-----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, PHX5SMrDzDe9dIdm0m+o0d3wkjXwry3ykdtirEjCA5bsnb6wLWa3JsuhRQR1s8eS apcaGXCVEvEjcwHNhK8Q2Q== 0000067625-02-000017.txt : 20021223 0000067625-02-000017.hdr.sgml : 20021223 20021223164657 ACCESSION NUMBER: 0000067625-02-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021223 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: 02867327 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 mreic10k93002.txt FORM 10K 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, 2002 [ ] 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 $81,613,012(based on 11,759,800 shares of common stock at the closing price of $6.94 per share) as of December 19, 2002. There were 12,829,110 shares of common stock outstanding as of December 19, 2002. 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 2,986,000 square feet of property, of which approximately 944,000 square feet, or 32%, is leased to Federal Express Corporation and subsidiaries and approximately 301,000 square feet, or 10%, is leased to Keebler Company. During 2002, 2001 and 2000 rental and occupancy charges from properties leased to these companies approximated 52%, 55% and 52%, respectively, of total rental and occupancy charges. At September 30, 2002, the Company had investments in thirty 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 $245,597, $220,521 and $199,432, in 2002, 2001, 2000 , respectively, for the management of various properties. The David Cronheim Company received $20,194, $26,708 and $14,347 in lease brokerage commissions in 2002, 2001 and 2000, 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 2002, the Company purchased four net-leased industrial properties for a total cost of approximately $31,400,000. In fiscal 2003, 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. Subsequent to year- end, the Company has purchased one property which is leased to a FDX subsidiary. This has resulted 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. Risk Factors Real Estate Industry Risks - The Company may be adversely affected by general economic conditions and local real estate conditions. When a lease expires, a tenant may elect not to renew it. The Company may not be able to re-lease the property on similar terms, or even at all. Governmental Regulations - Local zoning and use laws, environmental statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations may prevent the Company from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require the Company to modify its properties. Future legislation may impose additional requirements. No prediction can be made as to what requirements may be enacted or what changes may be implemented to existing legislation. Environmental Liability Risks - Current and former real estate owners and operators may be required by law to investigate and clean up hazardous substances released at the properties they own or operate or have owned or operated. They may be liable to the government or to third parties for property damage, investigation costs and cleanup costs. Contamination may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. There is no way of determining at this time the magnitude of any potential liability to which the Company may be subject arising out of unknown environmental conditions or violations with respect to the properties it owns. Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated Page 3 ITEM 1 - BUSINESS, (CONT'D.) 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 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. Insurance Considerations - The Company generally maintains insurance policies related to its business, including casualty, general liability and other policies covering business operations, employees and assets. The Company may be required to bear all losses that are not adequately covered by insurance. Although management believes that the Company's insurance programs are adequate, no assurance can be given that the Company will not incur losses in excess of its insurance coverage, or that the Company will be able to obtain insurance in the future at acceptable levels and reasonable cost. Financing Risks - The Company finances a portion of its investments through debt. This debt creates risks, including a) rising interest rates on floating rate debt; b) failure to repay or refinance existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms; c) refinancing terms less favorable than the terms of the existing debt; and d) failure to meet required payments of principal and/or interest. Amendment of Business Policies - The Board of Directors determines the growth, investment, financing, capitalization, borrowing, REIT status, operating and distribution policies. Although the Board of Directors has no present intention to amend or revise any of these policies, these policies may be amended or revised without notice to shareholders. Accordingly, shareholders may not have control over changes in Company policies. Qualification as a REIT - The Company intends to qualify as a REIT. If it fails to do so, it will not be allowed to deduct distributions to shareholders in computing taxable income and will be subject to Federal and state income taxes, including any applicable alternative minimum tax, at regular corporate rates. In addition, the Company may be barred from qualification as a REIT for the four years following disqualification. The additional tax incurred at regular corporate rates would reduce significantly the cash flow available for distribution to shareholders and for debt service. Furthermore, the Company would no longer be required to make any distributions to shareholders as a condition to REIT qualification. Any distributions to shareholders that otherwise would have been subject to tax as a capital gain dividend would be taxable as ordinary income to the extent of the Company's current and accumulated earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Internal Revenue Code. To qualify as a REIT, the Company must comply with certain highly technical and complex requirements. Management cannot be certain that the Company has complied with these requirements since there are few judicial and administrative interpretations of these provisions. In addition, facts and circumstances that may be beyond the Company's control may affect the Company's ability to qualify as a REIT. No assurance can be given that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to qualification as a REIT or with respect to the Page 4 ITEM 1 - BUSINESS, (CONT'D.) Federal income tax consequences of qualification. The Company intends to qualify as a REIT. However, no assurance can be given that the Company qualifies as a REIT or will remain qualified as a REIT. Notwithstanding the Company's status as a REIT, the Company is subject to various Federal, state and local taxes on income and property. The Company will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains. The Company may also have to pay some state income or franchise taxes because not all states treat REITs in the same manner as they are treated for Federal income tax purposes. ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES The Company operates as a real estate investment trust. Its portfolio is primarily in real estate holdings, some of which have been long-term holdings carried on the financial statements of the Company at depreciated cost. It is believed that their current market values exceed both the original cost and the depreciated cost. The following is a brief description of the Company's real estate holdings at September 30, 2002. (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, 2002. The main store lease expires on September 30, 2007. The Company's portion of the annual gross rental income on this facility was approximately $461,000. RAMSEY, NEW JERSEY Ramsey Industrial Park, located on E. Crescent Avenue in Ramsey, New Jersey is a 42,719 square foot building 100% net-leased to Bogen Photo,Inc. The average annual rental income over the term of the lease is approximately $285,000. This lease expires September 30, 2006. 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 $460,000. At September 30, 2002, this property was 74% occupied. This property has 1,200 feet of undeveloped river frontage. Page 5 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES, (CONT'D.) ORANGEBURG, NEW YORK This 50,400 square foot warehouse facility, located in Orangeburg, New York, is 100% net-leased to Keebler Company. The average annual rental income over the term of the lease, which expires on December 31, 2003, is approximately $323,000. SOUTH BRUNSWICK, NEW JERSEY This 144,520 square foot warehouse facility, located in South Brunswick, New Jersey, is 100% net-leased to McMaster Carr Supply Co. This lease, including extensions, expires on December 31, 2004. The average annual rental income over the term of the lease is $723,000. GREENSBORO, NORTH CAROLINA This 40,560 square foot distribution center, located in Greensboro, North Carolina is 100% net-leased to Keebler Company. This lease has been extended to February 28, 2004. 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 100% 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 100% 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 100% net-leased to Keebler Company. The average annual rental income over the term of the lease is approximately $223,000. 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 100% 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 6 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 expires June 30, 2006. The average annual rental income over the term of the lease was approximately $398,000. 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. Belk Enterprises, Inc. has vacated the premises but continues to honor the lease. 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. 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. Page 7 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES, (CONT'D.) LIBERTY, MISSOURI This 98,200 square foot warehouse facility, located in Liberty, Missouri, is 100% net- leased to 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 assigned this lease to Lear Corporation. 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 TOWNSHIP, OHIO This 85,508 square foot warehouse facility, located in Union Township, 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 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. 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. Page 8 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES, (CONT'D.) NEWINGTON, CONNECTICUT This 54,812 square foot warehouse facility, located in Newington, Connecticut 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 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 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. GRANITE CITY, ILLINOIS This 184,800 square foot warehouse facility, located in Granite City, Illinois, was purchased in fiscal 2002. This warehouse facility is 100% net-leased to Anheuser-Busch, Inc. The average annual rental over the term of the lease is approximately $1,147,000. This lease expires May 31, 2011. MONROE, NORTH CAROLINA This 160,800 square foot warehouse facility, located in Monroe, North Carolina was purchased in fiscal 2002. This warehouse facility is 100% net-leased to Hughes Supply, Inc. The average annual rental over the term of the lease is approximately $589,000. This lease expires October 31, 2011. WINSTON-SALEM, NORTH CAROLINA This 106,507 square foot warehouse facility, located in Winston- Salem, North Carolina was purchased in fiscal 2002. This warehouse facility is 100% net-leased to Fed Ex Ground Package System, Inc., a subsidiary of Federal Express Corporation. The average annual rental over the term of the lease is approximately $637,000. This lease expires December 31, 2011. ELGIN, ILLINOIS This 89,052 square foot warehouse facility, located in Elgin, Illinois was purchased in fiscal 2002. This warehouse facility is 100% net-leased to Reynolds Metals Company, which merged with Alcoa, Inc. The average annual rental over the term of the lease is approximately $614,000. This lease expires January 31, 2012. Page 9 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 2002. Page 10 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:
2002 2001 Market Price Market Price ____________ ____________ Fiscal Fiscal Qtr. High Low Distrib. Qtr. High Low Distrib. First 7.18 6.00 $.145 First 5.188 4.750 $.145 Second 7.00 6.41 .145 Second 5.875 4.813 .145 Third 8.01 6.68 .145 Third 6.130 5.500 .145 Fourth 7.29 6.55 .145 Fourth 6.460 5.850 .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, 2002, the closing price was $6.99. As of September 30, 2002, there were approximately 1,131 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 September 25, 2002 the Company declared a dividend of $.145 per share to be paid on December 16, 2002 to shareholders of record November 15, 2002. Page 11 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, 2002. This table should be read in conjunction with all of the financial statements and notes thereto included elsewhere herein.
September 30, 2002 2001 2000 1999 1998 _______ ______ _______ _______ ________ Total Income $16,566,594 $12,908,204 $10,397,973 $ 8,751,219 $ 6,963,825 Total Expenses 11,913,073 8,785,150 6,897,207 6,214,993 4,493,595 Gains (Losses) on Sales of Assets- Investment Property (175,376) -0- 88,631 1,260,534 29,692 Net Income 4,478,145 4,123,054 3,589,397 3,796,760 2,499,922 Net Income Per Share- Basic and Diluted .40 .43 .44 .57 .50 BALANCE SHEET DATA: Total Assets $149,011,493 $119,433,470 $86,003,905 $79,424,958 $55,582,845 Long-Term Obligations 73,518,365 56,748,555 33,780,968 33,182,307 24,436,941 Shareholders' 59,005,016 49,929,539 41,013,926 36,276,677 27,404,822 Equity OTHER INFORMATION: Average Number Of Shares 11,177,294 9,504,806 8,078,877 6,627,344 4,997,775 Outstanding Funds from Operations* $ 7,594,618 $ 6,289,381 $ 5,292,384 $ 4,220,279 $ 3,647,345 Cash Dividends Per Share .58 .58 .58 .5675 .53
*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 does 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 12 ITEM 6 - SELECTED FINANCIAL DATA, (CONT'D.)
