-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kkir1OXx3a9NIziXGsolN7QLhHIv8m5P6LWvXYhth7+7WemOZYvSAhG4yhYtV75H 1Bo5HgzYx13eTbzKTNnC2Q== 0000067625-01-500006.txt : 20020413 0000067625-01-500006.hdr.sgml : 20020413 ACCESSION NUMBER: 0000067625-01-500006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONMOUTH REAL ESTATE INVESTMENT CORP CENTRAL INDEX KEY: 0000067625 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221897375 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-04258 FILM NUMBER: 1822152 BUSINESS ADDRESS: STREET 1: 3499 ROUTE 9 N, SUITE 3-C STREET 2: JUNIPER BUSINESS PLAZA CITY: FREEHOLD STATE: NJ ZIP: 07728 BUSINESS PHONE: 7325779996 MAIL ADDRESS: STREET 1: 3499 ROUTE 9 N, SUITE 3-C STREET 2: JUNIPER BUSINESS PLAZA CITY: FREEHOLD STATE: NJ ZIP: 07728 FORMER COMPANY: FORMER CONFORMED NAME: MONMOUTH REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19900403 10-K 1 kkkkkkk.txt 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, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 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) Delaware 22-1897375 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3499 Route 9 North, Suite 3-C, Freehold, NJ 07728 (Address of Principal Executive 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 Class A $.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 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 . The aggregate market value of voting stock held by non- affiliates of the Registrant was $63,512,445 (based on 9,711,383 shares of common stock at the closing price of $6.54 per share) as of December 7, 2001. There were 10,474,468 shares of common stock outstanding as of December 7, 2001. Documents Incorporated by Reference: Exhibits incorporated by reference are listed in Part IV, Item 14 (a) (3). PART I ITEM 1 - BUSINESS Monmouth Real Estate Investment Corporation (the Company) is a corporation operating as a qualified real estate investment trust under Sections 856-858 of the Internal Revenue Code. Currently, the Company derives its income primarily from real estate rental operations. The Company has approximately 2,513,000 square feet of property, of which approximately 838,000 square feet, or 33%, is leased to Federal Express Corporation and approximately 301,000 square feet, or 12%, is leased to Keebler Company. During 2001, 2000 and 1999 rental and occupancy charges from properties leased to these companies approximated 55%, 52% and 49%, respectively, of total rental and occupancy charges. At September 30, 2001, the Company had investments in twenty-seven 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 and Maryland. All properties are managed by a management company. All properties are leased on a net basis except Monaca, Pennsylvania. The Company does not have an advisory contract. Its properties are managed by Cronheim Management Services. Effective August 1, 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. Cronheim Management Services received $220,521, $199,432, and $161,146 in 2001, 2000 and 1999, respectively, for the management of various properties. The David Cronheim Company received $26,708, $14,347, and $136,229 in lease brokerage commissions in 2001, 2000 and 1999, respectively. 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. 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. Page 2 ITEM 1 - BUSINESS (CONT'D) The Company continues to invest in both debt and equity securities of other real estate investment trusts (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. 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. In fiscal 2001, the Company purchased five net-leased industrial properties for a total cost of approximately $39,000,000. In fiscal 2002, 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 and proceeds from the Dividend Reinvestment and Stock Purchase Plan. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made. 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 Federal Express Corporation (FDX) or FDX subsidiaries meet this criteria. The Company is considering one property for purchase which is leased to FDX or FDX subsidiaries. This will result in an additional 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. Because of the contingent nature of contracts to purchase real property, the Company announces acquisitions only on closing. The Company faces possible environmental liability issues. 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 owned or operated. 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. The Company has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions or violations with respect to the properties it formerly owned. 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 of, or released from, the property. A conveyance of the property, therefore, does not relieve the owner or operator from liability. The Company is not currently aware of any environmental liabilities relating to its properties which would have a material adverse effect on its business, assets, or results of operations. However, no assurance can be given that environmental liabilities will not arise in the future. Page 3 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 is a brief description of the Company's real estate holdings at September 30, 2001. (See Item 14, Schedule III for additional information on Real Estate and Accumulated Depreciation and Item 14, Note 6 of the Notes to the Financial Statements for a discussion of encumbrances on these equity holdings). SOMERSET, NEW JERSEY The Company owns a two-thirds undivided interest in this Somerset, New Jersey shopping center. The remaining one-third interest is owned by D & E Realty, an unrelated entity. All assets, liabilities, income and expense are allocated to the owners based upon their respective ownership percentages. The total rentable space in this shopping center is approximately 42,800 square feet. In addition, 21,365 square feet of land was leased to Taco Bell, Inc. on which a freestanding restaurant was completed during 1993. This shopping center was 97% occupied at September 30, 2001. The main store lease expires on September 30, 2005. The Company's portion of the annual gross rental income on this facility was approximately $314,000. RAMSEY, NEW JERSEY Ramsey Industrial Park, located on E. Crescent Avenue in Ramsey, New Jersey is a 42,719 square foot building net- leased to Bogen Photo, Inc. This lease expires on September 30, 2001. The current annual gross rental income is approximately $224,000. This lease has been extended to September 30, 2006 at an annual rent of $279,000. MONACA, PENNSYLVANIA The Moor Industrial Park is located in Monaca, Pennsylvania. It consists of approximately 292,000 feet of rentable space located on 23 acres. The leases are all short term at relatively low rents compared to the Company's other properties. The current annual gross rental income is approximately $465,000. At September 30, 2001, this property was 74% occupied. This property has 1,200 feet of undeveloped river frontage. ORANGEBURG, NEW YORK This 50,400 square foot warehouse facility, located in Orangeburg, New York, is net-leased to Keebler Company. The average annual rental income over the term of the lease, which expired on December 31, 2000, was approximately $433,000. This lease has been extended to December 31, 2003 at an annualized rent of $323,000 per annum. Page 4 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) SOUTH BRUNSWICK, NEW JERSEY This 144,520 square foot warehouse facility, located in South Brunswick, New Jersey, is net-leased to McMaster Carr Supply Co. This lease expired on December 31, 2000. The average annual rental income over the term of the lease was $614,000. This lease has been extended to December 31, 2003 at an annualized rent of $705,000 per annum. GREENSBORO, NORTH CAROLINA This 40,560 square foot distribution center, located in Greensboro, North Carolina is net-leased to Keebler Company. This lease expires February 14, 2003. The average annual rental income over the term of the lease is approximately $233,000. JACKSON, MISSISSIPPI This 26,340 square foot warehouse facility, located in Jackson, Mississippi, is net-leased to Keebler Company. The average annual rental income over the term of the lease is approximately $169,000. This lease expires September 30, 2003. FRANKLIN, MASSACHUSETTS This 84,376 square foot warehouse facility, located in Franklin, Massachusetts, is net-leased to the Keebler Company. The average annual rental income over the term of the lease is approximately $516,000. This lease expires on January 31, 2004. WICHITA, KANSAS This 44,136 square foot warehouse facility, located in Wichita, Kansas, is net-leased to Keebler Company. The average annual rental income over the term of the lease is approximately $195,000. This lease expires May 30, 2005. Keebler Company has sub-leased this facility. URBANDALE, IOWA This 36,150 square foot warehouse facility, located in Urbandale, Iowa, is net-leased to the Glazers Distributors of Iowa, Inc. The average annual rental income over the term of the lease is approximately $127,000. This lease expires June 30, 2003. Page 5 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) RICHLAND, MISSISSIPPI This 36,000 square foot warehouse facility, located in Richland, Mississippi, is 100% net-leased to Federal Express Corporation for an average annual rental income of approximately $140,000 over the term of the lease. This lease expires on March 31, 2004. O'FALLON MISSOURI This 102,135 square foot warehouse facility, located in O'Fallon, Missouri, is 100% net-leased to PPG Industries, Inc. This lease expired June 30, 2001. The average annual rental income over the term of the lease was approximately $353,000. This lease has been extended to June 30, 2006 at an annualized rent of approximately $398,000 per annum. VIRGINIA BEACH, VIRGINIA This 67,926 square foot warehouse facility, located in Virginia Beach, Virginia, was 100% net-leased to the Raytheon Service Company. The annual rental income was approximately $307,000. This lease expired February 28, 2001. This facility is currently vacant. Management believes this property to be well situated and is actively seeking new lease prospects. FAYETTEVILLE, NORTH CAROLINA This 148,000 square foot warehouse facility, located in Fayetteville, North Carolina, is 100% net-leased to the Belk Enterprises, Inc. The average annual rental income over the term of the lease is approximately $473,000. This lease expires June 4, 2006. SCHAUMBURG, ILLINOIS This 73,500 square foot warehouse facility, located in Schaumburg, Illinois, is 100% net-leased to Federal Express Corporation. The average annual rental income over the term of the lease is approximately $463,000. This lease expires April 1, 2007. TETERBORO, NEW JERSEY 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. BURR RIDGE, ILLINOIS This 12,477 square foot warehouse facility, located in Burr Ridge, Illinois, is 100% net-leased to the Sherwin- Williams Company. The average annual rental income over the term of the lease is $151,000. This lease expires on October 31, 2009. Page 6 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) ROMULUS, MICHIGAN This 72,000 square foot warehouse facility, located in Romulus, Michigan, is 100% net-leased to Federal Express Corporation. The average annual rental over the term of the lease is approximately $396,000. This lease expires on November 30, 2007. LIBERTY, MISSOURI This 98,200 square foot warehouse facility, located in Liberty, Missouri, is 100% net- leased to the Johnson Controls, Inc. The average annual rental income over the term of the lease is approximately $705,000. This lease expires on December 18, 2007. Johnson Controls, Inc. has sub-leased this facility. OMAHA, NEBRASKA This 88,140 square foot warehouse facility, located in Omaha, Nebraska, is 100% net-leased to Federal Express Corporation. The average annual rental income over the term of the lease is approximately $516,000. This lease expires October 31, 2008. CHARLOTTESVILLE, VIRGINIA This 49,900 square foot warehouse facility, located in Charlottesville, Virginia, is 100% net-leased to Federal Express Corporation. The average annual rental income over the term of the lease is approximately $363,000. This lease expires October 31, 2008. JACKSONVILLE, FLORIDA This 95,883 square foot warehouse facility, located in Jacksonville, Florida, is 100% net-leased to Federal Express Corporation. The average annual rental income over the term of the lease is approximately $526,000. This lease expires May 31, 2008. UNION CITY, OHIO This 85,508 square foot warehouse facility, located in Union City, Ohio, is 100% net-leased to RPS Ground, a subsidiary of Federal Express Corporation. The average annual rental income over the term of the lease is approximately $393,000. This lease expires August 1, 2009. RICHMOND, VIRGINIA This 112,799 square foot warehouse facility, located in Richmond, Virginia was purchased in fiscal 2001. This warehouse facility is 100% net-leased to Federal Express Corporation. The average annual rental income over the term of the lease is approximately $689,000. This lease expires October 21, 2009. Page 7 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) ST. JOSEPH, MISSOURI This 388,671 square foot warehouse facility, located in St. Joseph, Missouri, was purchased in fiscal 2001 through the assumption of a leasehold interest. This warehouse facility is 100% net-leased to the Mead Corporation. The average annual rental income over the term of the lease is approximately $1,239,000. This lease expires November 30, 2015. NEWINGTON, CONNECTICUT This 54,812 square foot warehouse facility, located in Newington, Connecticut, was purchased in fiscal 2001. This warehouse facility is 100% net-leased to Keebler Company. The average annual rental income over the term of the lease is approximately $340,000. This lease expires February 28, 2011. CUDAHY, WISCONSIN This 114,123 square foot warehouse facility, located in Cudahy, Wisconsin, was purchased in fiscal 2001. This warehouse facility is 100% net-leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The average annual rental income over the term of the lease is approximately $572,000. This lease expires March 31, 2011. BELTSVILLE, MARYLAND This 109,705 square foot warehouse facility, located in Beltsville, Maryland, was purchased in fiscal 2001. This warehouse facility is 100% net-leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The average annual rental income over the term of the lease is approximately $892,000. This lease expires December 31, 2010. Page 8 ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2001. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The shares of Class A 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: 2001 2000 Market Price Market Price Fiscal Fiscal Qtr. High Low Distrib Qtr. High Low Distrib First 5.188 4.750 $.145 First 5.375 4.625 $.145 Second 5.875 4.813 .145 Second 5.188 4.500 .145 Third 6.130 5.500 .145 Third 5.375 4.563 .145 Fourth .145 Fourth 5.375 4.813 .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, 2001, the closing price was $6.15. As of September 30, 2001, there were approximately 1,091 shareholders of record who held shares of Class A common stock of the Company. It is the Company's intention to continue distributing quarterly dividends. On October 3, 2001 the Company declared a dividend of $.145 per share to be paid on December 17, 2001 to shareholders of record November 15, 2001. Page 9 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, 2001. This table should be read in conjunction with all of the financial statements and notes thereto included elsewhere herein.
