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 December 31, 20182019

[  ] ☐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)

Juniper Business Plaza, 3499 Route 9 North,101 Crawfords Corner Road, Suite 3-D, Freehold, 1405, Holmdel, NJ 0772807733

(Address of Principal Executive Offices) (Zip Code)

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

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrantregistrant: (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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Act:

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. [  ]☐

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

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of February 1, 2019: 92,696,4882020: 97,819,062

MONMOUTH REAL ESTATE INVESTMENT CORPORATION

AND SUBSIDIARIES

FOR THE QUARTER ENDED DECEMBER 31, 20182019

CONTENTSC O N T E N T S

PART I:

FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 20182019 AND SEPTEMBER 30, 20182019

(in thousands except per share amounts)

See Accompanying Notes to the Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS – CONTINUED

AS OF DECEMBER 31, 20182019 AND SEPTEMBER 30, 20182019

(in thousands except per share amounts)

See Accompanying Notes to the Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20182019 AND 20172018

(in thousands)

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018 AND 2017–– CONTINUED

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20182019 AND 20172018

(in thousands, except per share data)

See Accompanying Notes to Consolidated Financial StatementsNet Income (Loss)

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

See Accompanying Notes to the Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBERDECEMER 31, 20182019 AND 20172018

(in thousands)

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 20182019

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

Monmouth Real Estate Investment Corporation, a Maryland corporation, together with its consolidated subsidiaries (we, our, us, the Company or 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 December 31, 2018,2019, we owned 113115 properties with total square footage of approximately 21,647,000, which was 98.9% occupied,22.9 million, as compared to 111114 properties with total square footage of approximately 21,174,000, which was 99.6% occupied22.3 million as of September 30, 2018.2019. Our occupancy rate at the end of the quarter was 99.2% as compared to 98.9% as of September 30, 2019. Subsequent to the current quarter end, our occupancy rate increased to 99.6%. 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. As of the quarter ended December 31, 2018,2019, our weighted average lease maturity was approximately 8.07.6 years and our annualized average base rent per occupied square foot was $6.22.$6.27. As of December 31, 2018,2019, the weighted average building age, based on the square footage of our buildings, was 8.69.2 years. We also own a portfolio of REIT investment securities, which we generally limit to no more than approximately 10% of our undepreciated assets (which is our total assets, excluding accumulated depreciation). Total assets excluding accumulated depreciation were $2,046,860,425 as of December 31, 2018. We held $145,810,088$181.8 million in marketable REIT securities as of December 31, 2018,2019, representing 7.1%8.2% of our undepreciated assets, which we define as total assets excluding accumulated depreciation. It is our goal to gradually reduce the size of our marketable REIT securities portfolio to no more than approximately 5% of our undepreciated assets. Total assets excluding accumulated depreciation were $2.2 billion as of December 31, 2019.

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

In December 2017, as part of the Tax Cuts and Jobs Act of 2017 (the TCJA), 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 TCJA, subject to certain income limitations, an individual taxpayer and estates and trusts 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 or qualifiednon-qualified dividend income.

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 our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the three months ended December 31, 20182019 are not necessarily indicative of the results that may be expected for the year ending September 30, 2019.2020. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our annual reportAnnual Report on Form 10-K for the fiscal year ended September 30, 2018.2019.

Use of Estimates

In preparing the financial statements in accordance with U.S. GAAP, we 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.

Reclassification

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

Stock Compensation Plan

We account for awards of stock, stock options and restricted stock in accordance with ASC 718-10, “Compensation-Stock Compensation”.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 stock awards and restricted stock awards is equal to the fair value of our stock on the grant date. The amortization of compensation costs for the awards of stock, stock option grants and restricted stock are included in General and Administrative Expenses in the accompanying Consolidated Statements of Income (Loss) and amounted to $129,026$156,000 and $130,763$129,000 for the three months ended December 31, 2019 and 2018, and 2017, respectively.

