ITEM 1 - BUSINESS (CONT'D)
The Company has a flexible investment policy concentrating its investments in the area of net-leased industrial properties. The Company's strategy is to obtain a favorable yield spread between the yield from the net-leased industrial properties and mortgage interest costs. The Company continues to purchase net-leased industrial properties, since management believes that there is a potential for long-term capital appreciation through investing in well-located industrial properties. There is the risk that, on expiration of current leases, the properties can become vacant or re-leased at lower rents. The results obtained by the Company by re-leasing the properties will depend on the market for industrial properties at that time.
The Company continues to invest in both debt and equity securities of other real estate investment trusts (REITs). Based on current market conditions, management believes that the price of those REIT shares are at a discount from the value of the underlying properties. The Company from time to time may purchase these securities on margin when the interest and dividend yields exceed the cost of the funds. Such securities are subject to risk arising from adverse changes in market rates and prices, primarily interest rate risk relating to debt securities and equity price risk relating to equity securities.
In fiscal 2000, the Company paid approximately $4,000,000 for a net-leased industrial property. In fiscal 2001, the Company anticipates acquisitions of approximately $30,000,000. The funds for these acquisitions may come from the Company's available line of credit, other bank borrowings and proceeds from the Dividend Reinvestment and Stock Purchase Plan. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.
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 the Federal Express Corporation (FDX) or FDX subsidiaries meet this criteria. The Company is considering two properties for purchase leased to FDX or FDX subsidiaries. This could result in an additional concentration of properties leased to FDX and FDX subsidiaries. This is a risk factor that shareholders should consider. FDX is a publicly-owned corporation and information on its financial business operations is readily available to the Company's shareholders. Because of the contingent nature of contracts to purchase real property, the Company announces acquisitions only on closing.
Under New Jersey Environmental Laws, inspections of the properties are made and certificates of compliance are obtained upon the sale of property or upon a change of tenancy. Therefore, there is no assurance that, in connection with compliance with state environmental regulations, substantial capital expenditures would not be incurred at the time the Company desired to sell its properties or at the time of a change of tenancy. Management is not aware of any material environmental problems affecting the Company's properties.
ITEM 2
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES
The Company operates as a real estate investment trust. Its portfolio is primarily in equity holdings, some of which have been long-term holdings carried on the financial statements of the Company at depreciated cost. It is believed that their current market values exceed both the original cost and the depreciated cost. The following is a brief description of the Company's equity holdings at September 30, 2000. (See Item 14, Schedule III for additional information on Real Estate and Accumulated Depreciation and Item 14, Note 7 of the Notes to the Financial Statements for a discussion of encumbrances on these equity holdings).
SOMERSET, NEW JERSEY
The Company owns a two-thirds undivided interest in this Somerset, New Jersey shopping center. The remaining one-third interest is owned by D & E Realty, an unrelated entity. All assets, liabilities, income and expense are allocated to the owners based upon their respective ownership percentages. The total rentable space in this shopping center is approximately 42,800 square feet. In addition, 21,365 square feet of land was leased to Taco Bell, Inc. on which a freestanding restaurant was completed during 1993. This shopping center was 97% occupied at September 30, 2000. The main store lease expires on September 30, 2005. The Company's portion of the annual gross rental income on this facility was approximately $314,000.
RAMSEY, NEW JERSEY
Ramsey Industrial Park, located on E. Crescent Avenue in Ramsey, New Jersey is a 42,719 square foot building net-leased to Bogen Photo, Inc. This lease expires on September 30, 2001. The current annual gross rental income is approximately $224,000. This lease has been extended to September 30, 2006 at an annual rent of $279,000.
MONACA, PENNSYLVANIA
The Moor Industrial Park is located in Monaca, Pennsylvania. It consists of approximately 292,000 feet of rentable space located on 23 acres. The leases are all short term at relatively low rents compared to the Company's other properties. The current annual gross rental income is approximately $465,000. At September 30, 2000, this property was 74% occupied. This property has 1,200 feet of undeveloped river frontage.
ORANGEBURG, NEW YORK
This 50,400 square foot warehouse facility, located in Orangeburg, New York, is net-leased to the Keebler Company. The average annual rental income over the term of the lease, which expires on December 31, 2000, is approximately $433,000. This lease has been extended to December 31, 2003 at an annualized rent of $323,000 per annum.
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
SOUTH BRUNSWICK, NEW JERSEY
This 144,520 square foot warehouse facility, located in South Brunswick, New Jersey, is net-leased to McMaster Carr Supply Co. This lease expires on December 31, 2000. The average annual rental income over the term of the lease is $614,000. McMaster Carr Supply Co. has exercised a one year renewal option at a rent of $650,000 per annum.
GREENSBORO, NORTH CAROLINA
This 40,560 square foot distribution center, located in Greensboro, North Carolina is net-leased to the Keebler Company. This lease expires February 14, 2003. The average annual rental income over the term of the lease is approximately $233,000.
JACKSON, MISSISSIPPI
This 26,340 square foot warehouse facility, located in Jackson, Mississippi, is net-leased to the Keebler Company. The average annual rental income over the term of the lease is approximately $169,000. This lease expires September 30, 2003. The Keebler Company is in the process of sub-leasing this facility.
FRANKLIN, MASSACHUSETTS
This 84,376 square foot warehouse facility, located in Franklin, Massachusetts, is net-leased to the Keebler Company. The average annual rental income over the term of the lease is approximately $516,000. This lease expires on January 31, 2004.
WICHITA, KANSAS
This 44,136 square foot warehouse facility, located in Wichita, Kansas, is net-leased to the Keebler Company. The average annual rental income over the term of the lease is approximately $195,000. This lease expires May 30, 2005. The Keebler Company has sub-leased this facility.
URBANDALE, IOWA
This 36,150 square foot warehouse facility, located in Urbandale, Iowa, is net-leased to the Glazers Distributors of Iowa, Inc. The average annual rental income over the term of the lease is approximately $127,000. This lease expires June 30, 2003.
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
RICHLAND, MISSISSIPPI
This 36,000 square foot warehouse facility, located in Richland, Mississippi, is 100% net-leased to the Federal Express Corporation for an average annual rental income of approximately $140,000 over the term of the lease. This lease expires on March 31, 2004.
O'FALLON MISSOURI
This 102,135 square foot warehouse facility, located in O'Fallon, Missouri, is 100% net-leased to PPG Industries, Inc. The average annual rental income over the term of the lease is approximately $353,000. This lease expires June 30, 2001.
