Attached files
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EX-31.1 - EXHIBIT - MONMOUTH REAL ESTATE INVESTMENT CORP | mreiccertif31122010.htm |
EX-31.2 - EXHIBIT - MONMOUTH REAL ESTATE INVESTMENT CORP | mreiccertif31222010.htm |
EX-32 - EXHIBIT - MONMOUTH REAL ESTATE INVESTMENT CORP | mreicexhibit322010doc.htm |
UNITED STATES | ||||||
SECURITIES AND EXCHANGE COMMISSION | ||||||
Washington, D.C. 20549 | ||||||
FORM 10-Q | ||||||
( x ) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2009 | |||||
( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ | |||||
Commission File Number: 001-33177 | ||||||
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 number) | ||||||
Juniper Business Plaza, 3499 Route 9 North, Suite 3-C, Freehold, NJ 07728 | ||||||
(Address of Principal Executive 0ffices) (Zip Code) | ||||||
Registrant's telephone number, including area code (732) 577-9996 | ||||||
(Former name, former address and former fiscal year, if changed since last report.) | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ | ||||||
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes_____ No ___X___ | ||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one): | ||||||
Large accelerated filer Accelerated filer X Smaller Reporting Company___ Non-accelerated filer _____ | ||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X | ||||||
The number of shares outstanding of the issuer's common stock as of February 1, 2010 was 28,290,210 shares. |
1
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
AND SUBSIDIARIES
FOR THE QUARTER ENDED DECEMBER 31, 2009
C O N T E N T S
Page No | ||
PART I | FINANCIAL INFORMATION | |
Item 1- | Financial Statements (Unaudited): | |
Consolidated Balance Sheets | 3 | |
Consolidated Statements of Operations | 5 | |
Consolidated Statements of Cash Flows | 7 | |
Notes to Consolidated Financial Statements | 8 | |
Item 2 - | Managements Discussion and Analysis of Financial Condition and Results of Operations. | 14 |
Item 3- | Quantitative and Qualitative Disclosures About Market Risk. | 21 |
Item 4- | Controls and Procedures | 21 |
PART II - | OTHER INFORMATION | |
Item 1 - | Legal Proceedings. | 22 |
Item 1A - | Risk Factors. | 22 |
Item 2 - | Unregistered Sales of Equity Securities and Use of Proceeds. | 22 |
Item 3 - | Defaults Upon Senior Securities. | 22 |
Item 4 - | Submission of Matters to a Vote of Security Holders. | 22 |
Item 5 - | Other Information. | 23 |
Item 6 - | Exhibits. | 23 |
SIGNATURES | 24 |
2
ITEM 1. Financial Statements (Unaudited)
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES (MREIC)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND SEPTEMBER 30, 2009
ASSETS | December 31, 2009 (unaudited) | September 30, 2009 | ||
Real Estate Investments: | ||||
Land | $ | 73,480,817 | $ | 70,530,817 |
Buildings, Improvements and Equipment, net of Accumulated Depreciation of $51,532,548 and $49,298,190, respectively | 293,033,478 | 275,349,764 | ||
Total Real Estate Investments | 366,514,295 | 345,880,581 | ||
Real Estate Held for Sale, net of Accumulated Depreciation | 2,724,261 | 2,724,261 | ||
Cash and Cash Equivalents | 8,789,363 | 6,080,888 | ||
Securities Available for Sale at Fair Value | 26,740,087 | 27,824,665 | ||
Tenant and Other Receivables | 900,501 | 586,917 | ||
Deferred Rent Receivable | 1,200,622 | 1,202,420 | ||
Loans Receivable, net | 348,033 | 391,692 | ||
Prepaid Expenses | 1,161,102 | 590,265 | ||
Financing Costs, net of Accumulated Amortization of $1,420,045 and $1,333,133, respectively | 2,527,647 | 2,317,679 | ||
Lease Costs, net of Accumulated Amortization of $405,657 and $361,486, respectively | 963,663 | 858,368 | ||
Intangible Assets, net of Accumulated Amortization of $3,710,237 and $3,561,925, respectively | 5,937,702 | 6,200,014 | ||
Other Assets | 486,856 | 336,687 | ||
TOTAL ASSETS | $ | 418,294,132 | $ | 394,994,437 |
See Accompanying Notes to the Consolidated Financial Statements
3
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES (MREIC)
CONSOLIDATED BALANCE SHEETS CONTINUED
AS OF DECEMBER 31, 2009 AND SEPTEMBER 30, 2009
LIABILITIES AND SHAREHOLDERS' EQUITY | December 31, 2009 (unaudited) | September 30, 2009 | ||
Liabilities: | ||||
Mortgage Notes Payable | $ | 204,461,274 | $ | 192,050,283 |
Subordinated Convertible Debentures | 13,990,000 | 13,990,000 | ||
Loans Payable | 16,666,516 | 19,063,750 | ||
Accounts Payable and Accrued Expenses | 2,962,318 | 2,083,542 | ||
Other Liabilities | 2,611,007 | 2,915,712 | ||
Total Liabilities | 240,691,115 | 230,103,287 | ||
Shareholders' Equity: | ||||
Series A 7.625% Cumulative Redeemable Preferred Stock, $33,062,500 liquidation value, 1,322,500 Shares Authorized; 1,322,500 Shares Issued and Outstanding | $ | 33,062,500 | $ | 33,062,500 |
Common Stock - $.01 Par Value, 35,000,000 Shares Authorized; 28,155,682 and 25,788,779 Shares Issued and 28,150,682 and 25,783,779 Shares Outstanding, respectively | 281,557 | 257,888 | ||
Excess Stock - $.01 Par Value, 5,000,000 Shares Authorized; No Shares Issued or Outstanding | -0- | -0- | ||
Additional Paid-In Capital | 137,947,603 | 125,606,953 | ||