Employee Stock Option [Member]

During the three months ended December 31, 2019, no stock options were granted. During the three months ended December 31, 2018, the following stock options, which vest one year after grant date, were granted under our Stock Option Plan:

During the three months ended December 31, 2017, no stock options were granted.SUMMARY OF STOCK OPTIONS OUTSTANDING

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:

SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS

The weighted-average fair value of options granted during the three months ended December 31, 2018 was $1.19$1.19 per share subject to the option.

During the three months ended December 31, 2019, 0 shares of restricted stock were granted. During the three months ended December 31, 2018, and December 31, 2017, 25,000 and 12,500 shares of restricted stock were granted, respectively.granted. During the three months ended December 31, 2019, one participant exercised options to purchase 65,000 shares of common stock at a price of $9.33 per share for total proceeds of $606,000. During the three months ended December 31, 2018, no options were exercised. During the three months ended December 31, 2017, two participants exercised options awarded under the Plan to purchase an aggregate of 20,000 shares of common stock at an exercise price of $14.24 per share for total proceeds of $284,800. As of December 31, 2018,2019, a total of 1,261,8721.2 million shares were available for grant as stock options, as restricted stock, or other equity basedequity-based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised. As of December 31, 2018,2019, there were outstanding options to purchase 1,080,0001.0 million shares with an aggregate intrinsic value of $1,002,300.$1.6 million.

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 became effective for our fiscal year beginning October 1, 2018. The most significant change for us, once ASU 2016-01 was adopted, was the accounting treatment for our investments in marketable securities that are classified as available for sale. The accounting treatment used for our Consolidated Financial Statements through Fiscal 2018 was that our investments in marketable securities, classified as available for sale, were carried at fair value, with net unrealized holding gains and losses being excluded from earnings and reported as a separate component of Shareholders’ Equity until realized and the change in net unrealized holding gains and losses being reflected as comprehensive income (loss). Under ASU 2016-01, effective October 1, 2018, these marketable securities continue to be measured at fair value, however the changes in net unrealized holding gains and losses are now recognized through net income on our Consolidated Statements of Income (Loss). On October 1, 2018, unrealized net holding losses of $24,744,579 were reclassed to beginning Undistributed Income (Loss) to recognize the unrealized losses previously recorded in “accumulated other comprehensive income” on our consolidated balance sheets.

In February 2016, the FASB issued ASU 2016-02, “Leases”.“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 lessee and 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. 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 leasesnet-leases and since we currently dopreviously did 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 oncepreviously did prior to the adoption of the ASU 2016-02 becomes effective.on October 1, 2019. In addition, the guidance requires lessees to recognize assets and liabilities for operating leases with lease terms greater than twelve months on the balance sheet. Therefore, the most significant impact for us may beis the recognition of our corporate office lease, while accounting where we are the lessor will remainremains substantially the same. Upon adoption, we may recognize ancalculated the asset and lease liability equal to the present value of the minimum lease payments due under our corporate office lease.lease and determined that the asset and lease liability was immaterial to our Consolidated Financial Statements. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”.Leases.” The amendment in ASU 2018-10 affects narrow aspects of the guidance issued earlier in ASU 2016-02 by removing certain inconsistencies and providing additional clarification related to the guidance issued earlier. We are currently evaluating the potential impact this standard may have on our consolidated financial statements and expect that the adoption of this standard will not have a significant impact on our consolidated financial statements and related disclosures. In December 2018, the FASB issued ASU 2018-20 “Narrow-Scope Improvements for Lessors”.Lessors.” Similar to ASU 2018-10, 2018-20 affects narrow aspects of the guidance issued earlier in ASU 2016-02 as well by providing additional clarification related to the guidance issued earlier. The most significant changes related to lessor accounting under ASU 2018-20 is the clarification of how to treat payments made by a lessee directly to a third party, such as real estate taxes paid by the lessee directly to the taxing authority, whereby items paid directly by the lessee to a third party should not be reflected in the lessors income statement and, thus, should not be bifurcated into revenue.and included in revenue and operating expenses. A majority of our reimbursable expenses are paid by us and are billed back to our lessees. Therefore, these reimbursable expenses will continue to be presented separately by bifurcating these revenue and expense items in our Consolidated Statements of Income. We are currently evaluating the potential impact this standard may have on our consolidated financial statements and expect that the adoption of this standard will not have a significant impact on our consolidated financial statements and related disclosures other than, any of these types of payments made by a lessee directly to a third party will no longer be presented on a gross basis in our Consolidated Statements of Income, which will have a net zero effect on our Net Income Attributable to Common Shareholders. ASU 2016-02, 2018-10 and 2018-20 are effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2018. Therefore, we expect to adoptadopted these standards effective October 1, 2019.