SUMMARY OF OPERATIONS BY PROPERTY FOR THE YEARS ENDED SEPTEMBER 30, 2002 2001 2000 _____ _____ _____ Net Rental Income (Loss): Somerset, New Jersey $166,747 $ 70,716 $ 247,795 Ramsey, New Jersey 222,078 114,702 157,488 Monaca, Pennsylvania 102,897 145,484 187,031 Orangeburg, New York 161,000 155,249 220,767 South Brunswick, New Jersey 505,744 448,308 412,634 Greensboro, North Carolina 220,285 207,361 192,358 Jackson, Mississippi 88,510 78,996 72,937 Franklin, Massachusetts 330,752 307,996 278,733 Wichita, Kansas 67,243 53,132 31,117 Urbandale, Iowa 38,001 28,631 88,628 Richland, Mississippi 80,056 69,508 58,738 O'Fallon, Missouri 177,225 130,480 101,646 Virginia Beach, Virginia* (320,181) (56,485) 110,359 Fayetteville, North Carolina 119,903 107,017 89,158 Schaumburg, Illinois 130,583 105,769 80,094 Burr Ridge, Illinois 39,595 33,355 41,756 Romulus, Michigan 118,385 104,130 93,874 Liberty, Missouri 243,747 222,353 206,755 Omaha, Nebraska 145,288 126,956 113,526 Charlottesville, Virginia 116,247 105,075 94,450 Jacksonville, Florida 140,924 132,789 114,921 Union Township, Ohio 75,140 62,314 41,177 Richmond, Virginia 320,576 198,862 -0- St. Joseph, Missouri 190,325 155,660 -0- Newington, Connecticut 66,321 26,670 -0- Cudahy, Wisconsin 88,637 35,275 -0- Beltsville, Maryland 299,699 115,176 -0- Granite City, Illinois 299,672 -0- -0- Monroe, North Carolina 185,450 -0- -0- Winston-Salem, North Carolina 123,007 -0- -0- Elgin, Illinois 55,468 -0- -0- __________ _________ _________ Net Rental Income 4,599,324 3,485,479 3,035,942 Net Investment and Other Income 1,583,425 1,613,977 1,253,695 __________ _________ _________ TOTAL 6,182,749 5,099,456 4,289,637 General & Administrative Expenses (1,529,228) (976,402) (788,871) __________ _________ _________ Income Before (Loss) Gain on Sale of Assets- Investment Property 4,653,521 4,123,054 3,500,766 (Loss) Gain on Sale of Assets-Investment Property (175,376) -0- 88,631 __________ _________ _________ NET INCOME $4,478,145 $4,123,054 $3,589,397 ========= ========= ========= * Sold in May, 2002.
Page 13 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, 2002, the Company's shareholders' equity increased to $59,005,016 as compared to $49,929,539 in 2001 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 ten years, the Company purchased twenty-eight net-leased warehouse facilities at an aggregate cost of approximately $140,000,000. The Company financed these purchases primarily through mortgages on its acquisitions. The Company also has a secured $6,256,000 line of credit of which approximately $1,680,000 was available at September 30, 2002. Interest is at Prime and is due monthly. This credit line expires on November 29, 2003. The Company also has a note payable to the seller for approximately $471,000 in connection with the purchase of the St. Joseph, Missouri property. The Company expects to make additional real estate investments from time to time. In 2003, 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, 2002 totaled approximately $5,728,000. During fiscal 2002, the Company's securities portfolio increased by approximately $2,276,000 due to purchases of approximately $5,707,000 and a change in the unrealized gain of approximately $303,000 offset by sales of approximately $3,734,000. Page 14 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 $6,792,043 in 2002 as compared to $4,785,236 in 2001. At September 30, 2002, the Company had total liabilities of $90,006,477 and total assets of $149,011,493. 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 2002, a total of $10,535,311 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 2002. It is anticipated, although no assurances can be given, that a comparable level of participation will continue in the Plan in fiscal 2003. Therefore, the Company anticipates that the Plan will result in further increased liquidity and capital resources in fiscal 2003. During the year ended September 30, 2002, nine officers, directors and key employees exercised their stock options and purchased 255,000 shares for a total of $1,617,488. Of this amount, 225,000 shares, for a total of $1,439,363, were exercised through the issuance of notes receivable from officers. These notes receivable are at an interest rate of 5%, mature on April 30, 2012 and are collateralized by the underlying common shares. As of September 30, 2002, the balance of these notes receivable was $1,350,001. Results of Operations The Company's activities primarily generate rental income. Net income for the fiscal year ended September 30, 2002 was $4,478,145 as compared to $4,123,054 in 2001 and $3,589,397 in 2000. 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, 2002 was $4,599,324 as compared to $3,485,479 in 2001 and $3,035,942 in 2000. The following is a discussion of the results of operations by location for 2002 as compared to 2001 and 2001 as compared to 2000: Somerset, New Jersey Net rental income decreased during 2002 as compared to 2001 primarily as a result of the main tenant going out of business. The space occupied by this tenant has been released under similar terms. Net rental income increased during 2001 as compared to 2000 due to a decrease in snow removal. Ramsey, New Jersey Net rental income increased during 2002 as compared to 2001 due to an extension of the lease at an increased rental rate. Net rental income decreased during 2001 as compared to 2000 due to an increase in repairs and maintenance. Page 15 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.) Monaca, Pennsylvania Net rental income decreased during 2002 as compared to 2001 primarily as a result of an increase in insurance costs. Net rental income decreased during 2001 as compared to 2000 primarily as a result of an increase in insurance costs and bad debt expense. Orangeburg, New York Net rental income remained relatively stable in 2002 as compared to 2001. Net rental income decreased in 2001 as compared to 2000 due to a renegotiation of the lease. South Brunswick, New Jersey Net rental income increased in 2002 as compared to 2001 and 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. This lease has been further extended to December 31, 2004. Greensboro, North Carolina Net rental income remained relatively stable in 2002 as compared to 2001. Net rental income increased during 2001 as compared to 2000 due to an increase in the annual rent and to lower interest charges. Jackson, Mississippi Net rental income remained relatively stable during 2002, 2001 and 2000. Franklin, Massachusetts Net rental income increased during 2002 as compared to 2001 primarily due to a decrease in interest expense. Net rental income increased during 2001 as compared to 2000 primarily due to a decrease in management fees allocated to this property. Wichita, Kansas Net rental income increased during 2002 as compared to 2001 and 2001 as compared to 2000 due to an increase in the annual rent and to lower interest charges. Urbandale, Iowa Net rental income increased during 2002 as compared to 2001 primarily due to a decrease in interest expense. Net rental income decreased during 2001 as compared to 2000 primarily due to a decrease in rent from a new lease. Richland, Mississippi Net rental income remained relatively stable during 2002, 2001 and 2000. O'Fallon, Missouri Net rental income increased in 2002 and 2001 as compared to 2000 primarily due to lower interest costs on related borrowings outstanding. Page 16 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.) Virginia Beach, Virginia Net rental loss increased during 2002 as compared to 2001 as compared to income during 2000 as a result of the expiration of the lease. This property was sold on May 1, 2002 for a loss of $175,376. Fayetteville, North Carolina Net rental income remained relatively stable in 2002 as compared to 2001. Net rental income increased during 2001 as compared to 2000 primarily due to a decrease in management fees allocated to this property. Schaumburg, Illinois Net rental income increased in 2002 as