UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 20172018

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ___________

 

Commission File Number:001-33177

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland 22-1897375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)

 

Juniper Business Plaza, 3499 Route 9 North, Suite 3-D, Freehold, NJ NJ 07728
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code(732) 577-9996

 

 

 (Former(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer [X] Accelerated filer [  ]
Non-accelerated filer [  ](Do   (Do not check if smaller reporting company)Smaller Reporting Company [  ]
Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes[Yes [  ] No [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of August 1, 2017: 74,338,1012018: 80,455,217

 

 

 

Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION

AND SUBSIDIARIES

FOR THE QUARTER ENDED JUNE 30, 20172018

 

C O N T E N T SCONTENTS

 

  Page No
   
PART IFINANCIAL INFORMATION 
   
Item 1 -Financial Statements (Unaudited): 
 Consolidated Balance Sheets3
 Consolidated Statements of Income5
 Consolidated Statements of Comprehensive Income7
 Consolidated Statements of Cash Flows8
 Notes to Consolidated Financial Statements9
   
Item 2 -Management’s Discussion and Analysis of Financial Condition and Results of Operations.2322
   
Item 3 -Quantitative and Qualitative Disclosures About Market Risk.34
Item 4 -Controls and Procedures.34
PART II -OTHER INFORMATION
Item 1 -Legal Proceedings.35
Item 1A -Risk Factors.35
Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds.35
Item 3 -Defaults Upon Senior Securities.35
   
Item 4 -Controls and Procedures.35
PART II -OTHER INFORMATION
Item 1 -Legal Proceedings.36
Item 1A -Risk Factors.36
Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds.36
Item 3 -Defaults Upon Senior Securities.36
Item 4 -Mine Safety Disclosures.3635
   
Item 5 -Other Information.3635
   
Item 6 -Exhibits.3635
   
SIGNATURES3736

 

2 
Table of Contents 

 

PART I:

FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 20172018 AND SEPTEMBER 30, 20162017

 

 

June 30,

2017

 

September 30,

2016

  June 30, 2018 (Unaudited) September 30, 2017
 (Unaudited)       
ASSETS            
        
Real Estate Investments:                
Land $184,998,116  $165,375,315  $203,651,326  $187,224,819 
Buildings and Improvements  1,188,576,632   1,005,938,180   1,402,366,135   1,244,691,715 
Total Real Estate Investments  1,373,574,748   1,171,313,495   1,606,017,461   1,431,916,534 
Accumulated Depreciation  (169,226,861)  (148,830,169)  (197,433,826)  (171,060,478)
Real Estate Investments  1,204,347,887   1,022,483,326   1,408,583,635   1,260,856,056 
                
Real Estate Held for Sale  -0-   14,606,028 
Cash and Cash Equivalents  11,749,997   95,749,508   6,892,242   10,226,046 
Securities Available for Sale at Fair Value  100,495,810   73,604,894   167,594,279   123,764,770 
Tenant and Other Receivables  1,148,114   1,444,824   845,043   1,753,054 
Deferred Rent Receivable  7,739,322   6,917,431   9,203,719   8,049,275 
Prepaid Expenses  7,358,734   4,830,987   7,071,943   5,434,874 
Capitalized Lease Costs, net of Accumulated Amortization of $3,727,227 and $3,238,516, respectively  4,137,743   4,165,268 
Intangible Assets, net of Accumulated Amortization of $13,103,744 and $12,332,599, respectively  8,608,879   5,816,153 
Financing Costs, net of Accumulated Amortization of $525,660 and $246,678, respectively  969,603   1,245,923 
Intangible Assets, net of Accumulated Amortization of $13,244,102 and $13,404,318, respectively  13,364,966   10,010,165 
Capitalized Lease Costs, net of Accumulated Amortization of $3,050,738 and $3,393,187, respectively  4,434,124   4,180,907 
Financing Costs, net of Accumulated Amortization of $901,240 and $619,555, respectively  594,024   875,709 
Other Assets  5,061,923   7,227,571   5,896,592   3,280,871 
                
TOTAL ASSETS $1,351,618,012  $1,223,485,885  $1,624,480,567  $1,443,037,755 

 

See Accompanying Notes to the Consolidated Financial Statements

 

3 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – CONTINUED

AS OF JUNE 30, 20172018 AND SEPTEMBER 30, 20162017

 

 

June 30,
2017

 

September 30, 2016

  

June 30, 2018

(Unaudited)

 

 

September 30, 2017

 (Unaudited)       
LIABILITIES AND SHAREHOLDERS’ EQUITY            
        
Liabilities:                
Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs $554,486,956  $477,476,010  $657,083,249  $591,364,371 
Loans Payable  122,094,940   80,790,684   157,792,824   120,091,417 
Accounts Payable and Accrued Expenses  2,853,438   3,998,771   3,025,832   4,450,753 
Other Liabilities  13,936,503   9,868,572   17,665,160   14,265,518 
Preferred Stock Called for Redemption  -0-   53,493,750 
Total Liabilities  693,371,837   625,627,787   835,567,065   730,172,059 
                
COMMITMENTS AND CONTINGENCIES                
                
Shareholders’ Equity:                
7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 Par Value Per Share: -0- and 2,300,000 Shares Authorized, Issued and Outstanding as of June 30, 2017 and September 30, 2016, respectively  -0-   57,500,000 
6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 Par Value Per Share: 12,400,000 and 5,400,000 Shares Authorized as of June 30, 2017 and September 30, 2016, respectively; 8,400,000 and 5,400,000 Shares Issued and Outstanding as of June 30, 2017 and September 30, 2016, respectively  210,000,000   135,000,000 
Common Stock, $0.01 Par Value Per Share: 192,039,750 and 194,600,000 Shares Authorized as of June 30, 2017 and September 30, 2016, respectively; 73,824,161 and 68,920,972 Shares Issued and Outstanding as of June 30, 2017 and September 30, 2016, respectively  738,242   689,210 
Excess Stock, $0.01 Par Value Per Share: 200,000,000 Shares Authorized as of June 30, 2017 and September 30, 2016; No Shares Issued or Outstanding as of June 30, 2017 and September 30, 2016  -0-   -0- 
6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 Par Value Per Share: 12,400,000 Shares Authorized as of June 30, 2018 and September 30, 2017; 11,099,461 and 9,839,445 Shares Issued and Outstanding as of June 30, 2018 and September 30, 2017, respectively  277,486,525   245,986,125 
Common Stock, $0.01 Par Value Per Share: 192,039,750 Shares Authorized as of June 30, 2018 and September 30, 2017; 80,137,070 and 75,630,521 Shares Issued and Outstanding as of June 30, 2018 and September 30, 2017, respectively  801,371   756,305 
Excess Stock, $0.01 Par Value Per Share: 200,000,000 Shares Authorized as of June 30, 2018 and September 30, 2017; No Shares Issued or Outstanding as of June 30, 2018 and September 30, 2017  -0-   -0- 
Additional Paid-In Capital  438,742,799   391,726,621   518,994,574   459,552,701 
Accumulated Other Comprehensive Income  8,765,134   12,942,267 
Accumulated Other Comprehensive Income (Loss)  (8,368,968)  6,570,565 
Undistributed Income  -0-   -0-   -0-   -0- 
Total Shareholders’ Equity  658,246,175   597,858,098   788,913,502   712,865,696 
                
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY $1,351,618,012  $1,223,485,885  $1,624,480,567  $1,443,037,755 

 

See Accompanying Notes to the Consolidated Financial Statements

 

4 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 20172018 AND 20162017

 

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 6/30/2017  6/30/2016  6/30/2017  6/30/2016  6/30/2018  6/30/2017  6/30/2018  6/30/2017 
INCOME:                                
Rental Revenue $24,400,237  $20,789,914  $71,291,923  $59,465,701  $29,256,147  $24,400,237  $85,558,614  $71,291,923 
Reimbursement Revenue  4,208,859   3,324,085   11,806,975   9,874,498   6,941,678   4,208,859   17,002,541   11,806,975 
Lease Termination Income  -0-   -0-   210,261   -0- 
TOTAL INCOME  28,609,096   24,113,999   83,098,898   69,340,199   36,197,825   28,609,096   102,771,416   83,098,898 
                                
EXPENSES:                                
Real Estate Taxes  3,520,322   2,633,706   9,279,165   7,681,519   5,950,262   3,520,322   13,592,573   9,279,165 
Operating Expenses  1,053,253   981,766   3,635,986   3,316,489   1,458,618   1,053,253   4,371,154   3,635,986 
General & Administrative Expenses  1,786,852   1,542,432   5,307,853   5,099,841   1,887,722   1,786,852   6,052,791   5,307,853 
Acquisition Costs  -0-   135,358   178,526   545,955   -0-   -0-   -0-   178,526 
Depreciation  7,318,258   6,096,880   21,449,830   17,478,374   9,162,563   7,318,258   26,504,609   21,449,830 
Amortization of Capitalized Lease Costs and Intangible Assets  451,823   445,404   1,327,376   1,418,375   613,927   451,823   1,740,620   1,327,376 
TOTAL EXPENSES  14,130,508   11,835,546   41,178,736   35,540,553   19,073,092   14,130,508   52,261,747   41,178,736 
                                
OTHER INCOME (EXPENSE):                                
Dividend and Interest Income  1,899,320   1,486,134   4,630,653   4,050,455   3,627,984   1,899,320   9,380,411   4,630,653 
Gain on Sale of Securities Transactions  1,487,836   272,067   2,293,944   1,159,409   -0-   1,487,836   111,387   2,293,944 

Interest Expense, including Amortization of Financing Costs

  (6,135,381)  (5,805,359)  (18,835,864)  (16,707,613)  (8,279,324)  (6,135,381)  (23,640,556)  (18,835,864)
TOTAL OTHER INCOME (EXPENSE)  (2,748,225)  (4,047,158)  (11,911,267)  (11,497,749)  (4,651,340)  (2,748,225)  (14,148,758)  (11,911,267)
                                
INCOME FROM CONTINUING OPERATIONS  12,473,393   11,730,363   36,360,911   30,008,895 
                
Gain on Sale of Real Estate Investments  2,097,380   -0-   7,485,266   -0- 
                
NET INCOME  11,730,363   8,231,295   30,008,895   22,301,897   14,570,773   11,730,363   43,846,177   30,008,895 
                                
Less: Preferred Dividends  4,045,787   2,151,758   11,325,583   6,455,274   4,248,029   4,045,787   12,813,194   11,325,583 
Less: Redemption of Preferred Stock  2,467,165   -0-   2,467,165   -0-   -0-   2,467,165   -0-   2,467,165 
                                

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 $5,217,411  $6,079,537  $16,216,147  $15,846,623  $10,322,744  $5,217,411  $31,032,983  $16,216,147 

 

See Accompanying Notes to Consolidated Financial Statements

 

5 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - CONTINUED

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 20172018 AND 2016 - CONTINUED2017

 

  Three Months Ended  Nine Months Ended 
  6/30/2017  6/30/2016  6/30/2017  6/30/2016 
             
BASIC INCOME – PER SHARE                
Net Income $0.16  $0.12  $0.42  $0.35 
Less: Preferred Dividends  (0.06)  (0.03)  (0.16)  (0.10)
Less: Redemption of Preferred Stock  (0.03)  -0-   (0.03)  -0- 
Net Income Attributable to Common Shareholders - Basic $0.07  $0.09  $0.23  $0.25 
                 
DILUTED INCOME – PER SHARE                
Net Income $0.16  $0.12  $0.42  $0.34 
Less: Preferred Dividends  (0.06)  (0.03)  (0.16)  (0.10)
Less: Redemption of Preferred Stock  (0.03)  -0-   (0.03)  -0- 
Net Income Attributable to Common Shareholders - Diluted $0.07  $0.09  $0.23  $0.24 
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                
Basic  72,881,974   66,337,101   71,264,806   64,613,953 
Diluted  73,053,693   66,462,209   71,422,664   64,703,203 

  Three Months Ended Nine Months Ended
  6/30/2018 6/30/2017 6/30/2018 6/30/2017
         
BASIC INCOME – PER SHARE                
Net Income $0.18  $0.16  $0.56  $0.42 
Less: Preferred Dividends  (0.05)  (0.06)  (0.16)  (0.16)
Less: Redemption of Preferred Stock  -0-   (0.03)  -0-   (0.03)
Net Income Attributable to Common Shareholders - Basic $0.13  $0.07  $0.40  $0.23 
                 
DILUTED INCOME – PER SHARE                
Net Income $0.18  $0.16  $0.56  $0.42 
Less: Preferred Dividends  (0.05)  (0.06)  (0.16)  (0.16)
Less: Redemption of Preferred Stock  -0-   (0.03)  -0-   (0.03)
Net Income Attributable to Common Shareholders - Diluted $0.13  $0.07  $0.40  $0.23 
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                
Basic  79,413,556   72,881,974   77,921,066   71,264,806 
Diluted  79,571,767   73,053,693   78,098,849   71,422,664 

 

See Accompanying Notes to Consolidated Financial Statements

 

6 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 20172018 AND 20162017

 

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 6/30/2017 6/30/2016 6/30/2017 6/30/2016  6/30/2018  6/30/2017  6/30/2018  6/30/2017 
                  
Net Income $11,730,363 $8,231,295 $30,008,895 $22,301,897  $14,570,773  $11,730,363  $43,846,177  $30,008,895 
Other Comprehensive Income:                         
Unrealized Holding Gains (Losses) Arising During the Period  (2,117,319)  10,100,681  (1,883,189)  18,489,989   22,755,685   (2,117,319)  (14,828,146)  (1,883,189)
Reclassification Adjustment for Net Gains Realized in Income   (1,487,836)   (272,067)   (2,293,944)   (1,159,409)  -0-   (1,487,836)  (111,387)  (2,293,944)
TOTAL COMPREHENSIVE INCOME 8,125,208 18,059,909 25,831,762 39,632,477   37,326,458   8,125,208   28,906,644   25,831,762 
                
Less: Preferred Dividends 4,045,787 2,151,758 11,325,583 6,455,274   4,248,029   4,045,787   12,813,194   11,325,583 
Less: Redemption of Preferred Stock  2,467,165  -0-  2,467,165  -0-   -0-   2,467,165   -0-   2,467,165 

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 $1,612,256 $15,908,151 $12,039,014 $33,177,203  $33,078,429  $1,612,256  $16,093,450  $12,039,014 

 

See Accompanying Notes to Consolidated Financial Statements

 

7 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED JUNE 30, 20172018 AND 20162017

 

 Nine Months Ended  Nine Months Ended 
 6/30/2017  6/30/2016  6/30/2018  6/30/2017 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net Income $30,008,895  $22,301,897  $43,846,177  $30,008,895 
Noncash Items Included in Net Income:                
Depreciation & Amortization  23,726,676   19,610,250   29,156,206   23,726,676 
Deferred Straight Line Rent  (1,357,145)  (924,792)
Stock Compensation Expense  441,054   306,688   339,139   441,054 
Gain on Sale of Securities Transactions  (2,293,944)  (1,159,409)  (111,387)  (2,293,944)
Loss on Sale of Real Estate Investment  95,336   -0- 
(Gain) / Loss on Sale of Real Estate Investments  (7,485,266)  95,336 
Changes In:                
Tenant, Deferred Rent and Other Receivables  12,479   (1,235,976)
Tenant & Other Receivables  1,775,444   937,271 
Prepaid Expenses  (2,527,747)  (1,859,791)  (1,637,069)  (2,527,747)
Other Assets and Capitalized Lease Costs  71,446   (2,293,188)
Accounts Payable, Accrued Expenses and Other Liabilities  656,824   7,676,175 
Other Assets & Capitalized Lease Costs  (2,173,910)  71,446 
Accounts Payable, Accrued Expenses & Other Liabilities  741,801   656,824 
NET CASH PROVIDED BY OPERATING ACTIVITIES  50,191,019   43,346,646   63,093,990   50,191,019 
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of Real Estate and Intangible Assets  (208,390,539)  (141,230,341)
Purchase of Real Estate & Intangible Assets  (174,919,132)  (208,390,539)
Capital Improvements  (1,208,390)  (19,517,185)  (4,541,705)  (1,208,390)
Proceeds on Sale of Real Estate  4,125,819   -0- 
Proceeds from Sale of Real Estate Investments  22,083,340   4,125,819 
Return of Deposits on Real Estate  2,700,000   1,650,000   450,000   2,700,000 
Deposits Paid on Acquisitions of Real Estate  (1,280,000)  (1,100,000)  (700,000)  (1,280,000)
Proceeds from Sale of Securities Available for Sale  10,693,212   8,165,701   2,619,949   10,693,212 
Purchase of Securities Available for Sale  (39,467,317)  (17,772,994)  (61,277,604)  (39,467,317)
NET CASH USED IN INVESTING ACTIVITIES  (232,827,215)  (169,804,819)  (216,285,152)  (232,827,215)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Net Proceeds from Loans Payable  41,304,256   40,812,783 
Net Draws on Loans Payable  37,701,407   41,304,256 
Proceeds from Fixed Rate Mortgage Notes Payable  137,925,000   92,971,000   105,600,000   137,925,000 
Principal Payments on Fixed Rate Mortgage Notes Payable  (59,936,689)  (26,609,348)  (39,444,104)  (59,936,689)
Financing Costs Paid on Debt  (1,650,516)  (1,204,207)  (1,066,310)  (1,650,516)
Proceeds from the Exercise of Stock Options  -0-   1,412,050   569,600   -0- 
Redemption of 7.625% Series A Preferred Stock  (53,493,750)  -0-   -0-   (53,493,750)
Redemption of 7.875% Series B Preferred Stock  (57,500,000)  -0-   -0-   (57,500,000)
Proceeds from Underwritten Public Offering of 6.125% Series C Preferred Stock, net of offering costs  71,003,093   -0- 
Proceeds from Underwritten Public Offering of Preferred Stock, net of offering costs  -0-   71,003,093 
Proceeds from At-The-Market Preferred Equity Program, net of offering costs  30,991,952   -0- 
Proceeds from Issuance of Common Stock in the DRIP, net of Dividend Reinvestments  59,111,167   45,132,315   58,428,746   59,111,167 
Preferred Dividends Paid  (11,044,489)  (6,455,274)  (12,548,850)  (11,044,489)
Common Dividends Paid, net of Reinvestments  (27,081,387)  (24,788,097)  (30,375,083)  (27,081,387)
NET CASH PROVIDED BY FINANCING ACTIVITIES  98,636,685   121,271,222   149,857,358   98,636,685 
                
NET DECREASE IN CASH AND CASH EQUIVALENTS  (83,999,511)  (5,186,951)  (3,333,804)  (83,999,511)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD  95,749,508   12,073,909   10,226,046   95,749,508 
CASH AND CASH EQUIVALENTS - END OF PERIOD $11,749,997  $6,886,958  $6,892,242  $11,749,997 

 

See Accompanying Notes to Consolidated Financial Statements

 

8 
Table of Contents 

 

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 20172018

 

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

 

Monmouth Real Estate Investment Corporation, a Maryland corporation, together with its consolidated subsidiaries (MREIC,(we, our, us, the Company or we)MREIC), operates as a real estate investment trust (REIT) deriving its income primarily from real estate rental operations. We were founded in 1968 and are one of the oldest public equity REITs in the world. As of June 30, 2017, the Company2018, we owned 105109 properties with total square footage of approximately 17,917,000,20,535,000, which was 99.8%99.6% occupied, as compared to 99108 properties with total square footage of approximately 16,010,000,18,790,000, which was 99.6%99.3% occupied as of September 30, 2016.2017. These properties are located in 30 states: Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin. The CompanyAs of the quarter ended June 30, 2018, our weighted average lease maturity was approximately 7.8 years and our annualized average base rent per occupied square foot was $5.89. As of June 30, 2018, the weighted average building age, based on the square footage of our buildings, was 8.8 years. We also ownsown a portfolio of REIT investment securities, which the Companywe generally limitslimit to no more than approximately 10% of itsour undepreciated assets (which is the Company’sour total assets, excluding accumulated depreciation). Total assets excluding accumulated depreciation were $1,821,914,393 as of June 30, 2018. We held $167,594,279 in marketable REIT securities as of June 30, 2018, representing 9.2% of our undepreciated assets.