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 from Contracts with Customers (Topic 606): Narrow-Scope Improvements2019 and Practical 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, we adopted the standard effective October 1, 2018. Our 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, the adoption of this standardthese standards did not have a significant impact on our consolidated financial statements and related disclosures. The only effect the adoption of these standards had on our consolidated financial statements and related disclosures effective October 1, 2019 are instances where certain types of payments are made by a lessee directly to a third party whereas these payments are no longer presented on a gross basis in our Consolidated Statements of Income, which have an immaterial effect on our reported revenue and a net zero effect on our Net Income Attributable to Common Shareholders. In addition, in order to conform to the current period’s presentation, Real Estate Taxes and Reimbursement Revenue for the three months ended December 31, 2018 were reduced by $925,000 for the amount of Real Estate Taxes made by a lessee directly to a third party during the quarter ended December 31, 2018.

We 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.

Segment Reporting & Financial Information

Our primary business is the ownership and management of real estate properties. We invest in well-located, modern, single tenant,single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net leases.net-leases. We review operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. We evaluate financial performance using Net Operating Income (NOI) from property operations. NOI is a 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. We 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 leasesnet-leases primarily to investment-grade tenants or their subsidiaries.

Derivative Financial Instruments

As further discussed in “Note 5 – Debt”, on November 15, 2019, we entered into a $75.0 million unsecured term loan. The term loan bears interest using the London Interbank Offered Rate (LIBOR) variable rate plus an applicable spread. To reduce floating interest rate exposure under the term loan, we also entered into an interest rate swap agreement to fix LIBOR on the entire $75.0 million for the full duration of the term loan resulting in an all-in rate of 2.92%. This interest rate swap agreement is considered a derivative financial instrument used to manage our exposure to fluctuations in interest rates on our term loan. Derivative financial instruments must be effective in reducing our interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income. We have not entered into, and we do not plan to enter into, derivative financial instruments for trading or speculative purposes. As of December 31, 2019, we believe we do not have any significant risk associated with non-performance of the financial institutions that are the counterparty to our derivative contract. Our interest rate swap agreement is deemed effective and is classified as a cash flow hedge. Therefore, charges or credits relating to the changes in fair values of our effective interest rate swap are made to Other Comprehensive Income. As of December 31, 2019, we have determined that the effect on our Consolidated Balance Sheet and Other Comprehensive Income relating to the fair value of our interest rate swap was immaterial to our Consolidated Financial Statements.

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 for the period and, when dilutive, the potential net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.

In addition, common stock equivalents of 154,323125,000 and 211,382154,000 shares are included in the diluted weighted average shares outstanding for the three months ended December 31, 20182019 and 2017,2018, respectively. For the diluted weighted average shares outstanding for the three months ended December 31, 2019 and 2018, and 2017, 130,000 and -0- options to purchase shares of common stock were antidilutive.antidilutive for each period respectively.

NOTE 3 – REAL ESTATE INVESTMENTS

On October 19, 2018,10, 2019, we purchased a newly constructed 347,145616,000 square foot industrial building, situated on 62.078.6 acres, located in Trenton, NJ.the Indianapolis, IN Metropolitan Statistical Area (MSA). The building is 100% net-leased to FedEx Ground Package System,Amazon.com Services, Inc. for 15 years through June 2032.August 2034. The lease is guaranteed by Amazon.com, Inc. The purchase price was $85,248,352.$81.5 million. We obtained a 15an 18 year, fully-amortizing mortgage loan of $55,000,000$52.5 million at a fixed interest rate of 4.13%4.27%. Annual rental revenue over the remaining term of the lease averages approximately $5,328,000.$5.0 million.