Treasury Stock at Cost (5,000 shares) | (24,905) | (24,905) | ||
Accumulated Other Comprehensive Income | 4,188,420 | 3,796,831 | ||
Loans to Officers, Directors and Key Employees | (1,201,563) | (1,201,563) | ||
Undistributed Income | -0- | -0- | ||
Total MREICS Shareholders Equity | 174,253,612 | 161,497,704 | ||
Noncontrolling Interests | 3,349,405 | 3,393,446 | ||
Total Shareholders' Equity | 177,603,017 | 164,891,150 | ||
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ | 418,294,132 | $ | 394,994,437 |
See Accompanying Notes to the Consolidated Financial Statements
4
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES (MREIC)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
Three Months Ended | |||||
12/31/09 | 12/31/08 | ||||
INCOME: | |||||
Rental and Reimbursement Revenue | $10,689,383 | $10,282,378 | |||
EXPENSES: | |||||
Real Estate Taxes | 1,625,778 | 1,555,182 | |||
Operating Expenses | 424,150 | 390,414 | |||
General & Administrative Expense | 913,964 | 659,341 | |||
Depreciation & Amortization | 2,617,600 | 2,507,800 | |||
| |||||
TOTAL EXPENSES | 5,581,492 | 5,112,737 | |||
OTHER INCOME (EXPENSE): | |||||
Interest and Dividend Income | 632,422 | 659,491 | |||
Gain (Loss) on Securities Transactions, net | 329,238 | (3,245,198) | |||
Interest Expense | (3,574,638) | (3,589,399) | |||
TOTAL OTHER INCOME (EXPENSE) | (2,612,978) | (6,175,106) | |||
INCOME (LOSS) FROM CONTINUING OPERATIONS | 2,494,913 | (1,005,465) | |||
DISCONTINUED OPERATIONS: | |||||
Income from and Property Held for Sale | 32,838 | 40,337 | |||
INCOME FROM DISCONTINUED | |||||
OPERATIONS | 32,838 | 40,337 | |||
NET INCOME (LOSS) | 2,527,751 | (965,128) | |||
Less: Net Income Attributable to Noncontrolling Interests | 53,477 | 28,912 | |||
NET INCOME (LOSS) ATTRIBUTABLE TO MREIC SHAREHOLDERS | 2,474,274 | (994,040) | |||
Less: Preferred dividend | 630,304 | 630,304 | |||
NET INCOME (LOSS) APPLICABLE TO MREIC COMMON SHAREHOLDERS | $1,843,970 | ($1,624,344) |
See Accompanying Notes to Consolidated Financial Statements
5
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES (MREIC)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) CONTINUED
FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
Three Months Ended | ||||||
12/31/09 | 12/31/08 | |||||
BASIC INCOME (LOSS) PER SHARE | ||||||
Income (loss) from Continuing Operations | $.09 | ($.04) | ||||
Less: Preferred Dividend | (.02) | (.03) | ||||
Income from Discontinued Operations | -0- | -0- | ||||
Net Income (Loss) Applicable to MREICs Common Shareholders - Basic | $.07 | ($.07) | ||||
DILUTED INCOME (LOSS) PER SHARE | ||||||
Income (loss) from Continuing Operations | $.09 | ($.04) | ||||
Less: Preferred Dividend | (.02) | (.03) | ||||
Income from Discontinued Operations | -0- | -0- | ||||
Net Income (Loss) Applicable to MREICs Common Shareholders - Diluted | $.07 | ($.07) | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||
Basic | 27,388,237 | 24,610,934 | ||||
Diluted | 27,389,439 | 24,619,446 | ||||
See Accompanying Notes to Consolidated Financial Statements
6
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES (MREIC)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008
| 2009 | 2008 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Net Income (Loss) Attributable to MREIC Shareholders | $2,474,274 | ($994,040) | ||
Noncash Items Included in Net Income or Loss: | ||||
Net Income Attributable to Noncontrolling Interests | 53,477 | 28,912 | ||
Depreciation | 2,234,358 | 2,117,121 | ||
Amortization | 404,395 | 442,630 | ||
Stock Compensation Expense | -0- | 28,188 | ||
(Gain) Loss on Securities Transactions, net | (329,238) | 3,245,198 | ||
Changes In: | ||||
Tenant, Deferred Rent and Other Receivables | (311,786) | 748,971 | ||
Prepaid Expenses | (570,837) | (814,419) | ||
Other Assets and Lease Costs | (299,635) | (157,306) | ||
Accounts Payable, Accrued Expenses and Other Liabilities | 574,071 | 296,712 | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 4,229,079 | 4,941,967 | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||
Purchase of Real Estate and Intangible Assets | (22,650,000) | -0- | ||
Capital Improvements & Purchases of Equipment | (218,072) | (1,290,771) | ||
Increase in Construction in Progress | -0- | (347,531) | ||
Collections on Loans Receivable | 43,659 | 14,751 | ||
Proceeds from Sale of Securities Available for Sale |
| 3,567,109 | 119,472 | |
Purchase of Securities Available for Sale | (1,761,704) | (1,408,222) | ||
NET CASH USED IN INVESTING ACTIVITIES | (21,019,008) | (2,912,301) | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||
Net (Payments) Proceeds on Loans Payable | (2,397,234) | 4,518,538 | ||
Repurchase of Subordinated Convertible Debentures | -0- | (1,000,000) | ||
Proceeds from Mortgages | 15,400,000 | -0- | ||
Principal Payments on Mortgages | (2,989,009) | (2,718,952) | ||
Financing Costs on Debt | (307,880) | (19,880) | ||
Net Distributions to Noncontrolling Interests | (97,518) | (82,161) | ||
Proceeds from the Exercise of Stock Options | 165,060 | -0- | ||
Proceeds from Registered Direct Placement of Common Stock, net of offering costs | 10,430,408 | -0- | ||
