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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SCURITIES
EXCHANGE ACT OF 1934
For the transition period ___________ to ___________
Commission File Number 0-4258
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 Offices) (Zip Code)
Registrant's telephone number, including area code:(732)-577-9997
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock $.01 par value
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the 12 preceding 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter)
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
of 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). X_ Yes __ No
Based upon the assumption that directors and executive officers
of the registrant are not affiliates of the registrant,the aggregate
market value of the voting stock of the registrant held by nonaffiliates
of the registrant at March 31, 2004 was $144,721,864. Presuming that such
directors and executive officers are affiliates of the registrant, the
aggregate market value of the voting stock of the registrant
held by nonaffiliates of the registrant at March 31, 2004 was
$129,489,502.
There were 17,368,809 shares of common stock outstanding as of October
15, 2004.
Documents Incorporated by Reference: Exhibits incorporated by reference
are listed in Part IV, Item 15 (a) (3).
Page 1
TABLE OF CONTENTS
Item Page
No. No.
Part I
1 Business . . . . . . . . . . . . .. . . . . . . . . . 3
2 Properties . . . . . . . . . . . . . . . . . . . . . 10
3 Legal Proceedings . . . . . . . . . . . . . . . . . . 12
4 Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . . . . . . . 12
Part II
5 Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . 13
6 Selected Financial Data . . . . . . . . . . . . . . . 15
7 Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . 18
7A Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . .27
8 Financial Statements and Supplementary Data . . . . . .28
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . .29
9A Controls and Procedures . . . . . . . . . . . . . . . .29
9B Other Information . . . . . . . . . . . . . . . . . . .29
Part III
10 Directors and Executive Officers of the Registrant . . 30
11 Executive Compensation . . . . . . . . . . . . . . . . 33
12 Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . .38
13 Certain Relationships and Related Party
Transactions . . . . . . . . . . . . . . . . . . . . . .40
14 Principal Accounting Fees and Services . . . . . . . . .41
Part IV
15 Exhibits, Financial Statement Schedules . . . . . . . . 42
Signatures . . . . . . . . . . . . . . . . . . . . . . .80
Page 2
PART I
ITEM 1 - BUSINESS
General Development of the Business
Monmouth Real Estate Investment Corporation (the Company) is a
corporation operating as a qualified real estate investment trust (REIT) under
Sections 856-860 of the Internal Revenue (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.
The Company was incorporated in 1968 as a Delaware Corporation. On
May 15, 2003, 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 Company's primary business is the ownership of real estate. Its
investment focus is to own net leased industrial property which are leased to
credit tenants on long-term leases. In addition, the Company holds a
portfolio of REIT securities.
Narrative Description of Business
Currently, the Company derives its income primarily from real estate
rental operations. Rental and occupancy revenue was $21,329,500, $19,641,111 and
$16,118,137 for the years ended September 30, 2004, 2003 and 2002, respectively.
Total assets were $195,222,169 and $183,173,874 as of September 30, 2004 and
2003, respectively. The Company has approximately 3,734,000 square feet of
property, of which approximately 1,223,000 square feet, or 33%, is leased to
Federal Express Corporation (FDX) and subsidiaries and approximately 274,000
square feet, or 7%, is leased to Keebler Company, a subsidiary of the Kellogg
Company. During 2004, 2003 and 2002 rental and occupancy charges from
properties leased to these companies approximated 48%, 48% and 52%,
respectively, of total rental and occupancy charges.
At September 30, 2004, the Company had investments in thirty-four
properties. (See Item 2 for detailed description of the properties.) These
properties are located in New Jersey, New York, Pennsylvania, North Carolina,
Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois, Michigan,
Nebraska, Florida, Virginia, Ohio, Connecticut, Wisconsin, Maryland and Arizona.
All properties are managed by a management company. All properties are leased on
a net basis except Monaca, Pennsylvania.
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
Page 3
ITEM 1 - BUSINESS, (CONT'D.)
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. Management has built relationships with
merchant builders which provide the Company with investment opportunities which
fit the Company's investment policy.
Investment and Other Policies
The Company has a flexible investment policy concentrating its investments
in the area of net-leased industrial properties. The Company's strategy is to
obtain a favorable yield spread between the yield from the net-leased industrial
properties and mortgage interest costs. The Company continues to purchase net-
leased industrial properties, since management believes that there is a
potential for long-term capital appreciation through investing in well-located
industrial properties. There is the risk that, on expiration of current leases,
the properties can become vacant or re-leased at lower rents. The results
obtained by the Company by re-leasing the properties will depend on the market
for industrial properties at that time.
In fiscal 2004, the Company purchased one net-leased industrial
property, for a total cost of approximately $17,657,000. In fiscal 2005, the
Company anticipates acquisitions of approximately $30,000,000. The funds for
these acquisitions may come from the Company's available line of credit, other
bank borrowings, proceeds from the Dividend Reinvestment and Stock Purchase Plan
and 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 upon closing.
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 FDX or FDX subsidiaries meet this criteria. The
Company has a concentration of properties leased to FDX and FDX subsidiaries.
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.
The Company operates as part of a group of three public companies (all
REITs) which includes United Mobile Homes, Inc., Monmouth Capital Corporation,
and Monmouth Real Estate Investment Corporation (the affiliated companies).
Some general and administrative expenses are allocated between the three
affiliated companies based on use or services provided. The Company currently
has eleven employees. Allocations of salaries and benefits are made between the
affiliated companies based on the amount of the employees' time dedicated to
each affiliated company.
The Company does not have an advisory contract; however, all of the
properties are managed by Cronheim Management Services, a division of David
Cronheim Company. In 1998, the Company entered into a new management contract
with Cronheim Management Services,
Page 4
ITEM 1 - BUSINESS, (CONT'D.)
a related party as defined in Note No. 9 to the Consolidated Financial
Statements. Under this contract, Cronheim Management Services receives 3% of
gross rental income on certain properties for management fees. Cronheim
Management Services provides sub-agents as regional managers for the Company's
properties and compensates them out of this management fee. Cronheim
Management Services received $299,392, $258,626 and $245,597, in 2004, 2003 and
2002, respectively, for the management of the properties. David Cronheim
Company received $132,185, $14,377 and $20,194 in lease commissions in 2004,
2003 and 2002, 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. The Company from time to time may purchase these securities on
margin when the interest and dividend yields exceed the cost of the funds. The
securities portfolio, to the extent not pledged to secure borrowing, 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. From time to time the Company may use derivative instruments
to mitigate interest rate risk.
Additional information about the Company can be found on the Company's
website which is located at www.mreic.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 Relations.
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 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;
Page 5
ITEM 1 - BUSINESS, (CONT'D.)
. 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 the Company's
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 property on similar terms,
if the property may be relet 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.
Page 6
ITEM 1 - BUSINESS, (CONT'D.)
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 its 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
the 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 affect adversely 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 the
Company's investment properties which would have a material adverse effect on
the business, assets, or results of operations. However, management 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.
Page 7
ITEM 1 - BUSINESS, (CONT'D.)
Financing Risks
The Company faces risks generally associated with its debt. The Company
finances a portion of its investments in properties and marketable securities
through debt. This debt creates risks, including:
. rising interest rates on the floating rate debt;
. failure to repay or refinance existing debt as it matures,
which may result in 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 the Company's 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.
Other Risks
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 stockholders that changes in our policies
will serve fully the interests of all stockholders.
Page 8
ITEM 1 - BUSINESS, (CONT'D.)
The market value of the 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, among
other things, 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 the 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.
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 is subject to restrictions that may impede management's
ability to effect a change in control. Certain provisions contained in the
Company's charter and bylaws, and certain provisions of Maryland law may have
the effect of discouraging a third party from making an acquisition proposal for
us and thereby inhibit a change in control.
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
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.
Page 9
ITEM 1 - BUSINESS, (CONT'D.)
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 stockholders 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 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
The Company operates as a real estate investment trust. Its portfolio
is primarily in real estate holdings, some of which have been long-term holdings
carried on the financial statements of the Company at depreciated cost. It is
believed that their current market values exceed both the original cost and the
depreciated cost.
The following table sets forth certain information concerning the
Company's real estate investments as of September 30, 2004:
Page 10
Fiscal Year
State City Acquisition Type
_____ _____ ___________ ____
AZ Tolleson 2003 Industrial
CT Newington 2001 Industrial
FL Ft. Myers 2003 Industrial
FL Jacksonville 1999 Industrial
FL Tampa 2004 Industrial
IL Schaumburg 1997 Industrial
IL Burr Ridge 1997 Industrial
IL Granite City 2001 Industrial
IL Elgin 2002 Industrial
IO Urbandale 1994 Industrial
KS Wichita 1994 Industrial
KS Edwardsville 2003 Industrial
MA Franklin 1994 Industrial
MD Beltsville 2001 Industrial
MI Romulus 1998 Industrial
MO O' Fallon 1994 Industrial
MO Liberty 1998 Industrial
MO St. Joseph 2001 Industrial
MS Jackson 1993 Industrial
MS Richland 1994 Industrial
NC Fayetteville 1997 Industrial
NC Greensboro 1993 Industrial
NC Monroe 2001 Industrial
NC Winston-Salem 2002 Industrial
NE Omaha 1999 Industrial
NJ Ramsey 1969 Industrial
NJ South Brunswick 1993 Industrial
NJ Somerset (1) 1970 Shopping
Center
NY Orangeburg 1993 Industrial
OH Union Township 2000 Industrial
PA Monaca 1977 Industrial
VA Charlottesville 1999 Industrial
VA Richmond 2001 Industrial
WI Cudahy 2001 Industrial
(1) The Company has an undivided 2/3 interest in the property.
Estimated annual rent reflects the Company's proportionate
share of the total rent on this property.
(2) Subleased to USC Solutions.
(3) Subleased to Leer Corporation.
(4) Tenant has vacated but honors lease.
Page 11A
Mortgage
Square Balance
State City Footage 9/30/04
_____ ____ _______ _______
AZ Tolleson 288,211 $ 10,146,307
CT Newington 54,812 2,127,778
FL Ft. Myers 90,020 3,045,095
FL Jacksonville 95,883 3,209,738
FL Tampa 170,779 12,603,145
IL Schaumburg 73,500 2,340,730
IL Burr Ridge 12,477 821,422
IL Granite City 184,800 8,349,161
IL Elgin 89,052 4,520,616
IO Urbandale 36,150 -0-
KS Wichita 44,136 -0-
KS Edwardsville 179,280 4,507,576
MA Franklin 84,376 -0-
MD Beltsville 109,705 5,157,949
MI Romulus 72,000 1,996,698
MO O' Fallon 102,135 860,835
MO Liberty 98,200 3,355,368
MO St. Joseph 388,671 7,591,972
MS Jackson 26,340 308,344
MS Richland 36,000 -0-
NC Fayetteville 148,000 2,668,864
NC Greensboro 40,560 -0-
NC Monroe 160,000 3,574,850
NC Winston-Salem 106,507 4,480,339
NE Omaha 88,140 3,014,301
NJ Ramsey 44,719 -0-
NJ South Brunswick 144,520 -0-
NJ Somerset (1) 42,800 -0-
NY Orangeburg 50,400 -0-
OH Union Township 103,818 2,435,553
PA Monaca 291,474 -0-
VA Charlottesville 49,900 2,087,804
VA Richmond 112,799 4,647,320
WI Cudahy 114,123 3,679,198
_________ ____________
3,734,287 $97,530,963
========== ===========
(1) The Company has an undivided 2/3 interest in the property.
Estimated annual rent reflects the Company's proportionate
share of the total rent on this property.
(2) Subleased to USC Solutions.
(3) Subleased to Leer Corporation.
(4) Tenant has vacated but honors lease.
Page 11B
State City Tenant Expiration
_____ _____ _______ __________
AZ Tolleson Western Container Corp 4/30/2012
CT Newington Keebler Company 2/28/2011
FL Ft. Myers Fedex Ground Package System. Inc 10/31/2011
FL Jacksonville Federal Express Corporation 5/31/2008
FL Tampa Fedex Ground Package System. Inc 1/31/2019
IL Schaumburg Federal Express Corporation 3/31/2007
IL Burr Ridge Sherwin-Wiliams Company 10/31/2009
IL Granite City Anheuser-Busch, Inc. 5/31/2011
IL Elgin Reynolds Metals Company 1/31/2012
IO Urbandale Glazers Distributors of Iowa, 6/30/2008
Inc.
KS Wichita Keebler Company (4) 5/31/2005
KS Edwardsville Carlisle Tire & Wheel Company 5/31/2012
MA Franklin Keebler Company 1/31/2007
MD Beltsville Fedex Ground Package System. Inc 12/31/2010
MI Romulus Federal Express Corporation 5/31/2008
MO O' Fallon PPG Industries 6/30/2006
MO Liberty Johnson Controls, Inc. (3) 12/31/2007
MO St. Joseph Mead Corporation 11/30/2015
MS Jackson Oxford Auto Alabama month to
month
MS Richland Federal Express Corporation 3/31/2014
NC Fayetteville Belk Enterprises, Inc. (2) 6/30/2006
NC Greensboro Keebler Company 2/28/2006
NC Monroe Hughs Supply, Inc. 10/31/2011
NC Winston-Salem Fedex Ground Package System. Inc 12/31/2011
NE Omaha Federal Express Corporation 10/31/2008
NJ Ramsey Bogen Photo, Inc. 9/30/2006
NJ South Brunswick McMaster Carr Supply 3/31/2006
NJ Somerset (1) various various
NY Orangeburg Keebler Company 12/31/2007
OH Union Township RPS Ground 8/31/2013
PA Monaca various various
VA Charlottesville Federal Express Corporation 8/31/2008
VA Richmond Federal Express Corporation 10/21/2009
WI Cudahy Fedex Ground Package System. Inc 3/31/2011
(1) The Company has an undivided 2/3 interest in the
property. Estimated annual rent reflects the Company's
proportionate share of the total rent on this
property.
(2) Subleased to USC Solutions.
(3) Subleased to Leer Corporation.
(4) Tenant has vacated but honors lease.
Page 11C
Estimated
State City Annual Rent
AZ Tolleson $ 1,243,000
CT Newington 340,000
FL Ft. Myers 400,000
FL Jacksonville 526,000
FL Tampa 1,412,000
IL Schaumburg 463,000
IL Burr Ridge 151,000
IL Granite City 1,147,000
IL Elgin 614,000
IO Urbandale 121,000
KS Wichita 193,000
KS Edwardsville 671,000
MA Franklin 516,000
MD Beltsville 892,000
MI Romulus 396,000
MO O' Fallon 372,000
MO Liberty 699,000
MO St. Joseph 1,239,000
MS Jackson 145,000
MS Richland 140,000
NC Fayetteville 470,000
NC Greensboro 215,000
NC Monroe 589,000
NC Winston-Salem 637,000
NE Omaha 516,000
NJ Ramsey 285,000
NJ South Brunswick 673,000
NJ Somerset (1) 391,000
NY Orangeburg 390,000
OH Union Township 493,000
PA Monaca 400,000
VA Charlottesville 363,000
VA Richmond 707,000
WI Cudahy 572,000
______________
$ 18,381,000
===============
(1) The Company has an undivided 2/3 interest
in the property. Estimated annual rent
reflects the Company's proportionate Share
of the total rent on this property.
(2) Subleased to USC Solutions.
(3) Subleased to Leer Corporation.
(4) Tenant has vacated but honors lease.
Page 11D
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES, (CONT'D)
The Company's weighted-average lease expiration was 5.7
years at September 30, 2004 and the Company's occupancy rate
was 95%. All properties were occupied 100% at September 30, 2004
except for Monaca, PA (56% occupied) and Wichita, KS (vacant but
Keebler continues to honor lease).
The Company is a partner in a limited liability company,
Hollister `97, LLC, representing a 25% ownership interest. The
sole business of this LLC is the ownership and operation of the
Hollister Corporate Park in Teterboro, New Jersey. Under the
agreement, the Company is to receive a cumulative preferred 11%
annual return on its investment.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal fourth
quarter of 2004.
Page 12
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The shares of common stock of Monmouth Real Estate Investment
Corporation are traded on the National Association of Securities Dealers
Automated Quotation (NASDAQ symbol MNRTA). The per share range of high
and low market prices and distributions paid to shareholders during
each quarter of the last two years were as follows:
2004 2003
Market Price Market Price
Fiscal High Low Distrib. Fiscal High Low Distrib.
Qtr. Qtr.
_______ _____ _____ ______ _______ _____ _____ ________
First 8.80 8.11 $.145 First 7.17 6.70 $ .145
Second 9.33 8.65 .145 Second 7.90 6.70 .145
Third 8.99 7.39 .145 Third 8.80 7.36 .145
Fourth 8.50 7.76 .145 Fourth 8.77 7.31 .145
______ ______
$ .58 $ .58
====== ======
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.
On September 30, 2004, the closing price was $8.34.
