ITEM 1 - BUSINESS, (CONT'D.)
The Company operates as part of a group of three public companies (all REITs) which includes United Mobile Homes, Inc., Monmouth Capital Corporation, and Monmouth Real Estate Investment Corporation (the affiliated companies). Some general and administrative expenses are allocated between the three affiliated companies based on use or services provided. The Company currently has eleven employees. Allocations of salaries and benefits are made between the affiliated companies based on the amount of the employees' time dedicated to each affiliated company.
The Company does not have an advisory contract; however, all of the properties are managed by Cronheim Management Services, a division of David Cronheim Company. In 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. Cronheim Management Services received $258,626, $245,597 and $220,521, in 2003, 2002 and 2001, respectively, for the management of the properties. David Cronheim Company received $14,377, $20,194 and $26,708 in lease brokerage commissions in 2003, 2002 and 2001, respectively.
The Company continues to invest in both debt and equity securities of other REITs. The Company from time to time may purchase these securities on margin when the interest and dividend yields exceed the cost of the funds. The securities portfolio, to the extent not pledged to secure borrowing, provides the Company with liquidity and additional income. 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.
Additional information about the Company can be found on the Company's website which is located at www.mreic.com. The Company's filings with the Securities and Exchange Commission are made available through a link on the Company's website or by calling Investor Relations.
Risk Factors
Real Estate Industry Risks
The Company faces risks associated with local real estate conditions in areas where the Company owns properties. The Company may be affected adversely by general economic conditions and local real estate conditions. For example, an oversupply of industrial properties in a local area or a decline in the attractiveness of our properties to tenants would have a negative effect on the Company.
Other factors that may affect general economic conditions or local real estate conditions include:
- population and demographic trends;
- zoning, use and other regulatory restrictions;
- income tax laws;
ITEM 1 - BUSINESS, (CONT'D.)
- changes in interest rates and availability and costs of financing;
- competition from other available real estate;
- our ability to provide adequate maintenance and insurance; and
- increased operating costs, including insurance premiums and real estate taxes.
The Company may be unable to compete with its larger competitors and other alternatives available to tenants or potential tenants of our properties. The real estate business is highly competitive. The Company competes for properties with other real estate investors, including other real estate investment trusts, limited partnerships, syndications and private investors, many of whom have greater financial resources, revenues, and geographical diversity than the Company has. Furthermore, the Company competes for tenants with other property owners. All of the Company's industrial properties are subject to significant local competition. The Company also competes with a wide variety of institutions and other investors for capital funds necessary to support our investment activities and asset growth.
The Company is subject to significant regulation that inhibits our activities and increases our costs. Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent the Company from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require management to modify our properties. Future legislation may impose additional requirements. The Company cannot predict what requirements may be enacted or what changes may be implemented to existing legislation.
Risks Associated with Our Properties
The Company may be unable to renew leases or relet space as leases expire. While management seeks to invest in well-located, modern buildings leased to credit-worthy tenants on long term leases, a number of the Company's properties are subject to short-term leases. When a lease expires, a tenant may elect not to renew it. Management may not be able to relet the property on similar terms, if we are able to relet the property at all. Management has established an annual budget for renovation and reletting expenses that management believes is reasonable in light of each property's operating history and local market characteristics. This budget, however, may not be sufficient to cover these expenses.
The Company has been and may continue to be affected negatively by tenant financial difficulties and leasing delays. A general decline in the economy may result in a decline in the demand for industrial space. As a result, the Company's tenants may delay lease commencement, fail to make rental payments when due, or declare bankruptcy. Any such event could result in the termination of that tenant's lease and losses to the Company. The Company receives a substantial portion of our income as rents under long-term leases. If tenants are unable to comply with the terms of their leases because of rising costs or falling sales, management, in our sole discretion, may deem it advisable to modify lease terms to allow tenants to pay a lower rental or a smaller share of operating costs, taxes and insurance.
ITEM 1 - BUSINESS, (CONT'D.)
The Company may be unable to sell properties when appropriate because real estate investments are illiquid. Real estate investments generally cannot be sold quickly and, therefore, will tend to limit management's ability to vary our property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of the Company's property portfolio could adversely affect the Company's financial condition and ability to service debt and make distributions to our stockholders.
Environmental liabilities could affect the Company's profitability. The Company faces possible environmental liabilities. Current and former real estate owners and operators may be required by law to investigate and clean up hazardous substances released at the properties they own or operate. They may also be liable to the government or to third parties for property damage, investigation costs and cleanup costs. Contamination may affect adversely the owner's ability to sell or lease real estate or to borrow using the real estate as collateral.
Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed on, or released from, the property. A conveyance of the property, therefore, does not relieve the owner or operator from liability.
Management is not aware of any environmental liabilities relating to our investment properties which would have a material adverse effect on our business, assets, or results of operations. However, we cannot assure you that environmental liability claims will not arise in the future.
If our insurance coverage is inadequate or management cannot obtain acceptable insurance coverage, the Company operations could be materially adversely affected. Management generally maintains insurance policies related to the Company's business, including casualty, general liability and other policies covering business operations, employees and assets. The Company may be required to bear all losses that are not adequately covered by insurance. Although management believes that our insurance programs are adequate, no assurance can be given that we will not incur losses in excess of the Company's insurance coverage, or that the Company will be able to obtain insurance in the future at acceptable levels and reasonable cost.
Financing Risks
The Company faces risks generally associated with our debt. The Company finances a portion of our investments in properties and marketable securities through debt. This debt creates risks, including:
- rising interest rates on our floating rate debt;
- failure to repay or refinance existing debt as it matures, which may result in forced disposition of disposition of assets on disadvantageous terms;
ITEM 1 - BUSINESS, (CONT'D.)
- refinancing terms less favorable than the terms of existing debt; and
- failure to meet required payments of principal and/or interest.
The Company faces risks associated with the use of debt to fund acquisitions, including refinancing risk. The Company is subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. Management anticipates that a portion of the principal of our debt will not be repaid prior to maturity. Therefore, the Company will likely need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital or sales of properties, the Company's cash flow will not be sufficient to repay all maturing debt in years when significant "balloon" payments come due. As a result, we may be forced to dispose of properties on disadvantageous terms.
Management may amend our business policies without the stockholders' approval. Our board of directors determines our growth, investment, financing, capitalization, borrowing, REIT status, operations and distributions policies. Although the board of directors has no present intention to amend or reverse any of these policies, they may be amended or revised without notice to stockholders. Accordingly, stockholders may not have control over changes in our policies. Management cannot assure you that changes in our policies will serve fully the interests of all stockholders.
Other Risks
The market value of our Common Stock could decrease based on the Company's performance and market perception and conditions. The market value of the Company's Common Stock may be based primarily upon the market's perception of the Company's growth potential and current and future cash dividends, and may be secondarily based upon the real estate market value of the Company's underlying assets. The market price of the Company's Common Stock is influenced by the dividend on the Company's Common Stock relative to market interest rates. Rising interest rates may lead potential buyers of the Company's Common Stock to expect a higher dividend rate, which would adversely affect the market price of our Common Stock. In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and the Company's ability to service our indebtedness and pay dividends.
There are restrictions on the transfer of the Company's Common Stock. To maintain the Company's qualification as a REIT under the Internal Revenue Code of 1986 (the Code), no more than 50% in value of the Company's outstanding capital stock may be owned, actually or by attribution, by five or fewer individuals, as defined in the Code to also include certain entities, during the last half of a taxable year. Accordingly, the Company's charter and bylaws contain provisions restricting the transfer of the Company's Common Stock.
ITEM 1 - BUSINESS, (CONT'D.)
The Company's earnings are dependent, in part, upon the performance of our investment portfolio. As permitted by the Code, management invests in and owns securities of other real estate investment trusts. To the extent that the value of those investments declines or those investments do not provide a return, the Company's earnings could be adversely affected.
The Company is subject to restrictions that may impede management's ability to effect a change in control. Certain provisions contained in the Company's charter and bylaws, and certain provisions of Maryland law may have the effect of discouraging a third party from making an acquisition proposal for us and thereby inhibit a change in control.
The Company may fail to qualify as a REIT. If the Company fails to qualify as a REIT, the Company will not be allowed to deduct distributions to stockholders in computing our taxable income and will be subject to Federal income tax, including any applicable alternative minimum tax, at regular corporate rates. In addition, the Company might be barred from qualification as a REIT for the four years following disqualification. The additional tax incurred at regular corporate rates would reduce significantly the cash flow available for distribution to stockholders and for debt service.
Furthermore, the Company would no longer be required to make any distributions to the Company's stockholders as a condition to REIT qualification. Any distributions to stockholders that otherwise would have been subject to tax as capital gain dividends would be taxable as ordinary income to the extent of the Company's current and accumulated earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Code.
To qualify as a REIT, and to continue to qualify as a REIT, the Company must comply with certain highly technical and complex requirements. The Company cannot be certain it has complied, and will always be able to comply, with these requirements. In addition, facts and circumstances that may be beyond the Company's control may affect the Company's ability to continue to qualify as a REIT. The Company cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to the Company's qualification as a REIT or with respect to the Federal income tax consequences of qualification. The Company believes that it has qualified as a REIT since its inception and intends to continue to qualify as a REIT. However, the Company cannot assure you that the Company is qualified or will remain qualified.
The Company may be unable to comply with the strict income distribution requirements applicable to REITs. To obtain the favorable tax treatment associated with qualifying as a REIT, among other requirements, the Company is required each year to distribute to its stockholders at least 90% of its REIT taxable income. The Company will be subject to corporate income tax on any undistributed REIT taxable income. In addition, we will incur a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than the sum of (i) 85% of our ordinary income for the year, (ii) 95% of our capital gain net income for the year, and (iii) any undistributed taxable income from prior years. The Company could be required to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT (and to avoid corporate income tax and the 4% excise tax), even if conditions were not favorable for borrowing.
ITEM 1 - BUSINESS, (CONT'D.)
Notwithstanding the Company's status as a REIT, the Company is subject to various Federal, state and local taxes on our income and property. For example, the Company will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains, provided, however, that properly designated undistributed capital gains will effectively avoid taxation at the stockholder level. The Company may also have to pay some state income or franchise taxes because not all states treat REITs in the same manner as they are treated for Federal income tax purposes.
ITEM 2
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES
The Company operates as a real estate investment trust. Its portfolio is primarily in real estate 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 table sets forth certain information concerning the Company's real estate investments as of September 30, 2003:
Page 10A
Page 10B
Page 10C
Page 10D
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES, (CONT'D.)
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.
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 fiscal fourth quarter of 2003.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of 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:
2003 2002 Market Price Market Price ____________ ____________ Fiscal Fiscal Qtr. High Low Distrib. Qtr. High Low Distrib. _____ ____ ___ ________ ______ ____ ___ ________
First 7.17 6.70 $.145 First 7.18 6.00 $.145 Second 7.90 6.70 .145 Second 7.00 6.41 .145 Third 8.80 7.36 .145 Third 8.01 6.68 .145 Fourth 8.77 7.31 .145 Fourth 7.29 6.55 .145
$ .58 $ .58 ======= ======
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, 2003, the closing price was $8.11.
As of September 30, 2003, there were approximately 1,154 shareholders of record who held shares of common stock of the Company.
It is the Company's intention to continue distributing quarterly dividends. On October 1, 2003 the Company declared a dividend of $.145 per share to be paid on December 15, 2003 to shareholders of record on November 17, 2003.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONT'D.)
Equity Compensation Plan Information
The following table summarizes information, as of September 30, 2003, relating to equity compensation plans of the Company (including individual compensation arrangements) pursuant to which equity securities of the Company are authorized for issuance.
Number of Securities Remaining Available Number of for Future Securities Weighted- Issuance to be average Under Equity Issued Upon Exercise Compensation Exercise of Price of Plans Outstanding Outstanding (excluding Options, Options, Securities Plan Warrants Warrants reflected in Category and Rights and Rights column (a)) (a) (b) (c) _________ _________ _________ _________ Equity Compensation Plans Approved by Security Holders 500,500 $6.83 735,000
Equity Compensation Plans not Approved by Security Holders N/A N/A N/A
Total 500,500 $6.83 735,000
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial and other information for the Company as of and for each of the years in the five year period ended September 30, 2003. This table should be read in conjunction with all of the financial statements and notes thereto included elsewhere herein.
