UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 20202021

☐ 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)

101 Crawfords Corner Road, Suite 1405, Holmdel, NJ 07733

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code (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 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 ☒ 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 ☒ 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:

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 ☒

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of February 1, 2021:2022: 98,300,61498,486,382

MONMOUTH REAL ESTATE INVESTMENT CORPORATION

AND SUBSIDIARIES

FOR THE QUARTER ENDED DECEMBER 31, 20202021

C O N T E N T SCONTENTS

PART I:

FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 20202021 AND SEPTEMBER 30, 20202021

(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, 20202021 AND SEPTEMBER 30, 20202021

(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 (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20202021 AND 20192020

(in thousands)

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20202021 AND 20192020 – CONTINUED

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20202021 AND 20192020

(in thousands)

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 20202021 AND 20192020

(in thousands, except per share data)

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 DECEMBER 31, 20202021 AND 20192020

(in thousands)

See Accompanying Notes to Consolidated Financial Statements

MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 20202021

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

Monmouth Real Estate Investment Corporation, a Maryland corporation, together with its consolidated subsidiaries (we, our, us, the Company, Monmouth 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, 2020,2021, we owned 121123 properties with total rentable square footage of 24.525.2 million, as compared to 119122 properties with total rentable square footage of 23.424.9 million as of September 30, 2020.2021. Our 99.7% overall occupancy rate remained unchanged at the end of the quarter was 99.7%as compared to 99.4% as of September 30, 2020.2021 and has been 98.9% or above for over six consecutive years. Our properties are located in 3132 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, Utah, Vermont, Virginia, Washington and Wisconsin. As of the quarter ended December 31, 2020,2021, our weighted average lease maturityterm was 7.57.1 years and our annualized average base rent per occupied square foot was $6.526.69. As of December 31, 2020,2021, the weighted average building age, based on the square footage of our buildings, was 9.510.2 years.

The future effectsAs previously announced, on November 5, 2021, we entered into a definitive merger agreement with Industrial Logistics Properties Trust, a Maryland real estate investment trust (“ILPT”), under which, on the terms and subject to the conditions set forth in the merger agreement, ILPT will acquire us in an all-cash transaction, with our common shareholders receiving $21.00 in cash per share upon the consummation of the evolving impacttransaction. ILPT’s acquisition of us is subject to obtaining the requisite approval of our common shareholders, the special meeting of shareholders for which is scheduled to take place on February 17, 2022, and the satisfaction of other customary closing conditions. Upon closing of the COVID-19 Pandemicmerger with ILPT, holders of our outstanding 6.125% Series C Cumulative Redeemable Preferred Stock (“6.125% Series C Preferred Stock”) will receive $25.00 in cash per share plus accumulated and unpaid dividends to, but not including, the date the merger is completed. As permitted by the merger agreement with ILPT, we plan to continue to pay our regular quarterly common stock dividend and our 6.125% Series C Preferred Stock dividend for each full quarterly dividend period completed prior to the closing of the transaction, in amounts not exceeding $0.18 per share for our common stock and equal to $0.3828125 per share for our 6.125% Series C Preferred Stock. This transaction with ILPT represents the culmination of the publicly announced comprehensive strategic alternatives review processes conducted by our Board of Directors (“Board of Directors” or the “Board”) during 2021. Our Board re-initiated its strategic alternatives review process in September 2021 after a previous agreement for a stock-for-stock merger that we entered into with another party, following a strategic alternatives review process in the first half of calendar year 2021, did not receive the requisite approval of our shareholders.

As discussed in Note 10, subsequent to quarter end, on January 28, 2022, we purchased a newly constructed 530,000 square foot industrial building, situated on 53.5 acres, located in the Birmingham, AL Metropolitan Statistical Area (MSA). The building is 100% net-leased to Mercedes Benz US International, Inc. for 10 years through November 2031. The property was acquired for a purchase price of $51.7 million. Annual rental revenue over the remaining term of the lease averages $3.3 million. With the addition of this new acquisition, we currently have 124 properties consisting of 25.7 million rentable square feet which are uncertain, however, at this time COVID-19 has not hadlocated in 32 states with a material adverse effect on our financial condition. weighted average lease term of 7.2 years and an annualized average base rent per occupied square foot of $6.69.