 

The Company hasWe have elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the Code), and intendswe intend to maintain itsour qualification as a REIT in the future. As a qualified REIT, with limited exceptions, the Companywe will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that it distributeswe distribute to itsour shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. The Company isWe are subject to franchise taxes in several of the states in which we own properties.

In December 2017, the Company owns property.Tax Cuts and Jobs Act of 2017 (the Act), Code Section 199A, was added to the Code and became effective for tax years beginning after December 31, 2017 and before January 1, 2026. Under the Act, subject to certain income limitations, individual taxpayers may deduct 20% of the aggregate amount of qualified REIT dividends they receive from their taxable income. Qualified REIT dividends do not include any portion of a dividend received from a REIT that is classified as a capital gain dividend.

 

The interim Consolidated Financial Statements furnished herein have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) applicable to interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In theour opinion, of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 20172018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2017.2018. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’sour annual report on Form 10-K for the fiscal year ended September 30, 2016.2017.

 

Use of Estimates

 

In preparing the financial statements in accordance with U.S. GAAP, management iswe are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates and assumptions.

9
Table of Contents

 

Reclassification

 

Certain prior period amounts in the accompanying Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

 

Lease Termination Income

 

Lease Termination Income is recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with the Company.us.

 

Table of Contents

Two leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility located in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg informed us that they would not be renewing these leases. On December 18, 2017, we sold our property, located in Kansas City, MO for $4,900,000, with net sale proceeds of approximately $4,602,000 and on December 22, 2017, we sold our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds of approximately $5,898,000. The sale of these two properties resulted in a realized gain of approximately $5,388,000, representing a 105% gain over the depreciated U.S. GAAP basis and a realized net gain of approximately $1,804,000, representing a 21% net gain over our historic undepreciated cost basis. In conjunction with the sale of these two properties, we simultaneously entered into a lease termination agreement for each property whereby we received a termination fee from Kellogg totaling approximately $210,000 which represents a weighted average of 80% of the then remaining rent due under each respective lease.

 

Of the Company’s 105Only four of our 109 properties only fourhave leases that contain an early termination provision. The Company’sThese four properties contain approximately 184,000 total rentable square feet, representing less than 1% of our total rentable square feet. Our leases with early termination provisions are theour 26,340 square foot location in Ridgeland (Jackson), MS, the 38,333our 36,270 square foot location in Urbandale (Des Moines), IA, our 38,833 square foot location in Rockford, IL, theand our 83,000 square foot location in Roanoke, VA and the 102,135 square foot location in O’Fallon (St. Louis), MO.VA. Each lease termination provision contains certain requirements that must be met in order to exercise each termination provision. These requirements include;include: the date termination can be exercised, the time frame that notice must be given by the tenant to the Companyus and the termination fee that would be required to be paid by the tenant to the Company.us. The total potential termination fee to be paid to the Companyus from the four tenants with leases withthat have a termination provisionsprovision amounts to approximately $1,709,000.$1,681,000.

 

Stock Compensation Plan

 

The Company’s original Stock Option and Stock Award Plan (the 2007 Plan) was initially adopted in 2007 upon approval by the Company’s shareholders on July 26, 2007. The 2007 Plan was amended and restated and approved by the Company’s shareholders on May 6, 2010. The 2007 Plan authorized the grant to officers and key employees of options to purchase up to 1,500,000 shares of common stock, $0.01 par value per share (common stock), including up to 100,000 shares of restricted stock awarded to any one participant in any one fiscal year. On March 13, 2017, upon recommendation of the Compensation Committee of the Board, the Board approved the Amended and Restated 2007 Incentive Award Plan (the Plan), conditioned upon shareholder approval. At the Company’s Annual Meeting held on May 18, 2017, the Company’s common shareholders approved the Plan and the Company subsequently filed a Registration Statement covering the offering and issuance of awards under the Plan with the Securities and Exchange Commission on July 11, 2017. The Plan constitutes an amendment and restatement of the 2007 Plan, extends the term of the 2007 Plan for an additional ten years, adds 1,600,000 shares of common stock to the share reserve, expands the types of awards available for grant under the Plan and makes other improvements to the 2007 Plan.

The Company accountsWe account for awards of stock options and restricted stock in accordance with ASC 718-10, “Compensation-Stock Compensation”. ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. The compensation expense for restricted stock is recognized based on the fair value of the restricted stock awards less estimated forfeitures. The fair value of restricted stock awards is equal to the fair value of the Company’sour stock on the grant date. The amortization of compensation costs for stock option grants and restricted stock are included in General and Administrative Expenses in the accompanying Consolidated Statements of Income and amounted to $174,709$96,969 and $99,760$174,709 for the three months ended June 30, 20172018 and 2016,2017, respectively and amounted to $441,054$339,139 and $306,688$441,054 for the nine months ended June 30, 2018 and 2017, and 2016, respectively.

10
Table of Contents

 

During the nine months ended June 30, 20172018 and 2016,2017, the following stock options, which vest one year after grant date, were granted under the Company’s 2007our Stock Option Plan:

 

Date of

Grant

  

Number of

Employees

  

Number of

Shares

  

Option

Price

  

Expiration

Date

             
 1/4/17   1   65,000  $15.04  1/4/25
 12/9/16   10   215,000  $14.24  12/9/24
 1/5/16   1   65,000  $10.37  1/5/24

Date of

Grant

 Number of Employees  

Number of

Shares

  Option
Price
  

Expiration

Date

            
1/3/18  1   65,000  $17.80  1/3/26
1/4/17  1   65,000  $15.04  1/4/25
12/9/16  10   215,000  $14.24  12/9/24

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the fiscal year indicated:

 

  Fiscal 2017  Fiscal 2016 
Dividend yield  4.44%  6.17%
Expected volatility  18.84%  20.20%
Risk-free interest rate  2.26%  2.09%
Expected lives (years)  8   8 
Estimated forfeitures  -0-   -0- 

10 
Table of Contents

  Fiscal 2018  Fiscal 2017 
Dividend yield  3.82%  4.44%
Expected volatility  16.45%  18.84%
Risk-free interest rate  2.37%  2.26%
Expected lives (years)  8   8 
Estimated forfeitures  -0-   -0- 

 

The weighted-average fair value of options granted during the nine months ended June 30, 2018 and 2017 was $1.84 and 2016 was $1.49 and $0.74 per option, respectively.

 

During the nine months ended June 30, 2018 and 2017, 12,500 and 2016, no-0- shares of restricted stock were granted and during the nine months ended June 30, 2016, one participant forfeited 3,232 shares of restricted stock under the 2007 Plan.granted. During the nine months ended June 30, 2016, five2018, three participants exercised options awarded under the 2007 Plan to purchase an aggregate of 180,00040,000 shares of common stock at a weighted average exercise price of $7.84$14.24 per share for total proceeds of $1,412,050.$569,600. During the nine months ended June 30, 2017, no options were exercised. As of June 30, 2017,2018, a total of 1,764,8781,672,782 shares were available for grant as stock options, as restricted stock, or other equity based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised, andexercised. As of June 30, 2018, there were outstanding options to purchase 735,000 shares. The695,000 shares with an aggregate intrinsic value of options outstanding as of June 30, 2017 was $2,719,550.$3,110,600.

 

Recent Accounting Pronouncements

 

In January 2017,February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (ASU 2017-01). ASU 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or should be accounted for as an asset acquisition, likely resulting in more acquisitions being accounted for as asset acquisitions as opposed to business combinations. Transaction costs are capitalized for asset acquisitions while they are expensed as incurred for business combinations. ASU 2017-01 requires that, when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset or group of similar identifiable assets does not meet the definition of a business. ASU 2017-01 also revises the definition of a business to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output. ASU 2017-01 will be effective, on a prospective basis, for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. We adopted ASU 2017-01 prospectively as of April 1, 2017, as permitted under the standard. As a result of the implementation of this update, our property acquisitions, which under previous guidance were accounted for as business combinations, are now accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under accounting for business combinations. For the period April 1, 2017 through June 30, 2017, the Company acquired five properties, for each of which it was concluded that substantially all of the fair value of the assets acquired with each property acquisition was concentrated in a single identifiable asset and did not meet the definition of a business combination under ASU 2017-01. Therefore, acquisition transaction costs associated with these property acquisitions were capitalized to real estate investments as part of the purchase price.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements and the timing of adoption.

In March 2016, the FASB issued ASU 2016-09 “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting”, which relates to the accounting for employee share-based payments. ASU 2016-09 addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the potential impact this standard may have on the consolidated financial statements and the timing of adoption.

11 
Table of Contents

In February 2016, the FASB issued ASU 2016-02, “Leases”. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluatingWe are continuing to evaluate the potential impact this standard may have on theour consolidated financial statements and the timing of adoption. The most significant changes related to lessor accounting under ASU 2016-02 include bifurcating revenue into lease and non-lease components and the new standard’s narrow definition of initial direct costs for leases. Since our revenue is primarily derived from leasing activities from long-term net leases and since we currently do not capitalize indirect costs for leases, we believe that we will continue to account for our leases and related leasing costs in substantially the same manner as we currently do once the adoption of the ASU 2016-02 becomes effective.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for the Company’sour fiscal year beginning October 1, 2018. The CompanyWe anticipate that the most significant change for us, once ASU 2016-01 is adopted, will be the accounting for our investments in marketable securities classified as available for sale, which are currently in the process of evaluating the impact of the adoption on its consolidated financial statementscarried at fair value with unrealized holding gains and has not determined the effects of this update on the Company’s financial position, results of operations or cash flowslosses being excluded from earnings and disclosures at this time.

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheetreported as a direct deduction fromseparate component of Shareholders’ Equity until realized and the carrying amount of the debt liability. In August 2015, the FASB issuedchange in net unrealized holding gains and losses being reflected as comprehensive income (loss). Under ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (Subtopic 835-30), which clarified that debt issuance costs related to line-of-credit arrangements may be presented as an asset and amortized over the term of the line-of-credit arrangement regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted2016-01, these standards effective October 1, 2016. As a result, debt issuance costs related to debt liabilities that are not line-of-credit arrangements are included as a direct deduction from the related debt liability and those related to line-of-credit arrangementsmarketable securities will continue to be included as an asset onmeasured at fair value, however the accompanying Consolidated Balance Sheets. The effects of this standard were applied retrospectively to all prior periods presented. The effect of the changechanges in accounting principle was the reduction in the amount of $6,272,143 of the Fixed Rate Mortgage Notes Payable liabilitynet unrealized holding gains and a corresponding reduction of the Financing Costs asset as of September 30, 2016 and a reclassification of Amortization of Financing Costs of $240,463 and $713,501 for the three and nine months ended June 30, 2016, respectively to Interest Expense,losses will be recognized through net of Amortization of Financing Costs in our Consolidated Statement of Income.income.

11
Table of Contents

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers”. The FASB issued further guidance in ASU 2016-12, Revenue“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,Expedients”, that provides clarifying guidance in certain narrow areas and adds some practical expedients. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The effective date of ASU 2014-09 was extended by one year by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The new standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. Therefore, the Company expectswe expect to adopt the standard effective October 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method, and the Company iswe are evaluating which transition method itwe will elect. The Company isWe are also in the process of evaluating the effect that ASU 2014-09 will have on itsour consolidated financial statements and related disclosures. The Company doesOur revenue is primarily derived from leasing activities and historically our property dispositions have been cash sales with no contingencies and no future involvement in the property. Since this standard applies to all contracts with customers except those that are within the scope of other guidance, such as leases, we do not expect the adoption of this standard to have a significant impact on itsour consolidated financial statements and related disclosures.

 

Management doesWe do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements.

 

12 
Table of Contents

Segment Reporting & Financial Information

 

The Company’sOur primary business is the ownership and management of real estate properties. The Company seeks toWe invest in well-located, modern, single-tenant,single tenant, industrial buildings leased primarily to investment gradeinvestment-grade tenants or their subsidiaries on long-term net leases. The Company reviewsWe review operating and financial information for each property on an individual basis and, therefore, each property represents an individual operating segment. The Company evaluatesWe evaluate financial performance using Net Operating Income (NOI) from property operations. NOI is defineda non-GAAP financial measure, which we define as recurring Rental and Reimbursement Revenue, less Real Estate Taxes and Operating Expenses, such as insurance, utilities and repairs and maintenance. The Company hasWe have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated as industrial properties subject to long-term net leases primarily to investment gradeinvestment-grade tenants or their subsidiaries.

 

NOTE 2 – NET INCOME PER SHARE

 

Basic Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted-average number of common shares outstanding during the period. Diluted Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted-average number of common shares outstanding plus the weighted-average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method.

 

In addition, common stock equivalents of 171,719158,211 and 125,108171,719 shares are included in the diluted weighted-averageweighted average shares outstanding for the three months ended June 30, 20172018 and 2016,2017, respectively, and common stock equivalents of 157,858177,783 and 89,250157,858 shares are included in the diluted weighted-averageweighted average shares outstanding for the nine months ended June 30, 20172018 and 2016,2017, respectively. For the diluted weighted-averageweighted average shares outstanding for the three months ended June 30, 2018 and 2017, and 2016, 65,000 and -0- options to purchase shares of common stock were antidilutive. For the diluted weighted-averageweighted average shares outstanding for the nine months ended June 30, 20172018 and 2016, 65,000 and2017, 65,000 options to purchase shares of common stock respectively, were antidilutive.

12
Table of Contents

 

NOTE 3 – REAL ESTATE INVESTMENTS

 

Acquisitions accounted for as business combinations

On October 17, 2016, the CompanyNovember 2, 2017, we purchased a newly constructed 338,584121,683 square foot industrial building, situated on 16.2 acres, located in Hamburg, NY, which is in the Buffalo Metropolitan Statistical Area (MSA).Charleston, SC. The building is 100% net-leased to FedEx Ground Package System, Inc.Corporation (FDX), for 15 years through March 2031.August 2032. The purchase price was $35,100,000. The Company$21,872,170. We obtained a 15 year fully-amortizing mortgage loan of $23,500,000$14,200,000 at a fixed interest rate of 4.03%4.23%. Annual rental revenue over the remaining term of the lease averages approximately $2,309,000. In connection with the acquisition, the Company completed its evaluation of the acquired lease. As a result of its evaluation, the Company allocated $250,000 to an Intangible Asset associated with the lease in-place.$1,315,000.

 

On DecemberNovember 30, 2016, the Company2017, we purchased a newly constructed 213,672300,000 square foot industrial building, situated on 123 acres, located in Ft. Myers, FL.Oklahoma City, OK. The building is 100% net-leased to FedEx Ground Package System,Amazon.com Services, Inc. for 10 years through September 2026.October 2027. The lease is guaranteed by Amazon.com, Inc. The purchase price was $21,001,538. The Company$30,250,000. We obtained a 1510 year fully-amortizing mortgage loan, amortizing over 18 years, of $14,500,000$19,600,000 at a fixed interest rate of 3.97%3.64%. Annual rental revenue over the remaining term of the lease averages approximately $1,365,000. In connection with the acquisition, the Company completed its evaluation of the acquired lease. As a result of its evaluation, the Company allocated $201,538 to an Intangible Asset associated with the lease in-place.

Acquisitions accounted for as asset acquisitions$1,884,000.

 

On April 5, 2017, the CompanyJanuary 22, 2018, we purchased a newly constructed 343,483831,764 square foot industrial building, situated on 62.4 acres, located in Walker, MI, which is in the Grand Rapids MSA.Savannah, GA. The building is 100% net-leased to FedEx Ground Package System,Shaw Industries, Inc. for 1510 years through January 2032.September 2027. The purchase price was $32,120,000. The Company$57,483,636. We obtained a 1514 year fully-amortizing mortgage loan of $20,875,000$33,300,000 at a fixed interest rate of 3.86%3.53%. Annual rental revenue over the remaining term of the lease averages approximately $2,102,000.$3,551,000.