compared to 2001 due to a decrease in interest costs. Net rental income increased in 2001 as compared to 2000 due to a decrease in management fees allocated to this property. Burr Ridge, Illinois Net rental income remained relatively stable in 2002 as compared to 2001. Net rental income decreased in 2001 as compared to 2000 due primarily to a decrease in tenant reimbursements in 2001. Romulus, Michigan Net rental income remained relatively stable during 2002, 2001 and 2000. Liberty, Missouri Net rental income remained relatively stable during 2002, 2001 and 2000. Omaha, Nebraska Net rental income remained relatively stable during 2002, 2001 and 2000. Charlottesville, Virginia Net rental income remained relatively stable during 2002, 2001 and 2000. Jacksonville, Florida Net rental income remained relatively stable during 2002, 2001 and 2000. Union Township, Ohio Net rental income remained relatively stable in 2002 as compared to 2001. Net rental income increased during 2001 as compared to 2000 due to a full year's income and expenses. Richmond, Virginia Net rental income increased during 2002 as compared to 2001 due to a full year's income and expenses. This warehouse facility was acquired in November 2000. Page 17 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.) St. Joseph, Missouri Net rental income increased during 2002 as compared to 2001 due to a full year's income and expenses. This warehouse facility was acquired in February 2001. Newington, Connecticut Net rental income increased during 2002 as compared to 2001 due to a full year's income and expenses. This warehouse facility was acquired in March 2001. Cudahy, Wisconsin Net rental income increased during 2002 as compared to 2001 due to a full year's income and expenses. This warehouse facility was acquired in April 2001. Beltsville, Maryland Net rental income increased during 2002 as compared to 2001 due to a full year's income and expenses. This warehouse facility was acquired in April 2001. Granite City, Illinois This warehouse facility was acquired in October 2001. It is net- leased to Anheuser-Busch, Inc. The average monthly rental income over the term of the lease is approximately $95,589. Monroe, North Carolina This warehouse facility was acquired in November 2001. It is net- leased to Hughes Supply, Inc. The average monthly rental income over the term of the lease is approximately $49,044. Winston-Salem, North Carolina This warehouse facility was acquired in January 2002. It is net- leased to Fed Ex Ground Package System, a subsidiary of Federal Express Corporation. The average monthly rental income over the term of the lease is approximately $53,077. Elgin, Illinois This warehouse facility was acquired in April 2002. It is net- leased to Reynolds Metals Company, which merged with Alcoa, Inc. The average monthly rental income over the term of the lease is approximately $51,198. The Company also generated net investment and other income from its investments in securities available for sale and Hollister '97, LLC. These securities have an average dividend yield of approximately 9%. 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, decreased during 2002 as compared to 2001 due primarily to sales of securities available for sale resulting in a decrease in dividend income and increased during 2001 as compared to 2000 primarily due to the purchases of securities available for sale and to an increase in the gain on securities available for sales transactions, net. Gain on securities available for sales transactions, net amounted to $909,704, $632,492 and $110,960 for 2002, 2001 and 2000, respectively. Page 18 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.) General and administrative expenses increased during 2002 and 2001 as compared to 2000 primarily as a result of increased personnel costs due to additional employees. During 2002 the Company also experienced an increase in franchise taxes, professional fees and directors fees. The Company has been expanding its operations. Total assets increased from approximately $86 million as of September 30, 2000 to approximately $149 million as of September 30, 2002. Funds from operations (FFO), defined as net income, excluding gains (or losses) from sales of depreciable assets, plus depreciation, increased from $5,292,384 for the year ended September 30, 2000 to $6,289,381 for the year ended September 30, 2001 to $7,594,618 for the year ended September 30, 2002. 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 2002, the Company sold the warehouse facility in Virginia Beach, VA for a net loss of $175,376. During 2000, the Company recognized a deferred gain of $88,631 from the Howell Township, NJ (land)installment sale. Controls and Procedures Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision of the Company's Chief Executive Officer and Chief Financial Officer and with the participation of the Company's management, including the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to the Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's periodic Securities and Exchange Commission filings. No significant changes were made in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 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. Page 19 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, (CONT'D.) 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. ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and acquisitions of the Company's real estate investment portfolio. The Company's interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows primarily at fixed rates. The following table sets forth information as of September 30, 2002, concerning the Company's debt obligations, including principal cash flow by scheduled maturity, weighted average interest rates and estimated fair value: For the Years Ending September 30, 2003 2004 2005 Thereafter Total Fair Value Long-Term Debt: Fixed rate $-0- $2,117,056 $-0- $76,103,107 $78,220,163 $81,951,074 Average interest rate 7.07% 7.46% 7.45% The Company also has approximately $5,000,000 in variable rate debt due on November 29, 2003. This debt is a line of credit. Additionally, the Company has $5,000,000 in variable rate debt due on demand. This debt is primarily margin loans secured by marketable securities. The interest rates on these loans range from 3.75% to 4.75% at September 30, 2002. The carrying value of the Company's variable rate debt approximates fair value at September 30, 2002. 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 20 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 2002 12/31/01 03/31/02 06/30/02 09/30/02 Total Income $3,768,291 $4,082,895 $4,541,434 $4,173,974 Total Expenses 2,565,946 3,009,853 2,978,770 3,358,504 Net Income 1,202,345 1,073,042 1,387,289 815,469(1) Net Income per Share .12 .10 .12 .06 FISCAL 2001 12/31/00 3/31/01 6/30/01 9/30/01 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
(1) Decrease due primarily to an increase in professional fees and insurance costs. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Page 21 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following are the Directors and Executive Officers of the Company as of September 30, 2002:
Present Position with the Company; Business Experience During Past Percent Name; Age Five Years; Other Director Shares Of Directorships Since Owned Stock (1) __________ ______________________ ________ ______ ______ Ernest V. Treasurer (1968 to 1968 29,807(2) 0.25% Bencivenga present) and Director. (84) 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. Chew Controller (1991 to 1993 42,855 (3) 0.35% (44) present) and Director. 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 42,832(4) 0.35% Cronheim Law (1982 to present); (47) Executive Vice President (1989 to present) and General Counsel (1983 to present) of David Cronheim Company. Matthew I. Director. Attorney at 2000 25,620(5) .21% Hirsch(43) Law (1985 to present); Adjunct Professor of Law (1993 to present), Widener University School of Law .