September 30, 2001 2000 1999 1998 1997 INCOME STATEMENT DATA: Total Income $ 12,908,204 $ 10,397,973 $ 8,751,219 $ 6,963,825 $ 5,798,699 Total Expenses 8,785,150 6,897,207 6,214,993 4,493,595 3,965,002 Gains on Sales of Assets - Investment Property -0- 88,631 1,260,534 29,692 47,457 Net Income 4,123,054 3,589,397 3,796,760 2,499,922 1,881,154 Net Income Per Share Basic And Diluted .43 .44 .57 .50 .46 BALANCE SHEET DATA: Total Assets $119,433,470 $86,003,905 $79,424,958 $ 55,582,845 $ 44,942,723 Long-Term Obligations 56,748,555 33,780,968 33,182,307 24,436,941 20,498,016 Shareholders' Equity 49,929,539 41,013,926 36,276,677 27,404,822 19,889,288 OTHER INFORMATION: Average Number Of Shares Outstanding 9,504,806 8,078,877 6,627,344 4,997,775 4,047,759 Funds from Operations* $ 6,289,381 $ 5,292,384 $ 4,220,279 $ 3,647,345 $ 2,821,902 Cash Dividends Per Share .58 .58 .5675 .53 .51
*Defined as net income, excluding gains (or losses) from sales of depreciable assets plus depreciation, plus adjustments for unconsolidated partnerships ($84,601 for 1999). Includes gain on sale of land of $88,631 in 2000. Funds from Operations do not replace net income determined in accordance with generally accepted accounting principles (GAAP) as a measure of performance or net cash flows as a measure of liquidity. Funds from Operations is not a GAAP measure of operating performance and should be considered as a supplemental measure of operating performance used by real estate investment trusts. Page 10 ITEM 6 - SELECTED FINANCIAL DATA (CONT'D
SUMMARY OF OPERATIONS BY PROPERTY FOR THE YEARS ENDED SEPTEMBER 30, 2001 2000 1999 Net Rental Income: Somerset, New Jersey $ 270,716 $ 247,795 $ 257,143 Ramsey, New Jersey 114,702 157,488 165,994 Monaca, Pennsylvania 145,484 187,031 190,435 Monsey, New York -0- -0- 115,534 Orangeburg, New York 155,249 220,767 203,916 South Brunswick, New Jersey 448,308 412,634 404,304 Greensboro, North Carolina 207,361 192,358 182,442 Jackson, Mississippi 78,996 72,937 70,372 Franklin, Massachusetts 307,996 278,733 259,637 Wichita, Kansas 53,132 31,117 23,714 Urbandale, Iowa 28,631 88,628 110,817 Richland, Mississippi 69,508 58,738 51,872 O'Fallon, Missouri 130,480 101,646 85,811 Virginia Beach, Virginia (56,485) 110,359 107,227 Fayetteville, North Carolina 107,017 89,158 93,972 Schaumburg, Illinois 105,769 80,094 64,422 Burr Ridge, Illinois 33,355 41,756 9,448 Romulus, Michigan 104,130 93,874 90,261 Liberty, Missouri 222,353 206,755 120,806 Omaha, Nebraska 126,956 113,526 121,793 Charlottesville, Virginia 105,075 94,450 77,251 Jacksonville, Florida 132,789 114,921 (18,300) Union City, Ohio 62,314 41,177 -0- Richmond, Virginia 198,862 -0- -0- St. Joseph, Missouri 155,660 -0- -0- Newington, Connecticut 26,670 -0- -0- Cudahy, Wisconsin 35,275 -0- -0- Beltsville, Maryland 115,176 -0- -0- __________ ___________ __________ Net Rental Income 3,485,479 3,035,942 2,788,871 Net Investment and Other Income 1,613,977 1,253,695 465,602 ___________ ___________ __________ TOTAL 5,099,456 4,289,637 3,254,473 General & Administrative Expenses (976,402) (788,871) (718,247) ___________ ___________ __________ Income Before Gains 4,123,054 3,500,766 2,536,226 Gain on Sale of Assets- Investment Property -0- 88,631 1,260,534 ___________ ___________ __________ NET INCOME $ 4,123,054 $ 3,589,397 $ 3,796,760 =========== =========== ==========
Page 11 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Monmouth Real Estate Investment Corporation (the Company) operates as a real estate investment trust deriving its income primarily from real estate rental operations. At September 30, 2001, the Company's shareholders' equity increased to $49,929,539 as compared to $41,013,926 in 2000 principally due to proceeds from the dividend reinvestment and stock purchase plan. The Company's ability to generate cash adequate to meet its needs is dependent primarily on income from its real estate investments, 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, 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. The Company's focus is on real estate investments. During the past nine years, the Company purchased twenty- four net-leased warehouse facilities at an aggregate cost of approximately $110,000,000. The Company financed these purchases primarily through mortgages on its acquisitions. The Company also has a secured $6,345,000 line of credit of which approximately $3,237,000 was available at September 30, 2001. Interest is at Prime and is due monthly. This credit line expires on November 29, 2002. The Company expects to make additional real estate investments from time to time. In 2002, 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. 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. The Company from time to time may purchase these securities on margin. The margin loans at September 30, 2001 totalled approximately $4,389,000. During fiscal 2001, the Company's securities portfolio decreased by approximately $3,900,000 due to sales of approximately $6,900,000 offset by purchases of approximately $800,000 and change in unrealized gain of approximately $2,200,000. Page 12 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) Funds generated are expected to be sufficient to meet debt service requirements and capital expenditures of the Company. Cash provided from operating activities amounted to $4,785,236 in 2001 as compared to $4,583,749 in 2000 and $4,493,792 in 1999. At September 30, 2001, the Company had total liabilities of $69,503,931 and total assets of $119,433,470. The Company believes that it has the ability to meet its obligations and to generate funds for new investments. The Company has a Dividend Reinvestment and Stock Purchase Plan. During 2001, a total of $8,179,845 in additional capital was raised. The success of the Plan has resulted in a substantial improvement in the Company's liquidity and capital resources in 2001. It is anticipated, although no assurances can be given, that a comparable level of participation will continue in the Plan in fiscal 2002. Therefore, the Company anticipates that the Plan will result in further increased liquidity and capital resources in fiscal 2002. Results of Operations The Company's activities primarily generate rental income. Net income for the fiscal year ended September 30, 2001 was $4,123,054 as compared to $3,589,397 in 2000 and $3,796,760 in 1999. 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, 2001 was $3,485,479 as compared to $3,035,942 in 2000 and $2,788,871 in 1999. The following is a discussion of the results of operations by location for 2001 as compared to 2000 and 2000 as compared to 1999: Somerset, New Jersey Net rental income increased during 2001 as compared to 2000 due to a decrease in snow removal costs. Net rental income decreased during 2000 as compared to 1999 primarily as a result of an increase in management fees. Ramsey, New Jersey Net rental income decreased during 2001 as compared to 2000 due to an increase in repairs and maintenance. Net rental income decreased during 2000 as compared to 1999 primarily as a result of an increase in professional fees. Monaca, Pennsylvania Net rental income decreased during 2001 as compared to 2000 primarily as a result of an increase in insurance costs and bad debt expense. Net rental income remained relatively stable for 2000 as compared to 1999. Page 13 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) Monsey, New York Due to the sale of the property in March, 1999, net rental income decreased for 2001 and 2000 as compared to 1999. Orangeburg, New York Net rental income decreased in 2001 as compared to 2000 due to a renegotiation of the lease. The new average monthly rental is $26,950. Net rental income increased in 2000 as compared to 1999 due to lower interest costs on related borrowings outstanding. South Brunswick, New Jersey Net rental income increased in 2001 as compared to 2000 due to a lease extension to December 31, 2003 with McMaster Carr Supply Co. The new average monthly rental is approximately $59,000. Net rental income remained relatively stable in 2000 as compared to 1999. Greensboro, North Carolina Net rental income increased during 2001 as compared to 2000 due to an increase in the annual rent and to lower interest charges. Net rental income increased in 2000 as compared to 1999 due to an increase in tenant reimbursements. Jackson, Mississippi Net rental income remained relatively stable during 2001, 2000 and 1999. Franklin, Massachusetts Net rental income increased during 2001 as compared to 2000 primarily due to a decrease in management fees allocated to this property. Net rental income increased during 2000 as compared to 1999 primarily due to an increase in tenant reimbursements. Wichita, Kansas Net rental income increased during 2001 as compared to 2000 due to an increase in the annual rent and to lower interest charges. Net rental income remained relatively stable in 2000 as compared to 1999. Urbandale, Iowa Net rental income decreased during 2001 and 2000 as compared to 1999 primarily due to a decrease in rent from a new lease. Richland, Mississippi Net rental income remained relatively stable during 2001, 2000 and 1999. O'Fallon, Missouri Net rental income increased in 2001 and 2000 as compared to 1999 primarily due to lower interest costs on related borrowings outstanding. Page 14 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) Virginia Beach, Virginia Net rental income decreased during 2001 as compared to 2000 as a result of the expiration of the lease. This facility is currently vacant. Net rental income remained relatively stable in 2000 as compared to 1999. Fayetteville, North Carolina Net rental income increased during 2001 as compared to 2000 primarily due to a decrease in