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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (C) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24282
Monmouth Capital Corporation
(Exact name of registrant as specified in its charter)
New Jersey 21-0740878
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Juniper Business Plaza, 3499 Route 9 North, Freehold, NJ 07728
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(732)577-9993
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 par value
Indicate by check mark whether the registrant (1) has filed all
reports required 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes _ No X
The aggregate market value of voting stock held by non-affiliates
of the Registrant was $11,947,117 (based on 2,478,655 shares of
common stock at $4.82 per share, the closing price on June 30,
2003), presuming that directors and executive officers are
affiliates.
The number of shares outstanding of issuer's common stock as of
March 1, 2004 was 16,078,030 shares.
Documents Incorporated by Reference: Exhibits incorporated by
reference are listed in Park IV Item 15(a) (3).
PART I
ITEM 1. BUSINESS
General Development of Business
In this 10-K, "we", "us', "our", or "the Company", refers to
Monmouth Capital Corporation, together with its predecessors and
subsidiaries, unless the context requires otherwise.
Monmouth Capital Corporation is a corporation organized in
the State of New Jersey in 1961. The Company operates as a
qualified real estate investment trust (REIT) under Sections 856-
860 of the Internal Revenue Code (the Code) and intends to
maintain its qualification as a REIT in the future. As a
qualified REIT, with limited exceptions, the Company will not be
taxed under federal and certain state income tax laws at the
corporate level on taxable income that it distributes to its
shareholders. For special tax provisions applicable to REITS,
refer to Sections 856-860 of the Code.
Prior to 1994 the Company operated as a small business
investment company. During 1994, the Company formed a wholly-
owned subsidiary, The Mobile Home Store, Inc. (MHS), to finance
and sell manufactured homes. The sales operation was conducted
at manufactured home communities owned by United Mobile Homes
(United), a related REIT. The Company also invested in real
estate and securities. In March 2001, the Company sold the
existing inventory of manufactured homes to United at the
Company's carrying value and the Company exited the manufactured
home sales business since it proved to be unprofitable. MHS was
merged into the Company on December 6, 2001.
On September 26, 2001, the Company adopted a change from a
fiscal year end of March 31 to a calendar year end, effective for
the short year ended December 31, 2001. The Company elected to
be taxed as a real estate investment trust for the transition
period ended December 31, 2001.
The Company has made the following property acquisitions in
the last three years:
Date of Square Property
Acquisition Location Feet Type Ownership Tenant
___________ ________ ____ ____ ________ ______
7/20/2001 Carlsdadt, NJ 59,400 warehouse 51% Macy's
White Bear Federal
12/20/2001 Lake, MN 59,425 warehouse 100% Express
9/18/2002 Cheektowaga,
NY 62,986 warehouse 100% Federal
Express
8/14/2003 Wheeling,
IL 107,160 warehouse 63% Federal
Express
Ground
The Company is currently operating as a diversified REIT
investing in real estate equities, mortgages, mortgage-backed
securities, and other REIT securities. The Company's capital is
limited and there is no assurance the Company can or will
continue to operate as a diversified REIT. The Company will
consider alternative plans or proposals.
-2-
ITEM 1. BUSINESS, (CONT'D.)
Narrative Description of the Business
Currently the Company derives its income primarily through
real estate rental operations and from dividend and interest
income. The Company also derives some revenues from the sales of
manufactured homes which the Company has repossessed and returned
to inventory. These manufactured homes were sold prior to March
30, 2001, when the Company was in the manufactured home sales
business. Rental and occupancy revenue was $1,734,583,
$1,016,513, and $206,170 for the years ended December 31, 2003
and 2002 and for the short year ended December 31, 2001,
respectively. Interest and dividend income was $1,091,924,
$1,247,379, and $947,491 for the years ended December 31, 2003
and 2002 and for the short year ended December 31, 2001,
respectively. Sales of manufactures homes were $269,690,
$394,500 and $35,500 for the years ended December 31, 2003 and
2002 and for the short year ended December 31, 2001,
respectively. Total assets were $41,569,008, $27,101,532, and
$27,037,800 at December 31, 2003, 2002, and 2001, respectively.
The Company has approximately 289,000 square feet of
property, of which approximately 230,000 square feet, or 80% is
leased to Federal Express Corporation and subsidiaries. During
2003, 2002, and the short year 2001, rental and occupancy charges
from properties leased to Federal Express Corporation and
subsidiaries approximated 75%, 58%, and 6%, respectively of total
rental and occupancy charges.
At December 31, 2003, the Company had investments in four
industrial warehouse properties (see item 2 for detailed
description of properties). The Company seeks to invest in
additional properties and anticipates acquisitions of
approximately $40,000,000 in 2004 and 2005. The funds for these
acquisitions may come from the Company's bank borrowings, the
Dividend Reinvestment and Stock Purchase Plan (the DRIP), the
Convertible Subordinated Debentures, and other private
placements. To the extent that funds or appropriate properties
are not available, fewer acquisitions will be made. Because of
the contingent nature of contracts to purchase real property, the
Company announces acquisitions only on closing.
The Company raises capital through the DRIP in which
participants purchase stock from the Company at a discount of
approximately 5% of market price. During 2003, a total of
$2,872,459 additional capital was raised. It is anticipated,
although no assurances can be given, that a comparable level of
participation will continue in the DRIP in 2004. In addition, on
October 23, 2003, the Company completed a private placement
offering of $5,370,000 of 8% Convertible Subordinated Debentures
(the Debentures), due 2013.
The Company competes with other investors in real
estate for attractive investment opportunities. These investors
include other "equity" real estate investment trusts, limited
partnerships, syndications and private investors, among others.
Competition in the market areas in which the Company operates is
significant and affects acquisitions and/or development of
properties, occupancy levels, rental rates and operating expenses
of certain properties.
-3-
ITEM 1. BUSINESS, (CONT'D.)
Management has built relationships with merchant builders which
provide the Company with investment opportunities which fit the
Company's investment policy.
The Company operates as part of a group of three public
companies (all REITs) which includes United and Monmouth Real
Estate Investment Corporation (MREIC). United specializes in
investments in manufactured home communities and MREIC
specializes in net-leased industrial properties to credit rated
tenants on long term leases. It is intended that the Company
will invest in real estate ventures that do not qualify under the
investment objectives of United and MREIC. To the extent there
may be conflicts of interest as to prospective investments, the
Company may be deprived of investment opportunities.
The Company has five full-time employees. Additional
salaries are allocated as professional fees from United and MREIC
based on the time employees devote to the Company. Some general
and administrative expenses are allocated to the Company based on
use or services provided. A Board of Directors consisting of
nine members is responsible for the general policies of the
Company.
The Company does not have an advisory contract; however, all
of the properties are managed by various management companies.
Management fees were $15,397, $12,000 and $9,000 for 2003, 2002
and the short year 2001, respectively.
The Company is subject to various environmental regulatory
requirements related to the ownership of real estate.
Investments in real property have the potential for environmental
liability on the part of the owner of such property. The Company
is not aware of any environmental liabilities to the Company
relating to the Company's investment properties which would have
a material adverse effect on the Company's business, assets or
results of operations.
The Company continues to invest in both debt and equity
securities of other REITs and mortgage backed securities. The
Company from time to time may purchase these securities on margin
when the interest and dividend yields exceed the cost of funds.
The securities portfolio provides the Company with liquidity and
additional income. Such securities are subject to risk arising
from adverse changes in market rates and prices, primarily
interest rate risk relating to debt securities and equity price
risk relating to equity securities.
Additional information about the Company can be found on the
Company's website which is located at www.monmouthcapital.com.
The Company's filings with the Securities and Exchange Commission
are made available through a link on the Company's website or by
calling Investor Relation at 732-577-9993.
Risk Factors
Real Estate Industry Risks
The Company faces risks associated with local real estate
conditions in areas where the Company owns properties. The
Company may be affected adversely by general economic
-4-
ITEM 1. BUSINESS, (CONT'D.)
conditions and local real estate conditions. For example, an
oversupply of industrial properties
in a local area or a decline in the attractiveness of our
properties to tenants would have a negative effect on the
Company.
Other factors that may affect general economic conditions
or local real estate conditions include:
- population and demographic trends;
- zoning, use and other regulatory restrictions;
- income tax laws;
- changes in interest rates and availability and costs of
financing;
- competition from other available real estate;
- our ability to provide adequate maintenance and insurance;
and
- increased operating costs, including insurance premiums
and real estate taxes.
The Company may be unable to compete with its larger
competitors and other alternatives available to tenants or
potential tenants of our properties. The real estate business is
highly competitive. The Company competes for properties with
other real estate investors, including other real estate
investment trusts, limited partnerships, syndications and private
investors, many of whom have greater financial resources,
revenues, and geographical diversity than the Company has.
Furthermore, the Company competes for tenants with other property
owners. All of the Company's industrial properties are subject to
significant local competition. The Company also competes with a
wide variety of institutions and other investors for capital
funds necessary to support our investment activities and asset
growth.
The Company is subject to significant regulation that
inhibits our activities and increases our costs. Local zoning and
use laws, environmental statutes and other governmental
requirements may restrict expansion, rehabilitation and
reconstruction activities. These regulations may prevent the
Company from taking advantage of economic opportunities.
Legislation such as the Americans with Disabilities Act may
require management to modify our properties. Future legislation
may impose additional requirements. The Company cannot predict
what requirements may be enacted or what changes may be
implemented to existing legislation.
Risks Associated with Our Properties
The Company may be unable to renew leases or relet
space as leases expire. While management seeks to invest in
well-located, modern buildings leased to credit-worthy
tenants on long term leases, a number of the Company's
properties are subject to short-term leases. When a lease
expires, a tenant may elect not to renew it. Management may not
be able to relet the
-5-
ITEM 1. BUSINESS, (CONT'D.)
property on similar terms, if we are able to relet the property
at all. Management has established an annual budget for
renovation and reletting expenses that management believes is
reasonable in light of each property's operating history and
local market characteristics. This budget, however, may not be
sufficient to cover these expenses.
The Company has been and may continue to be affected
negatively by tenant financial difficulties and leasing delays. A
general decline in the economy may result in a decline in the
demand for industrial space. As a result, the Company's tenants
may delay lease commencement, fail to make rental payments when
due, or declare bankruptcy. Any such event could result in the
termination of that tenant's lease and losses to the Company. The
Company receives a substantial portion of our income as rents
under long-term leases. If tenants are unable to comply with the
terms of their leases because of rising costs or falling sales,
management, in our sole discretion, may deem it advisable to
modify lease terms to allow tenants to pay a lower rental or a
smaller share of operating costs, taxes and insurance.
The Company may be unable to sell properties when
appropriate because real estate investments are illiquid. Real
estate investments generally cannot be sold quickly and,
therefore, will tend to limit management's ability to vary our
property portfolio promptly in response to changes in economic or
other conditions. The inability to respond promptly to changes in
the performance of the Company's property portfolio could
adversely affect the Company's financial condition and ability to
service debt and make distributions to our stockholders.
Environmental liabilities could affect the Company's
profitability. The Company faces possible environmental
liabilities. Current and former real estate owners and operators
may be required by law to investigate and clean up hazardous
substances released at the properties they own or operate. They
may also be liable to the government or to third parties for
property damage, investigation costs and cleanup costs.
Contamination may adversely affect the owner's ability to sell or
lease real estate or to borrow using the real estate as
collateral.
Environmental laws today can impose liability on a previous
owner or operator of a property that owned or operated the
property at a time when hazardous or toxic substances were
disposed on, or released from, the property. A conveyance of the
property, therefore, does not relieve the owner or operator from
liability.
Management is not aware of any environmental liabilities
relating to our investment properties which would have a material
adverse effect on our business, assets, or results of operations.
However, we cannot assure you that environmental liability claims
will not arise in the future.
If our insurance coverage is inadequate or management
cannot obtain acceptable insurance coverage, the Company
operations could be materially adversely affected. Management
generally maintains insurance policies related to the Company's
business, including casualty, general liability and other
policies covering business operations, employees and assets. The
Company may be required to bear all losses that are not
adequately covered by insurance. Although management believes
that our insurance programs are adequate, no assurance can be
given that we will not incur losses in excess of the Company's
insurance coverage, or that the Company will be able to obtain
insurance in the future at acceptable levels and reasonable cost.
-6-
ITEM 1. BUSINESS, (CONT'D.)
Financing Risks
The Company faces risks generally associated with our debt.
The Company finances a portion of our investments in properties
and marketable securities through debt. This debt creates risks,
including:
- rising interest rates on our floating rate debt;
- failure to repay or refinance existing debt as it matures,
which may result in the forced disposition of assets on
disadvantageous terms;
- refinancing terms less favorable than the terms of
existing debt; and
- failure to meet required payments of principal and/or
interest.
The Company faces risks associated with the use of debt to
fund acquisitions, including refinancing risk. The Company is
subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to
meet required payments of principal and interest. Management
anticipates that a portion of the principal of our debt will not
be repaid prior to maturity. Therefore, the Company will likely
need to refinance at least a portion of our outstanding debt as
it matures. There is a risk that we may not be able to refinance
existing debt or that the terms of any refinancing will not be as
favorable as the terms of the existing debt. If principal
payments due at maturity cannot be refinanced, extended or repaid
with proceeds from other sources, such as new equity capital or
sales of properties, the Company's cash flow will not be
sufficient to repay all maturing debt in years when significant
"balloon" payments come due. As a result, we may be forced to
dispose of properties on disadvantageous terms.