VIRGINIA BEACH, VIRGINIA
This 67,926 square foot warehouse facility, located in Virginia Beach, Virginia, is 100% net- leased to the Raytheon Service Company. The annual rental income is approximately $307,000. This lease expires February 28, 2001. Raytheon Service Company has sub- leased this facility.
FAYETTEVILLE, NORTH CAROLINA
This 148,000 square foot warehouse facility, located in Fayetteville, North Carolina, is 100% net-leased to the Belk Enterprises, Inc. The average annual rental income over the term of the lease is approximately $473,000. This lease expires June 4, 2006.
SCHAUMBURG, ILLINOIS
This 73,500 square foot warehouse facility, located in Schaumburg, Illinois, is 100% net-leased to the Federal Express Corporation. The average annual rental income over the term of the lease is approximately $463,000. This lease expires April 1, 2007.
TETERBORO, NEW JERSEY
The Company is a partner in a limited liability company, Hollister `97, LLC, representing a 25% ownership interest. The sole business of this LLC is the ownership and operation of the Hollister Corporate Park in Teterboro, New Jersey. Under the agreement, the Company is to receive a cumulative preferred 11% annual return on its investment.
BURR RIDGE, ILLINOIS
This 12,477 square foot warehouse facility, located in Burr Ridge, Illinois, is 100% net-leased to the Sherwin-Williams Company. The average annual rental income over the term of the lease is $151,000. This lease expires on October 31, 2009.
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
ROMULUS, MICHIGAN
This 72,000 square foot warehouse facility, located in Romulus, Michigan, is 100% net-leased to the Federal Express Corporation. The average annual rental over the term of the lease is approximately $396,000. This lease expires on November 30, 2007.
LIBERTY, MISSOURI
This 98,200 square foot warehouse facility, located in Liberty, Missouri, is 100% net- leased to the Johnson Controls, Inc. The average annual rental income over the term of the lease is approximately $705,000. This lease expires on December 18, 2007. Johnson Controls, Inc. has sub-leased this facility.
OMAHA, NEBRASKA
This 88,140 square foot warehouse facility, located in Omaha, Nebraska, is 100% net-leased to the Federal Express Corporation. The average annual rental income over the term of the lease is approximately $516,000. This lease expires October 31, 2008.
CHARLOTTESVILLE, VIRGINIA
This 49,900 square foot warehouse facility, located in Charlottesville, Virginia, is 100% net-leased to the Federal Express Corporation. The average annual rental income over the term of the lease is approximately $363,000. This lease expires October 31, 2008.
JACKSONVILLE, FLORIDA
This 95,883 square foot warehouse facility, located in Jacksonville, Florida, is 100% net-leased to the Federal Express Corporation. The average annual rental income over the term of the lease is approximately $526,000. This lease expires May 31, 2008.
UNION CITY, OHIO
This 85,508 square foot warehouse facility, located in Union City, Ohio, was purchased in fiscal 2000. This warehouse facility is 100% net-leased to RPS Ground, a subsidiary of the Federal Express Corporation. The average annual rental income over the term of the lease is approximately $393,000. This lease expires August 1, 2009.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2000.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Class A common stock of Monmouth Real Estate Investment Corporation are traded on the National Association of Securities Dealers Automated Quotation (NASDAQ symbol MNRTA). The per share range of high and low market prices and distributions paid to shareholders during each quarter of the last two years were as follows:
2000 1999 Market Price Market Price Fiscal High Low Distrib. Fiscal High Low Distrib. Qtr. Qtr.
First 5.375 4.625 $.145 First 6.125 5.000 $ .1375 Second 5.188 4.500 .145 Second 5.500 5.125 .1400 Third 5.375 4.563 .145 Third 5.875 5.250 .1450 Fourth 5.375 4.813 .145 Fourth 5.625 5.250 .1450 ____ _____ $ .58 $ .5675 === ====
The over-the-counter market quotations reflect the inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
On September 30, 2000, the closing price was $5.00.
As of September 30, 2000, there were approximately 1,071 shareholders of record who held shares of Class A common stock of the Company.
It is the Company's intention to continue distributing quarterly dividends. On September 20, 2000 the Company declared a dividend of $.145 per share to be paid on December 15, 2000 to shareholders of record November 15, 2000.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Monmouth Real Estate Investment Corporation (the Company) operates as a real estate investment trust deriving its income primarily from real estate rental operations. At September 30, 2000, the Company's shareholders' equity increased to $41,013,926 as compared to $36,276,677 in 1999.
The Company's ability to generate cash adequate to meet its needs is dependent primarily on income from its real estate investments, the sale of real estate investments and securities, refinancing of mortgage debt, leveraging of real estate investments, availability of bank borrowings, proceeds from the Dividend Reinvestment and Stock Purchase Plan, and access to the capital markets. Purchases of new properties, payments of expenses related to real estate operations, capital improvements programs, debt service, management and professional fees, and dividend requirements place demands on the Company's liquidity.
The Company intends to operate its existing properties from the cash flows generated by the properties. However, the Company's expenses are affected by various factors, including inflation. Increases in operating expenses raise the breakeven point for a property and, to the extent that they cannot be passed on through higher rents, reduce the amount of available cash flow which can adversely affect the market value of the property.
The Company's focus is on equity investments. During the past eight years, the Company purchased nineteen net-leased warehouse facilities at an aggregate cost of approximately $70,000,000.
The Company financed these purchases primarily through mortgages on its acquisitions. The Company also has a secured $6,345,000 line of credit of which approximately $3,237,000 was available at September 30, 2000. Interest is at Prime and is due monthly. This credit line expires on November 29, 2002.
The Company expects to make additional real estate investments from time to time. In 2001, the Company plans to acquire approximately $30,000,000 of net-leased industrial properties. The funds for these acquisitions may come from the Company's available line of credit, other bank borrowings and proceeds from the Dividend Reinvestment and Stock Purchase Plan. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.
The Company also invests in debt and equity securities of other REITs. The Company from time to time may purchase these securities on margin. During fiscal 2000, the Company increased its securities portfolio by approximately $4,500,000. Although the securities portfolio at September 30, 2000 has experienced an approximate 3% decline in value from cost, management believes that this is temporary in nature.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Funds generated are expected to be sufficient to meet debt service requirements and capital expenditures of the Company.