Page 22 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, (CONT'D.)
Present Position with the Company; Business Experience During Past Percent Name; Age Five Years; Other Director Shares Of Directorships Since Owned Stock (1) __________ _____________________ _______ ______ ______ Charles P. Director. Investor; 1974 52,602(6) 0.43% Kaempffer Director (1970 to (65) 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 766,808(7) 6.25% Landy present) and Director. (69) Attorney at Law; 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 201,324(8) 1.66% Landy Law (1985 to present); (42) 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. Cynthia J. Executive Vice 2002 5,660(9) 0.05% Morgenstern President and Director. (33) Vice President (1996 to 2001) Summit Bank, Commercial Real Estate Division. John R. Director. Senior 2001 22,139(10) 0.18% Sampson Portfolio Manager at (48) Fox Asset Management, 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 23 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, (CONT'D.)
Present Position with the Company; Business Experience During Past Percent Name; Age Five Years; Other Director Shares of Directorships Since Owned Stock (1) __________ _____________________ _______ ______ _____ Peter J. Director. Director of 2001 6,000(11) 0.05% Weidhorn Real Estate (55) Management/Acquisitions 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. Directors and Officers as a Group 1,195,647(12) 9.74%
(1) Based on the number of Shares outstanding on September 30, 2002 which was 12,132,748 shares. (2) Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (3) Includes (a) 33,141 Shares owned jointly with Ms. Chew's husband; and (2) 9,714 Shares held in Ms. Chew's 401(k) Plan. Excludes 50,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (4) Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (5) Owned jointly with Mr. Hirsch's wife. Includes 5,000 Shares issuable upon exercise of a Stock Options. Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (6) Includes 15,225 Shares owned by Mr. Kaempffer's wife; (b) 1,080 Shares in joint name with Mrs. Kaempffer; and (c) 1,425 Shares held in the Charles P. Kaempffer Defined Benefit Pension Plan of which Mr. Kaempffer is Trustee with power to vote. Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. Page 24 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,(CONT'D.) (7) Includes 77,530 Shares owned by Mr. Landy's wife; (b) 161,764 Shares held in the Landy & Landy Employees' Profit Sharing Plan of which Mr. Landy is a Trustee with power to vote; (c) 126,585 Shares held in the Landy & Landy Employees' Pension Plan of which Mr. Landy is a Trustee with power to vote; and (d) 60,000 Shares held in the Eugene W. and Gloria Landy Family Foundation, a charitable trust, of which Mr. Landy has power to vote. Includes 130,000 shares issuable upon exercise of Stock Options. Excludes 65,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (8) Includes 4,180 Shares owned by Mr. Landy's wife; (b) 67,420 Shares held in custodial accounts for Mr. Landy's minor children under the New Jersey Uniform Transfer to Minors Act in which he disclaims any beneficial interest but has power to vote; (c) 1,000 Shares held in the Samuel Landy Family Limited Partnership and; (d) 27,287 Shares held in Mr. Landy's 401(k) Plan. Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (9) Includes 68 Shares held in Ms. Morgenstern's 401(k) Plan. Excludes 50,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (10) Includes 2,000 Shares held in custodial accounts for Mr. Sampson's minor children under the New Jersey Uniform Gifts to Minors Act in which he disclaims any beneficial interest but has power to vote. Includes 5,000 Shares issuable upon exercise of a Stock Option. Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (11) Includes 5,000 Shares issuable upon exercise of a Stock Option. Excludes 15,000 Shares issuable upon exercise of a Stock Option, which Stock Option is not exercisable until June 21, 2003. (12) Excludes 686,394 Shares (5.66%) owned by United Mobile Homes, Inc. Eugene W. Landy owns beneficially approximately 13% of the shares of United Mobile Homes, Inc. Page 25 ITEM 11 - EXECUTIVE COMPENSATION Summary Compensation Table The following Summary Compensation Table shows compensation paid or accrued by the Company for services rendered during 2002, 2001 and 2000 to the Chairman of the Board and President, and Executive Vice President. 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 2002 $150,000 $30,000 $75,300 (1) Chairman of the 2001 150,000 30,000 105,200 (1) Board and President 2000 130,000 80,000 72,000 (1) Cynthia Morgenstern 2002 $121,250 $8,462 $6,438 (2) Executive Vice 2001 78,269 -0- -0- President (1) Represents Director's fees of $16,300, $8,700 and $5,500 for 2002, 2001 and 2000, respectively, paid to Mr. Landy; accrual for pension and other benefits of $59,000, $49,000 and $34,000 for 2002, 2001 and 2000, respectively, in accordance with Mr. Landy's employment contract; and legal fees of $-0-, $47,500 and $32,500 for 2002, 2001 and 2000, respectively. (2) Represents Director's fees and discretionary contributions by the Company to the Company's 401(k) Plan allocated to an account of the named executive officer. Stock Option Plan The following table sets forth, for the executive officers named in the Summary Compensation Table, information regarding individual grants of stock options made during the year ended September 30, 2002: Potential Realized Value at Assumed Percent Annual Granted Price Expira- Rates for Option Options to Per tion Terms Name Granted Employees Share Date 5% 10% Eugene W. 65,000 17.8% $6.765 10/04/06 $190,900 $457,200 Landy 65,000 17.8% 7.13 6/21/10 221,300 530,000 Cynthia Morgenstern 50,000 13.7% 7.13 6/21/10 170,200 407,700 Page 26 ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.) The following table sets forth for the executive officers named in the Summary Compensation Table, information regarding stock options outstanding at September 30, 2002: Value of Unexercised Options Number of Unexercised At Year End Shares Value Options at Year-End Exercisable/ Exercised Realized Exercisable/Unexercisable Unexercisable _________ ________ _________________________ _____________ Eugene W. Landy 150,000 65,000/130,000 $96,850/$14,625 Cynthia J. Morgenstern -0- N/A -0-/50,000 $-0-/-0- Employment Agreements 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. 