management fees allocated to this property. Net rental income remained relatively stable in 2000 as compared to 1999. Schaumburg, Illinois Net rental income increased in 2001 as compared to 2000 due to a decrease in management fees allocated to this property. Net rental income increased in 2000 as compared to 1999 due to an increase in tenant reimbursements. Burr Ridge, Illinois Net rental income decreased in 2001 as compared to 2000 and increased in 2000 as compared to 1999 due primarily to an increase in tenant reimbursements in 2000. Romulus, Michigan Net rental income remained relatively stable in 2001, 2000 and 1999. Liberty, Missouri Net rental income remained relatively stable in 2001 as compared to 2000. Net rental income increased in 2000 as compared to 1999 due to accelerated depreciation expense recognized in 1999. Omaha, Nebraska Net rental income remained relatively stable during 2001, 2000 and 1999. Charlottesville, Virginia Net rental income remained relatively stable during 2001 as compared to 2000. Net rental income increased during 2000 as compared to 1999 due to a full year's income and expenses. This warehouse facility was acquired in April, 1999. Jacksonville, Florida Net rental income remained relatively stable during 2001 as compared to 2000. Net rental income increased during 2000 as compared to 1999 due to a full year's income and expenses. Union City, Ohio Net rental income increased during 2001 as compared to 2000 due to a full year's income and expense. This warehouse facility was acquired in February 2000. Page 15 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS (CONT'D) Richmond, Virginia This warehouse facility was acquired in November 2000. It is net-leased to Federal Express Corporation. The average monthly rental income over the term of the lease is approximately $57,388. St. Joseph, Missouri This warehouse facility was acquired in February 2001. It is net-leased to the Mead Corporation. The average monthly rental income over the term of the lease is approximately $103,218. Newington, Connecticut This warehouse facility was acquired in March 2001. It is net-leased to Keebler Company. The average monthly rental income over the term of the lease is approximately $28,352. Cudahy, Wisconsin This warehouse facility was acquired in April 2001. It is net-leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The average monthly rental income over the term of the lease is approximately $47,677. Beltsville, Maryland This warehouse facility was acquired in April 2001. It is net-leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The average monthly rental income over the of the lease is approximately $74,303. Page 16 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) The Company also generated net investment and other income from its investments in securities available for sale, mortgages receivable and Hollister '97, LLC. Net investment and other income, which include interest and dividend income, gain on securities available for sales transactions net, reduced by margin loan interest expense, increased during 2001 and 2000 as compared to 1999 primarily due to the purchases of securities available for sale and to a gain of $110,960 on the sale of securities available for sale during 2000. These securities have an average dividend yield in excess of 10%. General and administrative expenses increased during 2001 and 2000 as compared to 1999 primarily as a result of increased personnel costs due to additional employees. Funds from operations (FFO), defined as net income, excluding gains (or losses) from sales of depreciable assets, plus depreciation, plus adjustments for unconsolidated partnerships ($-0-, $-0-, and $84,601 for 2001, 2000 and 1999, respectively), increased from $4,220,279 for the year ended September 30, 1999 to $5,292,384 for the year ended September 30, 2000 to $6,289,381 for the year ended September 30, 2001. FFO does not replace net income (determined in accordance with generally accepted accounting principles) as a measure of performance or net cash flows as a measure of liquidity. FFO should be considered as a supplemental measure of operating performance used by real estate investment trusts. During 1999, the Company realized a gain of approximately $1,240,000 on the sale of the Monsey, New York property. The Company also recognized a deferred gain from the Howell Township installment sale of approximately $-0-, $88,631 and $20,000 for 2001, 2000 and 1999, respectively. The gain increased in 2000 as the note was paid in full by the purchaser of the property. 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 17 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. At September 30, 2001, the Company had $54,963,043 of fixed rate mortgage notes payable, with an average interest rate of 7.77%. These mortgages are due over terms ranging from 2004 to 2021 (See Item 14, Note 6 of the Notes to the Financial Statements for additional information). At September 30, 2001, the fair and carrying value of fixed rate mortgage notes payable amounted to $56,313,559 and $54,963,043, respectively. The Company also has $5,461,711 of variable rate mortgage notes payable due in 2015. The interest rate of this debt at September 30, 2001 was 4.44%. In addition, the Company has approximately $8,000,000 in variable rate debt due on demand. This debt is primarily margin loans secured by marketable securities and a line of credit. The interest rates on these loans range from 5.375% to 6% at September 30, 2001. The carrying value of the Company's variable rate debt approximates fair value at September 30, 2001. 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. The Company has no significant interest rate risk relating to debt securities as they are short-term in nature. Page 18 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data listed in Part VI, Item 14 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 2001 12/31/00 03/31/01 06/30/01 09/30/01 Total Income $2,785,002 $3,070,771 $3,510,196 $3,542,235 Total Expenses 1,647,242 2,225,187 2,398,355 2,514,366 Net Income 1,137,760 845,584 1,111,841 1,027,869 Net Income per Share .13 .09 .11 .10 FISCAL 2000 12/31/99 3/31/00 6/30/00 9/30/00 Total Income $2,688,990 $2,553,413 $2,568,216 $2,587,354 Total Expenses 1,838,720 1,631,334 1,685,280 1,741,873 Gains on Sales of Assets-Investment Property 88,631 -0- -0- -0- Net Income 938,901 922,079 882,936 845,481 Net Income Per Share .12 .12 .11 .09
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Page 19 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Present Position with the Company; Business Experience During Past Shares Percent Nominee; Five Years; Other Director Owned Of Age Directorships Since (1) Stock Ernest V. Treasurer (1968 to 1968 12,969 0.12% Bencivenga present) and Director. (83) Financial Consultant (1976 to present); Treasurer and Director (1961 to present) and Secretary (1967 to present) of Monmouth Capital Corporation; Director (1969 to present) and Secretary/Treasurer (1984 to present) of United Mobile Homes, Inc. Anna T. Controller (1991 to 1993 23,710 0.23% Chew present) and Director. (2) (43) Certified Public Accountant; Controller (1991 to present) and Director (1994 to present) of Monmouth Capital Corporation; Vice President and Chief Financial Officer (1995 to present) and Director (1994 to present) of United Mobile Homes, Inc. Daniel D. Director. Attorney at 1989 25,748 0.25% Cronheim Law (1982 to present); (46) Executive Vice President (1989 to present) and General Counsel (1983 to present) of David Cronheim Company. Matthew Director. Attorney at 2000 12,146 .12% I.Hirsch Law (1985 to present); (42) Adjunct Professor of Law (1993 to present), Widener University School of Law.
Page 20 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Present Position with the Company; Business Experience During Past Shares Percent Nominee; Five Years; Other Director Owned Of Age Directorships Since (1) Stock Charles P. Director. Investor; 1974 37,887 0.37 % Kaempffer Director (1970 to (3) (64) present) of Monmouth Capital Corporation; Director (1969 to present) of United Mobile Homes, Inc.; Vice Chairman and Director (1996 to present) of Community Bank of New Jersey. Eugene W. President (1968 to 1968 Landy present) and Director. 469,865 4.58% (68) Attorney at Law; (4) President and Director (1961 to present) of Monmouth Capital Corporation; Chairman of the Board (1995 to present), President (1969 to 1995) and Director (1969 to present) of United Mobile Homes, Inc. Samuel A. Director. Attorney at 1989 165,188 1.61% Landy Law (1987 to present); (5) (41) President (1995 to present), Vice President (1991 to 1995) and Director (1992 to present) of United Mobile Homes, Inc.; Director (1994 to present) of Monmouth Capital Corporation. John R. Senior Portfolio Manager 2001 14,572 0.14% Sampson at Fox Asset Management, (6) (47) Inc. (1998 to present); Principal at Pharos Management and Principia Partners LLC (1995 to 1998) specializing in fixed income consulting and research for the securities industry. Page 21
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Present Position with the Company; Business Experience During Past Shares Percent Nominee; Five Years; Other Director Owned Of Age Directorships Since (1) Stock Peter J. Director of Real Estate 2001 1,000 0.01% Weidhorn Management/Acquisitions (54) at Kushner Companies (2000 to present); Director (1994 to 1997) of Monmouth Capital Corporation; President (1981 to 1998) of WNY Management Corp.; Chairman of the Board, President and Director (1998 to 2000) of WNY Group, Inc.; Trustee and former Chairman of the Board of CentraState Healthcare System; Treasurer and Trustee of the Union of American Hebrew Congregations.