Proceeds from Issuance of Common Stock, net of reinvestments | 2,936,256 | 174,015 | ||
Preferred Dividends Paid | (630,304) | (630,304) | ||
Common Stock Distributions Paid, net of reinvestments | (3,011,375) | (2,597,495) | ||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 19,498,404 | (2,356,239) | ||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2,708,475 | (326,573) | ||
CASH AND CASH EQUIVALENTS - | ||||
BEGINNING OF PERIOD | 6,080,888 | 5,348,262 | ||
END OF PERIOD | 8,789,363 | $5,021,689 |
See Accompanying Notes to Consolidated Financial Statements
7
MONMOUTH REAL ESTATE INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2009
NOTE 1 ORGANIZATION AND ACCOUNTING POLICIES
Monmouth Real Estate Investment Corporation and its wholly-owned subsidiaries, MRC I LLC, MREIC Financial, Inc., and Monmouth Capital Corporation (MREIC, the Company or we) operate as a real estate investment trust (REIT) deriving its income primarily from real estate rental operations. In addition, the Company owns a majority interest in three limited liability companies of which the Company consolidates their results of operations and financial condition. The Company also owns a portfolio of investment securities.
The Company has elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code (the Code), and intends to maintain its qualification as a REIT in the future. As a qualified REIT, with limited exceptions, the Company will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that it distributes to its shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. The Company is subject to franchise taxes in some of the states in which the Company owns property.
The interim consolidated financial statements furnished herein have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ended September 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-K for the year ended September 30, 2009.
Certain amounts in the consolidated financial statements for the prior periods presented have been reclassified to conform to the financial statement presentation for the current year.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as contingent assets and liabilities as of the dates of the consolidated balance sheets and revenue and expenses for the periods then ended. Actual results could differ significantly from these estimates and assumptions.
Employee Stock Options
The Company accounts for stock options in accordance with ASC 718-10 which requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). This compensation cost is determined using option pricing models, intended to estimate the fair value of the awards at the grant date. Compensation costs of $-0- and $28,188 have been recognized in the three months ended December 31, 2009 and 2008, respectively.
On July 26, 2007, the shareholders approved and ratified the Companys 2007 Stock Option Plan (the 2007 Plan) authorizing the grant to officers and key employees of options to purchase up to 1,500,000 shares of common stock.
During the three months ended December 31, 2009, one participant exercised options to purchase 32,750 shares of common stock at an exercise price of $5.04. As of December 31, 2009, there were options to purchase 1,511,800 shares outstanding under the 2007 plan. Options to purchase 1,042,620 shares were available to grant as of December 31, 2009.
8
Subsequent Events
Material subsequent events have been evaluated through February 5, 2010 and are disclosed in the accompanying consolidated financial statements.
Recent Accounting Pronouncements
ASC 805-10, Business Combinations and ASC 810-10, Consolidation, require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. The provisions of ASC 805-10 and ASC 810-10 are effective for this fiscal year beginning October 1, 2009. ASC 805-10 will be applied to business combinations occurring after October 1, 2009 and ASC 810-10 will be applied prospectively to all changes in noncontrolling interests, including any that existed at the effective date. The adoption of ASC 805-10 on October 1, 2009 for future business combinations resulted in the recognition of $205,573 in professional fees and other acquisition expenses in our results of operations. These expenses would have been capitalized previously, pursuant to previous accounting standards. The Company adopted ASC 810-10 on October 1, 2009 and changed the presentation of the minority interest on the financial statements. The noncontrolling interest is now reported separately within the shareholders equity section of the consolidated balance sheet.
NOTE 2 NET INCOME (LOSS) APPLICABLE TO MREIC COMMON SHAREHOLDERS PER SHARE
Basic net income (loss) per common share is calculated by dividing net income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) applicable to common shareholders plus interest expense related to the Convertible Subordinated Debentures (Debentures) by the weighted-average number of common shares outstanding plus the weighted-average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method, plus the number of shares resulting from the possible conversion of the Debentures during the period.