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. Effective January 15, 2002, the Company and Cynthia J. Morgenstern entered into a one year employment agreement under which Ms. Morgenstern receives an annual base salary of $125,000 plus bonuses and customary fringe benefits. In the event of disability, her salary shall continue for a period of two years. Other Information The Directors received a fee of $1,000 for each Board Meeting attended, and an additional fixed annual fee of $7,600 payable quarterly. Effective April 1, 2002, the meeting fee was increased to $1,500 and the fixed annual fee was increased to $10,000. Directors appointed to house committees receive $150 for each meeting attended. Those specific committees are Compensation Committee, Audit Committee and Stock Option Committee. Page 27 ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.) 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 $245,597 in 2002 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. 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. Compensation Committee: Daniel D. Cronheim Matthew I. Hirsch Page 28 ITEM 11 - EXECUTIVE COMPENSATION, (CONT'D.) Comparative Stock Performance The following line graph compares the total return of the Company's common stock for the last five fiscal years to the NAREIT All REIT Total Return Index, published by the National Association of Real Estate Investment Trusts (NAREIT), and the S&P 500 Index for the same period. The total return reflects stock price appreciation and dividend reinvestment for all three comparative indices. The information herein has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness is guaranteed. Monmouth Real Estate Investment Year Corporation NAREIT S&P 500 ____ ___________ ______ _______ 1997 100 100 100 1998 102 85 109 1999 97 78 139 2000 103 93 158 2001 138 106 116 2002 171 116 92 Page 29 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT On September 30, 2002, no person owned of record or was known by the Company to own beneficially five or more percent of the shares of the Company, except the following: Name and Address Shares Owned Percent Title of Class Of Beneficial Owner Beneficially Of Class ______________ ___________________ ____________ ________ Common Stock Eugene W. Landy 20 Tuxedo Road Rumson, NJ 07760 636,808 5.25% Common Stock United Mobile Homes, Inc. 3499 Route 9, Suite 3-C Freehold, NJ 07728 686,394 5.66% Common Stock Oakland Financial Corp. 34200 Mound Road Sterling Heights, MI 48310 706,042(1) 5.82% (1) Based upon Amendment No. 1 to a Schedule 13D dated May 20, 2002 filed with the SEC by Oakland Financial Corporation ("Oakland"), which indicates that Oakland shares voting and dispositive power with respect to those Shares with Liberty Bell Agency, Inc. ("Liberty Bell") and Cherokee Insurance Company ("Cherokee"), both of which are wholly-owned subsidiaries of Oakland. That filing also indicates that Oakland owns 50,000 Shares, Liberty Bell owns 438,148 Shares and Cherokee owns 217,894 Shares. 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 30 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 33 (ii) Balance Sheets as of September 30, 2002 and 2001 34 (iii) Statements of Income for the years ended September 30, 2002, 2001 and 2000 35 (iv) Statements of Shareholders' Equity for the years ended September 30, 2002, 2001 and 2000 36 (v) Statements of Cash Flows for the years Ended September 30, 2002, 2001 and 2000 37 (vi) Notes to the Financial Statements 38-55 (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, 2002 56-58 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 31 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) Certificate of Amendment to the Certificate of Incorporation dated May 9, 1995. (iii) Certificate of Amendment to the Certificate of Incorporation dated July 22, 1999. (iv) Certificate of Amendment to the Certificate of Incorporation dated April 26, 2002. (v) By-laws of Monmouth Real Estate Investment Corporation. (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. (23) Consent of KPMG LLP (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). (99.1) Cetification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (99.2) Cetification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (99.3) Cetification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (99.4) Cetification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Reports on Form 8-K - None Page 32 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, 2002 and 2001, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2002 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 18, 2002 Page 33 MONMOUTH REAL ESTATE INVESTMENT CORPORATION BALANCE SHEETS AS OF SEPTEMBER 30,
