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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______________ to
______________
For the Quarter ended Commission File
June 30, 2002 No 2-29442
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-1897375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3499 Route 9 North, Suite 3-C, Freehold, NJ 07728
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:
(732) 577-9997
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities and 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
The number of shares or other units outstanding of each of the
issuer's classes of securities as of August 1, 2002 was
11,761,163.
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
FOR THE QUARTER ENDED JUNE 30, 2002
C O N T E N T S
Page No.
Part I - Financial Information
Item 1 - Financial Statements (Unaudited):
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk
There have been no material changes to information
Required regarding quantitative and qualitative
disclosures about market risk from the end of the
preceding year to the date of this Form 10-Q.
Part II - Other Information 12
Signatures 13
2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND SEPTEMBER 30, 2001
June 30, September 30,
2002 2001
_____________ _____________
ASSETS
Real Estate Investments:
Land $21,011,214 $18,295,814
Buildings, Improvements and
Equipment, Net of Accumulated
Depreciation of $13,097 and
$11,268,700, respectively 108,809,045 84,426,270
_____________ _____________
Total Real Estate Investments 129,820,259 102,722,084
Cash and Cash Equivalents 168,032 147,579
Securities Available for Sale at 12,509,577 12,948,359
Fair Value
Interest and Other Receivables 976,615 847,130
Prepaid Expenses 35,964 53,257
Lease Costs, Net of Accumulated 119,576 109,448
Amortization
Investment in Hollister '97, L.L.C. 900,399 900,399
Other Assets 1,362,314 1,705,214
_____________ _____________
TOTAL ASSETS $145,892,736 $119,433,470
============= =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Mortgage Notes Payable $79,326,205 $60,424,754
Loans Payable 8,342,878 8,204,961
Other Liabilities 741,105 874,216
_____________ _____________
Total Liabilities 88,410,188 69,503,931
_____________ _____________
Shareholders' Equity:
Common Stock-Class A-$.01 Par
Value, 20,000,000 Shares
Authorized, 11,720,209 and
10,264,728 Shares Issued and
Outstanding, respectively 117,202 102,647
Common Stock-Class B-$.01 Par
Value,100,000 Shares
Authorized, No Shares Issued or
Outstanding -0- -0-
Additional Paid-In Capital 56,541,082 48,284,847
Accumulated Other Comprehensive
Income 2,263,627 1,542,045
Loans to Officers, Directors & Key
Employees (1,439,363) -0-
Undistributed Income -0- -0-
_____________ _____________
Total Shareholders' Equity 57,482,548 49,929,539
_____________ _____________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $145,892,736 $119,433,470
============= =============
Unaudited
See Accompanying Notes to Consolidated Financial Statements
3
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001
THREE MONTHS NINE MONTHS
6/30/02 6/31/01 6/30/02 6/31/01
________ ________ _________ ________
INCOME:
Rental and
Occupancy
Charges $3,758,184 $2,827,432 $10,676,209 $7,544,470
Interest and
Dividend 249,550 401,749 809,712 1,382,430
Income
Gain on Securities
Available for
Sale
Transactions, net 533,700 281,015 906,699 439,069
________ ________ _________ ________
TOTAL INCOME 4,541,434 3,510,196 12,392,620 9,365,969
________ ________ _________ ________
EXPENSES:
Interest Expense 1,538,432 1,325,814 4,460,348 3,276,322
Real Estate Taxes 65,319 41,895 226,890 190,950
Operating Expense 269,982 206,379 753,239 587,632
Office and
General Expense 352,329 238,325 945,210 680,092
Depreciation 752,708 585,942 2,168,882 1,535,788
________ ________ _________ ________
TOTAL EXPENSES 2,978,770 2,398,355 8,554,569 6,270,784
________ ________ _________ ________
NET INCOME BEFORE
LOSSES ON SALE OF
ASSETS -
INVESTMENT PROPERTY 1,562,664 1,111,841 3,838,051 3,095,185
Loss on Sale of
Assets -
Investment Property (175,375) -0- (175,375) -0-
________ ________ _________ ________
NET INCOME $1,387,289 $1,111,841 $3,662,676 $3,095,185
========= ========= ========= =========
NET INCOME - PER
SHARE
Basic and Diluted $ .12 $ .11 $ .33 $ .33
========= ========= ========= =========
WEIGHTED AVERAGE
SHARES
OUTSTANDING
Basic 11,509,601 9,721,477 10,954,611 9,319,484
========= ========= ========= =========
Diluted 11,543,563 9,725,484 10,973,705 9,319,659
========= ========= ========= =========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
4
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2001
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $3,662,676 $3,095,185
Noncash Items Included in Net Income:
Depreciation 2,168,882 1,535,788
Amortization 142,656 97,416
Loss on Sale of Assets - Investment
Property 175,375 -0-
Gain on Sales of Securities
Available for Sale (906,699) (439,069)
Changes In:
Interest and Other Receivables (129,485) (20,276)