On November 30, 2018, we purchased a newly constructed 126,520 square foot industrial building, situated on 29.4 acres, located in Savannah, GA. The building is 100% net-leased to FedEx Ground Package System,Amazon.com, Inc. for 10 years through October 2028. The purchase price was $27,832,780. We obtained a 15 year, fully-amortizing mortgage loan of $17,500,000 at a fixed interest rate of 4.40%. Annual rental revenue over the remaining term of the lease averages approximately $1,755,000.

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation is a publicly-owned company and financial information related to this entity is available at the SEC’s website,www.sec.gov. The references in this report to the SEC’s website are not intended to and do not include, or incorporate by reference into this report, the information on thewww.sec.gov website.

We evaluated the property acquisitionsacquisition which took place during the three months ended December 31, 2018,2019, to determine whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU 2017-01. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Accordingly, we accounted for the two propertiesproperty purchased during fiscal 20192020 as an asset acquisitionsacquisition and allocated the total cash consideration, including transaction costs of approximately $324,000,$13,000, to the individual assetsasset acquired on a relative fair value basis. There were no liabilities assumed in these acquisitions. this acquisition.

The financial information set forth below summarizes our purchase price allocation for these two propertiesthis property acquired during the three months ended December 31, 20182019 that areis accounted for as an asset acquisitions:acquisition (in thousands):

SCHEDULE OF PROPERTIES ACQUIRED DURING PERIOD ACCOUNTED FOR ASSET ACQUISITIONS

The following table summarizes the operating results included in our consolidated statements of income (loss) for the three months ended December 31, 20182019 for the two propertiesproperty acquired during the three months ended December 31, 2018:on October 10, 2019 (in thousands):

Expansions

Subsequent to the quarter end, we completed a 154,800 square foot property expansion at our property located in Monroe (Cincinnati), OH for a total project cost of approximately $9,072,000. The expansion resulted in a new 15 year lease which extended the prior lease expiration date from February 2030 to January 2034. The expansion also resulted in an increase in initial annual rent effective February 1, 2019 by approximately $862,000 from approximately $961,000, or $4.14 per square foot, to approximately $1,823,000, or $4.71 per square foot. In addition, the annual rent will increase by 2% per annum.

Dispositions

We have not had any dispositions thus far in fiscal 2019. During fiscal 2018, there were two leases that were set to expire with Kellogg Sales Company (Kellogg) at our 65,067 square foot facility in Kansas City, MO through July 31, 2018 and at our 50,400 square foot facility 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.

Since the sale of these two properties did not represent a strategic shift that had a major effect on our operations and financial results, the operations generated from these properties were not included in Discontinued Operations.

The following table summarizes the operations of the two properties that were sold during the prior year quarter, prior to their sales, that are included in the accompanying Consolidated Statements of Income for the three months ended December 31, 2018 and 2017.

Pro forma information

SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME FOR PROPERTIES ACQUIRED

Proforma information

The following unaudited pro formapro-forma condensed financial information has been prepared utilizing our historical financial statements and the effect of additional revenue and expenses generated from propertyproperties acquired and expanded during fiscal 20192020 to date, and during fiscal 2018,2019, assuming that the acquisitions and completed expansions had occurred as of October 1, 2017,2018, 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. In addition, Net Income (Loss) Attributable to Common Shareholders excludesacquisitions and expansions. Furthermore, the operations, including the exclusion of the related realized gain, of the four properties sold during fiscal 2018. Furthermore, thenet proceeds raised from our 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 pro forma Basic and Diluted Net Income (Loss) 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, 2017.2018. Additionally, the net proceeds raised from the issuance of our 6.125%6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125% Series C Preferred Stock), through our At-The-Market Sales Agreement Program were used to help fund property acquisitions and, therefore, the pro forma preferred dividend has been adjusted to account for its effect on pro formapro-forma Net Income (Loss) Attributable to Common Shareholders as if all the preferred stock issuances had occurred on October 1, 2017. 2018.

