Overview

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 the Company's September 30, 2008 Annual Report on Form 10-K.

The Company is a REIT. The Company's primary business is the ownership and management of industrial buildings subject to long-term leases to investment-grade tenants. As of December 31, 2008, the Company owns fifty-seven industrial properties and one shopping center with total square footage of approximately 6,070,000. Total real estate investments were approximately $349,000,000 as of December 31, 2008. These properties are located in twenty-five states. As of December 31, 2008, the Company's weighted average lease expiration term was 5.4 years and the percent of square footage occupied was 96%. The Company's average rent per occupied square foot for fiscal 2009 is approximately $5.63.

The Company has a concentration of FDX and FDX subsidiary-leased properties. As of December 31, 2008, the percentage of FDX-leased square footage as a total of the Company's rental space was 46%. Annualized rental income and occupancy charges from FDX and FDX subsidiaries are estimated at approximately 59% of total rental and reimbursement revenue for fiscal 2009. This is a risk shareholders should consider.

The Company's revenue primarily consists of rental and reimbursement revenue from the ownership of industrial rental property. Rental and reimbursement revenue increased 9% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increases in rental and reimbursement revenue are due mainly to rent and reimbursements from the property acquisitions made during fiscal 2008 and from the increased rent from property expansions completed at the end of fiscal 2008. The income from the Company's property operations continues to meet management's expectations.

The Company also holds a portfolio of securities of other REITs valued at approximately $16,007,000 as of December 31, 2008 which earns dividend and interest income. During the three months ended December 31, 2008, the Company recorded impairment losses of approximately $3,245,000 related to securities which management believed to be other than temporarily impaired. In addition, the Company experienced an increase of approximately $3,042,000 in the unrealized loss on securities for the three months ended December 31, 2008.
Management believes that the increase in the unrealized loss on securities is related to the overall decrease in market value of REIT securities. Additional impairment losses may be recognized if the REIT securities market remains at current levels and the financial results of the underlying companies deteriorate. The REIT securities market has recently been driven to inordinately low prices and high yields. The Company believes this to be the result of indiscriminate selling and not the result of normal pricing considerations. The dividends received from our securities investments continue to meet our expectations. It is our intent to hold these securities long-term. As the credit markets begin to function again, more efficient pricing should return to the securities markets. The Company invests in REIT securities on margin from time to time when the Company can achieve an adequate yield spread.
The REIT securities portfolio provides the Company with liquidity and additional income until suitable acquisitions of real property are found.

See PART I, Item 1 - Business in the Company's September 30, 2008 Annual Report on Form 10-K for a more complete discussion of the economic and industry-wide factors relevant to the Company and the opportunities and challenges, and risks on which the Company is focused.

Changes in Results of Operations

As of December 31, 2008, the Company owned fifty-eight properties with total square footage of approximately 6,070,000 as compared to fifty-nine properties with square footage of approximately 5,966,000 as of December 31, 2007. As of December 31, 2008, the Company's weighted average lease expiration term was 5.4 years. The Company's occupancy rate was 96% and 98% as of December 31, 2008 and 2007, respectively.

Rental and reimbursement revenue increased $834,535 or 9% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007.
The increase is due mainly to the rent and accrued tenant reimbursement revenue related to the acquisition of the two industrial properties acquired in 2008 and the increase in rent from the five properties expanded during 2008.

Real estate taxes increased $311,518 or 25% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase is due mainly to the real estate taxes related to the acquisition of the two industrial properties acquired in 2008 and increases in real estate taxes from the five properties expanded during 2008.

Operating expenses decreased $198,962 or 20% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The decrease is due mainly to the decrease in the amortization of the in-place lease intangible assets. Effective March 31, 2008, the Company finalized the purchase price allocation associated with the merger of Monmouth Capital and certain other acquisitions which occurred during 2007 and $5,879,000 was reclassified from Intangible Assets to Real Estate Investments. Other operating expenses remained relatively consistent for the three months ended December 31, 2008 as compared to December 31, 2007.

Depreciation expense increased $265,829 or 14% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase is mainly due to the depreciation expense related to the two industrial properties acquired in 2008.

Interest and dividends increased $256,133 or 63% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase is due mainly to a higher average balance of securities and higher weighted average yields on the securities for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The average balance of securities for the three months ended December 31, 2008 and 2007 was $18,500,000 and $13,500,000, respectively, and the weighted average yield on securities was 13.9% and 9.6% for the three months ended December 31, 2008 and 2007, respectively.