As of September 30, 2004, there were approximately 1,174
shareholders of record who held shares of common stock of the
Company.
It is the Company's intention to continue distributing
quarterly dividends. On October 1, 2004 the Company declared a
dividend of $.145 per share to be paid on December 15, 2004 to
shareholders of record on November 15, 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.
Page13
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES (CONT'D.)
Equity Compensation Plan Information
The following table summarizes information, as of
September 30, 2004, 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
Number of Available for
Securitiesto be Weighted- Future Issuance Is
Issued Upon average Exercise Under Equity
Exercise of Price of Compensation
Outstanding Outstanding Plans (excluding
Options, Options, Securities
Plan Warrants and Warrants and reflected in
Category Rights Rights Column (a))
(a) (b) (c)
_____________ ____________ ___________ ___________
Equity
Compensation
Plans
Approved by
Security
Holders 609,000 $7.22 495,000
Equity
Compensation
Plans not
Approved by
Security
Holders N/A N/A N/A
Total 609,000 $7.22 495,000
======== ======== ========
Page 14
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected financial and other
information for the Company as of and for each of the years in the five year
period ended September 30, 2004. This table should be read in conjunction with
all of the financial statements and notes thereto included elsewhere herein.
September 30,
2004 2003 2002 2001 2000
OPERATING DATA:
Rental Income
And Occupancy
Charges $21,329,500 $19,641,111 $16,118,137 $11,979,886 $ 9,681,109
Gains on Securities
Transactions,
Net 1,714,395 1,018,862 909,704 632,492 110,960
Total Expenses 10,303,360 9,432,000 7,452,125 5,649,704 4,684,451
(Loss)Gain on Sales
of Assets - Investment
Property -0- -0- (175,376) -0- 88,631
Net Income 7,672,635 6,120,343 4,478,145 4,123,054 3,589,397
Interest
Expense 6,979,007 6,906,078 6,059,415 4,590,757 3,334,861
Net Income Per Share -
Basic and
Diluted .47 .44 .40 .43 .44
BALANCE SHEET DATA:
Total Assets $195,222,169 183,173,874 $149,011,493 $119,433,470 $86,003,905
Real Estate Investments,
Net 166,879,808 152,770,335 129,107,256 102,722,084 65,893,693
Mortgage Notes
Payable 97,530,963 90,909,299 78,220,163 60,424,754 36,104,743
Shareholders'
Equity 92,907,840 78,313,289 59,005,016 49,929,539 41,013,926
CASH FLOW DATA:
Net Cash Provided (Used) By:
Operating
Activities $ 10,385,410 $9,725,898 $6,792,043 $ 4,785,236 $ 4,583,749
Investing
Activities (15,215,218) (35,417,062) (30,564,641) (32,301,411) (8,283,278)
Financing
Activities 4,684,267 26,068,148 24,318,591 27,149,664 2,971,162
OTHER INFORMATION:
Average Number of
Shares Outstanding
- Basic 16,206,433 13,844,056 11,177,294 9,504,806 8,078,877
Funds from
Operations* $11,718,456 $9,680,489 $7,594,618 $6,289,381 $5,203,753
Cash Dividends
Per Share .58 .58 .58 .58 .58
Page 15
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). The Company believes that FFO is helpful to
investors as one of several measures of the performance of a REIT. 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:
2004 2003 2002 2001 2000
_______ ______ ______ ______ ______
Net Income $7,672,635 $6,120,343 $4,478,145 $4,123,054 $3,589,397
(Gain) Loss
on Sales of
Depreciable -0- -0- 175,376 -0- (88,631)
Assets
Depreciation 4,045,821 3,560,146 2,941,097 2,166,327 1,702,987
_________ _________ _________ _________ _________
FFO $11,718,456 $9,680,489 $7,594,618 $6,289,381 $5,203,753
========== ========= ========= ========= ==========
Page 16
ITEM 6 - SELECTED FINANCIAL DATA, (CONT'D.)
SUMMARY OF OPERATIONS BY PROPERTY
FOR THE YEARS ENDED SEPTEMBER 30,
2004 2003 2002 2001 2000
_________ _______ ________ ________ ________
Net Rental Income
(Loss):
Somerset, New Jersey $ 342,446 $ 293,177 $ 166,747 $ 270,716 $ 247,795
Ramsey, New Jersey 226,404 232,785 222,078 114,702 157,488
Monaca,
Pennsylvania 105,876 127,727 102,897 145,484 187,031
Orangeburg,
New York 212,764 181,752 161,000 155,249 220,767
South Brunswick,
New Jersey 513,717 489,916 505,744 448,308 412,634
Greensboro, North
Carolina 147,773 224,251 220,285 207,361 192,358
Jackson,
Mississippi 73,524 91,898 88,510 78,996 72,937
Franklin,
Massachusetts 378,519 356,356 330,752 307,996 278,733
Wichita, Kansas 199,561 142,352 67,243 53,132 31,117
Urbandale, Iowa 62,302 47,250 38,001 28,631 88,628
Richland,
Mississippi 96,643 87,263 80,056 69,508 58,738
O'Fallon, Missouri 215,267 199,537 177,225 130,480 101,646
Virginia Beach,
Virginia* -0- -0- (320,181) (56,485) 110,359
Fayetteville,
North Carolina 134,746 126,549 119,903 107,017 89,158
Schaumburg,
Illinois 155,394 120,885 130,583 105,769 80,094
Burr Ridge, 53,248 41,206 39,595 33,355 41,756
Illinois
Romulus, Michigan 142,485 130,652 118,385 104,130 93,874
Liberty, Missouri 283,994 264,945 243,747 222,353 206,755
Omaha, Nebraska 174,614 159,407 145,288 126,956 113,526
Charlottesville,
Virginia 134,548 120,371 116,247 105,075 94,450
Jacksonville,
Florida 167,252 163,079 140,924 132,789 114,921
Union Township,
Ohio 180,147 94,872 75,140 62,314 41,177
Richmond, Virginia 240,531 224,077 320,576 198,862 -0-
St. Joseph,
Missouri 289,766 222,808 190,325 155,660 -0-
Newington,
Connecticut 80,989 73,400 26,670 66,321 -0-
Cudahy, Wisconsin 116,922 109,891 88,637 35,275 -0-
Maryland 335,192 316,619 299,699 115,176 -0-
Granite City,
Illinois 213,433 184,984 299,672 -0- -0-
Monroe, North
Carolina 201,610 164,180 185,450 -0- -0-
Winston-Salem,
North Carolina 164,163 149,097 123,007 -0- -0-
Elgin, Illinois 143,540 133,700 55,468 -0- -0-
Tolleson, Arizona 291,136 376,824 -0- -0- -0-
Ft. Myers, Florida 132,752 136,885 -0- -0- -0-
Edwardsville,
Kansas 175,384 99,440 -0- -0- -0-
Tampa, Florida 208,765 -0- -0- -0- -0-
_________ _________ _________ ________ _______
Net Rental
Income 6,595,407 5,888,135 4,599,324 3,485,479 3,035,942
Net Investment and
Other Income 3,104,554 2,204,780 1,583,425 1,613,977 1,253,695
_________ _________ _________ ________ ________
TOTAL 9,699,961 8,092,915 6,182,749 5,099,456 4,289,637
General &
Administrative
Expenses (2,027,326) (1,972,572) (1,529,228) (976,402) (788,871)
_________ _________ _________ ________ ________
Income Before
(Loss) Gain on Sale of
Assets-Investment
Property 7,672,635 6,120,343 4,653,521 4,123,054 3,500,766
(Loss) Gain on
Sale of Assets -
Investment
Property -0- -0- (175,376) -0- 88,631
_________ _________ _________ __________ _________
NET INCOME
$ 7,672,635 $6,120,343 $4,478,145 $4,123,054 $3,589,397
========= ========= ========= ========== =========
*Sold in May, 2002.
Page 17
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Overview
The Company is a real estate investment trust (REIT). The Company's
primary business is the ownership and management of industrial buildings subject
to long-term leases to credit tenants. The Company owns thirty-three
industrial properties and one shopping center with a total of 3,734,000 square
feet. Total real estate investments were $166,879,808 at September 30, 2004.
These properties are located in New Jersey, New York, Pennsylvania, North
Carolina, Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois,
Michigan, Nebraska, Florida, Virginia, Ohio, Connecticut, Wisconsin, Maryland,
and Arizona. At September 30, 2004, the Company's weighted average lease
expiration term was 5.7 years and the Company's occupancy rate was 95%.
In February 2004, the Company purchased a 170,779 square foot industrial
building in Tampa, Florida for approximately $17,657,000. The building is 100%
net leased to FedEx Ground Package Systems, Inc. a subsidiary of Federal Express
Corporation, for 15 years. The Company obtained a mortgage of $12,800,000 at a
rate of 6% which matures on March 1, 2019.
The Company has a concentration of Federal Express Corporation and
subsidiary (FDX) leased properties. At September 30, 2004, the percentage of
FDX leased square footage as a total of the Company's rental space is 33%, with
14% leased with Federal Express Corporation and 19% with Federal Express
subsidiaries. This is a risk factor that shareholders should consider.
The Company intends to increase its real estate investments and expects to
invest approximately $30,000,000 in acquisitions of real property in fiscal year
2005. The growth of the real estate portfolio depends on the availability of
suitable properties which meet the Company's investment criteria. Competition
in the market areas in which the Company operates is significant and affects
acquisitions, occupancy levels, rental rates and operating expenses of certain
properties.
The Company also holds a portfolio of securities of other REITs with a
balance of $23,084,270 at September 30, 2004. The Company invests in REIT
securities on margin from time to time when the Company can achieve an adequate
yield spread and when suitable acquisitions of real property cannot be found.
At September 30, 2004, the Company's portfolio consisted of 63% preferred
stocks, 26% common stocks and 11% debentures. The REIT securities portfolio
provides the Company with liquidity and additional income until suitable
acquisitions of real property are found.
The Company's revenue primarily consists of rental and reimbursement income
from the ownership of industrial rental property. Revenues also include
interest and dividend income, gain (loss) on sales of securities transactions
and income from an equity investment. Total rental and occupancy revenue
increased 9% for the year ended September 30, 2004 as compared to the year ended
September 30, 2003. Net income per share increased 7% for the year ended
Page 18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
September 30, 2004 as compared to the year ended September 30, 2003. The
increase in revenue and net income per share was due mainly to property
acquisitions and increased gain on securities available for sale partially
offset by an increase of average shares outstanding.
See PART I, Item 1 - Business for a more complete discussion of the
economic and industry-wide factors relevant to the Company and the opportunities
and challenges, and risks on which the Company is focused.
Significant Accounting Policies and Estimates
The discussion and analysis of the Company's financial condition and
results of operation are based upon the Company's consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles. The preparation of these consolidated 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
consolidated 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 consolidated
financial statements. For a detailed description of these and other accounting
policies, see Note 1 in the notes to the Company's consolidated financial
statements included in this Form 10-K.
Real Estate Investments
The Company applies Financial Accounting Standards Board Statement No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
(Statement 144) 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.
Page19
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
Upon acquisition of a property, the Company allocates the purchase price
of the property based upon the fair value of the assets acquired, which
generally consist of land, buildings, leasing commissions and intangible assets,
including in-place leases and above and below market leases. The Company
allocates the purchase price to the fair value of the tangible assets of an
acquired property determined by third party appraisal of the property obtained
in conjunction with the purchase. Acquired above and below market leases are
valued based on the present value of the difference between prevailing market
rates and the in-place rates over the remaining lease term.
The purchase price is further allocated to in-place lease values based
on management's evaluation of the specific characteristics of each tenant's
lease and the Company's overall relationship with the respective tenant.
Acquired above and below market leases are amortized over the remaining non-
cancelable terms of the respective leases. The value of in-place lease
intangibles, which is included as a component of Other Assets, is amortized to
expense over the remaining lease term. If a tenant terminates its lease early,
the unamortized portion of the tenant improvements, leasing commissions above
and below market leases and the in-place lease value is immediately charged to
expense.
Securities Available for Sale
Investments in non-real estate assets consist primarily of marketable
securities. Management individually reviews and evaluates our marketable
securities for impairment on an annual basis, or when events or circumstances
occur. Management considers, among other things, credit aspects of the issuer,
amount of decline in fair value over cost and length of time in a continuous
loss position. 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.
Estimates and Revenue Recognition
Estimates are used to establish amounts receivable and revenue 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 is necessary. The allowance for
doubtful accounts reflects management's estimate of the amounts of the recorded
accounts 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.
Page 20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
Results of Operation
The Company's activities primarily generate rental income. Net income
for the fiscal year ended September 30, 2004 was $7,672,635 as compared to
$6,120,343 in 2003 and $4,478,145 in 2002. Net rental income, defined as
rental and occupancy charges reduced by direct operating expenses, management
fees, interest and depreciation, for the fiscal year ended September 30, 2004
was $6,595,407 as compared to $5,888,135 in 2003 and $4,599,324 in 2002.
Net rental income increased $707,272 in 2004 as compared to 2003.
The increase is due mainly to the addition of the net rental income related to
the Tampa, Florida property, the full year of ownership of the properties
purchased in 2003 (see below) and increased rent from the expansion of the Union
Twp, Ohio property. The increase is also due to decreased interest expense on
the Wichita, Kansas, and St. Joseph, Missouri properties due to loan payoffs in
2004. The increase was partially offset by decreased rent at the Greensboro,
North Carolina property due to a 2-year lease extension at a decreased rental
rate and an increase in depreciation on the Tolleson, Arizona property due to a
full year of ownership.
Net rental income increased $1,288,811 in 2003 as compared to 2002.
The increase is due mainly to the addition of the net rental income related to
the acquisitions of properties made in 2003 at Tolleson, Arizona, Ft. Myers,
Florida and Edwardsville, Kansas and the selling of the property at Virginia
Beach, Virginia in 2002 which had produced a net rental loss in 2002. The
Company also paid off the mortgage on the Wichita, Kansas property during 2003
resulting in an interest savings in 2003 as compared to 2002. These increases
were partially offset by a decrease in the net rental income at the Granite
City, Illinois property due to a full year of depreciation in 2003 as compared
with partial year depreciation in 2002.
The Company also generated net investment income from its investments
in securities available for sale and Hollister '97 LLC. These securities had an
average dividend yield of approximately 7.56% and 8.6% during 2004 and 2003,
respectively. Net investment and other income, which includes interest and
dividend income, realized gains (losses) on securities available for sale, net
reduced by margin loan interest expense increased $899,774 in 2004 as compared
to 2003 due primarily to an increase in interest and dividend income and an
increase in the gain on securities available for sale transactions, net. Net
investment and other income increased $621,355 in 2003 as compared to 2002 due
primarily to an increase in dividend and interest income and a increase in the
gain on securities transactions net. Gain on securities available for sale
transactions, net amounted to $1,714,395, $1,018,862, and 909,704 for 2004,
2003, and 2002, respectively.
Interest expense increased $72,929 in 2004 as compared to 2003 and
$846,663 in 2003 compared to 2002. The increases are primarily due to the
mortgages related to the acquisitions of one industrial property in 2004 and
three industrial properties in 2003.
Page 21
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
Real estate taxes increased $301,072 in 2004 as compared to 2003 and
$759,707 in 2003 as compared to 2002 due to the property acquisitions. The
tenants related to the acquisitions in 2004 and 2003 are subject to net leases
which require the tenants to absorb the real estate taxes as well as insurance
and the majority of the repairs and maintenance. As such, the Company is
reimbursed by the tenants for these real estate taxes.
Professional fees decreased $187,972 in 2004 as compared to 2003. The
decrease is due to legal fees incurred in 2003 relating to the reincorporation
of the Company from Delaware to Maryland and the related shareholder lawsuit
which was settled in fiscal 2003. Professional fees increased $76,507 in 2003
as compared to 2002. Legal fees in 2002 related to various SEC filings and
research on the reincorporation.
Operating expenses in 2004 were consistent with 2003. Operating
expenses increased $135,537 in 2003 as compared to 2002. The increase in 2003
is due mainly to un-reimbursed insurance costs related to the new acquisitions
and increased repairs and maintenance.
Office and general expenses increased $209,254 in 2004 as compared to
2003 and increased $352,496 in 2003 as compared to 2002. The increase relates
mainly to increases in personnel costs due to additional employees and increases
in franchise taxes as the Company enters new states (Arizona and Kansas in
2003). The Company has been active in acquisitions and is expanding its
operations. Total assets increased from approximately $119,000,000 as of
September 30, 2001 to approximately $195,000,000 as of September 30, 2004.
During 2002, the Company sold the warehouse facility in Virginia
Beach, VA for a net loss of $175,376.