We invest in modern single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. Our investments are exclusively situated in the continental United States, and are primarily located in strategic locations that are mission-critical to our tenants’ needs. In many cases our buildings are highly automated in order to better serve the omni-channel distribution networks that have become essential today. Approximately 82%83% of our revenue is derived from investment-grade tenants, or their subsidiaries as defined by S&P Global Ratings (www.standardandpoors.com)(www.standardandpoors.com) and by Moody’s (www.moodys.com)(www.moodys.com). The references in this report to S&P Global Ratings and Moody’s are not intended to and do not include, or incorporate by reference into this report, the information of S&P Global Ratings or Moody’s on such websites.

For many years, ecommerce demand has increased, and it has now become an integral part of the retail landscape. The COVID-19 Pandemic has created an even greater move towards on-line shopping. As a result of state and local government-mandated shutdowns, public health guidance and changing consumer demand, ecommerce sales as a percentage of total retail sales increased from approximately 15% to 27% during the last two quarters. It is estimated that ecommerce sales require three times the warehouse space relative to brick and mortar retail sales. The COVID-19 Pandemic has also created a need for supply chain reconfiguration. Increased inventory stocking is currently taking place across many industries and it appears that this trend will continue in order to accommodate surges in demand. Additionally, U.S. manufacturing has been increasing in recent years and the COVID-19 Pandemic has accelerated this trend as supply chains now prefer shorter distances and less reliance on foreign sources.

Our portfolio of modern, net-leased industrial properties continues to provide shareholders with reliable and predictable income streams. Our resilient high occupancy rates and rent collection results during these challenging times highlight the mission-critical nature of our assets and underscore the essential need for our tenants’ operations. Furthermore, because our weighted average lease maturityterm is 7.57.1 years and our weighted average fixed rate mortgage debt maturity is 11.510.7 years, we expect our cash flow to remain resilient over long periods of time. Our overall occupancy rate and our base rent collections have remained strong throughoutThroughout the COVID-19 Pandemic. OurPandemic, our overall occupancy rate has been over 99% throughoutand is 99.7% as of the Pandemic and has recently increased to 99.7% during the current quarter.quarter end. Our base rent collections have averaged 99.8%remained strong, averaging 99.9% throughout the COVID-19 Pandemic, and we expect future months to be consistent with this trend.

US industrial real estate market conditions are as strong as they have ever been with record high asking rents, a robust development pipeline, and an all-time high occupancy rate of 97%. Companies are leasing space at record levels to handle the large increase in ecommerce sales as well as the need for safety stock to counter supply chain disruptions. Construction costs are rising dramatically due to the long lead times for sourcing materials. The amount of new construction for US industrial real estate has been increasing for several years as more industrial space is needed to handle direct-to-consumer distribution. It is estimated that ecommerce sales require three times the amount of warehouse space relative to brick and mortar retail sales. These new buildings are often highly automated and have much larger truck courts and parking requirements. Because modern industrial buildings are built to handle both wholesale distribution as well as direct to consumer distribution, they are known as omni-channel facilities. The West coast ports are continuing to experience severe bottlenecks in processing imports and as a result much container traffic is being diverted towards the Gulf and East coast ports. Given our geographic footprint, this trend is a very favorable one for us.

Income Tax

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.REIT. 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 taxpayertaxpayers and trusts and estates and trusts may deduct 20%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 non-qualifiedqualified dividend income.

We follow the provisions of ASC Topic 740, Income Taxes, that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on our evaluation, we determined that we have no uncertain tax positions and no unrecognized tax benefits as of December 31, 2020.2021. We record interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of December 31, 2020,2021, the fiscal tax years 20172018 through and including 20202021 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.

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, 20202021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021.2022. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021.

Use of Estimates

In preparing the financial statements in accordance with U.S. GAAP,accounting principles generally accepted in the United States of America (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.periods. 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.” 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 and amounted to $57,00094,000 and $156,00057,000 for the three months ended December 31, 20202021 and 2019,2020, respectively.

During the three months ended December 31, 2021, the following stock option, which by its terms vests one year after grant date, was granted under our Stock Option Plan:

SUMMARY OF STOCK OPTIONS GRANTED DURING PERIOD

During the three months ended December 31, 2020, and 2019, 0no stock options were granted. During

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 the stock option grant in fiscal 2022:

SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS

The weighted average fair value of the option granted during the three months ended December 31, 20202021 was $2.05 per share subject to the option.

