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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, 2003
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, 2003 No 2-29442
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Maryland 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
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 125-2 of the Exchange Act)Yes X No
The number of shares or other units outstanding of each of
the issuer's classes of securities as of August 1, 2003 was
14,814,268.
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
FOR THE QUARTER ENDED JUNE 30, 2003
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 6-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
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.
Item 4 - Controls and Procedures 15
Part II - Other Information 17
Signatures 18
Page 2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 (UNAUDITED) AND SEPTEMBER 30, 2002
(Unaudited)
June 30, September 30,
2003 2002
__________ __________
ASSETS
Real Estate Investments:
Land $25,426,213 $ 21,011,214
Buildings, Improvements and
Equipment,
Net of Accumulated Depreciation of
$16,474,634 and $13,869,844,
respectively 127,503,971 108,096,042
___________ ___________
Total Real Estate Investments 152,930,184 129,107,256
Cash and Cash Equivalents 807,870 693,572
Securities Available for Sale at
Fair Value 22,969,009 15,223,942
Interest and Other Receivables 600,869 909,234
Prepaid Expenses 54,871 37,674
Lease Costs, Net of Accumulated
Amortization 84,851 125,809
Investment in Hollister '97, L.L.C. 900,399 900,399
Financing Costs, Net of Accumulated
Amortization 1,235,038 1,010,473
Other Assets 19,472 1,003,134
___________ ___________
TOTAL ASSETS $179,602,563 $149,011,493
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Mortgage Notes Payable $92,264,950 $ 78,220,163
Loans Payable 10,348,115 10,775,467
Other Liabilities 946,577 1,010,847
___________ ___________
Total Liabilities 103,559,642 90,006,477
___________ ___________
Shareholders' Equity:
Common Stock-Class A-$.01 Par
Value, 20,000,000 Shares
Authorized, 14,752,250 and
12,132,748 Shares Issued and
Outstanding, respectively 147,523 121,327
Common Stock-Class B-$.01 Par
Value, 100,000 Shares Authorized,
No Shares Issued or Outstanding -0- -0-
Additional Paid-In Capital 74,720,721 58,388,761
Accumulated Other Comprehensive
Income 2,524,678 1,844,929
Loans to Officers, Directors & Key
Employees (1,350,001) (1,350,001)
Undistributed Income -0- -0-
___________ ___________
Total Shareholders' Equity 76,042,921 59,005,016
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $179,602,563 $149,011,493
=========== ===========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 3
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2003 AND 2002
THREE MONTHS NINE MONTHS
6/30/03 6/30/02 6/30/03 6/30/02
________ ________ ________ ________
INCOME:
Rental and
Occupancy Charges $4,715,637 $3,758,184 $12,986,404 $10,676,209
Interest and
Dividend Income 569,133 249,550 1,246,041 809,712
Gain on Securities
Available for Sale
Transactions, net 513,457 533,700 855,069 906,699
__________ __________ __________ __________
TOTAL INCOME 5,798,227 4,541,434 15,087,514 12,392,620
__________ __________ __________ __________
EXPENSES:
Interest Expense 1,761,636 1,538,432 5,169,085 4,460,348
Real Estate Taxes 94,730 65,319 362,919 226,890
Operating Expenses 433,701 269,982 931,012 753,239
Office and General
Expense 571,648 352,329 1,408,240 945,210
Depreciation 905,601 752,708 2,604,790 2,168,882
__________ __________ __________ __________
TOTAL EXPENSES 3,767,316 2,978,770 10,476,046 8,554,569
__________ __________ __________ __________
NET INCOME BEFORE
LOSSES ON SALE OF
ASSETS - INVESTMENT
PROPERTY 2,030,911 1,562,664 4,611,468 3,838,051
Loss on Sale of
Assets - -0- (175,375) -0- (175,375)
Investment Property
__________ __________ __________ __________
NET INCOME $2,030,911 $1,387,289 $4,611,468 $3,662,676