ASSETS 2002 2001 Real Estate Investments: Land $ 21,011,214 $ 18,295,814 Buildings, Improvements and Equipment, net of Accumulated Depreciation of $13,869,844 and $11,268,700, respectively 108,096,042 84,426,270 ____________ ____________ Total Real Estate Investments 129,107,256 102,722,084 Cash and Cash Equivalents 693,572 147,579 Securities Available for Sale at Fair Value 15,223,942 12,948,359 Interest and Other Receivables 909,234 847,130 Prepaid Expenses 37,674 53,257 Lease Costs - Net of Accumulated Amortization 125,809 109,448 Investments in Hollister '97, LLC 900,399 900,399 Other Assets 2,013,607 1,705,214 ____________ ____________ TOTAL ASSETS $ 149,011,493 $ 119,433,470 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage Notes Payable $ 78,220,163 $ 60,424,754 Loans Payable 10,775,467 8,204,961 Other Liabilities 1,010,847 874,216 ____________ ____________ Total Liabilities 90,006,477 69,503,931 ____________ ____________ Shareholders' Equity: Common Stock - Class A - $.01 Par Value, 16,000,000 Shares Authorized; 12,132,748 and 10,264,728 Shares Issued and Outstanding in 2002 and 2001, respectively 121,327 102,647 Common Stock - Class B - $.01 Par Value, 100,000 Shares Authorized; No Shares Issued or Outstanding -0- -0- Additional Paid-in Capital 58,388,761 48,284,847 Accumulated Other Comprehensive Income 1,844,929 1,542,045 Loans to Officers, Directors and Key Employees (1,350,001) -0- Undistributed Income -0- -0- ____________ ____________ Total Shareholders' Equity 59,005,016 49,929,539 ____________ ____________ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 149,011,493 $ 119,433,470 =========== ===========
See Accompanying Notes to the Financial Statements Page 34 MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30,
2002 2001 2000 INCOME: Rental and Occupancy Charges $14,519,670 $10,524,575 $ 8,559,004 Interest and Dividend Income 1,137,220 1,751,137 1,728,009 Gain on Securities Available for Sales Transactions, Net 909,704 632,492 110,960 __________ __________ __________ TOTAL INCOME 16,566,594 12,908,204 10,397,973 __________ __________ __________ EXPENSES: Interest Expense 6,059,415 4,590,757 3,334,861 Management Fees 245,597 220,521 199,432 Real Estate Taxes 365,641 239,828 463,770 Professional Fees 350,808 523,818 486,568 Operating Expenses 771,436 590,052 401,593 Office and General Expense 1,013,979 370,797 255,896 Director Fees 165,100 83,050 52,100 Depreciation 2,941,097 2,166,327 1,702,987 __________ __________ __________ TOTAL EXPENSES 11,913,073 8,785,150 6,897,207 __________ __________ __________ Income Before Gains 4,653,521 4,123,054 3,500,766 Loss) Gain on Sale of Assets - Investment Property (175,376) -0- 88,631 __________ __________ __________ NET INCOME $ 4,478,145 $ 4,123,054 $ 3,589,397 ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 11,177,294 9,504,806 8,078,877 ========== ========== ========== Diluted 11,196,388 9,506,644 8,078,877 ========== ========== ========== PER SHARE INFORMATION: Income Before Gains $ .42 $ .43 $ .43 Loss (Gain) on Sale of Assets - Investment Property (.02) -0- .01 __________ __________ __________ NET INCOME - BASIC AND DILUTED $ .40 $ .43 $ .44 ========== ========== ==========
See Accompanying Notes to the Financial Statements Page 35 MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30,
Accumulated Loans to Other Officers, Compre- Additional Directors Undistrib- hensive Compre- Common Paid-In And Key uted Income hensive Stock Capital Employees Income (Loss) Income Balance September 30, 1999 $ 75,096 $36,924,039 $ -0- $ -0- $(722,458) Shares Issued in connection with the Dividend Reinvestment and Stock Purchase Plan (1,198,311 shares) 11,984 5,722,605 -0- -0- -0- Distributions -0- (1,116,471) -0- (3,589,397) -0- Net Income -0- -0- -0- 3,589,397 -0- $3,589,397 Unrealized Net Holding Losses on Securities Available for Sale Net of Reclassification Adjustment -0- -0- -0- -0- 119,131 119,131 _______ ________ ________ ________ ________ ________ Balance September 30, 2000 87,080 41,530,173 -0- -0- (603,327)$3,708,528 ========= Shares Issued in Connection with the Dividend Reinvestment and Stock Purchase Plan (1,556,768 shares) 15,567 8,164,278 -0- -0- -0- Distributions -0- (1,409,604) -0- (4,123,054) -0- Net Income -0- -0- -0- $4,123,054 -0- $4,123,054 Unrealized Net Holding Gains on Securities Available for Sale -0- -0- -0- -0- 2,145,372 2,145,372 ________ ________ ________ ________ ________ ________ Balance September 30, 2001 102,647 48,284,847 -0- -0- 1,542,045 $6,268,426 ========= Shares Issued in Connection with the Dividend Reinvestment and Stock Purchase Plan (1,613,020 shares) 16,130 10,519,181 -0- -0- -0- Shares Issued through the Exercise of Stock Options (255,000 shares) 2,550 1,614,938 (1,439,363) -0- -0- Distributions -0- (2,030,205) -0- (4,478,145) -0- Payments on Loans to Officers, Directors and Key Employees -0- -0- 89,362 -0- -0- Net Income -0- -0- -0- 4,478,145 -0- $4,478,145 Unrealized Net Holding Gains on Securities Available for Sale Net of Reclassification Adjustment -0- -0- -0- -0- 302,884 302,884 ________ ________ ________ ________ ________ ________ Balance September 30, 2002 $121,327 $58,388,761 $(1,350,001)$ -0- $1,844,929 $4,781,029 ======= ========= ========= ======== ========= =========
See Accompanying Notes to the Financial Statements Page 36 MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30,