During the three months ended December 31, 2021 and 2019,2020, 0 shares of restricted stock were granted. During the three months ended December 31, 2021, two participants exercised options to purchase 71,000 shares of common stock at a weighted average price of $9.34 per share for total proceeds of $662,940. In addition, during the three months ended December 31, 2021, two participants exercised a net exercise of stock options. The two participants received 81,819 shares of common stock from the net exercise of options to purchase 449,978 shares of common stock at a weighted average exercise price of $13.68. During the three months ended December 31, 2020, two participants exercised options to purchase 130,000 shares of common stock. The first participant exercised options to purchase 65,000 shares of common stock at a weighted average price of $10.4612.05 per share for total proceeds of $680,0001.6 and the second participant exercised options to purchase 65,000 shares of common stock at a price of $13.64 per share for total proceeds of $887,000. Subsequent to the December 31, 2020 quarter end, a third participant exercised options to purchase 29,000 shares of common stock at a weighted average price of $13.79 per share for total proceeds of $400,000. 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.million. As of December 31, 2020,2021, a total of 1.21.1 million shares were available for grant as stock, stock options, restricted stock, or other equity-based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised. As of December 31, 2020,2021, there were outstanding options to purchase 820,000370,000 shares with an aggregate intrinsic value of $3.32.2 million.

Under the terms of the definitive merger agreement with ILPT, upon closing of the merger, each outstanding stock option, whether vested or unvested and each restricted stock award outstanding will become fully vested and converted into the right to receive, in the case of stock options, the spread between $21.00 per share in cash and the exercise price and, in the case of restricted stock awards, $21.00 per share in cash. All outstanding stock options have an exercise price of less than $21.00 per share.

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 us.

Effective October 1,During the three months ended December 31, 2020, we entered into a lease termination agreement with RGH Enterprises, Inc. (Cardinal Health) for our 75,000 square foot facility located in Halfmoon (Albany), NY whereby we received a termination fee in the amount of $377,000 representing approximately 50% of the then remaining rent due under the lease, which was set to expire in 1.2 years on November 30, 2021. We simultaneously entered into a 10.4 year lease agreement with United Parcel Service, Inc. (UPS) which became effective November 1, 2020. The lease agreement with UPS providesprovided for five months of free rent, after which, on April 1, 2021, initial annual rent of $510,000, representing $6.80 per square foot, will commence,commenced with 2.0%2.0% annual increases thereafter, resulting in a straight-line annualized rent of $541,000, representing $7.21 per square foot over the life of the lease, which expires March 31, 2031. This compares to the former U.S GAAP straight-line rent of $574,000,$574,000, representing $7.65$7.65 per square foot and former cash rent of $8.19$8.19 per square foot, resulting in a decrease of $33,000, representing a 5.8% decrease on a U.S GAAP straight-line basis and a decrease of 17.0% on a cash basis. The new 10.4 year lease agreement with UPS providesprovided for an additional 9.3 years of lease term versus the old lease with Cardinal Health.

Only three of our 121123 properties have leases that contain an early termination provision. These three properties contain 158,000177,000 total rentable square feet, representing less than 0.6%1% of our total rentable square feet. Our leases with early termination provisions are our 36,000 square foot location in Urbandale (Des Moines), IA, our 39,000 square foot location in Rockford, IL, and our 83,000102,000 square foot location in Roanoke, VA.O’Fallon (St. Louis), MO. Each lease termination provision contains certain requirements that must be met in order for the tenant to exercise eachthe termination provision. These requirements include: the date termination can be exercised, the time frame that notice must be given by the tenant to us and the termination fee that would be required to be paid by the tenant to us. The total potential termination fee tofees that would be paidpayable to us from the three tenants with leases that have a termination provision amounts to $1.71.5 million.

Recent Accounting Pronouncements

In April 2020, FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of the COVID-19 Pandemic that allows entities to treat the concession as if it was a part of the existing contract instead of applying lease modification accounting. This guidance is only applicable to the COVID-19 Pandemic related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We have elected this option relating to qualifying rent deferral and rent abatement agreements. For qualifying lease modifications with rent deferrals, this results in no change to our revenue recognition but an increase in the lease receivable balance until the deferred rent has been repaid. For qualifying lease modifications that include rent abatement concessions, this results in a direct reduction of rental income in the current period. As of December 31, 2020, we have entered into rent deferral agreements related to the COVID-19 Pandemic representing approximately $438,000 of base rent otherwise owed during the months of April through October 2020 representing 31 basis points of our total annual base rent. To date, we have collected 78% of this amount.