* Funds from operations (FFO), is defined as net income, excluding gains (or losses) from sales of depreciable assets, plus depreciation. FFO should be considered as a supplemental measure of operating performance used by real estate investment trusts (REITs). The Company believes that FFO is helpful to investors as one of several measures of the performance of a REIT. FFO excludes historical cost depreciation as an expense and may facilitate the comparison of REITs which have different cost bases. The items excluded from FFO are significant components in understanding the Company's financial performance.
ITEM 6 - SELECTED FINANCIAL DATA, (CONT'D.)
FFO (1) does not represent cash flow from operations as defined by generally accepted accounting principles; (2) 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 (3) 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 is calculated as follows:
2003 2002 2001 2000 1999 ____ ____ ____ ____ _____
Net Income $6,120,343 $4,478,145 $4,123,054 $3,589,397 $3,796,760 Gain/Loss on Sales of Depreciable Assets - 175,376 - (88,631) (1,260,534) Adjustment for Unconsolidated Partnerships - - - - 84,601 Depreciation 3,560,146 2,941,097 2,166,327 1,702,987 1,599,452
_________ _________ _________ _________ _________ FFO $9,680,489 $7,594,618 $6,289,381 $5,203,753 $4,220,279 ========== ========== ========== ========== ==========
ITEM 6 - SELECTED FINANCIAL DATA, (CONT'D.)
SUMMARY OF OPERATIONS BY PROPERTY FOR THE YEARS ENDED SEPTEMBER 30,
*Sold in May, 2002.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company's financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of the Company's financial statements. For a detailed description of these and other accounting policies, see Note 1 in the notes to the Company's financial statements included in this Form 10-K.
Real Estate Investments
The Company applies Financial Accounting Standards Board Statement No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets", (Statement 144) to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent impairment has occurred, rental properties are reduced to their fair value. For properties to be disposed of, an impairment loss is recognized when the fair value of the property, less the estimated cost to sell, is less than the carrying amount of the property measured at the time there is a commitment to sell the property and/or it is actively being marketed for sale. A property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less its cost to sell. Subsequent to the date that a property is held for disposition, depreciation expense is not recorded.
Securities Available for Sale
Investments in non-real estate assets consist primarily of marketable equity securities. Management reviews our marketable securities for impairment on an annual basis, or when events or circumstances occur. If a decline in fair value is determined to be other than temporary, an impairment charge is recognized in earnings and the cost basis of the individual security shall be written down to fair value as the new cost basis.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Revenue Recognition
Estimates are used to establish amounts receivable from tenants for such things as annualized rents, real estate taxes and other cost recoveries. In addition, an estimate is made with respect to whether a provision for allowance for doubtful accounts receivable is necessary. The allowance for doubtful accounts reflects management's estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be realized from cash receipts in subsequent periods. If cash receipts in subsequent periods vary from our estimates, or if the Company's tenants' financial condition deteriorates as a result of operating difficulties, additional changes to the allowance may be required.
Results of Operations
The Company's activities primarily generate rental income. Net income for the fiscal year ended September 30, 2003 was $6,120,343 as compared to $4,478,145 in 2002 and $4,123,054 in 2001. Net rental income, defined as rental and occupancy charges reduced by direct operating expenses, management fees, interest and depreciation, for the fiscal year ended September 30, 2003 was $5,888,135 as compared to $4,599,324 in 2002 and $3,485,479 in 2001.
Net rental income increased $1,288,811 in 2003 as compared to 2002. The increase is due mainly to the addition of the net rental income related to the acquisitions of properties made in 2003 at Tolleson, Arizona, Ft. Myers, Florida and Edwardsville, Kansas and the selling of the property at Virginia Beach, Virginia in 2002 which had produced a net rental loss in 2002. The Company also paid off the mortgage on the Wichita, Kansas property during 2003 resulting in an interest savings in 2003 as compared to 2002. These increases were partially offset by a decrease in the net rental income at the Granite City, Illinois property due to a full year of depreciation in 2003 as compared with partial year depreciation in 2002.
Net rental income increased $1,113,845 in 2002 as compared to 2001. The increase is due mainly to the addition of the net rental income related to the acquisitions of properties made in 2002 at Granite City, Illinois, Monroe, North Carolina,Winston- Salem, North Carolina and Elgin, Illinois and a full year of net rental income of the acquisitions of properties made in 2001. These increases were partially offset by decreases in net rental income at the Somerset, New Jersey property as a result of the main tenant going out of business and an increase in the net rental loss at the Virginia Beach, Virginia property. The Somerset, New Jersey space has been released under similar terms. The Virginia Beach property was sold in 2002.
The Company also generated net investment income from its investments in securities available for sale and Hollister '97 LLC. These securities have an average dividend yield of approximately 8.6%. Net investment and other income, which includes interest and dividend income, realized gains on securities available for sale, net reduced by margin loan interest expense increased $621,355 in 2003 as compared to 2002 due primarily to an increase in dividend and interest income and an increase in the gain on sale of securities available for sale. Net investment and other income decreased $30,552 during 2002 as compared to 2001 primarily to sales of securities available for sale resulting in a decrease in dividend income. Gain on sales of securities available for sales transactions, net amounted to $1,018,862, $909,704 and $632,492 for 2003, 2002, and 2001, respectively.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Interest expense increased $846,663 in 2003 as compared to 2002 and $1,468,658 in 2002 compared to 2001. The increases are primarily due to the acquisitions of three industrial properties in 2003 and four industrial properties in 2002.
Real estate taxes increased $605,558 in 2003 as compared to 2002 and $125,813 in 2002 as compared to 2001 due to the property acquisitions. The tenants related to the acquisitions in 2003 and 2002 are subject to net leases which require the tenants to absorb the real estate taxes as well as insurance and the majority of the repairs and maintenance. As such, the Company is reimbursed by the tenants for these real estate taxes.
Operating expenses increased $135,537 in 2003 as compared to 2002 and $178,727 in 2002 as compared to 2001. The increases in 2003 and 2002 are due mainly to insurance costs related to the new acquisitions and increased repairs and maintenance.
Office and general expenses increased $441,996 in 2003 as compared to 2002 and increased $645,839 in 2002 as compared to 2001. The increases relate mainly to increases in personnel costs due to additional employees and increases in franchise taxes. The Company has been active in acquisitions and is expanding its operations. Total assets increased from approximately $86,000,000 as of September 30, 2000 to approximately $183,000,000 as of September 30, 2003.
During 2002, the Company sold the warehouse facility in Virginia Beach, VA for a net loss of $175,376.
Off-Balance Sheet Arrangements
The Company has not executed any off-balance sheet arrangements
Liquidity and Capital Resources
The Company operates as a real estate investment trust deriving its income primarily from real estate rental operations. At September 30, 2003, the Company's shareholders' equity increased to $78,313,289 as compared to $59,005,016 at September 30, 2002 principally due to proceeds from the dividend reinvestment and stock purchase plan, and the proceeds from a private placement. See further discussion below.
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, proceeds from private placements, 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.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
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 real estate investments. During the past ten years, the Company purchased thirty-one net-leased warehouse facilities at an aggregate cost of approximately $166,200,000. The Company financed these purchases primarily through mortgages on its acquisitions. The Company also has a secured $10,000,000 line of credit of which approximately $6,600,000 was available at September 30, 2003. Interest is at the bank's floating prime (4.0% at September 30, 2003) and is due monthly. The line increases to $15,000,000 in May, 2004 and expires in April, 2006.
During 2003, the Company made three acquisitions totaling approximately $26 million. The Company expects to make additional real estate investments from time to time. In 2004, 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 or private placements. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made. Funds generated are expected to be sufficient to meet debt service requirements and capital expenditures of the Company.
The Company also invests in debt and equity securities of other REITs as a proxy for real estate when suitable acquisitions are not available, for liquidity, and for additional income. The Company from time to time may purchase these securities on margin when there is an adequate yield spread. The margin loans at September 30, 2003 totaled approximately $8,500,000. During fiscal 2003, the Company's securities portfolio increased by approximately $10,200,000 primarily due to purchases of approximately $16,300,000 and a change in the unrealized gain of approximately $985,000 partially offset by sales of approximately $8,092,000. During October, 2003, the Company sold approximately $3,959,000 in securities and recorded a gain of approximately $1,091,000. The sales were made to recognize a portion of the substantial unrealized gains in the security portfolio of existing at September 30, 2003. The securities portfolio at September 30, 2003 has experienced an increase in value from cost of approximately 13%.
Cash flows provided from operating activities were $9,725,898, $6,792,043 and $4,785,236 for fiscal year 2003, 2002 and 2001, respectively. The increases in cash provided from operating activities resulted primarily from the operations of the property acquisitions of approximately $26,000,000 in 2003 and $32,000,000 in 2002.
Cash flows used in investing activities were $35,417,062, $30,564,641, and $32,301,411 for fiscal year 2003, 2002 and 2001, respectively. Cash flows used in investing activities increased in 2003 as compared to 2002 due mainly to the increase in securities purchases and decreased in 2002 as compared to 2001 due mainly to decreased acquisitions in 2002 as compared to 2001.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Cash flows provided from financing activities were $26,068,148, $24,318,591, and $27,149,664 for fiscal year 2003, 2002 and 2001, respectively. Cash flows provided from financing activities increased in 2003 as compared to 2002 due mainly to increases in cash from the issuance of common stock. The Company sold common stock in a private placement in 2003 for approximately $8,300,000 in addition to common stock sold through the Dividend Reinvestment and Stock Purchase Plan. See further explanation below. Cash flow provided from financing activities decreased in 2002 as compared to 2001 primarily due to less acquisitions made in 2002 compared to 2001 which resulted in less mortgage proceeds in 2002 as compared to 2001.
At September 30, 2003, the Company had total liabilities of $104,860,585 and total assets of $183,173,874. The Company believes that it has the ability to meet its obligations and to generate funds for new investments.
During 2003, the Company paid $7,987,624 as a dividend of $0.58 per share. Management anticipates maintaining the annual dividend rate of $0.58 per share although no assurances can be given since various economic factors can reduce the amount of cash flow available to the Company for dividends. Of the $7,987,624 in dividends paid, $3,327,957 was reinvested in the Dividend Reinvestment and Stock Purchase Plan.
The Company has a Dividend Reinvestment and Stock Purchase Plan, (the Plan), in which participants purchase stock from the Company at a discount of approximately 95% of market price. During 2003, a total of $11,887,869 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 2003. It is anticipated, although no assurances can be given, that a comparable level of participation will continue in the Plan in fiscal 2004. Therefore, the Company anticipates that the Plan will result in further increased liquidity and capital resources in fiscal 2004.
On February 27, 2003, the Company sold 1,257,253 shares in a private placement with Palisade Concentrated Equity Partnership, L.P. for cash of $8,324,901 or $6.6215 a share. The proceeds of the private placement were used to pay down the Company's outstanding credit facility and will be used for working capital. The Company paid approximately $107,000 in offering costs which were offset from the proceeds received.
During the year ended September 30, 2003, two directors exercised their stock options and purchased 9,500 shares for a total of $52,875. During the year ended September 30, 2002, nine officers, directors and key employees exercised their stock options and purchased 255,000 shares for a total of $1,617,488. Of this amount, 225,000 shares, for a total of $1,617,488, were exercised through the issuance of notes receivable from officers. These notes receivable are at an interest rate of 5%, mature on April 30, 2012 and are collateralized by the underlying common shares. As of September 30, 2003, the balance of these notes receivable was $1,325,001.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51", which addresses consolidation by business enterprises of variable interest entities. The Interpretation clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. On October 9, 2003, the effective date was deferred until the end of the first interim or annual period ending after December 15, 2003, for certain interests held by a public entity in certain variable interest entities or potential variable interest entities created before February 1, 2003. Management believes that this Interpretation will not have a material impact on the Company's financial statements.
In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with some exceptions, and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. Management believes that this Statement will not have a material impact on the Company's financial statements.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. On October 29, 2003, the FASB voted to indefinitely defer certain provisions of this statement relating to non-controlling (minority) interests in finite-like entities. Management believes that this Statement will not have a material impact on the Company's financial statements.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
Safe Harbor Statement
This Form 10-K contains various "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "may", "will", "expect", "believe", "anticipate", "should", "estimate", and similar expressions identify forward-looking statements. The forward-looking statements reflect the Company's current views with respect to future events and finance performance, but are based upon current assumptions regarding the Company's operations, future results and prospects, and are subject to many uncertainties and factors relating to the Company's operations and business environment which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.