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
September 30, 2004:
Less than 1 More than
Contractual Total year 1-3 years 3-5 years 5 years
Obligations
Mortgage
Notes
Payable $97,530,963 $5,484,926 $14,432,847 $12,973,896 $64,639,294
Retirement
Benefits 605,293 -0- -0- -0- 605,293
Purchase of
Property 19,125,000 19,125,000 -0- -0- -0-
___________ __________ __________ __________ __________
Total $117,261,256 $24,609,926 $14,432,847 $12,973,896 $65,244,587
=========== ========== ========== ========== ==========
Mortgage notes payable represents the principal amounts outstanding by
scheduled maturity. The interest rates on these mortgages are fixed rates
ranging from 5.8% to 8.5%. The
Page 22
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
above table does not include the Company's obligation under its line of credit
and margin loan as described in Note 6 of the Notes to Consolidated Financial
Statements.
Retirement benefits represent post-retirement benefits that are not funded
and therefore will be paid from the assets of the Company.
Purchase of property represents the purchase price of industrial buildings
in Denver, Colorado and Hanahan, South Carolina. These purchases were completed
on October 28, 2004 and December 6, 2004, respectively. (see Note 15 of the
Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
The Company operates as a real estate investment trust deriving its
income primarily from real estate rental operations. At September 30, 2004, the
Company's shareholders' equity increased to $92,907,840 as compared to
$78,313,289 at September 30, 2003, principally due to proceeds from the dividend
reinvestment and stock purchase plan, and the proceeds from a private placement
partially offset by dividends and decreases in unrealized gains on securities
available for sale. See further discussion below.
The Company's ability to generate cash adequate to meet its needs is
dependent primarily on income from its real estate investments and 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
(DRIP), proceeds from private placements, and access to the capital markets.
Purchases of new properties, 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.
Management does not see an indication that material factors are
present that may negatively impact cash flows. The Company is not aware of
adverse trends, demands, commitments, events or uncertainties that are
reasonably likely to have an impact on the Company's liquidity. The Company
owns securities available for sale of $23,084,270 subject to margin loans of
$1,261,901 at September 30, 2004. At September 30, 2004, the Company owned
thirty-four properties of which 10 have no mortgages. These marketable
securities and non-mortgaged properties provide the Company with additional
liquidity. The Company has been raising capital through its DRIP and private
placements and investing in net leased
Page 23
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
industrial properties. The Company believes that funds generated from
operations and the DRIP, the funds available on the line of credit, together
with the ability to finance and refinance its properties and sell marketable
securities will provide sufficient funds to adequately meet its obligations over
the next several years.
The Company's focus is on real estate investments. During the past
ten years, the Company purchased thirty-two net-leased warehouse facilities at
an aggregate cost of approximately $183,894,000. The Company financed these
purchases primarily through mortgages on its acquisitions. The Company also has
a secured $15,000,000 line of credit of which approximately $13,700,000 was
available at September 30, 2004. Interest is at the bank's floating prime
(4.50% at September 30, 2004) and is due monthly. The line expires in May,
2006.
During 2004, the Company made one acquisition totaling approximately
$17,657,000. The Company expects to make additional real estate investments
from time to time. In fiscal 2005, the Company plans to acquire approximately
$30,000,000 of net-leased industrial properties. The funds for these
acquisitions may come from the Company's available line of credit, other bank
borrowings and proceeds from the Dividend Reinvestment and Stock Purchase Plan
or private placements. To the extent that funds or appropriate properties are
not available, fewer acquisitions will be made.
The Company also invests in debt and equity securities of other REITs
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 an adequate yield spread.
During fiscal 2004, the Company's securities portfolio decreased by $2,337,281
primarily due to sales of approximately $9,229,076 and a decrease in the
unrealized gain of approximately $1,141,835 partially offset by purchases of
$8,033,630.
Cash flows provided from operating activities were $10,385,410,
$9,725,898 and $6,792,043 for fiscal year 2004, 2003 and 2002, respectively.
The increases in cash provided from operating activities resulted primarily from
the operations of the property acquisitions of approximately $17,657,000 in 2004
and $26,200,000 in 2003.
Cash flows used in investing activities were $15,215,218, $35,417,062
and $30,564,641 for fiscal year 2004, 2003 and 2002, respectively. Cash flows
used in investing activities decreased in 2004 as compared to 2003 due mainly to
the decreases in securities purchases, capital improvements and acquisitions and
increased in 2003 as compared to 2002 due mainly to the increase in securities
purchases.
Cash flows provided from financing activities were $4,684,267,
$26,068,148, and $24,318,591 for fiscal year 2004, 2003 and 2002, respectively.
Cash flows from financing activities decreased in 2004 as compared to 2003 due
mainly to decreased proceeds from
Page 24
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
mortgages, an increase in payments on loans, and a decrease in issuance of
common stock through private placements. The Company sold $4,050,000 and
$8,324,901 during 2004 and 2003, respectively, of common stock through private
placements. Cash flows provided from financing activities increased in 2003 as
compared to 2002 due mainly to an increase in cash from the issuance of common
stock. The Company sold common stock in a private placement as noted above in
addition to common stock sold through the Dividend Reinvestment and Stock
Purchase Plan. See further explanation below.
At September 30, 2004, the Company had total liabilities of
$102,314,329 and total assets of $195,222,169. The Company believes that it has
the ability to meet its obligations and to generate funds for new investments.
During 2004, the Company paid $9,426,915 as a dividend of $0.58 per
share. Management anticipates maintaining the annual dividend rate of $0.58 per
share although no assurances can be given since various economic factors can
reduce the amount of cash flow available to the Company for dividends. Of the
$9,426,915 in dividends paid, $3,531,838 was reinvested in the Dividend
Reinvestment and Stock Purchase Plan.
The Company has a DRIP, in which participants purchase stock from the
Company at a price at approximately 95% of market. During 2004, a total of
$12,532,541 in additional capital was raised through the DRIP. It is
anticipated, although no assurances can be given, that a comparable level of
participation will continue in the DRIP in fiscal 2005. Therefore, the Company
anticipates that the DRIP will result in further increased liquidity and capital
resources in fiscal 2005.
In January 2004, the Company issued 500,000 shares in a private
placement for consideration of $4,050,000 or $8.10 per share. The proceeds of
the private placement were used for working capital and to pay down the
Company's outstanding line of credit and margin loan. The Company incurred
approximately $67,993 in offering costs related to this private placement which
were recorded as a reduction to Additional Paid-In Capital.
During the year ended September 30, 2004, four directors and employees
exercised their stock options and purchased 131,500 shares for a total of
$830,705. During the year ended September 30, 2003, two directors exercised
their stock options and purchased 9,500 shares for a total of $52,875. During
the year ended September 30, 2002, nine officers, directors and key employees
exercised their stock options and purchased 255,000 shares for a total of
$1,617,488. Of this amount, 225,000 shares, for a total of $1,617,488, 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 September 30, 2004, the
balance of these notes receivable was $1,215,938.
Page 25
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONT'D)
New 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 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. This
interpretation did not have a material impact on the Company's consolidated
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. The 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 26
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to interest rate changes primarily as a result
of its line of credit and long-term debt used to maintain liquidity and fund
capital expenditures and acquisitions of the Company's real estate investment
portfolio. 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.
The following table sets forth information as of September 30, 2004,
concerning the Company's debt obligations, including principal cash flow by
scheduled maturity, weighted average interest rates and estimated fair value:
Long -Term Debt:
Average
Fixed Rate Fiscal Carrying Interest Fair Value
Value Rate
2005 $ -0- -0-
2006 -0- -0-
2007 2,668,864 7.80%
2008 1,169,179 8.5%
2009 -0- -0-
Thereafter 93,692,920 6.99%
___________ ________
Total $ 97,530,963 7.03% $100,508,994
==========
The Company also has $1,361,198 in variable rate debt maturing in May,
2006. This debt is a line of credit. The interest is at the bank's floating
prime rate and is due monthly. The interest rate was 4.50% at September 30,
2004. Additionally, the Company has $1,261,901 in variable rate debt due on
demand. This debt is primarily margin loans secured by marketable securities.
The interest rate on these loans was 3.5% at September 30, 2004. The Company
has $13,638,802 available on this $15,000,000 line. The carrying value of the
Company's variable rate debt approximates fair value at September 30, 2004.
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.
Page 27
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Part VI,
Item 15 (a) (1) are incorporated herein by reference and filed as part of this
report.
The following is the Unaudited Selected Quarterly Financial Data:
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
FISCAL 2004 12/31/03 3/31/04 6/30/04 9/30/04
Rental and
Occupancy Charges $5,047,924 $5,317,297 $5,453,966 $5,510,313
Total Expenses 2,410,910 2,665,121 2,477,926 2,749,403
Other Income
(Expense) (1) 117,869 (565,644) (1,187,292) (1,718,438)
Net Income 2,754,883 2,086,532 1,788,748 1,042,472
Net Income per Share .18 .13 .11 .05
FISCAL 2003 12/31/02 3/31/03 6/30/03 9/30/03
Rental and Occupancy
Charges $4,653,072 $4,648,203 $5,109,109 $5,230,727
Total Expenses 2,094,910 2,236,314 2,399,152 2,701,624
Other income
(Expense) (1,119,734) (1,269,760) (679,046) (1,020,228)
Net Income 1,438,428 1,142,129 2,030,911 1,508,875
Net Income Per Share .12 .08 .14 .10
(1) Fluctuations are due to level of gains on securities transactions
recognized in the respective quarters.
Page 28
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A - CONTROLS AND PROCEDURES
The Company's President and 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 Annual Report on Form 10-K. Based
on such evaluation, the Company's President and Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures are effective.
The Company's President and 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.
ITEM 9B - OTHER INFORMATION
None
Page 29
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the Directors and Executive Officers of the Company as of
September 30, 2004:
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Since
Directorships
____ ___ _____________ ________
Anna T. Chew 46 Chief Financial Officer (1991 to N/A
present) Certified Public
Accountant. Director (1991-2004).
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 Capital Corporation,
an affiliated company.
Daniel D. 50 Director. Attorney at Law (1982 to 1989
Cronheim present); Executive Vice
President (1989 to present) and
General Counsel (1983 to present)
of David Cronheim Company.
President (1997 to present) of
David Cronheim Mortgage Company;
President (2000 to present) of
Cronheim Management Services, Inc.
and Director (2000 to present) of
Hilltop Community Bank.
Neal Herstik 45 Attorney at Law, Gross, Truss & 2004
Herstik, PC (1997 to present);
Director of Monmouth Capital
Corporation (2002 to present);
First Vice President, Marlboro
Community Players, Inc., a non-
profit corporation (2000 to 2002);
Co-founder and former President,
Manalapan-Englishtown Education
Foundation, Inc., a non-profit
corporation (1995 to 2001).
Matthew I. 45 Director. Attorney at law (1985 2000
Hirsch to present); Adjunct Professor of
Law (1993 to present) Widener
University School of Law.
Page 30
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Since
Directorships
____ ___ _____________ _______
Eugene W. Landy 70 President (1968 to present) and 1968
Director. Attorney at Law;
President and Director (1961 to
present) of Monmouth Capital
Corporation, an affiliated
company; Chairman of the Board
(1995 to present), President (1969
to present) of United Mobile
Homes, Inc., an affiliated
company.
Michael P. Landy 42 Vice President - Investments. N/A
Executive Vice President (2001 to
present) of Monmouth Capital
Corporation, an affiliated
company; Vice President -
Investments (2001 to present) of
United Mobile Homes, Inc., an
affiliated company, President
(1998 to 2001) of Siam Records,
LLC; Chief Engineer and
Technical Director (1987 to 1998)
of GRP Recording Company.
Samuel A. Landy 44 Director. Attorney at Law (1985 1989
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 (1994 to 2004) of
Monmouth Capital Corporation, an
affiliated company.
Cynthia J. 35 Executive Vice President and 2002
Morgenstern Director. Vice President (1996 to
2001) Summit Bank, Commercial Real
Estate Division.
John R. Sampson 50 Director. Managing Director and 1001
co-founder, Kalorama Partners,
LLC, a strategic consulting
company (2003 to present); Senior
Portfolio Manager (1998 to 2002)
at Fox Asset Management, LLC, a
registered investment advisor that
manages equity, fixed income and
balanced portfolios; Principal
(1995 to 1998) at Pharos
Management and Principia Partners
LLC, which specialize in fixed
income consulting and research for
the securities industry.
Page 31
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Present Position with the Company;
Business Experience During Past Director
Name Age Five Years; Other Since
Directorships
____ ___ _____________ ________
Maureen E. 35 Controller (2003 to present) and N/A
Vecere Treasurer (2004 to present).
Certified Public Accountant; Audit
Manager (1996-2003), KPMG LLP.
Controller (2003 to present) and
Treasurer (2004 to present) of
Monmouth Capital Corporation, an
affiliated company
Peter J. 57 Director. Investor; Director 2001
Weidhorn (2000-2003) of real estate
acquisitions at Kushner Companies;
Chairman of the Board,
President/CEO (1998-2000) WNY
Group, Inc. a real estate
investment trust that owned and
operated 8,000 apartments prior to
its sale to the Kushner Companies;
Director BNP Residential
Properties, Inc. (2001 to present)
Director of The Community
Development Trust, Inc. (2003 to
present); Trustee of the
CentraState Healthcare Foundation,
Inc. and Vice Chairman and Trustee
of the Union for Reform Judaism.
Stephen B. 50 Director. Principal of U.S. Real 2003
Wolgin Estate Advisors, Inc. (2000 to
present), a real estate advisory
services group based in New York;
Principal of the Wolgin Group
(2000-2003); prior affiliations
with J.P. Morgan, Odyssey
Associates, The Prudential Realty
Group, Standard & Poor's
Corporation, and Grubb and Ellis.
Family Relationships
There are no family relationships between any of the Directors or
executive officers, except that Samuel A. Landy and Michael P. Landy are the
sons of Eugene W. Landy, the President and a Director of the Company.
Audit Committee
The Company's Board of Directors has determined that at least one
member of the Audit Committee is a financial expert.
Page 32
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(CONT'D)
The Company has a separately-designated standing audit committee
established in accordance with section 3 (a)(58)(A) of the Exchange Act (15
U.S.C. 78c(a)(58)(A)). The members of the audit committee are Peter J. Weidhorn
(Chairman), Matthew I. Hirsch, and Stephen B. Wolgin.
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.mreic.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 or
accrued by the Company for services rendered during 2004, 2003 and 2002 to the
President and Chief Executive Officer and Executive Vice President. There were
no other executive officers whose aggregate cash compensation allocated to the
Company exceeded $100,000:
Annual Compensation
Name and Principal Fiscal Salary Bonus Options
Position Year Granted Other
_________________ _____ ______ _____ ______ _____
Eugene W. Landy 2004 $168,750 $15,000 65,000 $223,700(1)
Chairman of the
Board and 2003 150,000 30,000 65,000 94,000(1)
President 2002 150,000 30,000 65,000 75,300(1)
Cynthia J.
Morgenstern 2004 $156,250 $12,654 50,000 $ 20,916(2)
Executive Vice
President 2003 139,077 9,615 -0- 21,905(2)
2002 121,250 8,462 50,000 6,438(2)
(1) Represents Director's fees of $16,000, $17,500 and
$16,300 for 2004, 2003 and 2002, respectively, paid to Mr. Landy; accrual for
pension and other benefits of $190,200, $59,000 and $59,000 for 2004, 2003 and
2002, respectively, in accordance with Mr. Landy's employment contract; and
legal fees of $17,500, $17,500 and $0 for 2004, 2003 and 2002,
respectively.
(2) Represents Director's fees and discretionary contributions by the Company
to the Company's 401(k) Plan allocated to an account of the named executive
officer.
Page 33
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
Stock Option Plan
The following table sets forth, for the executive officers named in
the Summary Compensation Table, information regarding individual grants of stock
options made during the year ended September 30, 2004:
Potential
Realized
Percent Price Value at
Assumed Annual
Options Granted Per Expiration Rates for
to Option Terms
Name Granted Employees Share Date 5% 10%
____ _______ _________ _____ ____ __ ___
Eugene W.
Landy 65,000 27% $7.89 8/3/12 $234,300 $571,200
Cynthia J.
Morgenstern 50,000 21% 7.41 5/20/12 230,000 550,800
The following table sets forth for the executive officers named in the
Summary Compensation Table, information regarding stock options outstanding at
September 30, 2004:
Number of Value of
Unexercised Unexercised
Options at Year- Options
Shares Value End At Year-End
Name Exercised Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
____ _________ ________ _____________ _____________
Eugene W.
Landy 65,000 357,500 195,000/65,000 $274,625/$29,250
Cynthia
Morgenstern 50,000 356,500 -0-/50,000 $-0-/$46,500
Employment Agreements
On January 1, 2004, Eugene W. Landy's Employment Agreement with the Company
was amended to extend for five years to December 31, 2009. Mr. Landy's amended
Employment Agreement provides for (1) an increase in his annual base
compensation from $150,000 to $175,000; (2) an increase in his severance payment
from $300,000 payable $100,000 a year for three years to $500,000 payable
$100,000 a year for five years; and (3) an increase from $40,000 a year to
$50,000 a year of his pension benefits; and (4) an extension of three years of
his pension payments commencing January 1, 2004. Mr. Landy receives bonuses and
customary fringe benefits, including health insurance and five weeks vacation.