The following amounts related to the potential conversion of the Debentures are excluded from the calculation due to their antidilutive effect:
Three Months Ended | |||||
12/31/09 | 12/31/08 | ||||
Interest expense | $279,800 | $279,800 | |||
Common shares to be issued upon conversion | 1,304,148 | 1,304,148 | |||
Options to purchase common shares in the amount of 1,202 and 8,512 are included in the diluted weighted average shares outstanding for the three months ended December 31, 2009 and 2008, respectively. As of December 31, 2009 and 2008, options to purchase 154,987 and 207,702 shares, respectively, were antidilutive.
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NOTE 3 COMPREHENSIVE INCOME (LOSS)
The following table sets forth the components of the Companys comprehensive income (loss):
Three Months Ended | |||
12/31/09 | 12/31/08 | ||
Net Income (Loss)Applicable to Common Shareholders | $1,843,970 | ($1,624,344) | |
Change in unrealized gain (loss) on securities available for sale | 391,589 | (3,041,920) | |
Comprehensive Income (Loss) | $2,235,559 | ($4,666,264) |
NOTE 4 REAL ESTATE INVESTMENTS
Acquisitions
On October 22, 2009, the Company purchased a 449,900 square foot industrial building in Memphis, Tennessee. The building is 100% net-leased to FedEx Supply Chain Services, Inc. through May 31, 2019. The purchase price was approximately $14,600,000. The Company obtained a mortgage of $10,000,000 at a fixed interest rate of 6.25% which matures on October 15, 2014 and paid the remainder in cash from the proceeds of the registered direct placement of common stock.
On December 23, 2009, the Company purchased a 91,295 square foot industrial building in Houston, Texas. The building is 100% net-leased to National Oilwell DHT, L.P. through September 30, 2022. The purchase price was approximately $8,100,000. The Company obtained a mortgage of $5,400,000 at a fixed interest rate of 6.875% which matures on August 10, 2022 and paid the remainder in cash from the proceeds of the registered direct placement of common stock.
Tenant Concentration
The Company has a concentration of Federal Express Corporation (FDX) and FDX subsidiary-leased properties. The percentage of FDX leased square footage to the total of the Companys rental space was 49% as of December 31, 2009. Annualized rental and reimbursement revenue from FDX and FDX subsidiaries is estimated to be approximately 56% of total rental and reimbursement revenue for fiscal 2010.
NOTE 5 SECURITIES AVAILABLE FOR SALE
During the three months ended December 31, 2009, the Company sold or redeemed securities with a cost of $3,237,871 and recognized a gain on sale of $329,238. The Company also made purchases of $1,761,704 in securities available for sale. Of this amount, the Company made total purchases of 33,333 shares of UMH Properties, Inc, a related REIT (UMH), in its Dividend Reinvestment and Stock Purchase Plan for a total of $250,000 or $7.50 per share. The Company owned a total of 176,660 shares of UMH as of December 31, 2009 at a total cost of $1,599,268 or average cost of $9.05 per share.
The following table summarizes the Companys gain (loss) on securities transactions for the three months ended December 31, 2009 and 2008:
Three Months Ended | ||
12/31/09 | 12/31/08 | |
Gain (Loss) on sale or redemption of securities, net | $329,238 | ($76) |
Impairment losses | -0- | (3,245,122) |
Gain (Loss) on securities transactions, net | $329,238 | ($3,245,198) |
10
During the three months ended December 31, 2008, the Company recognized impairment losses of $3,245,122. These impairment losses were due to writing down of the carrying value of securities which were considered other than temporarily impaired.
The Company had 8 securities that were temporarily impaired investments as of December 31, 2009. The Company considers many factors in determining whether a security is other than temporarily impaired, including the nature of the security and the cause, severity and duration of the impairment. The following is a summary of temporarily impaired securities at December 31, 2009:
Less than 12 Months | 12 Months or Longer | |||||||
Unrealized | Unrealized | |||||||
Description of Securities | Fair Value | Losses | Fair Value | Losses | ||||
Preferred stock | $364,950 | ($5,120) | $2,256,413 | ($91,123) | ||||
Common stock | -0- | -0- | 3,828,577 | (128,737) | ||||
Total | $364,950 | ($5,120) | $6,084,990 | ($219,860) |
The following is a summary of the range of losses:
Number of Individual Securities | Fair Value | Unrealized Losses | Range of Loss | ||
7* | 6,319,040 | ($185,875) | Less than 10% | ||
1 | 130,900 | (39,105) | Less than 25% | ||
8 | $6,449,940 | ($224,980) |
* Includes UMH Properties, Inc., a related entity, with a fair value of $1,498,077 and an unrealized loss of $101,191.
The Company has determined that these securities are temporarily impaired as of December 31, 2009. The Company normally holds REIT securities long term and has the ability and intent to hold these securities to recovery.
NOTE 6 DEBT
The Company entered into 2 mortgages totaling $15,400,000 in connection with the acquisitions described in Note No. 5 above.
As of December 31, 2009, loans payable consisted of $15,000,000 outstanding on the line of credit with Capital One Bank (the line) and $1,666,516 outstanding on the securities margin loans. The maturity date of the line was extended an additional year upon successful loan review, in accordance with the Capital One line of credit agreement and is now due March 31, 2013. The margin loans are secured by securities with a fair value of $26,740,087 as of December 31, 2009.
