Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MNR > SEC Filings for MNR > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for MONMOUTH REAL ESTATE INVESTMENT CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MONMOUTH REAL ESTATE INVESTMENT CORP


8-May-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

The Company is a REIT. The Company seeks to invest in well-located, modern industrial buildings leased primarily to investment grade tenants on long-term leases. During the six months ended March 31, 2013, the Company purchased two net-leased industrial properties, located in Livonia, MI and Olive Branch, MS, totaling approximately 787,000 square feet, for $41,718,816. As of March 31, 2013, the Company owned seventy-two industrial properties and one shopping center with total square footage of approximately 9,165,000 square feet. These properties are located in twenty-six states. As of quarter end, the Company's weighted average lease expiration term was approximately 6.1 years and its occupancy rate was 95%. In addition, the Company's average rent per occupied square foot for fiscal 2013 was approximately $5.46. Total net real estate investments were $507,295,566 as of March 31, 2013.

The Company's revenue primarily consists of rental and reimbursement revenue from the ownership of industrial rental property. Net Operating Income from property operations (NOI) is defined as recurring rental and reimbursement revenue, less real estate taxes and operating expenses, such as insurance, utilities and repairs and maintenance. NOI increased $934,477 or 9% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and increased $1,923,793 or 9% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. The increase was due to the additional income related to seven industrial properties purchased during fiscal 2012 (of which two were purchased subsequent to March 31, 2012) and two properties purchased during the six months ended March 31, 2013.

The Company's NOI for the three and six months ended March 31, 2013 and 2012 is calculated as follows:

                                           Three Months Ended          Six Months Ended
                                        3/31/2013     3/31/2012     3/31/2013     3/31/2012

Rental Revenue                         $11,738,407   $10,691,955   $23,047,661   $21,349,581
Reimbursement Revenue                    1,567,802     1,875,848     3,086,038     3,455,688
Total Rental and Reimbursement Revenue  13,306,209    12,567,803    26,133,699    24,805,269
Real Estate Taxes                      (1,117,948)   (1,675,693)   (2,281,462)   (3,100,296)
Operating Expense                        (967,176)     (605,502)   (1,493,800)   (1,270,329)
NOI                                    $11,221,085   $10,286,608   $22,358,437   $20,434,644

The Company's revenue also includes lease termination income, which amounted to $-0- and $690,730, respectively, for the three and six months ended March 31, 2013 and $3,222,283 for the three and six months ended March 31, 2012. This income represents the payments from former tenants at our St. Joseph, MO and Monroe, NC properties terminating their lease obligations before the end of the contractual term of the leases. Other than the Company's lease with its tenant at its 26,340 square foot location in Ridgeland (Jackson), MS the Company does not have any other leases that contain an early termination option.

Table of Contents

The Company has a concentration of FedEx Corporation (FDX) and FDX subsidiary-leased properties consisting of thirty-seven separate stand-alone leases. The percentage of FDX leased square footage to the total of the Company's rental space was 41% (10% to FDX and 31% to FDX subsidiaries) as of March 31, 2013. At the quarter end, no other tenants leased more than 5% of the Company's total square footage with the exception of Milwaukee Electric Tool Corporation which leased 7%. The only tenant that accounted for more than 5% of the Company's total rental and reimbursement revenue for the six months ended March 31, 2013 was FDX and its subsidiaries. Annualized rental and reimbursement revenue from FDX and its subsidiaries is estimated to be approximately 52% (12% to FDX and 40% to FDX subsidiaries) of total rental and reimbursement revenue for fiscal 2013. This concentration is a risk shareholders should consider.

The Company also holds a portfolio of securities of other REITs with a fair value of $52,264,390 as of March 31, 2013, which earns dividend and interest income. The dividends received from our securities investments were at a weighted average yield of approximately 6.9% as of March 31, 2013. During the six months ended March 31, 2013, the Company recognized gains on sale of securities of $5,913,472. As of March 31, 2013, the Company had net unrealized gains on securities available for sale of $5,922,580. The Company invests in REIT securities on margin from time to time when the Company believes it can achieve an adequate yield spread. As of March 31, 2013, the Company does not have any borrowings under its margin line. The REIT securities portfolio provides the Company with liquidity and additional income and serves as a proxy for real property investments.