Such factors include, but are not limited to, the following: (i) changes in the general economic climate; (ii) increased competition in the geographic areas in which the Company operates; (iii) changes in government laws and regulations; and (iv) the ability of the Company to continue to identify, negotiate and acquire properties on terms favorable to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and acquisitions of the Company's real estate investment portfolio. The Company's interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows primarily at fixed rates.
The following table sets forth information as of September 30, 2003, concerning the Company's debt obligations, including principal cash flow by scheduled maturity, weighted average interest rates and estimated fair value:
Long -Term Debt: Average Fixed Rate Carrying Value Interest Rate Fair Value __________ __________ __________
2004 $207,819 7.50% 2005 962,452 7.00% 2006 2,801,133 - 2007 -0- 7.80% 2008 1,468,719 8.50% Thereafter 85,469,176 7.15% ___________ Total $90,909,299 7.19% $95,315,781 ===========
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
The Company also has $3,361,198 in variable rate debt maturing in April, 2006. This debt is a line of credit. The interest is at the bank's floating prime rate and is due monthly. The interest rate was 4.0% at September 30, 2003. Additionally, the Company has $8,512,853 in variable rate debt due on demand. This debt is primarily margin loans secured by marketable securities. The interest rates on these loans range from 2.75% to 3.75% at September 30, 2003. The carrying value of the Company's variable rate debt approximates fair value at September 30, 2003.
The Company also invests in both debt and equity securities of other REITs and is primarily exposed to equity price risk from adverse changes in market rates and conditions. All securities are classified as available for sale and are carried at fair value. The Company has no significant interest rate risk relating to debt securities as they are short-term in nature.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Part VI, Item 14 are incorporated herein by reference and filed as part of this report.
The following is the Unaudited Selected Quarterly Financial Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) THREE MONTHS ENDED
FISCAL 2003 12/31/02 03/31/03 06/30/03 09/30/03
Total Income $4,588,030 $4,701,257 $5,798,227 $5,618,291 Total Expenses 3,149,602 3,559,128 3,767,316 4,109,416 Net Income 1,438,428 1,142,129 2,030,911 1,508,875 Net Income per Share .12 .08 .14 .10
FISCAL 2002 12/31/01 3/31/02 6/30/02 9/30/02
Total Income $3,768,291 $4,082,895 $4,541,434 $4,173,974 Total Expenses 2,565,946 3,009,853 2,978,770 3,358,504 Net Income 1,202,345 1,073,042 1,387,289 815,469(1) Net Income Per Share .12 .10 .12 .06
(1) Decrease due primarily to an increase in professional fees and insurance costs.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A
ITEM 9A - CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Company's management, have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective.
The Company's Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the Directors and Executive Officers of the Company as of September 30, 2003:
Present Position with the Company; Business Experience During Past Director Name Age Five Years; Other Directorships Since ____ ___ _______________________________ ________ Ernest V. 85 Secretary/Treasurer (1968 to 1968 Bencivenga present) and Director. Financial Consultant (1976 to present); Treasurer and Director (1961 to present) and Secretary (1967 to present) of Monmouth Capital Corporation, an affiliate of the Company; Treasurer and Director (1969 to present) and Secretary/Treasurer (1984 to present) of United Mobile Homes, Inc., an affiliated company.
Anna T. Chew 45 Chief Financial Officer (1991 to 1993 present) and Director. Certified Public Accountant. Vice President (1995 to present) and Director (1994 to present) of United Mobile Homes, Inc., an affiliated company. Chief Financial Officer (1991 to present of Monmouth Capital Corporation, an affiliated company.
Daniel D. 48 Director. Attorney at Law (1982 to 1989 Cronheim present); Executive Vice President (1989 to present) and General Counsel (1983 to present) of David Cronheim Company.
Matthew I. 44 Director. Attorney at law (1985 2000 Hirsch to present); Adjunct Professor of Law (1993 to present) Widener University School of Law.
Charles P. 66 Director. Investor; Director 1974 Kaempffer (1970 to present) of Monmouth Capital Corporation, an affiliated company; Director (1969 to present) of United Mobile Homes, Inc., an affiliated company. Vice Chairman and Director (1996 to present) of Community Bank of New Jersey.
Eugene W. Landy 70 President (1968 to present) and 1968 Director. Attorney at Law; President and Director (1961 to present) of Monmouth Capital Corporation, an affiliated company; Chairman of the Board (1995 to present), President (1969 to present) of United Mobile Homes, Inc., an affiliated company.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, (CONT'D.)
Present Position with the Company; Business Experience During Past Director Name Age Five Years; Other Directorships Since ____ ___ _______________________________ _______ Samuel A. Landy 43 Director. Attorney at Law (1985 1989 to present); President (1995 to present), Vice President (1991 to 1995) and Director (1992 to present) of United Mobile Homes, Inc., an affiliated company; Director (1994 to present) of Monmouth Capital Corporation, an affiliated company.
Cynthia J. 34 Executive Vice President and 2002 Morgenstern Director. Vice President (1996 to 2001) Summit Bank, Commercial Real Estate Division.
John R. Sampson 49 Director. Senior Portfolio Manager 2001 at Fox Asset Management, Inc. (1998 to present); Principal at Pharos Management and Principia Partners LLC (1995 to 1998) specializing in fixed income consulting and research for the securities industry.
Peter J. 56 Director. Investor; Director of 2001 Weidhorn real estate management/acquisitions at Kushner Companies (2000-2003); Chairman of the Board, President/CEO WNY Group, Inc. a real estate investment trust that owned and operated 8,000 apartments prior to its sale to the Kushner Companies (1998-2000); Director BNP Residential Properties, Inc. (2001 to present); Director The Community Development Trust, Inc. (2003 to present); Trustee of the CentraState Healthcare Foundation, Inc. and Vice Chairman and Trustee of the Union for Reform Judaism.
Stephen B. 49 Director. Principal of U.S. Real 2003 Wolgin Estate Advisors, Inc. (2000 to present), a real estate advisory services group based in New York; Principal of the Wolgin Group (2000-2003); prior affiliations with J.P. Morgan, Odyssey Associates, The Prudential Realty Group, Standard & Poor's Corporation, and Grubb and Ellis.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, (CONT'D.)
Audit Committee
The Company's Board of Directors has determined that at least one member of the Audit Committee is a financial expert.
Delinquent Filers
There have been no delinquent filers pursuant to Item 405 of regulation S-K, to the best of management's knowledge.
Code of Ethics
The Company has adopted the Code of Business Conduct and Ethics (the Code of Ethics). The Code of Ethics can be found at the Company's website at www.mreic.com, as well as attached to this filing at Exhibit 14.
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 2003, 2002 and 2001 to the Chairman of the Board and President, and Executive Vice President. There were no other executive officers whose aggregate cash compensation exceeded $100,000:
Annual Compensation Name and Principal Options Position Year Salary Bonus Granted Other ____ ______ _____ _______ _____
Eugene W. Landy 2003 $150,000 $30,000 65,000 $94,000(1) Chairman of the 2002 150,000 30,000 65,000 75,300 (1) Board and 2001 150,000 30,000 65,000 105,200 (1) President
Cynthia 2003 $139,077 $9,615 -0- $21,905(2) Morgenstern 2002 121,250 8,462 50,000 6,438(2) Executive Vice 2001 78,269 -0- -0- -0- President
(1) Represents Director's fees of $17,500, $16,300 and $8,700 for 2003, 2002 and 2001, respectively, paid to Mr. Landy; accrual for pension and other benefits of $59,000, $59,000 and $49,000 for 2003, 2002 and 2001, respectively, in accordance with Mr. Landy's employment contract; and legal fees of $17,500, $-0- and $47,500 for 2003, 2002 and 2001, respectively.
(2) Represents Director's fees and discretionary contributions by the Company to the Company's 401(k) Plan allocated to an account of the named executive officer.
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
Stock Option Plan
The following table sets forth, for the executive officers named in the Summary Compensation Table, information regarding individual grants of stock options made during the year ended September 30, 2003:
Potential Realized Value at Assumed Percent Price Annual Options Granted to Per Expiration Rates for Option Name Granted Employees Share Date 5% 10%
Eugene W. Landy 65,000 100% $6.90 1/22/11 $181,500 $465,500
The following table sets forth for the executive officers named in the Summary Compensation Table, information regarding stock options outstanding at September 30, 2003:
Value of Number of Unexercised Unexercised Options Options at Year-End At Year-End Shares Value Exercisable/ Exercisable/ Name Exercised Realized Unexercisable Unexercisable
Eugene W. -0- N/A 195,000/65,000 $320,775/$78,650 Landy
Cynthia Morgenstern -0- N/A 50,000/-0- $49,000/-0-
Employment Agreements
On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which Mr. Landy receives an annual base compensation of $150,000 (as amended, increased in 2001), plus bonuses and customary fringe benefits, including health insurance and five weeks vacation. Additionally, there will be bonuses awarded as voted by the Board of Directors. The Employment Agreement is terminable by either party at any time, subject to certain notice requirements. 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 terminated December 31, 2000, and was automatically renewed and extended for successive one-year periods.
Effective January 15, 2003, the Company and Cynthia J. Morgenstern entered into a one year employment agreement under which Ms. Morgenstern receives an annual base salary of $145,000 plus bonuses and customary fringe benefits. In the event of disability, her salary shall continue for a period of two years.
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
Other Information
During 2001, the Directors received a fee of $1,000 for each Board Meeting attended, and an additional fixed annual fee of $7,600 payable quarterly. Effective April 1, 2002, the meeting fee was increased to $1,500 and the fixed annual fee was increased to $10,000. Directors appointed to house committees receive $150 for each meeting attended. Those specific committees are Compensation Committee, Audit Committee and Stock Option Committee.
Except as provided in the specific agreements described above, the Company has no pension or other post-retirement plans in effect for Officers, Directors or employees and, at present, has no intention of instituting such plans.
Daniel D. Cronheim is a Director of the Company and Executive Vice President of David Cronheim Company. The David Cronheim Company received $14,377 in lease brokerage commissions in 2003. Cronheim Management Services, a division of David Cronheim Company, received the sum of $258,626 in 2003 for management fees. In 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.
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.
ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.)
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 and whether his accomplishments met the bonus goals outlined in his employment contract. His base compensation under this contract was increased in 2001 to $150,000 per year, and his bonus for 2003 was $30,000. Compensation Committee: Daniel D. Cronheim Matthew I. Hirsch
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
1998 100 100 100 1999 95 91 126 2000 101 109 141 2001 135 124 102 2002 168 136 80 2003 210 172 98
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists information with respect to the beneficial ownership of the Company's Common Stock (the Shares) as of September 30, 2003 by:
- each person known by the Company to beneficially own more than five percent of the Company's outstanding Shares;
- the Company's directors;
- the Company's executive officers; and
- all of the Company's executive officers and directors as a group.
Unless otherwise indicated, the person or persons named below have sole voting and investment power and that person's address is c/o Monmouth Real Estate Investment Corporation, Juniper Business Plaza, 3499 Route 9 North, Suite 3-C, Freehold, New Jersey 07728. In determining the number and percentage of Shares beneficially owned by each person, Shares that may be acquired by that person under options exercisable within 60 days of September 30, 2003 are deemed beneficially owned by that person and are deemed outstanding for purposes of determining the total number of outstanding Shares for that person and are not deemed outstanding for that purpose for all other shareholders.
Percentage Amount and Nature of Shares Name and Address of Beneficial Outstanding of Beneficial Owner Ownership (1) (2) ___________________ _________________ _________
United Mobile Homes, Inc. 3499 Route 9, Suite 3-C Freehold, NJ 07728 794,480 5.27%
Oakland Financial Corporation 34200 Mound Road Sterling Heights, MI 48310 1,073,618 (3) 7.11%
Palisades Capital Management LLC One Bridge Plaza Suite 695 Fort Lee, NJ 07027 1,257,253 8.33%
Ernest V. Bencivenga 47,255 (4) 0.31%
Anna T. Chew 96,896 (5) 0.64%
Daniel D. Cronheim 60,289(6) 0.40%
Matthew I. Hirsch 44,186 (7) 0.29%
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, (CONT'D.)