(1) Beneficial ownership, as defined herein, includes Class A Common Stock as to which a person has or shares voting and/or investment power. (2) Held jointly with Ms. Chew's husband; includes 7,685 shares held in Ms. Chew's 401 (k) Plan. (3) Includes (a) 14,909 shares owned by Mr. Kaempffer's wife; and (b) 1,080 shares in joint name with Mrs. Kaempffer. (4) Includes (a) 99,939 shares owned by Mr. Landy's wife; (b) 161,764 shares held in the Landy & Landy, P.C. Profit Sharing Plan, of which Mr. Landy is a Trustee with power to vote; and (c) 126,585 shares held in the Landy & Landy, P.C. Pension Plan, of which Mr. Landy is a Trustee with power to vote. Excludes 40,655 shares held by Mr. Landy's adult children, in which he disclaims any beneficial interest. (5) Includes (a) 4,415 shares owned by Mr. Landy's wife, and (b) 53,451 shares held in custodial accounts for Mr. Landy's minor children under the Uniform Gift to Minors' Act in which he disclaims any beneficial interest, but has power to vote and (c) 1,000 shares held in the Samuel Landy Family Limited Partnership and (d) 22,210 shares held in Mr. Landy's 401 (k) Plan. (6) Includes 2,000 shares held in custodial accounts for Mr. Sampson's minor children under the Uniform Gift to Minor's Act in which he disclaims any beneficial interest, but has power to vote. The Directors as a class own 763,085 shares, which is 7.43% of the outstanding shares. Page 22 ITEM 11 - EXECUTIVE COMPENSATION Summary Compensation Table The following Summary Compensation Table shows compensation paid or accrued by the Company for services rendered during 2001, 2000 and 1999 to the Chief Executive Officer. There were no other executive officers whose aggregate cash compensation exceeded $100,000: Annual Compensation Name and Principal Position Year Salary Bonus Other Eugene W. Landy 2001 $150,000 $ 30,000 $105,200(1) Chief Executive Officer 2000 130,000 80,000 72,000 1999 110,000 None 79,700 (1) Represents Director's fees of $8,700 paid to Mr. Landy, legal fees of $47,500 paid to the firm of Eugene W. Landy, and $49,000 accrual for pension and other benefits in accordance with Mr. Landy's employment contract. Stock Option Plan There were no stock options granted to the executive officer named in the Summary Compensation Table, during the year ended September 30, 2001. The following table sets forth for the executive officer named in the Summary Compensation Table, information regarding stock options outstanding at September 30, 2001: Value of Unexercised Options Number of Unexercised at Year-End Shares Value Options at Year-End Exercisable/ Name Exercised Realized Exercisable/Unexercisable Unexercisable Eugene W. Landy -0- N/A 215,000 / -0- $42,250/$42,250 Employment Agreement On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which Mr. Landy receives an annual base compensation of $150,000 (as amended) plus 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 23 ITEM 11 - EXECUTIVE COMPENSATION (CONT'D) On severance of employment for any reason, Mr. Landy will receive severance of $300,000, payable $100,000 on severance and $100,000 on the first and second anniversaries of severance. In the event of disability, Mr. Landy's compensation shall continue for a period of three years, payable monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year for ten years, payable in monthly installments. In the event of death, Mr. Landy's designated beneficiary shall receive $300,000, $150,000 thirty days after death and the balance one year after death. The Employment agreement terminated December 31, 2000, and was automatically renewed and extended for successive one-year periods. Other Information The Directors received a fee of $1,000 for each Board Meeting attended, and an additional fixed annual fee of $3,800 payable quarterly. Effective April 1, 2001, the fixed annual fee was increased to $7,600. Directors appointed to house committees receive $150 for each meeting attended. Those specific committees are Compensation Committee, Audit Committee and Stock Option Committee. Except for specific agreements, the Company has no retirement plan in effect for Officers, Directors or employees and, at present, has no intention of instituting such a plan. Cronheim Management Services received the sum of $220,521 in 2001 for management fees. Effective August 1, 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. 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. Page 24 ITEM 11 - EXECUTIVE COMPENSATION (CONT'D) Overview and Philosophy (Cont'd) 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 criteria 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. Mr. Landy is under an employment agreement with the Company. His base compensation under this contract was increased in 2001 to $150,000 per year. In fiscal 2001, Mr. Landy was also paid a total bonus of $30,000. 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 1996 100 100 100 1997 128 140 140 1998 131 119 153 1999 125 109 196 2000 132 130 222 2001 177 148 163 Page 25 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT On September 30, 2001, no person owned of record or was known by the Company to own beneficially five or more percent of the shares of the Company. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Certain relationships and related party transactions are incorporated herein by reference to Item 14 (a) (1) (vi) Note 9 of the Notes to the Financial Statements - Related Party Transactions. Page 26 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K PAGE(S) (a) (1) The following Financial Statements are filed as part of this report: (i) Independent Auditors' Report 29 (ii) Balance Sheets as of September 30, 2001 and 2000 30 (iii) Statements of Income for the years ended September 30, 2001, 2000 and 1999 31 (iii) Statements of Shareholders' Equity for the years ended September 30, 2001, 2000 and 1999 32 (iv) Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999 33 (vi) Notes to the Financial Statements 34 - 49 (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, 2001 50-52 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 financial statements or notes hereto. Page 27 ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (3) Exhibits (3) Articles of Incorporation and By-Laws (i) Reference is hereby made to the Certificate of Incorporation of Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April, 13, 1999 on Form S-4 (Registration No. 33-34103). (ii) Reference is hereby made to the By-laws of Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103). (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) 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. (28) Additional Exhibits 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). Report on Form 8-K On July 11, 2000, the Company filed a report on Form 8-K to announce the appointment of Matthew I. Hirsch to the Board of Directors. The total number of Directors was increased to nine. Page 28 Independent Auditors' Report The Board of Directors and Shareholders Monmouth Real Estate Investment Corporation: We have audited the financial statements of Monmouth Real Estate Investment Corporation as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Monmouth Real Estate Investment Corporation as of September 30, 2001 and 2000, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Short Hills, New Jersey December 14, 2001 Page 29
MONMOUTH REAL ESTATE INVESTMENT CORPORATION BALANCE SHEETS AS OF SEPTEMBER 30, ASSETS 2001 2000 Real Estate Investments: Land $ 18,295,814 $ 11,745,814 Buildings, Improvements and Equipment, Net of Accumulated Depreciation of $11,268,700 and $9,102,373, respectively 84,426,270 54,147,879 ___________ __________ Total Real Estate Investments 102,722,084 65,893,693 Cash and Cash Equivalents 147,579 514,090 Securities Available for Sale at Fair Value 12,948,359 16,838,802 Interest and Other Receivables 847,130 716,744 Prepaid Expenses 53,257 54,808 Lease Costs - Net of Accumulated Amortization 109,448 79,367 Investments in Hollister '97, LLC 900,399 925,399 Other Assets 1,705,214 981,002 ____________ __________ TOTAL ASSETS $ 119,433,470 $ 86,003,905 ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage Notes Payable $ 60,424,754 $ 36,104,743 Loans Payable 8,204,961 8,022,495 Other Liabilities 874,216 862,741 ___________ __________ Total Liabilities 69,503,931 44,989,979 ___________ __________ Shareholders' Equity: Common Stock - Class A - $.01 Par Value, 16,000,000 Shares Authorized; 10,264,728 and 8,707,960 Shares Issued and Outstanding in 2001 and 2000, respectively 102,647 87,080 Common Stock - Class B - $.01 Par Value,100,000 Shares Authorized; No Shares Issued or Outstanding -0- -0- Additional Paid-in Capital 48,284,847 41,530,173 Accumulated Other Comprehensive Income (Loss) 1,542,045 (603,327) Undistributed Income -0- -0- ___________ __________ Total Shareholders' Equity 49,929,539 41,013,926 ___________ __________ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 119,433,470 $ 86,003,905 =========== ========== See Accompanying Notes to the Financial Statements Page 30
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF INCOME FOR THE YEAR ENDED SEPTEMBER 30, 2001 2000 1999 INCOME: Rental and Occupancy Charges $ 10,524,575 $ 8,559,004 $ 7,982,324 Interest and Dividend Income 1,751,137 1,728,009 768,895 Gain on Securities Available for Sales Transactions, Net 632,492 110,960 -0- __________ __________ _________ TOTAL INCOME 12,908,204 10,397,973 8,751,219 __________ __________ _________ EXPENSES: Interest Expense 4,590,757 3,334,861 2,607,520 Management Fees 220,521 199,432 161,146 Real Estate Taxes 239,828 463,770 696,637 Professional Fees 523,818 486,568 383,269 Operating Expenses 590,052 401,593 428,699 Office and General Expense 370,797 255,896 309,170 Director Fees 83,050 52,100 29,100 Depreciation 2,166,327 1,702,987 1,599,452 _________ _________ _________ TOTAL EXPENSES 8,785,150 6,897,207 6,214,993 _________ _________ _________ Income Before Gains 4,123,054 3,500,766 2,536,226 Gains on Sale of Assets - Investment Property -0- 88,631 1,260,534 _________ _________ _________ NET INCOME $ 4,123,054 $ 3,589,397 $ 3,796,760 ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 9,504,806 8,078,877 6,627,344 ========= ========= ========= Diluted 9,506,644 8,078,877 6,627,344 ========= ========= ========= PER SHARE INFORMATION: Income Before Gains $ .43 $ .43 $ .38 Gains on Sale of Assets - Investment Property -0- .01 .19 _________ _________ ________ NET INCOME - BASIC AND DILUTED $ .43 $ .44 $ .57 ========= ========= ========
See Accompanying Notes to the Financial Statements Page 31