Additionally, there will be bonuses voted by the Board of Directors. The
Employment Agreement is terminable by either party at any time subject to
certain notice requirements.
Page 34
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
Effective January 15, 2004, the Company and Cynthia J. Morgenstern entered
into a three-year employment agreement under which Ms. Morgenstern receives an
annual base salary of $160,000, increasing to $176,000 in 2005 and to $194,000
in 2006, plus bonuses and customary fringe benefits, including health insurance,
four weeks vacation and the use of an automobile. If there is a voluntary or
involuntary termination of employment, due to merger or change in control, Ms.
Morgenstern, shall be entitled to receive one year's compensation at the date of
termination. In the event of her disability, her salary will continue for a
period of two years. The agreement was amended on September 16, 2004 to
purchase disability insurance for Ms. Morgenstern. In the event of a disability
exceeding 90 days Ms. Morgenstern will receive lost wages from the disability
policy, not her salary for two years.
Other Information
Effective April 1, 2002, the Directors receive a fee of $1,500 for
each Board Meeting attended, and an additional fixed annual fee of $10,000
payable quarterly. Directors appointed to house committees receive $150 for
each meeting attended. Those specific committees are Nominating Committee,
Compensation Committee, Audit Committee and Stock Option Committee.
Except as provided in the specific agreements described above, the Company
has no pension or other post-retirement plans in effect for Officers, Directors
or employees and, at present, has no intention of instituting such plans.
Daniel D. Cronheim is a Director of the Company and Executive Vice
President of David Cronheim Company. The David Cronheim Company received
$132,185, $14,377 and $20,194 in lease commissions in 2004, 2003 and 2002,
respectively. Cronheim Management Services, a division of David Cronheim
Company, received the sum of $299,392, $258,626 and $245,597 in 2004, 2003 and
2002, respectively for management fees. In 1998, the Company entered into a new
management contract with Cronheim Management Services. Under this contract,
Cronheim Management Services receives 3% of gross rental income on certain
properties for management fees. Cronheim Management Services provides sub-
agents as regional managers for the Company's properties and compensates them
out of this management fee. Management believes that the aforesaid fees are no
more than what the Company would pay for comparable services elsewhere.
Report of Board of Directors on Executive Compensation
Overview and Philosophy
The Company has a Compensation Committee consisting of two independent
outside Directors. This Committee is responsible for making recommendations to
the Board of Directors concerning compensation. The Compensation Committee
takes into consideration three major factors in setting compensation.
Page 35
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
The first consideration is the overall performance of the Company.
The Board 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. Increases in funds from operations, the enhancement of the
Company's equity portfolio, and the success of the Dividend Reinvestment and
Stock Purchase Plan all contribute to increases in stock prices, thereby
maximizing shareholders' return.
The second consideration is the individual achievements made by each
officer. The Company is a small real estate investment trust (REIT). The Board
of Directors is aware of the contributions made by each officer and makes an
evaluation of individual performance based on their own familiarity with the
officer.
The final criterion in setting compensation is comparable wages in the
industry. In this regard, the REIT industry maintains excellent statistics.
Evaluation
The Company's funds from operations continue to increase. The
Committee reviewed the growth of the Company and progress made by Eugene W.
Landy, Chief Executive Officer and whether his accomplishments met the bonus
goals outlined in his employment contract. His base compensation under his
amended contract was increased in 2004 to $175,000 per year, and his bonus for
2004 was $15,000.
Compensation Committee:
Matthew I.Hirsch
Stephen P.Wolgin
Page 36
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
Comparative Stock Performance
The following line graph compares the total return of the Company's
common stock for the last five fiscal years to the NAREIT All REIT Total Return
Index, published by the National Association of Real Estate Investment Trusts
(NAREIT), and the S&P 500 Index for the same period. 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
Real Estate
Investment
Year Corporation NAREIT S&P 500
1999 100 100 100
2000 106 126 91
2001 142 145 80
2002 176 153 62
2003 220 212 80
2004 242 241 81
Page 37
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table lists information with respect to the beneficial
ownership of the Company's Common Stock (the Shares) as of September 30, 2004
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 Real
Estate Investment 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 September 30, 2004 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.
Amount and Percentage
Name and Address Nature of Shares
of Beneficial Owner of Beneficial Outstanding (2)
Ownership (1)
___________________ _____________ ____________
Teachers' Insurance and 1,000,000 5.78%
Annuity Association
730 Third Avenue, 11th
Floor
New York, New York 10017
Oakland Financial 1,224,787 (3) 7.08%
Corporation
34200 Mound Road
Sterling Heights, MI
48310
Palisades Capital 1,375,491 7.96%
Management LLC
One Bridge Plaza
Suite 695
Fort Lee, NJ 07027
Page 38
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONT'D)
Amount and
Name and Address Nature Percentage
of Beneficial Owner of Beneficial of Shares
Ownership (1) Outstanding(2)
_____________________ _____________ ______________
Anna T. Chew 99,116 (4) 0.57%
Daniel D. Cronheim 63,390 (5) 0.37%
Neal Herstik 200 (6) 0.001%
Matthew I. Hirsch 46,356 (7) 0.27%
Eugene W. Landy 1,131,284 (8) 6.47%
Michael P. Landy 74,843 (9) 0.43%
Samuel A. Landy 236,576 (10) 1.37%
Cynthia J. Morgenstern 57,160 (11) 0.33%
John R. Sampson 36,204 (12) 0.21%
Maureen E. Vecere 60 (13) 0.00%
Peter J. Weidhorn 55,370 0.32%
Stephen B. Wolgin 2,686 (14) 0.02%
Directors and Officers as
a Group 1,803,245 10.25%
(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 September 30, 2004 which was
17,290,323.
(3)Oakland Financial Corporation (Oakland), Liberty Bell Agency, Inc.
(Liberty Bell), and Cherokee Insurance Company (Cherokee) has the following
holdings as of June 30, 2004. Oakland owns 48,425 Shares, Liberty Bell owns
547,679 Shares and Cherokee owns 601,239 Shares, and Matthew T. Moroun owns
27,444 Shares. Amendment No. 3 to Schedule 13-D dated April 4, 2004, filed
with the SEC by Oakland, indicates that Oakland shares voting and dispositive
power with respect to those Shares with Liberty Bell and Cherokee, both of
which are wholly-owned subsidiaries of Oakland. Matthew T. Moroun is the
Chairman of the Board and controlling stockholder of Oakland, Liberty Bell
and Cherokee.
Page 39
ITEM 12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (CONT'D)
(4)Includes (a) 36,493 Shares owned jointly with Ms. Chew's husband; and (2)
12,623 Shares held in Ms. Chew's 401(k) Plan. Includes 50,000 Shares
issuable upon exercise of a Stock Option. Excludes 50,000 Shares issuable
upon exercise of a Stock Option, which Stock Option is not exercisable until
May 21, 2005.
(5)Includes 15,000 Shares issuable upon exercise of a Stock Option.
(6)Excludes 5,000 shares issuable upon exercise of a Stock Option, which Stock
Option is not exercisable until May 21, 2005.
(7)Owned jointly with Mr. Hirsch's wife. Includes 14,000 Shares issuable upon
exercise of a Stock Option.
(8)Includes 89,106 Shares owned by Mr. Landy's wife; (b) 161,764 Shares held in
the Landy & Landy Employees' Profit Sharing Plan of which Mr. Landy is a
Trustee with power to vote; (c) 126,585 Shares held in the Landy & Landy
Employees' Pension Plan of which Mr. Landy is a Trustee with power to vote;
and (d) 60,000 Shares held in the Eugene W. and Gloria Landy Family
Foundation, a charitable trust, of which Mr. Landy has power to vote.
Includes 195,000 shares issuable upon exercise of Stock Options. Excludes
65,000 Shares issuable upon exercise of a Stock Option, which Stock Option is
not exercisable until August 3, 2005.
(9)Includes 8,645 Shares owned by Mr. Landy's wife; and (b) 57,257 Shares held
in custodial accounts for Mr. Landy's minor children under the New Jersey
Uniform Transfer to Minors Act in which he disclaims any beneficial interest
but has power to vote.
10)Includes 6,883 Shares owned by Mr. Landy's wife; (b) 77,358 Shares held in
custodial accounts for Mr. Landy's minor children under the New Jersey
Uniform Transfer to Minors Act in which he disclaims any beneficial interest
but has power to vote; (c) 1,000 Shares held in the Samuel Landy Family
Limited Partnership and; (d) 32,064 Shares held in Mr. Landy's 401(k) Plan.
Includes 15,000 Shares issuable upon exercise of a Stock Option.
(11)Includes 1,002 Shares held in Ms. Morgenstern's 401(k) Plan. Excludes
50,000 Shares issuable upon exercise of a Stock Option, which Stock Option is
not exercisable until May 21, 2005.
(12) Includes 2,000 Shares held in custodial accounts for Mr. Sampson's minor
children under the New Jersey Uniform Gifts to Minors Act in which he
disclaims any beneficial interest but has power to vote. Includes 20,000
Shares issuable upon exercise of a Stock Option.
(13)Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock
Option is not exercisable until May 21, 2005.
(14)Excludes 5,000 shares issuable upon exercise of a Stock Option, which Stock
Option is not exercisable until May 21, 2005.
There are no equity compensation plans other than the 1997 Stock
Option Plan. See Note 7 in the notes to the Consolidated Financial Statements
for a description of that plan.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are incorporated
herein by reference to Item 15 (a) (1) (vi) Note 9 of the Notes to the
Consolidated Financial Statements - Related Party Transactions.
Page 40
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
KPMG LLP (KPMG) served as the Company's independent auditors for the years
ended September 30, 2004 and 2003. The following are the fees billed by KPMG in
connection with services rendered:
2004 2003
____ ____
Audit Fees $59,000 $73,000
Audit Related Fees -0- -0-
Tax Fees 38,500 39,500
All Other Fees -0- -0-
_______ ________
Total Fees $97,500 $112,500
====== =======
Audit fees include professional services rendered by KPMG 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 KPMG 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 KPMG 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 $10,000 in the aggregate.
The Audit Committee has determined that the provision of the non-audit
services described above is compatible with maintaining KPMG's independence.
Page 41
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PAGE(S)
_______
(a) (1) The following Financial Statements are filed as
part of this report:
(i) Report of Independent Registered Public Accounting 45
Firm
(ii) Consolidated Balance Sheets as of September 30, 2004 and 46
2003
(iii) Consolidated Statements of Income for the years
Ended September 30, 2004, 2003 and 2002 47
(iv) Consolidated Statements of Shareholders' Equity for the
years ended September 30, 2004, 2003 and 2002 48-49
(v) Consolidated Statements of Cash Flows for the years ended
September 30, 2004, 2003 and 2002 50
(vi) Notes to the Consolidated Financial Statements 51-76
(a) (2) The following Financial Statement Schedule is filed
as part of this report:
(i) Schedule III - Real Estate and Accumulated
Depreciation as of September 30, 2004 77-79
All other schedules are omitted for the reason that they are not
required, are not applicable, or the required information is set forth in the
Consolidated Financial Statements or Notes hereto.
Page 42
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(3) Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession
(i) Reference is hereby made to the Agreement and Plan
of Merger dated April 23, 1990 by and between
Monmouth Real Estate Investment Trust and Monmouth
Real Estate Investment Corporation filed with The
Securities and Exchange Commission on April 3, 1990
on Form S-4 (Registration No. 33-34103).
(ii) Reference is hereby made to the Agreement and Plan
of Merger dated March 24, 2003 by and between MREIC
Maryland, Inc., a Maryland corporation ("Monmouth
Maryland"), and Monmouth Real Estate Investment
Corporation, a Delaware corporation ("Monmouth
Delaware") filed with The Securities and Exchange
Commission on April 7, 2003 in the 2002 proxy
(Registration No. 000-04258).
(3) Articles of Incorporation and By-Laws
(i) Reference is hereby made to the Articles of
Incorporation of MREIC Maryland, Inc. filed with The
Securities and Exchange Commission on April 7, 2003
in the 2002 proxy (Registration No. 000-04258).
(ii) Reference is hereby made to the Bylaws of MREIC
Maryland, Inc. filed with the Securities and
Exchange Commission on April 7, 2003 in the 2002
proxy (Registration No. 000-04258).
(10) Material Contracts
(i) Employment Agreement with Mr. Eugene W. Landy dated
December 9, 1994 is incorporated by reference to
that filed with the Company's Form 10-K filed with
The Securities and Exchange Commission on December
28, 1994.
(ii) Amendment to Employment agreement with Mr. Eugene
W. Landy dated November 5, 2003 is incorporated by
reference to that filed with the Securities Exchange
Committee on April 1, 2004 in the 2004 proxy
(Registration No. 000-04248).
(iii) Employment Agreement with Mr. Ernest V. Bencivenga
dated November 9, 1993 is incorporated by reference
to that filed with the Company's Form 10-K filed
with The Securities and Exchange Commission on
December 28, 1994.
(iv) Employment Agreement with Cynthia J. Morgenstern
dated January 15, 2004, as amended September 16,
2004.
(14) Code of Business Conduct and Ethics.
Page 43
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(23) Consent of KPMG LLP.
(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 to18 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.
(99) Audit Committee Charter
Page 44
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Monmouth Real Estate Investment Corporation:
We have audited the consolidated financial statements of Monmouth Real Estate
Investment Corporation and subsidiary as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 Real Estate
Investment Corporation and subsidiary as of September 30, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 2004, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
/s/ KPMG LLP
Short Hills, New Jersey
December 3, 2004
Page 45
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30,
ASSETS 2004 2003
Real Estate Investments:
Land $ 30,426,213 $ 25,426,213
Buildings, Improvements and
Equipment, net of Accumulated
Depreciation of $21,475,811 and
$17,429,990, respectively 136,453,595 127,344,122
___________ ___________
Total Real Estate Investments 166,879,808 152,770,335
Cash and Cash Equivalents 925,015 1,070,556
Securities Available for Sale at
Fair Value 23,084,270 25,421,551
Interest and Other Receivables 1,441,827 1,364,885
Prepaid Expenses 87,816 117,450
Financing Costs - Net of Accumulated
Amortization 1,287,731 1,193,157
Lease Costs - Net of Accumulated
Amortization 254,792 108,539
Investments in Hollister '97, LLC 900,399 900,399
Other Assets 360,511 227,002
___________ ___________
TOTAL ASSETS $ 195,222,169 $ 183,173,874
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage Notes Payable $ 97,530,963 $ 90,909,299
Loans Payable 2,623,099 12,324,926
Other Liabilities 2,160,267 1,626,360
___________ ___________
Total Liabilities 102,314,329 104,860,585
___________ ___________
Shareholders' Equity:
Common Stock - $.01 Par Value,
20,000,000 Shares Authorized;
17,290,323 and 15,090,649 Shares
Issued and Outstanding as of
September 30, 2004 and 2003
respectively 172,903 150,906
Excess Stock - $.01 Par Value,
5,000,000 Shares Authorized; No
Shares Issued or Outstanding -0- -0-
Additional Paid-In Capital 92,262,871 76,657,545
Accumulated Other Comprehensive
Income 1,688,004 2,829,839
Loans to Officers, Directors and
Key Employees (1,215,938) (1,325,001)
Undistributed Income -0- -0-
___________ ___________
Total Shareholders' Equity 92,907,840 78,313,289
___________ __________
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 195,222,169 $ 183,173,874
=========== ===========
See Accompanying Notes to the Consolidated Financial Statements
Page 46
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30,
2004 2003 2002
INCOME:
Rental and Occupancy
Charges $21,329,500 $19,641,111 $16,118,137
___________ ___________ ___________
EXPENSES:
Management Fees 299,392 258,626 245,597
Real Estate Taxes 3,024,887 2,723,815 1,964,108
Professional Fees 90,851 278,823 202,316
Operating Expenses 924,825 904,316 768,779
Office and General
Expense 1,726,878 1,517,624 1,165,128
Director Fees 190,706 188,650 165,100
Depreciation 4,045,821 3,560,146 2,941,097
___________ ___________ ___________
TOTAL EXPENSES 10,303,360 9,432,000 7,452,125
___________ ___________ ___________
OTHER INCOME
(EXPENSE):
Interest and Dividend
Income 1,801,107 1,688,448 1,027,220
Gains on Securities
Transactions, net 1,714,395 1,018,862 909,704
Income from Equity
Investment 110,000 110,000 110,000
Interest Expense (6,979,007) (6,906,078) (6,059,415)
___________ ___________ ___________
TOTAL OTHER INCOME
(EXPENSE) (3,353,505) (4,088,768) (4,012,491)
___________ ___________ ___________
Income Before Loss 7,672,635 6,120,343 4,653,521
Loss on Sale of
Assets-Investment
Property -0- -0- (175,376)
___________ ___________ ___________
NET INCOME $ 7,672,635 $ 6,120,343 $ 4,478,145
========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 16,206,433 13,844,056 11,177,294
========== ========== ==========
Diluted 16,290,284 13,872,650 11,196,388
========== ========== ==========
PER SHARE INFORMATION:
Income Before Loss $ .47 $ .44 $ .42
Loss on Sale of
Assets -
Investment Property -0- -0- (.02)
__________ __________ __________
NET INCOME - PER SHARE
BASIC AND DILUTED $ .47 $ .44 $ .40
========== ========== ==========
See Accompanying Notes to the Consolidated Financial Statements
Page 47
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003, AND 2002
Loans to
Officers,
Additional Directors
Common Stock Issued Paid-In And Key
Number Amount Capital Employees
Balance September
30, 2001 10,264,728 $102,647 $48,284,847 $ -0-
Shares Issued in
Connection
With the Dividend
Reinvestment and 1,613,020 16,130 10,519,181 -0-
Stock
Purchase Plan
Shares Issued
through the
Exercise of Stock
Options
Distributions 255,000 2,550 1,614,938 (1,439,363)
Payments on Loans to
Officers, -0- -0- (2,030,205) -0-
Directors and
Key Employees -0- -0- -0- 89,362
Net Income -0- -0- -0- -0-
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment -0- -0- -0- -0-
___________ _________ __________ __________
Balance September
30, 2002 12,132,748 121,327 58,388,761 (1,350,001)
Shares Issued in
Connection
with the Dividend
Reinvestment and
Stock Purchase
Plan 1,691,148 16,911 11,870,958 -0-
Shares Issued in
Connection with a
Private Placement
(net of offering
costs of $106,826) 1,257,253 12,573 8,205,502 -0-
Shares Issued
through the
Exercise of Stock
Options 9,500 95 52,780 -0-
Distributions -0- -0- (1,867,281) -0-
Payments on Loans to
Officers,
Directors and
Key Employees -0- -0- -0- 25,000
Net Income -0- -0- -0- -0-
Stock Based
Compensation
Expense -0- -0- 6,825 -0-
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment -0- -0- -0- -0-
___________ _________ ___________ ___________
Balance September
30, 2003 15,090,649 150,906 76,657,545 (1,325,001)
Shares Issued in
Connection with the
Dividend
Reinvestment and
Stock Purchase Plan 1,568,174 15,682 12,516,859 -0-
Shares Issued in
Connection with a
Private Placement
(net of offering
costs of $67,993 500,000 5,000 3,977,007 -0-
Shares Issued
through the
Exercise of Stock
Options 131,500 1,315 829,390 -0-
Distributions -0- -0- (1,754,280) -0-
Payments on Loans to
Officers, Directors
and
Key Employees -0- -0- -0- 109,063
Net Income -0- -0- -0- -0-
Stock Based
Compensation
Expense -0- -0- 36,350 -0-
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment -0- -0- -0- -0-
___________ _________ ___________ ____________
Balance September
30, 2004 17,290,323 $172,903 $92,262,871 $(1,215,938)
========== ======== =========== ===========
See Accompanying Notes to the Consolidated Financial Statements
Page 48
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATE STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002, CONT'D.