Percentage Amount and Nature of Shares Name and Address of Beneficial Outstanding of Beneficial Owner Ownership (1) (2) ___________________ ________________ __________
Charles P. Kaempffer 68,012 (8) 0.45%
Eugene W. Landy 851,842 (9) 5.57%
Samuel A. Landy 227,860 (10) 1.51%
Cynthia J. Morgenstern 56,608 (11) 0.37%
John R. Sampson 40,687 (12) 0.27%
Peter J. Weidhorn 21,000 (13) 0.14%
Stephen B. Wolgin 2,500 0.02%
Directors and Officers as a 1,517,135 (14) 9.79% Group
(1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the Company believes that the persons named in the table have sole voting and investment power with respect to all Shares listed.
(2) Based on the number of shares outstanding on September 30, 2003 which was 15,090,649.
(3) Based upon correspondence dated October 21, 2003 from Oakland Financial Corporation (Oakland), Liberty Bell Agency, Inc. (Liberty Bell), and Cherokee Insurance Company (Cherokee), as of June 30, 2003, Oakland owns 6,833 Shares, Liberty Bell owns 580,436 Shares and Cherokee owns 452,074 Shares, and Matthew T. Moroun owns 34,275 Shares. Amendment No. 2 to Schedule 13-D dated October 1, 2002 filed with the SEC by Oakland, indicates that Oakland shares voting and dispositive power with respect to those Shares with Liberty Bell and Cherokee, both of which are wholly-owned subsidiaries of Oakland. Matthew T. Moroun is the Chairman of the Board and controlling stockholder of Oakland, Liberty Bell and Cherokee.
(4) Includes 15,000 Shares issuable upon exercise of a Stock Option.
(5) Includes (a) 35,863 Shares owned jointly with Ms. Chew's husband; and (2) 11,033 Shares held in Ms. Chew's 401(k) Plan. Includes 50,000 Shares issuable upon exercise of a Stock Option.
(6) Includes 15,000 Shares issuable upon exercise of a Stock Option.
(7) Owned jointly with Mr. Hirsch's wife. Includes 15,500 Shares issuable upon exercise of a Stock Option.
(8) Includes 15,534 Shares owned b y Mr. Kaempffer's wife: (b) 1,080 Shares in joint name with Mrs. Kaempffer; and (c) 1,425 Shares held in the Charles P. Kaempffer Defined Benefit Pension Plan of which Mr. Kaempffer is Trustee with power to vote. Includes 15,000 Shares issuable upon exercise of a Stock Option.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, (CONT'D.)
(9) Includes 83,405 Shares owned by Mr. Landy's wife; (b) 161,764 Shares held in the Landy & Landy Employees' Profit Sharing Plan of which Mr. Landy is a Trustee with power to vote; (c) 126,585 Shares held in the Landy & Landy Employees' Pension Plan of which Mr. Landy is a Trustee with power to vote; and (d) 60,000 Shares held in the Eugene W. and Gloria Landy Family Foundation, a charitable trust, of which Mr. Landy has power to vote. Includes 195,000 shares issuable upon exercise of Stock Options. Excludes 65,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until January 22, 2004.
(10) Includes 6,546 Shares owned by Mr. Landy's wife; (b) 72,927 Shares held in custodial accounts for Mr. Landy's minor children under the New Jersey Uniform Transfer to Minors Act in which he disclaims any beneficial interest but has power to vote; (c) 1,000 Shares held in the Samuel Landy Family Limited Partnership and; (d) 29,822 Shares held in Mr. Landy's 401(k) Plan. Includes 15,000 Shares issuable upon exercise of a Stock Option.
(11) Includes 557 Shares held in Ms. Morgenstern's 401(k) Plan. Includes 50,000 Shares issuable upon exercise of a Stock Option.
(12) Includes 2,000 Shares held in custodial accounts for Mr. Sampson's minor children under the New Jersey Uniform Gifts to Minors Act in which he disclaims any beneficial interest but has power to vote. Includes 20,000 Shares issuable upon exercise of a Stock Option.
(13) Includes 15,000 Shares issuable upon exercise of a Stock Option.
(14) Excludes 794,480 Shares (5.27%) owned by United Mobile Homes, Inc. Eugene W. Landy owns beneficially approximately 10% of the shares of United Mobile Homes, Inc.
There are no equity compensation plans other than the 1997 Stock Option Plan. See Note 7 in the notes to the financial statements for a description of that plan.
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 - PRINCIPAL ACCOUNTING FEES AND SERVICES
This item is not applicable since this report is filed for a period ending prior to December 15, 2003.
PART IV
ITEM 15
ITEM 15 - 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 37
(ii) Balance Sheets as of September 30, 2003 and 38
(iii) Statements of Income for the years ended September 30, 2003, 2002 and 2001 39
(iv) Statements of Shareholders' Equity for the years ended September 30, 2003, 2002 and 2001 40-41
(v) Statements of Cash Flows for the years ended September 30, 2003, 2002 and 2001 42
(vi) Notes to the Financial Statements 43-62
(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, 2003 63-64
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 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits (3)
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession (i) 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). (ii) Reference is hereby made to the Agreement and Plan of Merger dated March 24, 2003 by and between MREIC Maryland, Inc., a Maryland corporation ("Monmouth Maryland"), and Monmouth Real Estate Investment Corporation, a Delaware corporation ("Monmouth Delaware") filed with The Securities and Exchange Commission on April 7, 2003 in The 2002 proxy (Registration No. 000-04258).
(3) Articles of Incorporation and By-Laws (i) Reference is hereby made to the Articles of Incorporation of MREIC Maryland, Inc. filed with The Securities and Exchange Commission on April 7, 2003 in the 2002 proxy (Registration No. 000-04258). (ii) Reference is hereby made to the Bylaws of MREIC Maryland, Inc. filed with the Securities and Exchange Commission on April 7, 2003 in the 2002 proxy (Registration No. 000-04258).
(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. (iii)Employment Agreement with Cynthia J. Morgenstern dated January 15, 2003.
(14) Code of Business Conduct and Ethics.
(23) Consent of KPMG LLP.
(31.1) Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Sectiion 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification pursuant to 18 U.S.C.Section 1350 as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
(32) Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K - None
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, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2003 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 December 12, 2003
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
See Accompanying Notes to the Financial Statements
MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Monmouth Real Estate Investment Corporation (the Company) operates as a real estate investment trust (REIT) deriving its income primarily from real estate rental operations. As of September 30, 2003 and 2002, rental properties consist of thirty-three and thirty 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, Ohio, Connecticut, Wisconsin, Maryland and Arizona. The Company also owns a portfolio of investment securities.
On May 15, 2003, Monmouth Real Estate Investment Corporation changed its state of incorporation from Delaware to Maryland (the Reincorporation). The Reincorporation was approved by the Company's shareholders at the Company's annual meeting on May 6, 2003.
The Reincorporation was accomplished by the merger (the Merger) of the Company with and into its holly-owned subsidiary, MREIC Maryland, Inc., a Maryland Corporation, (Monmouth Maryland), which was the surviving corporation in the Merger. In connection with the Merger, Monmouth Maryland changed its name to Monmouth Real Estate Investment Corporation.
As a result of the Merger each outstanding share of the Company's Class A Common stock, $.01 par value per share (the Delaware Common Stock), was converted into one share of common stock, $.01 par value, of Monmouth Maryland (the Maryland Common Stock). In addition, each outstanding option to purchase Delaware Common Stock was converted into the right to purchase Maryland Common Stock upon the same terms and conditions as immediately prior to the Merger. The Company's 1997 Stock Option Plan, as amended, was assumed and will be continued by Monmouth Maryland.
The conversion of the Delaware Common Stock into Maryland Common Stock occurred without an exchange of certificates. Accordingly, certificates formerly representing shares of Delaware Common Stock are now deemed to represent the same number of shares of Maryland Common Stock.
Prior to the Merger, Monmouth Maryland had no assets or liabilities, other than nominal assets or liabilities. As a result of the Merger, Monmouth Maryland acquired all of the assets and all of the liabilities and obligations of the Company. The Merger was accounted for as if it were a "pooling of interests" rather than a purchase for financial reporting and related purposes, with the result that the historical accounts of the Company and Monmouth Maryland have been combined for all periods presented. Monmouth Maryland has the same business, properties, directors, management, status as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and principal executive offices as Monmouth Delaware.
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.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
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, NJ 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.
Lease Costs and Financing Costs
Costs incurred in connection with the execution of leases are deferred and are amortized over the term of the respective leases. Unamortized lease costs are charged to expense upon cancellation of leases prior to the expiration of lease terms. Costs incurred in connection with obtaining mortgages and other financings and refinancings are deferred and are amortized over the term of the related obligations. Unamortized costs are charged to expense upon prepayment of the obligation.
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%.
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, 2003 and 2002 are all classified as available-for-sale and are carried at fair value. Gains or losses on the sale of securities are calculated based on the average cost method 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.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
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.
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 (13,844,056, 11,177,294 and 9,504,806 in 2003, 2002 and 2001, 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 (13,872,650 11,196,388 and 9,506,644 in 2003, 2002 and 2001, respectively). Options in the amount of 28,594, 19,094 and 1,838 are included in the diluted weighted average shares outstanding for 2003, 2002 and 2001, respectively.
Stock Option Plan
Prior to October 1, 2002 the Company's stock option plan was 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 was recorded on the date of grant only if the current market price on the underlying stock exceeded the exercise price. Included in Note 7 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.
The Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation" on October 1, 2002. Under the prospective method of adoption selected by the Company under the provisions of SFAS No. 148. "Accounting for Stock Based Compensation, Transition and Disclosure", compensation costs of $6,825 have been recognized in 2003, as the Company granted stock-based compensation during 2003. See Note 7 for the assumptions used to calculate compensation expense.
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust (REIT) under Sections 856-860 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 90% 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. The Company is subject to franchise taxes in some of the states in which the Company owns property.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Comprehensive Income
Comprehensive income is comprised of 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.
Reclassifications
Certain amounts in the financial statements for the prior years have been reclassified to conform to the statement presentation for the current year.
NOTE 2 - REAL ESTATE INVESTMENTS
The following is a summary of the cost and accumulated depreciation of the Company's land, buildings, improvements and equipment at September 30, 2003 and 2002:
Buildings, Improvements, September 30, 2003 Land And Accumulated Equipment Depreciation
NEW JERSEY: Ramsey Industrial $ 52,639 $ 1,358,148 $ 745,203 Building Somerset(1) Shopping 55,182 1,152,220 932,992 Center South Brunswick Industrial 1,128,000 4,386,885 1,444,378 Building PENNSYLVANIA: Monaca Industrial 330,772 2,106,056 1,366,207 Park NEW YORK: Orangeburg Industrial 694,720 2,977,373 1,028,039 Building NORTH CAROLINA: Fayetteville Industrial 172,000 4,485,245 745,055 Building Greensboro Industrial 327,100 1,853,700 615,757 Building Monroe Industrial 500,000 4,981,022 191,570 Building Winston-Salem Industrial 980,000 5,610,000 215,760 Building MISSISSIPPI: Jackson Industrial 218,000 1,340,001 404,543 Building Richland Industrial 211,000 1,195,000 291,095 Building MASSACHUSETTS: Franklin Industrial 566,000 4,148,000 1,010,371 Building KANSAS: Wichita Industrial 268,000 1,542,245 371,121 Building Edwardsville Industrial 1,185,000 5,815,148 74,535 Building IOWA: Urbandale Industrial 310,000 1,760,736 428,283 Building MISSOURI: Liberty Industrial 723,000 6,510,546 918,074 Building O'Fallon Industrial 264,000 3,309,000 719,686 Building St. Joseph Industrial 800,000 11,753,964 753,422 Building VIRGINIA: Charlottesville Industrial 1,170,000 2,845,000 328,266 Building Richmond Industrial 1,160,000 6,416,305 412,291 Building ILLINOIS: Burr Ridge Industrial 270,000 1,236,599 174,338 Building Schaumburg Industrial 1,039,800 3,694,320 615,699 Building Granite City Industrial 340,000 12,046,675 463,412 Building Elgin Industrial 1,280,000 5,529,488 212,664 Building MICHIGAN: Romulus Industrial 531,000 3,665,961 518,850 Building FLORIDA: Jacksonville Industrial 1,165,000 4,671,136 539,208 Building Ft. Myers Industrial 1,910,000 2,499,093 32,040 Building NEBRASKA: Omaha Industrial 1,170,000 4,425,500 510,614 Building OHIO: Union Township Industrial 695,000 4,150,873 299,977 Building CONNECTICUT: Newington Industrial 410,000 2,966,486 189,804 Building WISCONSIN: Cudahy Industrial 980,000 5,053,615 323,903 Building MARYLAND: Beltsville Industrial 3,200,000 5,958,773 381,959 Building ARIZONA Tolleson Industrial 1,320,000 13,329,000 170,874 Building _________ _________ ________
Total at September 30, 2003 $25,426,213 $144,774,112 $17,429,990
========== ========== ==========
(1) This represents the Company's 2/3 undivided interest in this property.