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.

SCHEDULE OF PRO FORMA INFORMATION

Tenant Concentration

We have a concentration of FedEx Corporation (FDX) and FDX subsidiary-leased properties, consisting of 6160 separate stand-alone leases covering approximately 10,465,00010.4 million square feet as of December 31, 20182019 and 5961 separate stand-alone leases covering approximately 9,513,00010.5 million square feet as of December 31, 2017.2018. As of December 31, 2018,2019, the 6160 separate stand-alone leases that are leased to FDX and FDX subsidiaries are located in 25 different states and have a weighted average lease maturity of 9.3 8.4 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental space was 49% (5% 45% (5% to FDX and 44% 40% to FDX subsidiaries) as of December 31, 20182019 and 50% (8% 49% (5% to FDX and 42% 44% to FDX subsidiaries) as of December 31, 2017. 2018. As of December 31, 2018, no other tenant accounted for2019, the only tenants that leased 5% or more of our total square footage were FDX and its subsidiaries and Amazon.com Services, Inc., which consists of four separate stand-alone leases for properties located in four different states, containing 1.4 million total square feet, comprising approximately 6% of our total rental space.square feet. None of our properties are subject to a master lease or any cross-collateralization agreements.

Annualized Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 60% (5%56%5% to FDX and 55%51% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2019,2020, and was 60% (7%5% to FDX and 53%55% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2018. No2019. The only tenants estimated to comprise 5% or more of our total Rental Reimbursement Revenue during the three months ended December 31, 2019 were FDX and its subsidiaries and Amazon.com Services, Inc., which is estimated to be 7% of our Annualized Rental and Reimbursement Revenue. For the three months ended December 31, 2018, no tenant, other tenantthan FDX and its subsidiaries, accounted for 5% or more of our total Rental and Reimbursement Revenue for the three months ended December 31, 2018Revenue.

FDX and 2017.

FDX is aAmazon.com, Inc. are publicly-owned companycompanies and financial information related to this entity isthese entities are available at the SEC’s website,www.sec.gov. FDX isand Amazon.com, Inc. are rated “BBB” and “AA-”, respectively by S&P Global Ratings (www.standardandpoors.com) and isare rated “Baa2” and “A3”, respectively 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, Amazon.com, Inc., S&P Global Ratings or Moody’s on such websites.

In addition to real estate property holdings, we held $145,810,088$181.8 million in marketable REIT securities at December 31, 2018,2019, representing 7.1%8.2% of our undepreciated assets (which is our total assets excluding accumulated depreciation). These liquid real estate holdings are not included in calculating the tenant concentration ratios above and therefore further enhance our diversification.

One of our tenants, Kellogg Sales Company, that leases our 55,000 square foot facility located in Newington, CT through February 29, 2020 informed us that they would not be renewing their lease. We have entered into a contract to sell this property for $4.0 million. The securities portfolio provides ussale is expected to close in conjunction with additional liquidity, diversificationthe lease expiration, at which time we expect to realize a gain of $1.8 million, representing a 52% gain over the depreciated U.S. GAAP basis and incomerealized a net gain of $298,000, representing a 9% net gain over our historic undepreciated cost basis. Since the future sale of this property will not represent a strategic shift that will have a major effect on our operations and serves as a proxy for real estate when more favorable risk adjusted returnsfinancial results, the operations generated from this property are not available.included in Discontinued Operations.

The following table summarizes (in thousands) the operations that are included in the accompanying Consolidated Statements of Income for the three months ended December 31, 2019 and 2018 for this property that is expected to be sold during our second quarter of fiscal 2020.