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, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term 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-leases primarily to investment-grade tenants or their subsidiaries.

Derivative Instruments and Hedging Activities

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our variable rate debt. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of derivative financial instruments. Our primary strategy in entering into derivative contracts is to minimize the variability that changes in interest rates could have on itsour future cash flows. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes. As further described in “Note 5 – Debt”, in November 2019 we entered into an interest rate swap agreement that has the effect of fixing the interest rate on our $75.0 million unsecured term loan (the “Term Loan”).

The interest rate for borrowings under the Term Loan will at our election, 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 30 basis points to 100 basis points, depending on our leverage ratio. The re-pricing and scheduled maturity dates, payment dates, index and the notional amounts of the interest rate swap agreement coincides with those of the underlying Term Loan. The interest rate swap agreement is net settled monthly. The Company has designated this derivative as a cash flow hedge and has recorded the fair value on the balance sheet in accordance with ASC 815, Derivatives and Hedging (See Note 7 for information on the determination of fair value). The effective portion of the gain or loss on this hedge will beis reported as a component of Accumulated Other Comprehensive IncomeLoss on our Consolidated Balance Sheets. To the extent that the hedging relationship is not effective or does not qualify as a cash flow hedge, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as throughthroughout the hedging period. As of December 31, 2020,2021, the Company has determined that this interest rate swap agreement is highly effective as a cash flow hedge. As a result, the fair value of this derivative of $3.91.1 millionand $4.42.2 millionas of December 31, 20202021 and September 30, 2020,2021, respectively, was recorded as a component of Accumulated Other Comprehensive Income (Loss)Loss in the Consolidated Balance Sheets, with the corresponding liability included in Other Liabilities. The change in the fair value of the interest rate swap agreement is reflected in the Consolidated Statement of Comprehensive Income and amounted to $1.1 million and $433,000for the quarterthree months ended December 31, 2020.2021 and December 31, 2020, respectively.

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 106,00092,000 and 125,000106,000 shares are included in the diluted weighted average shares outstanding for the three months ended December 31, 20202021 and 2019,2020, respectively. For the diluted weighted average shares outstanding for the three months ended December 31, 2021 and 2020, and 2019, 65,0000 and 130,00065,000 options to purchase shares of common stock were antidilutive.antidilutive and therefore excluded.

NOTE 3 – REAL ESTATE INVESTMENTS

Acquisitions

On December 17, 2020,October 27, 2021, we purchased a newly constructed 488,000291,000 square foot industrial building, situated on 99.046.0 acres, located in the Columbus, OHBirmingham, AL MSA. The building is 100%100% net-leased to FedEx Ground Package System, Inc. for 15 years through September 2035July 2036. The property was acquired for a purchase price was $73.3 million. We obtained a 15 year, fully-amortizing mortgage loan of $47.030.2 million at a fixed interest rate of 2.95%.million. Annual rental revenue over the remaining term of the lease averages $4.6 million.

On December 24, 2020, we purchased a newly constructed 658,000 square foot industrial building, situated on 129.9 acres, located in the Atlanta, GA MSA. The building is 100% net-leased to Home Depot U.S.A., Inc. for 20 years through November 2040. The purchase price was $96.7 million. We obtained a 17 year, fully-amortizing mortgage loan of $57.0 million at a fixed interest rate of 3.25%. Annual rental revenue over the remaining term of the lease averages $5.51.7 million.

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation and Home Depot U.S.A., Inc’s ultimate parent, Home Depot, Inc. areis a publicly-listed companiescompany and financial information related to these entities arethis 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 the www.sec.gov website.