NOTE 2 - REAL ESTATE INVESTMENTS, (CONT'D.)
Buildings, Improvements, September 30, 2002 Land And Accumulated Equipment Depreciaiton
NEW JERSEY: Ramsey Industrial $ 52,639 $1,358,148 $ 701,621 Building Somerset(1) Shopping 55,182 1,148,906 889,384 Center South Brunswick Industrial 1,128,000 4,190,598 1,290,001 Building PENNSYLVANIA: Monaca Industrial 330,773 2,100,605 1,269,546 Park
NEW YORK: Orangeburg Industrial 694,720 2,977,372 933,503 Building NORTH CAROLINA: Fayetteville Industrial 172,000 4,467,885 630,060 Building Greensboro Industrial 327,100 1,853,700 556,873 Building Monroe Industrial 500,000 4,981,022 63,857 Building Winston-Salem Industrial 980,000 5,610,000 71,920 Building MISSISSIPPI: Jackson Industrial 218,000 1,234,586 363,312 Building Richland Industrial 211,000 1,195,000 260,447 Building MASSACHUSETTS: Franklin Industrial 566,000 4,148,000 904,017 Building KANSAS: Wichita Industrial 268,000 1,518,000 330,850 Building IOWA: Urbandale Industrial 310,000 1,760,736 383,138 Building MISSOURI: Liberty Industrial 723,000 6,510,546 751,144 Building O'Fallon Industrial 264,000 3,309,000 634,846 Building St. Joseph Industrial 800,000 11,753,964 452,054 Building VIRGINIA: Charlottesville Industrial 1,170,000 2,845,000 255,318 Building Richmond Industrial 1,160,000 6,413,305 247,255 Building ILLINOIS: Burr Ridge Industrial 270,000 1,236,599 142,632 Building Schaumburg Industrial 1,039,800 3,694,321 520,977 Building Granite City Industrial 340,000 12,054,175 154,535 Building Elgin Industrial 1,280,000 5,529,488 70,888 Building MICHIGAN: Romulus Industrial 531,000 3,665,961 423,934 Building FLORIDA: Jacksonville Industrial 1,165,000 4,668,080 418,909 Building NEBRASKA: Omaha Industrial 1,170,000 4,425,500 397,147 Building OHIO: Union Township Industrial 695,000 3,342,000 214,288 Building CONNECTICUT: Newington Industrial 410,000 2,961,000 113,884 Building WISCONSIN: Cudahy Industrial 980,000 5,053,615 194,328 Building MARYLAND: Beltsville Industrial 3,200,000 5,958,773 229,175 Building _________ _________ _________
Total at September 30, 2002 $21,011,214 $121,965,886 $13,869,844 ========= ========== =========
(1) This represents the Company's 2/3 undivided interest in the property.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
Fiscal 2003
On November 6, 2002, the Company purchased a 288,211 square foot manufacturing and warehouse facility in Tolleson, Arizona. This facility is 100% net leased to Western Container Corporation, which manufactures plastic bottles for Coca-Cola soft drink products. The lease is guaranteed by Coca-Cola Enterprises. The purchase price was approximately $14,800,000. The Company paid approximately $550,000 in cash, borrowed approximately $2,200,000 against its security portfolio with Prudential Securities, used approximately $1,100,000 of its revolving credit line with Fleet Bank and obtained a mortgage of approximately $10,950,000. This mortgage payable is at an interest rate of 5.8% and is due November 1, 2012.
On November 21, 2002 the Company purchased a 90,020 square foot warehouse facility in Fort Meyers, Florida. This warehouse facility is 100% net leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The purchase price was approximately $4,400,000. The Company paid approximately $1,200,000 in cash, and obtained a mortgage of approximately $3,200,000. This mortgage payable is at a rate of 6.33% and matures December 1, 2012.
On April 1, 2003, the Company purchased a 179,280 square foot industrial building in Wyandotte County, in the City of Edwardsville, Kansas. This industrial building is 100% net- leased to Carlisle Tire and Wheel Company, for ten years. The purchase price was approximately $7,000,000. To fund this purchase, the Company used approximately $2,050,000 of its revolving credit line with Fleet Bank and assumed a mortgage of $4,950,000. This mortgage payable is at an interest rate of 7.375% and is due in 2017.
Fiscal 2002
On October 12, 2001, the Company purchased a 184,800 square foot warehouse facility in Granite City, Illinois. This warehouse facility is 100% net-leased to Anheuser-Busch, Inc. The purchase price was approximately $12,400,000. To fund this purchase, the Company used approximately $100,000 in cash, borrowed approximately $1,000,000 against its security portfolio with Prudential Securities, used approximately $1,800,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $9,500,000. This mortgage payable is at an interest rate of 7.11% and is due November 1, 2016.
On November 2, 2001, the Company purchased a 160,000 square foot warehouse facility in Monroe, North Carolina. This warehouse facility is 100% net-leased to Hughes Supply Inc. The purchase price was approximately $5,500,000. To fund this purchase, the Company used approximately $100,000 in cash, used approximately $1,300,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $4,100,000. This mortgage payable is at an interest rate of 7.11% and is due December 1, 2016.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS, (CONT'D.)
On January 31, 2002, the Company purchased a 106,507 square foot warehouse facility in Winston-Salem, North Carolina. This warehouse facility is 100% net-leased to Fed Ex Ground Package System, a subsidiary of Federal Express Corporation. The purchase price was approximately $6,700,000. To fund this purchase, the Company used approximately $200,000 in cash, used approximately $1,700,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $4,800,000. This mortgage payable is at an interest rate of 7.1% and is due February 1, 2012.
On April 8, 2002, the Company purchased a 89,052 square feet warehouse facility located in Elgin, Illinois from Jones Elgin, LLC, and unrelated entity. This warehouse facility is 100% net leased to Reynolds Metals Company, which merged with Alcoa, Inc. The purchase price, including closing costs, was approximately $6,800,000. The Company used approximately $100,000 in cash, $1,700,000 of its Revolving Credit line with Fleet Bank and obtained a mortgage of $5,000,000. This mortgage is payable at a rate of 6.97% and matures on May 1, 2017.
On May 1, 2002, the Company sold the warehouse facility in Virginia Beach, VA. The net proceeds from this sale was $2,019,270 resulting in a net loss of $175,376.
NOTE 4 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company has approximately 3,500,000 square feet of property, of which approximately 1,034,000 square feet or 29% is leased to Federal Express Corporation and subsidiaries and approximately 274,000 square feet, or 8%, is leased to Keebler Company. Rental and occupancy charges from Federal Express Corporation and subsidiaries totaled approximately $6,538,000, $5,662,000 and $4,113,000 for the years ended September 30, 2003, 2002 and 2001, respectively. Rental and occupancy charges from Keebler Company, (a subsidiary of the Kellogg Company) totaled approximately $1,967,000, $1,853,000 and $1,702,000 for the years ended September 30, 2003, 2002 and 2001. During 2003, 2002 and 2001, rental income and occupancy charges from properties leased to these companies approximated 48%, 52%, 55% of total rental and occupancy charges, respectively.
Information on these tenants is provided below. The information has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness is guaranteed.
S&P Credit Rating Tenant September 30, 2003 Current Assets ________ ________ ________
Federal Express Corporation $4,093,000 at August 31,2003 (FDX) BBB/Stable/NR per 10-Q
Kellogg Company $1,881,600 at June 28, 2003 (K) BBB/Positive/A-2 per 10-Q
NOTE 5 - SECURITIES AVAILABLE FOR SALE
During the year ended September 30, 2001, the Company realized a loss of $226,842 due to a writedown to fair value of securities available for sale which was considered other than temporarily impaired. This loss is included in the gain on securities available for sales transaction, net.
Dividend income for the years ended September 30, 2003, 2002 and 2001 amounted to $1,346,706, $915,904 and $1,534,255, respectively. Interest income for the years ended September 30, 2003, 2002 and 2001 amounted to $451,742, $221,316 and $216,882, respectively.
The Company received proceeds of $8,092,425 on sales or redemptions of securities available for sale and recorded gross realized gains of $1,074,554 and gross realized losses of $55,692 during 2003. The Company received proceeds of $4,643,905 on sales and redemptions of securities available for sale and recorded gross realized gains of $976,544 and gross realized losses of $66,840 in 2002. The Company received proceeds of $7,497,270 on sales and redemptions of securities available for sale and recorded gross realized gains of $1,051,771, gross realized losses of $226,842, and an impairment loss of $226,842 (as noted above)in 2001.
NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
The following is a summary of Securities Available for Sale at September 30, 2003 and 2002: Shares Cost Market Debt Securities: Sizeler Property Investors Convertible Subordinated SBJ to SPL RDMPT RO JJ 8.000 07/15/2003 DTD 5/15/93 Callable 07/15/99 at 100.00 1,914,000 $1,884,333 $2,047,980 _________ _________
Total Debt Securities 1,884,333 2,047,980 _________ _________ Equity Securities: Preferred Stock: Alexandria Real Estate 9.50% Sr A 2,000 46,695 52,700 AMB Property Corp Sr L 6.5% 4,000 100,000 100,000 Apartment Inv. 8.75% Class D Cum 11,300 280,965 283,065 Apartment Inv. Sr H -0- -0- -0- Apartment Inv. Cl R 10% 3,000 80,250 79,800 Apartment Inv. 8.00% Class T 16,000 400,000 400,000 Archstone Smith 8.75% 2,000 51,491 51,880 Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH 9.75% CL A Cum Redeem -0- -0- -0- Boykin Lodging Inc. 5,200 133,560 139,880 CarrAmerica Realty Corp 8,000 200,000 202,400 CBL&Assoc 7.75& PRC 8,000 200,000 205,600 CBL&Assoc 8.75& PRB 4,100 207,315 221,810 Colonial Properties 8.75% -0- -0- -0- Commerical NetLease SrA 1,000 26,248 26,750 Crown American 11% Ser 10,000 458,810 575,000 Developers Div CL G 8% 4,000 100,000 105,000 Developers Div. CL C 8.375% -0- -0- -0- Developers Div. CL D 9.68% -0- -0- -0- Developers Div. CL H 7.375% 25,000 625,000 622,500 Developers Div. Dep Shs CL F 2,000 49,762 52,960 Duke Realty Corp 6.625% CL 4,000 100,000 99,720 Equity Inns 8.75% Sr B 30,000 750,000 775,500 Equity Inns 9.50% Sr A cum -0- -0- -0- Equity Office Trust 8.625% Sr Cum 1,000 26,000 25,380 Equity Res. Ppts 9.125% 1,000 27,040 27,600 Felcor Lodging 1.95% PFD 3,000 55,208 68,520 Felcor Lodging 9%B 21,500 488,127 529,115 First Industrial Realty 7.95% 7,000 175,480 175,070 G&L Realty 10.25% Sr A 1,000 23,320 24,890 Gleimcher Realty 9.25% B 23,500 574,291 590,085 Glenborough R/E 7.75% Sr A 21,900 505,061 524,943 Healthcare Dep Shrs 8.60% -0- -0- -0- Healthcare Prop 7.25% 5,000 125,000 129,250 Healthcare Prop. 7.875% Sr A -0- -0- -0- Healthcare Prop. 8.70% Sr B 1,000 17,932 24,980 Healthcare Prop. 8.875% -0- -0- -0- Healthcare Reit 7.875 SrD 14,000 351,000 357,000 Highwoods Properties Inc. 8% 8,500 203,920 210,800 Hospitality Ppts 8.875 Sr B 6,000 152,131 159,900 Hospitality Ppts 9.50% Sr A 10,000 210,133 257,500 Host Marriott 10% CL C 1,000 25,600 25,000 HRPT 8.75% Sr B 15,000 378,730 402,150 HRPT 9.875% Sr A 5,500 145,660 148,775 Innkeepers USA 8.625% 31,500 772,961 790,650 iStar Financial Inc. 7.875% 20,000 500,000 509,000 iStar Financial Inc. 8% Sr D 6,000 89,641 150,840 iStar Financial Inc. 9.20% Sr 1,000 17,708 25,300 JDN Realty 9.375% -0- -0- -0-
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NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Shares Cost Market Debt Securities: Sizeler Property Investors Convertible Subordinated SBJ to SPL RDMPT RO JJ 8.000 07/15/2003 DTD 5/15/93 Callable 07/15/99 at 100.00 1,914,000 $1,884,333 $1,949,889 _________ _________ Total Debt Securities 1,884,333 1,949,889 _________ _________ Equity Securities: Preferred Stock: Alexandria Real Estate 9.50% Sr A 2,000 19,870 26,470 AMB Property Corp Sr L 6.5% 4,000 -0- -0- Apartment Inv. 8.75% Class D Cum 11,300 18,120 24,260 Apartment Inv. Sr H -0- 20,580 25,030 Apartment Inv. Cl R 10% 3,000 80,250 78,450 Apartment Inv. 8.00% Class T 16,000 -0- -0- Archstone Smith 8.75% 2,000 51,491 53,800 Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH 9.75% CL A Cum Redeem -0- 18,063 24,900 Boykin Lodging Inc. 5,200 -0- -0- CarrAmerica Realty Corp 8,000 -0- -0- CBL&Assoc 7.75& PRC 8,000 -0- -0- CBL&Assoc 8.75& PRB 4,100 202,100 210,600 Colonial Properties 8.75% -0- 63,475 62,575 Commerical NetLease SrA 1,000 26,248 26,000 Crown American 11% Ser 10,000 458,810 555,000 Developers Div CL G 8% 4,000 -0- -0- Developers Div. CL C 8.375% -0- 105,290 105,000 Developers Div. CL D 9.68% -0- 28,204 27,621 Developers Div. CL H 7.375% 25,000 -0- -0- Developers Div. Dep Shs CL F 2,000 49,762 50,600 Duke Realty Corp 6.625% CL J 4,000 -0- -0- Equity Inns 8.75% Sr B 30,000 -0- -0- Equity Inns 9.50% Sr A cum -0- 210,007 269,724 Equity Office Trust 8.625% Sr Cum 1,000 33,117 41,664 Equity Res. Ppts 9.125% 1,000 63,923 80,790 Felcor Lodging 1.95% PFD 3,000 15,350 21,200 Felcor Lodging 9%B 21,500 410,096 439,200 First Industrial Realty 7.95% SRD 7,000 -0- -0- G&L Realty 10.25% Sr A 1,000 -0- -0- Gleimcher Realty 9.25% B 23,500 204,116 224,460 Glenborough R/E 7.75% Sr A Conv 21,900 52,311 66,300 Healthcare Dep Shrs 8.60% -0- 50,164 50,000 Healthcare Prop 7.25% 5,000 -0- -0- Healthcare Prop. 7.875% Sr A -0- 189,749 265,860 Healthcare Prop. 8.70% Sr B 1,000 72,667 102,400 Healthcare Prop. 8.875% -0- 51,400 49,900 Healthcare Reit 7.875 SrD 14,000 -0- -0- Highwoods Properties Inc. 8% SrD 8,500 17,245 23,550 Hospitality Ppts 8.875 Sr B 6,000 -0- -0- Hospitality Ppts 9.50% Sr A 10,000 129,983 182,700 Host Marriott 10% CL C 1,000 25,600 25,170 HRPT 8.75% Sr B 15,000 299,880 298,440 HRPT 9.875% Sr A 5,500 145,660 143,000 Innkeepers USA 8.625% 31,500 98,924 93,000 iStar Financial Inc. 7.875% Sr E 20,000 -0- -0- iStar Financial Inc. 8% Sr D 6,000 166,641 271,400 iStar Financial Inc. 9.20% Sr 1,000 44,288 62,675 JDN Realty 9.375% -0- 609,208 706,434
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NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Shares Cost Market
Kimco Realty 8.375% A -0- -0- -0- Kramont Realty 9.50% Sr D 54,700 1,259,352 1,394,850 Lasalle Hotel 10.25% Sr A 14,500 376,245 391,500 Lexington Properties 8.05% B 20,000 500,000 525,000 Mid-America Apt Communities 8.875% -0- -0- -0- Mid-America Apt Communities 9.5% Sr A -0- -0- -0- Mid-America Apt Communities Sr H 10,000 254,500 261,800 Mills Corp 9% Sr B 18,000 467,975 478,800 Mills Corp 9% Sr C 24,500 633,495 654,150 New Plan Excel 7.625% Sr E 14,000 352,200 371,000 New Plan Excel 8.625% -0- -0- -0- Parkway Properties 8.75% Sr A -0- -0- -0- Post Properties 7.625% -0- -0- -0- Post Properties SR B 8,000 197,370 204,800 Post Properties SR C 1,000 23,440 24,750 Prime Retail Inc Sr A 10.50% 1,000 15,433 18,100 Prime Retail Inc Sr B 8.50% 8,000 26,720 56,400 Reckson Assoc 7.625% 1,000 18,707 24,750 Shurgard Storage 8.70% Sr C 1,000 26,264 25,450 Sizeler Sr B 9.75% 1,000 25,000 28,250 SNH Capital 10.125% 6,000 159,004 159,720 Sovran Self Storage 9.85% Sr B 2,000 39,115 53,480 Thornburg Mortgage 9.68% Sr A -0- -0- -0- Vornado Realty Trust 8.5% 14,000 326,910 360,360 Winston Hotels Sr A 9.25% 12,000 286,835 302,880
__________ __________ Total Preferred Stock 13,663,604 14,487,353 __________ __________ Common Stock: American Financial Realty Trust 1,000 12,500 14,100 BNP Residential Properties Inc. 18,000 192,595 189,900 Centertrust Retail Properties -0- -0- -0- Crown American Realty Trust 30,000 245,694 357,000 Equity Properties Trust 8,000 210,250 220,240 First Industrial Realty 1,000 28,400 32,070 Five Star Quality Care Inc. -0- -0- -0- Gables Residential Trust 1,000 24,859 32,320 Getty Realty Corp 20,090 404,344 492,205 Healthcare Property Invest. 25,000 883,627 1,167,500 Healthcare Realty Trust 10,400 286,930 332,592 HPRT Properties 89,000 706,726 813,460 Humphrey Hospitality 10,000 26,932 29,690 IRT Properties -0- -0- -0- JDN Realty -0- -0- -0- Lasalle Hotel Properties 9,000 115,824 155,970 Mid Atlantic Realty Trust 1,000 9,582 21,000 Monmouth Capital Corp 37,071 131,531 188,689 Nationwide Health Properties 21,500 294,425 376,035 New Plan Realty 62,000 1,126,498 1,444,600 Penn R/E Trust -0- -0- -0- Price Legacy Corp 10,000 27,724 35,000 RFS Hotel Investors -0- -0- -0- Senior Housing 29,000 339,222 417,890 Sizeler Property Inv. 105,500 894,676 1,105,668 Trizec Ppts Inc 35,000 379,371 429,100 United Mobile Homes 60,200 651,145 907,214 Urstadt Biddle Properties 9,500 50,920 123,975
__________ __________ Total Common Stock 7,043,775 8,886,218 __________ __________ Total Equity Securities 20,707,379 23,373,571 __________ __________ Total Securities Available for Sale $22,591,712 $25,421,551 ========== ==========
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NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Shares Cost Market
Kimco Realty 8.375% A 9,100 $218,224 $231,140 Kramont Realty 9.50% Sr D 34,500 743,817 871,125 Lasalle Hotel 10.25% Sr A 6,000 153,000 151,200 Lexington Properties 8.05% B -0- -0- -0- Mid-America Apt Communities 8.875% 4,000 92,670 100,000 Mid-America Apt Communities SrA 6,000 119,584 152,400 Mid-America Apt Communities Sr H -0- -0- -0- Mills Corp 9% Sr B -0- -0- -0- Mills Corp 9% Sr C -0- -0- -0- New Plan Excel 7.625% Sr E -0- -0- -0- New Plan Excel 8.625% 18,000 443,077 450,900 Parkway Properties 8.75% Sr A 8,000 205,600 203,600 Post Properties 7.625% 1,000 23,440 23,010 Post Properties SR B -0- -0- -0- Post Properties SR C -0- -0- -0- Prime Retail Inc Sr A 10.50% 1,000 15,433 5,200 Prime Retail Inc Sr B 8.50% 8,000 26,720 21,600 Reckson Assoc 7.625% 1,000 18,707 23,700 Shurgard Storage 8.70% Sr C -0- -0- -0- Sizeler Sr B 9.75% 1,000 25,000 26,100 SNH Capital 10.125% 1,000 26,460 25,790 Sovran Self Storage 9.85% Sr B 2,000 39,115 52,800 Thornburg Mortgage 9.68% Sr A 2,000 40,740 53,800 Vornado Realty Trust 8.5% 6,000 119,393 151,800 Winston Hotels Sr A 9.25% 4,000 92,842 89,000
__________ __________ Total Preferred Stock 6,436,414 7,321,338 __________ __________ Common Stock: American Financial Realty Trust -0- -0- -0- BNP Residential Properties Inc. 18,000 192,595 176,400 Centertrust Retail Properties 28,500 135,120 165,300 Crown American Realty Trust 41,000 324,564 376,790 Equity Properties Trust -0- -0- -0- First Industrial Realty -0- -0- -0- Five Star Quality Care Inc. 540 4,050 621 Gables Residential Trust -0- -0- -0- Getty Realty Corp 5,000 94,076 95,400 Healthcare Property Invest. -0- -0- -0- Healthcare Realty Trust -0- -0- -0- HPRT Properties 64,000 470,835 528,000 Humphrey Hospitality 5,000 16,028 10,750 IRT Properties 26,500 256,864 311,375 JDN Realty 545 6,584 Lasalle Hotel Properties 1,000 12,394 12,000 Mid Atlantic Realty Trust 11,000 117,259 176,990 Monmouth Capital Corp 32,280 113,653 122,665 Nationwide Health Properties -0- -0- -0- New Plan Realty 45,731 776,616 843,280 Penn R/E Trust 17,000 330,960 437,920 Price Legacy Corp -0- -0- -0- RFS Hotel Investors 1,000 10,769 10,070 Senior Housing 6,000 73,891 67,320 Sizeler Property Inv. 105,500 894,676 1,061,328 Trizec Ppts Inc 10,000 132,775 113,500 United Mobile Homes 100,200 1,050,225 1,327,650 Urstadt Biddle Properties 9,500 50,920 108,775
Total Common Stock 5,058,270 5,952,718 __________ __________ Total Equity Securities 11,494,684 13,274,056 __________ __________ Total Securities Available for Sale $13,379,017 $15,223,945 ========== ==========
Page 53B
NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE
The following is a summary of the mortgage notes payable at September 30, 2003 and 2002:
Fixed Fiscal Balance Balance Property Rate Maturity 9/30/03 9/30/02 _______ _______ _______ _______ _______
Orangeburg, NY 7.00% 2005 $ 364,498 $ 677,351 Jackson, MS 8.50% 2008 373,626 433,634 Franklin, MA 7.00% 2005 414,965 771,137 Wichita, KS (1) 10.25% 2017 -0- 1,104,099 Urbandale, IA 7.00% 2005 182,989 353,642 Richland, MS 7.50% 2004 207,819 314,919 O'Fallon, MO 8.50% 2008 1,095,093 1,310,326 Fayetteville, NC 7.80% 2007 2,801,133 2,923,508 Schaumburg, IL 8.48% 2012 2,545,793 2,734,241 Burr Ridge, IL 8.00% 2014 883,861 937,527 Romulus, MI 7.56% 2013 2,151,940 2,295,913 Liberty, MO 7.065% 2013 3,637,322 3,900,105 Omaha, NE 7.15% 2014 3,236,441 3,443,297 Charlottesville, VA 6.90% 2014 2,233,032 2,368,604 Jacksonville, FL 6.92% 2017 3,440,326 3,621,281 Union Township, OH 8.25% 2015 2,577,450 2,708,147 Richmond, VA 6.12% 2016 4,928,959 5,193,920 St. Joseph, MO 8.12% 2016 7,980,478 8,338,783 Newington, CT 8.10% 2016 2,235,607 2,335,074 Cudahy, WI 8.15% 2016 3,862,951 4,032,368 Beltsville, MD 7.53% 2016 5,427,127 5,676,839 Granite City, IL 7.11% 2017 8,770,809 9,163,601 Monroe, NC 7.11% 2017 3,753,546 3,920,014 Winston Salem, NC 7.10% 2012 4,607,334 4,725,650 Elgin, IL 6.97% 2017 4,735,617 4,936,183 Tolleson, AZ 5.80% 2013 10,615,499 -0- Ft. Myers, FL 6.33% 2013 3,131,807 -0- Edwardsville, KS 7.375% 2017 4,713,277 -0- _______ _______ Total Mortgage Notes Payable $90,909,299 $78,220,163 ======== ========
(1) Mortgage was paid off once the prepayment penalty expired.
NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE, (CONT'D.)
Principal on the foregoing debt is scheduled to be paid as follows:
Year Ending September 30, 2004 $ 5,879,387 2005 5,193,303 2006 7,889,835 2007 5,768,439 2008 5,885,711 Thereafter 60,292,624
__________ $90,909,299 ==========
Line of Credit
The Company had a $8,000,000 line of credit with Fleet Bank at an interest rate of prime. As of September 30, 2003 and 2002, -0- and $4,576,211 was outstanding, respectively.
In May 2003, the Company received a new line of credit (the "new line") from United Trust Bank (the Bank), which replaced the line with Fleet Bank. The amount of the facility is $10,000,000 during the first year and $15,000,000 thereafter and matures on the third anniversary of the closing date. The interest rate charged on the new line is the Bank's prime rate. The interest rate as of September 30, 2003 was 4%. The amount outstanding on the new line at September 30, 2003 was $3,361,198.
Margin Loans
During fiscal 2003, the Company purchased securities on margin. The margin loans are at 2.75% and 3.50% and are due on demand. At September 30, 2003 and 2002, the margin loans amounted to approximately $8,513,000 and $5,728,000, respectively and are collateralized by the Company's securities portfolio. The Company must maintain a coverage ratio of approximately 50%.
Other
In connection with the St. Joseph, Missouri property, the Company issued a $500,000 note to Butler at an interest rate of 8.12% due February 29, 2016. The balance of this note at September 30, 2003 was $450,875. The Company prepaid this note on October 21, 2003 for a discounted amount of $439,555 pursuant to an agreement with Butler.
NOTE 7 - STOCK OPTION PLAN
On April 24, 1997, the shareholders approved and ratified the Company's 1997 Stock Option Plan (the Plan) authorizing the grant to officers, directors and key employees options to purchase up to 750,000 shares of common stock. On April 25, 2002, the shareholders approved an increase to the number of shares of common stock under the Plan to 1,500,000 shares. 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 prior to October 1, 2002, and accordingly, no compensation cost has been recognized prior to October 1, 2002. 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 proforma amounts as follows:
2003 2002 2001
Net Income Prior to $6,127,168 $ 4,478,145 $4,123,054 Compensation Expense for grants in FY 2003 Compensation Expense 6,825 recognized - - __________ __________ __________ Net Income as Reported $6,120,343 $ 4,478,145 $4,123,054 Compensation Expense if 29,250 the fair value method had 20,840 13,985 been applied to grants in FY 2002 and 2001 __________ __________ __________ Net Income Proforma $6,091,093 $ 4,457,305 $4,109,069 ========== ========== ========== Net Income per share - Basic and Diluted as $ 0.44 $ 0.40 $ 0.43 reported
Net Income per share - Basic and Diluted $ 0.44 $ 0.40 $ 0.43 Proforma
The Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation" on October 1, 2002. During the year ended September 30, 2003, one officer was grated 65,000 options. The fair value of those options was $9,100 based on the assumptions noted below and is being amortized over the 1-year vesting period.
The fair value of each option grant is estimated on the date of grant using the Black-Sholes option-pricing model with the following weighted-average assumptions used for grants in 2003, 2002, and 2001:
NOTE 7 - STOCK OPTION PLAN, (CONT'D.)
2003 2002 2001 ____ ____ ____
Divident Yield 8.0% 8.0% 9% Expected volatility 13.3% 13.0% 25% Risk-free interest rate 3.4% 3.4% 4.75% Expected lives (years) 8 5 5
During the year ended September 30, 2003, two directors, officers and key employees exercised their stock options and purchased 9,500 shares for a total of $52,875.
A summary of the status of the Company's stock option plan as of September 30, 2003, 2002 and 2001 is as follows:
2003 2002 2001 Weighted Weighted Weighted Average Average Average 2003 Exercise 2002 Exercise 2001 Exercise Shares Price Shares Price Shares Price
Outstanding at beginning of year 465,000 $6.80 385,000 $6.19 385,000 $6.20 Granted 65,000 6.90 365,000 7.06 15,000 5.65 Exercised (9,500) 5.57 (255,000) 6.34 -0- -0- Expired (20,000) 7.25 (30,000) 5.94 (15,000) 5.94 _______ _______ _______ _______ Outstanding at end of year 500,500 6.83 465,000 6.80 385,000 6.19 ======= ======= ======= Exercisable at end of year 435,500 100,000 370,000 ======= ======= ======= Weighted-average fairvalue of options granted during the year .14 .12 .54 ======== ======== ========
The following is a summary of stock options outstanding as of September 30, 2003:
Date of Number of Number of Option Price Expiration Date Grant Grants Shares
4/12/00 1 65,000 5.50 4/12/05 3/6/01 1 500 5.25 3/6/06 6/20/01 1 5,000 5.85 6/20/06 10/4/01 1 65,000 6.765 10/4/06 6/21/02 15 300,000 7.13 6/21/10 1/22/03 1 65,000 6.90 1/22/11 ________ 500,500 ======== As of September 30, 2003, there were 735,000 shares available for grant under this plan.
NOTE 8 - 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, 2003 are scheduled as follows: 2004 - $16,484,000; 2005 - $15,381,000; 2006 - $14,572,000; 2007 - $13,059,000; 2008 - $11,592,000; thereafter - $34,754,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
Eugene W. Landy received $17,500, $16,300 and $8,700 during 2003, 2002 and 2001 as Director. The firm of Eugene W. Landy received $17,500, $-0-, and $47,500 during 2003, 2002 and 2001, respectively, as legal fees. 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 terminated December 31, 2000 and was automatically renewed and extended for successive one-year periods. An accrual of $59,000, $59,000 and $49,000 was made as of September 30, 2003, 2002 and 2001, respectively, for pension and other benefits in accordance with Mr. Landy's employment agreement. Additionally, the Board of Directors has granted to Mr. Landy loans totaling $1,312,501 at interest rates ranging from 5% to 7% and maturity dates ranging from 2003 to 2012. In fiscal 2003, Mr. Landy was also paid a bonus of $30,000.
Effective January 15, 2003, the Company and Cynthia J. Morgenstern entered into a one year employment agreement under which Ms. Morgenstern receives an annual base salary of $145,000 plus bonuses and customary fringe benefits. In the event of disability, her salary shall continue for a period of two years. Ms. Morgenstern received $17,500, $5,500 and - 0- during 2003, 2002 and 2001, respectively, as Director.
Daniel D. Cronheim is a Director of the Company and Executive Vice President of David Cronheim Company. Cronheim Management Services, a division of David Cronheim Company, received the sum of $258,626, $245,597 and $220,521 for management fees during the years ended 2003, 2002 and 2001, respectively. Effective August 1, 1998, the Company entered into a 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 $14,377, $20,194 and $26,708 in lease brokerage commissions in 2003, 2002 and 2001, respectively. Daniel Cronheim received $16,150, $16,300 and $8,700 for Director and Committee fees in 2003, 2002 and 2001, respectively.
NOTE 9 - RELATED PARTY TRANSACTIONS, (CONT'D.)
The Company operates as part of a group of three public companies (all REITs) which includes the Company, United Mobile Homes, Inc. and Monmouth Capital Corporation (the affiliated companies). Some general and administrative expenses are allocated between the affiliated companies based on use or services provided. Allocations of salaries and benefits are made based on the amount of the employees' time dedicated to each affiliated company.
There are five Directors of the Company who are also Directors and shareholders of United Mobile Homes, Inc. and there are five Directors of the Company who are also Directors and shareholders of Monmouth Capital Corporation.
The Company holds common stock of the affiliated companies in its securities portfolios. See footnote 5 for holdings. The Company sold 40,000, 42,000 and -0- shares of United Mobile Homes, Inc during 2003, 2002, and 2001, respectively and recorded a gain on sale of $230,152, $105,902, and -0- during 2003, 2002, and 2001, respectively.
NOTE 10 - 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 90% 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 a Federal excise tax liability for the calendar years 2003, 2002 and 2001, since it intends to or has distributed all of its annual income.
NOTE 11 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN/EQUITY
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.
NOTE 11 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN/EQUITY, (CONT'D.)
Amounts received, including dividend reinvestment of $3,327,957 and $2,263,827 in 2003 and 2002, respectively, and shares issued in connection with the Plan for the years ended September 30, 2003 and 2002 were as follows:
2003 2002
Amounts Received $11,887,869 $10,535,311 Shares Issued 1,691,148 1,613,020
On February 27, 2003, the Company sold 1,257,253 shares in a private placement with Palisade Concentrated Equity Partnership, L.P. for cash of $8,324,901 or $6.6215 a share. The proceeds of the private placement were used to pay down the Company's outstanding credit facility and will be used for working capital. The Company paid approximately $107,000 in offering costs which were recorded as a reduction to Additional Paid-In Capital.
NOTE 12 - DISTRIBUTIONS
The following cash distributions were paid to shareholders during the years ended September 30, 2003 and 2002:
2003 2002
Quarter Amount Per Share Amount Per Share Ended December 31 $1,815,746 $.145 $1,519,885 $.145 March 31 1,898,483 .145 1,587,414 .145 June 30 2,113,024 .145 1,683,029 .145 September 30 2,160,371 .145 1,718,022 .145 ________ _______ ________ ______ $7,987,624 $ .58 $6,508,350 $ .58 ======== ===== ========= =====
On October 1, 2003, the Company declared a dividend of $ .145 per share to be paid on December 15, 2003 to shareholders of record November 17, 2003.
NOTE 13 - 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."
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONT'D.)
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 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 variable rate 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. At September 30, 2003, the fair value (estimated based upon expected cash outflows discounted at current market rates) and carrying value of fixed rate mortgage notes payable amounted to $95,315,781 and $90,909,299, respectively. At September 30, 2002, the fair value and carrying value of fixed rate mortgage notes payable amounted to $81,951,074 and $78,220,163, respectively.
NOTE 14 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION
Cash paid during the years ended September 30, 2003, 2002 and 2001, for interest is $6,885,146, $6,030,744 and $4,590,757, respectively.
During 2003, 2002 and 2001, the Company had $3,327,957, $2,263,827 and $1,871,521, respectively, of dividends which were reinvested that required no cash transfers.
The following are the reclassification adjustments related to securities available for sale included in Other Comprehensive Income.
2003 2002 2001
Unrealized holding gains arising during the year $2,003,772 $1,212,588 $ 2,777,864 Less: reclassification adjustment for gains realized in income (1,018,862) (909,704) (632,492) _________ _________ _________
Net unrealized gains $ 984,910 $302,884 $ 2,145,372 ======== ======== ========
NOTE 15 - SUBSEQUENT EVENTS
In October, 2003, the Company sold approximately $3,959,000 in investment securities and recognized $1,091,000 in gains in income.
In connection with the St. Joseph, Missouri property, the Company issued a $500,000 note to Butler at an interest rate of 8.12% due February 29, 2016. The balance of this note at September 30, 2003 was $450,875. The Company prepaid this note on October 21, 2003 for a discounted amount of $439,555 pursuant to an agreement with Butler.