Management may amend our business policies without the
stockholders' approval. Our board of directors determines our
growth, investment, financing, capitalization, borrowing, REIT
status, operations and distributions policies. Although the board
of directors has no present intention to amend or reverse any of
these policies, they may be amended or revised without notice to
stockholders. Accordingly, stockholders may not have control over
changes in our policies. Management cannot assure you that
changes in our policies will serve fully the interests of all
stockholders.
Other Risks
The market value of our Common Stock could decrease based
on the Company's performance and market perception and
conditions. The market value of the Company's Common Stock may be
based primarily upon the market's perception of the Company's
growth potential and current and future cash dividends, and may
be secondarily based upon the real estate market value of the
Company's underlying assets. The market price of the Company's
Common Stock is influenced by the dividend on the Company's
Common Stock relative to market interest rates. Rising interest
rates may lead potential buyers of the Company's Common Stock to
expect a higher dividend rate, which would adversely affect the
market price of our Common Stock. In addition, rising interest
rates would result in increased expense, thereby adversely
affecting cash flow and the Company's ability to service our
indebtedness and pay dividends.
-7-
ITEM 1 - BUSINESS, (CONT'D.)
There are restrictions on the transfer of the Company's
Common Stock. To maintain the Company's qualification as a REIT
under the Internal Revenue Code of 1986 (the Code), no more than
50% in value of the Company's outstanding capital stock may be
owned, actually or by attribution, by five or fewer individuals,
as defined in the Code to also include certain entities, during
the last half of a taxable year. Accordingly, the Company's
charter and bylaws contain provisions restricting the transfer of
the Company's Common Stock.
The Company's earnings are dependent, in part, upon the
performance of our investment portfolio. As permitted by the
Code, management invests in and owns securities of other real
estate investment trusts. To the extent that the value of those
investments declines or those investments do not provide a
return, the Company's earnings could be adversely affected.
The Company may fail to qualify as a REIT. If the Company
fails to qualify as a REIT, the Company will not be allowed to
deduct distributions to stockholders in computing our taxable
income and will be subject to Federal and state income tax,
including any applicable alternative minimum tax, at regular
corporate rates. In addition, the Company might be barred from
qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular
corporate rates would reduce significantly the cash flow
available for distribution to stockholders and for debt service.
Furthermore, the Company would no longer be required to
make any distributions to the Company's stockholders as a
condition to REIT qualification. Any distributions to
stockholders that otherwise would have been subject to tax as
capital gain dividends would be taxable as ordinary income to the
extent of the Company's current and accumulated earnings and
profits. Corporate distributees, however, may be eligible for the
dividends received deduction on the distributions, subject to
limitations under the Code.
To qualify as a REIT, and to continue to qualify as a REIT,
the Company must comply with certain highly technical and complex
requirements. The Company cannot be certain it has complied, and
will always be able to comply, with these requirements. In
addition, facts and circumstances that may be beyond the
Company's control may affect the Company's ability to continue to
qualify as a REIT. The Company cannot assure you that new
legislation, regulations, administrative interpretations or court
decisions will not change the tax laws significantly with respect
to the Company's qualification as a REIT or with respect to the
Federal income tax consequences of qualification. The Company
believes that it has qualified as a REIT since its inception and
intends to continue to qualify as a REIT. However, the Company
cannot assure you that the Company is qualified or will remain
qualified.
The Company may be unable to comply with the strict income
distribution requirements applicable to REITs. To obtain the
favorable tax treatment associated with qualifying as a REIT,
among other requirements, the Company is required each year to
distribute
-8-
ITEM 1 - BUSINESS, (CONT'D.)
to its stockholders at least 90% of its REIT taxable income. The
Company will be subject to corporate income tax on any
undistributed REIT taxable income. In addition, we will incur a
4% nondeductible excise tax on the amount by which our
distributions in any calendar year are less than the sum of (i)
85% of our ordinary income for the year, (ii) 95% of our capital
gain net income for the year, and (iii) any undistributed taxable
income from prior years. The Company could be required to borrow
funds on a short-term basis to meet the distribution requirements
that are necessary to achieve the tax benefits associated with
qualifying as a REIT (and to avoid corporate income tax and the
4% excise tax), even if conditions were not favorable for
borrowing.
Notwithstanding the Company's status as a REIT, the Company
is subject to various Federal, state and local taxes on our
income and property. For example, the Company will be taxed at
regular corporate rates on any undistributed taxable income,
including undistributed net capital gains, provided, however,
that properly designated undistributed capital gains will
effectively avoid taxation at the stockholder level. The Company
may also have to pay some state income or franchise taxes because
not all states treat REITs in the same manner as they are treated
for Federal income tax purposes.
ITEM 2. DETAILED DESCRIPTION OF PROPERTIES
On July 20, 2001, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity. This warehouse facility is 100% net leased to
Macy's East, Inc., an Ohio corporation. The purchase price was
approximately $3,100,000. The average monthly rental over the
term of the lease is $29,082. This lease expires on April 5,
2009. The mortgage balance was $2,211,111 at December 31, 2003,
at an interest rate of 7.75%. The mortgage matures August 15,
2021.
On December 20, 2001, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity. This warehouse
facility is 100% net leased to Federal Express Corporation. The
purchase price was approximately $4,800,000. The monthly rental
over the term of the lease is $36,100. This lease expires on
April 1, 2011. The mortgage balance was $3,125,436 at December
31, 2003, at an interest rate of 7.04%. The mortgage matures
January 1, 2012.
On September 18, 2002, the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in
Cheektowaga, New York from FedJones Cheektowaga, LLC (FedJones),
an unrelated entity. This lease was between FedJones and the
Erie County Industrial Development Agency (ECIDA). This
warehouse facility is 100% subleased to FedEx Ground Package
System, Inc. under a net lease. The purchase price was
approximately $4,200,000. The monthly rental over the term of
the lease is $33,800. The mortgage balance was $2,944,407 at
December 31, 2003, at an interest rate of 6.78%. The mortgage
matures October 1, 2017.
-9-
ITEM 2. DETAILED DESCRIPTION OF PROPERTIES, (CONT'D.)
On August 14, 2003, Wheeling Partners, LLC, a 63% owned
subsidiary of the Company, purchased a 107,160 square foot
industrial building in Wheeling, Illinois, from Jones Elgin I,
LLC, an Illinois limited liability company (Jones Elgin). This
warehouse facility is 100% subleased to FedEx Ground Package
System, Inc. under a net lease for 12 years. The purchase price,
including closing costs, was approximately $11,985,000. The
average monthly rental over the term of the lease is $84,900.
The mortgage payable balance was $7,608,285 at December 31, 2003,
at an interest rate of 5.68%. The mortgage matures March 1,
2021.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on October
8, 2003 to elect a Board of Directors for the ensuing year and to
approve the Selection of Independent Auditors. Proxies for the
meeting were solicited pursuant to Regulation 14 under the
Securities and Exchange Act of 1934.
-10-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's shares are traded on the National Association
of Securities Dealers Automatic Quotations (NASDAQ) Small
Capitalization market under the symbol "MONM". The per share
range of high and low market during each quarter of the last
three fiscal years were as follows:
Year Ended Year Ended Short Year Ended
December 31, 2003 December 31, 2002 December 31, 2001
Market Price Market Price Market Price
Low High Low High Low High
_____________________________________________________
Quarter 1 3.35 4.44 2.77 3.30 N/A N/A
Quarter 2 3.89 5.10 3.29 3.92 2.65 3.05
Quarter 3 4.41 5.35 3.25 4.00 2.66 3.45
Quarter 4 5.00 7.93 3.19 3.95 2.70 3.25
The over-the-counter market quotations reflect the inter-
dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
As of December 31, 2003, there were approximately 406
holders of the Company's common stock based on the number of
record owners.
The Company has paid dividends as follows:
Long-
term
Dividends Per Capital Ordinary
Period Paid Share Gain Income
______ _________ ______ _______ ________
2003 $1,178,504 $ .40 $.0635 $.3365
2002 748,497 .35 .2309 .1191
short year 2001 413,627 .25 .25 -0-
On January 14, 2004, the Company declared a dividend of $
..25 per share to be paid on June 15, 2004 to shareholders of
record May 17, 2004.
Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition, availability
and cost of bank financing and other factors considered relevant
by the Board of Directors.
-11-
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS, (CONT'D.)
Equity Compensation Plan Information
The following table summarizes information, as of December
31, 2003, relating to equity compensation plans of the Company
(including individual compensation arrangements) pursuant to
which equity securities of the Company are authorized for
issuance.
Number of
Securities
Remaining
Available
Number of for Future
Securities Weighted- Issuance
to be Issued average Under Equity
Upon Exercise Compensation
Exercise of Price of Plans
Outstanding Outstanding (excluding
Options, Options, Securities
Warrants and Warrants and reflected in
Plan Category Rights Rights column (a))
(a) (b) (c)
Equity
Compensation
Plans Approved
by Security
Holders 80,000 $3.08 150,000
Equity
Compensation
Plans not
Approved by
Security
Holders N/A N/A N/A
______ ______ _______
Total 80,000 $3.08 150,000
====== ===== =======
-12-
ITEM 6. SELECTED FINANCIAL DATA
Short
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, March 31, March 31,
2003 2002 2001 2001 2000
___________ __________ __________ ________ ________
OPERATING DATA:
Rental Income $1,734,583 $1,016,513 $206,170 $10,610 $184,547
Dividends and
Interest
Income 1,091,924 1,247,379 947,491 875,778 388,709
Sales of
Manufactured
Homes 269,690 394,500 35,500 4,790,693 4,759,648
Gain on Sales
of Real
Estate
Investments -0- -0- -0- -0- 245,419
Total Expenses 2,325,468 2,239,932 1,026,565 5,906,020 5,685,135
Minority Interest 98,829 45,507 19,393 -0- -0-
Net Income (Loss) 1,283,432 554,638 398,205 (74,700) 14,200
Average Number
of Shares
Outstanding
Basic 2,824,809 1,924,860 1,597,213 1,534,759 1,516,528
Diluted 3,747,584 1,941,477 1,602,787 1,534,759 1,516,528
Net Income
(Loss) per Share .45 0.29 0.25 (0.05) 0.01
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOW DATA:
Net Cash
Provided by
Operating
Activities $898,188 $1,401,577 $287,493 $178,452 $553,657
Net Cash Used
by Investing
Activities (13,190,104) (5,018,312)(6,222,715) (5,968,544) (1,466,842)
Net Cash
Provided by
Financing
Activities 12,431,908 3,183,391 6,450,215 5,674,599 1,018,529
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER DATA:
Funds from
Operations* $1,611,330 $763,159 $478,205 $(24,181) $339,527
Cash Dividends
per Share 0.40 0.35 0.25 0.05 0.05
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BALANCE SHEET DATA:
Total Assets $41,569,008 $27,101,532 $23,037,800 $15,494,536 $9,068,788
Gross Real
Estate
Investments 29,540,600 12,135,065 7,895,036 11,065 457,256
Securities
Available
for Sale 15,443,909 12,844,937 11,656,770 12,277,298 3,073,907
Loans
Receivable, Net 1,515,625 1,888,094 2,397,698 2,904,494 2,400,558
Mortgages
Payable 15,889,239 8,616,405 5,719,724 -0- -0-
Shareholders'
Equity 12,371,005 9,110,010 7,325,722 6,463,842 5,273,879
-13-
ITEM 6. SELECTED FINANCIAL DATA, (CONT'D.)
* Funds from operations (FFO), is defined as net income,
excluding gains (or losses) from sales of depreciable assets,
plus depreciation. FFO should be considered as a supplemental
measure of operating performance used by real estate investment
trusts (REITs). FFO excludes historical cost depreciation as
an expense and may facilitate the comparison of REITs which
have different cost bases. The items excluded from FFO are
significant components in understanding the Company's financial
performance. FFO (1) does not represent cash flow from operations
as defined by generally accepted accounting principles; (2)
should not be considered as an alternative to net income as a
measure of operating performance or to cash flows from
operating, investing and financing activities; and (3) is not
an alternative to cash flow as a measure of liquidity. FFO, as
calculated by the Company, may not be comparable to similarly
entitled measures reported by other REITs.
The Company's FFO is calculated as follows:
Short
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, March 31, March 31,
2003 2002 2001 2001 2000
_______ _______ _______ _______ _______
Net Income
(Loss) $1,283,432 $554,638 $398,205 $(74,700) $14,200
Gain on Sale
of Depreciable
Assets -0- -0- -0- -0- 245,419
Depreciation
Expense 327,898 208,521 80,000 50,519 79,908
_________ _________ _______ _________ ________
FFO $1,611,330 $763,159 $478,205 $(24,181) $339,527
========== ======== ======== ======== ========
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
The following discussion and analysis of the consolidated
financial condition and results of operations should be read in
conjunction with the Consolidated Financial Statements and notes
thereto elsewhere herein.
The Company is a diversified REIT. Currently, the
Company's primary business is the ownership of four industrial
properties subject to medium term leases and investing in
marketable securities. These securities include securities of
other REITS and mortgage backed securities. The Company also has
loans receivable and inventory related to the sales of
manufactured homes. Prior to March 31, 2001, the Company was
engaged in the manufacturing home sales and finance business.
The Company's revenue primarily consists of rental and
related income from the ownership of the industrial properties,
interest and dividend income, and gain on sale of securities.
Sales of manufactured homes relates to the sale of inventory
which had been repossessed and resold.
Although the Company currently owns four industrial
properties, management would consider other types of real estate
acquisitions. Management anticipates that the Company will
acquire approximately $40,000,000 in properties during 2004 and
2005. The current acquisitions environment is competitive and
management may not be able to locate suitable properties for
acquisition.