Accumulated
Other
Undistributed Comprehensive Comprehensive
Income Income (Loss) Income
_____________ _______________ _____________
Balance September
30, 2001 $ -0- $ 1,542,045
Shares Issued in
Connection with
the Dividend
Reinvestment and
Stock Purchase
Plan -0- -0-
Shares Issued
through the
Exercise of Stock
Options -0- -0-
Distributions (4,478,145) -0-
Payments on Loans
to Officers,
Directors and Key
Employees -0- -0-
Net Income 4,478,145 -0- $ 4,478,145
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment
-0- 302,884 302,884
____________ __________ __________
Balance September
30, 2002 -0- 1,844,929 $ 4,781,029
==========
Shares Issued in
Connection with
the Dividend
Reinvestment and
Stock Purchase
Plan -0- -0-
Shares Issued in
Connection with
a Private
Placement (net of
offering costs of
$106,826) -0- -0-
Shares Issued
through the
Exercise of Stock
Options -0- -0-
Distributions (6,120,343) -0-
Payments on Loans
to Officers,
Directors and Key
Employees -0- -0-
Net Income 6,120,343 $ 6,120,343
Stock Based
Compensation
Expense -0- -0-
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment
-0- 984,910 984,910
__________ __________ __________
Balance September
30, 2003 -0- 2,829,839 $ 7,105,253
==========
Shares Issued in
Connection with
the Dividend
Reinvestment and
Stock Purchase
Plan -0- -0-
Shares Issued in
Connection with
a Private
Placement (net of
offering costs
of $67,993) -0- -0-
Shares Issued
through the
Exercise of Stock
Options -0- -0-
Distributions (7,672,635) -0-
Payments on Loans
to Officers,
Directors and Key
Employees -0- -0-
Net Income 7,672,635 -0- $7,672,635
Stock Based
Compensation
Expense -0- -0-
Unrealized Net
Holding Gains on
Securities
Available for Sale
Net of
Reclassification
Adjustment -0- (1,141,835) (1,141,835)
__________ __________ __________
Balance September
30, 2004 $ -0- $ 1,688,004 $ 6,530,800
============ ========== ==========
See Accompanying Notes to the Consolidated Financial Statements
Page 49
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
2004 2003 2002
_____ _____ _____
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $ 7,672,635 $ 6,120,343 $ 4,478,145
Noncash Items Included in
Net Income:
Depreciation 4,045,821 3,560,146 2,941,097
Amortization 280,205 253,786 187,323
Stock Based Compensation
Expense 36,350 6,825 -0-
Loss on Sales of Assets-
Investment Property -0- -0- 175,376
Gains on Securities
Transactions, Net (1,744,630) (1,018,862) (909,704)
Changes in:
Interest & Other
Receivables (76,942) (455,651) (62,104)
Prepaid Expenses 29,634 (79,776) 15,583
Other Assets and Lease
Costs (391,570) 723,574 (170,304)
Other Liabilities 533,907 615,513 136,631
__________ _________ _________
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 10,385,410 9,725,898 6,792,043
__________ _________ _________
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Real Estate (17,656,561) (26,200,000) (31,400,000)
Capital Improvements &
Purchases of Equipment (498,733) (1,023,225) (120,915)
Proceeds from Sale of
Assets-Investment -0- -0- 2,019,270
Property
Purchase of Securities
Available for Sale (8,033,630) (16,286,262) (5,706,901)
Proceeds from Sale of
Securities Available for
Sale 10,973,706 8,092,425 4,643,905
__________ __________ __________
NET CASH USED IN INVESTING
ACTIVITIES (15,215,218) (35,417,062) (30,564,641)
___________ __________ __________
CASH FLOW FROM FINANCING
ACTIVITIES
Proceeds from Mortgages 12,800,000 19,100,000 23,350,000
Proceeds from Loans 19,704,069 20,972,865 16,070,530
Principal Payments on
Mortgages (6,178,336) (6,410,864) (5,554,591)
Principal Payments of
Loans (29,405,896) (19,423,406) (13,500,024)
Financing Costs on Debt (262,971) (366,642) (341,772)
Proceeds from Issuance of
Common Stock 12,982,710 16,777,987 8,271,484
Proceeds from Exercise of
Options 830,705 52,875 178,125
Dividends Paid (5,895,077) (4,659,667) (4,244,523)
Payments on Loans to
Officers, Directors and
Key Employees 109,063 25,000 89,362
__________ __________ __________
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 4,684,267 26,068,148 24,318,591
__________ __________ __________
Net (Decrease) Increase in
Cash and Cash Equivalents (145,541) 376,984 545,993
Cash and Cash Equivalents at
Beginning of Year 1,070,556 693,572 147,579
__________ __________ __________
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 925,015 $ 1,070,556 $ 693,572
========== ========== ==========
See Accompanying Notes to the Consolidated Financial Statements
Page 50
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Monmouth Real Estate Investment Corporation and its wholly-owned
subsidiary, MRC I LLC (the Company) operates as a real estate investment trust
(REIT) deriving its income primarily from real estate rental operations. As of
September 30, 2004 and 2003, rental properties consist of thirty-four and
thirty-three commercial holdings, respectively. These properties are located
in New Jersey, New York, Pennsylvania, North Carolina, Mississippi,
Massachusetts, Kansas, Iowa, Missouri, Illinois, Michigan, Nebraska, Florida,
Virginia, Ohio, Connecticut, Wisconsin, Maryland and Arizona. The Company also
owns a portfolio of investment securities.
On May 15, 2003, Monmouth Real Estate Investment Corporation changed
its state of incorporation from Delaware to Maryland (the Reincorporation).
Use of Estimates
In preparing the financial statements, management is required to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
Principles of Consolidation
The consolidated financial statements include the Company and its
wholly-owned subsidiary. The Company formed a wholly-owned subsidiary, MRC I,
LLC (a Wisconsin limited liability company) in 2001, to purchase the Cudahy,
Wisconsin property. All intercompany transactions and balances have been
eliminated in consolidation.
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 lives of the assets utilizing a
half-year convention in the year of purchase. These lives range from 5 to 40
years. The Company accounts for its undivided interest in the Somerset, NJ
property based upon its pro rata share of assets, liabilities, revenues and
expenses. 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 to fair
value, if necessary, to reflect an impairment in the value of the property.
Page 51
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Acquisitions
Upon acquisition of a property, the Company allocates the purchase price
of the property based upon the fair value of the assets acquired, which
generally consist of land, buildings, leasing commissions and intangible assets
including in-place leases and above market and below market leases. The Company
allocates the purchase price to the fair value of the tangible assets of an
acquired property determined by third party appraisal of the property obtained
in conjunction with the purchase. Acquired above and below market leases are
valued based on the present value of the difference between prevailing market
rates and the in-place rates over the remaining lease term.
The purchase price is further allocated to in-place lease values based on
management's evaluation of the specific characteristics of each tenant's lease
and the Company's overall relationship with the respective tenant. Acquired
above and below market leases are amortized over the remaining non-cancelable
terms of the respective leases. The value of in-place lease intangibles, which
is included as a component of Other Assets, is amortized to expense over the
remaining lease term. If a tenant terminates its lease early, the unamortized
portion of the tenant improvements, leasing commissions above and below market
leases and the in-place lease value is immediately charged to expense.
Investment in Hollister `97, LLC
The Company's 25% investment in Hollister `97, LLC is accounted for
under the equity method. Under the equity method, the initial investment is
recorded at cost. The carrying amount of the investment is increased or
decreased to reflect the Company's share of income or loss and is also reduced
to reflect any dividends received. An unrelated New Jersey limited partnership
owns the remaining 75%.
Securities Available for Sale
The Company classifies its securities among three categories: Held-to-
maturity, trading and available-for-sale. The Company's securities at September
30, 2004 and 2003 are all classified as available-for-sale and are carried at
fair value based on quoted market prices. Gains or losses on the sale of
securities are calculated based 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 would be charged to earnings and a new cost basis
for the security established.
Page 52
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Derivative Financial Instruments
During the current year, the Company invested in futures contracts of
ten-year treasury notes to reduce exposure of the debt securities portfolio to
market rate fluctuations. These futures contracts do not qualify for hedge
accounting under Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 138 and No. 149. The contracts are marked-to-market and the unrealized gain
or loss is recorded in the income statement in gain on securities transactions,
net with corresponding amounts recorded in other assets or other liabilities on
the balance sheet. Gain or loss on settled futures contracts are also recorded
as a component of gain on securities transactions, net.
Cash Equivalents
Cash equivalents consist of money market funds.
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.
Revenue Recognition
Rental income from tenants with leases having scheduled rental
increases are recognized on a straight-line basis over the term of the lease.
Leases typically provide for reimbursement of real estate taxes, insurance, and
other operating costs. These occupancy charges are recognized as earned.
Gains and Deferred Gains on Installment Sales
Gains on the sale of real estate investments are recognized by the
full accrual method when the criteria for the method are met. Generally, the
criteria are met when the profit on a given sale is determinable, and the seller
is not obliged to perform significant activities after the sale to earn the
profit. Alternatively, when the foregoing criteria are not met, the Company
recognizes gains by the installment method.
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
(16,206,433, 13,844,056 and 11,177,294 in 2004, 2003 and 2002, 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 (16,290,284, 13,872,650 and 11,196,388
in 2004, 2003
Page 53
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
and 2002, respectively). Options in the amount of 83,851, 28,594 and 19,094 are
included in the diluted weighted average shares outstanding for 2004, 2003 and
2002, respectively.
Stock Option Plan
Prior to October 1, 2002 the Company's stock option plan was accounted for
under the intrinsic value based method as prescribed by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". As
such, compensation expense was recorded on the date of grant only if the current
market price on the underlying stock exceeded the exercise price. Included in
Note 7 to these Consolidated Financial Statements are the assumptions and
methodology for the pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
detailed below which assumes the fair value based method of accounting had been
adopted for all periods presented.
The Company adopted the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock Based Compensation" on October 1, 2002. 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 $36,350 and $6,825 have been recognized in
2004 and 2003, respectively, as follows:
2004 2003 2002
______ _____ _____
Net income prior to stock
Based compensation expense $7,708,985 $6,127,168 $4,478,145
Stock based compensation
expense (36,350) (6,825) (-0-)
__________ __________ __________
Net income as reported 7,672,635 6,120,343 4,478,145
Compensation expenses if the
Fair value method had been
applied to grants in 2002 (-0-) (29,250) (20,840)
_________ ________ __________
Net Income Pro forma $7,672,635 $6,091,093 $4,457,305
========== ========= ==========
Net Income Per Share - As
Reported
Basic $ .47 $ .44 $ .40
Diluted
.47 .44 .40
Net Income Per Share - Pro
Forma
Basic $ .47 $ .44 $ .40
Diluted
.47 .44 .40
Page 54
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust
(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. The Company is subject to franchise taxes in some of
the states in which the Company owns property.
Comprehensive Income
Comprehensive income is comprised of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes items
that are otherwise recorded directly in equity, such as unrealized gains or
losses on securities available for sale.
Reclassifications
Certain amounts in the consolidated financial statements for the prior
years have been reclassified to conform to the financial statement presentation
for the current year.
Page 55
NOTE 2 - REAL ESTATE INVESTMENTS
The following is a summary of the cost and accumulated
depreciation of the Company's land, buildings, improvements and equipment
at September 30, 2004 and 2003:
Buildings,
Improvements, Accumulated
Land And Equipment Depreciation
September 30, 2004
NEW JERSEY;
Freehold
Corporate
Office Equipment $ -0- $ 50,469 $ 8,009
Ramsey Industrial
Building 52,639 1,358,148 788,787
Somerset (1) Shopping
Center 55,182 1,155,061 977,298
South Brunswick Industrial
Building 1,128,000 4,386,885 1,602,808
PENNSYLVANIA:
Monaca Industrial
Park 330,772 2,146,214 1,463,946
NEW YORK
Orangeburg Industrial
Building 694,720 2,977,372 1,122,575
NORTH CAROLINA:
Fayetteville Industrial
Building 172,000 4,485,245 860,041
Greensboro Industrial
Building 327,100 1,868,700 679,016
Monroe Industrial
Building 500,000 4,981,022 319,283
Winston-Salem Industrial
Building 980,000 5,610,000 359,600
MISSISSIPPI:
Jackson Industrial
Building 218,000 1,350,187 451,739
Richland Industrial
Building 211,000 1,267,000 322,666
MASSACHUSETTS:
Franklin Industrial
Building 566,000 4,148,000 1,116,725
KANSAS:
Wichita Industrial
Building 268,000 1,542,245 411,662
Edwardsville Industrial
Building 1,185,000 5,815,148 223,635
IOWA:
Urbandale Industrial
Building 310,000 1,760,736 473,428
MISSOURI:
Liberty Industrial
Building 723,000 6,510,546 1,085,004
O'Fallon Industrial
Building 264,000 3,309,000 804,526
St. Joseph Industrial
Building 800,000 11,753,964 1,054,790
VIRGINIA:
Industrial
Charlottesville Building 1,170,000 2,845,000 401,214
Richmond Industrial
Building 1,160,000 6,416,305 577,327
ILLINOIS:
Burr Ridge Industrial
Building 270,000 1,236,599 206,044
Schaumburg Industrial
Building 1,039,800 3,694,320 710,421
Granite City Industrial
Building 340,000 12,046,675 772,484
Elgin Industrial
Building 1,280,000 5,529,488 354,440
MICHIGAN:
Romulus Industrial
Building 531,000 ,665,961 612,845
FLORIDA:
Jacksonville Industrial
Building 1,165,000 4,682,029 661,442
Ft. Myers Industrial
Building 1,910,000 2,499,093 96,117
Tampa Industrial
Building 5,000,000 12,656,561 162,286
NEBRASKA:
Omaha Industrial
Building 1,170,000 4,425,500 624,081
OHIO:
Union Township Industrial
Building 695,000 4,362,353 398,753
CONNECTICUT:
Newington Industrial
Building 410,000 2,966,486 266,090
WISCONSIN:
Cudahy Industrial
Building 980,000 5,139,321 459,358
MARYLAND:
Beltsville Industrial
Building 3,200,000 5,958,773 534,742
ARIZONA:
Tolleson Industrial
Building 1,320,000 13,329,000 512,629
_________ __________ _________
Total at
September 30,
2004 $ 30,426,213 $ 157,929,406 $ 21,475,811
========== =========== ==========
(1) This represents the Company's 2/3 undivided interest in the property.