NOTE 7 SHAREHOLDERS EQUITY
7.625% Series A Cumulative Redeemable Preferred Stock
During the three months ended December 31, 2009, the Company paid $630,304 in preferred dividends or $0.4766 per share. On January 13, 2010, the board of directors declared a quarterly dividend of $.4766 per share to be paid March 15, 2010, to shareholders of record as of February 16, 2010.
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Common Stock
On October 20, 2009, the Company issued 1,730,200 shares of common stock in a registered direct placement at $6.50 per share. The Company received net proceeds from the offering of approximately $10,430,000 after offering costs. The Company intends to use the net proceeds to purchase additional properties in the ordinary course of business and for general corporate purposes.
The Company raised $4,098,672 (including reinvestments of $1,162,416) from the issuance of shares in the Dividend Reinvestment and Stock Purchase Plan (DRIP) during the three months ended December 31, 2009 and issued 603,953 common shares.
During the three months ended December 31, 2009, the Company paid $4,173,791 in total dividends or $.15 per common share to common shareholders, of which $1,162,416 was reinvested in the DRIP. On January 13, 2010, the Company declared a dividend of $0.15 per common share to be paid March 15, 2010 to common shareholders of record as of February 16, 2010.
Treasury Stock
No additional purchases were made of treasury stock in the first quarter of fiscal 2010.
NOTE 8 - FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including securities available for sale. The fair value of these financial assets was determined using the following inputs at December 31, 2009:
Fair Value Measurements at Reporting Date Using | |||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||
Securities available for sale | $26,740,087 | $26,740,087 | $-0- | $-0- | |||
Real estate held for sale | 2,724,261 | -0- | 2,724,261 | -0- |
The Company is also required to disclose certain information about fair values of financial instruments. 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 Companys entire holdings of a particular financial instrument. For a portion of the Companys 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.
12
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 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 December 31, 2009, the fair value (estimated based upon expected cash outflows discounted at current market rates) and carrying value of fixed rate mortgage notes payable amounted to $202,731,191and $204,461,274, respectively. As of December 31, 2009, the real estate held for sale is recorded at estimated fair value.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the three months ended December 31, 2009 and 2008 was $4,020,922 and $3,957,728, respectively.
During the three months ended December 31, 2009 and 2008, the Company had dividend reinvestments of $1,162,416 and $1,090,383, respectively, which required no cash transfers.
NOTE 10 DISCONTINUED OPERATIONS
At December 31, 2009, the Company owned sixty industrial properties and one shopping center. One industrial property in Quakertown, Pennsylvania was classified as held for sale. The results of operations of the Quakertown, Pennsylvania property are included in discontinued operations for the three months ended December 31, 2009 and 2008.
The following table summarizes the components of discontinued operations:
Three Months Ended | |||
12/31/09 | 12/31/08 | ||
Rental and Reimbursement Revenue | $83,686 | $86,460 | |
Real Estate Taxes | (11,040) | (11,040) | |
Operating Expenses | (1,147) | (1,069) | |
Depreciation | -0- | (11,559) | |
Amortization | (7,515) | (22,455) | |
Interest expense | (31,146) | -0- | |
Income from Operations of Property Held for Sale | 32,838 | 40,337 | |
Gain on Sale of Investment Property | -0- | -0- | |
Income from Discontinued Operations | $32,838 | $40,337 |
Cash flows from discontinued operations for the three months ended December 31, 2009 and 2008 are combined with the cash flows from operations within each of the three categories presented. Cash flows from discontinued operations are as follows:
Three Months Ended | ||||
12/31/09 | 12/31/08 | |||
Cash flows from Operations Discontinued Operations | $40,353 | $74,341 | ||
Cash flows from Investing Activities Discontinued Operations | -0- | -0- | ||
Cash flows from Financing Activities Discontinued Operations | ($40,353) | ($74,341) | ||
The absence of cash flows from discontinued operations is not expected to materially affect future liquidity and capital resources.
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NOTE 11 RELATED PARTY TRANSACTIONS
The David Cronheim Mortgage Company, an affiliated company, was paid a mortgage brokerage fee of $100,000 in connection with the mortgage for the acquisition of the property in Memphis, Tennessee, noted under Note No. 4. The president of The David Cronheim Mortgage Company is a director of the Company.
NOTE 12 CONTINGENCIES AND COMMITMENTS
From time to time, the Company can be subject to claims and litigation arising in the ordinary course of business. Management does not believe that any such claim or litigation would have a material adverse effect on the consolidated balance sheet or results of operations.
NOTE 13 SUBSEQUENT EVENTS
On January 27, 2010, the Company purchased an 184,317 square foot industrial building in Dallas, Texas. The building is 100% net-leased to Carrier Enterprises LLC through January 11, 2019. The purchase price was $17,900,000. The Company obtained a mortgage of $11,700,000 at a fixed interest rate of 6.75% which matures in January 2025 and paid the remainder using a draw on the margin loan.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto provided elsewhere herein and the Companys September 30, 2009 Annual Report on Form 10-K.