The Company has financed acquisitions through capital
raised through the Company's Dividend Reinvestment and Stock
Purchase Plan, by obtaining mortgages, and from private placement
offerings, including the Convertible Subordinated Debentures.
If suitable acquisitions cannot be found during 2004, the Company
will invest additional capital raised in REIT securities or pay
down outstanding debt. The Company also invests in debt and
equity securities of other REITs for liquidity and additional
income. The Company from time to time may purchase these
securities on margin when there is an adequate yield spread.
See PART I, Item 1. Business for a more complete discussion
of the economic and industry-wide factors relevant to the
Company, the Company's lines of business and principal products
and services, and the opportunities, challenges and risks on
which the Company is focused.
Significant Accounting Policies & Estimates
The discussion and analysis of the Company's financial
condition and results of operations are based upon the Company's
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in
the United States of America.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts
of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the date of
the Company's financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
Significant accounting policies are defined as those that
involve significant judgment and potentially could result in
materially different results under different assumptions and
conditions. Management believes the following significant
accounting policies are affected by our more significant
judgments and estimates used in the preparation of the Company's
financial statements. For a detailed description of these and
other accounting policies, see Note 1 in the notes to the
Company's financial statements included in this Form 10-K.
Management has discussed each of these significant accounting
policies with the audit committee of the Board of Directors.
Real Estate Investments
The Company applies Financial Accounting Standards Board
Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", to measure impairment in real estate
investments. Rental properties are individually evaluated for
impairment when conditions exist which may indicate that it is
probable that the sum of expected future cash flows (on an
undiscounted basis without interest) from a rental property is
less than its historical net cost basis. These expected future
cash flows consider factors such as future operating income,
trends and prospects as well as the effects of leasing demand,
competition and other factors. Upon determination that a
permanent impairment has occurred, rental properties are reduced
to their fair value. For properties to be disposed of, an
impairment loss is recognized when the fair value of the
property, less the estimated cost to sell, is less than the
carrying amount of the property measured at the time there is a
commitment to sell the property and/or it is actively being
marketed for sale. A property to be disposed of is reported at
the lower of its carrying amount or its estimated fair value,
less its cost to sell. Subsequent to the date that a property is
held for disposition, depreciation expense is not recorded.
Securities Available for Sale
Investments in liquid real estate assets consist primarily
of marketable equity REIT securities. Management reviews our
marketable securities for impairment on an annual basis, or when
events or circumstances occur. If a decline in fair value is
determined to be other than temporary, an impairment charge is
recognized in earnings and the cost basis of the individual
security shall be written down to fair value as the new cost
basis. Management's evaluation includes consideration of events
that may be attributable to the unrealized loss, including among
other things, the credit-worthiness of the issuer, length of time
that a security had a continuous unrealized loss, and the
financial position of the issuing company.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Revenue Recognition and Estimates
Estimates are used to establish amounts receivable from
tenants for such things as annualized rents, real estate taxes
and other cost recoveries. In addition, an estimate is made with
respect to whether a provision for allowance for doubtful
accounts receivable and loans
receivable is necessary. The allowance for doubtful accounts
reflects management's estimate of the amounts of the recorded
accounts receivable and loans receivable at the balance sheet
date that will not be realized from cash receipts in subsequent
periods. If cash receipts in subsequent periods vary from our
estimates, or if the Company's tenants' financial condition
deteriorates as a result of operating difficulties, additional
changes to the allowance may be required.
Results of Operations
Year Ended December 31, 2003 vs. Year Ended December 31, 2002
Income is comprised primarily of interest and dividend
income and rental income. On March 30, 2001, the Company exited
the manufactured home sales business since it proved to be
unprofitable. During 2003 and 2002, sales of manufactured homes,
cost of sales of manufactured home, selling expense and other
expenses are directly attributable to the sale of repossessed
manufactured homes.
Rental income increased $718,070, from $1,016,513 for the
year ended December 31, 2002 to $1,734,583 for the year ended
December 31, 2003. This increase is due primarily to the
addition of the rental and reimbursement revenue from the
Wheeling, Illinois acquisition made in August 2003. Annual rent
for this new property is $642,003. In addition, rental income
includes a full year of rental and reimbursement revenue from the
Cheektowaga, New York property, which was purchased in September
2002.
Interest and dividend income decreased $155,455, from
$1,247,379 for the year ended December 31, 2002 to $1,091,924 for
the year ended December 31, 2003. The decrease is due to
increased redemptions in 2003 of higher yielding preferred stocks
held during 2002 and lower average balance of securities during
2003 as compared to 2002. The average balance of securities
available for sale was $11,128,557 and $12,614,666 for the years
ended December 31, 2003 and 2002, respectively. Weighted average
yield of the securities portfolio was 8.38% and 9.88% for the
years ended December 31, 2003 and 2002, respectively. The
balance of securities available for sale at December 31, 2003 and
2002 was $15,443,909 and $12,844,937, respectively.
Gain on sale of securities available for sale increased $529,489,
from $181,002 for the year ended December 31, 2002 to $710,491
for the year ended December 31, 2003. The increase in
gain on sale is due to the Company taking advantage of the
unrealized gains experienced in the
-17-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
portfolio during 2003 and the increased redemptions of the
preferred stock holdings by the issuers. The Company invests in
securities as proxy for real property until suitable acquisitions
are available and for additional income. If the market value of
REIT stocks begins to decline, the Company does not expect that
it would be recording the same level of gain on sale of
securities available for sale in future years that it recorded in
2003. The securities portfolio at December 31, 2003 has an
unrealized gain of 13%.
Real estate taxes increased $11,484, from $102,955 for the
year ended December 31, 2002 to $144,439 for the year ended
December 31, 2003. Depreciation expense increased $119,377, from
$208,521 for the year ended December 31, 2002 to $327,898 for the
year ended December 31, 2003. The increase in these expenses is
due primarily to the purchase of the Wheeling, Illinois property
during 2003.
Interest expense increased $184,537, from $792,667 for the
year ended December 31, 2002 to $977,204 for the year ended
December 31, 2003. The increase is due primarily to the interest
related to the mortgage for the purchase of the Wheeling,
Illinois property during 2003.
Year Ended December 31, 2002 vs. Short Year Ended December 31,
2001
Income is comprised primarily of interest and dividend
income and rental income. On March 30, 2001, the Company exited
the manufactured home sales business since it proved to be
unprofitable. Sales of manufactured homes, cost of sales of
manufactured home, selling expense, other expenses and salaries
and employee benefits decreased during the year ended December
31, 2002 as compared to the short year ended December 31, 2001.
These changes are directly attributable to the exiting of the
manufactured home sales business.
Rental income increased $810,343, from $206,170 for the
short year ended December 31, 2001 to $1,016,513 for the year
ended December 31, 2002. This increase is due primarily to the
addition of the rental and reimbursement revenue from the
Cheektowaga, New York acquisition made in September 2002. Annual
rent for this property is $406,020.
Interest and dividend income increased $299,888, from
$947,491 for the short year ended December 31, 2001 to $1,247,379
for the year ended December 31, 2002. The increase is due
primarily to an increase in the securities available for sale
portfolio. Securities available for sale at December 31, 2002
and 2001 were $12,844,937 and $11,656,770, respectively.
Gain on sale of securities available for sale decreased
$73,646, from $254,648 for the short year ended December 31, 2001
to $181,002 for the year ended December 31, 2002. The company
sold less securities in 2002 as compared to 2001 due to cash
needs for acquisitions. Two properties were purchased in the
short year ended December 31, 2001 (Carlsdadt, New Jersey in July
2001 and White Bear Lake, Minnesota in December 2001) and one
property was purchased in the year ended December 31, 2002
(Cheektowaga, New York).
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Real estate taxes increased $100,539, from $2,416 for the
short year ended December 31, 2001 to $102,955 for the year ended
December 31, 2002. Depreciation expense increased $128,521, from
$80,000 for the short year ended December 31, 2001 to $208,521
for the year ended December 31, 2002. The increase in these
expenses is due to the purchases of White Bear Lake, Minnesota
and Cheektowaga, New York.
Salaries and employee benefits, professional fees and other
expenses annualized remained relatively stable.
Interest expense increased $419,508, from $373,159 for the
short year ended December 31, 2001 to $792,667 for the year ended
December 31, 2002. The increase is due primarily to the
interest related to the mortgage for the purchase of the
Cheektowaga, New York property during 2002 and a full year of
interest on the mortgage on the White Bear Lake, Minnesota
property.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company has not executed any off-balance sheet
arrangements.
The following is a summary of the Company's contractual
obligations as of December 31, 2003:
Contractual Less than More than
Obligations Total 1 year 1-3 years 3-5 years 5 years
__________ _____ _________ _________ _________ ________
Mortgages
Payable $15,889,239 $603,801 $1,331,205 $1,515,124 $12,439,109
8% Convertible
Subordinated
Debentures
(1) 5,370,000 -0- -0- -0- 5,370,000
Notes Payable
(2) 1,075,000 575,000 500,000 -0- -0-
Retirement
Benefits 25,000 -0- -0- -0- 25,000
Total $22,359,239 $1,178,801 $1,831,205 $1,515,124 $17,834,109
(1) The Convertible Subordinated Debentures are due 2013,
however, the principal amount is convertible at any time by the
holder prior to redemption or maturity to common stock of the
Company. See Note 6 in the Consolidated Financial Statements for
additional disclosure.
(2) The Company paid these notes payable in full on January 26, 2004.
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Liquidity and Capital Resources and Changes in Financial Condition
The Company's ability to generate cash adequate to meet its
needs is dependent primarily on income from its real estate
investments and its securities portfolio, the sale of real estate
investments and securities, refinancing of mortgage debt,
leveraging of real estate investments, availability of bank
borrowings, proceeds from the Dividend Reinvestment and Stock
Purchase Plan, proceeds from the Subordinated Convertible
Debenture, and access to the capital markets. Purchases of new
properties, purchases of securities, payments of expenses related
to real estate operations, capital improvements programs, debt
service, management and professional fees, and dividend
requirements place demands on the Company's liquidity.
The Company intends to operate its existing properties from
the cash flows generated by the properties. However, the
Company's expenses are affected by various factors, including
inflation. Increases in operating expenses raise the breakeven
point for a property and, to the extent that they cannot be
passed on through higher rents, reduce the amount of available
cash flow which can adversely affect the market value of the
property.
Net cash provided by operating activities for the year ended
December 31, 2003, 2002, and the short year ended December 31,
2001 amounted to $898,188, $1,401,577 and $287,493, respectively.
The increases since 2001 were due primarily to profitable and
expanded operations.
Cash flows used in investing activities were $13,190,104,
$5,018,312, and $6,222,715 for the years ended December 31, 2003
and 2002 and for the short year ended December 31, 2001,
respectively.
The Company intends to grow its real estate investment
portfolio. During the past three years, the Company purchased
four warehouse facilities at an aggregate cost of approximately
$24,000,000. The Company financed these purchases primarily
through mortgages on its acquisitions. The Company expects to
make additional real estate acquisitions from time to time. In
2004 and 2005 the Company plans to acquire approximately
$40,000,000 in properties. The funds for these acquisitions may
come from mortgages secured for the acquisitions, other bank
borrowings, proceeds from the Dividend Reinvestment and Stock
Purchase Plan, proceeds from private placements, or proceeds from
sales of the Company's investment securities. To the extend
funds or appropriate properties are not available, fewer
acquisitions will be made. Funds generated are expected to be
sufficient to meet debt service requirements and capital
expenditures of the Company.
Total real estate investments, net of accumulated
depreciation, increased by $11,239,034 during the year ended
December 31, 2003. This was due primarily to the purchase of a
new warehouse facility in Wheeling, Illinois, partially offset by
depreciation for the year.
-20-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
The Company also invests in debt and equity securities of
other REIT's as a proxy for real estate when suitable
acquisitions are not available, for liquidity, and for additional
income. The Company from time to time may purchase these
securities on margin when there is adequate yield spread. At
December 31, 2003, the securities portfolio balance was
$15,443,909 with margin loans of $3,982,824. During 2003, the
Company's security portfolio increased by $2,598,972 due to
purchases of $7,872,935 and an increase in the unrealized gain of
$78,608, partially offset by sales, redemptions, and returns of
principal of $5,352,571. During 2003, the Company sold or
redeemed $4,642,080 in securities cost to recognize a portion of
the unrealized gains in the portfolio, recognizing a gain on sale
of securities available for sale of $710,491. The
securities portfolio at December 31, 2003 had experienced an
increase in value from cost of approximately 13%, however,
there are no assurances such increases will continue. The
Company anticipates that it will make additional investments in
REIT securities if funds are available and suitable acquisitions
of properties are not available.
Loans receivable relate to the financing of manufactured
home sales when the Company was engaged in the manufactured
mobile home sales business. Loans receivable decreased by
$372,469 during the year ended December 31, 2003. This decrease
was primarily due to collections of $186,701. The Company also
repossessed the collateral for loans receivable of $185,768 and
placed it into inventory.
Cash flows from financing activities were $12,431,908,
$3,183,391, and $6,450,215 for the years ended December 31, 2003
and 2002 and for the short year ended December 31, 2001,
respectively.
Mortgages payable increased by $7,272,834 due mainly to the
mortgage of $7,670,000 related to the new acquisition in 2003 of
the industrial property in Wheeling, Illinois, offset by
principal payments on mortgages of $397,166. Loans payable
decreased by $3,124,078 due to net repayments of the margin loan
and other bank loans. The Company used a portion of proceeds
from the Debentures to repay these loans. Financing costs and
leasing costs increased by $844,283 primarily as a result of the
purchase of the Wheeling, Illinois property, (loan costs of
$116,525 and lease costs of $393,085), and the issuance of the
Debentures (costs of $372,867), partially offset by amortization
of $38,194.