Cash provided from operating activities amounted to $4,583,749 in 2000 as compared to $4,493,792 in 1999 and $3,431,422 in 1998.
At September 30, 2000, the Company had total liabilities of $44,989,979 and total assets of $86,003,905. The Company believes that it has the ability to meet its obligations and to generate funds for new investments.
The Company has a Dividend Reinvestment and Stock Purchase Plan. During 2000, a total of $5,734,589 in additional capital was raised. The success of the Plan has resulted in a substantial improvement in the Company's liquidity and capital resources in 2000. It is anticipated, although no assurances can be given, that a comparable level of participation will continue in the Plan in fiscal 2001. Therefore, the Company anticipates that the Plan will result in further increased liquidity and capital resources in fiscal 2001.
Results of Operations
The Company's activities primarily generate rental income. Net income for the fiscal year ended September 30, 2000 was $3,589,397 as compared to $3,796,760 in 1999 and $2,499,922 in 1998. Net rental income for the fiscal year ended September 30, 2000 was $3,035,942 as compared to $2,788,871 in 1999 and $2,697,316 in 1998. The following is a discussion of the results of operations by location for 2000 as compared to 1999 and 1999 as compared to 1998:
Somerset, New Jersey During 2000, net rental income decreased primarily as a result of an increase in management fees. During 1999, net rental income remained relatively stable as compared to 1998.
Ramsey, New Jersey Net rental income decreased during 2000 as compared to 1999 and 1999 as compared to 1998 primarily as a result of an increase in professional fees.
Monaca, Pennsylvania Net rental income remained relatively stable for 2000, 1999 and 1998.
Monsey, New York Due to the sale of the property in March, 1999, net rental income decreased for 2000 and 1999 as compared to 1998.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Orangeburg, New York Net rental income increased in 2000 as compared to 1999 due to lower interest costs on related borrowings outstanding. Net rental income remained relatively stable in 1999 as compared to 1998.
South Brunswick, New Jersey Net rental income remained relatively stable in 2000 as compared to 1999. Net rental income decreased during 1999 as compared to 1998 due primarily to a lease extension by Amway Corporation from July 1, 1997 to December 31, 1997 at a monthly rental of $162,585 which was triple the normal rent. The new monthly rental is $51,184.
Greensboro, North Carolina Net rental income increased in 2000 as compared to 1999 due to an increase in tenant reimbursements. Net rental income increased in 1999 as compared to 1998 due to a decrease in interest expense as a result of the payoff of the mortgage on this property during 1998.
Jackson, Mississippi Net rental income remained relatively stable during 2000, 1999 and 1998.
Franklin, Massachusetts Net rental income increased during 2000 as compared to 1999 primarily due to an increase in tenant reimbursement. Net rental income remained relatively stable during 1999 and 1998.
Wichita, Kansas Net rental income remained relatively stable during 2000, 1999 and 1998.
Urbandale, Iowa Net rental income decreased during 2000 as compared to 1999 primarily due to a decrease in rent from a new lease. Net rental income remained relatively stable during 1999 and 1998.
Richland, Mississippi Net rental income remained relatively stable during 2000, 1999 and 1998.
O'Fallon, Missouri Net rental income increased in 2000 as compared to 1999 primarily due to lower interest costs on related borrowings outstanding. Net rental income remained relatively stable during 1999 and 1998.
Virginia Beach, Virginia Net rental income remained relatively stable in 2000 as compared to 1999. Net rental income increased during 1999 as compared to 1998 as a result of an increase in tenant reimbursements.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
Fayetteville, North Carolina Net rental income remained relatively stable in 2000 as compared to 1999. Net rental income increased during 1999 as compared to 1998 due to an increase in tenant reimbursements.
Schaumburg, Illinois Net rental income increased in 2000 as compared to 1999 due to an increase in tenant reimbursements. Net rental income decreased in 1999 as compared to 1998 due to an increase in management fees.
Burr Ridge, Illinois Net rental income increased in 2000 as compared to 1999 due primarily to an increase in tenant reimbursements. Net rental income decreased in 1999 as compared to 1998 due to an increase in depreciation expense over 1998's half year convention.
Romulus, Michigan Net rental income remained relatively stable in 2000 as compared to 1999. Net rental income increased in 1999 as compared to 1998 due to a full year's income and expenses.
Liberty, Missouri Net rental income increased in 2000 as compared to 1999 due to accelerated depreciation expense recognized in 1999. Net rental income increased in 1999 as compared to 1998 due to a full year's income and expenses.
Omaha, Nebraska Net rental income remained relatively stable during 2000 as compared to 1999. This warehouse facility was acquired in December, 1998.
Charlottesville, Virginia Net rental income increased during 2000 as compared to 1999 due to a full year's income and expenses. This warehouse facility was acquired in April, 1999.
Jacksonville, Florida Net rental income increased during 2000 as compared to 1999 due to a full year's income and expenses. The excess of expenses over income for 1999 was due to the half year convention for depreciation expense.
Union City, Ohio This warehouse facility was acquired in February, 2000. It is net-leased to RPS Ground, a subsidiary of the Federal Express Corporation. Average monthly rental over the term of the lease is $32,755.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D)
The Company also generated net investment and other income from its investments in securities available for sale, mortgages receivable and Hollister `97, LLC. Net interest and other income increased during 2000 as compared to 1999 primarily due to the increase in securities available for sale and to a gain of $110,960 on the sale of securities available for sale. Net interest and other income decreased in 1999 as compared to 1998 due to the gain on sale of securities available for sale in 1998 partially offset by an increase in dividend income as a result of the purchases of additional securities. These securities have a dividend yield in excess of 10%.
General and administrative expenses increased during 2000 as compared to 1999 primarily as a result of increased personnel costs. During 1999, general and administrative expenses remained relatively stable as compared to 1998.
Funds from operations (FFO), defined as net income, excluding gains (or losses) from sales of depreciable assets, plus depreciation, plus adjustments for unconsolidated partnerships ($-0-, $84,601, and $-0- for 2000, 1999 and 1998, respectively), increased from $3,647,345 for the year ended September 30, 1998 to $4,220,279 for the year ended September 30, 1999 to $5,292,384 for the year ended September 30, 2000. FFO does not replace net income (determined in accordance with generally accepted accounting principles) as a measure of performance or net cash flows as a measure of liquidity. FFO should be considered as a supplemental measure of operating performance used by real estate investment trusts.