The Company is a REIT. The Companys primary business is the ownership and management of industrial buildings subject to long-term leases to investment-grade tenants. During the three months ended December 31, 2009, the Company purchased two net-leased industrial properties, located in Memphis, Tennessee and Houston, Texas, totaling approximately 540,000 square feet, for approximately $22,700,000. As of December 31, 2009, the Company owned sixty industrial properties and one shopping center with total square footage of approximately 6,674,000. Total real estate investments were approximately $366,514,000 as of December 31, 2009. These properties are located in twenty-five states. As of December 31, 2009, the Companys weighted average lease expiration term was approximately 5.3 years and the percent of square footage leased was 96% and percentage of square feet occupied was 94%. The Companys average rent per occupied square foot for fiscal 2010 is approximately $5.70.
The Companys revenue primarily consists of rental and reimbursement revenue from the ownership of industrial rental property. Income from property operations defined as rental and reimbursement revenue less real estate taxes and operating expenses increased $302,673 or 4% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008. The income from the Companys property operations continues to meet managements expectations.
The Company has a concentration of Federal Express Corporation (FDX) and FDX subsidiary-leased properties. As of December 31, 2009, the percentage of FDX-leased square footage as a total of the Companys rental space was 49%. Annualized rental income and occupancy charges from FDX and FDX subsidiaries are estimated at approximately 56% of total rental and reimbursement revenue for fiscal 2010. This is a risk shareholders should consider.
The Company also holds a portfolio of securities of other REITs with a fair value of $26,740,087 as of December 31, 2009, which earns dividend and interest income. The dividends received from our securities investments, which are predominately REIT preferred issues, continue to meet our expectations. It is our intent to hold these securities long-term. The Company invests in REIT securities on margin from
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time to time when the Company can achieve an adequate yield spread. The REIT securities portfolio provides the Company with liquidity and additional income until suitable acquisitions of real property are found.
See PART I, Item 1 Business in the Companys September 30, 2009 Annual Report on Form 10-K 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.
Changes in Results of Operations
As of December 31, 2009, the Company owned sixty-one properties with total square footage of approximately 6,674,000 as compared to fifty-eight properties with total square footage of approximately 6,070,000 as of December 31, 2008. As of December 31, 2009, the Companys weighted average lease expiration term was approximately 5.3 years. The Companys occupancy rate was 94% as of December 31, 2009 and 2008.
Rental and reimbursement revenue increased $407,005 or 4% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008. The net increase is due mainly to the following:
·
Increases in rent and reimbursement revenue from the Topeka, KS property purchased at the end of fiscal 2009 and Memphis, TN and Houston, TX properties purchased in the first quarter of fiscal 2010 totaling approximately $353,000.
·
Increased rent and reimbursements from the leasing of the formerly vacant property in Jackson, MS totaling approximately $32,000.
·
Increased rent from the properties in Cheektowaga, NY and Griffin, GA, which were expanded in fiscal 2009, totaling approximately $88,000.
·
Increases in reimbursements of other real estate taxes totaling approximately $157,000 related to certain properties which the real estate taxes increased in fiscal 2009.
·
Decreases in rent and reimbursements totaling approximately $223,000 from our two vacant properties in Greensboro, NC and Liberty, MO.
Real estate taxes increased $70,596 or 5% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008. The net increase is due mainly to the real estate taxes related to the acquisition of the two industrial properties in fiscal 2010 and one in fiscal 2009 and increases in real estate taxes due to higher assessed values from the five properties expanded during fiscal 2008. Since the majority of our properties are net-leased, the increase in real estate taxes is recovered from the tenants.
Operating expenses increased $33,736 or 9% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008. The increase is due mainly to an increase in operating expenses related to the acquisitions noted above and increases in repairs and maintenance and utilities related to our two vacant buildings.
General and administrative expense increased $254,623 or 39% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008. The increase is due mainly to an increase in professional fees and other acquisition costs of $205,573 related to the acquisition of the Memphis, TN and Houston, TX properties which would have been capitalized under previous accounting standards.
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The following table summarizes the Companys gain (loss) on securities transactions for the three months ended December 31, 2009 and 2008:
Three Months Ended | ||
12/31/09 | 12/31/08 | |
Gain (Loss) on sale or redemption of securities, net | $329,238 | ($76) |
Impairment losses | -0- | (3,245,122) |
Gain (Loss) on securities transactions, net | $329,238 | $3,245,198) |
During the three months ended December 31, 2009 and 2008, the Company recognized a loss of $-0- and $3,245,122, respectively, due to writing down of the carrying value of securities which were considered other than temporarily impaired. As of December 31, 2009, the Company had an unrealized gain on its securities portfolio of $4,188,420.
Income from discontinued operations for the three months ended December 31, 2009 and 2008 includes the results of operations of the Quakertown, Pennsylvania property which was classified as held for sale as of December 31, 2009.