On October 21, 2003, the Company completed a private
placement offering of $5,370,000 (less $372,867 in offering
costs) of 8% Convertible Subordinated Debentures due in 2013.
The Debentures are convertible into common stock of the Company
at any time prior to redemption or maturity, at the conversion
price of $6.00 per share (equivalent to a rate of 166.67 shares
of common stock for each $1,000 principal amount). The Company
may redeem the Debentures at scheduled prices at any time on or
after October 23, 2004 or prior to October 23, 2004 if the
closing stock price of our common stock has exceeded 150% of the
conversion price for at least 20 trading says in the consecutive
30-day trading period. The Debenture proceeds were used to
invest in REIT securities and pay down margin loans until
suitable acquisitions of real estate can be found.
-21-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Shareholders' equity increased from $9,110,010 at December
31, 2002 to $12,371,005 at December 31, 2003. The Company has a
Dividend Reinvestment and Stock Purchase Plan (the DRIP) in which
participants purchase stock from the Company at a discount of
approximately 5% of market price. During 2003, a total of
$2,872,459 in additional capital was raised through the DRIP.
The success of the DRIP has resulted in substantial improvement
in the Company's liquidity and capital resources in 2003. It is
anticipated, although no assurances can be given, that a
comparable level of participation will continue in the DRIP in
2004. During 2003, three directors and key employees exercised
their stock options and purchased 70,000 shares for a total of
$205,000.
Recent Accounting Pronouncements
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities "FIN 46" was issued in January 2003 and was
reissued as FASB Interpretation No. 46 (revised December 2003)
(FIN 46R). For public entities, FIN 46 or FIN 46R is applicable
to all special-purpose entities (SPEs) in which the entity holds
a variable interest no later than the end of the first reporting
period ending after December 15, 2003, and immediately to all
entities created after January 31, 2003. The effective dates of
FIN 46R vary depending on the type of reporting enterprise and
the type of entity that the enterprise is involved with. FIN 46
and FIN 46R may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more
years with a cumulative-effect adjustment as of the beginning of
the first year restated. FIN 46 and FIN 46R provides guidance on
the identification of entities controlled through means other
than voting rights. FIN 46 and FIN 46R specifies how a business
enterprise should evaluate its involvement in a variable interest
entity to determine whether to consolidate that entity. A
variable interest entity must be consolidated by its primary
beneficiary if the entity does not effectively disperse risks or
rewards among the parties involved. Conversely, effective
dispersion of risks among the parties involved requires that a
company that previously consolidated a special purpose entity,
upon adoption of FIN 46 or FIN 46R, to deconsolidate such entity.
Management believes that this interpretation will not have a
material impact on the Company's financial statements.
In April 2003, the FASB issued Statement No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS No. 149). SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30,
2003, with some exceptions, and for hedging relationships
designated after June 30, 2003. The guidance should be
applied prospectively. Management believes that this Statement
will not have a material impact on the Company's financial
statements.
-22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
In May 2003, the FASB issued Statement No. 150,
"Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (SFAS No.
150). SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning
of the interim period of adoption. Restatement is not permitted.
On October 29, 2003, the FASB voted to indefinitely defer certain
provisions of this statement relating to non-controlling
(minority) interests in finite-like entities. Management
believes that this Statement will not have a material impact on
the Company's financial statements
Safe Harbor Statement
This Form 10-K contains various "forward-looking statements"
within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, and the Company intends that
such forward-looking statements be subject to the safe harbors
created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions
identify forward-looking statements. These forward looking
statements reflect the Company's current views with respect to
future events and finance performance, but are based upon
current assumptions regarding the Company's operations,
future results and prospects, and are subject to many
uncertainties and factors relating to the Company's operations
and business environment which may cause the actual results of
the Company to be materially different from any future results
expressed or implied by such forward-looking statements.
Such factors include, but are not limited to, the following:
(i) changes in the general economic climate, including interest
rates; (ii) increased competition in the geographic areas in
which the Company operates; and (iii) changes in government laws.
The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new
information, future events, or otherwise.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to interest rate changes primarily as
a result of its long-term debt used to maintain liquidity and
fund capital expenditures and expansion of the Company's real
estate investment portfolio and operations. The Company's
interest rate risk management objectives are to limit the impact
of interest rate changes on earnings and cash flows and to lower
its overall borrowing costs. To achieve its objectives, the
Company borrows primarily at fixed rates.
-23-
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK, (CONT.D)
Below is the information as of December 31, 2003, concerning
the Company's fixed-rate debt obligations, including principal
cash flow by scheduled maturity, weighted average interest rates,
and estimated fair value:
Long -Term Average
Debt Scheduled Carrying Interest Fair Value
Fixed Rate Maturity Value Rate
2011-2021 $15,889,239 6.44% $16,287,506
========== ==========
In addition to the mortgages, the Company has approximately
$1,000,000 carrying value in short-term loans with Two River
Community Bank, with $500,000 at 6.11% and $500,000 at 7.23%.
Both loans are due in August 2004.
The Company also has $3,982,824 million in variable rate
debt due on demand. This debt is primarily margin loans secured
by marketable securities. The interest rate on these margin
loans range from 3.0% to 2.75% at December 31, 2003. The
carrying value of the Company's variable rate debt approximates
fair value at December 31, 2003.
The Company also invests in both debt and equity securities
of other REITs and is primarily exposed to equity price risk from
adverse changes in market rates and conditions. All securities
are classified as available for sale and are carried at fair
value. The Company has no significant interest rate risk
relating to debt securities as they are short-term in nature.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in
Part IV, Item 15 (a)(1) are incorporated herein by reference and
filed as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-24-
ITEM 9A - CONTROLS AND PROCEDURES
The Company's President and Chief Financial Officer, with
the assistance of other members of the Company's management, have
evaluated the effectiveness of the Company's disclosure controls
and procedures as of the end of the period covered by this Annual
Report on Form 10-K. Based on such evaluation, the Company's
President and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective.
The Company's President and Chief Financial Officer have
also concluded that there have not been any changes in the
Company's internal control over financial reporting that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-25-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY OF
THE REGISTRANT
The following are the Directors and Executive Officers of
the Company as of December 31, 2003. Several of the Directors
and Officers of the Company also serve as directors of MREIC
and United, both publicly-owned real estate investment trusts.
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Directorships Since
_____ ___ ______________________________ ________
Ernest V. 85 Treasurer (1961 to present), 1961
Bencivenga Secretary (1967 to present) and
Director. Financial Consultant
(1976 to present); Treasurer and
Director (1968 to present) of
Monmouth Real Estate Investment
Corporation, an affiliated company
Secretary/Treasurer (1984 to
present) and Director (1969 to
present) of United Mobile Homes,
Inc., an affiliated company.
Anna T. Chew 45 Vice President (2001 to present) 1994
and Chief Financial Officer (1991
to present) and Director.
Certified Public Accountant. Vice
President (1995 to present) and
Director (1994 to present) of
United Mobile Homes, Inc., an
affiliated company. Chief
Financial Officer (1991 to
present) of Monmouth Real Estate
Investment Corporation, an
affiliated company.
Neil Herstik 45 Director. Attorney at Law, Gross, 2002
Truss & Herstik, PC (1997 to
present); First Vice President,
Marlboro Community Players, Inc.,
a non-profit corporation (2000-
2002); Co-founder and former
President, Manalapan-Englishtown
Education Foundation, Inc., a non-
profit corporation (1995-2001).
Charles P. 66 Director. Investor; Director 1970
Kaempffer (1974 to present) of Monmouth Real
Estate Investment Corporation, an
affiliated company; Director (1969
to present) of United Mobile
Homes, Inc., an affiliated
company. Vice Chairman and
Director (1996 to present) of
Community Bank of New Jersey.
-26-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY OF
THE REGISTRANT, (CONT'D.)
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Directorships Since
_____ ___ ______________________________ ________
Eugene W. Landy 70 President (1968 to present) and 1961
Director. Attorney at Law;
Chairman of the Board (1995 to
present), President (1969 to 1995)
of United Mobile Homes, Inc., an
affiliated company; President and
Director (1968 to present) of
Monmouth Real Estate Investment
Corporation, an affiliated
company.
Michael Landy 42 Executive Vice President and 2001
Director. Investor. President
(1998 to 2001) of Siam Records,
LLC; Chief Engineer and
Technical Director (1987 to 1998)
of GRP Recording Company.
Samuel A. Landy 43 Director. Attorney at Law (1985 1994
to present); President (1995 to
present), Vice President (1991 to
1995) and Director (1992 to
present) of United Mobile Homes,
Inc., an affiliated company;
Director (1989 to present) of
Monmouth Real Estate Investment
Corporation, an affiliated
company.
Eugene 70 Director. Investor; Director (1977 2001
Rothenberg to present) of United Mobile
Himes, Inc. an affiliated company.
Robert R. 77 Director. Investor; Director (1968 1963
Sampson to 2001) of Monmouth Real Estate
Investment Corporation; Director
(1969 to present) of United Mobile
Homes, Inc., an affiliated
company; General Partner (1983 to
present) of Sampco, Ltd., an
investment group.
-27-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY
OF THE REGISTRANT, (CONT'D.)
Audit Committee
The Company's Board of Directors has determined that at
least one member of the Audit Committee is a financial expert.
Delinquent Filers
There have been no delinquent filers pursuant to Item 405 of
regulation S-K, to the best of management's knowledge
Code of Ethics
The Company has adopted the Code of Business Conduct and
Ethics (the Code of Ethics). The Code of Ethics can be found
at the Company's website at www.monmouthcapital.com, as well
as attached to this filing at Exhibit 14.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows compensation
paid by the Company to its Chief Executive officer for services
rendered during the year ended December 31, 2003, 2002, and the
short year ended December 31, 2001. Because no executive
officers received total annual salary and bonus exceeding
$100,000, only the compensation paid to the Chief Executive
officer is to be disclosed under the Securities and Exchange
Commission disclosure requirements.
Name and Principal Compensation
Position Salary Bonus Other
__________________ ______ _____ _____
Eugene W. Landy 12/31/03 $50,000 None $ 20,700(1)
Chief Executive Officer 12/31/02 50,000 None 20,700(2)
12/31/01 37,500 None 1,600(3)
(1) Represents directors' fees and legal fees of $17,500.
(2) Represents directors' fees and legal fees of $17,500.
(3) Represents directors' fees.
-28-
ITEM 11. EXECUTIVE COMPENSATION, (CONT'D.)
Stock Option Plan
The following table sets forth for the executive officer
named in the Summary Compensation Table, information regarding
stock options outstanding at December 31, 2003:
Number of Value of
Unexercised Unexercised
Options at Year-End Options at Year-End
Shares Value Exercisable/ Exercisable/
Name Exercised Realized Unexercisable Unexercisable
Eugene W.
Landy -0- N/A 50,000/ -0- $164,000/ $-0-
Compensation of Directors
The Directors receive a fee of $800 for each Board meeting
attended. Directors appointed to house committees receive $150
for each meeting attended. Those specific committees are
Compensation Committee, Audit Committee and Stock Option
Committee.
Report of the Compensation Committee
Overview and Philosophy
The Company has a Compensation Committee consisting of three
independent outside Directors. This Committee is responsible for
making recommendations to the Board of Directors concerning
executive compensation. The Compensation Committee takes into
consideration three major factors in setting compensation.
The first consideration is the overall performance of the
Company. The Committee believes that the financial interests of
the executive officers should be aligned with the success of the
Company and the financial interests of its shareholders.
The second consideration is the individual achievements made
by each officer. The Company is relatively small. The Committee
is aware of the contributions made by each officer and makes an
evaluation of individual performance based on the Committee's own
familiarity with the officer.
The final criteria in setting compensation is comparable
wages in the industry. In this regard, the REIT industry
maintains excellent statistics.
-29-
ITEM 11. EXECUTIVE COMPENSATION, (CONT'D.)
Evaluation
The Committee reviewed the progress made by Eugene W. Landy,
Chief Executive Officer, in locating alternative business and
investment opportunities. The Committee decided to continue Mr.
Landy's annual compensation of $50,000.
Compensation Committee:
Charles P. Kaempffer
Eugene D. Rothenberg
Robert G. Sampson
Other Information
Except for specific agreements, the Company has no
retirement plan in effect for officers, directors or employees
and, at present, has no intention of instituting such a plan.
Comparative Performance
The following line graph compares the total return of the
Company's Common Stock for the last five fiscal years to the
NASDAQ Total Return Index and the NASDAQ Financial Stocks Total
Return Index. The total return reflects stock price appreciation
and dividend reinvestment for all three comparative indices. The
information herein has been obtained from sources believed to be
reliable, but neither its accuracy nor its completeness is
guaranteed.
Monmouth
Year Ended Capital NASDAQ NASDAQ
December 31, Corporation Total Financial
__________ __________ __________ __________
1998 100 100 100
1999 74 185 99
2000 74 112 107
2001 88 89 118
2002 126 61 121
2003 251 92 164
-30-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 2003, no person owned of record or was
known by the Company to beneficially own more than 5% of the
shares, except as follows:
The following table lists information with respect to the
beneficial ownership of the Company's Common Stock as of December
31, 2003 by:
- each person known by the Company to beneficially own
more than five percent of the Company's outstanding shares;
- the Company's directors;
- the Company's executive officers; and
- all of the Company's executive officers and directors as
a group.
