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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 December 31, 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
December 31, 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 February 5, 2002 was
13,044,075.
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
FOR THE QUARTER ENDED DECEMBER 31, 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 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
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 11
Signatures 12
Page 2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND SEPTEMBER 30, 2002
December 31, September 30,
2002 2002
ASSETS
Real Estate Investments:
Land $ 24,241,213 $ 21,011,214
Buildings, Improvements and
Equipment, Net of Accumulated
Depreciation of $14,700,703 and
$13,869,844, respectively 123,246,790 108,096,042
____________ ____________
Total Real Estate Investments 147,488,003 129,107,256
Cash and Cash Equivalents 87,231 693,572
Securities Available for Sale at Fair
Value 14,800,002 15,223,942
Interest and Other Receivables 1,107,582 909,234
Prepaid Expenses 222,428 37,674
Lease Costs, Net of Accumulated
Amortization 108,232 125,809
Investment in Hollister '97, L.L.C. 900,399 900,399
Other Assets 1,505,245 2,013,607
____________ ____________
TOTAL ASSETS $166,219,122 $149,011,493
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Mortgage Notes Payable $ 91,194,530 $ 78,220,163
Loans Payable 11,010,241 10,775,467
Other Liabilities 1,040,221 1,010,847
____________ ____________
Total Liabilities 103,244,992 90,006,477
____________ ____________
Shareholders' Equity:
Common Stock-Class A-$.01 Par Value,
20,000,000 Shares Authorized,
12,829,110 and 12,132,748 Shares
Issued and Outstanding, respectively 128,291 121,327
Common Stock-Class B-$.01 Par Value,
100,000 Shares Authorized, No Shares
Issued or Outstanding -0- -0-
Additional Paid-In Capital 62,593,117 58,388,761
Accumulated Other Comprehensive
Income 1,602,723 1,844,929
Loans to Officers, Directors & Key
Employees (1,350,001) (1,350,001)
Undistributed Income -0- -0-
____________ ____________
Total Shareholders' Equity 62,974,130 59,005,016
____________ ____________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $166,219,122 $149,011,493
============ ============
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 3
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
INCOME:
Rental and Occupancy Charges $4,016,035 $3,306,743
Interest and Dividend Income 326,690 292,500
Gain on Securities Available
For Sale Transactions, net 245,305 169,048
____________ ____________
TOTAL INCOME 4,588,030 3,768,291
____________ ____________
EXPENSES:
Interest Expense 1,691,164 1,426,291
Real Estate Taxes 30,804 43,226
Operating Expenses 212,708 181,985
Office and General Expense 384,067 218,244
Depreciation 830,859 696,200
____________ ____________
TOTAL EXPENSES 3,149,602 2,565,946
____________ ____________
NET INCOME $1,438,428 $1,202,345
=========== ===========
NET INCOME - PER SHARE
Basic $ .12 $ .12
=========== ===========
Diluted $ .12 $ .11
=========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic 12,448,528 10,440,726
=========== ===========
Diluted 12,465,082 10,466,187
=========== ===========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 4
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,438,428 $1,202,345
Noncash Items Included in Net Income:
Depreciation 830,859 696,200
Amortization 43,790 37,588
Gain on Sales of Securities
Available for Sale (245,305) (169,048)
Changes In:
Interest and Other Receivables (198,348) (24,862)
Prepaid Expenses (184,754) (7,548)
Other Assets and Lease Costs 680,124 496,409
Other Liabilities 29,374 (34,838)
__________ __________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,394,168 2,196,246
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Land, Buildings,
Improvements and Equipment (19,211,606) (18,019,014)
Purchase of Securities Available for
Sale (711,990) -0-
Proceeds from Sale of Securities
Available for Sale 1,139,029 1,512,232
__________ __________
NET CASH USED BY INVESTING ACTIVITIES (18,784,567) (16,506,782)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Loans 3,465,000 5,586,598
Principal Payments on Loans (3,230,226 (4,607,137)
Proceeds from Mortgages 14,150,000 13,550,000
Principal Payments on Mortgages (1,175,633) (943,707)
Financing Costs on Debt (197,975) (171,040)
Proceeds from Exercise of Stock
Options 39,750 -0-
Proceeds from Issuance of Class A
Common Stock 3,837,953 2,071,630
Dividends Paid (1,104,811) (1,046,947)
__________ __________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 15,784,058 14,439,397
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (606,341) 128,861
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 693,572 147,579
__________ __________
END OF PERIOD $ 87,231 $276,440
=========== ===========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 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 December 31, 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, 2002 have been
omitted.