During 1999, the Company realized a gain of approximately $1,240,000 on the sale of the Monsey, New York property. The Company also recognized a deferred gain from the Howell Township installment sale of approximately $88,631, $20,000 and $30,000 for 2000, 1999 and 1998, respectively. The gain increased in 2000 as the note was paid in full by the purchaser of the property.
IMPACT OF YEAR 2000
The Company has experienced no significant impact of its operations or its ability to accurately process financial information due to a Year 2000 related issue. In addition, the Company has no information that indicates a significant tenant, vendor or service provider may be unable to meet their rental obligations, sell goods or provide services to the Company because of Year 2000 issues. The Company will continue to monitor its operations for year 2000 related issues.
ITEM 7a
ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 1 - Business
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Present Position with the Company; Business Experience During Past Shares Percent Nominee; Age Five Years; Other Director Owned (1) Of Stock Directorships Since
Ernest V. Treasurer (1968 to 1968 11,649 0.13% Bencivenga present) and Director. (82) Financial Consultant (1976 to present); Treasurer and Director (1961 to present) and Secretary (1967 to present) of Monmouth Capital Corporation; Director (1969 to present) and Secretary/ Treasurer (1984 to present) of United Mobile Homes, Inc.
Anna T. Chew Controller (1991 to 1993 14,391(2) 0.17% (42) present) and Director. Certified Public Accountant; Controller (1991 to present) and Director (1994 to present) of Monmouth Capital Corporation; Vice President and Chief Financial Officer (1995 to present) and Director (1994 to present) of United Mobile Homes, Inc.
Daniel D. Director. Attorney at 1989 23,297 0.27% Cronheim Law (1982 to present); (45) Executive Vice President (1989 to present) and General Counsel (1983 to present) of David Cronheim Company.
Boniface Director. Chairman of 1968 10,788 0.12% DeBlasio the Board (1968 to (79) present) and Director (1961 to present) of Monmouth Capital Corporation.
Matthew I. Director. Attorney at 2000 262 0% Hirsch Law (1993 to present); (41) Adjunct Professor of Law (1993 to present), Widener University School of Law .
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Present Position with the Company; Business Experience During Past Shares Percent Nominee; Age Five Years; Other Director Owned (1) Of Stock Directorships Since
Charles P. Director. Investor; 1974 37,536(3) 0.43% Kaempffer Director (1970 to (63) present) of Monmouth Capital Corporation; Director (1969 to present) of United Mobile Homes, Inc.; Vice Chairman and Director (1996 to present) of Community Bank of New Jersey.
Eugene W. President (1968 to 1968 435,274(4) 5.00% Landy present) and Director. (67) Attorney at Law; President and Director (1961 to present) of Monmouth Capital Corporation; Chairman of the Board (1995 to present), President (1969 to 1995) and Director (1969 to present) of United Mobile Homes, Inc.
Samuel A. Director. Attorney at 1989 149,369(5) 1.72% Landy Law (1987 to present); (40) President (1995 to present), Vice President (1991 to 1995) and Director (1992 to present) of United Mobile Homes, Inc.; Director (1994 to present) of Monmouth Capital Corporation.
Robert G. Director. Investor; 1968 76,431(6) 0.88% Sampson Director (1963 to (75) present) of Monmouth Capital Corporation; Director (1969 to present) of United Mobile Homes, Inc.; General Partner (1983 to present) of Sampco, Ltd., an investment group.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
(1) Beneficial ownership, as defined herein, includes Class A Common Stock as to which a person has or shares voting and/or investment power.
(2) Held jointly with Ms. Chew's husband; includes 5,934 shares held in Ms. Chew's 401 (k) Plan.
(3) Includes (a) 14,558 shares owned by Mr. Kaempffer's wife; and (b) 1,080 shares in joint name with Mrs. Kaempffer.
(4) Includes (a) 90,372 shares owned by Mr. Landy's wife; (b) 150,373 shares held in the Landy & Landy, P.C. Profit Sharing Plan, of which Mr. Landy is a Trustee with power to vote; and (c) 117,340 shares held in the Landy & Landy, P.C. Pension Plan, of which Mr. Landy is a Trustee with power to vote. Excludes 37,285 shares held by Mr. Landy's adult children, in which he disclaims any beneficial interest.
(5) Includes (a) 3,975 shares owned by Mr. Landy's wife, and (b) 47,997 shares held in custodial accounts for Mr. Landy's minor children under the Uniform Gift to Minors' Act in which he disclaims any beneficial interest, but has power to vote and (c) 1,000 shares held in the Samuel Landy Family Limited Partnership and (d) 18,052 shares held in Mr. Landy's 401 (k) Plan.
(6) Includes (a) 40,000 held in a Family Trust, and 13,272 shares held by Sampco, Ltd. in which he has a beneficial interest.
The Directors as a class own 758,997 shares, which is 8.72% of the outstanding shares.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows compensation paid or accrued by the Company for services rendered during 2000, 1999 and 1998 to the Chief Executive Officer. There were no other executive officers whose aggregate cash compensation exceeded $100,000:
Annual Compensation Name and Principal Position Year Salary Bonus Other Eugene W. Landy 2000 $130,000 $80,000 $ 72,000(1) Chief Executive Officer 1999 110,000 None 79,700 1998 27,500 55,000 165,700
(1) Represents Director's fees of $5,500 paid to Mr. Landy, legal fees of $32,500 paid to the firm of Landy & Landy, and $34,000 accrual for pension and other benefits in accordance with Mr. Landy's employment contract.
Stock Option Plan
There were no stock options granted to the executive officer named in the Summary Compensation Table, during the year ended September 30, 2000.
The following table sets forth for the executive officer named in the Summary Compensation Table, information regarding stock options outstanding at September 30, 2000:
Number of Value of Unexercised Unexercised Options Options at Year-End at Year-End Shares Value Exercisable/ Exercisable/ Exercised Realized Unexercisable Unexercisable
Eugene W. Landy -0- N/A 150,000 / -0- $-0- / $-0-
Employment Agreement
On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which Mr. Landy receives an annual base compensation (management fee) of $130,000 (as amended) plus bonuses and customary fringe benefits, including health insurance and five weeks vacation. Additionally, there will be bonuses voted by the Board of Directors. The Employment Agreement is terminable by either party at any time, subject to certain notice requirements.