Unless otherwise indicated, the person or persons named
below have sole voting and investment power and that person's
address is c/o Monmouth Capital Corporation, Juniper Business
Plaza, 3499 Route 9 North, Suite 3-C, Freehold, New Jersey 07728.
In determining the number and percentage of shares beneficially
owned by each person, shares that may be acquired by that person
under options exercisable within 60 days of December 31, 2003 are
deemed beneficially owned by that person and are deemed
outstanding for purposes of determining the total number of
outstanding shares for that person and are not deemed outstanding
for that purpose for all other shareholders.
Percentage
Amount and Nature of Shares
Name and Address of Beneficial Outstanding
of Beneficial Owner Ownership (1) (2)
Albert D. Mason, Inc.
50 Congress Street Suite 843
Boston, MA 02109 687,571 (3) 22.31%
Ernest V. Bencivenga 8,515 (4) .28%
Anna T. Chew 19,024 (5) .62%
Neal Herstik 500 .02%
Charles P. Kaempffer 15,331 (6) .50%
Eugene W. Landy 292,862 (7) 9.35%
-31-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, (CONT'D.)
Michael Landy 40,676 (8) 1.32%
Samuel A. Landy 126,584 (9) 4.11%
Eugene Rothenberg 5,127 .17%
Robert G. Sampson 16,986 .55%
Directors and Officers as a
Group (10) 525,605 16.78%
(1) Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the Company
believes that the persons named in the table have sole voting
and investment power with respect to all Shares listed.
(2) Based on the number of shares outstanding on December 31,
2003 which was 3,081,463.
(3) Based upon Form SC 13D filed with the SEC by Albert D.
Mason, Inc on November 5, 2003 which notes that holder has
sole voting and dispositive power with respect to those
shares.
(4) Includes 6,728 shares held by Mr. Bencivenga's wife.
(5) Held jointly with Ms. Chew's husband.
(6) Includes (a) 726 shares in joint name with Mrs. Kaempffer
(b) 270 shares held by Mr. Kaempffer's wife; and (c) 7,000
shares in joint name with Mrs. Kaempffer held as Trustees
for Defined Benefit Pension Plan.
(7) Includes (a) 9,543 shares held by Mr. Landy's wife; (b)
32,835 shares held in the Landy & Landy Employees' Pension
Plan, of which Mr. Landy is a Trustee with power to vote;
(c) 69,051 shares held in the Landy & Landy Employees'
Profit Sharing Plan, of which Mr. Landy is Trustee
withpower to vote; and (d) 14,545 shares held by
Landy Investments, Ltd.of which Mr. Landy has power to vote;
and (e) 20,000 shares held in the Eugene W. and Gloria
Landy Family Foundation, a charitable trust, of which Mr.
Landy has power to vote. Also includes 50,000 Shares
issuable upon exercise of a stock option.
(8) Includes 11,487 shares in custodial accounts for Mr.
Landy's children under the Uniform Gift to Minor's Act
in which he disclaims any beneficial interest, but has power
to vote.
(9) Includes (a) 14,899 shares held by Mr. Landy's wife;
(b) 17,477 shares in custodial accounts for Mr.
Landy's children under the Uniform Gift to Minor's Act in
which he disclaims any beneficial interest, but has power
to vote; and (c) 28,995 shares in the Samuel Landy\
Family Limited Partnership.
(10) Excludes 38,225 shares owned by MREIC and 78,910 shares
owned by United. Eugene W. Landy owns beneficially approx-
mately 6.46% of MREIC and 12.51% of United.
-32-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related party transactions are
incorporated herein by reference to part IV, Item 15(a)(1)(vi),
Note 11 of the Notes to Consolidated Financial Statements-
Payments to Affiliated Persons and Related Party Transactions.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Cowan, Gunteski & Co., P.A. (Cowan Gunteski) served as the
Company's independent auditors for the years ended December 31,
2003 and 2002. The following are the fees billed by Cowan
Gunteski in connection with services rendered:
2003 2002
_____ _____
Audit Fees $21,162 $19,000
Audit Related Fees -0- -0-
Tax Fees 11,000 10,000
All Other Fees -0- -0-
________ ________
Total Fees $32,162 $29,000
======== ========
Audit fees include professional services rendered by Cowan
Gunteski for the audit of the Company's annual financial
statements and reviews of financial statements included in the
Company's quarterly reports on Form 10-Q. Audit fees also
include services that are normally provided by the Company's
independent auditors in connection with statutory and regulatory
filings, such as consents and assistance with and review of
documents filed with the Securities and Exchange Commission.
Tax fees include professional services rendered by Cowan
Gunteski for the preparation of the Company's federal and state
corporate tax returns and supporting schedules as may be required
by the Internal Revenue Service and applicable state taxing
authorities. Tax fees also include other work directly affecting
or supporting the payment of taxes, including planning and
research of various tax issues.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted a policy for the pre-
approval of audit and permitted non-audit services provided by
the Company's principal independent accountants. The policy
requires that all services provided by Cowan Gunteski to the
Company, including audit services, audit-related services, tax
services and other services, must be pre-approved by the
Committee. The pre-approval requirements do not prohibit day-to-
day normal tax consulting services, which matters will not exceed
$5,000 in the aggregate.
The Audit Committee has determined that the provision of the
non-audit services described above is compatible with maintaining
Cowan Gunteski's independence.
-33-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) The following Financial Statements are filed as part of
this report:
Page
(i) Auditors' Report 36
(ii) Consolidated Balance Sheets 37-38
(iii) Consolidated Statements of Income 39
(iv) Consolidated Statements of Shareholders' Equity 40
(v) Consolidated Statements of Cash Flows 41
(vi) Notes to Consolidated Financial Statements 42-61
(a)(2) Financial Statement schedules are omitted for the reason
that they are not require, are not applicable, or the
required information is set forth in the financial
statements or notes thereto.
(a) The Exhibits set forth in the following index of
(3) Exhibits are filed as part of this report.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws - Reference is
hereby made to that filed with the Securities and
Exchange Commission with the Company's Form 10-KA No. 2
for the year ended March 31, 1994.
(14) Code of Business Conduct and Ethics
(21) Subsidiaries of the Registrant - During fiscal 1994, the
Registrant formed a wholly-owned subsidiary, The Mobile
Home Store, Inc., to finance and sell manufactured
homes. This subsidiary merged into the Registrant
during 2001. During 2001, the Registrant formed a
subsidiary, Palmer Terrace Realty Associates, LLC, to
purchase a warehouse facility in Carlstadt, New Jersey.
During 2003, the Registrant formed a subsidiary,
Wheeling Partners, LLC, to purchase a warehouse facility
in Wheeling, Illinois.
(23) Consent of Cowan, Gunteski & Co., P.A.
-35-
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K, (CONT'D.)
Exhibit No. Description
(31.1) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(31.2) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32) Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K - On October 27, 2003, the Company
announced the placement of $5,370,000 of 8% Convertible
Subordinated Debentures due in 2013.
-35-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Monmouth Capital Corporation
Freehold, New Jersey
We have audited the accompanying consolidated balance sheets
of Monmouth Capital Corporation as of December 31, 2003 and 2002,
and the related consolidated statements of income, shareholders'
equity and cash flows for the years ended December 31, 2003, 2002
and the short year ended December 31, 2001. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Monmouth Capital Corporation at December
31, 2003 and 2002, and the consolidated results of their
operations and their cash flows for the year ended December 31,
2003, 2002 and the short year ended December 31, 2001, in
conformity with accounting principles generally accepted in the
United States of America.
/s/ Cowan, Gunteski & Co., P.A.
March 11, 2004
Toms River, New Jersey
-36-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
ASSETS 2003 2002
______ ___________ ___________
Real Estate Investments:
Land $5,838,603 $2,099,065
Buildings, Improvements and
Equipment, net of accumulated
depreciation of $613,750 and
$285,852, respectively 17,249,644 9,750,148
__________ __________
Total Real Estate Investments 23,088,247 11,849,213
Loans Receivable, net of
allowance for losses of
$86,934 and $100,845,
respectively 1,515,625 1,888,094
Cash and Cash Equivalents 314,091 174,099
Accounts Receivable 15,097 27,625
Securities Available for Sale,
at Fair Value:
Federal National Mortgage
Association 546,697 3,348,671
Government National Mortgage
Association 69,298 149,758
Other Securities Available for
Sale 14,827,914 9,346,508
Inventory 50,590 118,009
Prepaid Expenses and Other
Current Assets 111,553 13,942
Financing Costs, net of
accumulated amortization of
$42,796 and $16,879,
respectively 649,088 185,613
Leasing Costs, net of
accumulated amortization of
$12,277 and -0-, respectively 380,808 -0-
__________ __________
TOTAL ASSETS $41,569,008 $27,101,532
========== ==========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-37-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT.)
December 31, December 31,
2003 2002
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Mortgages Payable $15,889,239 $8,616,405
Convertible Subordinated
Debentures 5,370,000 -0-
Loans Payable 5,576,824 8,660,162
Accounts Payable and Accrued
Expenses 249,854 327,391
Other Liabilities 197,844 35,000
__________ __________
Total Liabilities 27,283,761 17,638,958
__________ __________
Minority Interest 1,914,242 352,564
__________ __________
Shareholders' Equity:
Common Stock (par value $1.00
per share; Authorized
10,000,000 shares; issued
and outstanding 3,081,463
and 2,277,537 shares
respectively) 3,081,463 2,277,537
Additional Paid-In Capital 7,266,839 4,993,306
Accumulated Other Comprehensive
Income 1,812,797 1,734,189
Retained Earnings 209,906 104,978
__________ __________
Total Shareholders' Equity 12,371,005 9,110,010
__________ __________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,569,008 $27,101,532
========== ==========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-38-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the For the For the Short
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2002 2001
Income:
Rental Income 1,734,583 $1,016,513 $206,170
Interest and Dividend
Income 1,091,924 1,247,379 947,491
Sales of Manufactured
Homes 269,690 $394,500 $35,500
Gain on Sales of
Securities 710,491 181,002 254,648
Other Income 1,041 683 354
_________ _________ _________
Total Income 3,807,729 2,840,077 1,444,163
_________ _________ _________
Expenses:
Cost of Sales of
Manufactured Homes 257,502 390,003 33,836
Selling Expense 13,025 5,066 -0-
Real Estate Taxes 114,439 102,955 2,416
Salaries and Employee
Benefits 177,257 178,586 136,346
Professional Fees 71,825 81,554 86,201
Interest Expense 977,204 792,667 373,159
Depreciation 327,898 208,521 80,000
Other Expenses 486,318 480,580 314,607
_________ _________ _________
Total Expenses 2,325,468 2,239,932 1,026,565
_________ _________ _________
Income Before Minority
Interest 1,382,261 600,145 417,598
Minority Interest 98,829 45,507 19,393
_________ _________ _________
NET INCOME $1,283,432 $554,638 $398,205
========== ========== ==========
NET INCOME PER
SHARE-BASIC AND DILUTED
Basic $ .45 $ .29 $ .25
========== ========== ==========
Diluted $ .34 $ .29 $ .25
========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 2,824,809 1,924,860 1,597,213
========= ========= =========
DILUTED 3,747,584 1,941,477 1,602,787
========= ========= =========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-39-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Common Stock Issued Additional Other Com- Com-
___________________ Paid-In prehensive Retained prehensive
Number Amount Capital Income Earnings Income
______ ______ _______ __________ ________ ________
Balance
March 31,
2001 1,573,790 $1,573,790 $3,409,597 $1,166,296 $314.259
Common
Stock
Issued with
DRIP* 123,224 123,224 231,240 -0- -0-
Net Income -0- -0- -0- -0- 398,205 $398,205
=======
Distributions -0- -0- -0- -0- (413,627)
Unrealized Net
Holding Gains
on Securities
Available for
Sale -0- -0- -0- 522,838 -0- 522,838
_________ _________ _________ _________ _______ _______
Balance
December 31,
2001 1,697,014 1,697,014 3,640,737 1,689,134 298,837 $921,043
=======
Common
Stock
Issued with
DRIP 580,523 580,523 1,352,569 -0- -0-
Net Income -0- -0- -0- -0- 554,638 $554,638
Distributions -0- -0- -0- -0- (748,497)
Unrealized Net
Holding Gains
on Securities
Available for
Sale -0- -0- -0- 45,055 -0- 45,055
_________ _________ _________ _________ ______ ______
Balance
December 31,
2002 2,277,537 2,277,537 4,993,306 1,734,189 104,978 $599,693
=======
Common
Stock
Issued with
DRIP 733,926 733,926 2,138,533 -0- -0-
Common Stock
Issued from
Exercise of
Stock Option 70,000 70,000 135,000 -0- -0-
Net Income -0- -0- -0- -0- 1,283,432 $1,283,432
Distributions -0- -0- -0- -0- (1,178,504)
Unrealized Net
Holding Gains
on Securities
Available for
Sale -0- -0- -0- 78,608 -0- 78,608
________ _________ _________ ________ ______ _______
Balance
December 31,
2003 3,081,463 $3,081,463 $7,266,839 $1,812,797 $209,906 $1,362,040
========= ========= ========= ========= ======= ========
*Dividend Reinvestment and Stock Purchase Plan
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
40
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the For the Short
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2002 2001
__________ __________ ___________
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $1,283,432 $ 554,638 $ 398,205
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Income Allocated to Minority
Interest 45,507 19,393
Depreciation and
Amortization 98,829 221,935 81,500
Provision for Loan Losses 366,092 68,500 134,400
Gain on Sale of Securities
Available for Sale (710,491) (181,002) (254,684)
Changes In Operating Assets
and Liabilities:
Accounts Receivable 12,528 129,667 (109,587)
Inventory 253,187 390,003 -0-
Prepaid Expenses and Other
Current Assets (490,696) 3,306 (17,973)
Accounts Payable and Accrued
Expenses (77,537) 168,680 29,096
Other Liabilities 162,844 343 7,143
_________ _________ ________
Net Cash Provided by Operating
Activities 898,188 1,401,577 287,493
__________ _________ _______
CASH FLOWS FROM INVESTING
ACTIVITIES
Loans Made -0- (110,600) -0-
Collections and Other
Decreases in Loans
Receivable 186,701 297,096 263,206
Purchase of Securities
Available for Sale (7,872,935) (3,617,631) (204,907)
Proceeds from Sales and
Other Decreases in
Securities Available
for Sale 6,063,062 2,655,521 1,602,957
Additions to Real Estate
Investments (11,566,932) (4,242,698 (7,883,971)
___________ _________ __________
Net Cash Used in Investing
Activities (13,190,104) (5,018,312) (6,222,715)
_________ __________ ________
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from Mortgages 7,670,000 3,100,000 5,736,250
Proceeds from Convertible
Subordinated Debenture 5,370,000 -0- -0-
Proceeds from Loans 500,000 -0- 900,000
Net (Decrease) Increase
in Margin Loans Payable
and Inventory Financing (3,583,338) (789,771) (323,632)
Principal Payments of
Mortgages (397,166) (203,319) (16,526)
Financing Costs on Debt (489,392) (66,118) (116,374)
Increase (decrease) in
Minority Interest 1,462,849 (41,996) 329,660
Dividends Paid (913,994) (551,994) (320,264)
Proceeds from the Issuance
of Class A Common Stock 2,607,949 1,736,589 261,101
Proceeds from Exercise of
Stock Options 205,000 -0- -0-
________ _________ _________
Net Cash Provided by Financing
Activities 12,431,908 3,183,391 6,450,215
_________ _________ _________
Net Increase (Decrease) in
Cash and Cash Equivalents 139,992 (433,344) 514,993
Cash and Cash Equivalents at
Beginning of Year 174,099 607,443 92,450
________ _________ ________
Cash and Cash Equivalents at
End of Year $ 314,091 $ 174,099 $ 607,443
======= ======= ========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-41-
MONMOUTH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE 1 - CHANGE IN YEAR END TO CALENDAR YEAR
On September 26, 2001 Monmouth Capital Corporation (the
Company) adopted a change from a fiscal year end of March 31 to a
calendar year end, effective for the short year ended December
31, 2001. Form 8-K was filed with the Securities and Exchange
Commission. The Company has furnished Pro Forma financial
information for the year ended December 31, 2001.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Monmouth Capital Corporation is a corporation organized in
the State of New Jersey, in 1961. The Company operates as a
qualified real estate investment trust (REIT) under Sections 856-
860 of the Internal Revenue Code (the Code) and intends to
maintain its qualification as a REIT in the future. As a
qualified REIT, with limited exceptions, the Company will not be
taxed under federal and certain state income tax laws at the
corporate level on taxable income that its distributes to its
shareholders. For special tax provisions applicable to REITS,
refer to Sections 856-860 of the Code.