13 
Table of Contents

 

On June 23, 2017, the CompanyApril 6, 2018, we purchased a newly constructed 351,874399,440 square foot industrial building, situated on 27.5 acres, located in Mesquite, TX, which is in the Dallas MSA.Daytona Beach, FL. The building is 100% net-leased to FedEx Ground Package System,B. Braun Medical Inc. for 1510 years through March 2032.April 2028. The purchase price was $50,621,072. The Company$30,750,540. We obtained a 15 year fully-amortizing mortgage loan of $32,900,000$19,500,000 at a fixed interest rate of 3.60%4.25%. Annual rental revenue over the remaining term of the lease averages approximately $3,194,000.$2,130,000.

 

On June 27, 2017, the Company28, 2018, we purchased a newly constructed 315,560362,942 square foot industrial building, situated on 31.3 acres, located in Aiken, SC, which is in the Augusta, GA MSA.Mobile, AL. The building is 100% net-leased to Autoneum North America,Amazon.com Services, Inc. for 1511 years through April 2032.November 2028. The lease is guaranteed by Amazon.com, Inc. The purchase price was $21,933,000. The Company$33,688,276. We obtained a 1514 year fully-amortizing mortgage loan of $15,350,000$19,000,000 at a fixed interest rate of 4.20%4.14%. Annual rental revenue over the remaining term of the lease averages approximately $1,700,000.$2,020,000.

 

On June 28, 2017,FDX, Amazon.com, Inc. and Shaw Industries, Inc.’s ultimate parent, Berkshire Hathaway, Inc. are publicly-owned companies and financial information related to these entities is available at the Company purchased a newly-constructed 237,756 square foot industrial building locatedSEC’s website,www.sec.gov. The references in Homestead, FL, which is inthis report to the Miami MSA. The building is 100% net leasedSEC’s website are not intended to FedEx Ground Package System, Inc. for 15 years through March 2032. The purchase price was $38,347,933. The Company obtained a 15 year fully-amortizing mortgage loan of $24,800,000 at a fixed interest rate of 3.60%. Annual rental revenue overand do not include, or incorporate by reference into this report, the remaining term ofinformation on the lease averages approximately $2,282,000.www.sec.gov website.

 

On June 29, 2017, the Company purchased a newly constructed 110,361 square foot industrial building located in Oklahoma City, OK. The building is 100% net-leased to Bunzl Distribution Oklahoma, Inc. for seven years through August 2024. The purchase price was $9,000,000. The Company obtained a 12 year fully-amortizing mortgage loan of $6,000,000 at a fixed interest rate of 4.125%. Annual rental revenue over the remaining term of the lease averages approximately $721,000.

The CompanyWe evaluated the property acquisitions which took place subsequentduring the nine months ended June 30, 2018, to March 31, 2017, under the new framework for determiningdetermine whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU 2017-01, which the Company early-adopted effective April 1, 2017.2017-01. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions (see Note 1).acquisitions. Accordingly, the Companywe accounted for the five properties purchased during fiscal 2018 in Walker (Grand Rapids), MI; Mesquite (Dallas), TX; Aiken (Augusta, GA),Charleston, SC; Homestead (Miami),Oklahoma City, OK; Savannah, GA; Daytona Beach, FL and Oklahoma City, OKMobile, AL as asset acquisitions and allocated the total cash consideration, including transaction costs of approximately $875,000, to the individual assets acquired on a relative fair value basis. There were no liabilities assumed in these acquisitions. The financial information set forth below summarizes the Company’s preliminaryour purchase price allocation for these five properties acquired during the threenine months ended June 30, 20172018 that are accounted for as asset acquisitions:

 

Land $16,915,800  $16,262,625 
Building  132,260,865   154,154,984 
In-Place Leases  3,112,332   4,501,523 

 

The following table summarizes the operating results included in the Company’sour consolidated statements of income for the three and nine months ended June 30, 20172018 for the five properties acquired during the nine months ended June 30, 2017:2018:

 

  Three Months Ended 6/30/2017  Nine Months Ended 6/30/2017 
       
Rental Revenues $1,712,249  $3,234,951 
Net Income Attributable to Common Shareholders  598,783   925,316 

1413 
Table of Contents 

  

Three

Months

Ended

6/30/2018

  

Nine

Months

Ended

6/30/2018

 
       
Rental Revenues $2,219,207  $4,086,203 
Net Income Attributable to Common Shareholders  599,717   1,232,225 

Expansions

 

On OctoberNovember 1, 2016,2017, a 50,625 square footparking lot expansion of the buildingfor a property leased to FedEx Ground Package System, Inc., a subsidiary of FDX, located in Edinburg, TXIndianapolis, IN was completed for a total project cost of approximately $4,762,000,$1,683,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2021 through September 2026.April 2024 to October 2027. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $499,000$184,000 from approximately $598,000,$1,533,000, or $5.27$4.67 per square foot, to approximately $1,097,000,$1,717,000, or $6.68$5.24 per square foot.

Dispositions

 

DispositionTwo leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility located in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg informed us that they would not be renewing these leases. On December 18, 2017, we sold our property, located in Kansas City, MO for $4,900,000, with net sale proceeds of approximately $4,602,000 and, on December 22, 2017, we sold our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds of approximately $5,898,000. In conjunction with the sale of these two properties, we simultaneously entered into a lease termination agreement for each property whereby we received a termination fee from Kellogg totaling approximately $210,000 which represents a weighted average of 80% of the then remaining rent due under each respective lease.

 

On October 27,June 1, 2018, we sold a 68,370 square foot building located in Colorado Springs, CO for $5,800,000, with net sale proceeds of approximately $5,465,000. Prior to the sale of this property, it was leased to FedEx Ground Package System, Inc. through September 2018. The tenant informed us that they would not be renewing this lease because they have moved their operations from our former 68,370 square foot facility to our newly constructed 225,362 square foot facility, which is also located in Colorado Springs, CO. On June 9, 2016, the Companywe purchased this newly constructed 225,362 square foot industrial building, which is leased to FedEx Ground Package System, Inc. for 10 years through January 2026.

On June 5, 2018, we sold its onlyan 87,500 square foot vacant building consistinglocated in Ft. Myers, FL for $6,400,000, with net sale proceeds of approximately $6,119,000. Prior to this property becoming vacant, it was leased to FedEx Ground Package System, Inc. through June 2017. FedEx Ground Package System, Inc. vacated this property because they moved their operations from our former 87,500 square foot facility to our newly constructed 213,672 square foot facility, which is also located in Ft. Myers, FL. We purchased this newly constructed facility on December 30, 2016 and it is leased to FedEx Ground Package System, Inc. for 10 years through August 2027.

These four properties sold during fiscal 2018, resulted in a U.S. GAAP net realized gain of approximately $7,485,000, representing a 51% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of approximately $1,160,000, representing a 6% net gain over our historic undepreciated cost basis.

During the prior year, in October 2016, we sold our 59,425 square foot industrial building situated on 4.78 acres located in White Bear Lake, MN for net proceeds of approximately $4,126,000.

 

Since the sale of this propertythese five properties does not represent a strategic shift that has (or will have) a major effect on the Company’sour operations and financial results, the operations generated from this propertythese properties are not included in Discontinued Operations.

 

14
Table of Contents

The following table summarizes the operations of this property prior to its sale on October 27, 2016 which isthat are included in the accompanying Consolidated Statements of Income for the three and nine months ended June 30, 2018 and 2017 and 2016:for the five properties sold during the periods presented, prior to their sales.

 

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 6/30/2017 6/30/2016 6/30/2017 6/30/2016  6/30/2018 6/30/2017 6/30/2018 6/30/2017 
Rental and Reimbursement Revenue $-0-  $-0-  $-0-  $-0-  $92,459  $1,068,576  $949,730  $1,635,794 
Lease Termination Income  -0-   -0-   210,261   -0- 
Real Estate Taxes  -0-   (28,159)  (8,855)  (68,776)  (5,246)  (171,654)  (232,850)  (265,819)
Operating Expenses  -0-   (32,022)  (9,846)  (52,363)  (25,794)  (52,914)  (110,405)  (124,319)
Depreciation & Amortization  -0-   (24,017)  (8,006)  (73,055)  (15,727)  (259,682)  (79,137)  (397,286)
Interest Expense  -0-   -0-   -0-   -0- 
Loss from Operations  -0-   (84,198)  (26,707)  (194,194)
Loss on Sale of Real Estate Investment  -0-   -0-   (95,336)  -0- 
Net Loss $-0-  $(84,198) $(122,043) $(194,194)
Interest Expense, including Amortization of Financing Costs  (11,709)  (31,506)  (38,272)  (128,735)
Income from Operations  33,983   552,820   699,327   719,635 
Gain (Loss) on Sale of Real Estate Investments  2,097,380   -0-   7,485,266   (95,336)
Net Income $2,131,363  $552,820  $8,184,593  $624,299 

 

Pro forma information

 

The following unaudited pro forma condensed financial information has been prepared utilizing theour historical financial statements of the Company and the effect of additional revenue and expenses generated from property acquired and expanded during fiscal 20172018 to date, and during fiscal 2016,2017, assuming that the acquisitions and completed expansions had occurred as of October 1, 2015,2016, after giving effect to certain adjustments including: (a) Rental Revenue adjustments resulting from the straight-lining of scheduled rent increases, (b) Interest Expense resulting from the assumed increase in Fixed Rate Mortgage Notes Payable and Loans Payable related to the new acquisitions, and (c) Depreciation Expense related to the new acquisitions. As further described in Note 6,In addition, the net proceeds raised from the issuance of theour 6.125% Series C Cumulative Redeemable Preferred Stock less the redemptions of the Company’sour 7.625% Series A Cumulative Redeemable Preferred Stock redeemed on October 14, 2016 and the Company’sour 7.875% Series B Cumulative Redeemable Preferred Stock redeemed on June 7, 2017 were used to help fund property acquisitions and, therefore, the pro forma preferred dividend expense has been adjusted to account for its effect on Net Income Attributable to Common Shareholders as if all the preferred stock issuances and redemptions had occurred on October 1, 2015.2016. In addition, Net Income Attributable to Common Shareholders excludes the operating expenses incurredoperations of the five properties sold during fiscal 20172018 and 2016 for the vacant property, located in White Bear Lake, MN, that was sold on October 27, 2016.2017. Furthermore, the proceeds raised from the Dividend Reinvestment and Stock Purchase Plan (the DRIP) were used to fund property acquisitions and expansions and therefore, the weighted average shares outstanding used in calculating the Basic and Diluted Net Income per Share Attributable to Common Shareholders has been adjusted to account for the increase in shares raised through the DRIP, as if all the shares raised had occurred on October 1, 2015.2016. The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisitions and expansions reflected herein been consummated on the dates indicated or that will be achieved in the future.

  Three Months Ended  Nine Months Ended 
  6/30/2018  6/30/2017  6/30/2018  6/30/2017 
             
Rental Revenues $29,675,500  $29,099,300  $88,582,400  $88,900,800 
Net Income Attributable to Common Shareholders $8,233,500  $5,611,600  $23,512,100  $18,551,300 
Basic and Diluted Net Income per Share Attributable to Common Shareholders $0.10  $0.07  $0.30  $0.24 

 

15 
Table of Contents 

  Three Months Ended  Nine Months Ended 
  6/30/2017  6/30/2016  6/30/2017  6/30/2016 
Rental Revenue $26,224,800  $26,973,500  $78,455,200  $78,995,500 
Net Income Attributable to Common Shareholders $5,160,600  $7,865,900  $15,261,700  $16,596,200 
Basic and Diluted Net Income per Share Attributable to Common Shareholders $0.07  $0.11  $0.21  $0.23 

 

Tenant Concentration

 

The Company hasWe have a concentration of FedEx Corporation (FDX)FDX and FDX subsidiary-leased properties, consisting of 58 separate stand-alone leases covering approximately 9,444,000 square feet as of June 30, 2018 and 58 separate stand-alone leases covering approximately 9,124,000 square feet as of June 30, 2017 and 51 separate stand-alone leases covering approximately 6,944,000 square feet as2017. As of June 30, 2016. The2018, the 58 separate stand-alone leases that are leased to FDX and FDX subsidiaries have a weighted average lease maturity of 8.48.6 years. The percentage of FDX and its subsidiaries leased square footage to the total of the Company’sour rental space was 46% (7% to FDX and 39% to FDX subsidiaries) as of June 30, 2018 and 51% (8% to FDX and 43% to FDX subsidiaries) as of June 30, 2017 and 46% (6% to FDX and 40% to FDX subsidiaries) as of June 30, 2016.2017. As of June 30, 2017, the only tenants that leased 5% or more of the Company’s total square footage were FDX and its subsidiaries and Milwaukee Electric Tool Corporation, which leases one property through July 2028 consisting of approximately 862,000 square feet, which was approximately 5% of the Company’s rental space. As of June 30, 2016,2018, no other tenant other than FDX and its subsidiaries, accounted for 5% or more of the Company’sour total rental space.

 

Annualized Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 56% (7% to FDX and 49% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2018 and was 60% (7% to FDX and 53% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2017 and was 56% (7% to FDX and 49% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2016.2017. No other tenant accounted for 5% or more of the Company’sour total Rental and Reimbursement Revenue for the nine months ended June 30, 20172018 and 2016.2017.

 

FDX is a publicly-owned company and financial information related to this entity is available at the SEC’s website,www.sec.gov. FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include, or incorporate by reference into this report, the information of FDX, S&P Global Ratings or Moody’s on such websites.

 

In addition to real estate property holdings, the Companywe held $100,495,810$167,594,279 in marketable REIT securities at June 30, 2017,2018, representing 6.6%9.2% of the Company’sour undepreciated assets (which is the Company’sour total assets excluding accumulated depreciation). These liquid real estate holdings are not included in calculating the tenant concentration ratios above and therefore further enhance the Company’sour diversification. The securities portfolio provides the Companyus with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available.

 

NOTE 4 – SECURITIES AVAILABLE FOR SALE AT FAIR VALUE

 

The Company’sOur Securities Available for Sale at Fair Value consists primarily of marketable common and preferred stock of other REITs with a fair value of $100,495,810$167,594,279 as of June 30, 2017. The Company2018. We generally limits itslimit our investment in marketable securities to no more than approximately 10% of itsour undepreciated assets (which is the Company’sour total assets excluding accumulated depreciation). Total assets excluding accumulated depreciation were $1,821,914,393 as of June 30, 2018. We held $167,594,279 in marketable REIT securities as of June 30, 2018, representing 9.2% of our undepreciated assets. The REIT securities portfolio provides the Companyus with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available.

 

16 
Table of Contents

During the nine months ended June 30, 2017, the Company2018, we sold or redeemed securities with a cost basis of $8,399,268$2,508,562 and recognized a Gain on Sale of Securities Transactions of $2,293,944.$111,387. In addition, the Companywe recognized dividend income on itsour investment in securities of $4,622,836$3,625,002 and $9,373,467 for the three and nine months ended June 30, 2017. The Company2018. We also made purchases of $39,467,317$61,277,604 in Securities Available for Sale at Fair Value. Of this amount, the Companywe made total purchases of 125,71945,815 common shares of UMH Properties, Inc. (UMH), a related REIT, for a total cost of $1,725,457,$617,443, or a weightedan average cost of $13.72$13.48 per share, of which 112,719 shares were purchased through UMH’s Dividend Reinvestment and Stock Purchase Plan. The CompanyWe owned a total of 1,115,0461,174,131 UMH common shares as of June 30, 20172018 at a total cost of $11,031,142$11,849,294 and a fair value of $19,011,526. The Company owns 200,000 shares of UMH’s 8.25% Series A Cumulative Redeemable Preferred Stock at a total cost of $5,000,000 with a fair value of $5,200,000 and the Company owns$18,022,907. We own 100,000 shares of UMH’s 8.00% Series B Cumulative Redeemable Preferred Stock at a total cost of $2,500,000 with a fair value of $2,750,000.$2,645,000. The unrealized gain on the Company’sour investment in UMH’s common and preferred stock as of June 30, 20172018 was $8,430,384.$6,318,613.

 

As of June 30, 2017, the Company2018, we had total net unrealized holding gainslosses on itsour securities portfolio of $8,765,134. The Company considers$8,368,968. We consider many factors in determining whether a security is other than temporarily impaired, including the nature of the security and the cause, severity and duration of the impairment. The CompanyWe normally holdshold REIT securities long-term and hashave the ability and intent to hold these securities to recovery. The following is a summary of the securities that the Company haswe have determined to be temporarily impaired as of June 30, 2017:2018:

 

16
Table of Contents

 Less than 12 Months 12 Months or Longer  Less than 12 Months 12 Months or Longer
    Unrealized     Unrealized     Unrealized     Unrealized 
Description of Securities Fair Value Losses Fair Value Losses  Fair Value Losses Fair Value Losses 
Preferred stock $2,127,800  $(52,587) $-0-  $-0-  $3,984,884  $(958,791) $-0-  $-0- 
Common stock  28,819,800   (3,087,363)  -0-   -0-   71,941,000   (15,684,933)  -0-   -0- 
Total $30,947,600  $(3,139,950) $-0-  $-0-  $75,925,884  $(16,643,724) $-0-  $-0- 

 

The following is a summary of the range of losses:

 

Number of

Individual

Securities

  

Fair

Value

  

Unrealized

Losses

  

Range of
Loss

 
 3  $11,895,800  $(567,137)  1%-5% 
 1   19,051,800   (2,572,813)  12%
 4  $30,947,600  $(3,139,950)    

Number of

Individual

Securities

 

Fair

Value

  

 

Unrealized

Losses

  

Range of

Loss

 
1 $134,884  $(1,009)  1%
3  49,661,000   (4,439,507)  6%-10%
1  3,850,000   (957,782)  20%
1  22,280,000   (11,245,426)  34%
6 $75,925,884  $(16,643,724)    

 

NOTE 5 – DEBT

 

For the three months ended June 30, 20172018 and 2016,2017, amortization of financing costs included in interest expense was $283,573$314,527 and $240,463,$283,573, respectively. For the nine months ended June 30, 20172018 and 2016,2017, amortization of financing costs included in interest expense was $949,470$910,977 and $713,501,$949,470, respectively.