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED SEPTEMBER 30, Additional Common Stock Paid-In Number Amount Capital Balance September 30, 1998 5,703,544 $ 57,035 $27,375,711 Shares Issued in Connection with the Dividend Reinvestment And Stock Purchase Plan 1,806,105 18,061 9,560,306 Distributions -0- -0- (11,978) Net Income -0- -0- -0- Unrealized Net Holding Losses on Securities Available for Sale Net of Reclass- Ification Adjustment -0- -0- -0- _________ ________ __________ Balance September 30, 1999 7,509,649 75,096 36,924,039 Shares Issued in connection with the Dividend Reinvestment and Stock Purchase Plan 1,198,311 11,984 5,722,605 Distributions -0- -0- (1,116,471) Net Income -0- -0- -0- Unrealized Net Holding Gains on Securities Available for Sale -0- -0- -0- _________ ________ __________ Balance September 30, 2000 8,707,960 87,080 41,530,173 Shares Issued in Connection with the Dividend Reinvestment and Stock Purchase Plan 1,556,768 15,567 8,164,278 Distributions -0- -0- (1,409,604) Net Income -0- -0- -0- Unrealized Net Holding Gains on Securities Available for Sale Net Of Reclassici- cation Adjustment -0- -0- -0- _________ ________ __________ Balance September 30, 2001 10,264,728 $102,647 $48,284,847 ========= ======== ==========
See Accompanying Notes to the Financial Statements Page 32A
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED SEPTEMBER 30, Accumulated Other Undistributed Comprehensive Comprehensive Income Income (Loss) Income Balance September 30, 1998 $ -0- $ (27,924) Shares Issued in connection with the Dividend Reinvestment And Stock Purchase Plan -0- -0- Distributions (3,796,760) -0- Net Income 3,796,760 -0- $ 3,796,760 Unrealized Net Holding Losses On Securities Available for Sale Net of Reclassifi- cation Adjust- ment -0- (694,534) (694,534) _________ _________ _________ Balance September 30, 1999 -0- (722,458) $ 3,102,226 ========== Shares Issued in connection with the Dividend Reinvestment And Stock Purchase Plan -0- -0- Distributions (3,589,397) -0- Net Income 3,589,397 -0- $ 3,589,397 Unrealized Net Holding Gains on Securities Available for Sale -0- 119,131 119,131 _________ __________ _________ Balance September 30, 2000 -0- (603,327) $ 3,708,528 Shares Issued in connection with the Dividend Reinvestment And Stock Purchase Plan -0- -0- Distributions (4,123,054) -0- Net Income 4,123,054 -0- $ 4,123,054 Unrealized Net Holding Gains On Securities Available for Sale Net of Reclassifi- cation Adjust- ment -0- 2,145,372 2,145,372 _________ __________ __________ Balance September 30, 2001 $ -0- $1,542,045 $ 6,268,426 ========== ========== ===========
See Accompanying Notes to the Financial Statements Page 32B
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2001 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 4,123,054 $ 3,589,397 $ 3,796,760 Noncash Items Included in Net Income: Depreciation 2,166,327 1,702,987 1,599,452 Amortization 141,479 143,155 106,082 Gains on Sales of Assets- Investment Property -0- (88,631) (1,260,534) Gains on Sales of Securities (632,492) (110,960) -0- Changes In: Interest & Other Receivables (130,386) (158,396) 39,375 Prepaid Expenses 1,551 9,193 66,910 Other Assets and Lease Costs (895,772) (490,884) 54,913 Other Liabilities 11,475 (12,112) 90,834 _________ _________ __________ NET CASH PROVIDED FROM OPERATING ACTIVITIES 4,785,236 4,583,749 4,493,792 _________ _________ __________ CASH FLOWS FROM INVESTING ACTIVITIES Additions to Land, Buildings and Improvements (38,994,718) (4,124,411) (13,212,959) Distribution from Hollister'97, LLC 25,000 -0- 84,601 Collections on Installment Sales -0- 125,135 28,528 Purchase of Securities Available for Sale (828,963) (5,690,807) (10,968,743) Proceeds from Sale of Securities Available for Sale 7,497,270 1,406,805 -0- __________ __________ __________ NET CASH USED IN INVESTING ACTIVITIES (32,301,411) (8,283,278) (24,068,573) _________ __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Mortgages 27,220,000 3,000,000 10,968,470 Proceeds from Loans 17,243,367 6,508,288 13,616,656 Principal Payments of Mortgages (2,899,989) (2,133,016) (1,680,493) Principal Payments of Loans (17,060,901) (5,432,831) (8,005,000) Proceeds from Issuance of Class A Common Stock 6,308,324 4,127,898 8,190,962 Dividends Paid (3,661,137) (3,099,177) (2,421,333) _________ __________ __________ NET CASH PROVIDED FROM FINANCING ACTIVITIES 27,149,664 2,971,162 20,669,262 _________ _________ __________ Net (Decrease) Increase in Cash and Cash Equivalents (366,511) (728,367) 1,094,481 Cash and Cash Equivalents at Beginning of Year 514,090 1,242,457 147,976 __________ _________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147,579 $ 514,090 $ 1,242,457 ========= ========== ===========
See Accompanying Notes to the Financial Statements Page 33 MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of the Business Monmouth Real Estate Investment Corporation (the Company) operates as a real estate investment trust deriving its income primarily from real estate rental operations. As of September 30, 2001 and 2000, rental properties consist twenty-seven and twenty-two 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 and Maryland. 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. 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 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. Cash Equivalents Cash equivalents consist of money market funds. 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%. Page 34 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT"D) 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, 2001 and 2000 are all classified as available-for-sale and are carried at fair value. Gains or losses on the sale of securities are based on identifiable cost 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. 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. 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. During fiscal 2000, the Company fully realized $88,631 relating to the deferred gain from the 1986 sale of property located in Howell Township. 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 (9,504,806, 8,078,877 and 6,627,344 in 2001, 2000 and 1999, 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 (9,506,644, 8,078,877 and 6,627,344 in 2001, 2000 and 1999, respectively). Options in the amount of 1,838, -0- and -0- are included in the diluted weighted average shares outstanding for 2001, 2000 and 1999, respectively. Page 35 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Stock Option Plan The Company's stock option plan is 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 would be recorded on the date of grant only if the current market price on the underlying stock exceeds the exercise price. Included in Note 8 to these Financial Statements are the pro forma disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which assumes the fair value based method of accounting had been adopted. Income Tax The Company has elected to be taxed as a Real Estate Investment Trust (REIT) under Sections 856-858 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 95% (90% effective for the year ending September 30, 2002) 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. Comprehensive Income Comprehensive income is divided into net income and other comprehensive income. Other comprehensive income 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 financial statements for the prior years have been reclassified to conform to the statement presentation for the current year. 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, 2001 and 2000:
Buildings, Improvements, Accumulated September 30, Land And Equipment Depreciation 2001 NEW JERSEY: Ramsey Industrial $ 52,639 $ 1,354,151 $ 658,565 Building Shopping 55,182 1,118,418 845,780 Somerset(1) Center South Industrial 1,128,000 4,145,361 1,147,672 Brunswick Building PENNSYLVANIA: Monaca Industrial 330,773 1,946,451 1,172,888 Park
Page 36
NOTE 2 - REAL ESTATE INVESTMENTS (CONT'D) Buildings, Improvements, Accumulated September 30, 2001 (Cont'd) Land And Equipment Depreciation NEW YORK: Orangeburg Industrial $ 694,720 $ 2,977,372 $ 838,967 Building NORTH CAROLINA: Industrial 172,000 4,467,885 515,508 Fayetteville Building Greensboro Industrial 327,100 1,853,700 497,990 Building MISSISSIPPI: Jackson Industrial 218,000 1,234,586 323,592 Building Richland Industrial 211,000 1,195,000 229,799 Building MASSACHUSETTS: Franklin Industrial 566,000 4,148,000 797,661 Building KANSAS: Wichita Industrial 268,000 1,518,000 291,929 Building IOWA: Urbandale Industrial 310,000 1,758,000 338,063 Building MISSOURI: Liberty Industrial 723,000 6,510,546 584,212 Building O'Fallon Industrial 264,000 3,302,000 550,183 Building St. Joseph Industrial 800,000 11,753,964 150,686 Building VIRGINIA: Industrial 1,170,000 2,845,000 182,370 Charlottesville Building Richmond Industrial 1,160,000 6,413,305 82,819 Building Virginia Industrial 384,600 2,150,000 303,193 Beach Building ILLINOIS: Burr Ridge Industrial 270,000 1,236,599 110,928 Building Schaumburg Industrial 1,039,800 3,694,321 426,249 Building MICHIGAN: Romulus Industrial 531,000 3,665,961 329,038 Building FLORIDA: Industrial 1,165,000 4,668,080 299,221 Jacksonville Building NEBRASKA: Omaha Industrial 1,170,000 4,425,500 283,675 Building OHIO: Union City Industrial 695,000 3,342,000 128,608 Building CONNECTICUT: Newington Industrial 410,000 2,961,000 37,960 Building WISCONSIN: Cudahy Industrial 980,000 5,050,997 64,754 Building MARYLAND: Beltsville Industrial 3,200,000 5,958,773 76,390 Building ________ ________ ________ Total at September 30, 2001 $ 18,295,814 $ 95,694,970 $ 11,268,700 ========== ========== ==========
(1) This represents the Company's 2/3 undivided interest in the property. Page 37
NOTE 2 - REAL ESTATE INVESTMENTS (CONT'D Buildings, Improvements, Accumulated September 30, 2000 Land And Equipment Depreciation NEW JERSEY: Ramsey Industrial $ 52,639 $ 1,175,214 $ 615,515 Building Shopping 55,182 1,118,418 806,245 Somerset(1) Center South Industrial 1,128,000 4,133,461 1,005,431 Brunswick Building PENNSYLVANIA: Monaca Industrial 330,773 1,842,687 1,092,522 Park NEW YORK: Orangeburg Industrial 694,720 2,977,372 744,435 Building NORTH CAROLINA: Industrial 172,000 4,467,885 400,949 Fayetteville Building Greensboro Industrial 327,100 1,853,700 439,104 Building MISSISSIPPI: Jackson Industrial 218,000 1,234,586 283,869 Building Richland Industrial 211,000 1,195,000 199,159 Building MASSACHUSETTS: Franklin Industrial 566,000 4,148,000 691,306 Building KANSAS: Wichita Industrial 268,000 1,518,000 253,008 Building IOWA: Urbandale Industrial 310,000 1,758,000 292,988 Building MISSOURI: Liberty Industrial 723,000 6,510,546 417,282 Building O'Fallon Industrial 264,000 3,302,000 465,520 Building VIRGINIA: Industrial 1,170,000 2,845,000 109,422 Charlottesville Building Virginia Industrial 384,600 2,150,000 248,067 Beach Building ILLINOIS: Burr Ridge Industrial 270,000 1,236,599 79,222 Building Schaumburg Industrial 1,039,800 3,694,321 331,527 Building MICHIGAN: Romulus Industrial 531,000 3,653,883 234,145 Building FLORIDA: Industrial 1,165,000 4,668,080 179,533 Jacksonville Building NEBRASKA: Omaha Industrial 1,170,000 4,425,500 170,205 Building OHIO: Union City Industrial 695,000 3,342,000 42,919 Building __________ __________ _________ Total at September 30, 2000 $11,745,814 $63,250,252 $ 9,102,373 ========== ========== =========