Prior to 1994 the Company operated as a small business
investment company. During 1994, the Company formed a wholly-
owned subsidiary, The Mobile Home Store, Inc. (MHS), to finance
and sell manufactured homes. The sales operation was conducted
at manufactured home communities owned by United Mobile Homes
(United), a related REIT. The Company also invested in real
estate and securities.
In March 2001, the Company sold the existing inventory to
United at the Company's carrying value and the Company exited the
manufactured home sales business since it proved to be
unprofitable. On September 26, 2001, the Company adopted a
change from a fiscal year end of March 31 to a calendar year end,
effective for the short year ended December 31, 2001. The
Company elected to be taxed as a real estate investment trust for
the transition period ended December 31, 2001. MHS was merged
into the Company on December 6, 2001.
The Company has made the following property acquisitions
since January 1, 2001:
Date of Square Property
Acquisition Location Feet Type Ownership Tenant
__________ __________ _____ _____ _______ ______
7/20/2001 Carlsdadt, NJ 59,400 warehouse 51% Macy's
12/20/2001 White Bear Lake, MN 59,425 warehouse 100% Federal
Express
9/18/2002 Cheektowaga, NY 62,986 warehouse 100% Federal
Express
8/14/2003 Wheeling, IL 107,160 warehouse 63% Federal
Express
Ground
-42-
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, (CONT'D.)
The Company is currently operating as a diversified REIT
investing in real estate equities, mortgages, mortgage-backed
securities, and other REIT securities.
Principals of Consolidation and Minority Interests
The consolidated financial statements of the Company at
December 31, 2003, 2002, 2001, and for each of the years ended
December 31, 2003, 2002, and the short year ended December 31,
2001 include the accounts and operating results of the Company
and its subsidiaries. The Company consolidates the results of
operations that have minority interests. Such consolidated
financial statements present the Company's minority interests
under the equity method of accounting. All intercompany balances
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Buildings, Improvements and Equipment
Buildings, Improvements and Equipment are stated at the
lower of depreciated cost or net realizable value. Depreciation
is computed based on the straight-line method over the estimated
useful life of the assets (mainly 39 years). If there is an
event or change in circumstances that indicates that the basis of
an investment property may not be recoverable, management
assesses the possible impairment of value through evaluation of
the estimated future cash flows of the property, on an
undiscounted basis, as compared to the property's current
carrying value. A property's carrying value would be adjusted,
if necessary, to reflect an impairment in the value of the
property.
Loans Receivable
Interest income on loans receivable is accrued until, in the
opinion of management, the collection of such interest appears
doubtful. An allowance is recorded when it appears doubtful that
the Company will not collect the full principal amount.
Cash Equivalents
Cash equivalents consist of money market funds.
-43-
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES,(CONT'D.)
Lease Costs and Financing Costs
Costs incurred in connection with the execution of leases
are deferred and are amortized over the term of the respective
leases. Unamortized lease costs are charged to expense upon
cancellation of leases prior to the expiration of lease terms.
Costs incurred in connection with obtaining mortgages and other
financings and refinancings are deferred and are amortized over
the term of the related obligations. Unamortized costs are
charged to expense upon prepayment of the obligation. Costs
incurred in connection with the Convertible Subordinated
Debentures (the Debentures) are deferred and are amortized over
the term of the Debentures. Unamortized costs are charged pro-
rata to Additional Paid-In Capital upon conversion by the
Debenture holders or redemption by the Company.
Securities Available for Sale
The Company's securities consist primarily of debt and
common and preferred stock of other REITs, as well as mortgaged
backed securities issued by the Federal National Mortgage
Association and the Government National Mortgage Association.
These securities are all publicly traded and purchased on the
open market. These securities are classified as Available-for-
Sale, and are carried at fair value. Gains or losses on the sale
of securities are calculated on the average cost method and are
accounted for on a trade date basis. Unrealized holding gains
and losses are excluded from earnings and reported as a separate
component of Shareholders' Equity until realized. A decline in
the market value of any security below cost that is deemed to be
other than temporary results in a reduction in the carrying
amount to fair value. Any impairment is charged to earnings and
a new cost basis for the security is established.
Inventories
Inventories, consisting of manufactured homes for sale, are
valued at the lower of cost, which includes costs associated with
the repossession of a home, or market value and are determined by
the specific identification method. All inventories were
considered finished goods.
Revenue Recognition
Rental income is recognized on the straight-line basis over
the term of the lease. Sale of manufactured homes is recognized
on the full accrual basis when certain criteria are met. Interest
income on loans receivable is not accrued when, in the opinion of
management, the collection of such interest appears doubtful.
-44-
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, (CONT'D.)
Income Taxes
The Company has elected to be taxed as a REIT under Sections
856-860 of the Internal Revenue Code. The Company will not be
taxed on the portion of its income which is distributed to
shareholders, provided it distributes at least 90% of its taxable
income, has at least 75% of its assets in real estate investments
and meets certain other requirements for qualification as a REIT.
Additionally, at April 1, 2001, the Company had certain assets
with built-in gains. If these assets are sold within a ten-year
period, any gain may be taxable.
Net Income Per Share
Basic net income per share is calculated by dividing net
income by the weighted-average number of common shares
outstanding during the period (2,824,809, 1,924,860 and 1,597,213
for the year ended December 31, 2003, 2002 and the short year
ended December 31, 2001, respectively). Diluted net income per
share is calculated by dividing net income by the weighted-
average number of common shares outstanding plus the weighted-
average number of net shares that would be issued upon exercise
of stock options pursuant to the treasury stock method, plus the
number of shares resulting from the possible conversion of the
Debentures, (3,474,584, 1,941,477 and 1,602,787 for the years
ended December 31, 2003, 2002 and the short year ended December
31, 2001, respectively). (See Note 7). Options in the amount
of 27,775, 16,617 and 5,574 are included in the diluted weighted
average shares outstanding for the year ended December 31, 2003,
2002 and the short year ended December 31, 2001, respectively.
Common stock relating to the Company's Debentures totaling
895,000 shares are also included in the diluted weighted average
shares outstanding for the year ended December 31, 2003. (See
Note 6).
Stock Option Plan
The Company had elected to follow APB Opinion No. 25 in
accounting for its stock option plan prior to January 1, 2003,
and accordingly no compensation cost had been recognized prior to
January 1, 2003. Had compensation cost been determined
consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma
amounts as follows:
-45-
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, (CONT'D.)
Short Year
Year Ended Year Ended Ended
12/31/03 12/31/02 12/31/01
__________ __________ __________
Net Income as
Reported $1,283,432 $554,638 $398,205
Compensation expense
if the fair
value method had
been applied -0- 2,000 28,289
__________ __________ ________
Net Income Pro forma $1,283,432 $552,638 $369,916
========== ======== ========
Net Income per share -
Basic
As Reported $ .45 $ .29 $ .25
Pro Forma $ .45 $ .29 $ .22
Diluted
As Reported $ .34 $ .29 $ .25
Pro Forma $ .34 $ .29 $ .22
The fair value of each option is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 2002
and short year 2001:
Short year
2002 2001
Dividend yield 10% .3%
Expected volatility 25% 25%
Risk-free interest rates 3.4% 6.5%
Expected lives (years) 5 5
The Company adopted the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock Based Compensation" on
January 1, 2003. Under the prospective method of adoption
selected by the Company under the provisions of SFAS No. 148,
"Accounting for Stock Based Compensation, Transition and
Disclosure", no compensation costs have been recognized in 2003,
as the Company did not grant stock-based employee compensation
during the year ended December 31, 2003.
Comprehensive Income
Comprehensive income consists of net income and net
unrealized gains or losses on securities available for sale and
is presented in the consolidated statements of shareholders'
equity.
-46-
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, (CONT'D.)
Reclassifications
Certain amounts in the consolidated financial statements for
the prior periods have been reclassified to conform to the
statement presentation for the current year. These
reclassifications have no effect on net income.
NOTE 3 - REAL ESTATE INVESTMENTS
On July 20, 2002, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity. This warehouse facility is 100% net leased to
Macy's East, Inc., an Ohio corporation. The purchase price,
including closing costs, was approximately $3,200,000. Palmer
Terrace paid approximately $860,000 in cash and obtained a
mortgage of approximately $2,340,000. This mortgage payable is
at an interest rate of 7.75% and is due August 15, 2021.
On December 20, 2002, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity. This warehouse
facility is 100% net leased to Federal Express Corporation. The
purchase price, including closing costs, was approximately
$4,800,000. The Company paid approximately $300,000 in cash,
borrowed approximately $1,100,000 against its securities
portfolio and obtained a mortgage of approximately $3,400,000.
This mortgage is at an interest rate of 7.04% and is due January
1, 2012.
On September 18, 2002, the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in Erie
County, Cheektowaga, New York from FedJones Cheektowaga, LLC
(FedJones), an unrelated entity. This lease was between FedJones
and the Erie County Industrial Development Agency (ECIDA). This
warehouse facility is 100% subleased to FedEx Ground Package
System, Inc. under a net lease. The purchase price was
approximately $4,200,000. The Company borrowed approximately
$1,100,000 against its security portfolio with Prudential
Securities and obtained a mortgage of approximately $3,100,000.
This mortgage payable is at an interest rate of 6.78% and is due
October 1, 2017. At the end of the lease term, the Company may
purchase the warehouse facility from ECIDA for $10.
On August 14, 2003, Wheeling Partners, LLC, a 63% owned
subsidiary of the Company, purchased a 107,160 square foot
industrial building in Wheeling, Illinois, from Jones Elgin I,
LLC, an Illinois limited liability company (Jones Elgin). This
warehouse facility is 100% subleased to FedEx Ground Package
System, Inc. under a net lease for 12 years. The purchase price,
including closing costs, was approximately $11,985,000. The
Company borrowed approximately $2,300,000 against its
security portfolio, obtained a bank loan of $500,000 at an
interest rate of 7.23% due August 30, 2004, and obtained a
mortgage of approximately $7,670,000. This mortgage payable is
at an interest rate of 5.68% and is due 2021. The property
-47-
NOTE 3 - REAL ESTATE INVESTMENTS (CONT'D.)
acquired is commercial rental property and will continue to be
used as such. The Company has accounted for this transaction as
a purchase.