 

As of June 30, 2018, we owned 109 properties, of which 60 carried Fixed Rate Mortgage Notes Payable with outstanding principal balances totaling $665,118,463. The following is a summary of our Fixed Rate Mortgage Notes Payable as of June 30, 20172018 and September 30, 2016:2017:

 

17 
Table of Contents

 6/30/2018  9/30/2017 
 6/30/2017 9/30/2016  Amount 

Weighted Average Interest

Rate (1)

 Amount 

Weighted Average Interest

Rate (1)

 
 Amount 

Weighted Average Interest

Rate (1)

 Amount 

Weighted Average Interest

Rate (1)

          
Fixed Rate Mortgage Notes Payable $561,736,464   4.21% $483,748,153   4.48% $665,118,463   4.11% $598,962,567   4.18%
                                
Debt Issuance Costs $10,171,381      $9,424,697      $11,312,382      $10,597,083     
Accumulated Amortization of Debt Issuance Costs  (2,921,873)      (3,152,554)      (3,277,168)      (2,998,887)    
Unamortized Debt Issuance Costs $7,249,508      $6,272,143      $8,035,214      $7,598,196     
                                
Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs $554,486,956      $477,476,010      $657,083,249      $591,364,371     

 

(1)Weighted average interest rate excludes amortization of debt issuance costs.

(1)Weighted average interest rate excludes amortization of debt issuance costs.

 

As of June 30, 2017,2018, interest payable on these mortgages were at fixed rates ranging from 3.45% to 7.60%, with a weighted average interest rate of 4.21%4.11%. This compares to a weighted average interest rate of 4.48%4.18% as of September 30, 20162017 and 4.61%4.21% as of June 30, 2016.2017. As of June 30, 2017,2018, the weighted average loan maturity of the Fixed Rate Mortgage Notes Payable was 11.5 years. This compares to a weighted average loan maturity of the Fixed Rate Mortgage Notes Payable of 10.511.6 years as of September 30, 20162017 and 9.811.5 years as of June 30, 2016.2017.

17
Table of Contents

 

In connection with the sevenfive properties acquired during the nine months ended June 30, 2017,2018, which are located in Hamburg (Buffalo), NY; Ft. Myers, FL; Walker (Grand Rapids), MI; Mesquite (Dallas), TX; Aiken (Augusta, GA), SC; Homestead (Miami),Charleston, SC, Oklahoma City, OK, Savannah, GA, Daytona Beach, FL and Oklahoma City, OKMobile, AL (as described in Note 3), the Companywe obtained six,two 15 year fully-amortizing mortgage loans, two 14 year fully-amortizing mortgage loans and one 1210 year fully-amortizing loan.loan amortizing over 18 years. The sevenfive mortgage loans originally totaled $137,925,000$105,600,000 with an original weighted average mortgage loan maturity of 14.913.6 years and a weighted average interest rate of 3.84%3.89%.

 

During the nine months ended June 30, 2017, the Company2018, we fully repaid 15the mortgage loans associated with 14for four of itsour properties located in Jacksonville, FL; El Paso, TX; LebanonColorado Springs, CO, Richfield (Cleveland), OH, Tampa, FL and West Chester Twp. (Cincinnati), OH; Halfmoon (Albany), NY; Bedford Heights (Cleveland), OH; Hanahan (Charleston), SC; Elgin (Chicago), IL; Kansas City, MO; Chattanooga, TN; Roanoke, VA; Orion, MI; Edwardsville, KS; Punta Gorda, FL and Cheektowaga (Buffalo), NY,OH, totaling approximately $35,266,000.

During the nine months ended June 30, 2017, the Company fully repaid its two term loans totaling $4,768,266. One loan totaling $2,284,633 had an interest rate of 4.90% and one loan totaling $2,483,633 had a variable annual interest rate of prime plus 0.75% with a floor of 4.50%. The interest rate on the date this loan was fully repaid was 4.50%.$8,649,000.

 

As of June 30, 2017,2018, Loans Payable represented the amount drawn down on the Company’sour $200,000,000 unsecured line of credit facility (the Facility) in the amount of $110,000,000 and the amount drawn down on the Company’sour margin lineloan of credit on its marketable securities in the amount of $12,094,940.

18 
Table of Contents

$47,792,824.

 

The Facility matures in September 2020 with a one year extension at the Company’sour option (subject to various conditions as specified in the loan agreement). During the nine months ended June 30, 2017, the Company2018, we had netno additional draws of $34,000,000 under the Facility. Availability under the Facility is limited to 60% of the value of the borrowing base properties. The value of the borrowing base properties is determined by applying a 7.0% capitalization rate to the NOI generated by the Company’sour unencumbered, wholly-owned industrial properties. Effective, March 22, 2018, the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties was lowered from 7.0% to 6.5%, thus increasing the value of the borrowing base properties under the terms of the agreement. Borrowings under the Facility, will, at the Company’sour election, either i) bear interest at LIBOR plus 140 basis points to 220 basis points, depending on the Company’sour leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 40 basis points to 120 basis points, depending on the Company’sour leverage ratio. The Company’sOur borrowings as of June 30, 2017,2018, based on the Company’sour leverage ratio, as of June 30, 2017, bear interest at LIBOR plus 150170 basis points, which was atrepresented an interest rate of 2.54% as of June 30, 2017.3.79%. In addition, the Company haswe have a $100,000,000 accordion feature, bringing the total potential availability under the Facility (subject to various conditions as specified in the loan agreement) up to $300,000,000.

 

The CompanyWe also investsinvest in equity securities of other REITs which provides the Companyus with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available. The Company fromFrom time to time, we may purchase these securities on margin when the interest and dividend yields exceed the cost of funds. In general, the Companywe may borrow up to 50% of the value of the marketable securities, which was $100,495,810$167,594,279 as of June 30, 2017.2018. As of June 30, 2017,2018, we had $47,792,824 drawn against the Company had borrowingsmargin at an interest rate of $12,094,940 under its margin line, bearing interest at 2.05%2.00%.

 

NOTE 6 – SHAREHOLDERS’ EQUITY

 

The Company’sOur authorized stock as of June 30, 20172018 consisted of 192,039,750 shares of common stock, of which 73,824,16180,137,070 shares were issued and outstanding, 12,400,000 authorized shares of 6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125% Series C Preferred Stock), of which 8,400,00011,099,461 shares were issued and outstanding, and 200,000,000 authorized shares of Excess Stock, $0.01 par value per share, of which none were issued or outstanding.

 

Common Stock

 

On October 1, 2015, the Company’s2, 2017, our Board of Directors approved a 6.7%6.25% increase in the Company’sour quarterly common stock dividend, raising it to $0.17 per share from $0.16 per share, from $0.15 per share. Thisrepresenting our second dividend increase in three years. These two dividend raises represent a total increase of 13%. The increased dividend represents an annualized dividend rate of $0.64$0.68 per share. The Company hasWe have maintained or increased itsour cash dividend for 2526 consecutive years.

 

The CompanyWe raised $66,340,821$67,895,831 (including dividend reinvestments of $7,229,654)$9,467,085) from the issuance of 4,903,1894,451,289 shares of common stock under itsour DRIP during the nine months ended June 30, 2017.2018. During the nine months ended June 30, 2017, the Company2018, we paid $34,311,041$39,842,168 in total cash dividends, or $0.16$0.17 per share, to common shareholders, of which $7,229,654$9,467,085 was reinvested in the DRIP.

 

18
Table of Contents

On July 3, 2017, the Company2, 2018, our Board of Directors declared a dividend of $0.16$0.17 per share to be paid September 15, 201717, 2018 to common shareholders of record as of the close of business on August 15, 2017.2018.

 

On January 17, 2017,16, 2018, the Board of Directors reaffirmed itsour Share Repurchase Program that authorizes the Companyus to purchase up to $10,000,000 in the aggregate of the Company’sour common stock. The CompanyWe may repurchase itsour shares from time to time if, in the opinion of the Board of Directors, such acquisition is advantageous to the Company.us. No shares were repurchased during the nine months ended June 30, 20172018 and, as of June 30, 2017, the Company does2018, we do not own any of itsour own shares.

 

7.625% Series A Cumulative Redeemable Preferred Stock

On September 14, 2016, the Company announced that it intended to redeem all 2,139,750 issued and outstanding shares of its 7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (7.625% Series A Preferred Stock). The Company redeemed all of the outstanding shares of the 7.625% Series A Preferred Stock on October 14, 2016, at a redemption price of $25.00 per share, totaling $53,493,750, plus all dividends accrued and unpaid to and including, the redemption date, in an amount equal to $0.23299 per share, totaling $498,540, for a total cash payment of $25.23299 per share, totaling $53,992,290.

19 
Table of Contents

7.875% Series B Cumulative Redeemable Preferred Stock

On May 5, 2017, the Company announced that it intended to redeem all 2,300,000 issued and outstanding shares of its 7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (7.875% Series B Preferred Stock). The Company redeemed all of the outstanding shares of the 7.875% Series B Preferred Stock on June 7, 2017, at a redemption price of $25.00 per share, totaling $57,500,000, plus accumulated and unpaid dividends for the period from June 1, 2017 to, but not including, the redemption date, in an amount equal to $0.0328125, totaling $75,469, for a total cash payment of $25.0328125 per share, totaling $57,575,469. The Company recognized a preferred share redemption charge of approximately $2,467,000 related to the original issuance costs. During the nine months ended June 30, 2017, the Company paid $3,471,566 in Preferred Dividends, or $1.509375 per share, on its then outstanding 7.875% Series B Preferred Stock.

6.125% Series C Cumulative Redeemable Preferred Stock

 

On March 9, 2017, the Company issued an additional 3,000,000 shares of its 6.125% Series C Preferred Stock, liquidation preference of $25.00 per share, at a public offering price of $24.50 per share, for gross proceeds of $73,500,000 before deducting the underwriting discount and offering expenses. Net proceeds from the offering, after deducting underwriting discounts and other offering expenses were approximately $71,003,000. The Company used the net proceeds from this offering to redeem all of the outstanding shares of its 7.875% Series B Preferred Stock, as discussed above. The remaining proceeds were used to purchase properties in the ordinary course of business and for general corporate purposes. Prior to the issuance of the additional 3,000,000 shares of the 6.125% Series C Preferred Stock on March 9, 2017, the Company had 5,400,000 shares of the 6.125% Series C Preferred Stock issued and outstanding. As of June 30, 2017, 8,400,000 shares of the 6.125% Series C Preferred Stock were issued and outstanding.

During the nine months ended June 30, 2017, the Company2018, we paid $7,074,383$12,548,850 in Preferred Dividends, or $1.0973965$1.1484375 per share, on itsour outstanding 6.125% Series C Preferred Stock for the period September 13, 20161, 2017 through May 31, 2017.2018. As of June 30, 2018, we have accrued Preferred Dividends of $1,416,337 covering the period June 1, 2018 to June 30, 2018. Dividends on the 6.125% Series C Preferred Stock are cumulative and payable quarterly at an annual rate of $1.53125 per share. The 6.125% Series C Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to the Company’sour qualification as a REIT, or in connection with a change of control, the 6.125% Series C Preferred Stock is not redeemable prior to September 15, 2021. On and after September 15, 2021, at any time, and from time to time, the 6.125% Series C Preferred Stock will be redeemable in whole, or in part, at the Company’sour option, at a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption. On July 3, 2017, the Company2, 2018, our Board of Directors declared a dividend of $0.3828125 per share to be paid September 15, 201717, 2018 to the 6.125% Series C Preferred shareholders of record as of the close of business on August 15, 2017.2018.

 

On June 29, 2017, the Companywe entered into an At-The-Market Preferred Equity Program (ATM Preferred(Preferred Stock ATM Program) with B. Riley FBR, Capital Markets & Co.Inc. in which the Companywe may, from time to time, offer and sell additional shares of itsour 6.125% Series C Preferred Stock, with a liquidation preference of $25.00 per share, having an aggregate sales price of up to $100,000,000. The CompanyWe began selling shares through the ATM Preferred Stock ATM Program on July 3, 2017. Therefore, as ofDuring the nine months ended June 30, 2017, no2018, we sold 1,260,016 shares were sold under the ATMour Preferred Stock Program. Subsequent to the quarter end, through July 25, 2017, the Company sold 627,867 shares under its ATM Preferred Stock Program at a weighted average price of $25.44$25.08 per share, and realized net proceeds, after offering expenses, of approximately $15,628,000.$30,992,000.

As of June 30, 2018, 11,099,461 shares of the 6.125% Series C Preferred Stock were issued and outstanding.

Subsequent to the June 30, 2018 quarter end, through July 18, 2018, we sold 143,338 shares under our Preferred Stock ATM Program at a weighted average price of $24.00 per share, and realized net proceeds, after offering expenses, of approximately $3,386,000.

 

NOTE 7 - FAIR VALUE MEASUREMENTS

 

The Company measuresWe measure certain financial assets and liabilities at fair value on a recurring basis, including Securities Available for Sale at Fair Value. The Company’sOur financial assets consist mainly of marketable REIT securities. The fair value of these financial assets was determined using the following inputs at June 30, 20172018 and September 30, 2016:2017:

 

2019 
Table of Contents 

 Fair Value Measurements at Reporting Date Using  Fair Value Measurements at Reporting Date Using 
 Total  

Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

 

Significant Unobservable Inputs

(Level 3)

  Total 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

Significant Other Observable Inputs

(Level 2)

  

Significant Unobservable Inputs

(Level 3)

 
As of June 30, 2017:         
As of June 30, 2018:         
Equity Securities – Preferred Stock $14,688,025  $14,688,025  $-0-  $-0-  $8,006,019  $8,006,019  $-0-  $-0- 
Equity Securities – Common Stock  85,803,256   85,803,256   -0-   -0-   159,584,907   159,584,907   -0-   -0- 
Mortgage Backed Securities  4,529   4,529   -0-   -0-   3,353   3,353   -0-   -0- 
Total Securities Available for Sale at Fair Value $100,495,810  $100,495,810  $-0-  $-0-  $167,594,279  $167,594,279  $-0-  $-0- 
                                
As of September 30, 2016:                
As of September 30, 2017:                
Equity Securities – Preferred Stock $13,769,073  $13,769,073  $-0-  $-0-  $11,818,628  $11,818,628  $-0-  $-0- 
Equity Securities – Common Stock  59,830,271   59,830,271   -0-   -0-   111,941,806   111,941,806   -0-   -0- 
Mortgage Backed Securities  5,550   5,550   -0-   -0-   4,336   4,336   -0-   -0- 
Total Securities Available for Sale at Fair Value $73,604,894  $73,604,894  $-0-  $-0-  $123,764,770  $123,764,770  $-0-  $-0- 

 

In addition to the Company’sour investments in Securities Available for Sale at Fair Value, the Company iswe are required to disclose certain information about fair values of its other financial instruments. Estimates of fair value are made at a specific point in time based upon, where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time the Company’sour entire holdingsholding of a financial instrument.instruments. For a portion of the Company’sour other financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions, (manymany of which involve events outside the control of management).management. Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties; future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only, and therefore cannot be compared to the historical accounting model. The use of different assumptions or methodologies is likely to result in significantly different fair value estimates.

 

The fair value of Cash and Cash Equivalents approximates their current carrying amounts since all such items are short term in nature. The fair value of variable rate Loans Payable approximates their current carrying amounts, since such amounts payable are at approximately a weighted-average current market rate of interest. The estimated fair value of Fixed Rate Mortgage Notes Payable is based on discounting the future cash flows at a yearend risk adjusted borrowing rate currently available to the Companyus for issuance of debt with similar terms and remaining maturities. These fair value measurements fall within level 2 of the fair value hierarchy. At June 30, 2017,2018, the Fixed Rate Mortgage Notes Payable fair value (estimated based upon expected cash outflows discounted at current market rates) amounted to approximately $571,364,000$663,810,000 and the carrying value amounted to $561,736,464. When the Company acquires a property and is accounted for as a business combination, it is required to fair value all of the assets and liabilities, including intangible assets and liabilities, relating to the properties acquired lease (see Note 3). Those fair value measurements are estimated based on independent third party appraisals and fall within level 3 of the fair value hierarchy.$665,118,463.

 

NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION

 

Cash paid for interest during the nine months ended June 30, 20172018 and 20162017 was approximately $17,975,000$23,016,000 and $15,994,000,$17,975,000, respectively.

 

During the nine months ended June 30, 2018 and 2017, and 2016, the Companywe had dividend reinvestments of $7,229,654$9,467,085 and $6,326,691,$7,229,654, respectively, which required no cash transfers.

 

2120 
Table of Contents 

 

NOTE 9 – CONTINGENCIES AND COMMITMENTS

 

From time to time, the Companywe may be subject to claims and litigation in the ordinary course of business. Management doesWe do not believe that any such claim or litigation will have a material adverse effect on the Consolidated Balance Sheets or results of operations.

 

In addition to the property purchased subsequent to the quarter end, as described below in Note 10, theThe Company has entered into agreements to purchase four new build-to-suit, industrial buildings that have recently been completed or are currently being developed in Florida, OhioGeorgia, New Jersey and South Carolina, totalingconsisting of approximately 1,039,0001,105,000 square feet, with net-leased terms ranging from 10 to 15 years, resulting inwith a weighted average lease maturityterm of 10.613.9 years. The aggregate purchase price for the fourthese properties is approximately $88,676,000. Two of the four purchase commitments consisting of approximately 420,300 square feet, or 40%, are leased to investment grade tenants. Approximately 121,800 square feet, or 12%, is leased to FDX. Subject to satisfactory due diligence, we anticipate closing these four transactions during the remainder of fiscal 2017 and the first half of fiscal 2018. In connection with the$221,369,000. These four properties the Company has entered into commitments to obtain three mortgage loans totaling approximately $38,300,000 at fixed rates ranging from 4.17% to 4.45%, with a weighted average interest rate of 4.28%. All three of these mortgage loans are 15 year, fully-amortizing loans.