Page 56
NOTE 2 - REAL ESTATE INVESTMENTS, (CONT'D.)
Buildings,
Improvements, Accumulated
September 30, 2003 Land And Equipment Depreciation
NEW JERSEY:
Ramsey Industrial
Building $ 52,639 $ 1,358,148 $ 745,203
Somerset(1) Shopping
Center 55,182 1,152,220 932,992
South Brunswick Industrial 1,128,000 4,386,885 1,444,378
Building
PENNSYLVANIA:
Monaca Industrial 330,772 2,106,056 1,366,207
Park
NEW YORK:
Orangeburg Industrial 694,720 2,977,373 1,028,039
Building
NORTH CAROLINA:
Fayetteville Industrial 172,000 4,485,245 745,055
Building
Greensboro Industrial 327,100 1,853,700 615,757
Building
Monroe Industrial 500,000 4,981,022 191,570
Building
Winston-Salem Industrial 980,000 5,610,000 215,760
Building
MISSISSIPPI:
Jackson Industrial 218,000 1,340,001 404,543
Building
Richland Industrial 211,000 1,195,000 291,095
Building
MASSACHUSETTS:
Franklin Industrial 566,000 4,148,000 1,010,371
Building
KANSAS:
Wichita Industrial 268,000 1,542,245 371,121
Building
Edwardsville Industrial 1,185,000 5,815,148 74,535
Building
IOWA:
Urbandale Industrial 310,000 1,760,736 428,283
Building
MISSOURI:
Liberty Industrial 723,000 6,510,546 918,074
Building
O'Fallon Industrial 264,000 3,309,000 719,686
Building
St. Joseph Industrial 800,000 11,753,964 753,422
Building
VIRGINIA:
Charlottesville Industrial 1,170,000 2,845,000 328,266
Building
Richmond Industrial 1,160,000 6,416,305 412,291
Building
ILLINOIS:
Burr Ridge Industrial 270,000 1,236,599 174,338
Building
Schaumburg Industrial 1,039,800 3,694,320 615,699
Building
Granite City Industrial 340,000 12,046,675 463,412
Building
Elgin Industrial 1,280,000 5,529,488 212,664
Building
MICHIGAN:
Romulus Industrial 531,000 3,665,961 518,850
Building
FLORIDA:
Jacksonville Industrial 1,165,000 4,671,136 539,208
Building
Ft. Myers Industrial 1,910,000 2,499,093 32,040
Building
NEBRASKA:
Omaha Industrial 1,170,000 4,425,500 510,614
Building
OHIO:
Union Township Industrial 695,000 4,150,873 299,977
Building
CONNECTICUT:
Newington Industrial 410,000 2,966,486 189,804
Building
WISCONSIN:
Cudahy Industrial 980,000 5,053,615 323,903
Building
MARYLAND:
Beltsville Industrial 3,200,000 5,958,773 381,959
Building
ARIZONA
Tolleson Industrial 1,320,000 13,329,000 170,874
Building
___________ ___________ ___________
Total at $ 25,426, 213 $ 144,774,112 $ 17,429,990
September 30, 2003
=========== =========== ===========
(1) This represents the Company's 2/3 undivided interest in this
property.
Page 57
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
Fiscal 2004
On February 23, 2004, the Company purchased a 170,779 square foot
industrial building in Tampa, Florida. This building is 100% net-leased to
FedEx Ground Package System, Inc., a subsidiary of Federal Express Corporation
(FDX), for 15 years. The purchase price including closing costs was
approximately $17,657,000. The Company paid approximately $400,000 in cash,
obtained a mortgage of $12,800,000, and obtained $4,500,000 from its margin
loan. The mortgage payable is at a rate of 6% and matures on March 1, 2019.
Fiscal 2003
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 for 10 years. 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
for 10 years. 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
10 years. The purchase price was approximately $7,000,000. To fund this
purchase, the Company used approximately $2,050,000 of its revolving credit line
with Bank of America and assumed a mortgage of $4,950,000. This mortgage
payable is at an interest rate of 7.375% and is due in 2017.
NOTE 4 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company has approximately 3,734,000 square feet of property, of
which approximately 1,223,000 square feet or 33% is leased to Federal Express
Corporation and subsidiaries (14% to FDX and 19% to FDX subsidiaries) and
approximately 274,000 square feet, or 7%, is leased to Keebler Company. Rental
and occupancy charges from Federal Express
Page 58
NOTE 4 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK(CONT'D)
Corporation and subsidiaries totaled approximately $8,252,000, $7,205,000 and
$6,317,000 for the years ended September 30, 2004, 2003 and 2002, respectively.
Rental and occupancy charges from Keebler Company, (a subsidiary of the Kellogg
Company) totaled approximately $1,978,000, $2,281,000 and $2,159,000 for the
years ended September 30, 2004, 2003 and 2002, respectively. During 2004, 2003
and 2002, rental income and occupancy charges from properties leased to these
companies approximated 48%, 48%, 52% of total rental and occupancy charges,
respectively.
Information on these tenants is provided below. The information has
been obtained from sources believed to be reliable, but neither its accuracy nor
its completeness is guaranteed.
S&P Credit Rating at
Tenant September 30,2004
Federal Express
Corporation (FDX) BBB/Stable/NR
Kellogg Company (K) BBB+/Stable/A-2
NOTE 5 - SECURITIES AVAILABLE FOR SALE
Dividend income for the years ended September 30, 2004, 2003 and 2002
amounted to $1,693,650, $1,346,706 and $915,904, respectively. Interest income
for the years ended September 30, 2004, 2003 and 2002 amounted to $107,457,
$341,742 and $111,316, respectively.
The Company received proceeds of $10,973,706, $8,092,425, and $4,643,905,
on sales or redemptions of securities available for sale during 2004, 2003 and
2002, respectively. The Company recorded the following Gain on Securities
Transactions, net:
2004 2003 2002
____ ____ ____
Gross realized gains $2,078,697 $1,074,554 $976,544
Gross realized losses (2,971) (55,692) (66,840)
Net loss on closed futures
contracts (208,182) -0- -0-
Unrealized loss on open
futures contracts (30,235) -0- -0-
Impairment loss (122,914) -0- -0-
_________ _________ _________
Total Gain on Securities
Transactions, net $1,714,395 $1,018,862 $909,704
========== ========= =========
During September, 2004, the Company invested in futures contracts of ten-
year treasury notes with a notional amount of $9,000,000 with the objective of
reducing the exposure of the debt securities portfolio to market rate
fluctuations. Changes in the market value of these derivatives have been
recorded in gain on securities available for sale transactions, net with
corresponding amounts recorded in other liabilities on the balance sheet. The
fair value of the
Page 59
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
derivatives at September 30, 2004 was a loss of $30,235 and is included in gain
on securities transactions, net.
During 2004, the Company recorded a realized loss of $208,182 on settled
futures contracts, which is included in gain on securities transactions, net.
During the year ended September 30, 2004, the Company recognized a
loss of $122,914 due to a write down to the carrying value of securities
available for sale which was considered other than temporarily impaired. 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 listing of investments in debt and equity securities at
September 30, 2004:
Estimated
Description Shares Cost Fair Value
___________ ______ _____ __________
Equity Securities - Preferred
Stock:
AMB Property Corp 6.5% Sr L 4,000 $ 100,000 $ 99,160
Apartment Inv and Mgt Co
10.00 % Cl R 3,000 80,250 80,010
Apartment Inv and Mgt Co 8%
Cl T 16,000 400,000 398,880
Apartment Inv and Mgt Co
8.75% Cl D 11,300 280,965 285,551
Ashford Hospitality 8.55% Sr F 4,000 100,000 101,640
Boykin Lodging 10.5% Sr A 5,200 133,560 150,020
Brandywine Realty Trust
7.375% Sr D 10,000 250,000 252,000
BRE Properties 6.75% Sr C 10,000 250,000 247,200
Carramerica Realty 7.5% Sr E 8,000 200,000 211,680
CBL & Associates 7.75% Sr C 8,000 200,000 209,680
CBL & Associates 8.75% Sr B 4,100 207,315 220,375
Commercial Net Lease 9% Sr A 1,000 26,248 27,250
Corporate Office Properties
7.5% Sr H 10,000 250,000 250,000
Developers Diversified 7.375%
Sr H 25,000 625,000 637,750
Developers Diversified 7.5%
Sr I 4,000 100,000 101,480
Developers Diversified 8% Sr G 4,000 100,000 105,560
Developers Diversified 8.6%
Sr F 2,000 49,762 53,600
Duke Realty Corporation 6.5%
Sr K 4,000 100,000 98,160
Duke Realty Corporation
6.625% Sr J 4,000 100,000 99,640
Equity Inns 8.75% Sr B 30,000 750,000 792,000
Equity Residential 9.125% Sr C 1,000 27,040 27,360
Page 60
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
Estimated
Description Shares Cost Fair Value
___________ ______ ____ __________
FelCor Lodging $1.95 Sr A 13,000 296,414 314,600
FelCor Lodging 9% Sr B 11,500 261,127 294,400
G & L Realty 10.25% Sr A 1,000 23,320 25,290
Glenborough Realty 7.75% Sr A 14,960 345,024 375,646
Glimcher Realty 8.125% Sr G 4,000 100,000 101,800
Health Care Reit 7.625% Sr F 4,000 100,000 99,000
Health Care Reit 7.875% Sr D 14,000 351,000 354,760
Healthcare Properties 7.1% Sr F 11,000 275,000 276,760
Healthcare Properties 7.25% Sr E 5,000 125,000 129,200
Highwood Properties Inc. 8% Sr D 8,500 203,920 212,075
Hospitality Properties 8.875%
Sr B 6,000 152,131 164,400
Host Marriott Corp 10% Cl C 1,000 25,600 26,920
Host Marriott Corp 8.875% ClE 4,000 100,000 110,240
HRPT Properties 8.75% Sr B 15,000 378,730 409,050
HRPT Properties 9.875% Sr A 5,500 145,660 150,040
Innkeepers USA 8% Sr C 4,000 100,000 101,200
iStar Financial 7.875% Sr E 20,000 500,000 503,800
Kramont Realty Trust 8.25% SrE 10,000 250,000 265,700
Lasalle Hotel Properties
10.25% Sr A 14,500 367,245 404,550
Lexington Corporate Properties
8.04% Sr B 20,000 500,000 517,000
LTC Properties 8% Sr F
10,000 250,000 254,200
Maguire Properties Inc 7.625%
Sr A 12,800 314,736 318,720
Mid America Apt Communities
8.3% Sr H 10,000 254,500 257,700
Mills Corp 9% Sr B 18,000 467,975 489,240
Mills Corp 9% Sr C 24,500 633,495 673,750
New Plan Excel 7.625% Sr E 14,000 352,200 363,720
Omega Healthcare 8.375% Sr D 10,000 250,000 260,500
Pennsylvania Reit 11% Sr A 10,000 458,810 595,000
Post Properties 7.625% Sr B 8,000 197,370 209,600
Prologis 6.75% Sr G 8,000 200,000 199,120
PS Business Parks 7% Sr H 8,000 200,000 196,000
PS Business Parks 7.95% Sr K 4,000 100,000 104,200
Public Storage 6.5% Sr W 6,000 150,000 149,040
Ramco-Gershenson 7.95% Sr C 12,500 360,625 380,000
Realty Income Corp 7.375%
Sr D 4,000 100,000 104,600
Reckson Assoc 7.625% Sr A 727 14,273 19,004
Page 61
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
Estimated
Description Shares Cost Fair Value
_____________ ______ _____ __________
Shurgard Storage 8.7% Sr C 1,000 26,264 25,550
Sizler Property Investors
9.75% Sr B 1,000 25,000 26,840
SL Green Realty 7.625% Sr C 10,000 250,000 256,300
SL Green Realty 7.875% Sr D 4,000 100,000 102,000
SNH Capital 10.125% Sr Z 6,000 159,004 160,500
_________ _________
Total Equity Securities -
Preferred Stock 13,803,563 14,431,011
__________ __________
Equity Securities - Common Stock
American Financial Realty
Trust 1,000 12,500 14,110
Biomed Realty Trust 8,000 120,004 140,720
BNP Residential Properties 18,000 192,595 246,240
Equity Office Properties 8,000 210,250 218,000
Equity Residential 1,000 27,900 31,000
First Industrial Realty Trust 1,000 33,542 36,900
Getty Realty Corp 41,090 882,360 1,077,380
Health Care Property
Investors 21,000 473,632 546,000
Health Care Reit 1,000 30,430 35,200
HRPT Properties 11,000 88,607 120,890
Kramont Realty Trust 10,000 158,876 186,000
Mission West Properties 58,100 601,335 601,335
Monmouth Capital Corp (1) 39,879 138,119 261,235
Nationwide Health
Properties Inc 1,000 17,970 20,750
New Plan Excel Realty
Trust 40,000 772,381 1,000,000
Omega Healthcare Investors 1,000 9,070 10,760
Price Legacy Corp 2,500 27,724 47,375
Senior Housing Property Trust 1,000 15,280 17,820
Shurgard Storage Centers 1,000 35,456 38,800
Sizeler Property Investors 140,000 1,184,292 1,302,000
United Dominion Realty Trust 1,000 19,326 19,830
US Restaurant Properties 1,000 15,764 16,890
Windrose Medical Properties 1,000 10,600 12,990
_________ _________
Total Equity Securities -
Common Stock 5,078,013 6,002,225
__________ __________
Debt Securities:
Monmouth Capital Corp Conv
SubDebenture (1) 500,000 500,000 545,844
Page 62
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
Estimated
Description Shares Cost Fair Value
___________ ______ ____ _________
Due 10/23/2013 8% coupon
Sizeler Prop Investors Conv
Sub Debenture
Due 7/15/2009 9% coupon 2,034,000 2,014,690 2,105,190
_________ _________
Total Debt Securities
2,514,690 2,651,034
__________ _________
Total Securities Available
for Sale $ 21,396,266 $ 23,084,270
========== ==========
(1) Investment is an affiliate. See Note No. 9 for further discussion.