(1) This represents the Company's 2/3 undivided interest in the property. Page 38 NOTE 3 - ACQUISITIONS Fiscal 2001 On November 14, 2000, the Company purchased a 112,799 square foot warehouse facility in Richmond, Virginia from Regional Development Co., Inc., an unrelated entity. This warehouse facility is 100% net leased to Federal Express Corporation. The purchase price, including closing costs, was approximately $7,565,000. The Company used approximately $1,806,000 of its Revolving Credit Line with Fleet Bank (formerly Summit Bank) and obtained a mortgage of $5,650,000. This mortgage is payable at a variable interest rate of 1.80% over LIBOR and matures December 1, 2015. On February 6, 2001, the Company assumed Butler Real Estate, Inc.'s leasehold interest in a 388,671 square foot warehouse facility in St. Joseph, Missouri for a total of $12,490,000. This lease was between Butler Real Estate, Inc. (Butler), an unrelated entity, and the City of St. Joseph, Missouri (the City). The Company paid $3,140,000 to Butler, issued a note for $500,000 to Butler and entered into a new lease with the City for the remainder. The lease obligation with the City amounts to $1,022,273 per year for 15 years which equates to $8,850,000 payable at 8.12%. The note to Butler is also payable at 8.12% over 15 years. This warehouse facility is 100% subleased to Mead Corporation on a net-lease for 15 years at $1,238,621 per year based upon amortization of the total rental payments for scheduled rent over the remaining lease term. At the end of the lease term, the Company may purchase the warehouse facility from the City for $100. The Company has accounted for this transaction as a purchase. On March 5, 2001, the Company purchased a 54,812 square foot warehouse facility in Newington, Connecticut from Butler. This warehouse facility is 100% net-leased to Keebler Company. The purchase price, including closing costs, was approximately $3,400,000. The Company borrowed approximately $770,000 against its security portfolio with Prudential Securities and obtained a mortgage of $2,470,000. This mortgage is payable at the rate of 8.1% and matures May 1, 2016. On April 23, 2001, the Company purchased a 114,123 square foot warehouse facility in Cudahy, Wisconsin from Jones Development Company, L.L.C., an unrelated entity. This warehouse facility is 100% net leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The purchase price, including closing costs was approximately $6,100,000. The Company borrowed approximately $1,700,000 against its security portfolio with Prudential Securities and obtained a mortgage of $4,250,000 at a rate of 8.15% which matures May 1, 2016. On April 24, 2001, the Company purchased a 109,705 square foot warehouse facility in Beltsville, Maryland from Scannell Properties #19, L.L.C., an unrelated entity. This warehouse facility is 100% net leased to Fed Ex Ground package System, Inc., a subsidiary of Federal Express Corporation. The purchase price, including closing costs, was approximately, $9,200,000. The Company borrowed $2,800,000 against its security portfolio with Prudential Securities and obtained a mortgage in the amount of $6,000,000 at an interest rate of 7.53% which matures on May 1, 2016. Page 39 NOTE 3 - ACQUISITIONS (CONT'D) Fiscal 2000 On February 18, 2000, the Company purchased an 85,508 square foot warehouse facility in Union City, Ohio. This warehouse facility is 100% net-leased to RPS Ground, a subsidiary of Federal Express Corporation. The total purchase price, including closing costs, was approximately $4,037,000. The Company paid approximately $150,000 in cash, used approximately $890,000 of its credit line with Summit Bank and obtained a mortgage for $3,000,000. This mortgage payable is at an interest rate of 8.25% and is due March 1, 2015. NOTE 4 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK The Company has approximately 2,513,000 square feet of property, of which approximately 838,000 square feet or 33% is leased to Federal Express Corporation and approximately 301,000 square feet, or 12%, is leased to Keebler Company. Rental and occupancy charges from Federal Express Corporation and subsidiaries totaled approximately $4,113,000, $2,891,000 and $2,070,000 for the years ended September 30, 2001, 2000 and 1999, respectively. Rental and occupancy charges from Keebler Company totaled approximately $1,702,000, $1,578,000 and $1,800,000 for the years ended September 30, 2001, 2000 and 1999. During 2001, 2000 and 1999, rental income and occupancy charges from properties leased to these companies approximated 55%, 52% and 49% of total rental and occupancy charges, respectively. NOTE 5 - SECURITIES AVAILABLE FOR SALE During the year ended September 30, 2001, the Company realized a loss of $226,842 due to a writedown to fair value of securities available for sale which was considered other than temporarily impaired. This loss is included in the gain on securities available for sales transaction, net. Dividend income for the years ended September 30, 2001, 2000 and 1999 amounted to $1,534,255, $1,484,646 and $626,657, respectively. Interest income for the years ended September 30, 2001, 2000 and 1999 amounted to $216,882, $243,363 and $142,238, respectively. Page 40
2001 Shares/ Cost Market $ Amount Debt Securities: Center Trust Inc. Subordinated R/PR CVRO JJ 7.5 01/15/2001 DTD 12/27/93 -0- $ -0- $ -0- Sizeler Property Investors Convertible Subordinated SBJ to SPL RDMPT RO JJ 8.000 07/15/2003 DTD 5/13/93 Callable 07/15/99 at 100.00 739,395 778,119 _________ _________ Total Debt Securities 739,395 778,119 _________ _________ Equity Securities: Preferred Stock: Alexandria Real Estate 9.50% Sr A 1,000 19,870 26,200 Apartment Inv. 8.75% Class D Cum 1,000 18,120 23,700 Apartment Inv. ser H 1,000 20,582 24,350 Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH 9.75% CL A CUM Redeem 24,200 440,535 605,000 Avalonbay Communities 8% Sr D CUM SR -0- -0- -0- Camden Pro Tr 2.25 Ser A -0- -0- -0- Crescent R/E 6.75% Sr A Conv 2,000 28,783 37,720 Crown American 11% Ser 23,000 1,054,915 1,163,800 Developers Div. 9.44% 3,000 59,822 75,000 Equity Inns 9.50%SrA cum 10,400 176,543 200,096 Equity Office Trust 8.625% SRC cum 1,600 33,117 40,320 Equity Office Trust 8.98% A 1,000 21,995 25,450 Equity Res. Ppts 9.125% 3,000 63,923 78,420 Felcor Lodging 1.95% PFD 1,000 15,350 18,360 Felcor Lodging 9% B 5,500 97,694 115,225 First In Rlty 8.75% Sr B cum 6,000 117,714 147,600 First Union Real Estate Equity & Mortgage Inv.-Conv 8.40% Ser A -0- -0- -0- First Washington Realty Trust Inc Part Conv. Ser A 9.75% -0- -0- -0- Glenborough R/E 7.75% Sr A Conv 2,000 29,803 38,480 G&L Realty 10.25% Sr A Cum 1,000 16,620 18,900 Gleimcher Realty 9.25% B 3,000 52,360 67,200 Healthcare Pro.8.70% SR B 4,000 72,667 100,400 Healthcare Pro.Ser A 7.875% 13,700 247,157 328,800 Highwoods Pro 8% Sr D 1,000 17,245 22,010 Hospitality Ppts 9.50% 7,000 129,983 168,560 Instar 8% Sr D 11,500 166,641 243,800 Instar 9.20 Sr C 2,500 44,288 62,750 Instar 9.375 B 7,000 124,921 175,000 Jameson Inns 1.70% SrA -0- -0- -0- JDN Realty 9 3/8 22,100 463,513 491,725 Kimco Realty 8.375% 2,000 38,240 49,300 Kimco Realty 7.75% A 1,000 18,620 24,180 Kranzco Sr D 9.50% 19,500 360,338 442,650
Page 41A
2000 Shares/ $ Amount Cost Market Debt Securities: Center Trust Inc. Subordinated R/PR CVRO JJ 7.5 01/15/2001 DTD 12/27/93 250,000 $ 237,708 $ 243,750 Sizeler Property Investors Convertible Subordinated SBJ to SPL RDMPT RO JJ 8.00 07/15/2003 DTD 5/13/93 Callable 07/15/99 at 100.00 869,000 809,238 777,755 _________ _________ Total Debt Securities 1,046,946 1,021,505 _________ _________ Equity Securities: Preferred Stock: Alexandria Real Estate 9.50% Sr A 1,000 19,870 23,625 Apartment Inv. 8.75% Class D Cum 1,000 18,120 21,125 Apartment Inv. ser H 1,000 20,582 22,375 Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH -0- -0- -0- 9.75% CL A CUM Redeem 29,200 531,585 569,400 Avalonbay Communities 8% Sr D CUM SR 2,000 34,428 44,000 Camden Pro Tr 2.25 Ser A 1,000 22,120 24,938 Crescent R/E 6.75% Sr A Conv 2,000 28,783 32,626 Crown American 11% Ser 24,000 1,104,215 924,000 Developers Div. 9.44% 3,000 59,822 68,625 Equity Inns 9.50%SrA cum 10,400 176,543 172,255 Equity Office Trust 8.625% SR C cum 1,600 33,117 39,400 Equity Office Trust 8.98% A 1,000 21,995 24,688 Equity Res. Ppts 9.125% 3,000 63,923 74,064 Felcor Lodging 1.95% PFD 1,000 15,350 19,000 Felcor Lodging 9% B 5,500 97,694 108,625 First In Rlty 8.75% Sr B cum 6,000 117,714 137,250 First Union Real Estate Equity & Mortgage Inv.-Conv 8.40% Ser A 18,000 381,810 382,500 First Washington Realty Trust Inc Part Conv. Ser A 9.75% 5,000 129,438 161,250 Glenborough R/E 7.75% Sr A Conv 2,000 29,803 34,000 G&L Realty 10.25% Sr A Cum 1,000 16,620 14,938 Gleimcher Realty 9.25% B 3,000 52,360 56,625 Healthcare Pro.8.70% SR B 4,000 72,667 83,252 Healthcare Pro.Ser A 7.875% 5,700 102,572 111,863 Highwoods Pro 8% Sr D 1,000 17,245 20,313 Hospitality Ppts 9.50% 7,000 129,983 160,125 Instar 8% Sr D 6,000 85,638 96,378 Instar 9.20 Sr C 2,500 44,288 44,845 Instar 9.375 B 7,000 124,921 133,875 Jameson Inns 1.70% SrA 5,000 52,750 58,750 JDN Realty 9 3/8 13,100 260,608 274,288 Kimco Realty 8.375% 2,000 38,240 47,000 Kimco Realty 7.75% A 1,000 18,620 21,250 Kranzco Sr D 9.50% 19,500 360,338 335,166
Page 41B
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D) Shares/ $ Amount Cost Market Mid Amer 8.875% 1,000 $ 16,620 $ 23,820 Mid Amer Sr A 9.50% 7,000 139,515 174,020 New Plan Excel 8 5/8% 2,000 39,959 49,400 New Plan Execl 8.50% A 3,000 64,355 77,850 Prime Group 9% B 1,000 12,622 17,450 Prime Retail Inc SRA 10.50% 1,000 15,433 6,100 Prime Retail Inc SRB 8.50% 8,000 26,720 18,000 Reckson Assoc 7.625% 1,000 18,707 23,000 Sovran Self Stor 9.85 Sr B 2,000 39,115 50,900 Thornburg Mtg. 9.68% Sr A 2,000 40,740 51,100 United Dominion Realty Trust 9.25% SRA Cum. Redeemable -0- -0- -0- United Dominion 8.60% SRB Cum -0- -0- -0- Vornado 8.5% PFD 7,000 139,291 175,560 _________ _________ Total Preferred Stock 4,504,436 5,482,196 _________ _________ Common Stock: Assoc. Estates Realty 35,000 396,088 336,000 Banyan Strategic Realty Trust -0- -0- -0- BNP Residential 31,000 331,825 310,000 Centertrust Retail Prop 18,500 72,520 71,410 Crown American Realty Trust 87,300 235,564 220,100 Eastgroup Properties 7,000 132,023 153,300 First Industrial Realty Trust -0- -0- -0- First Washington Realty Trust -0- -0- -0- HPRT Properties 54,000 381,879 439,560 Health Care Properties 7,800 177,550 299,910 Humphrey Hospility 1,000 7,064 2,510 IRT Properties 26,500 256,864 286,200 Lasalle Hotel Prop 2,000 24,952 18,480 Mid Atlantic Realty Trust 21,000 228,381 294,000 New Plan Realty 32,000 516,103 547,200 Pan Pacific Retail Props 12,710 239,335 334,909 Penn R/E Trust 20,000 389,340 425,000 RFS Hotel Investors 21,000 261,199 217,350 Sizeler Property Inv. 105,500 894,676 931,565 United Dominion Realty Trust Inc -0- -0- -0- United Mobile Homes 142,200 1,418,778 1,578,420 Urstadt biddle Properties -A 5,500 45,722 51,700 Urstadt biddle Properties 19,500 152,620 170,430 Weingarten Realty Inv. Shares Beneficial Interest -0- -0- -0- Western Properties Trust Shares Beneficial Interest -0- -0- -0- _________ _________ Total Common Stock 6,162,483 6,688,044 _________ _________ Total Equity Securities 10,666,919 12,170,240 _________ _________ Total Securities Available for Sale $11,406,314 $12,948,359 ========== ========== ==========