The Company currently has parking lot expansions in progress on two properties that are beingeach leased to FedEx Ground Package System, Inc. locatedSubject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing these transactions sometime during the remainder of fiscal 2018 and the first quarter of fiscal 2019. In connection with all four of these properties, we have entered into commitments to obtain four, 15 year, fully-amortizing mortgage loans totaling $142,060,000 with a weighted average fixed interest rate of 4.07%.

We currently have two property expansions in Ft. Myers, FLprogress consisting of one 154,800 square foot building expansion and Indianapolis, IN. Theone parking lot expansion. Total expansion costs are expected to be approximately $2,661,000.$10,906,000. Upon completion annualizedof the two expansions, initial annual rent will be increased by approximately $237,000 from approximately $2,898,000 to approximately $3,135,000 and$1,045,000. One expansion will provide for a new 10 year lease extension from the date of completion and one expansion will provide for each property being expanded, of 10 yearsa new 15 year lease extension from the date of completion.

 

NOTE 10 – SUBSEQUENT EVENTS

 

Material subsequent events have been evaluated and are disclosed herein.

 

On August 3, 2017, the Company purchased a newly constructed 354,482 square foot industrial building located in Concord, NC which is in the Charlotte MSA. The building is 100% net leased to FedEx Ground Package System, Inc. for 15 years through May 2032. The purchase price was $40,598,446. The Company obtained a 15 year fully-amortizing mortgage loanJuly 2, 2018, our Board of $26,184,000 at a fixed interest rate of 3.80%. Annual rental revenue over the remaining term of the lease averages approximately $2,537,000.

Subsequent to quarter end, through July 25, 2017, the Company sold 627,867 shares under its ATM Preferred Stock Program at a weighted average price of $25.44 per share, and realized net proceeds, after offering expenses, of approximately $15,628,000.

In July 2017, the Company entered into a 10.2 year lease agreement with FBM Gypsum Supply of Illinois, LLC through December 31, 2027, for our previously vacant 36,270 square foot building, which became vacant effective June 1, 2017, located in Urbandale, IA. The lease is expected to commence on November 1, 2017, with two months of free rent, after which initial annual rent of $159,588, representing $4.40 per square foot, will commence, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of $171,880, representing $4.74 per square foot over the life of the lease. This compares to the former average straight-lined rent, prior to the property becoming vacant, of $3.56 per square foot on a U.S. GAAP straight-line basis and the former cash rent of $3.88 per square foot, representing an increase in the average lease rate of 33.2% on a U.S. GAAP straight-line basis and an increase in the lease rate of 13.4% on a cash basis. The tenant will have a one-time early termination option that may be exercised after December 31, 2025, provided that the tenant provides the Company with six months of notice and pays a termination fee equal to three months of rent, plus operating and other costs.

On July 3, 2017, the CompanyDirectors declared a common dividend of $0.16$0.17 per share to be paid September 15, 201717, 2018 to the common shareholders of record as of the close of business on August 15, 2017.2018.

 

On July 3, 2017, the Company2, 2018, our Board of Directors declared a preferred dividend of $0.3828125 per share to be paid September 15, 201717, 2018 to the 6.125% Series C preferredPreferred shareholders of record as of the close of business on August 15, 2017.2018.

Subsequent to the June 30, 2018 quarter end, through July 18, 2018, we sold 143,338 shares under our Preferred Stock ATM Program at a weighted average price of $24.00 per share, and realized net proceeds, after offering expenses, of approximately $3,386,000.

 

2221 
Table of Contents 

 

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

 

Overview and Recent Activity

 

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto provided elsewhere herein and the Company’sour Annual Report on Form 10-K for the fiscal year ended September 30, 2016.2017.

 

The Company operatesWe operate as a real estate investment trust (REIT). The Company seeksWe seek to invest in well-located, modern single-tenant industrial buildings leased primarily to investment gradeinvestment-grade tenants or their subsidiaries on long-term net leases. We were founded in 1968 and are one of the oldest public equity REITs in the world. During the nine months ended June 30, 2017, the Company2018, we purchased sevenfive net-leased industrial properties, located in Hamburg (Buffalo), NY; Ft. Myers, FL; Walker (Grand Rapids), MI; Mesquite (Dallas), TX; Aiken (Augusta, GA),Charleston, SC; Homestead (Miami), FL and Oklahoma City, OKOK; Savannah, GA; Daytona Beach, FL; and Mobile, AL, totaling approximately 1,911,0002,016,000 square feet, for approximately $208,124,000.$174,045,000 in the aggregate. In connection with the sevenfive properties acquired during the nine months ended June 30, 2017, the Company entered into six, fifteen2018, we obtained two 15 year fully-amortizing mortgage loans, two 14 year fully-amortizing mortgage loans and one twelve10 year fully-amortizing loan.loan amortizing over 18 years. The sevenfive mortgage loans originally totaled $137,925,000$105,600,000 with an original weighted average mortgage loan maturity of 14.913.6 years and a weighted average interest rate of 3.84%3.89%. As of June 30, 2017, the Company2018, we owned 105109 properties with total square footage of approximately 17,917,000.20,535,000. These properties are located in 30 states. As of the quarter ended June 30, 2017, the Company’s2018, our weighted average lease maturity was approximately 7.8 years, itsour occupancy rate was 99.8%99.6% and itsour annualized average base rent per occupied square foot was $5.91.$5.89. As of June 30, 2017,2018, the weighted average building age, based on the square footage of the Company’sour buildings, was 9.48.8 years. In addition, total gross real estate investments, excluding marketable REIT securities investments of $100,495,810,$167,594,279, were $1,373,574,748$1,606,017,461 as of June 30, 2017.2018.

 

Subsequent to quarter end, on August 3, 2017, the Company purchased a newly constructed 354,482 square foot industrial building located in the Charlotte, NC Metropolitan Statistical Area (MSA) for $40,598,446.

The Company’s revenue primarily consists of Rental and Reimbursement Revenue from the ownership of industrial rental properties.We evaluate our financial performance using Net Operating Income (NOI) from property operations, which is defineda non-GAAP financial measure that we define as Net Income Attributable to Common Shareholders plus Redemption of Preferred Stock, Preferred Dividends, General &and Administrative Expenses, AcquisitionsAcquisition Costs, Depreciation, Amortization of Capitalized Lease Costs &and Intangible Assets, and Interest Expense, including Amortization of Financing Costs, less Dividend and Interest Income, and Gain on Sale of Securities Transactions.Transactions, Gain on Sale of Real Estate Investments and Lease Termination Income. The components of NOI are recurring Rental and Reimbursement Revenue, less Real Estate Taxes and Operating Expenses, such as insurance, utilities, and repairs and maintenance. Other REITs may use different methodologies to calculate NOI from property operations increased $3,536,994, or 17%, for the three months ended June 30, 2017 as comparedand, accordingly, our NOI may not be comparable to the three months ended June 30, 2016 and increased $11,841,556, or 20%, for the nine months ended June 30, 2017 as compared to the nine months ended June 30, 2016. These increases were due to the additional income related to eight industrial properties purchased during fiscal 2016 and seven industrial properties purchased during the nine months ended June 30, 2017.all other REITs.

 

The Company’sfollowing is a reconciliation of our Net Income Attributable to Common Shareholders to our NOI for the three and nine months ended June 30, 20172018 and 2016 is calculated as follows:2017:

  Three Months Ended  Nine Months Ended 
   6/30/2018   6/30/2017   6/30/2018   6/30/2017 
Net Income Attributable to Common Shareholders $10,322,744  $5,217,411  $31,032,983  $16,216,147 
Plus: Redemption of Preferred Stock  -0-   2,467,165   -0-   2,467,165 
Plus: Preferred Dividends  4,248,029   4,045,787   12,813,194   11,325,583 
Plus: General & Administrative Expenses  1,887,722   1,786,852   6,052,791   5,307,853 
Plus: Acquisition Costs  -0-   -0-   -0-   178,526 
Plus: Depreciation  9,162,563   7,318,258   26,504,609   21,449,830 
Plus: Amortization of Capitalized Lease Costs and Intangible Assets  613,927   451,823   1,740,620   1,327,376 
Plus: Interest Expense, including Amortization of Financing Costs  8,279,324   6,135,381   23,640,556   18,835,864 
Less: Dividend and Interest Income  (3,627,984)  (1,899,320)  (9,380,411)  (4,630,653)
Less: Gain on Sale of Securities Transactions  -0-   (1,487,836)  (111,387)  (2,293,944)
Less: Gain on Sale of Real Estate Investments  (2,097,380)  -0-   (7,485,266)  -0- 
Less: Lease Termination Income  -0-   -0-   (210,261)  -0- 
Net Operating Income- NOI $28,788,945  $24,035,521  $84,597,428  $70,183,747 

 

2322 
Table of Contents 

  Three Months Ended  Nine Months Ended 
  6/30/2017  6/30/2016  6/30/2017  6/30/2016 
Net Income Attributable to Common Shareholders $5,217,411  $6,079,537  $16,216,147  $15,846,623 
Plus: Redemption of Preferred Stock  2,467,165   -0-   2,467,165   -0- 
Plus: Preferred Dividends  4,045,787   2,151,758   11,325,583   6,455,274 
Plus: General & Administrative Expenses  1,786,852   1,542,432   5,307,853   5,099,841 
Plus: Acquisition Costs  -0-   135,358   178,526   545,955 
Plus: Depreciation  7,318,258   6,096,880   21,449,830   17,478,374 
Plus: Amortization of Capitalized Lease Costs and Intangible Assets  451,823   445,404   1,327,376   1,418,375 
Less: Dividend and Interest Income  (1,899,320)  (1,486,134)  (4,630,653)  (4,050,455)
Less: Gain on Sale of Securities Transactions  (1,487,836)  (272,067)  (2,293,944)  (1,159,409)
Plus: Interest Expense, including Amortization of Financing Costs  6,135,381   5,805,359   18,835,864   16,707,613 
Net Operating Income- NOI $24,035,521  $20,498,527  $70,183,747  $58,342,191 

 

The components of the Company’sour NOI for the three and nine months ended June 30, 2018 and 2017 and 2016 isare as follows:

 

 Three Months Ended Nine Months Ended 
 6/30/2017 6/30/2016 6/30/2017 6/30/2016  Three Months Ended  Nine Months Ended 
          6/30/2018  6/30/2017  6/30/2018  6/30/2017 
Rental Revenue $24,400,237  $20,789,914  $71,291,923  $59,465,701  $29,256,147  $24,400,237  $85,558,614  $71,291,923 
Reimbursement Revenue  4,208,859   3,324,085   11,806,975   9,874,498   6,941,678   4,208,859   17,002,541   11,806,975 
Total Rental and Reimbursement Revenue  28,609,096   24,113,999   83,098,898   69,340,199   36,197,825   28,609,096   102,561,155   83,098,898 
Real Estate Taxes  (3,520,322)  (2,633,706)  (9,279,165)  (7,681,519)  (5,950,262)  (3,520,322)  (13,592,573)  (9,279,165)
Operating Expense  (1,053,253)  (981,766)  (3,635,986)  (3,316,489)
Operating Expenses  (1,458,618)  (1,053,253)  (4,371,154)  (3,635,986)
Net Operating Income- NOI $24,035,521  $20,498,527  $70,183,747  $58,342,191  $28,788,945  $24,035,521  $84,597,428  $70,183,747 

NOI from property operations increased $4,753,424, or 20%, for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 and increased $14,413,681, or 21%, for the nine months ended June 30, 2018 as compared to the nine months ended June 30, 2017. These increases were primarily due to the acquisition of three industrial properties purchased during the last quarter of fiscal 2017 and the five industrial properties purchased during the first three quarters of fiscal 2018.

 

Acquisitions

 

On October 17, 2016, the CompanyNovember 2, 2017, we purchased a newly constructed 338,584121,683 square foot industrial building, situated on 16.2 acres, located in Hamburg, NY, which is in the Buffalo MSA.Charleston, SC. The building is 100% net-leased to FedEx Ground Package System, Inc.Corporation (FDX), for 15 years through March 2031.August 2032. The purchase price was $35,100,000. The Company$21,872,170. We obtained a 15 year fully-amortizing mortgage loan of $23,500,000$14,200,000 at a fixed interest rate of 4.03%4.23%. Annual rental revenue over the remaining term of the lease averages approximately $2,309,000.$1,315,000.

 

On DecemberNovember 30, 2016, the Company2017, we purchased a newly constructed 213,672300,000 square foot industrial building, situated on 123 acres, located in Ft. Myers, FL.Oklahoma City, OK. The building is 100% net-leased to FedEx Ground Package System,Amazon.com Services, Inc. for 10 years through September 2026.October 2027. The lease is guaranteed by Amazon.com, Inc. The purchase price was $21,001,538. The Company$30,250,000. We obtained a 1510 year fully-amortizing mortgage loan amortizing over 18 years, of $14,500,000$19,600,000 at a fixed interest rate of 3.97%3.64%. Annual rental revenue over the remaining term of the lease averages approximately $1,365,000.$1,884,000.

 

On April 5, 2017, the CompanyJanuary 22, 2018, we purchased a newly constructed 343,483831,764 square foot industrial building, situated on 62.4 acres, located in Walker, MI, which is in the Grand Rapids MSA.Savannah, GA. The building is 100% net-leased to FedEx Ground Package System,Shaw Industries, Inc. for 1510 years through January 2032.September 2027. The purchase price was $32,120,000. The Company$57,483,636. We obtained a 1514 year fully-amortizing mortgage loan of $20,875,000$33,300,000 at a fixed interest rate of 3.86%3.53%. Annual rental revenue over the remaining term of the lease averages approximately $2,102,000.

24 
Table of Contents

$3,551,000.

 

On June 23, 2017, the CompanyApril 6, 2018, we purchased a newly constructed 351,874399,440 square foot industrial building, situated on 27.5 acres, located in Mesquite, TX, which is in the Dallas MSA.Daytona Beach, FL. The building is 100% net-leased to FedEx Ground Package System,B. Braun Medical Inc. for 1510 years through March 2032.April 2028. The purchase price was $50,621,072. The Company$30,750,540. We obtained a 15 year fully-amortizing mortgage loan of $32,900,000$19,500,000 at a fixed interest rate of 3.60%4.25%. Annual rental revenue over the remaining term of the lease averages approximately $3,194,000.$2,130,000.

 

On June 27, 2017, the Company28, 2018, we purchased a newly constructed 315,560362,942 square foot industrial building, situated on 31.3 acres, located in Aiken, SC, which is in the Augusta, GA MSA.Mobile, AL. The building is 100% net-leased to Autoneum North America,Amazon.com Services, Inc. for 1511 years through April 2032.November 2028. The lease is guaranteed by Amazon.com, Inc. The purchase price was $21,933,000. The Company$33,688,276. We obtained a 1514 year fully-amortizing mortgage loan of $15,350,000$19,000,000 at a fixed interest rate of 4.20%4.14%. Annual rental revenue over the remaining term of the lease averages approximately $1,700,000.$2,020,000.

 

On June 28, 2017,FDX, Amazon.com, Inc. and Shaw Industries, Inc.’s ultimate parent, Berkshire Hathaway, Inc. are publicly-owned companies and financial information related to these entities is available at the Company purchased a newly-constructed 237,756 square foot industrial building locatedSEC’s website,www.sec.gov. The references in Homestead, FL, which is inthis report to the Miami MSA. The building is 100% net leasedSEC’s website are not intended to FedEx Ground Package System, Inc. for 15 years through March 2032. The purchase price was $38,347,933. The Company obtained a 15 year fully-amortizing mortgage loan of $24,800,000 at a fixed interest rate of 3.60%. Annual rental revenue overand do not include, or incorporate by reference into this report, the remaining term ofinformation on the lease averages approximately $2,282,000.www.sec.gov website.

 

On June 29, 2017, the Company purchased a newly constructed 110,361 square foot industrial building located in Oklahoma City, OK. The building is 100% net-leased to Bunzl Distribution Oklahoma, Inc. for seven years through August 2024. The purchase price was $9,000,000. The Company obtained a 12 year fully-amortizing mortgage loan of $6,000,000 at a fixed interest rate of 4.125%. Annual rental revenue over the remaining term of the lease averages approximately $721,000.

23
Table of Contents

 

Subsequent to the quarter end, on August 3, 2017, the Company purchased a newly constructed 354,482 square foot industrial building located in Concord, NC which is in the Charlotte MSA. The building is 100% net leased to FedEx Ground Package System, Inc. for 15 years through May 2032. The purchase price was $40,598,446. The Company obtained a 15 year fully-amortizing mortgage loan of $26,184,000 at a fixed interest rate of 3.80%. Annual rental revenue over the remaining term of the lease averages approximately $2,537,000.

Expansions

 

On OctoberNovember 1, 2016,2017, a 50,625 square footparking lot expansion of the buildingfor a property leased to FedEx Ground Package System, Inc., a subsidiary of FDX, located in Edinburg, TXIndianapolis, IN was completed for a total project cost of approximately $4,762,000,$1,683,000, resulting in a new 10 year lease which extended the prior lease expiration date from September 2021 through September 2026.April 2024 to October 2027. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of approximately $499,000$184,000 from approximately $598,000,$1,533,000, or $5.27$4.67 per square foot, to approximately $1,097,000,$1,717,000, or $6.68$5.24 per square foot.

 

DispositionDispositions

Two leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility located in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg informed us that they would not be renewing these leases. On December 18, 2017, we sold our property, located in Kansas City, MO for $4,900,000, with net sale proceeds of approximately $4,602,000, and on December 22, 2017, we sold our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds of approximately $5,898,000. In conjunction with the sale of these two properties, we simultaneously entered into a lease termination agreement for each property whereby we received a termination fee from Kellogg totaling approximately $210,000 which represents a weighted average of 80% of the then remaining rent due under each respective lease.