SUMMARY OF INCOME FROM PROPERTY IS EXPECTED TO BE SOLD DURING THE SECOND QUARTER

NOTE 4 – SECURITIES AVAILABLE FOR SALE AT FAIR VALUE

Our Securities Available for Sale at Fair Value consists primarily of marketable common and preferred stock of other REITs with a fair value of $145,810,088$181.8 million as of December 31, 2018. We generally limit2019, representing 8.2% of our investment inundepreciated assets, which we define as total assets excluding accumulated depreciation. It is our goal to gradually reduce the size of our marketable REIT securities portfolio to no more than approximately 10%5% of our undepreciated assets (which is our total assets excluding accumulated depreciation).assets. Total assets excluding accumulated depreciation were $2,046,860,425$2.2 billion as of December 31, 2018.2019. We held $145,810,088 in marketable REIT securities as of December 31, 2018, representing 7.1% ofcontinue to believe that our undepreciated assets. The REIT securities portfolio provides us with additionaldiversification, income, a source of potential liquidity diversificationwhen needed and income andalso serves as a proxy for real estate when more favorable risk adjusted returns are not available.available in the private real estate markets. Our decision to reduce this threshold mainly stems from the implementation of accounting rule ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which took effect during the prior fiscal year. This new rule requires that quarterly changes in the market value of our marketable securities flow through our Consolidated Statements of Income (Loss). The implementation of this accounting rule has resulted in increased volatility in our reported earnings and some of our key performance metrics. Going forward, to achieve our threshold investment goal, we will continually evaluate opportunities to optimize our REIT securities portfolio.

We recognized dividend income on our investments in securities of $3.2 million for the three months ended December 31, 2019. During the three months ended December 31, 2018,2019, we did not sell or redeem any securities. In addition, we recognized dividend income on our investment inThere have been no open market purchases of securities of $4,331,260 forduring the three months ended December 31, 2018. We also made purchases2019. The only securities purchased during the three months ended December 31, 2019 were 15,000 shares for a total cost of $33,516,432 in Securities Available for Sale at Fair Value. Of this amount, we made total purchases of 17,460 common shares$226,000, of UMH Properties, Inc. (UMH), a related REIT, for a total cost of $213,880, or an average cost of $12.25 per share, which were purchased through UMH’sits Dividend Reinvestment and Stock Purchase Plan. We owned a total of 1,205,6801.3 million UMH common shares as of December 31, 20182019 at a total cost of $12,274,517$13.2 million and a fair value of $14,950,430$20.0 million representing 3.1% of the outstanding common shares of UMH. In addition, as of December 31, 20182019, we own owned 100,000 shares of UMH’s 8.00% Series B Cumulative Redeemable Preferred Stock at a total cost of $2,500,000$2.5 million with a fair value of $2,551,000.$2.6 million. The unrealized gain on our investment in UMH’s common and preferred stock as of December 31, 20182019 was $2,726,913.$6.9 million.

As of December 31, 2018,2019, we had total net unrealized holding losses on our securities portfolio of $67,371,468.$53.1 million. As a result of the adoption of ASU 2016-01, as of October 1, 2018, $42,626,889$3.6 million of the net unrealized holding losses have been reflected as Unrealized Holding LossesGains (Losses) Arising During the PeriodPeriods in the accompanying Consolidated Statements of Income (Loss) andfor the remaining $24,744,579 of the net unrealized holding losses have been reflected as a reclass to beginning Undistributed Income (Loss).three months ended December 31, 2019.

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. We normally hold REIT securities long-term and have the ability and intent to hold these securities to recovery. We have determined that none of our security holdings are other than temporarily impaired and therefore all unrealized gains and losses from these securities have been recognized as Unrealized Holding LossesGains (Losses) Arising During the PeriodPeriods in our Consolidated Statements of Income (Loss).Income. If we were to determine any of our securities to be other than temporarily impaired, we would recordpresent these unrealized holding losses as an impairment charge in our Consolidated Statements of Income (Loss).

NOTE 5 – DEBT

For the three months ended December 31, 20182019 and 2017,2018, amortization of financing costs included in interest expense was $317,113were $435,000 and $293,894,$317,000, respectively.