The following table summarizes the Company's loss on securities transactions for the three months ended December 31, 2008 and 2007:

    Three Months

                                                      12/31/08       12/31/07

Loss on sale or redemption of securities                   ($76)      ($38,880)
Net loss on settled futures contracts                        -0-      (478,999)
Unrealized gain on open futures contracts                    -0-         40,781
Impairment loss                                      (3,245,122)    (1,819,300)
Total Gain (loss) on Securities Transactions, net   ($3,245,198)   ($2,296,398)

During the three months ended December 31, 2008 and 2007, the Company recognized a loss of $3,245,122 and $1,189,300, respectively, due to writing down of the carrying value of securities which were considered other than temporarily impaired. The Company has unrealized losses of $9,181,371 in its REIT securities portfolio as of December 31, 2008. Additional impairment losses may be recognized if the REIT securities market remains at current levels and the financial results of the underlying companies deteriorate. The dividends received from our REIT preferred investments continue to meet our expectations. It is our intent to hold these securities long-term and anticipate realizing satisfactory returns.

In fiscal 2008, the Company recorded losses from the Company's investment in futures contacts. The Company invested in futures contracts of ten-year treasury notes with the objective of reducing the risk of rolling over its fixed-rate mortgages at higher interest rates and reducing the exposure of the preferred equity and debt securities portfolio to interest rate fluctuations.
The Company terminated its program of investing in futures contracts in May 2008 and there were no open contracts as of December 31, 2008.

Interest expense increased $342,322 or 11% for the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase in interest expense is mainly due to the interest on the new mortgages on the Tampa, Florida (FedEx), Union Township, Ohio, Fayetteville, North Carolina, Lakeland, Florida, Augusta, Georgia, Cocoa, Florida and Orlando, Florida properties and an increased outstanding balance on the Company's margin loan.

Income (loss) from discontinued operations for the three months ended December 31, 2008 and 2007 reflects the results of operations of the industrial property in Franklin, Massachusetts and Ramsey, New Jersey which were sold in June 2008 and July 2008, respectively.

The following table summarizes the components of discontinued operations:

                                         Three Months
                                      12/31/08   12/31/07

Rental and Reimbursement Revenue          $-0-   $245,582
Real Estate Taxes                          -0-   (25,047)
Operating Expenses                         -0-    (6,686)
Depreciation                               -0-   (37,941)
Income  from Operations of Disposed        -0-    175,908
  Property and Property Held for Sale
Gain on Sale of Investment Property        -0-        -0-
Income  from Discontinued Operations      $-0-   $175,908

Cash flows from discontinued operations for the three months ended December 31, 2008 and 2007 are combined with the cash flows from operations within each of the three categories presented. Cash flows from discontinued operations are as follows:

                                                           Three Months Ended
                                                          12/31/08    12/31/07

    Cash flows from Operations - Discontinued                  $-0-    $283,523
    Operations
    Cash flows from Investing Activities -                      -0-         -0-
    Discontinued Operations
    Cash flows from Financing Activities -                      -0-   (283,523)
    Discontinued Operations

The absence of cash flows from discontinued operations is not expected to materially affect future liquidity and capital resources.

Changes in Financial Condition

The Company generated net cash from operating activities of $4,941,967 and $3,995,770 for the three months ended December 31, 2008 and 2007, respectively.

Securities available for sale decreased $4,998,368 from September 30, 2008 to December 31, 2008. The decrease is due mainly to an increase in the unrealized loss of $3,041,920, the write-down in carrying value of securities deemed to be other than temporarily impaired of $3,245,122, and sales of securities with a cost of $119,548. These decreases were partially offset by purchases of securities of $1,408,222.

Tenant and Other Receivables decreased $762,841 from September 30, 2008 to December 31, 2008. The decrease is due mainly to the collection of real estate tax and other reimbursements from the tenants.

Prepaid expenses increased $814,419 from September 30, 2008 to December 31, 2008. The increase is due mainly to an increase in prepaid real estate taxes and prepaid insurance related to timing of payments. The Company recognizes real estate tax and insurance expense ratably over the fiscal year.

Mortgage notes payable decreased $2,718,952 from September 30, 2008 to December 31, 2008. This decrease is due to principal repayments.

Loans payable increased $4,518,538 from September 30, 2008 to December 31, 2008.
The increase was due to the borrowing on the margin loan to make payments on the contracts of the property expansions completed at the end of fiscal 2008 and other capital projects, for the repurchase of $1,000,000 in debentures and for purchase of securities.

The Company raised $1,264,398 from the issuance of shares in the DRIP during the three months ended December 31, 2008, including dividend reinvestments of $1,090,383. Dividends paid on the common stock for the three months ended December 31, 2008 were $3,687,878 of which $1,090,383 was reinvested. On February 3, 2009, the Company declared a dividend of $0.15 per common share to be paid March 15, 2009 to common shareholders of record as of February 15, 2009.

The Company uses a variety of sources to fund its cash needs in addition to cash generated through operations. The Company may sell marketable securities, borrow on its line of credit, refinance debt, or raise capital through the DRIP or capital markets.