The following is a isting of investments in debt and equity
securities at September 30, 2003:
Estimated
Description Shares Cost Fair Value
___________ _____ _____ __________
Equity Securities - Preferred Stock:
Alexandria Real Estate 9.5% Sr A 2,000 46,695 52,700
AMB Property Corp 6.5% Sr L 4,000 100,000 100,000
Apartment Inv and Mgt Co 10.00 %
Cl R 3,000 80,250 79,800
Apartment Inv and Mgt Co 8% Cl T 16,000 400,000 400,000
Apartment Inv and Mgt Co 8.75%
Cl D 11,300 280,965 283,065
Archstone Smith 8.75% Sr D 2,000 51,491 51,880
Boykin Lodging 10.5% Sr A 5,200 133,560 139,880
Carramerica Realty 7.5% Sr E 8,000 200,000 202,400
CBL & Associates 7.75% Sr C 8,000 200,000 205,600
CBL & Associates 8.75% Sr B
4,100 207,315 221,810
Commercial Net Lease 9% Sr A 1,000 26,248 26,750
Crown American 11% 10,000 458,810 575,000
Developers Diversified 7.375%
SrH 25,000 625,000 622,500
Developers Diversified Dep
Shares Cl F 2,000 49,762 52,960
Developers Diversified 8% Sr G 4,000 100,000 105,000
Duke Realty Corporation 6.625%
Sr J 4,000 100,000 99,720
Equity Inns 8.75% Sr B 30,000 750,000 775,500
Equity Office Trust 8.625% Sr C 1,000 26,000 25,380
Equity Residential 9.125% Sr 1,000 27,040 27,600
FelCor Lodging $1.95 Sr A 3,000 55,208 68,520
FelCor Lodging 9% Sr B 21,500 488,127 529,115
Page 63
NOTE 5 - SECURITIES AVAILABLE FOR
SALE (CONT'D)
Estimated
Description Shares Cost Fair Value
____________ ______ _____ __________
First Industrial Realty 7.95%
Sr D 7,000 175,480 175,070
G & L Realty 10.25% Sr A 1,000 23,320 24,890
Glenborough Realty 7.75% Sr A 21,900 505,061 524,943
Glimcher Realty 8.125% Sr G 23,500 574,291 590,085
Health Care Reit 7.875% Sr D 14,000 351,000 357,000
Healthcare Properties 8.7% Sr B 1,000 17,932 24,980
Healthcare Properties 7.25%
Sr E 5,000 125,000 129,250
Highwood Properties Inc. 8%
Sr D 8,500 203,920 210,800
Hospitality Properties 9.5%
Sr A 10,000 210,133 257,500
Hospitality Properties 8.875%
Sr B 6,000 152,131 159,900
Host Marriott Corp 10% Cl C 1,000 25,600 25,000
HRPT Properties 8.75% Sr B 15,000 378,730 402,150
HRPT Properties 9.875% Sr A 5,500 145,660 148,775
Innkeepers USA 8.625% Sr A 31,500 772,961 790,650
iStar Financial 9.20% Sr C 1,000 17,708 25,300
iStar Financial 8% Sr D 6,000 89,641 150,840
iStar Financial 7.875% Sr E 20,000 500,000 509,000
Kramont Realty Trust 9.5%
SrD 54,700 1,259,352 1,394,850
Lasalle Hotel Properties
10.25% Sr A 14,500 376,245 391,500
Lexington Corporate
Properties 8.04% Sr B 20,000 500,000 525,000
Mid America Apt Communities
8.3% Sr H 10,000 254,500 261,800
Mills Corp 9% Sr B 18,000 467,975 478,800
Mills Corp 9% Sr C 24,500 633,495 654,150
New Plan Excel 7.625% Sr E 14,000 352,200 371,000
Post Properties 7.625% Sr B 8,000 197,370 204,800
Post Properties 7.625% Sr C 1,000 23,440 24,750
Prime Retail 10.5% Sr A 1,000 15,433 18,100
Prime Retail 8.5% Sr B 8,000 26,720 56,400
Reckson Associates 7.625%
SrA 1,000 18,707 24,750
Shurgard Storage 8.7% Sr C 1,000 26,264 25,450
Sizler PropertyInvestors
9.75% Sr B 1,000 25,000 28,250
SNH Capital 10.125% Sr Z 6,000 159,004 159,720
Sovran Self Storage 9.85%
Sr B 2,000 39,115 53,480
Vornado Realty Trust 8.5%
Sr C 14,000 326,910 360,360
Winston Hotels 9.25% Sr A 12,000 286,835 302,880
__________ __________
Total Equity Securities -
Preferred Stock 13,663,604 14,487,353
__________ __________
Page 64
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
Estimated
Description Shares Cost Fair Value
___________ ______ ____ ________
Equity Securities - Common Stock
American Financial Realty
Trust 1,000 12,500 14,100
BNP Residential Properties 18,000 192,595 189,900
Crown American Realty Trust 30,000 245,694 357,000
Equity Office Properties
Trust 8,000 210,250 220,240
First Industrial Realty Trust 1,000 28,400 32,070
Gabels Residential Trust 1,000 24,859 32,320
Getty Realty Corp 20,090 404,344 492,205
Health Care Property
Investors 25,000 883,627 1,167,500
Healthcare Realty Trust Inc. 10,400 286,930 332,592
HRPT Properties 89,000 706,726 813,460
Humphrey Hospitality 10,000 26,932 29,690
Lasalle Hotel Properties 9,000 115,824 155,970
Mid Atlantic Realty Trust 1,000 9,582 21,000
Monmouth Capital Corp (1) 37,071 131,531 188,689
Nationwide Health Properties
Inc 21,500 294,425 376,035
New Plan Excel Realty Trust 62,000 1,126,498 1,444,600
Price Legacy Corp 10,000 27,724 35,000
Sizeler Property Investors 105,500 894,676 1,105,668
Senior Housing Property Trust 29,000 339,222 417,890
Trizec Properties 35,000 379,371 429,100
United Mobile Homes Inc.(1) 60,200 651,145 907,214
Urstadt Biddle Properties
9,500 50,920 123,975
__________ __________
Total Equity Securities -
Common Stock 7,043,775 8,886,218
__________ __________
Debt Securities:
Sizeler Prop Investors
Convertible Subordinated
Debenture, due 7/15/2009,
9% coupon callable 5/1/05
at 100.00
1,914,000 1,884,333 2,047,980
_________ _________
Total Debt Securities
1,884,333 2,047,980
_________ _________
Total Securities Available
for Sale $22,591,712 $ 25,421,551
========== ==========
(1) Investment is an affiliate. See Note No. 9 for further discussion.
Page 65
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
The Company had eleven securities that were temporarily impaired
investments at September 30, 2004. The individual unrealized losses were 2% 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 $1,666,210 $14,040 $25,550 $714
__________ ________ ________ _______
Total $1,666,210 $14,040 $25,550 $714
========== ======== ======== =======
The Company had margin loan balances of $1,261,901
and $8,512,853 at September 30, 2004 and 2003, respectively,
which were collateralized by the securities portfolio.
Page 66
NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE
The following is a summary of mortgage notes payable at
September 30, 2004 and 2003:
Fixed Maturity Balance Balance
Property Rate Date 9/30/04 9/30/03
________ ____ _____ _______ _______
Richland, MS 7.50% 06/01/04 $ -0- $207,819
Franklin, MA 7.00% 10/01/04 -0- 414,965
Orangeburg, NY 7.00% 10/01/04 -0- 364,498
Urbandale, IA 7.00% 10/01/04 -0- 182,989
Fayetteville, NC 7.80% 08/01/06 2,668,864 2,801,133
O'Fallon, MO 8.50% 12/01/07 860,835 1,095,093
Jackson, MS 8.50% 08/01/08 308,344 373,626
Winston Salem, NC 7.10% 02/01/12 4,480,339 4,607,334
Schaumburg, IL 8.48% 07/01/12 2,340,730 2,545,793
Tolleson, AZ 5.80% 11/01/12 10,146,307 10,615,499
Ft. Myers, FL 6.33% 12/01/12 3,045,095 3,131,807
Liberty, MO 7.065% 03/01/13 3,355,368 3,637,322
Romulus, MI 7.56% 07/01/13 1,996,698 2,151,940
Burr Ridge, IL 8.00% 01/01/14 821,422 883,861
Omaha, NE 7.15% 01/01/14 3,014,301 3,236,441
Charlottesville, VA 6.90% 07/01/14 2,087,804 2,233,032
Union Township, OH 8.25% 03/01/15 2,435,553 2,577,450
Richmond, VA 6.12% 12/01/15 4,647,320 4,928,959
St. Joseph, MO 8.12% 03/01/16 7,591,972 7,980,478
Beltsville, MD 7.53% 05/01/16 5,157,949 5,427,127
Cudahy, WI 8.15% 05/01/16 3,679,198 3,862,951
Newington, CT 8.10% 05/01/16 2,127,778 2,235,607
Granite City, IL 7.11% 11/01/16 8,349,161 8,770,809
Jacksonville, FL 6.92% 12/01/16 3,209,738 3,440,326
Monroe, NC 7.11% 12/01/16 3,574,850 3,753,546
Elgin, IL 6.97% 05/01/17 4,520,616 4,735,617
Edwardsville, KS 7.375% 07/01/17 4,507,576 4,713,277
Tampa, FL 6.00% 03/01/19 12,603,145 -0-
__________ __________
Total Mortgage
Notes Payable $97,530,963 $90,909,299
=========== ===========
Page 67
NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE (CONT'D)
Principal on the foregoing debt is scheduled to be paid as
follows:
Year Ending September 30, 2005 $5,484,926
2006 8,265,536
2007 6,167,311
2008 6,309,231
2009 6,664,665
Thereafter 64,639,294
___________
$97,530,963
===========
Line of Credit
In May 2003, the Company received a line of credit (the
line) from PNC Bank (the Bank), which replaced the line with
Bank of America. The amount of the facility was $10,000,000
during the first year and $15,000,000 thereafter and
matures in May 2006. The interest rate charged on the
new line is the Bank's prime rate. The interest rate as of
September 30, 2004 and 2003 was 4.50% and 4% respectively. The
amount outstanding on the new line at September 30, 2004 and
2003 was $1,361,198 and $3,361,198, respectively.
Margin Loans
During fiscal 2004 and 2003, the Company purchased
securities on margin. The interest rate charged on the
margin loan was 3.5% and 2.75% at September 30, 2004 and 2003,
respectively and are due on demand. At September 30, 2004
and 2003, the margin loans amounted to $1,261,901 and
$8,512,853, respectively and are collateralized by the
Company's securities portfolio. The Company must maintain a
coverage ratio of approximately 50%.
Other
In connection with the St. Joseph, Missouri
property, the Company issued a $500,000 note to Butler at an
interest rate of 8.12% due February 29, 2016. The balance
of this note at September 30, 2003 was $450,875. The Company
prepaid this note on October 21, 2003 for a discounted
amount of $439,555 pursuant to an agreement with Butler.
NOTE 7 - STOCK OPTION PLAN
On April 24, 1997, the shareholders approved and
ratified the Company's 1997 Stock Option Plan (the Plan)
authorizing the grant to officers, directors and key
employees options to purchase up to 750,000 shares of common
stock. On April 25, 2002, the shareholders approved an
increase to the number of shares of common stock under
the Plan to 1,500,000 shares. Options may be granted any time
up to December 31, 2006. No option shall be available for
exercise beyond ten years. All options are exercisable after
one year from the date of grant.
Page 68
NOTE 7 - STOCK OPTION PLAN (CONT'D)
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.
The Company adopted the fair value recognition provisions of SFAS No.
123, "Accounting for Stock Based Compensation" on October 1, 2002. During
the year ended September 30, 2004, 13 directors, officers, and employees were
granted options to purchase 240,000 shares. The fair value of those options
was $99,334 based on the assumptions noted below and is being amortized over the
1-year vesting period.
The fair value of each option grant is estimated on the date of grant
using the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 2004, 2003, and 2002:
2004 2003 2002
____ ____ ____
Dividend yield 7.46% 8.0% 8.0%
Expected volatility 17.40% 13.3% 13.0%
Risk-free interest rate 3.90% 3.4% 3.4%
Expected lives (years) 8 8 5
During the year ended September 30, 2004, four directors and officers
exercised their stock options and purchased 131,500 shares for a total of
$830,705.
Page 69
NOTE 7 - STOCK OPTION PLAN (CONT'D)
A summary of the status of the Company's stock option plan as of September
30, 2004, 2003 and 2002 is as follows:
2004 2003 2002
_____ _____ _____
Weighted Weighted Weighted
Average Average Average
2004 Exercise 2003 Exercise 2002 Exercise
Shares Price Shares Price Shares Price
_______ _______ _______ _______ ______ ________
Outstanding
at
beginning
of year 500,500 $6.83 465,000 $6.80 385,000 $6.19
Granted 240,000 7.54 65,000 6.90 365,000 7.06
Exercised (131,500) 6.32 (9,500) 5.57 (255,000) 6.34
Expired -0- -0- (20,000) 7.25 (30,000) 5.94
_________ ________ ________
Outstanding
at end of
year 609,000 7.22 500,500 6.83 465,000 6.80
======== ======== ========
Exercisable
at end of
year 369,000 435,500 100,000
======== ======== ========
Weighted-
average
fair value
of options
granted
during the
year .41 .14 .12
======== ======== ========
The following is a summary of stock options outstanding as of September 30,
2004:
Date of Number of Number of Option Expiration
Grant Grants Shares Price Date
________ ________ _________ ______ __________
6/20/01 1 5,000 5.85 6/20/06
10/4/01 1 65,000 6.765 10/4/06
6/21/02 13 234,000 7.13 6/21/10
1/22/03 1 65,000 6.90 1/22/11
5/20/04 12 175,000 7.41 5/20/12
8/3/04 1 65,000 7.89 8/3/12
_________
609,000
===========
As of September 30, 2004, there were 495,000 shares available for grant
under this plan.
Page 70
NOTE 8 - INCOME FROM LEASES
The Company derives income primarily from operating leases on its
commercial properties. In general, these leases are written for periods up to
ten years with various provisions for renewal. These leases generally contain
clauses for reimbursement (or direct payment) of real estate taxes, maintenance,
insurance and certain other operating expenses of the properties. Minimum rents
due under noncancellable leases at September 30, 2004 are scheduled as follows:
2005 - $17,855,000; 2006 - $16,920,000; 2007 - $15,028,000; 2008 - $13,307,000;
2009 - $11,515,000; thereafter - $38,669,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
Eugene W. Landy received $16,000, $17,500 and $16,300 during 2004, 2003 and
2002 as Director. The firm of Eugene W. Landy received $17,500, $17,500, and $-
0- during 2004, 2003 and 2002, respectively, as legal fees. On January 1, 2004,
Eugene W. Landy's Employment Agreement with the Company was amended to extend
for five years to December 31, 2009. Mr. Landy's amended Employment Agreement
provides for (1) an increase in his annual base compensation from $150,000 to
$175,000; (2) an increase in his severance payment from $300,000 payable
$100,000 a year for three years to $500,000 payable $100,000 a year for five
years; and (3) an increase from $40,000 a year to $50,000 a year of his pension
benefits payable for ten years; and (4) an extension of three years of his
pension payments. The Company accrued additional compensation expense related
to the pension benefits of $141,000. Mr. Landy receives bonuses and customary
fringe benefits, including health insurance and five weeks vacation.
Additionally, there will be bonuses voted by the Board of Directors. The
Employment Agreement is terminable by either party at any time subject to
certain notice requirements.
Effective January 15, 2004, the Company and Cynthia J. Morgenstern entered
into a three-year employment agreement under which Ms. Morgenstern receives an
annual base salary of $160,000, increasing to $176,000 in 2005 and to $194,000
in 2006, plus bonuses and customary fringe benefits, including health insurance,
four weeks vacation and the use of an automobile. If there is a voluntary or
involuntary termination of employment, due to merger or change in control, Ms.
Morgenstern, shall be entitled to receive one year's compensation at the date of
termination. In the event of her disability, her salary will continue for a
period of two years. Ms. Morgenstern received $16,000, $17,500 and $5,500
during 2004, 2003 and 2002, respectively, as Director. This agreement was
amended September 16, 2004 to purchase disability insurance for Ms. Morgenstern.
In the event of a disability exceeding 90 days, Ms. Morgenstern will receive
lost wages from a disability policy, not her salary for two years.
Daniel D. Cronheim is a Director of the Company and Executive Vice
President of David Cronheim Company. Cronheim Management Services, a division
of David Cronheim Company, received the sum of $299,392, $258,626 and $245,597
for management fees during the years ended 2004, 2003 and 2002, respectively.
Effective August 1, 1998, the Company entered into a management contract with
Cronheim Management Services. Under this contract, Cronheim Management Services
receives 3% of gross rental income on certain properties for management fees.
The David Cronheim Company received $132,185, $14,377 and $20,194 in lease
brokerage
Page 71
NOTE 9 - RELATED PARTY TRANSACTIONS (CONT'D)
commissions in 2004, 2003 and 2002, respectively. Daniel Cronheim received
$16,000, $16,150 and $16,300 for Director and Committee fees in 2004, 2003 and
2002, respectively.
The Company operates as part of a group of three public companies (all
REITs) which includes the Company, United Mobile Homes, Inc. and Monmouth
Capital Corporation (the affiliated companies). Some general and
administrative expenses are allocated among the affiliated companies based on
use or services provided. Allocations of salaries and benefits are made based
on the amount of the employees' time dedicated to each affiliated company.
There are two Directors of the Company who are also Directors and
shareholders of United Mobile Homes, Inc. and there are two Directors of the
Company who are also Directors and shareholders of Monmouth Capital Corporation.
The Company holds common stock of the affiliated companies in its
securities portfolios. See Note No. 5 for holdings. The Company sold on the
open market 60,200, 40,000 and 42,000 shares of United Mobile Homes, Inc. during
2004, 2003, and 2002, respectively and recorded a gain on sale of $312,661,
$230,152, and $105,902 during 2004, 2003, and 2002, respectively.
During 2004 and 2003, the Company purchased 2,808 and 4,791 shares,
respectively, through the Monmouth Capital Dividend Reinvestment Plan. During
2004 the Company invested $500,000 in the Monmouth Capital Corporation
Convertible Subordinated Debenture.
NOTE 10 - TAXES
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust under
the applicable provisions of the Internal Revenue Code and the comparable New
Jersey Statutes. Under such provisions, the Company will not be taxed on that
portion of its taxable income distributed currently to shareholders, provided
that at least 90% of its taxable income is distributed. As the Company has and
intends to continue to distribute all of its income currently, no provision has
been made for income taxes.
Federal Excise Tax
The Company does not have a Federal excise tax liability for the calendar
years 2004, 2003 and 2002, since it intends to or has distributed all of its
annual income.