As of December 31, 2018, 2019, we owned 113115 properties, of which 6360 carried Fixed Rate Mortgage Notes Payable with outstanding principal balances totaling $780,147,204.$792.1 million. The following is a summary of our Fixed Rate Mortgage Notes Payable as of December 31, 20182019 and September 30, 2018:2019 (in thousands):

(1) Weighted average interest rate excludes amortization of debt issuance costs.SUMMARY OF FIXED RATE MORTGAGE NOTES PAYABLE

As of December 31, 2018,2019, interest payable on these mortgages were at fixed rates ranging from 3.45% to 7.60%6.875%, with a weighted average interest rate of 4.08%4.05%. This compares to a weighted average interest rate of 4.07%4.03% as of September 30, 20182019 and 4.16%4.08% as of December 31, 2017.2018. As of December 31, 2018,2019, the weighted average loan maturity of the Fixed Rate Mortgage Notes Payable was 11.811.5 years. This compares to a weighted average loan maturity of the Fixed Rate Mortgage Notes Payable of 11.711.3 years as of September 30, 20182019 and 11.511.8 years as of December 31, 2017.2018.

In connection with the two propertiesone property acquired during the three months ended December 31, 2018,2019, which areis located in Trenton, NJ and Savannah, GAIndianapolis, IN (as described in Note 3), we obtained two 15an 18 year fully-amortizing mortgage loans. The two mortgage loans originally totaled $72,500,000 withloan of $52.5 million at a weighted averagefixed interest rate of 4.20%4.27%.

AsOn November 15, 2019, we entered into a new line of December 31, 2018, Loans Payable represented the amount drawn down on our $200,000,000credit facility (the “New Facility”) consisting of a $225.0 million unsecured line of credit facility (the Facility)“Revolver”) and a new $75.0 million unsecured term loan (the “Term Loan”), resulting in the amount of $110,000,000total potential availability under both the Revolver and the amount drawn down on our margin loanTerm Loan of $15,814,547.

$300.0 million, which is an additional $100.0 million over the former line of credit facility. In addition, the Revolver includes an accordion feature that will allow the total potential availability under the New Facility to further increase to $400.0 million, under certain conditions. The Facility$225.0 million Revolver matures in September 2020January 2024 with a one year extension at our option (subjecttwo options to various conditions as specified in the loan agreement)extend for additional six-month periods. During the three months ended December 31, 2018 we paid down our Facility by $50,000,000. Availability under the New 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 capitalization rate to the NOI generated by our unencumbered, wholly-owned industrial properties. Effective, March 22, 2018,Under the New Facility the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties was lowered from 7.0%6.5% under the former line of credit facility to 6.5%6.25%, thus increasing the value of the borrowing base properties under the terms of the agreement. BorrowingsNew Facility. In addition, the interest rate for borrowings under the Facility,Revolver was lowered by a range of 5 basis points to 35 basis points, depending on our leverage ratio and will at our election, either i) bear interest at LIBOR plus 140135 basis points to 220205 basis points, depending on our leverage ratio, or ii) bear interest at Bank of Montreal’s (BMO) prime lending rate plus 35 basis points to 105 basis points, depending on our leverage ratio. Currently, our borrowings bear interest under the Revolver at LIBOR plus 145 basis points, which results in an interest rate of 3.25%. The $75.0 million Term Loan matures January 2025. The interest rate for borrowings under the Term Loan, at our election, will either i) bear interest at LIBOR plus 130 basis points to 200 basis points, depending on our leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 4030 basis points to 120100 basis points, depending on our leverage ratio. Our borrowings asTo reduce floating interest rate exposure under the Term Loan, we also entered into an interest rate swap agreement to fix LIBOR on the entire $75.0 million for the full duration of the Term Loan resulting in an all-in rate of 2.92%.

As of December 31, 2018, based2019, Loans Payable represented the amount drawn down on our leverage ratio, bear interest at LIBOR plus 170 basis points, which represented an interest rate$225.0 million Revolver in the amount of 4.22%. In addition,$5.0 million and $75.0 million outstanding under our Term Loan. Subsequent to the quarter end, we have a $100,000,000 accordion feature, bringingpaid down the total potential availabilityremaining amount outstanding under the Facility (subject to various conditions as specifiedRevolver, resulting in the loan agreement) up to $300,000,000.full $225.0 million being currently available under the Revolver.