 

On October 27,June 1, 2018, we sold a 68,370 square foot building located in Colorado Springs, CO for $5,800,000, with net sale proceeds of approximately $5,465,000. Prior to the sale of this property, it was leased to FedEx Ground Package System, Inc. through September 2018. The tenant informed us that they would not be renewing this lease because they have moved their operations from our former 68,370 square foot facility to our newly constructed 225,362 square foot facility, which is also located in Colorado Springs, CO. On June 9, 2016, the Company sold its only vacant building consisting of a 59,425we purchased this newly constructed 225,362 square foot industrial building, situated on 4.78 acreswhich is leased to FedEx Ground Package System, Inc. for 10 years through January 2026.

On June 5, 2018, we sold an 87,500 square foot vacant building located in White Bear Lake, MNFt. Myers, FL for $6,400,000, with net sale proceeds of approximately $4,126,000.$6,119,000. Prior to this property becoming vacant, it was leased to FedEx Ground Package System, Inc. through June 2017. FedEx Ground Package System, Inc. vacated this property because they moved their operations from our former 87,500 square foot facility to our newly constructed 213,672 square foot facility, which is also located in Ft. Myers, FL. We purchased this newly constructed facility on December 30, 2016 and it is leased to FedEx Ground Package System, Inc. for 10 years through August 2027.

25 
Table of Contents

These four properties sold during fiscal 2018, resulted in a U.S. GAAP net realized gain of approximately $7,485,000, representing a 51% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of approximately $1,160,000, representing a 6% net gain over our historic undepreciated cost basis.

Commitments

 

In addition to the property purchased subsequent to the quarter end, as described previously, theThe Company has entered into agreements to purchase four new build-to-suit, industrial buildings that have recently been completed or are currently being developed in Florida, OhioGeorgia, New Jersey and South Carolina, totalingconsisting of approximately 1,039,0001,105,000 square feet, with net-leased terms ranging from 10 to 15 years, resulting inwith a weighted average lease maturityterm of 10.613.9 years. The aggregate purchase price for the fourthese properties is approximately $88,676,000. Two of the four purchase commitments consisting of approximately 420,300 square feet, or 40%, are leased to investment grade tenants. Approximately 121,800 square feet, or 12%, is leased to FDX. Subject to satisfactory due diligence, we anticipate closing these four transactions during the remainder of fiscal 2017 and the first half of fiscal 2018. In connection with the$221,369,000. These four properties the Company has entered into commitments to obtain three mortgage loans totaling approximately $38,300,000 at fixed rates ranging from 4.17% to 4.45%, with a weighted average interest rate of 4.28%. All three of these mortgage loans are 15 year, fully-amortizing loans.

The Company currently has parking lot expansions in progress on two properties that are beingeach leased to FedEx Ground Package System, Inc. locatedSubject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing these transactions sometime during the remainder of fiscal 2018 and the first quarter of fiscal 2019. In connection with all four of these properties, we have entered into commitments to obtain four, 15 year, fully-amortizing mortgage loans totaling $142,060,000 with a weighted average fixed interest rate of 4.07%.

We currently have two property expansions in Ft. Myers, FLprogress consisting of one 154,800 square foot building expansion and Indianapolis, IN. Theone parking lot expansion. Total expansion costs are expected to be approximately $2,661,000.$10,906,000. Upon completion annualizedof the two expansions, initial annual rent will be increased by approximately $237,000 from approximately $2,898,000 to approximately $3,135,000 and$1,045,000. One expansion will provide for a new 10 year lease extension from the date of completion and one expansion will provide for each property being expanded, of 10 yearsa new 15 year lease extension from the date of completion.

 

24
Table of Contents

See PART I, Item 1 – Business in the Company’sour Annual Report on Form 10-K for the fiscal year ended September 30, 20162017 for a more complete discussion of the economic and industry-wide factors relevant to the Companyus and the opportunities, challenges, and risks on which the Company iswe are focused.

 

Significant Accounting Policies and Estimates

 

The discussion and analysis of the Company’sour financial condition and results of operations are based upon the Company’sour Consolidated Financial Statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP). The preparation of these Consolidated Financial Statements requires managementus 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’sour Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.

 

As a result of adopting Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (ASU 2017-01) prospectively as of April 1, 2017, as permitted under the standard, effective April 1, 2017 we no longer account for our property acquisitions as business combinations and instead we account for our property acquisitions as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized to real estate investments as part of the purchase price as opposed to being expensed as Acquisition Costs under the previous accounting treatment for business combinations.

On a regular basis, management evaluateswe evaluate our assumptions, judgments and estimates. Management believesWe believe that except for the adoption of ASU 2017-01, as described above, there have been no other material changes to the items that we disclosed as our significant accounting policies and estimates under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our annual report on Form 10-K for fiscal year ended September 30, 2016.2017.

 

Changes in Results of Operations

 

As of June 30, 2017, the Company2018, we owned 109 properties with total square footage of approximately 20,535,000, as compared to 105 properties with total square footage of approximately 17,917,000, as compared to 97 properties with total square footage of approximately 15,124,000, as of June 30, 2016,2017, representing an increase in square footage of 18%15%. At quarter end, the Company’sour weighted average lease expiration term remained unchanged and was approximately 7.8 years as compared to 7.1 years at the end of both the current year and prior year period. The Company’squarter. Our occupancy rate was 99.6% as of June 30, 2018 as compared to 99.8% as of June 30, 2017, as compared to 99.6%representing a decrease of 20 basis points. Our weighted average building age was 8.8 years as of June 30, 2016, representing an increase of 20 basis points. The Company’s weighted average building age was2018 as compared to 9.4 years as of June 30, 2017 as compared to 10.0 years as of June 30, 2016.2017.

26 
Table of Contents

 

Fiscal 20172018 Renewals

 

In fiscal 2017,2018, approximately 9%8% of our gross leasable area, representing 1316 leases totaling 1,539,5261,546,637 square feet, werewas set to expire. As of the date of this quarterly report, 10 of the 1316 leases have been renewed. One of the 10 leases, (whichwhich is with FedEx Ground Package System, Inc. for a property located in Ft. Myers, FL)Hanahan (Charleston), SC, has renewed for only eightfour months because the tenant has movedplans to move its operations from our 87,50091,776 square foot facility to oura newly constructed facility, which is also located in Ft. Myers, FL. As discussed above, on December 30, 2016,Charleston, SC. Once the construction is complete, we purchasedare under contract to purchase this newly constructed 213,672new facility, consisting of 261,240 square foot industrial building whichfeet, subject to satisfactory completion of due diligence and other customary closing conditions and requirements. In addition, once the construction is complete, this brand-new facility will be leased for 10 years through September 2026.15 years. Excluding the eight-monthfour month lease renewal at the original Ft. Myers, FLHanahan (Charleston), SC, location, the nine9 leases that have renewed thus far represent 1,272,030889,779 square feet, or 83%58% of the expiring square footage, and have a weighted average lease term of 6.5 years. These lease renewals resulted in an increase in the weighted average lease rate of 3.9% on a U.S. GAAP straight-line basis and a 2.4% increase on a cash basis.

 

We have incurred, or we expect to incur, tenant improvement costs of approximately $2,961,000$458,000 and leasing commission costs of approximately $1,197,000$811,000 in connection with these nine9 lease renewals. The table below summarizes the lease terms of the nine9 leases which were renewed. In addition, the table below includes both the tenant improvement costs and the leasing commission costs, which are presented on a per square foot (PSF) basis averaged over the renewal term.

 

25
Table of Contents

Property Tenant Square
Feet
 Former
U.S. GAAP Straight- Line Rent
PSF
 Former
Cash Rent
PSF
 Former
Lease
Expiration
 Renewal
U.S GAAP Straight- Line Rent
PSF
 Renewal
Initial
Cash Rent
PSF
 Renewal
Lease
Expiration
 Renewal
Term
(years)
 Tenant
Improvement
Cost
PSF over
Renewal
Term (1)
 Leasing
Commissions Cost
PSF over
Renewal
Term (1)
                       
Ft. Myers, FL FedEx Ground  87,500  $4.95  $4.95  10/31/16 $4.95  $4.95  6/30/17  0.7  $-0-  $-0- 
                                       
                                       
Griffin, GA Caterpillar  218,120  $5.36  $5.36  11/30/16 $5.36  $5.36  11/30/17  1.0  $-0-  $0.11 
Elgin, IL Joseph T. Ryerson  89,052   5.68   5.68  1/31/17  5.68   5.68  1/31/20  3.0   0.17   0.17 
Newington, CT Kellogg Sales Co.  54,812   6.00   6.00  2/28/17  6.00   6.00  2/29/20  3.0   0.30   0.24 
Schaumburg, IL FedEx Express  73,500   6.88   7.00  3/31/17  6.50   6.50  3/31/27  10.0   0.24   0.13 
Tolleson, AZ Western Container  283,358   4.33   4.59  4/30/17  4.78   4.33  4/30/27  10.0   0.58   0.14 
Wheeling, IL FedEx Ground  123,000   11.26   11.26  5/31/17  10.34   10.34  5/31/27  10.0   0.41   0.21 
Punta Gorda, FL FedEx Corp.  34,624   8.78   8.78  6/30/17  8.21   8.21  6/30/27  10.0   0.08   0.16 
Cudahy, WI FedEx Ground  139,564   6.45   6.45  6/30/17  5.92   5.92  6/30/27  10.0   0.36   0.12 
St. Joseph, MO Woodstream Corp.  256,000   3.50   3.50  9/30/17  3.57   3.50  9/30/21  4.0   0.01   0.11 
  Total (2)  1,272,030                                 
                                       
Weighted Average (2)       $5.68  $5.74    $5.61  $5.49     6.5  $0.36  $0.15 
Property Tenant Square
Feet
  Former
U.S. GAAP Straight- Line Rent
PSF
  Former
Cash Rent
PSF
  Former
Lease
Expiration
 Renewal
U.S GAAP Straight- Line Rent
PSF
  Renewal
Initial
Cash Rent
PSF
  Renewal
Lease
Expiration
 Renewal
Term
(years)
  Tenant
Improvement
Cost
PSF over
Renewal
Term (1)
  Leasing
Commission Cost
PSF over
Renewal
Term (1)
 
Hanahan (Charleston), SC (3)  FedEx Ground  91,776  $7.35 $7.35  7/31/18 $7.35  $7.35  11/30/18  0.3  $-0-  $-0- 
                                       
Chattanooga, TN FedEx Express  60,637  $5.13  $5.13  10/31/17 $5.26  $5.26  10/31/22  5.0  $0.43  $0.11 
Lakeland, FL FedEx Express  32,105   4.83   4.83  11/30/17  4.83   4.83  11/30/27  10.0   0.16   0.10 
Orlando, FL FedEx Express  110,638   5.69   6.02  11/30/17  6.02   6.02  11/30/27  10.0   0.18   0.12 
St. Joseph, MO Altec Industries  126,880   2.75   2.75  02/28/18  2.94   2.87  02/28/23  5.0   -0-   0.13 
Edwardsville, KS Carlisle Tire  179,280   4.23   4.39  05/31/18  4.10   4.15  07/31/23  5.2   0.05   0.16 
Augusta, GA FedEx Ground  59,358   7.64   7.64  06/30/18  8.64   8.64  06/30/21  3.0   -0-   -0- 
O’Fallon, MO Pittsburgh Glass Works, LLC  102,135   4.18   4.18  06/30/18  4.37   4.31  06/30/21  3.0   0.08   -0- 
Denver, CO FedEx Ground  69,865   8.08   8.08  07/31/18  8.72   8.72  10/31/25  7.25   -0-   0.17 
Beltsville, MD FedEx Ground  148,881   9.58   9.58  07/31/18  9.77   9.77  07/31/28  10.0   -0-   0.20 
  Total  889,779                                 
                                       
Weighted Average (2)       $5.70  $5.78    $5.92  $5.92     6.5  $0.08  $0.14 

 

 (1)Amount calculated based on the total cost divided by the square feet, divided by the renewal term.
 (2)Total and Weighted Average amounts exclude the Ft. Myers, FLHanahan (Charleston), SC property.
(3)Renewed for only four months because the tenant plans to move its operations from our 91,776 square foot facility located in Hanahan (Charleston), SC to a brand new, build-to-suit 261,240 square foot facility, which is currently under construction and is also in Charleston, SC. We are under contract to purchase this newly constructed facility once construction is complete.

 

Excluding the eight-monthfour-month lease renewal at the original Ft. Myers, FLHanahan (Charleston), SC location, representing 5.7% of the space coming up for renewal in fiscal 2017, the remaining nine9 lease renewals result in a weighted average term of 6.5 years and a renewed U.S. GAAP straight-line weighted average lease rate of $5.61$5.92 per square foot. The renewed weighted average initial cash rent per square foot is $5.49.also $5.92. This compares to the former weighted average rent of $5.68$5.70 per square foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $5.74$5.78 per square foot, representing an increase in the weighted average lease rate of 3.9% on a U.S. GAAP straight-line basis and an increase of 2.4% on a cash basis.

As further described in the three paragraphs below, of the six remaining leases originally set to expire during fiscal 2018, three of the properties were sold. These three properties represent 12% of the expiring square footage for fiscal 2018, and one property representing 14% of the expiring square footage for fiscal 2018 was re-tenanted for 3 years. Additionally, one of our tenants, representing 5% of the expiring square footage for fiscal 2018, did not renew their lease which expired on December 31, 2017. This tenant leased 80,856 square feet at our 255,658 square foot industrial park located in Monaca (Pittsburgh), PA. The remaining lease that is still set to expire during fiscal 2018 is currently under discussion.

Two leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility located in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg informed us that they would not be renewing these leases. On December 18, 2017, we sold our property, located in Kansas City, MO for $4,900,000, with net sale proceeds of approximately $4,602,000 and on December 22, 2017, we sold our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds of approximately $5,898,000. The sale of these two properties resulted in a realized gain of approximately $5,388,000, representing a 105% gain over the depreciated U.S. GAAP basis and a realized net gain of approximately $1,804,000, representing a 21% net gain over our historic undepreciated cost basis. In conjunction with the sale of these two properties, we simultaneously entered into a lease termination agreement for each property whereby we received a termination fee from Kellogg totaling approximately $210,000 which represents a weighted average of 80% of the then remaining rent due under each respective lease.

On June 1, 2018, we sold a 68,370 square foot building located in Colorado Springs, CO for $5,800,000, with net sale proceeds of approximately $5,465,000, which was our approximate U.S. GAAP net book carrying value. Prior to the sale of this property, it was leased to FedEx Ground Package System, Inc. through September 2018. The tenant informed us that they would not be renewing this lease because they have moved their operations from our former 68,370 square foot facility to our newly constructed 225,362 square foot facility, which is also located in Colorado Springs, CO. On June 9, 2016, we purchased this newly constructed 225,362 square foot industrial building, which is leased to FedEx Ground Package System, Inc. for 10 years through January 2026.

26
Table of Contents

Another remaining lease set to expire during fiscal 2018 was leased to Caterpillar Logistics Services, Inc. (Caterpillar) at our 218,120 square foot facility located in Griffin, GA through December 31, 2017. In September 2017, we entered into a three year lease agreement with Rinnai America Corporation through December 31, 2020 for this location. The new lease commenced on January 1, 2018, with initial annual rent of $807,044, representing $3.70 per square foot, with 3.0% annual increases thereafter, resulting in a straight-line annualized rent of $831,000, representing $3.81 per square foot over the life of the lease. This compares to the former U.S. GAAP straight-line and the former cash rent of $5.36 per square foot, representing a decrease in the weighted average lease rate of 1.2%28.9% on a U.S. GAAP straight-line basis and a decrease in the weighted average lease rate of 4.4%31.0% on a cash basis.

 

Of the three remaining leases that are set to expire, we have been informed by one tenant that they will not be renewing. This tenant leased our 36,270 square feet facility in Urbandale, IA through May 31, 2017. This facility represents 2% of the space that was up for renewal in fiscal 2017. In JulyEffective November 1, 2017, we entered into a 10.2 year lease agreement with FBM Gypsum Supply of Illinois, LLC through December 31, 2027 for thisour 36,270 square foot buildingfacility located in Urbandale (Des Moines), IA. The new lease is expected to commence on November 1, 2017, withagreement provides for two months of free rent, after which, on January 1, 2018, initial annual rent of $159,588, representing $4.40 per square foot will commence,commenced, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of $171,880,approximately $172,000, representing $4.74 per square foot overthrough the lifeexpiration date of the lease.lease, which is December 31, 2027. This new rent compares to the former average straight-lined rent of $3.56 per square foot on a U.S. GAAP straight-line basis and the former cash rent of $3.88 per square foot, representing an increase in the average lease rate of 33.2%33.1% on a U.S. GAAP straight-line basis and an increase in the lease rate of 13.4% on a cash basis. The tenant will have a one-time early termination option that may be exercised after December 31, 2025, provided that the tenant provides us with six months of notice and pays a termination fee equal to three months of rent, plus operating and other costs.

27 
Table of Contents

The remaining two leases that are still set to expire during fiscal 2017 are currently under discussion.

 

Rental Revenue increased $3,610,323,$4,855,910, or 17%20%, for the three months ended June 30, 20172018 as compared to the three months ended June 30, 2016.2017. Rental Revenue increased $11,826,222,$14,266,691, or 20%, for the nine months ended June 30, 20172018 as compared to the nine months ended June 30, 2016.2017. These increases were primarily due to the acquisition of twothree industrial properties purchased during the last quarter of fiscal 20162017 and the sevenfive industrial properties purchased during the first nine monthsthree quarters of fiscal 2017 as well as the 20 basis point increase in the Company’s occupancy rate from 99.6% as of June 30, 2016 to 99.8% as of June 30, 2017.2018.