The following is a summary of the cost and accumulated
depreciation of the Company's land, buildings, improvements and
equipment at December 31, 2003 and 2002:
2003 NJ MN NY IL
_____ _____ _____ _____ _____
Land 634,065 1,025,000 440,000 3,739,538
Building 2,574,700 3,744,000 3,800,000 7,243,625
Improvements -0- -0- -0- 448,534
Equipment -0- -0- -0- 52,535
__________ __________ __________ __________
Total 3,208,765 4,769,000 4,240,000 11,484,232
Accumulated
Depreciation (153,226) (240,000) (146,055) (74,469)
__________ __________ __________ __________
Net Real Estate
Investments 3,055,539 4,529,000 4,093,945 11,409,763
========= ========= ========= =========
2002 NJ MN NY IL
Land 634,065 1,025,000 440,000 -0-
Building 2,492,000 3,744,000 3,800,000 -0-
Improvements -0- -0- -0- -0-
Equipment -0- -0- -0- -0-
__________ __________ __________ _________
Total 3,126,065 4,769,000 4,240,000 -0-
Accumulated
Depreciation (93,226) (144,000) (48,626) -0-
__________ _________ _________ __________
Net Real Estate
Investments 3,032,839 4,625,000 4,191,374 -0-
========= ========= ========= =========
All properties consist of industrial buildings.
-48-
NOTE 4 - LOANS RECEIVABLE
The following is a summary of the loans held by the Company
at December 31, 2003 and 2002:
Balance
Rate Date 2003 2002
_____ ____ _________________
Financed Manufactured
Homes 10%-15% Various $1,577,686 $1,963,468
Other Various Various 24,873 25,471
_________ _________
Total Loans Receivable 1,602,559 1,988,939
Allowance for Losses (86,934) (100,845)
_________ _________
Net Loans Receivable $1,515,625 $1,888,094
========= =========
From 1994 through March 2001, the Company sold and financed
manufactured home units. At December 31, 2003 and 2002, financed
manufactured homes consist of 74 and 88 loans, respectively.
These loans range from approximately $1,000 to approximately
$60,000. Loans receivable for financed manufactured homes are
secured by the property financed. Generally, the terms of the
loans do not exceed 20 years.
-49-
NOTE 5 - SECURITIES AVAILABLE FOR SALE
The Company's securities available for sale consist
primarily of debt securities and common and preferred stock of
other REITs. The Company does not own more than 10% of the
outstanding shares of any of these securities, nor does it have
controlling financial interest.
The following is a summary of investments in debt and equity
securities at December 31, 2003:
Description Shares Cost Fair Value
Equity Securities -
Preferred Stock:
Apartment Inv and Mgt Co 10% ClR 3,500 $ 94,820 $95,092
Apartment Inv & Mgt Co 8% Cl T 16,000 400,000 413,280
AMB Property Corp 8% Sr M 4,000 100,000 99,040
Carramerica Realty Corp 7.5% Sr E 8,000 200,000 212,800
CBL Assoc 8.75% Sr B 2,000 101,200 109,600
CBL Assoc 7.75% Sr C 5,000 127,750 135,500
Corporate Office Ppts 20,000 500,000 511,950
Developers Diversified Realty
Corp Cl H 4,000 98,480 103,920
Duke Realty Corp 6.625% Sr J 4,000 100,000 102,520
Equity Inns Inc 8.75% Sr B 10,000 251,200 271,900
Felcor Lodging Trust 9% Sr B 30,000 608,092 751,800
Felcor Lodging Trust 1.95% Sr A 5,000 86,390 120,900
G&L Realty Corp 10.25% Sr A 1,000 15,683 25,580
Glenborough Realty Trust 7.75%SR A 6,000 87,823 147,780
Glimcher Realty Trust 9.25% Sr B 4,000 62,418 101,400
HRPT PP 9.875% Sr A 4,000 107,680 111,760
HRPT PP 8.75% Sr B 17,000 425,160 473,450
Health Care Property Inves. 7.1%
Sr F 11,000 275,000 280,001
Health Care Property Inves.
7.25% Sr E 6,000 150,000 156,000
Highwoods Properties Inc 8% Sr D 1,000 17,170 25,060
Hospitality Properties Trust
9.5% Sr A 8,400 180,389 217,560
Host Marriott Corp 10% Cl C 2,000 53,000 54,520
Innkeepers USA Trust 8.625%Sr A 12,900 256,170 323,790
Innkeepers USA Trust 8.0% Sr C 39,000 975,000 975,000
Keystone Property Trust 9.125%Sr D 1,100 29,920 29,865
Kilroy Realty 7.8% Sr E 20,000 500,000 511,000
Kramont Realty Trust 9.5% Sr D 23,000 405,888 581,900
Kramont Realty Trust 8.25% Sr E 40,000 1,000,000 1,000,000
Lasalle Hotel Prop. 10.25% Sr A 8,000 202,400 228,400
Mills Corp 9% Sr C 3,000 81,960 82,500
Mills Corp 9% Sr B 2,000 50,600 54,880
Parkway Prop 8.0% Sr D 1,000 26,600 26,500
-50-
Description Shares Cost Fair Value
Pennsylvania REIT 11% 15,100 $546,151 $917,325
Prologis Trust 6.75% 16,000 400,000 411,520
Public Storage 6.5% Sr W 6,000 150,000 151,740
Sizeler Property Investors
9.75% Sr B 1,000 25,000 28,500
SL Green Realty 7.625% Sr C 24,000 600,000 618,000
Saul Centers Sr A 30,000 750,000 780,000
Shurguard Storage 8.75% Sr D 5,000 134,200 135,250
Shurguard Storage 8.70% Sr C 2,000 50,980 50,600
Sovran Self Storage Inc 9.85%
Sr B 1,000 19,245 25,950
________ ________ _______
Total Equity Securities -
Preferred Stock 10,246,369 11,454,133
_________ _________
Equity Securities-Common Stock:
HRPT Properties Trust 30,000 257,516 302,700
Monmouth Real Estate (a related
entity) 1,000 7,160 8,690
New Plan Excel Realty Trust Inc 20,000 459,250 493,400
Pennsylvania REIT 3,589 89,600 130,281
Sizeler Properties Investors Inc 150,000 1,257,540 1,606,500
Tork Time Control Inc 1,500 10,125 15,000
Trizec PPTYS Inc 6,500 75,945 100,100
United Mobile Homes, Inc. (a
related entity) 11,000 84,826 187,110
_________ _________
Total Equity Securities-
Common Stock 2,241,962 2,843,781
_________ _________
Total Equity Securities 12,488,331 14,297,914
_________ _________
Debt Securities:
Sizeler PPTY SubDeb CPN 9% Due
7/15/09 500,000 530,000
Federal National Mortgage
Association
6.09% 7/1/39 571,368 546,697
Government National Mortgage
Association 6.5% 2/20/14 71,413 69,298
_________ _________
Total Debt Securities 1,142,781 1,145,995
_________ _________
Total Securities Available
for Sale $13,631,112 $15,443,90
========= =========
-51-
NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
The following is a summary of investments in debt and equity
securities at December 31, 2002:
Description Shares Cost Fair Value
Equity Securities -
Preferred Stock:
Apartment Inv and Management Co 10% 1,000 $ 26,220 $ 26,250
Associated Estates Realty Corp
9.75% Cl A 15,500 246,779 357,740
Avalonbay 8% Ser D Callable 6,000 151,500 150,900
CBL Assoc. 8.75% Sr B 2,000 101,200 103,800
Colonial Ppty Tr 8.75% Sr A 300 7,552 7,506
Crown American Realty Trust 11% 16,200 585,933 896,670
Developers Div DepSh 8.375% 2,000 49,000 49,700
Equity Inns Inc 9.5% Sr A 12,400 201,783 288,920
Felcor Lodging 9% Sr B 25,000 496,592 615,000
Felcor Lodging Trust Inc 1.95% 5,000 86,390 104,250
G&L Realty Corp 10.25% Sr A 1,000 15,683 22,650
Glenborough Realty Trust 7.75% Sr A 6,000 87,823 126,900
Glimcher Realty Trust 9.25% Sr B 4,000 62,418 99,400
HRPT PP 9.875% Sr A 4,000 107,680 105,600
HRPT PP 8.75% Sr B 17,000 425,160 434,180
Health Care Property Inves. 7.875%
Sr A 8,000 133,417 199,200
Health Care Property Inves.8.7% Sr B 3,000 50,860 76,200
Highwoods Properties Inc 8% Sr D 1,000 17,170 22,350
Hospitality Properties Trust9.5%SrA 6,400 127,413 168,896
Innkeepers USA Trust 8.625% Sr A 10,000 182,513 242,000
iStar Financial Inc. 8% Sr D 4,500 80,915 107,325
JDN Realty Corp 9-3/8% Sr A 19,000 384,180 479,750
Kimco Realty 8.50% PRB 5,500 140,345 140,305
Kramont Realty Trust 9.5% Sr D 25,200 444,723 633,780
Lasalle Hotel Prop. 10.25% Sr A 8,000 202,400 212,000
Mid America Apartment Communities
Inc. 9.5% Sr A 1,200 24,525 30,420
Mid America Apartment Communities
Inc 8.825% Sr B 12,500 219,501 311,250
Mills Corp 9% Rfd B 2,000 50,600 51,500
New Plan Excel Realty Trust
8.625% Sr B 12,000 291,835 302,400
Parkway Prop 8.75% Sr A 1,000 26,030 25,650
-52-
Description Shares Cost Fair Value
Prime Retail Inc. Sr B 1,000 5,185 5,250
Sizeler PP PFD 9.75% 1,000 25,000 26,300
Sovran Self Storage Inc 9.85% Sr B 1,000 19,245 26,000
Thornburg Mortgage Asset Corp
9.68% Sr A 1,700 33,423 45,900
Vornado Realty Trust 8.5% Sr C 1,000 19,683 25,400
_________ _________
Total Equity Securities -
Preferred Stock 5,130,676 6,521,342
_________ _________
Equity Securities-Common Stock:
Center Trust Inc 10,000 45,560 78,000
Crown American 30,000 268,800 276,000
Five Star Quality Care Inc 40 300 55
HRPT Properties Trust 40,000 343,316 329,600
JDN Realty 64 -0- 701
LaSalle Hotel Properties 1,000 12,308 14,000
Monmouth Real Estate(a related 1,000 7,160 6,920
entity)
New Plan Excel Realty Trust Inc 6,243 90,726 119,179
Phoenix Companies Inc 478 -0- 3,633
Sizeler Properties Investors Inc 137,000 1,122,761 1,272,729
Tork Time Control Inc 1,500 10,125 15,000
Trizec PPTYS Inc 6,500 75,945 61,035
United Mobile Homes, Inc.
(a related entity) 11,000 84,824 148,939
_________ _________
Total Equity Securities-
Common Stock 2,061,825 2,325,791
_________ _________
Total Equity Securities 7,192,501 8,847,133
_________ _________
Debt Securities:
Sizeler PPTY SubDeb CPN 9% Due
7/15/09 500,000 499,375
Federal National Mortgage
Association 2,840,476 2,916,507
6.09% 7/1/39
Federal National Mortgage
Association 430,800 432,164
6.86% 11/1/30
Government National Mortgage
Association 6.5% 2/20/14 146,971 149,758
_________ _________
Total Debt Securities 3,918,247 3,997,804
_________ _________
Total Securities Available
for Sale $11,110,748 $12,844,937
========== ==========
-53-
NOTE 5 - SECURITIES AVAILABLE FOR SALE,(CONT'D.)
The Company had four securities that were temporarily impaired
investments at December 31, 2003. The individual unrealized losses were
1% or less of original cost. The following is a summary:
Less than 12 months 12 months or longer
___________________ ___________________
Description of Unrealized Unrealized
Securities Fair Value Losses Fair Value Losses
______________ __________ __________ __________ __________
Preferred stock $ -0- $ -0-
$206,005 $1,495
Federal agency
mortgage backed 71,413 2,115 -0- -0-
securities
_________ _________ _________ _________
Total $277,418 $3,610 $ -0- $ -0-
======== ======== ======== ========
NOTE 6 - DEBT
Mortgages Payable
The following is a summar1y of mortgages payable at
December 31, 2003 and 2002:
Interest
Property Rate Maturity 2003 2002
________ ________ ________ ________ ________
New Jersey 7.75% 2021 $2,211,111 $2,267,514
Minnesota 7.04% 2011 3,125,436 3,278,967
New York 6.78% 2017 2,944,407 3,069,924
Illinois 5.68% 2021 7,608,285 -0-
________ ________
Total
Mortgages $15,889,239 $8,616,405
Payable
========== ==========
Principal on the foregoing debt is scheduled to be paid as follows:
2004 $603,801
2005 644,094
2006 687,111
2007 733,041
2008 782,083
Thereafter 12,439,109
__________
$15,889,239
==========
-54-
NOTE 6 - DEBT, (CONT'D.)
Convertible Subordinated Debentures
On October 23, 2003, the Company
completed a private placement offering of
$5,370,000 (less approximately $374,000
in offering costs) of 8% Convertible
Subordinated Debentures (the Debentures),
due 2013. Interest will be paid semi-
annually in arrears on April 30 and
October 31 of each year, commencing April
30, 2004. The Debentures are convertible
into common stock of the Company at any
time prior to redemption or maturity, at
the conversion price of $6.00 per share
(equivalent to a rate of 166.67 shares of
common stock for each $1,000 principal
amount), subject to adjustment under
certain conditions.