========== ========== ========== ==========
NET INCOME - PER
SHARE
Basic $ .14 $ .12 $ .34 $ .33
========== ========== ========== ==========
Diluted $ .14 $ .12 $ .34 $ .33
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic 14,573,158 11,509,601 13,495,686 10,954,611
========== ========== ========== ==========
Diluted 14,640,413 11,543,563 13,516,920 10,973,705
========== ========== ========== ==========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 4
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
2003 2002
______ ______
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $4,611,468 $3,662,676
Noncash Items Included in Net
Income:
Depreciation 2,604,790 2,168,882
Amortization 161,558 142,656
Stock Compensation Expense 4,551 -0-
Loss on Sale of Assets -
Investment Property -0- 175,375
Gain on Sales of Securities
Available for Sale (855,069) (906,699)
Changes In:
Interest and Other Receivables 308,365 (129,485)
Prepaid Expenses (17,197) 17,293
Other Assets and Lease Costs 972,127 499,402
Other Liabilities (64,270) (133,111)
___________ ___________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,726,323 5,496,989
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Land, Buildings,
Improvements and Equipment (26,427,718) (31,461,709)
Proceeds from Sale of Assets -
Investment Property -0- 2,019,277
Purchase of Securities Available for
Sale (11,177,485) (2,551,843)
Proceeds from Sale of Securities
Available for Sale 4,967,237 4,618,906
___________ ___________
NET CASH USED BY INVESTING ACTIVITIES (32,637,966) (27,375,369)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Loans 14,170,125 13,680,530
Principal Payments on Loans (14,597,477) (13,542,613)
Proceeds from Mortgages 19,100,000 23,350,000
Principal Payments on Mortgages (5,055,213) (4,448,549)
Financing Costs on Debt (333,631) (309,286)
Proceeds from Issuance of Class A
Common Stock 15,169,378 6,186,509
Proceeds from Exercise of Stock
Options 47,625 178,125
Dividends Paid (3,474,866) (3,195,883)
NET CASH PROVIDED BY FINANCING ___________ ___________
ACTIVITIES 25,025,941 21,898,833
___________ ___________
NET INCREASE IN CASH AND
CASH EQUIVALENTS 114,298 20,453
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 693,572 147,579
___________ ___________
END OF PERIOD $807,870 $168,032
=========== ===========
Unaudited
See Accompanying Notes to Consolidated Financial Statements
Page 5
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 1 - ORGANIZATION AND ACCOUNTING POLICY
On May 15, 2003, Monmouth Real Estate Investment
Corporation (the "Company") changed its state of
incorporation from Delaware to Maryland (the
"Reincorporation"). The Reincorporation was approved by the
Company's shareholders at the Company's annual meeting on
May 6, 2003.
The Reincorporation was accomplished by the merger (the
"Merger") of the Company with and into its wholly-owned
subsidiary, MREIC Maryland, Inc., a Maryland Corporation,
("Monmouth Maryland"), which was the surviving corporation
in the Merger. In connection with the Merger, Monmouth
Maryland changed its name to Monmouth Real Estate Investment
Corporation.
As a result of the Merger each outstanding share of the
Company's Class A Common stock, $.01 par value per share
(the "Delaware Common Stock"), was converted into one share
of common stock, $.01 par value, of Monmouth Maryland (the
"Maryland Common Stock"). In addition, each outstanding
option to purchase Delaware Common Stock was converted into
the right to purchase Maryland Common Stock upon the same
terms and conditions as immediately prior to the Merger.
The Company's 1997 Stock Option Plan, as amended, was
assumed and will be continued by Monmouth Maryland.
The conversion of the Delaware Common Stock into
Maryland Common Stock occurred without an exchange of
certificates. Accordingly, certificates formerly
representing shares of Delaware Common Stock are now deemed
to represent the same number of shares of Maryland Common
Stock.