Prepaid Expenses 17,293 10,417
Other Assets and Lease Costs 499,402 237,220
Other Liabilities (133,111) (26,993)
__________ __________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,496,989 4,489,688
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Land, Buildings,
Improvements and Equipment (31,461,709) (38,786,698)
Proceeds from Sale of Assets -
Investment Property 2,019,277 -0-
Purchase of Securities Available
for Sale (2,551,843) (644,803)
Proceeds from Sale of Securities
Available for Sale 4,618,906 6,348,926
__________ __________
NET CASH USED BY INVESTING ACTIVITIES (27,375,369) (33,082,575)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Loans 13,680,530 14,453,367
Principal Payments on Loans (13,542,613) (13,004,548)
Proceeds from Mortgages 23,350,000 27,220,000
Principal Payments on Mortgages (4,448,549) (2,043,502)
Financing Costs on Debt (309,286) (438,030)
Proceeds from Exercise of Stock
Options 178,125 -0-
Proceeds from Issuance of Class A
Common Stock 6,186,509 4,705,767
Dividends Paid (3,195,883) (2,657,757)
NET CASH PROVIDED BY FINANCING __________ __________
ACTIVITIES 21,898,833 28,235,297
__________ __________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 20,453 (357,590)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 147,579 514,090
__________ __________
END OF PERIOD $168,032 $156,500
========== ==========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
5
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICY
The interim financial statements furnished herein reflect
all adjustments which were, in the opinion of management,
necessary to present fairly the financial position, results of
operations and cash flows at June 30, 2002 and for all periods
presented. All adjustments made in the interim period were of a
normal recurring nature. Certain footnote disclosures which
would substantially duplicate the disclosures contained in the
audited financial statements and notes thereto included in the
Annual Report of Monmouth Real Estate Investment Corporation
(the Company) for the year ended September 30, 2001 have been
omitted.
Certain reclassifications have been made to the financial
statements for the prior period to conform to the current period
presentation.
NOTE 2 - 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. 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. Options in the amount of
33,962 and 19,094 for the three and nine months ended June 30,
2002, respectively and 4,007 and 175 for the three and nine
months ended June 30, 2001, respectively are included in the
diluted weighted average shares outstanding.
NOTE 3 - COMPREHENSIVE INCOME
Total comprehensive income, including unrealized gains
(loss) on securities available for sale, for the three and nine
months ended June 30, 2002 and 2001 is as follows:
June 30, 2002 June 30, 2001
Three Months $1,260,076 $1,827,906
Nine Months $4,384,258 $5,716,013
NOTE 4 - REAL ESTATE INVESTMENTS
On October 12, 2001, the Company purchased a 184,800 square
foot warehouse facility in Granite City, Illinois. This
warehouse facility is 100% net-leased to Anheuser-Busch, Inc.
The purchase price was approximately $12,400,000. To fund this
purchase, the Company used approximately $100,000 in cash,
borrowed approximately $1,000,000 against its security portfolio
with Prudential Securities, used approximately $1,800,000 of its
credit line with Fleet Bank and obtained a mortgage of
approximately $9,500,000. This mortgage payable is at an
interest rate of 7.11% and is due November 1, 2016.
6
On November 2, 2001, the Company purchased a 160,000 square
foot warehouse facility in Monroe, North Carolina. This
warehouse facility is 100% net-leased to Hughes Supply Inc. The
purchase price was approximately $5,500,000. To fund this
purchase, the Company used approximately $100,000 in cash, used
approximately $1,300,000 of its credit line with Fleet Bank and
obtained a mortgage of approximately $4,100,000. This mortgage
payable is at an interest rate of 7.11% and is due December 1,
2016.
On January 31, 2002, the Company purchased a 106,507 square
foot warehouse facility in Winston-Salem, North Carolina. This
warehouse facility is 100% net-leased to Fed Ex Ground Package
System, a subsidiary of Federal Express Corporation. The
purchase price was approximately $6,700,000. To fund this
purchase, the Company used approximately $200,000 in cash, used
approximately $1,700,000 of its credit line with Fleet Bank and
obtained a mortgage of approximately $4,800,000. This mortgage
payable is at an interest rate of 7.1% and is due February 1,
2012.
On May 1, 2002, the Company sold the warehouse facility in
Virginia Beach, VA. The net proceeds from this sale was
$2,019,277 resulting in a net loss of $175,375.
On April 8, 2002, the Company purchased a 89,052 square feet
warehouse facility located in Elgin, Illinois from Jones Elgin,
LLC, and unrelated entity. This warehouse facility is 100% net
leased to Reynolds Metals Company, which merged with Alcoa, Inc.