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
On severance of employment for any reason, Mr. Landy will receive severance of $300,000, payable $100,000 on severance and $100,000 on the first and second anniversaries of severance. In the event of disability, Mr. Landy's compensation shall continue for a period of three years, payable monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year for ten years, payable in monthly installments. In the event of death, Mr. Landy's designated beneficiary shall receive $300,000, $150,000 thirty days after death and the balance one year after death. The Employment agreement terminates December 31, 2000. Thereafter, the term of the Employment Agreement shall be automatically renewed and extended for successive one-year periods.
Other Information
The Directors received a fee of $800 for each Board Meeting attended. Effective April 1, 2000, this fee was increased to $1,000 for each Board Meeting attended and an additional fixed annual fee of $3,800 payable quarterly. Directors appointed to house committees receive $150 for each meeting attended. Those specific committees are Compensation Committee, Audit Committee and Stock Option Committee.
Except for specific agreements, the Company has no retirement plan in effect for Officers, Directors or employees and, at present, has no intention of instituting such a plan.
Cronheim Management Services received the sum of $199,432 in 2000 for management fees. Effective August 1, 1998, the Company entered into a new management contract with Cronheim Management Services. Under this contract, Cronheim Management Services receives 3% of gross rental income on certain properties for management fees. Cronheim Management Services provides sub-agents as regional managers for the Company's properties and compensates them out of this management fee. Management believes that the aforesaid fees are no more than what the Company would pay for comparable services elsewhere.
Report of Board of Directors on Executive Compensation
Overview and Philosophy
The Company has a Compensation Committee consisting of two independent outside Directors. This Committee is responsible for making recommendations to the Board of Directors concerning compensation. The Compensation Committee takes into consideration three major factors in setting compensation.
The first consideration is the overall performance of the Company. The Board believes that the financial interests of the executive officers should be aligned with the success of the Company and the financial interests of its shareholders. Increases in funds from operations, the enhancement of the Company's equity portfolio, and the success of the Dividend Reinvestment and Stock Purchase Plan all contribute to increases in stock prices, thereby maximizing shareholders' return.
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
Overview and Philosophy (Cont'd)
The second consideration is the individual achievements made by each officer. The Company is a small real estate investment trust (REIT). The Board of Directors is aware of the contributions made by each officer and makes an evaluation of individual performance based on their own familiarity with the officer.
The final criteria in setting compensation is comparable wages in the industry. In this regard, the REIT industry maintains excellent statistics.
Evaluation
The Company's funds from operations continue to increase. The Committee reviewed the growth of the Company and progress made by Eugene W. Landy, Chief Executive Officer. Mr. Landy is under an employment agreement with the Company. His base compensation under this contract was increased in 2000 to $130,000 per year. In fiscal 2000, Mr. Landy was also paid a total bonus of $80,000 for his performance for the past two years.
Comparative Stock Performance
The following line graph compares the total return of the Company's common stock for the last five fiscal years to the NAREIT All REIT Total Return Index, published by the National Association of Real Estate Investment Trusts (NAREIT), and the S&P 500 Index for the same period. The total return reflects stock price appreciation and dividend reinvestment for all three comparative indices. The information herein has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness is guaranteed.
Monmouth Real Estate Investment Year Corporation NAREIT S&P 500
1995 100 100 100 1996 114 120 120 1997 146 167 169 1998 149 143 184 1999 142 130 236 2000 146 156 267
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On September 30, 2000, no person owned of record or was known by the Company to own beneficially five or more percent of the shares of the Company except as follows:
Amount and Nature Title of Name and Address of Beneficial Percent Class of Beneficial Owner Ownership of Class
Class A Eugene W. Landy 435,274 5.00% Common 20 Tuxedo Road Stock Rumson, NJ 07760
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are incorporated herein by reference to Item 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE(S)
(a) (1) The following Financial Statements are filed as part of this report:
(i) Independent Auditors' Report 26
(ii) Balance Sheets as of September 30, 2000 and 1999 27
(iii) Statements of Income for the years ended September 30, 2000, 1999 and 1998 28
(iv) Statements of Shareholders' Equity for the years ended September 30, 2000, 1999 and 1998 29
(v) Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998 30
(vi) Notes to the Financial Statements 31 - 46
(a) (2) The following Financial Statement Schedule is filed as part of this report:
(i) Schedule III - Real Estate and Accumulated Depreciation as of September 30, 2000 47-49
All other schedules are omitted for the reason that they are not required, are not applicable, or the required information is set forth in the financial statements or notes hereto.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (3) Exhibits
(3) Articles of Incorporation and By-Laws
(i) Reference is hereby made to the Certificate of Incorporation of Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April, 13, 1999 on Form S-4 (Registration No. 33-34103).
(ii) Reference is hereby made to the By-laws of Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103).
(10) Material Contracts
(i) Employment Agreement with Mr. Eugene W. Landy dated December 9, 1994 is incorporated by reference to that filed with the Company's Form 10-K filed with the Securities and Exchange Commission on December 28, 1994.
(ii) Employment Agreement with Mr. Ernest V. Bencivenga dated November 9, 1993 is incorporated by reference to that filed with the Company's Form 10-K filed with the Securities and Exchange Commission on December 28, 1994.
(28) Additional Exhibits
Reference is hereby made to the Agreement and Plan of Merger dated April 23, 1990 by and between Monmouth Real Estate Investment Trust and Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103).
Report on Form 8-K
On July 11, 2000, the Company filed a report on Form 8-K to announce the appointment of Matthew I. Hirsch to the Board of Directors. The total number of Directors was increased to nine.
Independent Auditors' Report
The Board of Directors and Shareholders Monmouth Real Estate Investment Corporation:
We have audited the financial statements of Monmouth Real Estate Investment Corporation as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Monmouth Real Estate Investment Corporation as of September 30, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Short Hills, New Jersey November 22, 2000
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
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See Accompanying Notes to the Financial Statements
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See Accompanying Notes to the Financial Statements
MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Monmouth Real Estate Investment Corporation (the Company) operates as a real estate investment trust deriving its income primarily from real estate rental operations. As of September 30, 2000 and 1999, rental properties consist of twenty-two and twenty-one commercial holdings, respectively, These properties are located in New Jersey, New York, Pennsylvania, North Carolina, Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois, Michigan, Nebraska, Florida, Virginia and Ohio.
Use of Estimates
In preparing the financial statements, management is 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.