Prior to the Merger, Monmouth Maryland had no assets or
liabilities, other than nominal assets or liabilities. As a
result of the Merger, Monmouth Maryland acquired all of the
assets and all of the liabilities and obligations of the
Company. Monmouth Maryland has the same business,
properties, directors, management, status as a real estate
investment trust under the Internal Revenue Code of 1986, as
amended, and principal executive offices as Monmouth
Delaware.
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,
2003 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.
Certain reclassifications have been made to the
financial statements for the prior period to conform to the
current period presentation.
Page 6
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 67,255 shares and 33,962
shares for the three months ended June 30, 2003 and 2002,
respectively, are included in the diluted weighted average
shares outstanding. Options in the amount of 21,324 shares,
and 19,094 shares for the nine months ended June 30, 2003
and 2002, 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, 2003 and 2002 is as follows:
June 30, June 30,
2003 2002
_______ _______
Three Months $3,050,161 $1,260,076
Nine Months 5,291,217 4,384,258
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 Ex 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.
On April 1, 2003, the Company purchased a 179,280
square foot industrial building in Wyandotte County, in the
City of Edwardsville, Kansas. This industrial building is
100% net-leased to Carlisle Tire and Wheel Company, for ten
years. The purchase price was approximately $7,000,000. To
fund this purchase, the Company used approximately
$2,050,000 of its credit line with Fleet Bank and assumed a
mortgage of $4,950,000. This mortgage payable is at an
interest rate of 7.375% and is due in 2017.
Page 7
NOTE 4 - REAL ESTATE INVESTMENTS, (CONT'D.)
In May 2003, the tenant at the Jackson, Mississippi
warehouse facility terminated its lease. The lease was
scheduled to expire September 30, 2003. The average annual
rental income over the term of the lease was approximately
$169,000. The tenant signed a termination agreement
requiring them to reimburse the Company for ninety percent
of the repairs needed to the property, the real estate taxes
and insurance, and rent through July 2003. Currently the
property is vacant. Management believes this property to
be well situated and is actively seeking new lease
prospects.
NOTE 5 - DEBT AND SHAREHOLDERS' EQUITY
On February 27, 2003, the Company sold 1,257,253 shares
in a private placement with Palisade Concentrated Equity
Partnership, L.P. for cash of $8,324,901 or $6.6215 a share.
The proceeds of the private placement were used to pay down
the Company's outstanding credit facility and will be used
for working capital.
In May 2003, the Company received a new line of credit
(the "new line") from United Trust Bank (the "Bank"). The
amount of the facility is $10,000,000 during the first year
and $15,000,000 thereafter and matures on the third
anniversary of the closing date. The interest rate charged
on the new line is the Bank's floating announced prime rate.
The amount outstanding on the new line at June 30, 2003 was
$3,361,198. The line replaces a usable line of $6,256,000,
from Fleet Bank which was to expire in November, 2003.
For the nine months ended June 30, 2003, the Company
received $9,224,084 from the Dividend Reinvestment and Stock
Purchase Plan (DRIP). There were 1,353,749 shares issued
under the Plan, resulting in 14,752,250 shares outstanding.
On June 16, 2003, the Company paid $2,113,024 as a
dividend of $.145 per share to shareholders of record May
15, 2003. Total dividends paid for the nine months ended
June 30, 2003 amounted to $5,827,252 of which $2,352,386
was reinvested in the DRIP. On June 18, 2003, the Company
declared a dividend of $.145 per share to be paid on
September 15, 2003 to shareholders of record August 15,
2003.
NOTE 6 - EMPLOYEE STOCK OPTIONS
The Company had elected to follow APB Opinion No. 25 in
accounting for its stock option plan prior to October 1,
2002, and accordingly no compensation cost had been
recognized prior to October 1, 2002. 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:
Page 8
NOTE 6 - EMPLOYEE STOCK OPTIONS, (CONT'D.)