Page 42A NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D)
Shares/ $ Amount Cost Market Mid Amer 8.875% 1,000 $ 16,620 $ 19,188 Mid Amer Sr A 9.50% 7,000 139,515 145,691 New Plan Excel 8 5/8% 2,000 39,959 45,000 New Plan Execl 8.50% A 1,000 20,745 20,875 Prime Group 9% B 3,000 50,618 54,750 Prime Retail Inc SRA 10.50% 1,000 15,433 6,938 Prime Retail Inc SRB 8.50% 8,000 122,658 28,450 Reckson Assoc 7.625% 1,000 18,707 23,375 Sovran Self Stor 9.85 Sr B 2,000 39,115 43,000 Thornburg Mtg. 9.68% Sr A 2,000 40,740 41,750 United Dominion Realty Trust 9.25% -0- -0- -0- SRA Cum. Redeemable 18,000 405,751 445,500 United Dominion 8.60% SRB Cum 5,200 93,640 120,578 Vornado 8.5% PFD 7,000 139,291 157,500 _________ _________ Total Preferred Stock 5,426,554 5,495,009 _________ _________ Common Stock: Assoc. Estates Realty 90,000 1,018,467 725,670 Banyan Strategic Realty Trust 29,000 140,714 172,202 BNP Residential 50,775 543,615 431,588 Centertrust Retail Prop 18,500 203,424 111,000 Crown American Realty Trust 87,300 608,833 529,300 Eastgroup Properties 7,000 132,023 155,750 First Industrial Realty Trust 15,000 382,086 461,250 First Washington Realty Trust 20,000 432,552 507,500 HPRT Properties 44,000 300,577 308,000 Health Care Properties 7,800 177,550 231,075 Humphrey Hospility 1,000 7,064 7,813 IRT Properties 26,500 256,864 231,875 Lasalle Hotel Prop 2,000 24,952 30,250 Mid Atlantic Realty Trust 21,000 228,381 248,073 New Plan Realty 27,000 448,315 369,576 Pan Pacific Retail Props 5,000 101,506 133,750 Penn R/E Trust 56,000 1,089,900 976,528 RFS Hotel Investors 21,000 261,199 265,125 Sizeler Property Inv. 100,500 851,984 766,313 United Dominion Realty Trust Inc 153,000 1,665,045 1,663,947 United Mobile Homes 142,200 1,418,778 1,324,309 Urstadt biddle Properties -A 5,500 45,722 38,191 Urstadt biddle Properties 19,500 152,620 135,406 Weingarten Realty Inv. Shares Beneficial Interest 3,000 120,375 122,250 Western Properties Trust Shares Beneficial Interest 30,500 356,083 375,547 _________ _________ Total Common Stock 10,968,629 10,322,288 _________ _________ Total Equity Securities 16,395,183 15,817,297 _________ _________ Total Securities Available for Sale $17,442,129 $16,838,802 ========= ========= Page 42B
NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE The following is a summary of the mortgage notes payable at September 30, 2001 and 2000:
Fixed Fiscal Balance Balance Property Rate Maturity 9/30/01 9/30/00 Orangeburg, NY 7% 2004 $969,114 $1,241,206 Jackson, MS 8.5% 2008 488,743 539,347 Franklin, MA 7% 2004 1,103,298 1,413,066 Wichita, KS 10.25% 2016 1,139,043 1,170,596 Urbandale, IA 7% 2004 512,790 661,209 Richland, MS 7.5% 2004 414,303 506,529 O'Fallon, MO 8.5% 2007 1,508,079 1,689,773 Virginia Beach,VA 8.5% 2021 1,381,495 1,409,010 Fayetteville, NC 7.8% 2006 3,036,730 3,141,482 Schaumburg, IL 8.48% 2012 2,907,418 3,066,563 Burr Ridge, IL 8% 2014 984,701 1,023,685 Romulus, MI 7.56% 2013 2,429,434 2,553,263 Liberty, MO 7.065% 2013 4,144,992 4,373,211 Omaha, NE 7.15% 2014 3,635,919 3,815,288 Charlottesville,VA 6.90% 2014 2,495,162 2,613,305 Jacksonville, FL 6.92% 2017 3,790,172 3,947,802 Union City, OH 8.25% 2015 2,828,528 2,939,408 Richmond, VA Libor + 1.8% 2015 5,461,711 -0- St. Joseph, MO 8.12% 2016 8,669,233 -0- Newington, CT 8.1% 2016 2,426,827 -0- Cudahy WI 8.15% 2016 4,188,569 -0- Beltsville, MD 7.53% 2016 5,908,493 -0- __________ __________ Total Mortgage Notes Payable $60,424,754 $36,104,743 ========== ===========
Principal on the foregoing debt is scheduled to be paid as follows: Year Ending September 30, 2002 $ 3,676,199 2003 3,951,900 2004 4,378,030 2005 3,583,907 2006 7,084,120 Thereafter 37,750,598 __________ $ 60,424,754 ========== Page 43 NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE (CONT'D) Line of Credit The Company had an $8,000,000 line of credit with Fleet Bank at an interest rate of prime. This line of credit was reduced to $6,345,000 during 1999 due to the sale of the warehouse facility in Monsey, New York and is now secured by a second mortgage on the South Brunswick Industrial Building. This line of credit expires on November 29, 2002. As of September 30, 2001, approximately $3,108,000 is outstanding and approximately $3,237,000 is available. Margin Loans During fiscal 2001, the Company purchased securities on margin. The margin loans are at 5.375% and 5.625% and are due on demand. At September 30, 2001 and 2000, the margin loans amounted to approximately $4,389,000 and $4,914,000, respectively and are collateralized by the Company's securities portfolio. The Company must maintain a coverage ratio of approximately 50%. NOTE 7 - STOCK OPTION PLAN On April 24, 1997, the shareholders approved and ratified the Company's 1997 Stock Option Plan authorizing the grant to officers, directors and key employees options to purchase up to 750,000 shares of common stock. 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. 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 elected to follow APB Opinion No. 25 in accounting for its stock option plan, and accordingly, no compensation cost has been recognized. Had compensation cost been determined consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts as follows: 2001 2000 1999 Net Income As reported $4,123,054 $3,589,397 $3,796,760 Pro forma 4,109,069 3,578,672 3,787,777 Net Income As reported - Per share Basic and Diluted $.43 $.44 $.57 Pro forma - Basic and Diluted $.43 .44 .57 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999; dividend yield of 9%; expected volatility of 25%; risk-free interest rate of 4.75% in 2001 and 6% in 2000 and 1999, and expected lives of five years. Page 44 NOTE 7 - STOCK OPTION PLAN (CONT'D) A summary of the status of the Company's stock option plan as of September 30, 2001, 2000 and 1999 is as follows:
2001 2000 1999 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding atbeginning of year 385,000 $6.20 320,000 $ 6.34 320,000 $ 6.34 Granted 15,000 5.65 65,000 5.50 -0- -0- Exercised -0- -0- -0- -0- -0- -0- Expired (15,000) 5.94 -0- -0- -0- -0- ________ _______ _______ Outstanding at end of year 385,000 6.19 385,000 6.20 320,000 6.34 ======== ======= ======= Exercisable at end of year 370,000 320,000 320,000 ======= ======= ======= Weighted- average fair value of options granted during the year .54 .33 -0- ====== ====== ======
The following is a summary of stock options outstanding as of September 30, 2001:
Date of Number of Number of Option Expiration Grant Grants Shares Price Date 4/30/97 9 120,000 $5.9375 4/30/02 4/30/97 2 165,000 6.5625 4/30/02 4/30/98 2 20,000 7.25 4/30/03 4/12/00 1 65,000 5.50 4/12/05 3/6/01 1 5,000 5.25 3/6/06 6/20/01 2 10,000 5.85 6/20/06
As of September 30, 2001, there were 365,000 shares available for grant under this plan. 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, 2001 are scheduled as follows: 2002 - $11,306,000; 2003 - $11,034,000; 2004 - $9,341,000; 2005 - $8,736,000; 2006 - $8,222,000; thereafter - $27,982,000. Page 45 NOTE 9 - RELATED PARTY TRANSACTIONS Eugene W. Landy received $8,700, $5,500 and $3,200 for the years ended September 30, 2001, 2000 and 1999 as Director. The firm of Eugene W. Landy received $47,500, $32,500, and $17,500 during the years ended 2001, 2000 and 1999, respectively, as legal fees. An accrual of $49,000, $34,000 and $59,000 was made during the years ended September 30, 2001, 2000 and 1999, respectively, for pension and other benefits in accordance with Mr. Landy's employment agreement. Additionally, the Board of Directors has granted to Mr. Landy a loan of $100,000 at an interest rate of 10% due May 23, 2002. Principal and accrued interest is payable at maturity. In fiscal 2001, Mr. Landy was also paid a bonus of $30,000. On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which, on severance of employment for any reason, Mr. Landy will receive severance of $300,000 payable $100,000 on severance and $100,000 on the first and second anniversaries of severance. In the event of disability, Mr. Landy's compensation shall continue for a period of three years, payable monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year for ten years, payable in monthly installments. In the event of death, Mr. Landy's designated beneficiary shall receive $300,000, $150,000 thirty days after death, and the balance one year after death. The Employment Agreement terminated December 31, 2000 and was automatically renewed and extended for successive one-year periods. Cronheim Management Services received the sum of $220,521, $199,432 and $161,146 for management fees during the years ended 2001, 2000 and 1999, respectively. Effective August 1, 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. The David Cronheim Company received $26,708, $14,347 and $136,229 in lease brokerage commissions in 2001, 2000 and 1999, respectively. Daniel Cronheim received $8,700, $5,650 and $2,400 for Director and Committee fees in 2001, 2000 and 1999, respectively. 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 95% (90% effective for the year ending September 30, 2002) 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 an excise tax liability for the calendar years 2001, 2000 and 1999, since it intends to or has distributed all of its annual income. Page 46 NOTE 11 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company implemented a dividend reinvestment and stock purchase plan (the "Plan") effective December 15, 1987. Under the terms of the Plan 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 Plan, shareholders may also purchase additional shares, at approximately 95% of market price by making optional cash payments monthly. Amounts received, including dividend reinvestment of $1,871,521, $1,606,691 in 2001 and 2000, respectively, and shares issued in connection with the Plan for the years ended September 30, 2001 and 2000 were as follows: 2001 2000 Amounts Received $8,179,845 $5,734,589 Shares Issued 1,556,768 1,198,311 NOTE 12 - DISTRIBUTIONS The following cash distributions were paid to shareholders during the years ended September 30, 2001 and 2000: 2001 2000 Quarter Ended Amount Per Share Amount Per Share December 31 $1,290,979 $ . 