On November 9, 2012, the Company purchased a 172,005 square foot industrial building located in Livonia, MI. The building is 100% net leased to FedEx Ground Packaging System, Inc. through March 31, 2022. The purchase price was $14,350,000. The Company obtained a mortgage of $9,500,000 at a fixed interest rate of 4.45% for 14 years and paid the remaining amount from cash on hand. This mortgage matures on December 1, 2026. Annual rental income over the remaining term of the lease is approximately $1,194,000. In connection with the acquisition, the Company completed its evaluation of the acquired lease. As a result of its evaluation, the Company has allocated $650,000 to an intangible asset associated with the net fair value assigned to the acquired lease at the property.

On December 20, 2012, the Company purchased a 615,305 square foot industrial building located in Olive Branch, MS. The building is 100% net leased to Milwaukee Electric Tool Corporation through March 31, 2023. The purchase price was $28,000,000. The Company obtained a mortgage of $17,500,000 at a fixed interest rate of 3.76% for 10 years and paid the remaining amount with a draw on its unsecured line of credit (line of credit). This mortgage matures on January 1, 2023. During the three months ended March 31, 2013, the purchase price was adjusted to $27,368,816, resulting in a refund of the purchase price totaling $631,184. Per the terms of the mortgage agreement, 62.5% of any purchase price reduction was required to be used to pay down the mortgage balance. Therefore, $394,490 of the refund was applied as a reduction to the mortgage balance. In addition, in accordance with the purchase and lease agreements, the reduction in purchase price resulted in the annual rental income over the remaining term of the lease to be adjusted from approximately $1,965,000 to $1,928,000. In connection with the acquisition, the Company completed its evaluation of the acquired lease. As a result of its evaluation, the Company has not allocated any amount to an intangible asset.

On December 21, 2012, the Company purchased approximately 4.1 acres of land adjacent to its property which is leased to FedEx Ground Packaging System, Inc. located in Orion, MI for $988,300 in connection with a 52,154 square foot expansion of the building which is expected to be completed fiscal in 2013.

The Company has entered into separate agreements to purchase eight new build-to-suit, industrial buildings that are currently being developed. These buildings are located in Kentucky, Minnesota, Missouri, Pennsylvania, Texas, Virginia and Wisconsin, totaling approximately 1,420,000 square feet, which will be net-leased to investment grade tenants for 10 or more years, of which approximately 862,000 square feet or 61% will be leased to FedEx Ground Packaging System. The aggregate purchase price for the eight properties is approximately $96,105,000. Subject to satisfactory due diligence, we anticipate closing these eight transactions during fiscal 2013 and fiscal 2014. The Company has made deposits totaling $1,800,000 on these acquisitions as of March 31, 2013, which is included in other assets as of March 31, 2013.

Table of Contents

In connection with the Kentucky, Minnesota, Pennsylvania, Virginia and Wisconsin acquisitions, the Company entered into three separate commitments to obtain self-amortizing mortgages totaling $37,475,000 at fixed interest rates ranging from 3.84% to 4.17% for terms ranging between 13 and 20 years. The Company has currently paid commitment and loan processing fees totaling $434,250 of which $416,250 will be refunded at each respective closing which are expected to take place during the third quarter of fiscal 2013 and the first quarter of fiscal 2014.

The Company has entered into separate agreements to expand three existing buildings leased to FedEx Ground Packaging System, Inc. by approximately 170,000 square feet. As of March 31, 2013, the Company has incurred expansion costs of approximately $3,900,000 (including $988,300 for the purchase of land, see Note
3). As of March 31, 2013, the total remaining expansion costs expected to be incurred during fiscal 2013 and fiscal 2014 amount to approximately $10,100,000. Total expansion costs for the buildings being expanded are expected to average $83 per square foot. Upon completion, the expansions will result in a new ten year lease extension for each building being expanded and the expansions will result in total increased annual rent of approximately $1,400,000 averaging $8.20 per square foot per annum

See PART I, Item 1 - Business in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2012 for a more complete discussion of the economic and industry-wide factors relevant to the Company and the opportunities, challenges, and risks on which the Company is focused.

