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2022, and was 57% (5% to FDX and 52% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2021. 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 2022 are subsidiaries of Amazon, which is estimated to be 6% of our Annualized Rental and Reimbursement Revenue for fiscal 2022 and was 6% for of our Annualized Rental and Reimbursement Revenue for fiscal 2021.
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 fiscal 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, resulting in an initial increase in annual rent effective November 5, 2020 of approximately $340,000 from approximately $2.14 million, or $6.83 per square foot, to approximately $2.48 million, or $7.91 per square foot. Furthermore, annual rent increased by 2.1% on June 1, 2021 and was to continue to increase 2.1% every five years, resulting in an annualized rent of $2.56 million, or $8.15 per square foot, from November 5, 2020 through May 2031, the remaining term of the lease. During the three months ended December 31, 2021, we completed the second phase of this parking expansion project at this location for a total cost of $2.3 million, resulting in an initial increase in annual rent effective November 19, 2021 of approximately $185,000 from approximately $2.53 million, or $8.08 per square foot, to approximately $2.72 million, or $8.67 per square foot. In addition, the expansion resulted in a new 14.5 year lease which extended the prior lease expiration date from May 2031 to May 2036. Furthermore, annual rent will increase by 1.9% on June 1, 2026 resulting in an annualized rent of approximately $2.76 million, or $8.78 per square foot from November 19, 2021 through the remaining term of the lease.
During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Wheeling, IL for a total cost of $1.0 million, resulting in an initial increase in annual rent effective October 28, 2021 of approximately $105,000 from approximately $1.27 million, or $10.34 per square foot, to approximately $1.38 million, or $11.19 per square foot. In addition, the expansion resulted in a new 9.8 year lease which extended the prior lease expiration date from May 2027 to August 2031.
During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Sauget (St. Louis, MO), IL for a total cost of $3.8 million, resulting in an initial increase in annual rent effective November 10, 2021 of approximately $346,000 from approximately $1.04 million, or $5.21 per square foot, to approximately $1.38 million, or $6.95 per square foot. In addition, the expansion resulted in a new 13.8 year lease which extended the prior lease expiration date from May 2029 to August 2035. Furthermore, annual rent will increase by 3.7% on June 1, 2029 resulting in an annualized rent from November 10, 2021 through the remaining term of the lease of approximately $1.40 million, or $7.07 per square foot.
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During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Orion, MI for a total cost of $6.5 million, resulting in an initial increase in annual rent effective November 24, 2021 of approximately $651,000 from approximately $1.91 million, or $7.77 per square foot, to approximately $2.56 million, or $10.42 per square foot. In addition, the expansion resulted in a new 9.9 year lease which extended the prior lease expiration date from June 2023 to October 2031.
The four parking expansions completed this quarter, as described above, totaled $13.7 million and resulted in total increased rent of $1.3 million and a weighted average lease extension of 6.7 years. In addition to these four parking expansions completed this quarter, we have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are six 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 seven additional locations bringing the total recently completed and likely future parking lot expansion projects to 18 currently.
Due to the proliferation of ecommerce sales and last mile deliveries, it is important to take into account the large amounts of real estate utilized for trailer, van, and car parking at many of our properties in determining how our in-place rental rates compare to market rental rates for properties being used in a similar manner. Rents per square foot on properties that may be nearby, but have only limited acreage devoted to parking, are poor comparisons as they cannot accommodate the same tenant needs.
In addition to the property purchased subsequent to the quarter end, we have entered into agreements to purchase two, new build-to-suit, industrial buildings that are currently being developed in Georgia and Texas, totaling 563,000 square feet. Both of these future acquisitions have net-leased terms of 15 years. The total purchase price for these two properties is $78.8 million. Both of these properties are leased to FedEx Ground Package System, Inc. Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing both of these transactions during fiscal 2022. FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation is a publicly-listed company and financial information related to this entity is 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 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.
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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 gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets and 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. Our calculation of Adjusted Funds From Operations (AFFO) differs from Nareit’s definition of FFO because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. We define 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 alternatives & proxy costs, 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.
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.