Three Three Nine Nine
Months Months Months Months
6/30/03 6/30/02 6/30/03 6/30/02
________ ________ ________ ________
Net Income Prior to
Compensation Expense
for grants in FY 2003 $2,033,186 $1,387,289 $4,616,019 $3,662,676
Compensation Expense 2,275 -0- 4,551 -0-
__________ __________ __________ __________
Net Income as Reported 2,030,911 1,387,289 4,611,468 3,662,676
Compensation expenses
if the fair value
method had been applied 9,750 2,863 29,250 9,628
__________ __________ __________ __________
Net Income Pro forma $2,021,161 $1,384,426 $4,582,218 $3,653,048
========== ========== ========== ==========
Net Income per share -
Basic and Diluted as
reported $ 0.14 $ 0.12 $ 0.34 $ 0.33
Net Income per share -
Basic and Diluted Pro
forma $ 0.14 $ 0.12 $ 0.34 $ 0.33
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions used for
grants in the following years:
2002 2001
______ ______
Dividend yield 8% 9%
Expected volatility 13% 25%
Risk-free interest rate 3.40% 4.75%
Expected lives 8 5
During the nine months ended June 30, 2003, the following
stock option was granted:
Number Number
Date of of of Option Expiration
Grant Employees Shares Price Date
_______ _________ ______ _____ __________
1/22/03 1 65,00 $6.90 1/22/11
The Company adopted the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock Based
Compensation" on October 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", compensation costs
of $4,551 have been recognized in 2003, as the Company
granted stock-based employee compensation during the second
quarter ended March 31, 2003.
Page 9
NOTE 6 - EMPLOYEE STOCK OPTIONS, (CONT'D.)
The fair value of the options granted is estimated
using the Black-Scholes option pricing model with the
following assumptions for grants in 2003:
Dividend yield 8%
Expected volatility 13%
Risk-free interest 3.40%
rate
Expected lives 8
During the nine months ended June 30, 2003, two
participants exercised their stock options and purchased
8,500 shares for a total of $47,625. Two participants'
options to purchase a total of 20,000 shares expired during
the quarter ended June 30, 2003.
As of June 30, 2003, there were options outstanding to
purchase 501,500 shares and 735,000 shares were available
for grant under the Plan.
NOTE 7 - CONTINGENCIES
The Company is subject to claims and litigation in the
ordinary course of business. Management does not believe
that any such claim or litigation will have a material
adverse effect on its business, assets, or results of
operations.
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the nine months ended June 30, 2003
and 2002 for interest was $5,119,230 and $4,460,348,
respectively.
During the nine months ended June 30, 2003 and 2002,
the Company had dividend reinvestments of $2,352,386 and
$1,594,445, respectively, which required no cash transfers.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51",
which addresses consolidation by business enterprises of
variable interest entities. The Interpretation clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities
without additional subordinated financial support from other
parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest
after that date. Management believes that this
Interpretation will not have a material impact on the
Company's financial statements.
Page 10
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS, (CONT'D.)
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.
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. Management believes that this
Statement will not have a material impact on the Company's
financial statements.
Page 11
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
On May 15, 2003, Monmouth Real Estate Investment
Corporation (the "Company") changed its state of
incorporation from Delaware to Maryland (the
"Reincorporation"). The Reincorporation was approved by the
Company's shareholders at the Company's annual meeting on
May 6, 2003.
The Reincorporation was accomplished by the merger (the
"Merger") of the Company with and into its wholly-owned
subsidiary, MREIC Maryland, Inc., a Maryland Corporation,
("Monmouth Maryland"), which was the surviving corporation
in the Merger. In connection with the Merger, Monmouth
Maryland changed its name to Monmouth Real Estate Investment
Corporation.
As a result of the Merger each outstanding share of the
Company's Class A Common stock, $.01 par value per share
(the "Delaware Common Stock"), was converted into one share
of common stock, $.01 par value, of Monmouth Maryland (the
"Maryland Common Stock"). In addition, each outstanding
option to purchase Delaware Common Stock was converted into
the right to purchase Maryland Common Stock upon the same
terms and conditions as immediately prior to the Merger.
The Company's 1997 Stock Option Plan, as amended, was
assumed and will be continued by Monmouth Maryland.