Buildings, Improvements and Equipment
Buildings, improvements and equipment are stated at the lower of depreciated cost or net realizable value. Depreciation is computed based on the straight-line method over the estimated useful lives of the assets utilizing a half-year convention in the year of purchase. These lives range from 5 to 40 years. The Company accounts for its undivided interest in the Somerset property based upon its pro rata share of assets, liabilities, revenues and expenses. If there is an event or change in circumstances that indicates that the basis of an investment property may not be recoverable, management assesses the possible impairment of value through evaluation of the estimated future cash flows of the property, on an undiscounted basis, as compared to the property's current carrying value. A property's carrying value would be adjusted to fair value, if necessary, to reflect an impairment in the value of the property.
Cash Equivalents
Cash equivalents consist of money market funds.
Investment in Hollister `97, LLC
The Company's 25% investment in Hollister `97, LLC is accounted for under the equity method. Under the equity method, the initial investment is recorded at cost. The carrying amount of the investment is increased or decreased to reflect the Company's share of income or loss and is also reduced to reflect any dividends received. An unrelated New Jersey limited partnership owns the remaining 75%.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Securities Available for Sale
The Company classifies its securities among three categories: Held-to-maturity, trading and available-for-sale.
The Company's securities at September 30, 2000 and 1999 are all classified as available-for-sale and are carried at fair value. Gains or losses on the sale of securities are based on identifiable cost and are accounted for on a trade date basis. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of Shareholders' Equity until realized.
A decline in the market value of any security below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. Any impairment would be charged to earnings and a new cost basis for the security established.
Revenue Recognition
Rental income from tenants with leases having scheduled rental increases are recognized on a straight-line basis over the term of the lease.
Gains and Deferred Gains on Installment Sales
Gains on the sale of real estate investments are recognized by the full accrual method when the criteria for the method are met. Generally, the criteria are met when the profit on a given sale is determinable, and the seller is not obliged to perform significant activities after the sale to earn the profit. Alternatively, when the foregoing criteria are not met, the Company recognizes gains by the installment method. At September 30, 1999, there was one deferred gain related to the 1986 sale of property located in Howell Township in the amount of $88,631. As of September 30, 2000, this gain was fully realized.
Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period (8,078,877, 6,627,344 and 4,997,775 in 2000, 1999 and 1998, respectively). Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding plus the weighted-average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method (8,078,877, 6,627,344 and 5,032,950 in 2000, 1999 and 1998, respectively). Options in the amount of 35,175 are included in the diluted weighted average shares outstanding for 1998. Options in the amount of 320,000 were not included for 2000 and 1999, respectively, since they were anti-dilutive.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Stock Option Plan
The Company's stock option plan is accounted for under the intrinsic value based method as prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". As such, compensation expense would be recorded on the date of grant only if the current market price on the underlying stock exceeds the exercise price. Included in Note 8 to these Financial Statements are the pro forma disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which assumes the fair value based method of accounting had been adopted.
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust (REIT) under Sections 856-858 of the Internal Revenue Code. The Company will not be taxed on the portion of its income which is distributed to shareholders, provided it distributes at least 95% of its taxable income, has at least 75% of its assets in real estate investments and meets certain other requirements for qualification as a REIT.
Comprehensive Income
Comprehensive income is divided into net income and other comprehensive income. Other comprehensive income includes items that are otherwise recorded directly in equity, such as unrealized gains or losses on securities available for sale.
NOTE 2 - MORTGAGE LOANS RECEIVABLE
The following is a summary of the mortgage loans receivable at September 30, 2000 and 1999:
Rate Maturity 2000 1999 Bonim Associates, Inc. Howell Township Property 9% 1999 $ -0- $125,135
During the fiscal year ended September 30, 2000, this mortgage loan receivable was repaid and the associated deferred gain of $88,631 was realized.
NOTE 4 - ACQUISITIONS
Fiscal 2000
On February 18, 2000, the Company purchased an 85,508 square foot warehouse facility in Union City, Ohio. This warehouse facility is 100% net-leased to RPS Ground, a subsidiary of Federal Express Corporation. The total purchase price, including closing costs, was approximately $4,037,000. The Company paid approximately $150,000 in cash, used approximately $890,000 of its credit line with Summit Bank and obtained a mortgage for $3,000,000. This mortgage payable is at an interest rate of 8.25% and is due March 1, 2015.
Fiscal 1999
On December 11, 1998, the Company purchased an 88,140 square foot warehouse facility in Omaha, Nebraska. This warehouse facility is 100% net-leased to Federal Express Corporation. The total price, including closing costs, was approximately $5,596,000. The Company paid approximately $600,000 in cash, used approximately $900,000 of its revolving credit line with Summit Bank, and obtained a mortgage of $4,100,000. This mortgage payable is at an interest rate of 7.15% and is due January 1, 2014.
On March 16, 1999, the Company sold the warehouse facility located at 40 Robert Pitt Drive, Monsey, New York. The net proceeds from this sale amounted to $2,265,632 and resulted in a gain of $1,240,325. These funds were placed into an escrow account. This sale was part of a tax free exchange for the warehouse facility purchased on April 6, 1999.
On April 6, 1999, MREIC purchased a 49,900 square foot warehouse facility in Albemarle County, Virginia. This warehouse is 100% net- leased to Federal Express Corporation. The total purchase price, including closing costs was approximately $4,015,000. MREIC used $1,360,000 of its credit line with Summit Bank. On June 1, 1999, the Company secured a $2,750,000 mortgage at an interest rate of 6.90% which is due July 1, 2014.
On July 28, 1999, the Company purchased a 95,883 square foot warehouse facility in Jacksonville, Florida. This warehouse facility is 100% net-leased to Federal Express Corporation. The total purchase price, including closing costs, was approximately $5,833,000. The Company paid approximately $200,000 in cash, used approximately $1,600,000 of its revolving line of credit with Summit Bank and assumed a mortgage of approximately $4,100,000. This mortgage payable is at an interest rate of 6.92% and is due December 1, 2016.
NOTE 5 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company has approximately 1,733,000 square feet of property, of which approximately 501,000 square feet or 29% is leased to Federal Express Corporation and subsidiaries and approximately 246,000 square feet, or 14%, is leased to Keebler Company. Rental and occupancy charges from Federal Express Corporation and subsidiaries totaled approximately $2,891,000, $2,070,000 and $716,000 for the years ended September 30, 2000, 1999 and 1998, respectively. Rental and occupancy charges from Keebler Company totaled approximately $1,578,000, $1,800,000 and $1,800,000 for the years ended September 30, 2000, 1999 and 1998. During 2000, 1999 and 1998, rental income and occupancy charges from properties leased to these companies approximated 52%, 49% and 39% of total rental and occupancy charges, respectively.