The purchase price, including closing costs, was approximately
$6,800,000. The Company used approximately $100,000 in cash,
$1,700,000 of its Revolving Credit line with Fleet Bank and
obtained a mortgage of $5,000,000. This mortgage is payable at a
rate of 6.97% and matures on May 1, 2017.
NOTE 5 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
On June 17, 2002, the Company paid $1,683,029 as a dividend
of $.145 per share to shareholders of record May 15, 2002. Total
dividends paid for the nine months ended June 30, 2002 amounted
to $4,790,328.
For the nine months ended June 30, 2002, the Company
received $7,780,954 from the Dividend Reinvestment and Stock
Purchase Plan (DRIP). There were 1,200,481 shares issued,
resulting in 11,720,209 shares outstanding.
NOTE 6 - EMPLOYEE STOCK OPTIONS
On April 25, 2002, the shareholders approved an increase to
the number of shares of the Company's Class A Common Stock under
the Company's 1997 Stock Option Plan (Plan). The maximum number
of shares that may be issued under the Plan was increased to
1,500,000 shares.
7
During the nine months ended June 30, 2002, the following
stock options were granted:
Number Expiration
Date of Number of of Option Date
Grant Employees Shares Price
10/04/01 1 65,000 $6.765 10/04/06
6/21/02 15 300,000 $7.13 6/21/10
During the nine months ended June 30, 2002, nine officers,
directors and key employees exercised their stock options and
purchased 255,000 shares for a total of $1,617,188. Of this
amount, 225,000 shares, for a total of $1,439,363, were exercised
through the issuance of notes receivable from officers. These
notes receivable are at an interest rate of 5%, mature on April
30, 2012 and are collateralized by the underlying common shares.
As of June 30, 2002, there were options outstanding to
purchase 465,000 shares and 780,000 shares available for grant
under the Plan.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the nine months ended June 30, 2002 and
2001 for interest was $4,460,348 and $3,276,322, respectively.
During the nine months ended June 30, 2002 and 2001, the
Company had dividend reinvestments of $1,594,445 and $1,412,254,
respectively, which required no cash transfers.
During the nine months ended June 30, 2002, seven officers,
directors and key employees exercised their stock options for
225,000 shares through the issuance of $1,439,363 of notes
receivable.
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In August, 2001, FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 requires an enterprise to record the fair
value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the
retirement of tangible long-lived assets. The Company is
required to adopt the provisions of SFAS No. 143 for fiscal years
beginning after June 15, 2002. The Company does not anticipate
that SFAS No. 143 will significantly impact the Company's
consolidated financial statements.
On October 3, 2001, FASB issued SFAS No. 144. "Accounting
for the Impairment or Disposal of Long-Lived Assets", which
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. While SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", it retains many of
the fundamental provisions of the Statement. The Statement is
effective for fiscal years beginning after December 15, 2001.
The Company does not anticipate that the initial adoption of SFAS
No. 144 will have a significant impact on the Company's financial
statements.
8
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company generated net cash provided by operating
activities of $5,496,989 for the current nine months as compared
to $4,489,688 for the prior period. The Company raised
$7,780,954 from the issuance of shares of common stock through
its Dividend Reinvestment and Stock Purchase Plan (DRIP).
Dividends paid for the nine months ended June 30, 2002 amounted
to $4,790,328.
During the nine months ended June 30, 2002, the Company
purchased four warehouse facilities for a total purchase price,
including closing costs, of approximately $31,000,000.
Securities available for sale decreased by $438,782
primarily as a result of sales of $3,712,207 partially offset by
an increase in the net unrealized gain of $721,582 and purchases
of $2,551,843.
Other assets decreased by $342,900 primarily as a result of
deposits used for the purchase of four additional warehouse
facilities.
Mortgage notes payable increased by $18,901,451 during
the nine months ended June 30, 2002. This increase was primarily
due to additional mortgages of $23,350,000 on the new
acquisitions partially offset by principal repayments of
$4,448,549.
Loans payable increased by $137,917 during the nine months
ended June 30, 2002. This increase was the result of additional
take-downs in the amount of $13,680,530 of the Company's
revolving credit line and margin loan partially offset by
repayments of $13,542,613.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Rental and occupancy charges increased for the three
months ended June 30, 2002 to $3,758,184 as compared to
$2,827,432 for the three months ended June 30, 2001. Rental and
occupancy charges increased to $10,676,209 for the nine months
ended June 30, 2002 as compared to $7,544,470 for the nine months
ended June 30, 2001. This was a result of the new acquisitions
made in fiscal 2001 and 2002.