We evaluated the property acquisitions whichacquisition that took place during the three months ended December 31, 2020,2021, 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 propertiesproperty purchased during fiscal 20212022 as an asset acquisitionsacquisition and allocated the total cash consideration, including transaction costs of approximately $576,00029,000, 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 propertiesthis property acquired during the three months ended December 31, 20202021 that iswas accounted for as an asset 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 for the propertiesproperty acquired during the three months ended December 31, 20202021 (in thousands):

SUMMARY OF CONSOLIDATED STATEMENTS OF INCOME FOR PROPERTIES ACQUIRED

Expansions

During fiscal 2021, we completed the quarterfirst phase of a two-phase parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed for a total cost of $3.4 million, resulting in an initial increase in annual rent effective November 5, 2020 of approximately $340,000 from approximately $2.14 million, or $6.83 per square foot, to approximately $2.48 million, or $7.91 per square foot. Furthermore, annual rent increased by 2.1% on June 1, 2021 and was to continue to increase 2.1% every five years, resulting in an annualized rent of $2.56 million, or $8.15 per square foot, from November 5, 2020 through May 2031, the remaining term of the lease. During the three months ended December 31, 2020,2021, we completed the second phase of this parking expansion project at this location for a total cost of $2.3 million, resulting in an initial increase in annual rent effective November 19, 2021 of approximately $185,000 from approximately $2.53 million, or $8.08 per square foot, to approximately $2.72 million, or $8.67 per square foot. In addition, the expansion resulted in a new 14.5 year lease which extended the prior lease expiration date from May 2031 to May 2036. Furthermore, annual rent will increase by 1.9% on June 1, 2026 resulting in an annualized rent of approximately $2.76 million, or $8.78 per square foot from November 19, 2021 through the remaining term of the lease.

During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KSWheeling, IL for a total project cost of $3.4 1.0 million, resulting in an initial increase in annual rent effective October 28, 2021 of approximately $105,000 from approximately $million. The1.27 million, or $10.34 per square foot, to approximately $1.38 million, or $11.19 per square foot. In addition, the expansion resulted in a new 9.8 year lease which extended the prior lease expiration date from May 2027 to August 2031.

During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Sauget (St. Louis, MO), IL for a total cost of $340,000 3.8 million, resulting in an initial increase in annualizedannual rent effective November 5, 2020 increasing10, 2021 of approximately $346,000 from approximately $1.04 million, or $5.21 per square foot, to approximately $1.38 million, or $6.95 per square foot. In addition, the expansion resulted in a new 13.8 year lease which extended the prior lease expiration date from May 2029 to August 2035. Furthermore, annual rent will increase by 3.7% on June 1, 2029 resulting in an annualized rent from $2.2 million to $2.6 million. We anticipate additional expansion work at this location which will further increaseNovember 10, 2021 through the rental rate and extendremaining term of the lease term.of approximately $1.40 million, or $7.07 per square foot.

During the three months ended December 31, 2021, we completed a parking expansion project for FedEx Ground Package System, Inc. at our property located in Orion, MI for a total cost of $6.5 million, resulting in an initial increase in annual rent effective November 24, 2021 of approximately $651,000 from approximately $1.91 million, or $7.77 per square foot, to approximately $2.56 million, or $10.42 per square foot. In addition, the expansion resulted in a new 9.9 year lease which extended the prior lease expiration date from June 2023 to October 2031.

The four parking expansions completed this quarter, as described above, totaled $13.7 million and resulted in total increased rent of $1.3 million and a weighted average lease extension of 6.7 years. In addition to these four parking expansions completed this quarter, we have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are six parking expansion projects underway, which we expect to cost approximately $31.4 million. These parking expansion projects will enable us to capture additional rent while lengthening the terms of these leases. We are also in discussions to expand the parking at seven additional locations bringing the total recently completed and likely future parking lot expansion projects to 18 currently.

Due to the proliferation of ecommerce sales and last mile deliveries, it is important to take into account the large amounts of real estate utilized for trailer, van, and car parking at many of our properties in determining how our in-place rental rates compare to market rental rates for properties being used in a similar manner. Rents per square foot on properties that may be nearby, but have only limited acreage devoted to parking, are poor comparisons as they cannot accommodate the same tenant needs.

Proforma information

The following unaudited pro-forma condensed financial information has been prepared utilizing our historical financial statements and the effect of additional revenue and expenses generated from properties acquired and expanded through December 31, 2021, and during fiscal 2021, to date, and during fiscal 2020, assuming that the property acquisitions and completed expansions had occurred as of October 1, 2019,2020, 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 and expansions. Furthermore, the net 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 throughissued pursuant to the DRIP, as if all thesuch shares raised had occurredhave been issued on October 1, 2019.2020. Additionally, the net proceeds raised from the issuance of additional shares of our 6.125%6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125%(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-forma Net Income (Loss) Attributable to Common Shareholders as if all the preferred stock issuances had occurred on October 1, 2019.2020. 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