The following table summarizes the components of discontinued operations:
Three Months Ended | |||
12/31/09 | 12/31/08 | ||
Rental and Reimbursement Revenue | $83,686 | $86,460 | |
Real Estate Taxes | (11,040) | (11,040) | |
Operating Expenses | (1,147) | (1,069) | |
Depreciation | -0- | (11,559) | |
Amortization | (7,515) | (22,455) | |
Interest expense | (31,146) | -0- | |
Income from Operations of Property Held for Sale | 32,838 | 40,337 | |
Gain on Sale of Investment Property | -0- | -0- | |
Income from Discontinued Operations | $32,838 | $40,337 |
Cash flows from discontinued operations for the three months ended December 31, 2009 and 2008 are combined with the cash flows from operations within each of the three categories presented. Cash flows from discontinued operations are as follows:
Three Months Ended | ||||
12/31/09 | 12/31/08 | |||
Cash flows from Operations Discontinued Operations | $40,353 | $74,341 | ||
Cash flows from Investing Activities Discontinued Operations | -0- | -0- | ||
Cash flows from Financing Activities Discontinued Operations | ($40,353) | ($74,341) | ||
The absence of cash flows from discontinued operations is not expected to materially affect future liquidity and capital resources.
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Changes in Financial Condition
The Company generated net cash from operating activities of $4,229,079 and $4,941,967 for the three months ended December 31, 2009 and 2008, respectively.
Real estate investments increased $20,633,714 from September 30, 2009 to December 31, 2009. This increase is due mainly to the purchase of the industrial properties in Memphis, TN and Houston, TX totaling $22,650,000.
Securities available for sale decreased $1,084,578 from September 30, 2009 to December 31, 2009. The decrease is due mainly to the sales and redemptions of securities with an adjusted cost of $3,237,871. These decreases were offset by purchases of securities of $1,761,704 and an increase in the fair value of securities by $391,589.
Tenant and Other Receivables increased $313,584 from September 30, 2009 to December 31, 2009. The increase is due mainly to the accrual of real estate tax and other reimbursements from the tenants.
Mortgage notes payable increased $12,410,991 from September 30, 2009 to December 31, 2009. This increase is due to new mortgage proceeds of $15,400,000 from the financing of the Memphis, TN ($10,000,000 at 6.25%) and Houston, TX ($5,400,000 at 6.875%) property acquisitions. This increase was offset by principal repayments of $2,989,009 for the three months ended December 31, 2009. The Company is scheduled to repay a total of approximately $13,000,000 in mortgage principal in fiscal 2010.
Loans payable decreased $2,397,234 from September 30, 2009 to December 31, 2009. The decrease was due to repayments on the margin loans from available cash. As of December 31, 2009, the Company had an outstanding balance of $15,000,000 on its line of credit and $1,666,516 outstanding on its margin loans.
On October 20, 2009, the Company issued 1,730,200 shares of common stock in a registered direct placement at $6.50 per share. The Company received net proceeds from the offering of approximately $10,430,000 after offering costs. The Company used the net proceeds to purchase two industrial properties in the ordinary course of business and for general corporate purposes.
The Company raised $4,098,672 (including reinvestments of $1,162,416) from the issuance of shares in the Dividend Reinvestment and Stock Purchase Plan (DRIP) during the three months ended December 31, 2009 and issued 603,953 common shares. During the three months ended December 31, 2009, the Company paid $4,173,791 in total dividends or $.15 per common share to common shareholders, of which $1,162,416 was reinvested in the DRIP. On January 13, 2010, the Company declared a dividend of $0.15 per common share to be paid on March 15, 2010 to common shareholders of record as of February 16, 2010.
During the three months ended December 31, 2009, one employee exercised options to purchase 32,750 shares of common stock at an exercise price of $5.04. Total proceeds to the Company were $165,060.
The Company uses a variety of sources to fund its cash needs in addition to cash generated through operations. The Company may sell marketable securities, borrow on its margin loans, refinance debt, or raise capital through the DRIP or capital markets.
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Liquidity and Capital Resources
Net cash provided by operating activities was $4,229,079 and $4,941,967 for the three months ended December 31, 2009 and 2008, respectively. The decrease in cash provided by operating activities is due to a decrease in prepaid rents and an increase in tenant and other receivables. Dividends paid on common stock for the three months ended December 31, 2009 and 2008 were $4,173,791 and $3,687,878, respectively (of which $1,162,416 and $1,090,383, respectively, were reinvested).
As of December 31, 2009, the Company owned securities available for sale of $26,740,087 subject to margin loans of $1,666,516. These marketable securities provide the Company with additional liquidity. As of December 31, 2009, the Company had an unrealized gain on its portfolio of $4,188,420. The dividends received from our investments, which are predominately REIT preferred issues, continue to meet our expectations.
As of December 31, 2009, the Company owned sixty-one properties, of which fifty-two carried mortgage loans totaling $204,461,274. The unencumbered properties could be refinanced to raise additional funds, although covenants in the Companys line of credit limit the amount of unencumbered properties which can be mortgaged. The Company has fully drawn its $15,000,000 line of credit as of December 31, 2009. The Companys total debt plus preferred equity to total market capitalization was 56% as of December 31, 2009. The Company has been raising capital through its DRIP, private placements and public offerings of common and preferred stock and investing in net leased industrial properties. The Company believes that funds generated from operations and the DRIP, together with the ability to finance and refinance its properties, will provide sufficient funds to adequately meet its obligations over the next year.
The Company seeks to invest in well-located, modern buildings leased to investment grade tenants on long-term leases. In managements opinion, newly built facilities leased to FDX and its subsidiaries meet these criteria. The Company has a concentration of FDX and FDX subsidiary leased properties. The percentage of FDX-leased square footage to the total of the Companys rental space was 49% as of December 31, 2009. Annualized rental and reimbursement revenue from FDX and FDX subsidiaries is estimated at approximately 56% of total rental and reimbursement revenue for fiscal 2010. FDX is a publicly-owned corporation and information on its financial business operations is readily available to the Companys shareholders.