Page 72
NOTE 11 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN/EQUITY
The Company implemented a dividend reinvestment and stock purchase
plan (the DRIP) effective December 15, 1987. Under the terms of the DRIP and
subsequent offerings, shareholders who participate may reinvest all or part of
their dividends in additional shares of the Company at approximately 95% of
market price. According to the terms of the DRIP, shareholders may also
purchase additional shares, at a price of approximately 95% of market by making
optional cash payments monthly.
Amounts received, including dividend reinvestment of $3,531,838,
$3,327,957 and $2,263,827 in 2004, 2003 and 2002, respectively, and shares
issued in connection with the Plan for the years ended September 30, 2004,
2003 and 2002 were as follows:
2004 2003 2002
Amounts Received $12,532,541 $11,887,869 $10,535,311
Shares Issued 1,568,174 1,691,148 1,613,020
In January 2004, the Company issued 500,000 shares in a private
placement for consideration of $4,050,000 or $8.10 per share. The proceeds of
the private placement were used for working capital and to pay down the
Company's outstanding credit facility and margin loan. The Company incurred
approximately $67,993 in offering costs related to this private placement
which were recorded as a reduction to Additional Paid-In Capital.
On February 27, 2003, the Company sold 1,257,253 shares in a private
placement 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 working capital. The Company paid $106,826 in offering costs which
were recorded as a reduction to Additional Paid-In Capital.
Page 73
NOTE 12 - DISTRIBUTIONS
The following cash distributions were paid to shareholders during the
years ended September 30, 2004 and 2003:
2004 2003
____ ____
Quarter Ended Amount Per Share Amount Per Share
______ _________ ______ _________
December 31 $2,206,622 $ .145 $1,815,746 $.145
March 31 2,331,098 .145 1,898,483 .145
June 30 2,403,361 .145 2,113,024 .145
September 30 2,485,834 .145 2,160,371 .145
_________ _________ _________ ________
$9,426,915 $ .58 $7,987,624 $ .58
========= ========= ========= =========
On October 1, 2004, the Company declared a cash dividend of $.145 per
share to be paid on December 15, 2004 to shareholders of record November 15,
2004.
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. 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 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. The fair
value of variable rate mortgage notes payable and loans payable approximate
their current carrying amounts since such amounts payable are at approximately a
weighted-average current market rate of interest. At September 30, 2004, the
Page 74
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT"D)
fair value (estimated based upon expected cash outflows discounted at current
market rates) and carrying value of fixed rate mortgage notes payable amounted
to $100,508,994 and $97,530,963, respectively. At September 30, 2003, the fair
value and carrying value of fixed rate mortgage notes payable amounted to
$95,315,781 and $90,909,299, respectively.
NOTE 14 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION
Cash paid during the years ended September 30, 2004, 2003 and 2002,
for interest was $6,977,419, $6,885,146 and $6,030,744, respectively.
During 2004, 2003 and 2002, the Company had $3,531,838, $3,327,957 and
$2,263,827, respectively, of dividends which were reinvested that required no
cash transfers. The following are the reclassification adjustments related to
securities available for sale included in Other Comprehensive Income.
2004 2003 2002
____ ____ ____
Unrealized holding gains
arising during the year $ 602,795 $ 2,003,772 $ 1,212,588
Less: reclassification
adjustment for gains
realized in income (1,744,630) (1,018,862) (909,704)
_________ _________ _________
Net unrealized (loss) gains $(1,141,835) $ 984,910 $ 302,884
========= ========= =========
NOTE 15 - SUBSEQUENT EVENTS
On October 28, 2004, the Company purchased a 60,361 square foot industrial
building in Denver, Colorado. The building is 100% net-leased to FedEx Ground
Package System, Inc., a subsidiary of Federal Express Corporation (FDX) for ten
years. The purchase price including closing costs was approximately $5,125,000.
The Company paid approximately $75,000 in cash, obtained a mortgage of
$3,625,000, and obtained $1,425,000 from its margin loan. The mortgage is
payable at a rate of 6.07% and matures on November 1, 2019.
In November, 2004, the Company was notified by its month to month
tenant at its Jackson, MS property that they would be vacating its space
effective December 8, 2004. The Company has yet to re-lease the space.
Page 75
NOTE 15 - SUBSEQUENT EVENTS (CONT"D)
On December 6, 2004, the Company purchased a 306,000 square foot industrial
building in Hanahan, South Carolina. The building is 100% net-leased to Norton
Naughton of Squire, Inc. for thirteen years. The purchase price including
closing costs was approximately $14,000,000. The Company paid approximately
$200,000 in cash, assumed a mortgage of $8,677,500, and obtained $5,122,500 from
its line of credit. The mortgage is payable at a rate of 7.36% and matures on
May 1, 2017.
Page 76
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
SEPTEMBER 30, 2004
Column A Column B Column C Column D
________ ________ ____________ ________
capitalization
Initial Cost Buildings and Subsequent to
Description Encumbrances Land Improvements Acquisition
___________ __________ _________ __________ ___________
Shopping Center
Somerset, NJ $ -0- $ 55,182 $ 637,097 $ 517,964
Industrial Building
Ramsey, NJ -0- 52,639 291,500 1,066,648
Monaca, PA -0- 330,772 878,081 1,248,911
Orangeburg, NY -0- 694,720 2,977,372 -0-
South
Brunswick, NJ -0- 1,128,000 4,087,400 299,485
Greensboro, NC -0- 327,100 1,853,700 15,000
Jackson, MS 308,344 218,000 1,233,500 116,687
Franklin , MA -0- 566,000 4,148,000 -0-
Wichita, KS -0- 268,000 1,518,000 24,245
Urbandale, IO -0- 310,000 1,758,000 2,736
Richland, MS -0- 211,000 1,195,000 72,000
O'Fallon, MO 860,835 264,000 3,302,000 7,000
Fayetteville,
NC 2,668,864 172,000 4,467,885 17,360
Schaumburg, IL 2,340,730 1,039,800 3,694,320 -0-
Burr Ridge, IL 821,422 270,000 1,236,599 -0-
Romulus, MI 1,996,698 531,000 3,653,883 12,078
Liberty, MO 3,355,368 723,000 6,510,546 -0-
Omaha, NE 3,014,301 1,170,000 4,425,500 -0-
Charlottesville, 2,087,804 1,170,000 2,845,000 -0-
VA
Jacksonville,
FL 3,209,738 1,165,000 4,668,080 13,949
Union City, OH 2,435,553 695,000 3,342,000 1,020,353
Richmond, VA 4,647,320 1,160,000 6,413,305 3,000
St. Joseph, MO 7,591,972 800,000 11,753,964 -0-
Newington, CT 2,127,778 410,000 2,961,000 5,486
Cudahy, WI 3,679,198 980,000 5,050,997 88,324
Beltsville, MD 5,157,949 3,200,000 5,958,773 -0-
Granite City,IL 8,349,161 340,000 12,046,675 -0-
Monroe, NC 3,574,850 500,000 4,981,022 -0-
Winston-Salem, NC 4,480,339 980,000 5,610,000 -0-
Elgin, IL 4,520,616 1,280,000 5,529,488 -0-
Tolleson, AZ 10,146,307 1,320,000 13,329,000 -0-
Ft. Myers, FL 3,045,095 1,910,000 2,499,093 -0-
Edwardsville, KS 4,507,576 1,185,000 5,815,148 -0-
Tampa, FL 12,603,145 5,000,000 12,656,561 -0-
____________ __________ ___________ _________
$ 97,530,963 $ 30,426,213 $153,328,489 $ 4,531,226
=========== ========== =========== ==========
*Buildings and improvements reacquired in 1986.
**Property was renovated in 2001.
Page 77A
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
SEPTEMBER 30, 2004
Column A Column E (1) (2)
________ _____________________________________________
Gross Amount at Which Carried
September 30, 2004
Description Land Bldg & Imp Total
___________ ________ __________ __________
Shopping Center
Somerset, NJ $ 55,182 $ 1,155,061 $ 1,210,243
Industrial Building
Ramsey, NJ 52,639 1,358,148 1,410,787
Monaca, PA 330,772 2,126,992 2,457,764
Orangeburg, NY 694,720 2,977,372 3,672,092
South
Brunswick, NJ 1,128,000 4,386,885 5,514,885
Greensboro, NC 327,100 1,868,700 2,195,800
Jackson, MS 218,000 1,350,187 1,568,187
Franklin , MA 566,000 4,148,000 4,714,000
Wichita, KS 268,000 1,542,245 1,810,245
Urbandale, IO 310,000 1,760,736 2,070,736
Richland, MS 211,000 1,267,000 1,478,000
O'Fallon, MO 264,000 3,309,000 3,573,000
Fayetteville, NC 172,000 4,485,245 4,657,245
Schaumburg, IL 1,039,800 3,694,320 4,734,120
Burr Ridge, IL 270,000 1,236,599 1,506,599
Romulus, MI 531,000 3,665,961 4,196,961
Liberty, MO 723,000 6,510,546 7,233,546
Omaha, NE 1,170,000 4,425,500 5,595,500
Charlottesville,
VA 1,170,000 2,845,000 4,015,000
Jacksonville,
FL 1,165,000 4,682,029 5,847,029
Union City, OH 695,000 4,362,353 5,057,353
Richmond, VA 1,160,000 6,416,305 7,576,305
St. Joseph, MO 800,000 11,753,964 12,553,964
Newington, CT 410,000 2,966,486 3,376,486
Cudahy, WI 980,000 5,139,321 6,119,321
Beltsville, MD 3,200,000 5,958,773 9,158,773
Granite City,
IL 340,000 12,046,675 12,386,675
Monroe, NC 500,000 4,981,022 5,481,022
Winston-Salem,
NC 980,000 5,610,000 6,590,000
Elgin, IL 1,280,000 5,529,488 6,809,488
Tolleson, AZ 1,320,000 13,329,000 14,649,000
Ft. Myers, FL 1,910,000 2,499,093 4,409,093
Edwardsville,
KS 1,185,000 5,815,148 7,000,148
Tampa, FL 5,000,000 12,656,561 17,656,561
__________ __________ ___________
$ 30,426,213 $157,859,715 $ 188,285,928
========== =========== ===========
*Buildings and improvements reacquired in 1986.
**Property was renovated in 2001.
Page 77B
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
SEPTEMBER 30, 2004
Column A Column F Column G Column H Column I
________ ________ ________ ________ ________
Accumulated Date of
Deprecia- Construc- Date Depreciable
Description tion tion Acquired Life
___________ ____________ ________ ________ _______
Shopping Center
Somerset, NJ $ 977,298 1970 1970 10-33
Industrial
Building 1969 1969 7-40
Ramsey, NJ 788,787
Monaca, PA 1,444,724 1977 1977* 5-31.5
Orangeburg, NY 1,122,575 1990 1993 31.5
South
Brunswick, NJ 1,602,808 1974 1993 31.5
Greensboro, NC 679,016 1988 1993 31.5
Jackson, MS 451,739 1988 1993 39
Franklin , MA 1,116,725 1991 1994 39
Wichita, KS 411,662 1995 1994 39
Urbandale, IO 473,428 1985 1994 39
Richland, MS 322,666 1986 1994 39
O'Fallon, MO 804,526 1989 1994 39
Romulus, MI 612,845 1998 1998 39
Liberty, MO 1,085,004 1997 1998 39
Omaha, NE 624,081 1999 1999 39
Charlottesville,
VA 401,214 1998 1999 39
Jacksonville,
FL 661,442 1998 1999 39
Union City, OH 398,753 1999 2000 39
Richmond, VA 577,327 2000 2001 39
St. Joseph, MO 1,054,790 2000 2001 39
Newington, CT 266,090 2001 2001 39
Cudahy, 459,358 2001 2001 39
Beltsville, MD 534,742 2000 2001 39
Granite City, IL 772,484 2001 2001 39
Monroe, NC 319,283 2001 2001 39
Winston-Salem,
NC 359,600 2001 2002 39
Elgin, IL 354,440 2002 2002 39
Tolleson, AZ 512,629 2002 2002 39
Ft. Myers, FL 96,117 1974** 2002 39
Edwardsville, KS 223,635 2002 2003 39
Tampa, FL 162,286 2004 2004 39
___________
$ 21,448,580
===========
*Buildings and improvements reacquired in 1986.
**Property was renovated in 2001.
Page 77C
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
SCHEDULE III
EAL ESTATE AND ACCUMULATED DEPRECIATION,(CONT'D.)
(1) Reconciliation
REAL ESTATE INVESTMENTS
9/30/04 9/30/03 9/30/02
________ ________ ________
Balance-Beginning of
Year $170,181,103 $142,957,878 $113,971,563
Additions:
Acquisitions 17,656,561 26,058,241 31,274,685
Improvements 448,264 1,164,984 246,230
__________ __________ __________
Total Additions 18,104,825 27,223,225 31,520,915
Sales -0- -0- (2,534,600)
__________ __________ ____________
Balance-End of Year $188,285,928 $ 170,181,103 $ 142,957,878
============ ============ ============
ACCUMULATED DEPRECIATION
9/30/2004 9/30/2003 9/30/2002
_________ _________ _________
Balance - Beginning
of the year $17,410,768 $13,850,622 $11,249,479
Depreciation 4,037,812 3,560,146 2,941,097
Sales -0- -0- (339,954)
_________ _________ __________
Balance-End of Year $ 21,448,580 $ 17,410,768 $ 13,850,622
========== ========== ==========
Page 78
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARY
NOTES TO SCHEDULE III
SEPTEMBER 30,
(1) Reconciliation
2004 2003 2002
____ _____ _____
Balance - Beginning
of Year $170,181,103 $142,957,878 $113,971,563
___________ __________ ___________
Additions:
Ramsey, NJ -0- -0- 3,997
Somerset, NJ 2,840 3,314 30,488
Monaca, PA 40,158 5,450 154,154
Orangeburg, NY -0- -0- -0-
South Brunswick, NJ -0- 196,287 45,237
Greensboro, NC 15,000 -0- -0-
Jackson, MS 10,186 105,415 -0-
Franklin, MA -0- -0- 0-
Wichita, KA -0- 24,245 -0-
Urbandale, IA -0- -0- 2,736
Richland, MS 72,000 -0- -0-
O'Fallon, MO -0- -0- 7,000
Fayetteville, NC -0- 17,360 -0-
Schaumburg, IL -0- -0- -0-
Burr Ridge, IL -0- -0- -0-
Romulus, MI -0- -0- -0-
Liberty, MO -0- -0- -0-
Omaha, NE -0- -0- -0-
Charlottesville, VA -0- -0- -0-
Jacksonville, FL 10,893 3,056 -0-
Union Township, OH 211,481 808,873 -0-
Richmond, VA -0- 3,000 -0-
St. Joseph, MO -0- -0- -0-
Newington, CT -0- 5,486 -0-
Cudahy, WI 85,706 -0- 2,618
Beltsville, MD -0- -0- -0-
Granite City, IL -0- (7,502) 12,394,175
Monroe, NC -0- -0- 5,481,022
Winston Salem, NC -0- -0- 6,590,000
Elgin, IL -0- -0- 6,809,488
Tolleson, AZ -0- 14,649,000 -0-
Ft. Myers, FL -0- 4,409,093 -0-
Edwardsville, KS -0- 7,000,148 -0-
Tampa, FL $ 17,656,561 -0- -0-
___________ __________ ___________
Total Additions 18,104,825 27,223,225 31,520,915
___________ __________ ___________
Sales:
Virginia Beach, VA -0- -0- (2,534,600)
___________ __________ ___________
Balance - End of
Year $ 188,285,928 $ 170,181,103 $ 142,957,878
=========== ========== ===========
(2) The aggregate cost for Federal tax purposes approximates
historical cost.
Page 79
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) 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.
Date: December 6, 2004 By: /s/Eugene W. Landy
Eugene W. Landy, President, Chief
Executive Officer and Director
Date: December 6, 2004 By: /s/ Anna T. Chew
Anna T. Chew, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: December 6, 2004 By: /s/ Daniel D. Cronheim
Daniel D. Cronheim, Director
Date: December 6, 2004 By: /s/ Neal Herstik
Neal Herstik
Date: December 6, 2004 By: /s/ Matthew I. Hirsch
Matthew I. Hirsch, Director
Date: December 6, 2004 By: /s/ Samuel A. Landy
Samuel A. Landy, Director
Date: December 6, 2004 By: /s/ Cynthia J. Morgenstern
Cynthia J. Morgenstern
Executive Vice President and Director
Date: December 6, 2004 By: /s/ John R. Sampson
John R. Sampson, Director
Date: December 6, 2004 By: /s/ Peter J. Weidhorn
Peter J. Weidhorn, Director
Date: December 6, 2004 By: /s/ Stephen B. Wolgin
Stephen B. Wolgin, Director
Page 80