 

Our single-tenant properties are subject to net leases which require the tenants to reimburse us for the cost of Real Estate Taxes as well as certain Operating Expenses such as insurance and the majority of repairs and maintenance. For the three months ended June 30, 20172018 compared to the three months ended June 30, 2016,2017, Reimbursement Revenue increased $884,774,$2,732,819, or 27%65%, Real Estate Tax Expense increased $886,616,$2,429,940, or 34%69%, and Operating Expenses increased $71,487,$405,365, or 7%38%. For the nine months ended June 30, 20172018 compared to the nine months ended June 30, 2016,2017, Reimbursement Revenue increased $1,932,477,$5,195,566, or 20%44%, Real Estate Tax Expense increased $1,597,646,$4,313,408, or 21%46%, and Operating Expenses increased $319,497,$735,168, or 10%20%. These increases in Reimbursement Revenue, Real Estate Taxes and Operating Expenses for the three and nine months ended June 30, 20172018 were primarily due to our newly acquired properties. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the three months ended June 30, 2017 and 2016 remain in line at2018 has increased to 94% from 92% for each period andthe three months ended June 30, 2017. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the nine months ended June 30, 2017 and 2016 remain in line at2018 has increased to 95% from 91% and 90%, respectively.for the nine months ended June 30, 2017.

 

General and Administrative Expenses increased $244,420,$100,870, or 16%6%, for the three months ended June 30, 20172018 as compared to the three months ended June 30, 2016. This increase was primarily due to an increase in professional fees.2017. General and Administrative Expenses increased $208,012,$744,938, or 4%14%, for the nine months ended June 30, 20172018 as compared to the nine months ended June 30, 2016.2017. The increase in both the three and nine months ended June 30, 2018 was primarily due to an increase in salaries and director fees which were due to a combination of increases in wage rates and head count of employees and a combination of increases in director fees and head count of directors. General and Administrative Expenses, as a percentage of gross revenue, (which includes Rental Revenue, Reimbursement Revenue and Dividend and Interest Income), aredecreased to 4.7% for the three months ended June 30, 2018 as compared to 5.9% for the three months ended June 30, 2017 as comparedand decreased to 6.0%5.4% for the threenine months ended June 30, 2016 and are2018 as compared to 6.1% for the nine months ended June 30, 2017 as compared to 6.9% for the nine months ended June 30, 2016.2017. Annualized General and Administrative Expenses, as a percentage of undepreciated assets (which is the Company’sour total assets excluding accumulated depreciation) are 35decreased to 44 basis points andfrom 51 basis points for the nine months ended June 30, 20172018 and 2016,2017, respectively.

 

There were no Acquisition Costs amounted to $-0- and $135,358 for the three months ended June 30, 20172018 and 2016, respectively.2017. Acquisition Costs amounted to $178,526$-0- and $545,955$178,526 for the nine months ended June 30, 2017,2018 and 2016,2017, respectively. As a result of adopting ASU 2017-01, prospectively as of April 1, 2017, as permitted under the standard, effective April 1, 2017, we no longer account for our property acquisitions as business combinations and instead we account for our property acquisitions as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized to real estate investments as part of the purchase price as opposed to being expensed as Acquisition Costs under the previous accounting treatment for business combinations. Therefore, as ofsubsequent to April 1, 2017, we no longer incurexpense Acquisition Costs.Costs for our property acquisitions.

 

27
Table of Contents

The Company

We recognized a Gain on Sale of Securities Transactions of $1,487,836$-0- and $272,067$1,487,836 for the three months ended June 30, 20172018 and 2016,2017, respectively and recognized a Gain on Sale of Securities Transactions of $2,293,944$111,387 and $1,159,409$2,293,944 for the nine months ended June 30, 20172018 and 2016,2017, respectively. In addition, the Company’sour unrealized holding gains (losses) on itsour investment in securities decreased from an unrealized gain of $12,942,267$6,570,565 as of September 30, 20162017 to an unrealized gainloss of $8,765,134$8,368,968 as of June 30, 2017,2018, resulting in a decrease for the nine months ended June 30, 20172018 of $4,177,133. The Company$14,939,533. We recognized dividend income on itsour investment in securities of $1,896,029$3,625,002 and $1,481,197$1,896,029 for the three months ended June 30, 20172018 and 2016,2017, respectively, representing an increase of 28%91%. The CompanyWe recognized dividend income on its investmentour investments in securities of $4,622,836$9,373,467 and $4,044,920$4,622,836 for the nine months ended June 30, 20172018 and 2016,2017, respectively, representing an increase of 14%103%. These increases are due to a higher average carrying value of the REIT securities portfolio during the current three and nine monthmonths period compared to the prior year three and nine monthmonths period. We held $167,594,279 in marketable REIT securities as of June 30, 2018, representing 9.2% of our undepreciated assets. The REIT securities portfolio’s weighted average yield for nine months ended June 30, 20172018 was approximately 7.1%9.6% as compared to 8.4%7.1% for the nine months ended June 30, 2016.2017.

28 
Table of Contents

 

Interest Expense, including Amortization of Financing Costs, increased $330,022,$2,143,943, or 6%35%, for the three months ended June 30, 20172018 as compared to the three months ended June 30, 2016.2017. Interest Expense, including Amortization of Financing Costs, increased $2,128,251,$4,804,692, or 13%26%, for the nine months ended June 30, 20172018 as compared to the nine months ended June 30, 2016.2017. This increase is primarily due to an increase in the average balance of Fixed Rate Mortgage Notes Payable due to the eight newly acquired properties purchased since July 1, 2016.2017. The Fixed Rate Mortgage Notes Payable balance increased $121,383,638$103,381,999 or 28%18% from June 30, 20162017 to June 30, 2017.2018. This increase was partially offset by a decrease of 4010 basis points in the weighted average interest rate of the Fixed Rate Mortgage Notes Payable, which decreased from 4.61% at June 30, 2016 to 4.21% at June 30, 2017.2017 to 4.11% at June 30, 2018.

 

Changes in Financial Condition

 

The CompanyWe generated Net Cash from Operating Activities of $50,191,019$63,093,990 and $43,346,646$50,191,019 for the nine months ended June 30, 20172018 and 2016,2017, respectively.

 

Net Real Estate Investments increased $181,864,561$147,727,579 from September 30, 20162017 to June 30, 2017.2018. This increase was mainly due to the purchase of sevenfive net-leased industrial properties, located in Hamburg (Buffalo), NY; Ft. Myers, FL; Walker (Grand Rapids), MI; Mesquite (Dallas), TX; Aiken (Augusta, GA),Charleston, SC; Homestead (Miami), FL and Oklahoma City, OK,OK; Savannah, GA; Daytona Beach, FL; and Mobile, AL, totaling approximately 1,911,0002,016,000 square feet, for approximately $208,124,000,$174,045,000 in the aggregate, of which approximately $204,827,000$170,418,000 was allocated to Net Real Estate Investments. The increase was partially offset by Depreciation Expense for the nine months ended June 30, 20172018 of $21,449,830.$26,504,609.

 

Securities Available for Sale increased $26,890,916$43,829,509 from September 30, 20162017 to June 30, 2017.2018. The increase was due to the purchase of securities totaling $39,467,317,$61,277,604, offset by the sale of securities with a cost basis of $8,399,268, which resulted in realized gains totaling $2,293,944$2,508,562 and by a net decrease in Unrealized Holding GainsGain (Loss) of $4,177,133.$14,939,533. The securities sold during the nine month period resulted in realized gains totaling $111,387.

 

Fixed Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs (Mortgage Notes Payable), increased $77,010,946$65,718,878 from September 30, 20162017 to June 30, 2017.2018. The increase was mostly due to the origination of seven fixed ratefive fixed-rate mortgages totaling $137,925,000$105,600,000 obtained in connection with the acquisitions of sevenfive industrial properties purchased induring the first three quarters of fiscal 2017.2018. These sevenfive mortgage loans have an original weighted average loan maturity of 14.913.6 years and a weighted average interest rate of 3.84%3.89%. Details on these sevenfive fixed rate mortgages are as follows:

 

Property

 Mortgage amount  Maturity Date Interest Rate 
Hamburg (Buffalo), NY $23,500,000  11/1/2031  4.03%
Ft. Myers, FL  14,500,000  1/1/2032  3.97%
Walker (Grand Rapids), MI  20,875,000  5/1/2032  3.86%
Mesquite (Dallas), TX  32,900,000  7/1/2032  3.60%
Aiken (Augusta, GA), SC  15,350,000  7/1/2032  4.20%
Homestead (Miami), FL  24,800,000  7/1/2032  3.60%
Oklahoma City, OK  6,000,000  7/1/2029  4.125%
28
Table of Contents

Property Mortgage amount  Maturity Date Interest Rate 
Charleston, SC $14,200,000  12/1/2032  4.23%
Oklahoma City, OK  19,600,000  12/1/2027  3.64%
Savannah, GA  33,300,000  02/1/2032  3.53%
Daytona Beach, FL  19,500,000  05/1/2033  4.25%
Mobile, AL  19,000,000  07/1/2032  4.14%

 

The increase in Mortgage Notes Payable was also partially due to the amortization of financing costs associated with the Mortgage Notes Payable of approximately $670,000.$629,000. This increase was partially offset by scheduled payments of principal of approximately $59,937,000,$39,444,000, which includes the full repayment of the Company’s 15four mortgages associated with 14four properties located in Jacksonville, FL; El Paso, TX; Lebanon (Cincinnati), OH; Halfmoon (Albany), NY; Bedford HeightsRichfield (Cleveland), OH; Hanahan (Charleston)Tampa, FL; Colorado Springs, CO and West Chester Twp. (Cincinnati), SC; Elgin (Chicago), IL; Kansas City, MO; Chattanooga, TN; Roanoke, VA; Orion, MI; Edwardsville, KS; Punta Gorda, FL; and Cheektowaga (Buffalo), NY,OH, totaling approximately $35,266,000.$8,649,000. In addition, the increase in Mortgage Notes Payable was partially offset by the addition of deferred financing costs of approximately $1,648,000,$1,066,000, of which approximately $1,605,000$1,047,000 is associated with the sevenfive mortgages obtained in connection with the acquisitions of the sevenfive industrial properties purchased induring the first nine monthsthree quarters of fiscal 2017.2018.

 

Excluding Debt Issuance Costs, the weighted average interest rate on the Fixed Rate Mortgage Notes Payable decreased by 4010 basis points from the prior year quarter from 4.61% at June 30, 2016 to 4.21% at June 30, 2017.2017 to 4.11% at June 30, 2018.

 

29 
Table of Contents

The Company isWe are scheduled to repay a total of approximately $49,002,000$53,453,000 in mortgage principal payments over the next 12 months. The Company intendsWe intend to make these principal payments from the funds generated from Cash from Operations, the DRIP, the At-The-Market Preferred Equity Program (ATM Preferred(Preferred Stock ATM Program) and draws from the unsecured line of credit facility.

 

Liquidity and Capital Resources

 

Net Cash Provided by Operating Activities was $50,191,019$63,093,990 and $43,346,646$50,191,019 for the nine months ended June 30, 20172018 and 2016,2017, respectively. Dividends paid on common stock for the nine months ended June 30, 2018 and 2017 were $39,842,168 and 2016 were $34,311,041, and $31,114,788, respectively (of which $7,229,654$9,467,085 and $6,326,691,$7,229,654, respectively, were reinvested). The Company paysWe pay dividends from cash generated from operations.

 

As of June 30, 2017, the Company2018, we held $100,495,810$167,594,279 in marketable REIT securities, representing 6.6%9.2% of the Company’sour undepreciated assets (which is the Company’sour total assets excluding accumulated depreciation). The CompanyWe generally limits itslimit our marketable securities investments to no more than approximately 10% of itsour undepreciated assets. The Company fromFrom time to time, we may purchase these securities on margin when the interest and dividend yields exceed the cost of funds. In general, the Companywe may borrow up to 50% of the value of the marketable securities. As of June 30, 2017,2018, we had $47,792,824 drawn against the Company had borrowings of $12,094,940 under its margin line, bearing interest at 2.05%.margin. The marketable REIT securities portfolio provides the Companyus with additional liquidity, diversification and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not available. As of June 30, 2017, the Company2018, we had net Unrealized Holding GainsLosses on itsour portfolio of $8,765,134$8,368,968 as compared to net Unrealized Holding Gains of $12,942,267$6,570,565 as of September 30, 2016,2017, representing a decrease of $4,177,133. The Company$14,939,533. We recognized a Gain on Sale of Securities Transactions of $1,487,836$-0- and $272,067$1,487,836 for the three months ended June 30, 20172018 and 2016,2017, respectively, and recognized a Gain on Sale of Securities Transactions of $2,293,944$111,387 and $1,159,409$2,293,944 for the nine months ended June 30, 2018 and 2017, and 2016, respectively. The CompanyWe recognized dividend income on itsour investment in securities of $1,896,029$3,625,002 and $1,481,197$1,896,029 for the three months ended June 30, 20172018 and 2016,2017, respectively, representing an increase of 28%91%, and $4,622,836$9,373,467 and $4,044,920$4,622,836 for the nine months ended June 30, 20172018 and 2016,2017, respectively, representing an increase of 14%103%. The dividends received from the Company’sour investments which yielded approximately 7.1% for the nine months ended June 30, 2017, continue to meet our expectations.

 

As of June 30, 2017, the Company2018, we owned 105109 properties, of which 5760 carried mortgage loans with outstanding principal balances totaling $561,736,464.$665,118,463. The 4849 unencumbered properties could be refinanced to raise additional funds, although covenants in the Company’sour unsecured line of credit facility (the Facility) limit the amount of unencumbered properties that can be mortgaged. As of June 30, 2017, the Company has2018, we have drawn down $110,000,000 on the Facility, which had an interest rate of 2.54%3.79%. The Facility has an additional $100,000,000 accordion feature, which brings the total potential availability up to $300,000,000.$300,000,000, including the additional $100,000,000 accordion feature. The Facility matures September 2020, with a one-year extension at the Company’sour option.

 

29
Table of Contents

As of June 30, 2017, the Company2018, we had total assets of $1,351,618,012$1,624,480,567 and liabilities of $693,371,837. The Company’s$835,567,065. Our net debt (net of unamortized debt issuance costs and net of cash and cash equivalents) to total market capitalization as of June 30, 20172018 was approximately 33% and the Company’sour net debt, less marketable securities (net of unamortized debt issuance costs, net of cash and cash equivalents and net of marketable securities) to total market capitalization as of June 30, 20172018 was approximately 28%26%. The Company believesWe believe that it haswe have the ability to meet itsour obligations and to generate funds for new investments.

 

On March 9, 2017, the Company issued an additional 3,000,000 shares of its 6.125% Series C Preferred Stock, liquidation preference of $25.00 per share, at a public offering price of $24.50 per share, for gross proceeds of $73,500,000 before deducting the underwriting discount and offering expenses. Net proceeds from the offering, after deducting underwriting discounts and other offering expenses were approximately $71,003,000. The Company used the net proceeds from this offering to redeem all of the outstanding shares of its 7.875% Series B Preferred Stock, as discussed below. The remaining proceeds were used to purchase properties in the ordinary course of business and for general corporate purposes. Prior to the issuance of the additional 3,000,000 shares of the 6.125% Series C Preferred Stock on March 9, 2017, the Company had 5,400,000 shares of the 6.125% Series C Preferred Stock issued and outstanding. As of June 30, 2017, 8,400,000 shares of the 6.125% Series C Preferred Stock were issued and outstanding.

30 
Table of Contents

On June 29, 2017, the Companywe entered into an ATMthe Preferred Stock ATM Program with B. Riley FBR, Capital Markets & Co.Inc. in which the Companywe may, from time to time, offer and sell additional shares of itsour 6.125% Series C Preferred Stock, with a liquidation preference of $25.00 per share, having an aggregate sales price of up to $100,000,000. The CompanyWe began selling shares through the ATM Preferred Stock ATM Program on July 3, 2017. Therefore, as ofDuring the nine months ended June 30, 2017, no2018, we sold 1,260,016 shares were sold under the ATMour Preferred Stock Program. Subsequent to the quarter end, through July 25, 2017, the Company sold 627,867 shares under its ATM Preferred Stock Program at a weighted average price of $25.44$25.08 per share, and realized net proceeds, after offering expenses, of approximately $15,628,000.$30,992,000.

 

The CompanyAs of June 30, 2018, 11,099,461 shares of the 6.125% Series C Preferred Stock were issued and outstanding.

Subsequent to the June 30, 2018 quarter end, through July 18, 2018, we sold 143,338 shares under our Preferred Stock ATM Program at a weighted average price of $24.00 per share, and realized net proceeds, after offering expenses, of approximately $3,386,000.

We raised $66,340,821$67,895,831 (including dividend reinvestments of $7,229,654)$9,467,085) from the issuance of 4,903,1894,451,289 shares of common stock under the DRIP during the nine months ended June 30, 2017.2018. Of this amount, UMH Properties, Inc. (UMH), a related REIT, made total purchases of 78,24276,543 common shares for a total cost of $1,071,805,$1,160,784, or a weighted average cost of $13.70$15.17 per share. During the nine months ended June 30, 2017, the Company2018, we paid $34,311,041$39,842,168 in total cash dividends, or $0.16$0.17 per share to common shareholders, of which $7,229,654$9,467,085 was reinvested in the DRIP. On July 3, 2017, the Company2, 2018, our Board of Directors declared a dividend of $0.16$0.17 per common share to be paid on September 15, 201717, 2018 to common shareholders of record as of the close of business on August 15, 2017.

The Company redeemed all of the outstanding shares of its 7.625% Series A Preferred Stock on October 14, 2016 at a redemption price of $25.00 per share, totaling $53,493,750, plus all dividends accrued and unpaid to and including, the redemption date, in an amount equal to $0.23299 per share, totaling $498,540, for a total cash payment of $25.23299 per share, totaling $53,992,290.

The Company redeemed all of the outstanding shares of its 7.875% Series B Preferred Stock on June 7, 2017 at a redemption price of $25.00 per share, totaling $57,500,000, plus accumulated and unpaid dividends for the period from June 1, 2017 to, but not including, the redemption date, in an amount equal to $0.0328125, totaling $75,469, for a total cash payment of $25.0328125 per share, totaling $57,575,469. The Company recognized a preferred share redemption charge of approximately $2,467,000 related to theoriginal issuance costs. During the nine months ended June 30, 2017, the Company paid $3,471,566 in Preferred Dividends, or $1.509375 per share, on its then outstanding 7.875% Series B Preferred Stock.2018.