The Company intends to acquire additional net-leased industrial properties on long-term leases to investment grade tenants or expand its current properties when needed. The Company has historically financed purchases of real estate and expansions primarily through mortgages. To the extent that funds or appropriate properties are not available, fewer acquisitions or expansions will be made.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Funds From Operations
Funds from operations (FFO) is defined as net income, excluding gains or losses from sales of depreciable assets, plus real estate-related depreciation and amortization. FFO should be considered as a supplemental measure of operating performance used by REITs. FFO excludes historical cost depreciation as an expense and may facilitate the comparison of REITs which have different cost basis. The items excluded from FFO are significant components in understanding the Companys financial performance.
FFO (i) does not represent cash flow from operations as defined by generally accepted accounting principles; (ii) 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 (iii) is not an
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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 Companys FFO for the three months ended December 31, 2009 and 2008 is calculated as follows:
Three Months Ended | |||
12/31/09 | 12/31/08 | ||
Net Income (Loss) attributable to MREIC shareholders | $2,474,274 | ($994,040) | |
Preferred Dividend | (630,304) | (630,304) | |
Depreciation Expense | 2,234,358 | 2,105,562 | |
Depreciation Expense Related to Discontinued Operations | -0- | 11,559 | |
Amortization of In-Place Lease Intangible Assets | 253,925 | 308,919 | |
FFO | $4,332,253 | $801,696 |
The following are the cash flows provided (used) by operating, investing and financing activities for the three months ended December 31, 2009 and 2008:
Three Months Ended | |||
2009 | 2008 | ||
Operating Activities | $4,229,079 | $4,941,967 | |
Investing Activities | (21,019,008) | (2,912,301) | |
Financing Activities | 19,498,404 | (2,356,239) |
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Forward-Looking Statements
Statements contained in this Form 10-Q, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act). Also, when we use any of the words anticipate, assume, believe, estimate, expect, intend, or similar expressions, we are making forward-looking statements. These forward-looking statements are not guaranteed and are based on our current intentions and on our current expectations and assumptions. These statements, intentions, expectations and assumptions involve risks and uncertainties, some of which are beyond our control that could cause actual results or events to differ materially from those we anticipate or project, such as:
·
the ability of our tenants to make payments under their respective leases, our reliance on certain major tenants and our ability to re-lease properties that are currently vacant or that become vacant;
·
our ability to obtain suitable tenants for our properties;
·
changes in real estate market conditions and general economic conditions;
·
the inherent risks associated with owning real estate, including local real estate market conditions, governing laws and regulations and illiquidity of real estate investments;
·
our ability to sell properties at an attractive price;
·
our ability to repay debt financing obligations;
·
our ability to refinance amounts outstanding under our credit facilities at maturity on terms favorable to us;
·
the loss of any member of our management team;
·
our ability to comply with certain debt covenants;
·
our ability to integrate acquired properties and operations into existing operations;
·
continued availability of proceeds from our debt or equity capital;
·
the availability of other debt and equity financing alternatives;
·
market conditions affecting our equity capital;
·
changes in interest rates under our current credit facilities and under any additional variable rate debt arrangements that we may enter into in the future;
·
our ability to implement successfully our selective acquisition strategy;
·
our ability to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;
·
changes in federal or state tax rules or regulations that could have adverse tax consequences; and
·
our ability to qualify as a real estate investment trust for federal income tax purposes.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to information required regarding quantitative and qualitative disclosures about market risk from the end of the preceding year to the date of this Quarterly Report on Form 10-Q.
ITEM 4. Controls and Procedures.
The Companys President and Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Companys management, have evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Companys President and Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective.
The Companys President and Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Companys internal control over financial reporting during the quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
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PART II:
OTHER INFORMATION
Item 1. | Legal Proceedings None |
Item 1A. | Risk Factors There have been no material changes to information required regarding risk factors from the end of the preceding year to the date of this Quarterly Report on Form 10-Q. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the year ended September 30, 2009, which could materially affect the Companys business, financial condition or future results. The risks described in the Companys Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys business, financial condition and/or operating results. |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds None The Company did not repurchase any additional common shares under the Share Repurchase Program during the three months ended December 31, 2009. |
Item 3. | Defaults Upon Senior Securities None |
Item 4. | Submission of Matters to a Vote of Security Holders - None |
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Item 5. | Other Information None | |
Item 6. | Exhibits | |
31.1 | Certification of Eugene W. Landy, President and Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (Filed herewith). | |
31.2 | Certification of Anna T. Chew, Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (Filed herewith). | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Eugene W. Landy, President and Chief Executive Officer, and Anna T. Chew, Chief Financial Officer (Furnished herewith). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MONMOUTH REAL ESTATE
INVESTMENT CORPORATION
Date | February 5, 2010 | By: /s/ Eugene W. Landy |
Eugene W. Landy | ||
President and Chief | ||
Executive Officer | ||
Date: | February 5, 2010 | By: /s/ Anna T. Chew |
Anna T. Chew | ||
Chief Financial Officer |
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