The conversion of the Delaware Common Stock into
Maryland Common Stock occurred without an exchange of
certificates. Accordingly, certificates formerly
representing share of Delaware Common Stock are now deemed
to represent the same number of shares of Maryland Common
Stock.
Prior to the Merger, Monmouth Maryland had no assets or
liabilities, other than nominal assets or liabilities. As a
result of the Merger, Monmouth Maryland acquired all of the
assets and all of the liabilities and obligations of the
Company. Monmouth Maryland has the same business,
properties, directors, management, status as a real estate
investment trust under the Internal Revenue Code of 1986, as
amended, and principal executive offices as Monmouth
Delaware.
The Company generated net cash provided by operating
activities of $7,726,323 for the current nine months as
compared to $5,496,989 for the prior period. The Company
raised $9,224,084 from the issuance of shares of common
stock through its Dividend Reinvestment and Stock Purchase
Plan (DRIP) and $8,324,901 in cash from a private placement
to Palisade Concentrated Equity Partnership, L.P.
(Palisade). On February 27, 2003, the Company issued
1,257,253 shares to Palisade for $6.6215 per share. The
proceeds of the private placement will be used for working
capital and was used to pay down the Company's outstanding
credit facility. Gross dividends paid for the nine months
ended June 30, 2003 amounted to $5,827,252 of which
$2,352,386 was reinvested in the DRIP.
Page 12
MATERIAL CHANGES IN FINANCIAL CONDITION, (CONT.D)
During the nine months ended June 30, 2003, the Company
purchased three warehouse facilities for a total purchase
price, including closing costs, of approximately
$26,200,000.
Securities available for sale increased by $7,745,067
primarily as a result of purchases of $11,177,485, an
increase in the unrealized gain of $679,749, and offset by
sales and redemptions with a cost basis of $4,122,167.
Other assets decreased by $983,662 primarily as a
result of deposits used for the purchase of two warehouse
facilities.
Mortgage notes payable increased by $14,044,787
during the nine months ended June 30, 2003. This increase
was primarily due to additional mortgages of $19,100,000 on
the new acquisitions partially offset by principal
repayments of $5,055,213.
Loans payable decreased by $427,352 during the nine
months ended June 30, 2003. This decrease was the result of
additional take-downs in the amount of $14,170,488 of the
Company's revolving credit line and margin loan offset by
repayments of $14,597,477.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Rental and occupancy charges increased for the
three months ended June 30, 2003 to $4,715,637 as compared
to $3,758,184 for the three months ended June 30, 2002.
Rental and occupancy charges increased for the nine months
ended June 30, 2003 to $12,986,404 as compared to
$10,676,209 for the nine months ended June 30, 2002. This
was a result of the new acquisitions made in fiscal 2002 and
2003.
Interest and dividend income increased by $319,583 for
the three months ended June 30, 2003 as compared to the
three months ended June 30, 2002. Interest and dividend
income increased by $436,329 for the nine months ended June
30, 2003 as compared to the nine months ended June 30, 2002.
This was due primarily to the purchase of securities
available for sale during fiscal 2002 and 2003. Securities
available for sale at June 30, 2002 amounted to $12,509,577
as compared to $22,969,009 at June 30, 2003.
Gain on Securities Available for Sale transactions
amounted to $513,457 and $533,700 for the three months ended
June 30, 2003 and 2002, respectively. Gain on Securities
Available for Sale transactions amounted to $855,069 and
$906,699 for the nine months ended June 30, 2003 and 2002,
respectively.
Interest expense increased by $223,204 for the three
months ended June 30, 2003 as compared to the three months
ended June 30, 2002. Interest expense increased by $708,737
for the nine months ended June 30, 2003 as compared to the
nine months ended June 30, 2002. This was primarily the
result of additional borrowings for the new acquisitions
made in fiscal 2002 and 2003, and increased margin loan
borrowings.
Page 13
MATERIAL CHANGES IN RESULTS OF OPERATIONS, (CONT'D.)