NOTE 6 - SECURITIES AVAILABLE FOR SALE
During the fiscal years ended September 30, 2000, 1999 and 1998, gross gains on sales of securities amounted to $110,960, $-0- and $222,276, respectively, which have been included in Investment and Other Income.
Dividend income for the years ended September 30, 2000, 1999 and 1998 amounted to $1,594,646, $651,657 and $224,632, respectively. Interest income for the years ended September 30, 2000, 1999 and 1998 amounted to $133,230, $115,270 and $111,770, respectively.
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NOTE 7 - MORTGAGE NOTES AND LOANS PAYABLE (CONT'D)
Principal on the foregoing debt is scheduled to be paid as follows:
Year Ending September 30, 2001 2,323,775 2002 2,503,694 2003 2,697,668 2004 3,035,914 2005 2,164,244 Thereafter 23,379,448 _________ $36,104,743 ========= Line of Credit
The Company had an $8,000,000 line of credit with Summit at an interest rate of prime. This line of credit was reduced to $6,345,000 during 1999 due to the sale of the warehouse facility in Monsey, New York and is now secured by a second mortgage on the South Brunswick Industrial Building. This line of credit expires on November 29, 2002. As of September 30, 2000, approximately $3,237,000 is available.
Margin Loans
During fiscal 2000, the Company purchased securities on margin. The margin loans are at 8% and 8.375% and are due on demand. At September 30, 2000, the margin loans amounted to approximately $4,914,000 and are collateralized by the Company's securities portfolio. The Company must maintain a coverage ratio of approximately 50%.
NOTE 8 - STOCK OPTION PLAN
On April 24, 1997, the shareholders approved and ratified the Company's 1997 Stock Option Plan authorizing the grant to officers, directors and key employees options to purchase up to 750,000 shares of common stock. Options may be granted any time up to December 31, 2006. No option shall be available for exercise beyond ten years. All options are exercisable after one year from the date of grant. The option price shall not be below the fair market value at date of grant. Canceled or expired options are added back to the "pool" of shares available under the Plan.
The Company elected to follow APB Opinion No. 25 in accounting for its stock option plan, and accordingly, no compensation cost has been recognized. Had compensation cost been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts as follows:
2000 1999 1998
Net Income As reported $3,589,397 $3,796,760 $2,499,922 Pro forma 3,589,397 3,787,777 2,378,034 Net Income Per share As reported- Basic and Basic and Diluted Diluted $.44 $.57 $.50 Pro forma - Basic and Diluted .44 .57 .48 .44 .57 .47
NOTE 8 - STOCK OPTION PLAN (CONT'D)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998; dividend yield of 9%; expected volatility of 25%; risk-free interest rate of 6.0% and, expected lives of five years.
A summary of the status of the Company's stock option plan as of September 30, 2000, 1999 and 1998 is as follows:
2000 1999 1998 _________________ _________________ _________________ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price
Outstanding at beginning of year 320,000 $6.34 320,000 $6.34 300,000 $6.28 Granted -0- -0- -0- -0- 20,000 7.25 Exercised -0- -0- -0- -0- -0- -0- Outstanding at _______ _______ _______ end of year 320,000 6.34 320,000 6.34 320,000 6.34 ======= ======= ======= Options exercisable at end of year 320,000 300,000 -0- ======= ======= ======= Weighted-average fair value of options granted during the year -0- -0- .77
The following is a summary of stock options outstanding as of September 30, 2000:
Date of Number of Number of Option Expiration Grant Grants Shares Price Date
04/30/97 10 135,000 $5.9375 04/30/02 04/30/97 2 165,000 6.5625 04/30/02 04/30/98 2 20,000 7.2500 04/30/03
As of September 30, 2000, there were 430,000 shares available for grant under this plan.
NOTE 9 - INCOME FROM LEASES
The Company derives income primarily from operating leases on its commercial properties. In general, these leases are written for periods up to ten years with various provisions for renewal. These leases generally contain clauses for reimbursement (or direct payment) of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rents due under noncancellable leases at September 30, 2000 are scheduled as follows: 2001 - $7,689,000; 2002 - $6,619,000; 2003 - $6,311,000; 2004 - $5,141,000; 2005 - $4,699,000; thereafter - $10,292,000.
NOTE 10 - RELATED PARTY TRANSACTIONS
Eugene W. Landy received $5,500, 3,200 and $3,200 for the years ended September 30, 2000, 1999 and 1998 as Director. The firm of Eugene W. Landy received $32,500, $17,500, and $103,500 during the years ended 2000, 1999 and 1998, respectively, as management and legal fees. An accrual of $34,000, $59,000 and $59,000 was made during the years ended September 30, 2000, 1999 and 1998, respectively, for pension and other benefits in accordance with Mr. Landy's employment agreement. Additionally, the Board of Directors has granted to Mr. Landy a loan of $100,000 at an interest rate of 10% due May 23, 2001. Principal and accrued interest is payable at maturity. In fiscal 2000, Mr. Landy was also paid a total bonus of $80,000 for his performance for the past two years.
On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which, on severance of employment for any reason, Mr. Landy will receive severance of $300,000 payable $100,000 on severance and $100,000 on the first and second anniversaries of severance. In the event of disability, Mr. Landy's compensation shall continue for a period of three years, payable monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year for ten years, payable in monthly installments. In the event of death, Mr. Landy's designated beneficiary shall receive $300,000, $150,000 thirty days after death, and the balance one year after death. The Employment Agreement terminates December 31, 2000. Thereafter, the term of the Employment Agreement shall be automatically renewed and extended for successive one-year periods. The Employment Agreement is terminable by either party at any time, subject to certain notice requirements.
Cronheim Management Services received the sum of $199,432, $161,146 and $41,466 for management fees during the years ended 2000, 1999 and 1998, respectively. Effective August 1, 1998, the Company entered into a new management contract with Cronheim Management Services. Under this contract, Cronheim Management Services receives 3% of gross rental income on certain properties for management fees. The David Cronheim Company received $14,347, $136,229 and $45,786 in lease brokerage commissions in 2000, 1999 and 1998, respectively. Daniel Cronheim received $5,650, $2,400 and $3,200 for Director and Committee fees in 2000, 1999 and 1998, respectively.