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
16,554 and 25,461 for the three months ended December 31, 2002
and 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 months
ended December 31, 2002 and 2001 amounted to $1,196,222 and
$1,654,831, respectively.
NOTE 4 - REAL ESTATE INVESTMENTS
On November 6, 2002, the Company purchased a 288,211 square
foot manufacturing and warehouse facility in Tolleson, Arizona.
This facility is 100% net leased to Western Container
Corporation, which manufactures plastic bottles for Coca-Cola
soft drink products. The lease is guaranteed by Coca-Cola
Enterprises. The purchase price was approximately $14,800,000.
The Company paid approximately $550,000 in cash, borrowed
approximately $2,200,000 against its security portfolio with
Prudential Securities, used approximately $1,100,000 of its
revolving credit line with Fleet Bank and obtained a mortgage of
approximately $10,950,000. This mortgage payable is at an
interest rate of 5.8% and is due November 1, 2012.
On November 21, 2002 the Company purchased a 90,020 square
foot warehouse facility in Fort Meyers, Florida. This warehouse
facility is 100% net leased to Fed Ed Ground Package System,
Inc., a subsidiary of Federal Express Corporation. The purchase
price was approximately $4,400,000. The Company paid
approximately $1,200,000 in cash, and obtained a mortgage of
approximately $3,200,000. This mortgage payable is at a rate of
6.33% and matures December 1, 2012.
Page 6
NOTE 5 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
On December 16, 2002, the Company paid $1,815,746 as a
dividend of $.145 per share to shareholders of record November
15, 2002.
For the three months ended December 31, 2002, the Company
received $4,548,888 from the Dividend Reinvestment and Stock
Purchase Plan (DRIP). There were 689,362 shares issued under
the Plan.
NOTE 6 - EMPLOYEE STOCK OPTIONS
During the three months ended December 31, 2002, two
participants exercised their stock options and purchased 7,000
shares for a total of $39,750.
As of December 31, 2002, there were options outstanding to
purchase 458,000 shares and 780,000 shares available for grant
under the Plan.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three months ended December 31, 2002
and 2001 for interest was $1,691,164 and $1,426,291,
respectively.
During the three months ended December 31, 2002 and 2001,
the Company had dividend reinvestments of $710,935 and $472,938,
respectively, which required no cash transfers.
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In December, 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. SFAS No.
148 also requires that disclosures of the pro forma effect of
using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a
tabular format. Additionally, SFAS No. 148 requires disclosure
of the pro forma effect in interim financial statements. The
additional disclosure requirements of SFAS No. 148 are effective
for fiscal years ended after December 15, 2002.
At December 31, 2002, the Company had one stock-based
employee compensation plan. Prior to fiscal year 2003, the
Company accounted for this plan under the recognition and
measurement provision of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and the related interpretations. No
stock-based employee compensation was reflected in net income
prior to fiscal 2003. Effective October 1, 2002, the Company
adopted the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". Under the prospective
method of adoption selected by the Company under the provisions
of SFAS No. 148, no compensation costs have been recognized in
2003 as the Company has not issued any stock-based employee
compensation during the quarter.
Page 7
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 $2,394,168 for the current three months as compared
to $2,196,246 for the prior period. The Company raised
$4,548,888 from the issuance of shares of common stock through
its Dividend Reinvestment and Stock Purchase Plan (DRIP).
Dividends paid for the three months ended December 31, 2002
amounted to $1,815,746.