145 $1,111,424 $ .145 March 31 1,364,374 . 145 1,160,858 .145 June 30 1,413,499 . 145 1,189,703 .145 September 30 1,463,806 . 145 1,243,883 .145 _________ _____ _________ ____ $5,532,658 $ . 58 $4,705,868 $ . 58 ========= ===== ========= ==== On October 3, 2001, the Company declared a dividend of $ .145 per share to be paid on December 17, 2001 to shareholders of record November 15, 2001. Page 47 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, 2001, 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 $56,313,559 and $54,963,043, respectively. At September 30, 2000, the fair value of fixed rate mortgage notes payable approximate their current carrying amounts since such amounts payable are at approximately a weighted- average current market rate of interest. NOTE 14 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION Cash paid during the years ended September 30, 2001, 2000 and 1999, for interest is $4,590,757, $3,334,861 and $2,607,520, respectively. During 2001, 2000 and 1999, the Company had $1,871,521, $1,606,691 and $1,387,405, respectively, of dividends which were reinvested that required no cash transfers. During 1999, proceeds from the sale of investment property totaling $2,265,632 were directly paid into an escrow account and required no cash transfers by the Company. These proceeds were used to purchase investment property. Page 48 NOTE 14 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION (CONT'D) The following are the reclassification adjustments related to securities available for sale included in Other Comprehensive Income (Loss): 2001 2000 1999 Unrealized holding gains (losses) arising during the year $2,777,864 $ 230,091 $(694,534) Less: reclassification Adjustment for gains realized in income (632,492) (110,960) -0- _________ ________ ________ Net unrealized gains (losses) $2,145,372 $ 119,131 $ (695,534) ========= ======== ======== NOTE 15 - SUBSEQUENT EVENTS On October 12, 2001, the Company purchased a 184,800 square foot warehouse facility in Granite City, Illinois. This warehouse facility is 100% net-leased to Anheuser- Busch, Inc. The purchase price was approximately $12,400,000. The Company paid approximately $100,000 in cash, borrowed approximately $1,000,000 against its security portfolio with Prudential Securities, used approximately $1,800,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $9,500,000. This mortgage payable is at an interest rate of 7.11% and is due November 1, 2016. On November 2, 2001, the Company purchased a 160,000 square foot warehouse facility in Monroe, North Carolina. This warehouse facility is 100% net-leased to Hughes Supply Inc. The purchase price was approximately $5,500,000. The Company paid approximately $100,000 in cash, used approximately $1,300,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $4,100,000. This mortgage payable is at an interest rate of 7.11% and is due December 1, 2016. Page 49
Column A Column B Column C Column D Buildings, Capitalization Improvements Subsequent to Description Encumbrances Land & Equipment Acquisition Shopping Center: Somerset, NJ $ -0- $ 55,182 $ 637,097 $ 481,321 Industrial Buildings: Ramsey, NJ -0- 52,639 291,500 1,062,651 Monaca, PA -0- 330,773 878,081 1,049,149 Orangeburg,NY 969,114 694,720 2,977,372 -0- South Brunswick, NJ -0- 1,128,000 4,087,400 57,961 Greensboro, NC -0- 327,100 1,853,700 -0- Jackson, MS 488,743 218,000 1,233,500 1,086 Franklin , MA 1,103,298 566,000 4,148,000 -0- Witchita, KS 1,139,043 268,000 1,518,000 -0- Urbandale, IA 512,790 310,000 1,758,000 -0- Richland,MS 414,303 211,000 1,195,000 -0- O'Fallon, MO 1,508,079 264,000 3,302,000 -0- Virginia Beach, VA 1,381,495 384,600 2,150,000 -0- Fayetteville, NC 3,036,730 172,000 4,467,885 -0- Schaumburg, IL 2,907,418 1,039,800 3,694,321 -0- Burr Ridge, IL 984,701 270,000 1,236,599 -0- Romulus, MI 2,429,434 531,000 3,653,883 12,078 Liberty, MO 4,144,992 723,000 6,510,546 -0- Omaha, NE 3,635,919 1,170,000 4,425,500 -0- Charlottes- ville, VA 2,495,162 1,170,000 2,845,000 -0- Jacksonville, FL 3,790,172 1,165,000 4,668,080 -0- Union City, OH 2,828,528 695,000 3,342,000 -0- Richmond, VA 5,461,711 1,160,000 6,413,305 -0- St. Joseph, MO 8,669,233 800,000 11,753,964 -0- Newington, CT 2,426,827 410,000 2,961,000 -0- Cudahy, WI 4,188,569 980,000 5,050,997 -0- Beltsville, MD 5,908,493 3,200,000 5,958,773 -0- __________ __________ __________ __________ $60,424,754 $18,295,814 $ 93,011,503 $ 2,664,246 ========== ========== ========== ========== *Buildings and improvements reacquired in 1986. Page 50 A
Column A Column E (1) (2) Column F Gross Amount at Which Carried Accumulated September 30, 2001 Depreciation 30,2001 tion Description Land Bldg & Imp Total Shopping Center: Somerset, NJ $ 55,182 $ 1,118,418 $ 1,173,600 $ 845,780 Industrial Buildings: Ramsey, NJ 52,639 1,354,151 1,406,790 658,565 Monaca, PA 330,773 1,927,230 2,258,003 1,172,888 Orangeburg, NY 694,720 2,977,372 3,672,092 838,967 South Brunswick, NJ 1,128,000 4,145,361 5,273,361 1,147,672 Greensboro, NC 327,100 1,853,700 2,180,800 497,990 Jackson, MS 218,000 1,234,586 1,452,586 323,592 Franklin , MA 566,000 4,148,000 4,714,000 797,661 Witchita, KS 268,000 1,518,000 1,786,000 291,929 Urbandale, IA 310,000 1,758,000 2,068,000 338,063 Richland,MS 211,000 1,195,000 1,406,000 229,799 O'Fallon, MO 264,000 3,302,000 3,566,000 550,183 Virginia Beach, VA 384,600 2,150,000 2,534,600 303,193 Fayetteville, NC 172,000 4,467,885 4,639,885 515,508 Schaumburg, IL 1,039,800 3,694,321 4,734,121 426,249 Burr Ridge, IL 270,000 1,236,599 1,506,599 110,928 Romulus, MI 531,000 3,665,961 4,196,961 329,038 Liberty, MO 723,000 6,510,546 7,233,546 584,212 Omaha, NE 1,170,000 4,425,500 5,595,500 283,675 Charlottes- ville, VA 1,170,000 2,845,000 4,015,000 182,370 Jacksonville, FL 1,165,000 4,668,080 5,833,080 299,221 Union City, OH 695,000 3,342,000 4,037,000 128,608 Richmond, VA 1,160,000 6,413,305 7,573,305 82,819 St. Joseph, MO 800,000 11,753,964 12,553,964 150,686 Newington, CT 410,000 2,961,000 3,371,000 37,960 Cudahy, WI 980,000 5,050,997 6,030,997 64,754 Beltsville, MD 3,200,000 5,958,773 9,158,773 76,390 __________ __________ __________ __________ 18,295,814 $ 95,675,749 $ 113,971,563 $ 11,268,700 ========== ========== ========== ========== *Buildings and improvements reacquired in 1986. Page 50 B
Column A Column G Column H Column I Date of Construc- Date Depreciable Description tion Acquired Life Shopping Center: Somerset, NJ 1970 1970 10-33 Industrial Buildings: Ramsey, NJ 1969 1969 7-40 Monaca, PA 1977 1977* 5-31.5 Orangeburg, NY 1990 1993 31.5 South Brunswick, NJ 1974 1993 31.5 Greensboro, NC 1988 1993 31.5 Jackson, MS 1988 1993 39 Franklin , MA 1,991 1994 39 Witchita, KS 1,975 1994 39 Urbandale, IA 1985 1994 39 Richland,MS 1986 1994 39 O'Fallon, MO 1,989 1,994 39 Virginia Beach, VA 1,976 1,996 39 Fayetteville, NC 1,996 1,997 39 Schaumburg, IL 1,997 1,997 39 Burr Ridge, IL 1,997 1,997 39 Romulus, MI 1,998 1,998 39 Liberty, MO 1,997 1,998 39 Omaha, NE 1,999 1,999 39 Charlottesville, VA 1,998 1,999 39 Jacksonville, FL 1,998 1,999 39 Union City, OH 1,999 2,000 39 Richmond, VA 2,000 2,001 39 St. Joseph, MO 2,000 2,001 39 Newington, CT 2,001 2,001 39 Cudahy, WI 2,001 2,001 39 Beltsville, MD 2,000 2,001 39 *Buildings and improvements reacquired in 1986. Page 50 C
MONMOUTH REAL ESTATE INVESTMENT CORPORATION SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (CONT'D) (1) Reconciliation REAL ESTATE INVESTMENTS 9/30/01 9/30/00 9/30/99 Balance-Beginning of Year $74,996,066 $70,871,655 $57,270,562 Additions: ___________ ___________ ____________ Acquisitions 38,688,039 4,037,000 15,443,582 Improvements 287,458 87,411 35,009 __________ __________ __________ Total Additions 38,975,497 4,124,411 15,478,591 __________ __________ __________ Sales -0- -0- (1,877,498) Balance-End of $113,971,563 $74,996,066 $70,871,655 Year ========== ========= =========
ACCUMULATED DEPRECIATION 9/30/01 9/30/00 9/30/99 Balance-Beginning of Year $9,102,373 $7,399,386 $6,656,634 Depreciation 2,166,327 1,702,987 1,594,945 Sales -0- -0- (852,193) __________ __________ __________ Balance-End of $11,268,700 $9,102,373 $7,399,386 Year ========= ======== ========
Page 51
MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO SCHEDULE III SEPTEMBER 30, (1) Reconciliation 2001 2000 1999 Balance - Beginning of Year $74,996,066 $70,871,655 $57,270,562 __________ __________ __________ Additions: Ramsey, NJ 178,937 -0- -0- Somerset, NJ -0- 52,423 -0- Monaca, PA 84,543 22,014 23,147 Monsey, NY -0- -0- -0- Orangeburg, NY -0- -0- -0- South Brunswick, NJ 11,900 12,974 -0- Greensboro, NC -0- -0- -0- Jackson, MS -0- -0- 1,086 Franklin, MA -0- -0- -0- Wichita, KA -0- -0- -0- Urbandale, IA -0- -0- -0- Richland, MS -0- -0- -0- O'Fallon, MO -0- -0- -0- Virginia Beach, VA -0- -0- -0- Fayetteville, NC -0- -0- -0- Schaumburg, IL -0- -0- -0- Burr Ridge, IL -0- -0- 3,349 Romulus, MI 12,078 -0- 3,883 Liberty, MO -0- -0- 3,546 Omaha, NE -0- -0- 5,595,500 Charlottesville, VA -0- -0- 4,015,000 Jacksonville, FL -0- -0- 5,833,080 Union City, OH -0- 4,037,000 -0- Richmond, VA 7,573,305 -0- -0- St. Joseph, MO 12,553,964 -0- -0- Newington, CT 3,371,000 -0- -0- Cudahy, WI 6,030,997 -0- -0- Beltsville, MD 9,158,773 -0- -0- __________ __________ __________ Total Additions 38,975,497 4,124,411 15,478,591 __________ __________ __________ Sales: Monsey, New York -0- -0- (1,877,498) __________ __________ __________ Balance - End of Year $113,971,563 $74,996,066 $70,871,655 =========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates historical cost. Page 52 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 21, 2001 By: /s/ Eugene W. Landy Eugene W. Landy, President 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 21, 2001 By: /s/ Eugene W. Landy Eugene W. Landy, President and Director Date: December 21, 2001 By: /s/ Ernest V. Bencivenga Ernest V. Bencivenga, Treasurer and Director Date: December 21, 2001 By: /s/ Anna T. Chew Anna T. Chew, Controller and Director Date: December 21, 2001 By: /s/ Daniel D. Cronheim Daniel D. Cronheim, Director Date: December 21, 2001 By: /s/ Matthew I. Hirsch Matthew I. Hirsch, Director Date: December 21, 2001 By: /s/ Charles P. Kaempffer Charles P. Kaempffer, Director Date: December 21, 2001 By: /s/ Samuel A. Landy Samuel A. Landy, Director Date: December 21, 2001 By: /s/ John R. Sampson John R. Sampson, Director Date: December 21, 2001 By: /s/ Peter J. Weidhorn Peter J. Weidhorn, Director Page 53 -----END PRIVACY-ENHANCED MESSAGE-----