Real estate taxes increased by $29,411 for the three
months ended June 30, 2003 as compared to the three months
ended June 30, 2002. Real estate taxes increased by
$136,029 for the nine months ended June 30, 2003 as compared
to the nine months ended June 30, 2002. This was due
primarily to the new acquisitions made in fiscal 2002 and
2003.
Operating expenses increased by $163,719 for the three
months ended June 30, 2003 as compared with June 30, 2002,
and increased by $177,773 for the nine months ended June 30,
2003, as compared to the nine months ended June 30, 2002.
This was due primarily to the new acquisitions made in
fiscal 2002 and 2003.
Office and general expenses increased by $219,319 for
the three months ended June 30, 2003 as compared with June
30, 2002. Office and General expenses increased by $463,030
for the nine months ended June 30, 2003 as compared to the
nine months ended June 30, 2002. This was primarily due to
increased professional fees, occupancy charges and personnel
costs. The Company has been expanding its operations.
Depreciation expense increased by $152,893 for the
three months ended June 30, 2003 as compared to the three
months ended June 30, 2002. Depreciation expense increased
by $435,908 for the nine months ended June 30, 2003 as
compared to the nine months ended June 30, 2002. 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 $7,726,323 and $5,496,989 during the nine months ended
June 30, 2003 and 2002, respectively.
The Company owns thirty-three properties of which
twenty-seven carried mortgage loans totaling $92,264,950 at
June 30, 2003. The Company has been raising capital through
its DRIP and a private placement with Palisade, 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 14
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 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 for the three and nine months ended
June 30, 2003 and 2002 is calculated as follows:
Three Months Nine Months
6/30/03 6/30/02 6/30/03 6/30/02
________ ________ ________ ________
Net Income $2,030,911 $1,387,289 $4,611,468 $3,662,676
Loss on Sale of
Assets -0- 175,375 -0- 175,375
Depreciation
Expense 905,601 752,708 2,604,790 2,168,882
________ ________ ________ ________
FFO $2,936,512 $2,315,372 $7,216,258 $6,006,933
========= ========= ========= =========
The following are the cash flows provided (used) by
operating investing and financing activities for the nine
months ended June 30, 2003 and 2002:
2003 2002
________ ________
Operating Activities $7,726,323 $ 5,496,989
Investing Activities (32,637,966) (27,375,369)
Financing Activities 25,025,941 21,898,833
CONTROLS AND PROCEDURES
The Company's Chief Executive Officer 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 Quarterly Report on Form
10Q. Based on such evaluation, the Company's disclosure
controls and procedures are effective.
The Company's Chief Executive Officer 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.
Page 15
SAFE HARBOR STATEMENT
This Form 10-Q 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; (ii) increased
competition in the geographic areas in which the Company
operates; (iii) changes in government laws and regulations;
and (iv) the ability of the Company to continue to identify,
negotiate and acquire properties on terms favorable to the
Company. 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.
Page 16
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 May 6, 2003
to elect a Board of Directors for the ensuing year, to
approve the selection of Independent Auditors, and to
approve a proposal by the Board of Directors to
reincorporate the Company as a Maryland corporation.
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 -
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 - During the third quarter
of 2003, the Company filed the following reports
on Form 8-K:
1) Form 8-K dated May 15, 2003 was filed to report that
the Company issued a press release regarding the results of
the Annual Shareholders' Meeting, held on May 6, 2003.
2) Form 8-K dated May 19, 2003 was filed to report that
the Company issued a press release dated May 19, 2003,
regarding a new increased line of credit.
3) Form 8-K dated May 21, 2003 was filed to report that
the Company had changed its state of incorporation from
Delaware to Maryland (the "Reincorporation"). The
Reincorporation was approved by the Company's shareholders
at the Company's annual meeting on May 6, 2003.
Page 17
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 11, 2003 By: /s/ Eugene W. Landy
Eugene W. Landy
President
Date: August 11, 2003 By: /s/ Anna T. Chew
Anna T. Chew
Chief Financial Officer
Page 18