Liquidity and Capital Resources

Net cash provided by operating activities was $4,941,967and $3,995,770 for the three months ended December 31, 2008 and 2007, respectively. Dividends on common stock for the three months ended December 31, 2008 and 2007 were $3,687,878 (of which $1,090,383 was reinvested) and $3,593,204. The Company owned securities available for sale of $16,007,295 subject to margin loans of $6,818,486. These marketable securities provide the Company with additional liquidity. The REIT securities market has recently been driven to inordinately low prices and high yields. This has resulted in substantial unrealized losses on our holdings. We believe this to be the result of indiscriminate selling and not the result of normal pricing considerations. The dividends received from our REIT preferred investments continue to meet our expectations. It is our intent to hold these securities long-term and anticipate realizing satisfactory returns.

As of December 31, 2008, the Company owned fifty-eight properties, of which forty-eight carried mortgage loans of $189,228,680. The unencumbered properties could be refinanced to raise additional funds, although covenants in the Company's line of credit limit the amount of unencumbered properties which can be mortgaged. In addition, the Company has approximately $2,749,000 available on its $15,000,000 line of credit as of December 31, 2008. The Company has been raising capital through its DRIP, private placements and public offerings of common and preferred stock and investing in net leased industrial properties.
The Company believes that funds generated from operations and the DRIP, the funds available on the line of credit, together with the ability to finance and refinance its properties will provide sufficient funds to adequately meet its obligations over the next year.

The Company seeks to invest in well-located, modern buildings leased to credit worthy tenants on long-term leases. In management's opinion, newly built facilities leased to FDX and its subsidiaries meet these criteria. The Company has a concentration of FDX and FDX subsidiary leased properties. The percentage of FDX leased square footage to the total of the Company's rental space was 46% as of December 31, 2008. Annualized rental and reimbursement revenue from FDX and FDX subsidiaries is estimated at approximately 59% of total rental and reimbursement revenue for fiscal 2009. FDX is a publicly-owned corporation and information on its financial business operations is readily available to the Company's shareholders.

The Company does not have any off-balance sheet arrangements.

Funds From Operations

Funds from operations (FFO) is defined as net income, excluding gains or losses from sales of depreciable assets, plus real estate-related depreciation and amortization. FFO should be considered as a supplemental measure of operating performance used by REITs. FFO excludes historical cost depreciation as an expense and may facilitate the comparison of REITs which have different cost basis. The items excluded from FFO are significant components in understanding the Company's financial performance.

FFO (i) does not represent cash flow from operations as defined by generally accepted accounting principles; (ii) should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating, investing and financing activities; and (iii) is not an alternative to cash flow as a measure of liquidity. FFO, as calculated by the Company, may not be comparable to similarly entitled measures reported by other REITs.

The Company's FFO for the three months ended December 31, 2008 and 2007 is calculated as follows:

Three Months Ended



                                                         12/31/08     12/31/07

Net Loss                                                ($994,040)   ($222,779)
Preferred Dividend                                       (630,304)    (630,433)
Depreciation Expense                                     2,117,121    1,851,292
Depreciation Expense Related to Discontinued Operations        -0-       37,941
Amortization of Intangible Lease Assets                    308,919      534,811
FFO                                                       $801,696   $1,570,832

The following are the cash flows provided (used) by operating, investing and financing activities for the three months ended December 31, 2008 and 2007:

  Three Months Ended

                                           2008           2007

                  Operating Activities  $4,941,967     $3,995,770
                  Investing Activities (2,912,301)   (15,931,151)
                  Financing Activities (2,356,239)      6,479,464

Forward-Looking Statements

Statements contained in this Form 10-Q, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Also, when we use any of the words "anticipate," "assume," "believe," "estimate," "expect," "intend," or similar expressions, we are making forward-looking statements. These forward-looking statements are not guaranteed and are based on our current intentions and on our current expectations and assumptions. These statements, intentions, expectations and assumptions involve risks and uncertainties, some of which are beyond our control that could cause actual results or events to differ materially from those we anticipate or project, such as:

†

the ability of our tenants to make payments under their respective leases, our reliance on certain major tenants and 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 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 sell properties at an attractive price;

†

our ability to repay debt financing obligations;

†

our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us;

†

the loss of any member of our management team;

†

our ability to comply with certain debt covenants;

†

our ability to integrate acquired properties and operations into existing operations;

†

continued availability of proceeds from our debt or equity capital;

†

the availability of other debt and equity financing alternatives;

†

market conditions affecting our equity capital;

†

changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;

†

our ability to implement successfully our selective acquisition strategy;

†

our ability to maintain internal controls and processes 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; and

†

our ability to qualify as a real estate investment trust for federal income tax purposes.