Changes in Results of Operations

As of March 31, 2013, the Company owned seventy-three properties with total square footage of approximately 9,165,000 as compared to seventy properties with total square footage of approximately 8,267,000 as of March 31, 2012. As of March 31, 2013 and 2012, the Company's weighted average lease expiration term was approximately 6.1 years and 5.2 years, respectively. The Company's occupancy rate was 95% as of March 31, 2013 and 2012.

In fiscal 2013, approximately 10% of our gross leasable area, consisting of 11 leases totaling 896,813 square feet was originally set to expire. To date, the Company has extended 10 leases which were scheduled to expire in fiscal 2013. We have incurred or expect to incur tenant improvement costs and leasing costs of approximately $1,245,000 and $541,000, respectively in connection with these 10 lease renewals. In the table below, both the tenant improvement costs and the leasing costs are presented on a per square foot (PSF) basis averaged over the renewal term. In addition, the following table summarizes the lease terms of the 10 leases which were renewed.

                                                                                                Tenant        Leasing
                                                                                              Improvement Commissions Cost
                                                Former             Renewal                       Cost         PSF over
                                                Average  Previous  Average    New     Renewal  PSF over       Renewal
                                        Square   Rent     Lease     Rent     Lease     Term     Renewal       Term (1)
      Property             Tenant        feet     PSF   Expiration   PSF   Expiration (years)  Term (1)

   Chattanooga, TN      FedEx Express   60,637   $6.10   10/27/12   $5.13   10/31/17    5.0      $0.61         $0.10
    Lakeland, FL        FedEx Express   32,105   5.13    11/30/12   4.83    11/30/17    5.0      0.14           0.10
     Augusta, GA        FedEx Express   30,184   4.67    11/30/12   4.00    11/30/22   10.0      0.22           0.08
  Fayetteville, NC    Maidenform, Inc.  148,000  3.00    12/31/12   3.00    12/31/13    1.0       -0-           0.06
   Orangeburg, NY     Kellogg Sales Co. 50,400   7.00    2/28/13    7.00    2/28/14     1.0       -0-           0.14
    Newington, CT     Kellogg Sales Co. 54,812   6.54    2/28/13    6.54    2/28/14     1.0       -0-           0.13
  Edwardsville, KS      Carlisle Tire   179,280  3.85    5/31/13    4.09    5/31/18     5.0      0.22           0.25
  Jacksonville, FL      FedEx Ground    95,883   6.00    5/31/13    5.40    5/31/19     6.0      0.07           0.11
West Chester Twp, OH    FedEx Ground    103,818  4.80    8/31/13    5.01    8/31/23    10.0      0.64           0.10
 Bedford Heights, OH    FedEx Express   82,269   5.54    8/31/13    4.96    8/31/18     5.0      0.15           0.15
                            Total       837,388
  Weighted Average                               $4.84              $4.68               4.7      $0.32         $0.14

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

Table of Contents

Of the total 896,813 square feet of gross leasable area originally set to expire during fiscal 2013, 837,388 square feet or 93% has been renewed. The lease renewals have been renewed for a weighted average term of 4.7 years at an average lease rate per square foot of $4.68 as compared to $4.84 per square foot formerly, representing a reduction of 3.3%.

The one remaining lease located in White Bear Lake, MN leased to FedEx Express through November 30, 2012, representing 59,425 square feet or 7% of the space, did not renew.

Effective March 31, 2013, we entered into a seven and half year lease with Tampa Bay Grand Prix at our 68,385 square foot facility located in Tampa FL, which was previously vacant. The tenant receives free rent for six months. Effective October 1, 2013, annual base rent will be $256,443 or $3.74 per square foot with 3% increases each year through the September 30, 2020 lease expiration.

Rental revenue increased $1,046,452 or 10% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and increased $1,698,080 or 8% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. The increase for the three and six months ended March 31, 2013 was due primarily to the increased rental income earned from acquisitions of seven properties during fiscal 2012 (of which two were purchased subsequent to March 31, 2012) and two properties purchased during the six months ended March 31, 2013.