During the three months ended December 31, 2002, the Company
purchased two warehouse facilities for a total purchase price,
including closing costs, of approximately $19,200,000.
Securities available for sale decreased by $423,940
primarily as a result of sales of $893,724 and a decrease in the
net unrealized gain of $242,206 partially offset by purchases of
$711,990.
Other assets decreased by $508,362 primarily as a result of
deposits used for the purchase of two additional warehouse
facilities.
Mortgage notes payable increased by $12,974,367 during the
three months ended December 31, 2002. This increase was
primarily due to additional mortgages of $14,150,000 on the new
acquisitions partially offset by principal repayments of
$1,175,633.
Loans payable increased by $234,774 during the three months
ended December 31, 2002. This increase was the result of
additional take-downs in the amount of $3,465,000 of the
Company's revolving credit line and margin loan partially offset
by repayments of $3,230,226.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Rental and occupancy charges increased for the three months
ended December 31, 2002 to $4,016,035 as compared to $3,306,743
for the three months ended December 31, 2001. This was a result
of the new acquisitions made in fiscal 2002 and 2003.
Interest and dividend income increased by $34,190 for the
three months ended December 31, 2002 as compared to the three
months ended December 31, 2001. This was due primarily to the
purchase of securities available for sale during fiscal 2002 and
2003. Securities available for sale at December 31, 2001 amounted
to $12,057,661.
Gain on Securities Available for Sale transactions amounted
to $245,305 and $169,048 for the three months ended December 31,
2002 and 2001, respectively.
Page 8
MATERIAL CHANGES IN RESULTS OF OPERATIONS, (CONT'D.)
Interest expense increased by $264,873 for the three months
ended December 31, 2002 as compared to the three months ended
December 31, 2001. This was primarily the result of additional
borrowings for the new acquisitions made in fiscal 2002 and
2003.
Real estate taxes decreased for the three months ended
December 31, 2002 as compared to the three months ended December
31, 2001 due primarily to the sale of the Virginia property in
fiscal 2002.
Operating expenses increased by $30,723 for the three months
ended December 31, 2002 as compared to the three months ended
December 31, 2001. This was due primarily to the new
acquisitions made in fiscal 2002 and 2003.
Office and General expenses increased by $165,823 for the
three months ended December 31, 2002 as compared to the three
months ended December 31, 2001. This was primarily due to
increased professional fees, occupancy charges and personnel
costs. The Company has been expanding its operations.
Depreciation expense increased by $134,659 for the three
months ended December 31, 2002 as compared to the three months
ended December 31, 2001. This was due to the real estate
acquisitions in fiscal 2002 and 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities amounted to
$2,393,658 and $2,196,246 during the three months ended December
31, 2002 and 2001, respectively.
The Company owns thirty-two properties of which twenty-seven
carried mortgage loans totaling $91,194,530 at December 31,
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.
Page 9
FUNDS FROM OPERATIONS
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 (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 for the three months ended December 31,
2002 and 2001 is calculated as follows:
2002 2001
Net Income $ 1,438,428 $ 1,202,345
Depreciation
Expense 830,859 696,200
___________ ___________
FFO $ 2,269,287 $ 1,898,545
=========== ===========
CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the
Company carried out an evaluation, under the supervision of the
Company's Chief Executive Officer and Chief Financial Officer and
with the participation of the Company's management, including the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to the Securities
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the
Company required to be included in the Company's periodic
Securities and Exchange Commission filings. No significant
changes were made in the Company's internal controls or in other
factors that could significantly affect these controls subsequent
to the date of their evaluation.
Page 10
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
- None
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 302 OF THE SARBANES-
OXLEY ACT OF 2002
99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
99.3
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-
OXLEY ACT OF 2002
99.4
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 - Form 8-K dated November 6,
2002 was filed to report the purchase of a
manufacturing and warehouse facility in Tolleson,
Arizona.
Page 11
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: February 13, 2003 By: /s/ Eugene W. Landy
Eugene W. Landy
President
Date: February 13, 2003 By: /s/ Anna T. Chew
Anna T. Chew
Controller
Page 12