The Company may redeem the
Debentures, at its option, in whole or in
part, at any time on and after October
31, 2004 at the redemption prices set
below. The redemption price, expressed
as a percentage of the principal amount,
is as follows for the 12-month periods
beginning on:
Redemption
Period Price
__________ __________
October 23, 2004 110%
October 23, 2005 110%
October 23, 2006 110%
October 23, 2007 105%
October 23, 2008 and
Thereafter 100%
No sinking fund is provided for the
Debentures. The Company may redeem the
debentures, at our option, in whole or in
part, at any time prior to October 23,
2004, upon at least 30 and not more than
60 days' notice by mail to the holders of
the debentures, at a redemption price
equal to 100% of the principal amount of
the debentures to be redeemed, plus
accrued and unpaid interest to the date
fixed for redemption, if the closing
price of our common stock has exceeded
150% of the conversion price for at least
20 trading days in the consecutive 30-day
trading period ending on the trading day
prior to the date we mail the notice of
redemption.
Loans Payable
The following is a summary of the Company's loan payable
at December 31, 2003 and 2002:
2003 2002
_____ _____
Margin loan $3,982,824 $4,128,495
Repurchase 519,000 3,165,000
liability
Two River Bank 1,075,000 966,666
United Mobile Homes -0- 400,000
__________ __________
Total $5,576,824 $8,660,161
========== ==========
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NOTE 6 - DEBT, (CONT'D.)
The Company purchases securities on
margin. At December 31, 2003 and 2002,
the margin loans amounted to $3,982,824
and $4,128,495, respectively. The
interest rate ranged from 2.75% to 3.0%
during the year ended December 31, 2003,
and from 1.8% to 3% during the year ended
December 31, 2002. These loans are
secured by investment securities with a
market value of $15,440,909 and
$12,844,937, respectively. These margin
loans are due on demand.
On December 18, 2001, the Company
received a $400,000 loan from United
Mobile Homes, Inc. (an affiliated
company), secured by loans receivable of
approximately $600,000. This loan was at
an interest rate of 10% and was due on
December 18, 2006. The loan was paid in
2003.
On August 31, 2001 the Company
received a $500,000 loan from Two River
Community Bank (Two River). This loan is
at an interest rate based on the five-
year Treasury note plus 2.75% and was due
on August 31, 2003. The balance on this
loan at December 31, 2003 and 2002 was
$75,000 and $466,666, respectively. This
loan was extended during 2003 and is now
at an interest rate of 7.23% and is due
August 30, 2004. The original loan was
personally guaranteed by Eugene W. Landy,
Chairman and President. This loan was
paid in full on January 26, 2004 by
drawing down on the Company's margin
loan.
On August 15, 2002, the Company
received $500,000 loan from Two River.
This loan is at an interest rate of 6.11%
per annum and is due on August 15, 2004.
The balance on this loan at December 31,
2003 and 2002 was $500,000. This loan
was paid in full on January 26, 2004 by
drawing on the Company's margin loan.
On August 14, 2003, the Company
received an additional $500,000 loan from
Two River. This loan is at an interest
rate of 6.33% and is due on August 8,
2005. The balance on this loan at
December 31, 2003 and 2002 was $500,000
and -0-, respectively. This loan was
paid in full on January 26, 2004 by
drawing down on the Company's margin
loan.
NOTE 7 - EMPLOYEE STOCK OPTION PLAN
On July 14, 1994, the shareholders
approved and ratified the Company's 1994
Stock Option Plan authorizing the grant
to officers and key employees of options
to purchase up to 300,000 shares of
common stock. Options may be granted any
time up to December 31, 2003. No option
shall be available for exercise beyond
ten years. All options are exercisable
after one year from the date of grant.
The option price shall not be below the
fair market value at date of grant.
Canceled or expired options are added
back to the "pool" of shares available
under the plan.
A summary of the status of the
Company's stock option plans as of
December 31, 2003, 2002 and 2001, and
changes during the periods then ended are
as follows:
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NOTE 7 - EMPLOYEE STOCK OPTION PLAN,
(CONT'D.)
12/31/03 12/31/02 12/31/01
________ ________ ________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding
at Beginning
of period 150,000 $3.01 140,000 $3.02 90,000 $2.86
Granted -0- -0- 10,000 2.90 50,000 3.30
Expired/Cancelled -0- -0- -0- -0- -0- -0-
Exercised 70,000 2.93 -0- -0- -0- -0-
_______ ______ ______ _____
Outstanding at
end of
period 80,000 3.08 150,000 3.01 140,000 3.02
====== ======= =======
Weighted-average
fair value of
options
granted
during the
year $-0- $ .20 $1.57
==== ===== =====
The following is a summary of stock options outstanding as of
December 31, 2003:
Number
Date of Number of of
Grant Employees Shares Option Price Expiration Date
10/4/00 2 20,000 $2.625 10/4/05
10/4/01 1 50,000 3.30 10/4/09
1/16/02 2 10,000 2.90 1/16/07
_______
80,000
=======
As of December 31, 2003, there were 150,000 shares available
for grant under the Plan.
NOTE 8 - DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Effective August 28, 1995, the
Company implemented a Dividend
Reinvestment and Stock Purchase Plan
(DRIP). Under the terms of the DRIP,
shareholders who participate may reinvest
all or part of their dividends in
additional shares of the Company at
approximately 95% of the market price.
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NOTE 8 - DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN,(CONT'D.)
Shareholders may also purchase
additional shares at approximately 95% of
its market price by making optional cash
payments. For the year ended December
31, 2003, 2002 and the short year ended
December 31, 2001, the Company received
$2,872,459, $1,933,092 and $354,464,
respectively. There were 733,926,
580,523 and 123,224 new shares issued,
respectively.
The Company paid the following dividends in the
years 2003 and 2002:
Payment Date Record Date Amount Per Share
December 15, 2003 November 17, 2003 $608,492 $.20
June 16, 2003 May 15, 2003 570,012 .20
December 16, 2002 November 15, 2002 748,497 .35
On January 14, 2004, the Company
declared a dividend of $.25 per share to
be paid on June 15, 2004 to shareholders
of record on May 17, 2004.
NOTE 9 - INCOME FROM LEASES
The Company derives income from
operating leases on its commercial
properties. In general, these leases are
written for periods up to ten years with
various provisions for renewal, In
addition, these leases generally contain
clauses for reimbursement (or direct
payment) of real estate taxes,
maintenance, insurance and certain
operating expenses of the properties.
Minimum rents due under noncancellable
leases at December 31, 2003 are scheduled
as follows:
Year Ending
December 31, 2004 $1,664,882
2005 1,670,563
2006 1,670,563
2007 1,670,563
2008 1,528,558
Thereafter 6,357,104
NOTE 10 - INCOME TAXES
The Company has elected to be taxed
as a REIT. As the Company has not
distributed all of its income currently,
a provision for Federal excise and other
taxes of $107,370, $50,000 and $35,193
has been made for the years ended
December 31, 2003 and 2002, and the short
year ended December 31, 2001, respectively.
Included in the 2003 tax provision is
a Federal liability for built-in gains on
the sale of assets acquired by the Company
before its REIT election.
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NOTE 11 - PAYMENTS TO AFFILIATED PERSONS
AND RELATED PARTY TRANSACTIONS
Management currently operates two
additional REITs, Monmouth Real Estate
Investment Corporation and United Mobile
Homes, Inc. Certain general and
administrative expenses are shared among
these companies based on use or service
provided. Allocations of salaries and
benefits are made based on the amount of
employees and time dedicated to each
affiliated Company.
Payments to Affiliated Persons
Eugene W. Landy, President of the
Company, received $70,700, $70,700 and
$39,100 in salary, legal and director
fees for these periods, respectively.
Transactions with United Mobile Homes,
Inc. (United)
United owns and operates
manufactured home communities. Seven
Directors of the Company are also
Directors and shareholders of United.
During the years ended December 31,
2003, 2002, and the short year ended
December 2001, the Company (MHS prior to
December 6, 2001) sold 4, 2, and -0-
manufactured homes, respectively, to
United for total sales prices of $78,195,
$43,181, and $-0-, respectively, at the
Company's cost. These sales represented
29%, 11% and 0%, respectively, of the
total sales made by the Company. These
manufactured homes were available through
the Company, but could have been acquired
by United from a third party at
approximately the same price.
United financed/refinanced certain
loans made by the Company to third
parties during 2003. The total amount
financed was $307,745.
United had rented sites in its
manufactured housing communities to the
Company (MHS prior to December 6, 2001)
where the Company had a home for sale.
Total site rental expense paid to United
amounted to $22,960 for the short year
ended December 31, 2001.
The Company holds common stock of
United in its securities portfolio. See
Note 5 for holdings.
Transactions with Monmouth Real Estate
Investment Corporation (MREIC)
MREIC owns industrial properties on
long-term net leases to credit tenants.
Five Directors of the Company are also
Directors of MREIC. The Company holds
common stock of MREIC in its securities
portfolio. See Note 5 for holdings.
-59-
NOTE 12 - GROUP CONCENTRATIONS OF CREDIT
RISK
The Company owns four properties
totaling 288,971 square feet of which
three or 229,571 square feet are leased
to Federal Express Corporation and
subsidiaries (FedEx). Rental income from
FedEx totaled approximately $1,297,000,
$589,000 and $12,000 for the years ended
December 31, 2003, 2002 and the short
year ended December 31, 2001,
respectively.
The Company's loan portfolio is
diversified. Generally, loans are
collateralized by the manufactured homes.
At December 31, 2003, 2002 and 2001, all
loans were secured.
NOTE 13- FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company is required to disclose
certain information about fair values of
financial instruments, as defined in
Statement of Financial Accounting
Standards No. 107, "Disclosures About
Fair Value of Financial Instruments".
Limitations
Estimates of fair value are made at
a specific point in time based upon where
available, relevant market prices and
information about the financial
instrument. Such estimates do not include
any premium or discount that could result
from offering for sale at one time the
Company's entire holdings of a particular
financial instrument. All of the
Company's securities available for sale
have quoted market values. However, for
a portion of the Company's financial
instruments, no quoted market value
exists. Therefore, estimates of fair
value are necessarily based on a number
of significant assumptions (many of which
involve events outside the control of
management). Such assumptions include
assessments of current economic
conditions, perceived risks associated
with these financial instruments and
their counterparties, future expected
loss experience and other factors. Given
the uncertainties surrounding these
assumptions, the reported fair values
represent estimates only, and, therefore,
cannot be compared to the historical
accounting model. Use of different
assumptions or methodologies is likely to
result in significantly different fair
value estimates.
The fair value of cash and cash
equivalents and loans receivable
approximates their current carrying
amounts since all such items are short-
term in nature. The fair value of
securities available for sale is based
upon quoted market values (See Note 5).
At December 31, 2003, the fair and
carrying value of mortgages payable
amounted to $16,287,506 and $15,889,239,
respectively. At December 31, 2002, the
fair and carrying value of mortgages
payable amounted to $8,831,285 and
$8,616,405, respectively. The fair value
of loans payable approximates their
current carrying amounts since such
amounts payable are at a current market
rate of interest.
NOTE 14 - SUPPLEMENTAL CASH FLOW
INFORMATION
Cash paid during the year ended
December 31, 2003 and the short year
ended December 31, 2001, for interest
and taxes are as follows:
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NOTE 14 - SUPPLEMENTAL CASH FLOW
INFORMATION, (CONT'D.)
12/31/03 12/31/02 12/31/01
________ ________ ________
Interest $945,058 $792,667 $373,159
Taxes 113,242 58,535 8,193
During the years ended December 31,
2003, 2002 and the short year ended
December 31, 2001 the Company had
dividend reinvestments of $264,510,
$196,503 and $93,363, respectively, which
required no cash transfers.
During the years ended December 31,
2003, 2002 and the short year ended
December 31, 2001, the collateral for
loans receivable of $185,768, $254,608
and $253,404, respectively, was
repossessed and placed in inventory.
NOTE 15 - PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following is the unaudited pro
forma financial information for the
comparable prior year period ended
December 31, 2001:
Total Income $3,000,562
Total Expenses 2,662,487
__________
Net Income $ 338,075
==========
NOTE 16 - SUBSEQUENT EVENTS
On January 26, 2004, the Company
paid off all of the notes payable to Two
River Community Bank ($1,075,000 at
December 31, 2003). The notes were
repaid with proceeds from the Company's
margin loan. Two River Community Bank
has approved a $1,000,000 line of credit
secured by the manufactured home loans.
The interest rate is prime for the first
two years and changes to the five-year
Treasury plus 300bp for the remaining
five years. The line of credit expires
in 2011.
-61-
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has
duly caused this report to be signed on
its behalf by the undersigned, thereunto
duly authorized.
MONMOUTH CAPITAL CORPORATION
BY: /s/ Eugene W. Landy
EUGENE W. LANDY
President
BY: /s/ Anna T. Chew
ANNA T. CHEW
Chief Financial Officer
Dated: March 12, 2004
Pursuant to the requirements of the
Securities and Exchange Act of 1934, this
report has been duly signed below by the
following persons on behalf of the
registrant and in the capacities and on
the date indicated.
Title Date
______ ______
/s/ Eugene W. Landy President and
EUGENE W. LANDY Director March 12, 2004
/s/Ernest V. Bencivenga Secretary/Treasurer
ERNEST V. BENCIVENGA and Director March 12, 2004
/s/ Anna T. Chew Chief Financial
ANNA T. CHEW Officer and
Director March 12, 2004
/s/ Neal Herstik
NEAL HERSTIK Director March 12, 2004
/s/ Charles P. Kaempffer
CHARLES P. KAEMPFFER Director March 12, 2004
/s/ Michael P. Landy Executive Vice
MICHAEL P. LANDY President and
Director March 12, 2004
/s/ Samuel A. Landy
SAMUEL A. LANDY Director March 12, 2004
/s/ Robert G. Sampson
ROBERT G. SAMPSON Director March 12, 2004
/s/ Eugene Rothenberg
EUGENE ROTHENBERG Director March 12, 2004
-62-