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The following is a reconciliation of our U.S. GAAP Net Income Attributable to Common Shareholders to our FFO and AFFO for the three months ended December 31, 2021 and 2020 (in thousands):
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| Net Income Attributable to Common Shareholders | $ | 11,417 | $ | 25,746 | ||||
| Plus: Depreciation Expense (excluding Corporate Office Capitalized Costs) | 13,671 | 12,020 | ||||||
| Plus: Amortization of Intangible Assets | 603 | 532 | ||||||
| Plus: Amortization of Capitalized Lease Costs | 308 | 303 | ||||||
| Less: Unrealized Holding Gains Arising During the Periods | (16,508 | ) | (19,721 | ) | ||||
| FFO Attributable to Common Shareholders (1) | 9,491 | 18,880 | ||||||
| Plus: Depreciation of Corporate Office Capitalized Costs | 57 | 57 | ||||||
| Plus: Stock Compensation Expense | 94 | 57 | ||||||
| Plus: Amortization of Financing Costs | 428 | 331 | ||||||
| Plus: Non-recurring Strategic Alternatives & Proxy Costs | 12,274 | -0- | ||||||
| Less: Lease Termination Income | -0- | (377 | ) | |||||
| Less: Recurring Capital Expenditures | (84 | ) | (160 | ) | ||||
| Less: Effect of Non-cash U.S. GAAP Straight-line Rent Adjustment | (617 | ) | (618 | ) | ||||
| AFFO Attributable to Common Shareholders | $ | 21,643 | $ | 18,170 | ||||
| (1) | FFO Attributable to Common Shareholders for the three months ended December 31, 2021 includes Non-recurring Strategic Alternatives & Proxy Costs of $12.3 million. FFO Attributable to Common Shareholders for the three months ended December 31, 2021 excluding these Non-recurring Strategic Alternatives & Proxy Costs is $21.8 million. |
The following are the Cash Flows provided (used) by Operating, Investing and Financing Activities for the three months ended December 31, 2021 and 2020 (in thousands):
| Three Months Ended | ||||||||
| 12/31/2021 | 12/31/2020 | |||||||
| Operating Activities | $ | 8,393 | $ | 29,692 | ||||
| Investing Activities | (38,112 | ) | (166,774 | ) | ||||
| Financing Activities | (1,186 | ) | 142,845 | |||||
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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 December 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 December 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.
Litigation Relating to our Merger Agreement with Industrial Logistics Properties Trust (“ILPT”)
We and the members of our Board of Directors are defendants in several lawsuits filed by purported shareholders whereby they allege, among other things, that we and our directors violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by causing the filing of a proxy statement with the SEC relating to the proposed merger with ILPT that misstates or omits certain allegedly material information. We and the members of our Board of Directors are also defendants in a purported class action lawsuit filed by a purported shareholder that alleges, among other things, that the defendants violated fiduciary duties by misrepresenting or omitting allegedly material information in the proxy statement relating to the proposed merger with ILPT and seeks attorneys’ fees and expenses in connection with disclosures related to a previous merger agreement we had entered into with another party which was terminated after it failed to receive approval from our shareholders. We believe that the claims asserted in these lawsuits are without merit. We intend to vigorously defend against these actions. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the defense of the actions will be successful.
Former Litigation with Blackwells Capital and our former general counsel
On November 4, 2021, we entered into a Release and Settlement Agreement with our former general counsel and Blackwells Capital LLC (“Blackwells”) resolving legal proceedings that we had commenced against our former general counsel and Blackwells in the Superior Court of New Jersey relating to, among other things, our former general counsel having been named as a nominee of Blackwells for election to our Board of Directors at our 2021 annual meeting, and also resolving our former general counsel’s counterclaim against us seeking indemnification and advancement of expenses. In connection with the settlement, the parties exchanged mutual releases, whereby, among other things, Blackwells agreed to release claims, including those it had previously demanded that we assert against the members of our Board for alleged breach of their legal duties relating to the Board’s rejection of an unsolicited acquisition offer that we received from Blackwells in December 2020 and subsequent actions taken by the Board in connection with its review of strategic alternatives in fiscal 2021. In addition, the parties agreed to mutual partial reimbursement of litigation expenses, with net reimbursement payment by us to Blackwells of $4 million, which was reflected in our income statement for the quarter ended September 30, 2021.
Simultaneous with the Release and Settlement Agreement, we and Blackwells entered into a Cooperation Agreement that, among other things, resolved a potential proxy contest to elect directors at the 2021 Annual Meeting. Under the Cooperation Agreement, Blackwells also agreed, among other things, to withdraw its slate of proposed nominees and various shareholder proposals for consideration at the 2021 Annual Meeting and committed to vote all its shares of our common stock at each annual and special meeting of shareholders until December 31, 2029 in favor of all of the Board’s director nominees and in support of all Board-recommended proposals. Blackwells also agreed to comply with certain additional standstill, non-disparagement and affirmative solicitation commitments and terms through December 31, 2029. The Cooperation Agreement also provides for us to provide partial expense reimbursement to Blackwells of $3.85 million for certain of its documented, actual out-of-pocket third party professional fees and expenses, which reimbursement expense was reflected in our income statement for the quarter ended September 30, 2021. |
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| 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, 2021 (the “10-K”) which could materially affect the Company’s business, financial condition or future results. The risks described in the 10-K and the 10-Qs 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 |
| 2.1 |
* Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Monmouth hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC; provided, however, that Monmouth may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedules so furnished. |
| 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 December 31, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (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: | February 4, 2022 | By: | /s/ Michael P. Landy |
| Michael P. Landy, President and Chief Executive Officer, | |||
| its principal executive officer | |||
| Date: | February 4, 2022 | By: | /s/ Kevin S. Miller |
| Kevin S. Miller, Chief Financial Officer, its principal | |||
| financial officer and principal accounting officer | |||
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