On October 23, 2003, the Company invested $500,000 in the Convertible Debenture Private Placement Offering of Monmouth Capital Corporation (the MCC Debenture), an affiliated company. The MCC Debenture pays interest at 8% and is convertible into 83,333 shares of Common Stock of Monmouth Capital Corporation at any time prior to redemption or maturity. The MCC debenture is due in 2013.
NOTE 15 - SUBSEQUENT EVENTS, (CONT'D.)
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2003
Column A Column B Column C Column D ________ ________ __________________ ________ Capitalization Buildings Subsequent and to Description Encumbrances Land Improvements Acquisition ___________ __________ _________ __________ ___________
Shopping Center Somerset, NJ $ -0- $ 55,182 $637,097 $515,123 Industrial Building Ramsey, NJ -0- 52,639 291,500 1,066,648 Monaca, PA -0- 330,773 878,081 1,208,751 Orangeburg, NY 364,498 694,720 2,977,372 -0- South Brunswick, NJ -0- 1,128,000 4,087,400 299,485 Greensboro, NC -0- 327,100 1,853,700 -0- Jackson, MS 373,626 218,000 1,233,500 106,501 Franklin , MA 414,965 566,000 4,148,000 -0- Wichita, KS -0- 268,000 1,518,000 24,245 Urbandale, IO 182,989 310,000 1,758,000 2,736 Richland, MS 207,819 211,000 1,195,000 -0- O'Fallon, MO 1,095,093 264,000 3,302,000 7,000 Fayetteville, NC 2,801,133 172,000 4,467,885 17,360 Schaumburg, IL 2,545,793 1,039,800 3,694,321 -0- Burr Ridge, IL 883,861 270,000 1,236,599 -0- Romulus, MI 2,151,940 531,000 3,653,883 12,078 Liberty, MO 3,637,322 723,000 6,510,546 -0- Omaha, NE 3,236,441 1,170,000 4,425,500 -0- Charlottsville, VA 2,233,032 1,170,000 2,845,000 -0- Jacksonville, FL 3,440,326 1,165,000 4,668,080 3,056 Union City, OH 2,557,450 695,000 3,342,000 808,873 Richmond, VA 4,928,959 1,160,000 6,413,305 3,000 St. Joseph, MO 7,980,478 800,000 11,753,964 -0- Newington, CT 2,235,607 410,000 2,961,000 5,486 Cudahy, WI 3,862,951 980,000 5,050,997 2,618 Beltsville, MD 5,427,127 3,200,000 5,958,773 -0- Granite City, IL 8,770,809 340,000 12,046,675 -0- Monroe, NC 3,753,546 500,000 4,981,022 -0- Winston-Salem, NC 4,607,334 980,000 5,610,000 -0- Elgin, IL 4,735,617 1,280,000 5,529,488 -0- Tolleson, AZ 10,615,499 1,320,000 13,329,000 -0- Ft. Myers, FL 3,131,807 1,910,000 2,499,093 -0- Edwardsville, KS 4,713,277 1,185,000 5,815,148 -0-
__________ _________ __________ __________ $90,909,299 $25,426,214 $140,671,929 $4,082,960 ========== ========= ========== ========== Buildings and improvements reacquired in 1986. **Property was renovated in 2001.
Page 63A
NOTE 15 - SUBSEQUENT EVENTS, (CONT'D.)
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2003
Column A Column E (1) (2)
Gross Amount at Which Carried September 30, 2003
Description Land Bldg & Imp Total ________ ________ __________ ________ Shopping Center Somerset, NJ $ 55,182 $1,152,220 $1,207,402 Industrial Building Ramsey, NJ 52,639 1,358,148 1,410,787 Monaca, PA 330,773 2,086,832 2,417,605 Orangeburg, NY 694,720 2,977,372 3,672,092 South Brunswick, NJ 1,128,000 4,386,885 5,514,885 Greensboro, NC 327,100 1,853,700 2,180,800 Jackson, MS 218,000 1,340,001 1,558,001 Franklin , MA 566,000 4,148,000 4,714,000 Wichita, KS 268,000 1,542,245 1,810,245 Urbandale, IO 310,000 1,760,736 2,070,736 Richland, MS 211,000 1,195,000 1,406,000 O'Fallon, MO 264,000 3,309,000 3,573,000 Fayetteville, NC 172,000 4,485,245 4,657,245 Schaumburg, IL 1,039,800 3,694,321 4,734,121 Burr Ridge, IL 270,000 1,236,599 1,506,599 Romulus, MI 531,000 3,665,961 4,196,961 Liberty, MO 723,000 6,510,546 7,233,546 Omaha, NE 1,170,000 4,425,500 5,595,500 Charlottesville, VA 1,170,000 2,845,000 4,015,000 Jacksonville, FL 1,165,000 4,671,136 5,836,136 Union City, OH 695,000 4,150,873 4,845,873 Richmond, VA 1,160,000 6,416,305 7,576,305 St. Joseph, MO 800,000 11,753,964 12,553,964 Newington, CT 410,000 2,966,486 3,376,486 Cudahy, WI 980,000 5,053,615 6,033,615 Beltsville, MD 3,200,000 5,958,773 9,158,773 Granite City, IL 340,000 12,046,675 12,386,675 Monroe, NC 500,000 4,981,022 5,481,022 Winston-Salem, NC 980,000 5,610,000 6,590,000 Elgin, IL 1,280,000 5,529,488 6,809,488 Tolleson, AZ 1,320,000 13,329,000 14,649,000 Ft. Myers, FL 1,910,000 2,499,093 4,409,093 Edwardsville, KS 1,185,000 5,815,148 7,000,148
_________ _________ _________ 25,426,214 144,754,889 170,181,103 ========== =========== ===========
*Buildings and improvements reacquired in 1986. **Property was renovated in 2001.
Page 63B
NOTE 15 - SUBSEQUENT EVENTS, (CONT'D.)
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2003
Column A Column F Column G Column H Column I
________ ________ ________ ________ _______
Accumulated Date of Deprecia- Construc- Date Depreciable Description tion tion Acquired Life __________ __________ ________ ________ ___________
Shopping Center Somerset, NJ $ 932,992 1970 1970 10-33
Industrial Building Ramsey, NJ 745,203 1969 1969 7-40 Monaca, PA 1,366,207 1977 1977* 5-31.5 Orangeburg, NY 1,028,039 1990 1993 31 South Brunswick, NJ 1,444,378 1974 1993 31.5 Greensboro, NC 615,757 1988 1993 31.5 Jackson, MS 404,543 1988 1993 39 Franklin , MA 1,010,371 1991 1994 39 Witchita, KS 371,121 1995 1994 39 Urbandale, IO 428,283 1985 1994 39 Richland, MS 291,095 1986 1994 39 O'Fallon, MO 719,686 1989 1994 39 Fayetteville, NC 745,055 1996 1997 39 Schaumburg, IL 615,699 1997 1997 39 Burr Ridge, IL 174,338 1997 1997 39 Romulus, MI 518,850 1998 1998 39 Liberty, MO 918,074 1997 1998 39 Omaha, NE 510,61 1999 1999 39 Charlottesville, VA 328,266 1998 1999 39 Jacksonville, FL 539,208 1998 1999 39 Union City, OH 299,977 1999 2000 39 Richmond, VA 412,291 2000 2001 39 St. Joseph, MO 753,422 2000 2001 39 Newington, CT 189,804 2001 2001 39 Cudahy, WI 323,903 2000 2001 39 Beltsville, MD 381,959 2000 2001 39 Granite City, IL 463,412 2001 2001 39 Monroe, NC 191,570 2001 2001 39 Winston-Salem, NC 215,760 2001 2002 39 Elgin, IL 212,664 2002 2002 39 Tolleson, AZ 170,874 2002 2002 39 Ft. Myers, FL 32,040 1974** 2002 39 Edwardsville, KS 74,535 2002 2003 39
__________ $ 17,429,990 ========== *Buildings and improvements reacquired in 1986. **Property was renovated in 2001.
Page 63C
MONMOUTH REAL ESTATE INVESTMENT CORPORATION SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION, (CONT'D.)
(1) Reconciliation
REAL ESTATE INVESTMENTS
9/30/03 9/30/02 9/30/01
Balance-Beginning of Year $ 142,957,878 $ 113,971,563 $ 74,996,066 Additions: Acquisitions 26,058,241 31,274,685 38,688,039
Improvements 1,164,984 246,230 287,458
__________ __________ __________ Total Additions 27,223,225 31,520,915 38,975,497 __________ __________ __________ Sales -0- (2,534,600) -0- __________ __________ __________
Balance-End of $ 170,181,103 $ 142,957,878 $ 113,971,563 Year =========== =========== ===========
ACCUMULATED DEPRECIATION
9/30/03 9/30/02 9/30/01
Balance-Beginning of Year $ 13,869,844 $ 11,268,700 $ 9,102,373 Depreciation 3,560,146 2,941,097 2,166,327
Sales -0- (339,954) -0- __________ __________ __________
Balance-End of $ 17,429,990 $ 13,869,844 $ 11,268,700 Year ========== ========== ==========
MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO SCHEDULE III SEPTEMBER 30, (1) Reconciliation 2003 2002 2001
Balance - Beginning of Year 142,957,878 $ 113,971,563 $ 74,996,066 __________ __________ __________ Additions: Ramsey, NJ -0- 3,997 178,937 Somerset, NJ 3,314 30,488 -0- Monaca, PA 5,450 154,154 84,543 Orangeburg, NY -0- -0- -0- South Brunswick, NJ 196,287 45,237 11,900 Greensboro, NC -0- -0- -0- Jackson, MS 105,415 -0- -0- Franklin, MA -0- -0- -0- Wichita, KA 24,245 -0- -0- Urbandale, IA -0- 2,736 -0- Richland, MS -0- -0- -0- O'Fallon, MO -0- 7,000 -0- Fayetteville, NC 17,360 -0- -0- Schaumburg, IL -0- -0- -0- Burr Ridge, IL -0- -0- -0- Romulus, MI -0- -0- 12,078 Liberty, MO -0- -0- -0- Omaha, NE -0- -0- -0- Charlottesville, VA -0- -0- -0- Jacksonville, FL 3,056 -0- -0- Union Township, OH 808,873 -0- -0- Richmond, VA 3,000 -0- 7,573,305 St. Joseph, MO -0- -0- 12,553,964 Newington, CT 5,486 -0- 3,371,000 Cudahy, WI -0- 2,618 6,030,997 Beltsville, MD -0- -0- 9,158,773 Granite City, IL (7,502) 12,394,175 -0- Monroe, NC 5,481,022 -0- Winston Salem, NC -0- 6,590,000 -0- Elgin, IL -0- 6,809,488 -0- Tolleson, AZ 14,649,000 -0- -0- Ft. Myers, FL 4,409,093 -0- -0- Edwardsville, KS 7,000,148 -0- -0- __________ __________ __________
Total Additions 27,223,225 31,520,915 38,975,497 Sales: __________ __________ __________ Virginia Beach, VA -0- (2,534,600) -0- __________ __________ __________
Balance - End of Year $ 170,181,103 $142,957,878 $113,971,563 ========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates historical cost.
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 19, 2003 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 19, 2003 By: /s/ Eugent W. Landy Eugene W. Landy, President
Date: December 19, 2003 By: /s/ Ernest V. Bencivenga Ernest V. Bencivenga, Treasurer and Director
Date: December 19, 2003 By: /s/ Anna T. Chew Anna T. Chew, Chief Financial Officer
Date: December 19, 2003 By: /s/ Daniel D. Cronheim Daniel D. Cronheim, Director
Date: December 19, 2003 By: /s/ Matthew I. Hirsch Matthew I. Hirsch, Director
Date: December 19, 2003 By: /s/ Charles P. Kaempffer Charles P. Kaempffer, Director
Date: December 19, 2003 By: /s/ Samuel A. Landy Samuel A. Landy, Director
Date: December 19, 2003 By: /s/ Cynthia J. Morgenstern Cynthia J. Morgenstern, Executive Vice President and Director
Date: December 19, 2003 By: /s/ John R. Sampson John R. Sampson, Director
Date: December 19, 2003 By: /s/ Peter J. Weidhorn Peter J. Weidhorn, Director
Date: December 19, 2003 By: /s/ Stephen B. Wolgin Stephen B. Wolgin, Director