NOTE 11 - TAXES
Income Tax The Company has elected to be taxed as a Real Estate Investment Trust under the applicable provisions of the Internal Revenue Code and the comparable New Jersey Statutes. Under such provisions, the Company will not be taxed on that portion of its taxable income distributed currently to shareholders, provided that at least 95% of its taxable income is distributed. As the Company has and intends to continue to distribute all of its income currently, no provision has been made for income taxes.
Federal Excise Tax The Company does not have an excise tax liability for the calendar years 2000, 1999 and 1998, since it intends to or has distributed all of its annual income.
NOTE 12 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company implemented a dividend reinvestment and stock purchase plan (the "Plan") effective December 15, 1987. Under the terms of the Plan and subsequent offerings, shareholders who participate may reinvest all or part of their dividends in additional shares of the Company at approximately 95% of market price. According to the terms of the Plan, shareholders may also purchase additional shares, at approximately 95% of market price by making optional cash payments monthly.
Amounts received, including dividend reinvestment of $1,606,691, $1,387,405 in 2000 and 1999, respectively, and shares issued in connection with the Plan for the years ended September 30, 2000 and 1999 were as follows: 2000 1999
Amounts Received* $5,734,589 $9,578,367 Shares Issued 1,198,311 1,806,105
*These amounts are net of the 5% discount under the Plan. The total discount amounted to $197,720 and $284,751 during the fiscal years ended September 30, 2000 and 1999 respectively.
NOTE 13 - DISTRIBUTIONS
The following cash distributions were paid to shareholders during the years ended September 30, 2000 and 1999:
2000 1999
Quarter Ended Amount Per Share Amount Per Share
December 31 $1,111,424 $.145 $ 823,275 $.1375 March 31 1,160,858 .145 904,454 .14 June 30 1,189,703 .145 1,012,376 .145 September 30 1,243,883 .145 1,068,633 .145 _________ ____ _________ _____ $4,705,868 $.58 3,808,738 $.5675 ========= ==== ========= =====
The above amounts do not include discounts under the Dividend Reinvestment and Stock Purchase Plan.
On September 20, 2000, the Company declared a dividend of $0.145 per share to be paid on December 15, 2000 to shareholders of record November 15, 2000.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information about fair values of financial instruments, as defined in Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments."
Limitations
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 the Company's entire holdings of a particular financial instrument. For a portion of the Company's 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. Use of different assumptions or methodologies is likely to result in significantly different fair value estimates.
The fair value of cash and cash equivalents and mortgage loans receivable approximates their current carrying amounts since all such items are short-term in nature. The fair value of securities available for sale is based upon quoted market values. The fair value of mortgage notes payable and loans payable approximate their current carrying amounts since such amounts payable are at approximately a weighted- average current market rate of interest.
NOTE 15 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION
Cash paid during the years ended September 30, 2000, 1999 and 1998, for interest is $3,334,861, $2,607,520 and $1,802,590, respectively.
During 2000, 1999 and 1998, the Company had $1,606,691, $1,387,405 and $1,116,555, respectively, of dividends which were reinvested that required no cash transfers.
During 1999, proceeds from the sale of investment property totaling $2,265,632 were directly paid into an escrow account and required no cash transfers by the Company. These proceeds were used to purchase investment property.
In 2000, 1999 and 1998, equity securities available for sale are shown at fair value. The resultant portfolio decrease of $603,327, $722,458 and $27,924, respectively, relating to unrealized net holding losses is shown as a separate component of shareholders' equity.
NOTE 15 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION (CONT'D)
The following are the reclassification adjustments related to securities available for sale included in Other Comprehensive Income (Loss): 2000 1999 1998 Unrealized holding gains (losses) arising during the year $230,091 $(694,534) $(200,581) Less: reclassification adjustment for gains realized in income (110,960) -0- (222,276) _______ _________ _________ Net unrealized gains (losses) $119,131 $(695,534) $(422,857) ======= ========= =========
NOTE 16 - SUBSEQUENT EVENTS
On November 14, 2000, the Company purchased a 112,779 square foot warehouse facility in Richmond, Virginia. This warehouse facility is 100% net-leased to the Federal Express Corporation. The total purchase price, including closing costs, was approximately $7,600,000. The Company paid approximately $150,000 in cash, used approximately $1,800,000 of its credit line with Summit Bank and obtained a mortgage for $5,650,000. This mortgage payable is at a variable interest rate of LIBOR plus 180 basis points and is due December 1, 2015. The Company may convert this loan to a fixed rate subject to certain conditions.
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MONMOUTH REAL ESTATE INVESTMENT CORPORATION SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (CONT'D)
(1) Reconciliation
REAL ESTATE INVESTMENTS
9/30/00 9/30/99 9/30/98
Balance-Beginning of Year $70,871,655 $57,270,562 $44,222,954 Additions: Acquisitions 4,037,000 15,443,582 12,914,250 Improvements 87,411 35,009 133,358 __________ __________ __________ Total Additions 4,124,411 15,478,591 13,047,608 Sales -0- (1,877,498) -0- __________ __________ __________ Balance-End of Year (1) $74,996,066 $70,871,655 $57,270,562 ========== ========== ==========
ACCUMULATED DEPRECIATION
9/30/00 9/30/99 9/30/98
Balance-Beginning of Year $7,399,386 $6,656,634 $5,481,022 Depreciation 1,702,987 1,594,945 1,175,612 Sales -0- (852,193) -0- _________ _________ _________ Balance-End of Year $9,102,373 $7,399,386 $6,656,634 ========= ========= =========
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) 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.
Date: December 22, 2000 By: /s/Eugene W. Landy Eugene W. Landy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: December 22, 2000 By: /s/Eugene W. Landy Eugene W. Landy, President and Director
Date: December 22, 2000 By: /s/Ernest V. Bencivenga Ernest V. Bencivenga, Treasurer and Director
Date: December 22, 2000 By: /s/Anna T. Chew Anna T. Chew, Controller and Director
Date: December 22, 2000 By: /s/Daniel D. Cronheim Daniel D. Cronheim, Director
Date: December 22, 2000 By: /s/Matthew I. Hirsch Matthew I. Hirsch, Director
Date: December 22, 2000 By: /s/Charles P. Kaempffer Charles P. Kaempffer, Director
Date: December 22, 2000 By: /s/Samuel A. Landy Samuel A. Landy, Director
Date: December 22, 2000 By: /s/Robert G. Sampson Robert G. Sampson, Director