 

During the nine months ended June 30, 2017, the Company2018, we paid $7,074,383$12,548,850 in Preferred Dividends, or $1.0973965$1.1484375 per share, on itsour outstanding 6.125% Series C Preferred Stock for the period September 13, 20161, 2017 through May 31, 2017.2018. As of June 30, 2018, we have accrued Preferred Dividends of $1,416,337 covering the period June 1, 2018 to June 30, 2018. Dividends on the 6.125% Series C Preferred Stock are cumulative and payable quarterly at an annual rate of $1.53125 per share. On July 3, 2017, the Company2, 2018, our Board of Directors declared a dividend of $0.3828125 per share to be paid September 15, 201717, 2018 to the 6.125% Series C Preferred shareholders of record as of the close of business on August 15, 2017.2018.

 

The Company usesWe use a variety of sources to fund itsour cash needs in addition to cash generated from operations. The CompanyWe may sell marketable securities from itsour investment portfolio, borrow on itsour unsecured line of credit facility or securities margin loans, refinance debt, or raise capital through the DRIP, the ATM Preferred Stock ATM Program or capital markets.

 

The Company hasWe have been raising capital through itsour DRIP, the ATM Preferred Stock ATM Program, mortgage loans, draws on itsour unsecured line of credit, sale of marketable securities and funds generated from itsour investments in net-leased industrial properties, as well as the issuance of additional shares of 6.125% Series C Preferred Stock. The Companyproperties. We may raise capital through registered direct placements and public offerings of common and preferred stock. The Company believesWe believe that funds generated from operations, from the DRIP, and from the ATM Preferred Stock ATM Program, itsas well as our ability to finance and refinance itsour properties, and itsour availability under itsour unsecured line of credit, will provide sufficient funds to adequately meet itsour obligations over the next year.

 

31 
Table of Contents

The Company hasWe have a concentration of FDX and FDX subsidiary-leased properties, consisting of 58 separate stand-alone leases covering approximately 9,444,000 square feet as of June 30, 2018 and 58 separate stand-alone leases covering approximately 9,124,000 square feet as of June 30, 2017 and 51 separate stand-alone leases covering approximately 6,944,000 square feet as2017. As of June 30, 2016. The2018, the 58 separate stand-alone leases that are leased to FDX and FDX subsidiaries have a weighted average lease maturity of 8.48.6 years. The percentage of FDX and its subsidiaries leased square footage to the total of the Company’sour rental space was 46% (7% to FDX and 39% to FDX subsidiaries) as of June 30, 2018 and 51% (8% to FDX and 43% to FDX subsidiaries) as of June 30, 2017 and 46% (6% to FDX and 40% to FDX subsidiaries) as of June 30, 2016.2017. As of June 30, 2017, the only tenants that leased 5% or more of the Company’s total square footage were FDX and its subsidiaries and Milwaukee Electric Tool Corporation, which leases one property through July 2028 consisting of approximately 862,000 square feet, which was approximately 5% of the Company’s rental space. As of June 30, 2016,2018, no other tenant other than FDX and its subsidiaries, accounted for 5% or more of the Company’sour total rental space.

 

30
Table of Contents

Annualized Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 56% (7% to FDX and 49% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2018 and was 60% (7% to FDX and 53% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2017 and was 56% (7% to FDX and 49% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2016.2017. No other tenant accounted for 5% or more of the Company’sour total Rental and Reimbursement Revenue for the nine months ended June 30, 20172018 and 2016.2017.

 

FDX is a publicly-owned company and financial information related to this entity is available at the SEC’s website,www.sec.gov. FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include, or incorporate by reference into this report, the information of FDX, S&P Global Ratings or Moody’s on such websites.

 

In addition to real estate property holdings, the Companywe held $100,495,810$167,594,279 in marketable REIT securities at June 30, 2017,2018, representing 6.6%9.2% of the Company’sour undepreciated assets (which is the Company’sour total assets excluding accumulated depreciation). These liquid real estate holdings are not included in calculating the tenant concentration ratios above and therefore further enhance the Company’sour diversification. The securities portfolio provides the Companyus with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available.

 

In addition to the property purchased subsequent to the quarter end, as described previously, theThe Company has entered into agreements to purchase four new build-to-suit, industrial buildings that have recently been completed or are currently being developed in Florida, OhioGeorgia, New Jersey and South Carolina, totalingconsisting of approximately 1,039,0001,105,000 square feet, with net-leased terms ranging from 10 to 15 years, resulting inwith a weighted average lease maturityterm of 10.613.9 years. The aggregate purchase price for the fourthese properties is approximately $88,676,000. Two of the four purchase commitments consisting of approximately 420,300 square feet, or 40%, are leased to investment grade tenants. Approximately 121,800 square feet, or 12%, is leased to FDX. Subject to satisfactory due diligence, we anticipate closing these four transactions during the remainder of fiscal 2017 and the first half of fiscal 2018. In connection with the$221,369,000. These four properties the Company has entered into commitments to obtain three mortgage loans totaling approximately $38,300,000 at fixed rates ranging from 4.17% to 4.45%, with a weighted average interest rate of 4.28%. All three of these mortgage loans are 15 year, fully-amortizing loans.

The Company currently has parking lot expansions in progress on two properties that are beingeach leased to FedEx Ground Package System, Inc. locatedSubject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing these transactions sometime during the remainder of fiscal 2018 and the first quarter of fiscal 2019. In connection with all four of these properties, we have entered into commitments to obtain four, 15 year, fully-amortizing mortgage loans totaling $142,060,000 with a weighted average fixed interest rate of 4.07%.

We currently have two property expansions in Ft. Myers, FLprogress consisting of one 154,800 square foot building expansion and Indianapolis, IN. Theone parking lot expansion. Total expansion costs are expected to be approximately $2,661,000.$10,906,000. Upon completion annualizedof the two expansions, initial annual rent will be increased by approximately $237,000 from approximately $2,898,000 to approximately $3,135,000 and$1,045,000. One expansion will provide for a new 10 year lease extension from the date of completion and one expansion will provide for each property being expanded, of ten yearsa new 15 year lease extension from the date of completion.

 

The Company intendsWe intend to acquire additional net-leased industrial properties on long-term leases, primarily to investment grade tenants or their subsidiaries, and, when needed, expand itsour current properties. The funds may come from free cash flow from operations, mortgage loans, draws on our unsecured line of credit, cash on hand, sale of marketable securities, other bank borrowings, proceeds from the DRIP, proceeds from the ATM Preferred Stock ATM Program, private placements and public offerings of additional common or preferred stock or other securities. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.

 

32 
Table of Contents

Off-Balance Sheet Arrangements

 

The Company doesWe do not have any material off-balance sheet arrangements.

 

31
Table of Contents

Funds From Operations, Core Funds From Operations and CoreAdjusted Funds From Operations

 

We assess and measure our overall operating results based upon an industry performance measure referred to as Funds From Operations (FFO), which management believes is a useful indicator of our operating performance. FFO is used by industry analysts and investors as a supplemental operating performance measure of a REIT. FFO, as defined by the National Association of Real Estate Investment Trusts (NAREIT), represents net income attributable to common shareholders, as defined by accounting principles generally accepted in the United States of America (U.S. GAAP), excluding extraordinary items, as defined under U.S. GAAP, gains or losses from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization. NAREIT created FFO as a non-U.S. GAAPnon-GAAP supplemental measure of REIT operating performance. We define Core Funds From Operations (Core FFO) as FFO, excluding acquisition costs and costs associated with the Redemption of Preferred Stock. We define Adjusted Funds fromFrom Operations (AFFO) as Core FFO, excluding stock based compensation expense, depreciation of corporate office tenant improvements, amortization of deferred financing costs, lease termination income, net gain or loss on sale of securities transactions, effect of non-cash U.S. GAAP straight-line rent adjustments, non-recurring other expenses and less recurring capital expenditures. We define recurring capital expenditures as all capital expenditures that are recurring in nature, excluding capital expenditures related to expansions at our current locations or capital expenditures that are incurred in conjunction with obtaining a new lease or a lease renewal. We believe that, as widely recognized measures of performance used by other REITs, FFO, Core FFO and AFFO may be considered by investors as supplemental measures to compare our operating performance to those of other REITs. FFO, Core FFO and AFFO exclude historical cost depreciation as an expense and may facilitate the comparison of REITs which have a different cost basis. However, other REITs may use different methodologies to calculate FFO, Core FFO and AFFO and, accordingly, our FFO, Core FFO and AFFO may not be comparable to all other REITs. The items excluded from FFO, Core FFO and AFFO are significant components in understanding the Company’sour financial performance.

 

FFO, Core FFO and AFFO are non-GAAP performance measures and (i) do not represent Cash Flow from Operations as defined by U.S. GAAP; (ii) should not be considered as an alternative to Net Income or Net Income Attributable to Common Shareholders as a measure of operating performance or to Cash Flows from Operating, Investing and Financing Activities; and (iii) are not an alternative to Cash Flows from Operating, Investing and Financing Activities as a measure of liquidity. FFO, Core FFO and AFFO, as calculated by the Company,us, may not be comparable to similarly titled measures reported by other REITs.

 

33 
Table of Contents

The following is a reconciliation of the Company’sour U.S. GAAP Net Income to the Company’sour FFO, Core FFO and AFFO for the three and nine months ended June 30, 20172018 and 2016:2017:

 

 Three Months Ended Nine Months Ended  Three Months Ended  Nine Months Ended 
 6/30/2017 6/30/2016 6/30/2017 6/30/2016  6/30/2018  6/30/2017  6/30/2018  6/30/2017 
Net Income Attributable to Common Shareholders $5,217,411  $6,079,537  $16,216,147  $15,846,623  $10,322,744  $5,217,411  $31,032,983  $16,216,147 
Plus: Depreciation Expense (excluding Corporate Office Capitalized Costs)  7,278,976   6,066,012   21,332,662   17,390,417   9,123,069   7,278,976   26,386,150   21,332,662 
Plus: Amortization of Intangible Assets  262,325   272,009   771,145   915,208   417,088   262,325   1,157,950   771,145 
Plus: Amortization of Capitalized Lease Costs  214,990   198,887   632,707   579,643   222,516   214,990   659,701   632,707 
Plus: Loss on Sale of Real Estate Investment  -0-   -0-   95,336   -0- 
Less: (Gain) / Plus: Loss on Sale of Real Estate Investments  (2,097,380)  -0-   (7,485,266)  95,336 
FFO Attributable to Common Shareholders  12,973,702   12,616,445   39,047,997   34,731,891   17,988,037   12,973,702   51,751,518   39,047,997 
Plus: Acquisition Costs  -0-   135,358   178,526   545,955   -0-   -0-   -0-   178,526 
Plus: Redemption of Preferred Stock  2,467,165   -0-   2,467,165   -0-   -0-   2,467,165   -0-   2,467,165 
Core FFO Attributable to Common Shareholders  15,440,867   12,751,803   41,693,688   35,277,846   17,988,037   15,440,867   51,751,518   41,693,688 
Plus: Depreciation of Corporate Office Capitalized Costs  39,494   39,282   118,459   117,167 
Plus: Stock Compensation Expense  174,709   99,760   441,054   306,688   96,970   174,709   339,139   441,054 
Plus: Depreciation of Corporate Office Capitalized Costs  39,282   30,868   117,167   87,957 
Plus: Amortization of Financing Costs  283,573   240,463   949,470   713,501   314,527   283,573   910,977   949,470 
Plus: Non-recurring other expense  -0-   100,000   -0-   500,000 
Less: Gain on Sale of Securities Transactions  (1,487,836)  (272,067)  (2,293,944)  (1,159,409)  -0-   (1,487,836)  (111,387)  (2,293,944)
Less: Lease Termination Income  -0-   -0-   (210,261)  -0- 
Less: Recurring Capital Expenditures  (490,371)  (195,186)  (774,091)  (571,988)
Less: Effect of Non-cash U.S. GAAP Straight-line Rent Adjustment  (294,936)  (350,217)  (924,792)  (1,172,053)  (600,659)  (294,936)  (1,357,145)  (924,792)
Less: Recurring Capital Expenditures  (195,186)  (169,492)  (571,988)  (653,544)
AFFO Attributable to Common Shareholders $13,960,473  $12,431,118  $39,410,655  $33,900,986  $17,347,998  $13,960,473  $50,667,209  $39,410,655 

 

32
Table of Contents

The following are the Cash Flows provided (used) by Operating, Investing and Financing Activities for the nine months ended June 30, 20172018 and 2016:2017:

 

 Nine Months Ended  Nine Months Ended 
 6/30/2017 6/30/2016  6/30/2018  6/30/2017 
          
Operating Activities $50,191,019  $43,346,646  $63,093,990  $50,191,019 
Investing Activities  (232,827,215)  (169,804,819)  (216,285,152)  (232,827,215)
Financing Activities  98,636,685   121,271,222   149,857,358   (98,636,685)

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide the Company’sour current expectations or forecasts of future events. Forward-looking statements include statements about the Company’sour expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements that are not historical facts. Forward-looking statements can be identified by their use of forward-looking words, such as “may,” “will,” “anticipate,” “expect,” “believe,” “intend,” “plan,” “should,” “seek” or comparable terms, or the negative use of those words, but the absence of these words does not necessarily mean that a statement is not forward-looking.

 

The forward-looking statements are based on the Company’sour beliefs, assumptions and expectations of itsour future performance, taking into account all information currently available to the Company.us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company.us. Some of these factors are described below and are described under the above heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above and the headings “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’sour Annual Report on Form 10-K for the fiscal year ended September 30, 2016.2017. These and other risks, uncertainties and factors could cause the Company’sour actual results to differ materially from those included in any forward-looking statements the Company makes.we make. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for the Companyus to predict those events or how they may affect the Company.us. Except as required by law, the Company iswe are not obligated to, and doesdo not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from the Company’sour expectations include, among others:

 

34 
Table of Contents

the ability of the Company’sour tenants to make payments under their respective leases, itsleases;
our reliance on certain major tenants and the Company’stenants;
our ability to re-lease properties that are currently vacant or that become vacant;
the Company’sour ability to obtain suitable tenants for itsour properties;
changes in real estate market conditions, economic conditions in the industrial sector and the market in which the Company’sour properties are located and general economic conditions;
the inherent risks associated with owning real estate, including local real estate market conditions, governing laws and regulations and illiquidity of real estate investments;
the Company’sour ability to acquire, finance and sell properties on attractive terms;
the Company’sour ability to repay debt financing obligations;
the Company’sour ability to refinance amounts outstanding under itsour mortgages and credit facilities at maturity on terms favorable to us, or at all;
the loss of any member of the Company’sour management team;
the Company’sour ability to comply with debt covenants;
the Company’sour ability to integrate acquired properties and operations into existing operations;
continued availability of proceeds from issuances of the Company’sour debt or equity securities;
the availability of other debt and equity financing alternatives;
market conditions affecting the Company’sour investment in marketable securities of other REIT’s;
changes in interest rates under the Company’sour current credit facility and under any additional variable rate debt arrangements that the Companywe may enter into in the future;
our ability to successfully implement our selective acquisition strategy;

33
Table of Contents  

the Company’s ability to successfully implement the Company’s selective acquisition strategy;
the Company’sour ability to maintain internal controls and procedures to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;
changes in federal or state tax rules or regulations that could have adverse tax consequences;
declines in the market prices of the Company’sour investment securities; and
the Company’sour ability to qualify as a REIT for federal income tax purposes.

 

You should not place undue reliance on these forward-looking statements, as events described or implied in such statements may not occur. The Company undertakesWe undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise.

 

ITEM 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.

 

There have been no material changes to information required regarding quantitative and qualitative disclosures about market risk from the end of the preceding fiscal year to June 30, 20172018 (the date of this Quarterly Report on Form 10-Q).

 

ITEM 4. Controls and Procedures.

 

The Company’sOur President and Chief Executive Officer (the Company’s(our principal executive officer) and the Company’sour Chief Financial Officer (the Company’s(our principal financial and accounting officer) with the assistance of other members of the Company’sour management, evaluated the effectiveness of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’sour President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’sour disclosure controls and procedures are effective as of the end of such period.

 

Changes Inin Internal Control Overover Financial Reporting

 

There has not been any change in the Company’sour internal controlcontrols over financial reporting during the quarter ended June 30, 20172018 that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.

 

3534 
Table of Contents 

 

PART II:

OTHER INFORMATION

OTHER INFORMATION

Item 1.Legal Proceedings.– None
  
Item 1A.

Risk Factors.

 

There have been no material changes to information required regarding risk factors from the end of the preceding year to the date of this Quarterly Report on Form 10-Q. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A – “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016,2017 (the “10-K”) and the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018 (the “10-Q”), which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K forand the fiscal year ended September 30, 201610-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds. – None
  
Item 3.Defaults Upon Senior Securities. – None
  
Item 4.Mine Safety Disclosures.– None
  
Item 5.Other Information.

(a)Information Required to be Disclosed in a Report on Form 8-K, but not Reported – None
(b)Material Changes to the Procedures by which Security Holders may Recommend Nominees to Board of Directors – None

Item 6.Exhibits
  
10.1Item 6.Form of Stock Option Award Agreement.
10.2ExhibitsForm of Restricted Stock Award Agreement.
  
31.1Certification of Michael P. Landy, President and Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith).
  
31.2Certification of Kevin S. Miller, Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith).
  
32Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Michael P. Landy, President and Chief Executive Officer, and Kevin S. Miller, Chief Financial Officer (Furnished herewith).
  
101

The following materials from the Company’sour Quarterly Report on Form 10-Q for the quarter ended June 30, 20172018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.

As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

3635 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  MONMOUTH REAL ESTATE
  INVESTMENT CORPORATION
    
Date:August 9, 20171, 2018By:/s/ Michael P. Landy
   Michael P. Landy, President and Chief Executive Officer,
   its principal executive officer

Date:August 9, 20171, 2018By:/s/ Kevin S. Miller
   Kevin S. Miller, Chief Financial Officer, its principal
   financial officer and principal accounting officer