We also invest in equity securities of other REITs which provides us with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable risk adjusted returns are not available. From time to time we may purchase theseuse a margin loan for temporary funding of acquisitions and for working capital purposes. This loan is due on demand and is collateralized by our securities portfolio. We must maintain a coverage ratio of approximately 50%. The interest rate charged on the margin whenloan is the interestbank’s margin rate and dividend yields exceed the costwas 2.25% as of funds. In general, we may borrow up to 50% of the value of the marketable securities, which was $145,810,088December 31, 2019 and 3.0% as of December 31, 2018. AsAt December 31, 2019, there were 0 amounts drawn down under the margin loan and as of December 31, 2018 we had $15,814,547$15.8 million was drawn againstdown under the margin at an interest rate of 3.0%.loan.

NOTE 6 – SHAREHOLDERS’ EQUITY

Our authorized stock as of December 31, 20182019 consisted of 188,039,750200.0 million shares of common stock, of which 92,335,11597.6 million shares were issued and outstanding, 16,400,00021.9 million authorized shares of 6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125%6.125% Series C Preferred Stock),Stock, of which 11,532,44515.7 million shares were issued and outstanding, and 200,000,000200.0 million authorized shares of Excess Stock, $0.01$0.01 par value per share, of which noneNaN were issued or outstanding.

Common Stock

Common Stock

In October 2018, we completed a public offering of 9,200,000 shares of our Common Stock (including the underwriters’ option to purchase 1,200,000 additional shares) at a price of $15.00 per share, before underwriting discounts. We received net proceeds from the offering, after deducting underwriting discounts and all other transaction costs, of approximately $132,338,000.

We raised $22,110,506$15.5 million (including dividend reinvestments of $4,515,081)$4.2 million) from the issuance of 1,606,9811.1 million shares of common stock under our DRIP during the three months ended December 31, 2018.2019. During the three months ended December 31, 2018,2019, we paid $15,569,911$16.5 million in total cash dividends, or $0.17$0.17 per share, to common shareholders, of which $4,515,081$4.2 million was reinvested in the DRIP, representing a 29%26% participation rate.

On January 16, 2019,2020, our Board of Directors declared a dividend of $0.17$0.17 per share to be paid March 15, 201916, 2020 to common shareholders of record as of the close of business on February 15, 2019.18, 2020.

On January 16, 2019,2020, our Board of Directors authorized a $40,000,000 increase to our previously announcedreaffirmed its Common Stock Repurchase Program (the “Program”), bringing that authorizes the total available under the ProgramCompany to $50,000,000.purchase up to $50.0 million of shares of our common stock. The timing, manner, price and amount of any repurchase will be determined by us at our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. To date, we have not repurchased any common stock pursuant to the Program and we may elect not to repurchase any common stock in the future. The Program does not have a termination date and may be suspended or discontinued at our discretion without prior notice.

6.125% Series C Cumulative Redeemable Preferred Stock

During the three months ended December 31, 2018,2019, we paid $4,414,770$5.9 million in Preferred Dividends, or $0.3828125$0.3828125 per share, on our outstanding 6.125%6.125% Series C Cumulative Redeemable Preferred Stock $0.01 par value per share, with a liquidation preference of $25.00 per share (6.125% Series C preferred stock) for the period September 1, 20182019 through November 30, 2018.2019. As of December 31, 2018,2019, we have accrued Preferred Dividends of $1,471,588$2.0 million covering the period December 1, 20182019 to December 31, 2018.2019. Dividends on the 6.125% Series C Preferred Stock are cumulative and payable quarterly at an annual rate of $1.53125$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 our 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%6.125% Series C Preferred Stock will be redeemable in whole, or in part, at our option, at a cash redemption price of $25.00$25.00 per share, plus all accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption. On January 16, 2019,2020, our Board of Directors declared a dividend of $0.3828125$0.3828125 per share to be paid March 15, 201916, 2020 to the 6.125%6.125% Series C Preferred shareholders of record as of the close of business on February 15, 2019.18, 2020.