Interest and dividend income decreased by $152,199 for the
three months ended June 30, 2002 as compared to the three months
ended June 30, 2001. Interest and dividend income decreased by
$572,718 for the nine months ended June 30, 2002 as compared to
the nine months ended June 30, 2001. This was due primarily to
the sales of securities available for sale during fiscal 2001 and
2002. Securities available for sale at June 30, 2001 amounted
to $14,194,576.
9
Gain on Securities Available for Sale transactions amounted
to $533,700 and $281,015 for the three months ended June 30, 2002
and 2001, respectively. Gain on Securities Available for Sale
transactions amounted to $906,699 and $439,069 for the nine
months ended June 30, 2002 and 2001, respectively. The gain for
the three and nine months ended June 30, 2001 is net of the
writedown of $95,938 and $226,842, respectively, of securities
available for sale which was considered other than temporarily
impaired.
Interest expense increased by $212,618 for the three months
ended June 30, 2002 as compared to the three months ended June
30, 2001. Interest expense increased by $1,184,026 for the nine
months ended June 30, 2002 as compared to the nine months ending
June 30, 2001. This was primarily the result of additional
borrowings for the new acquisitions made in fiscal 2001 and 2002.
Real estate taxes increased for the three and nine months
ended June 30, 2002 as compared to the three and nine months
ended June 30, 2001 due primarily to the new acquisitions made in
fiscal 2001 and 2002.
Operating expenses increased by $63,603 for the three months
ended June 30, 2002 as compared to the three months ended June
30, 2001. Operating expenses increased by $165,607 for the nine
months ended June 30, 2002 as compared to the nine months ended
June 30, 2001. This was due primarily to the new acquisitions
made in fiscal 2001 and 2002.
Office and General expenses increased by $114,004 for the
three months ended June 30, 2002 as compared to the three months
ended June 30, 2001. Office and General expenses increased by
$265,118 for the nine months ended June 30, 2002 as compared to
the nine months ended June 30, 2001. This was primarily due to
increased occupancy charges and personnel costs. The Company has
been expanding its operations.
Depreciation expense increased by $166,766 for the three
months ended June 30, 2002 as compared to the three months ended
June 30, 2001. Depreciation expense increased by $633,094 for
the nine months ended June 30, 2002 as compared to the nine
months ended June 30, 2001. This was due to the real estate
acquisitions in fiscal 2001 and 2002.
Funds from operations (FFO), defined as net income,
excluding gains (or losses) from sales of depreciable assets,
plus depreciation amounted to $2,315,372 and $1,697,783 for the
three months ended June 30, 2002 and 2001, respectively. FFO
amounted to $6,006,933 and $4,630,973 for the nine months ended
June 30, 2002 and 2001, respectively. FFO does not replace net
income (determined in accordance with generally accepted
accounting principles) as a measure of performance or net cash
flows as a measure of liquidity. FFO should be considered as a
supplemental measure of operating performance used by real estate
investment trusts.
10
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities amounted to
$5,496,989 and $4,489,688 during the nine months ended June 30,
2002 and 2001, respectively.
The Company owns thirty properties of which twenty-five
carried mortgage loans totaling $79,326,205 at June 30, 2002.
The Company has been raising capital through its DRIP and
investing in net leased industrial properties. The Company
believes that funds generated from operations, the DRIP, together
with the ability to finance and refinance its properties will
provide sufficient funds to adequately meet its obligations over
the next several years.
The Company seeks to invest in well-located, modern
buildings leased to credit worthy tenants on long-term leases.
In management's opinion, newly built facilities leased to The
Federal Express Corporation (FDX) and its subsidiaries meet this
criteria. The Company has a concentration of FDX and FDX
subsidiary leased properties. This is a risk factor that
shareholders should consider. FDX is a publicly-owned
corporation and information on its financial business operations
is readily available to the Company's shareholders. Because of
the contingent nature of contracts to purchase real property, the
Company announces acquisitions only on closing.
11
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS - None
ITEM 2: CHANGES IN SECURITIES - None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on April
25, 2002 to elect a Board of Directors for the ensuing
year, to approve the selection of Independent Auditors,
to approve an amendment to the Certificate of
Incorporation, authorizing the Company to increase the
number of Class A Common Stock shares, and to consider
the Stock Option Committee's recommendation to increase
the number of shares available for grant under the
Company's 1997 Stock Option Plan. Proxies for the
meeting were solicited pursuant to Regulation 14 under
the Securities and Exchange Act of 1934.
ITEM 5: OTHER INFORMATION - None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
99.2
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 - None
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
Date: August 2, 2002 By: /s/ Eugene W. Landy
EUGENE W. LANDY
President
Date: August 2, 2002 By: /s/ Anna T. Chew
ANNA T. CHEW
Controller
13