Reimbursement revenue decreased $308,046 or 16% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and decreased $369,650 or 11% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. Real estate tax expense decreased $557,745 or 33% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and decreased $818,834 or 26% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. The decrease for the three and six months ended March 31, 2013 for both reimbursement revenue and real estate taxes was due primarily to the Company's ability to obtain refunds and reductions in real estate taxes in several jurisdictions. Our single tenant properties are subject to net leases which require the tenants to absorb the real estate taxes as well as insurance and the majority of repairs and maintenance. As such, the Company is reimbursed by the tenants for these real estate taxes. Because the reduction in real estate taxes results in reducing our tenants overall occupancy costs, it is expected to result in higher tenant retention rates.

Lease termination income amounted to $-0- and $690,730 for the three and six months ended March 31, 2013, respectively, as compared to $3,222,283 for the three and six months ended March 31, 2012. This income represents the payments from former tenants at our St. Joseph, MO and Monroe, NC properties terminating their lease obligations before the end of the contractual term of the leases.

Operating expenses increased $361,674 or 60% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and increased $223,471 or 18% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. The increase in Operating expenses for the three months ended March 31, 2013 was due primarily to the increase in insurance costs of $216,000, an increase in repair and maintenance costs of $102,000 and an increase in utility costs of $30,000. The increase in Operating expenses for the six months ended March 31, 2013 was due primarily to the increase in insurance costs of $153,000, an increase in repair and maintenance costs of $161,000 and an increase in utility costs of $95,000. The increases were mainly due to the acquisitions in 2012 and 2013. The increases were offset by a decrease in management fees of $74,000 and $161,000 for the three and six months ended March 31, 2013. Effective August 1, 2012, the Company terminated its contract with its management agent and the Company became a fully integrated and self-managed real estate company.

General and administrative expense increased $18,085 or 2% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and increased $297,908 or 15% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. The increase in General and administrative expense for the six months ended March 31, 2013 was due primarily to increased salary and related expenses for recent hires of approximately $135,000, professional fees associated with redeeming the Debentures of approximately $60,000 and general professional fees of approximately $85,000.

Table of Contents

Interest and dividend income increased $112,458 or 13% for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 and increased $286,193 or 16% for the six months ended March 31, 2013 as compared to the six months ended March 31, 2012. This increase was due mainly to an increase of 19% in investments in securities available for sale as of March 31, 2013 as compared to the investments in securities available for sale as of March 31, 2012. The weighted average yield was approximately 6.9% and 7.3% for the three months ended March 31, 2013 and 2012, respectively and approximately 6.8% for the six months ended March 31, 2013 and 2012.

The Company recognized a gain on sale of securities of $3,802,704 and $2,209,257 for the three months ended March 31, 2013 and 2012, respectively and $5,913,472 and $4,997,715 for the six months ended March 31, 2013 and 2012, respectively. In addition, the Company had net unrealized gains on its securities held for sale of $5,922,580 as of March 31, 2013.

Discontinued operations for the three and six months ended March 31, 2013 include the operations of the property in Greensboro, NC, which was classified as held for sale as of December 31, 2012. On February 19, 2013, the Greensboro, NC property was sold for $1,525,000. Discontinued operations for the three and six months ended March 31, 2012 include the operations of Greensboro, NC and the operations of the property in Quakertown, PA which was classified as held for sale as of September 30, 2011 and was sold on October 31, 2011. The following table summarizes the components of discontinued operations:

                                         Three Months Ended       Six Months Ended
                                        3/31/2013   3/31/2012   3/31/2013   3/31/2012

Rental and Reimbursement revenue             $-0-        $-0-     $32,258     $95,888
Real Estate Taxes                        (22,120)     (6,897)    (28,474)    (16,719)
Operating Expenses                       (23,190)    (17,698)    (33,026)    (27,935)
Depreciation & Amortization                   -0-    (19,647)    (20,094)    (38,787)
       Income (Loss) from Operations of  (45,310)    (44,242)    (49,336)     12,447
                      Disposed Property
Gain (Loss) on Sale of Investment        345,794          -0-    345,794      (8,220)
Property
Income (Loss) from Discontinued          $300,484   $(44,242)    $296,458      $4,227
Operations

Cash flows from discontinued operations for the six months ended March 31, 2013 and 2012 are combined with the cash flows from operations within each of the three categories presented. Cash flows from discontinued operations are as follows:

  Add MNR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MNR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.