2002 2001 2000 ____ ____ ____ CASH FLOWS FROM OPERATING ACTIVITIES Net Income $4,478,145 $ 4,123,054 $ 3,589,397 Noncash Items Included in Net Income: Depreciation 2,941,097 2,166,327 1,702,987 Amortization 187,323 141,479 143,155 Loss(Gains) on Sales of Assets-Investment Property 175,376 -0- (88,631) Gains on Sales of Securities (909,704) (632,492) (110,960) Changes in: Interest & Other Receivables (62,104) (130,386) (158,396) Prepaid Expenses 15,583 1,551 9,193 Other Assets and Lease Costs (170,304) (895,772) (490,884) Other Liabilities 136,631 11,475 (12,112) __________ __________ __________ NET CASH PROVIDED FROM OPERATING ACTIVITIES 6,792,043 4,785,236 4,583,749 __________ __________ __________ CASH FLOWS FROM INVESTING ACTIVITIES Additions to Land, Buildings And Improvements (31,520,915) (38,994,718) (4,124,411) Proceeds from Sale of Assets-Investment Property 2,019,270 -0- -0- Distribution from Hollister '97 LLC -0- 25,000 -0- Collections on Installment Sales -0- -0- 125,135 Purchase of Securities Available for Sale (5,706,901) (828,963) (5,690,807) Proceeds from Sale of Securities Available For Sale 4,643,905 7,497,270 1,406,805 __________ __________ __________ NET CASH USED IN INVESTING ACTIVITIES (30,564,641) (32,301,411) (8,283,278) __________ __________ __________ CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Mortgages 23,350,000 27,220,000 3,000,000 Proceeds from Loans 16,070,530 17,243,367 6,508,288 Principal Payments on Mortgages (5,554,591) (2,899,989) (2,133,016) Principal Payments of Loans (13,500,024) (17,060,901) (5,432,831) Financing Costs on Debt (341,772) -0- -0- Proceeds from Issuance of Class A Common Stock 8,271,484 6,308,324 4,127,898 Proceeds from Exercise of Options 178,125 -0- -0- Dividends Paid (4,244,523) (3,661,137) (3,099,177) Payments on Loans to Officers, Directors and Key Employees 89,362 -0- -0- __________ __________ __________ NET CASH PROVIDED FROM FINANCING ACTIVITIES 24,318,591 27,149,664 2,971,162 __________ __________ __________ Net Increase (Decrease)in Cash and Cash Equivalents 545,993 (366,511) (728,367) Cash and Cash Equivalents at Beginning of Year 147,579 514,090 1,242,457 __________ __________ __________ CASH AND CASH EQUIVALENTS $ 693,572 $ 147,579 $ 514,090 AT END OF YEAR ========== ========== ==========
See Accompanying Notes to the Financial Statements Page 37 MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2002 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, 2002 and 2001, rental properties consist of thirty and twenty-seven 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 38 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, 2002 and 2001 are all classified as available-for-sale and are carried at fair value. Gains or losses on the sale of securities are calculated based on the specific identification method and are accounted for on a trade date basis. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of Shareholders' Equity until realized. A decline in the market value of any security below cost that is deemed to be other than temporary results in a reduction in the carrying amount to fair value. Any impairment would be charged to earnings and a new cost basis for the security established. 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, NJ. 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 (11,177,294, 9,504,806 and 8,078,877 in 2002, 2001 and 2000, 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 (11,196,388, 9,506,644 and 8,078,877 in 2002, 2001 and 2000, respectively). Options in the amount of 19,094, 1,838 and -0- are included in the diluted weighted average shares outstanding for 2002, 2001 and 2000, respectively. Page 39 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 7 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 90% of its taxable income, has at least 75% of its assets in real estate investments and meets certain other requirements for qualification as a REIT. Comprehensive Income Comprehensive income is comprised of 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, 2002 and 2001:
Buildings, Improvements, Accumulated September 30, 2002 Land And Equipment Depreciation __________________ ____ _____________ ____________ NEW JERSEY: Ramsey Industrial Building $ 52,639 $ 1,358,148 $ 701,621 Somerset(1) Shopping Center 55,182 1,148,906 889,384 South Industrial Brunswick Building 1,128,000 4,190,598 1,290,001 PENNSYLVANIA: Monaca Industrial Park 330,773 2,100,605 1,269,546
Page 40 NOTE 2 - REAL ESTATE INVESTMENTS, (CONT'D.)
Buildings, Improvements, Accumulated September 30, 2002 (Cont'd) Land And Equipment Depreciation ____________ ______________ ________ _____________ ____________ NEW YORK: Orangeburg Industrial Building $ 694,720 $ 2,977,372 $ 933,503 NORTH CAROLINA: Fayetteville Industrial Building 172,000 4,467,885 630,060 Greensboro Industrial Building 327,100 1,853,700 556,873 Monroe Industrial Building 500,000 4,981,022 63,857 Winston-Salem Industrial Building 980,000 5,610,000 71,920 MISSISSIPPI: Jackson Industrial Building 218,000 1,234,586 363,312 Richland Industrial Building 211,000 1,195,000 260,447 MASSACHUSETTS: Franklin Industrial Building 566,000 4,148,000 904,017 KANSAS: Wichita Industrial Building 268,000 1,518,000 330,850 IOWA: Urbandale Industrial Building 310,000 1,760,736 383,138 MISSOURI: Liberty Industrial Building 723,000 6,510,546 751,144 O'Fallon Industrial Building 264,000 3,309,000 634,846 St. Joseph Industrial Building 800,000 11,753,964 452,054 VIRGINIA: Charlottesville Industrial Building 1,170,000 2,845,000 255,318 Richmond Industrial Building 1,160,000 6,413,305 247,255 ILLINOIS: Burr Ridge Industrial Building 270,000 1,236,599 142,632 Schaumburg Industrial Building 1,039,800 3,694,321 520,977 Granite City Industrial Building 340,000 12,054,175 154,535 Elgin Industrial Building 1,280,000 5,529,488 70,888 MICHIGAN: Romulus Industrial Building 531,000 3,665,961 423,934 FLORIDA: Jacksonville Industrial Building 1,165,000 4,668,080 418,909 NEBRASKA: Omaha Industrial Building 1,170,000 4,425,500 397,147 OHIO: Union Township Industrial Building 695,000 3,342,000 214,288 CONNECTICUT: Newington Industrial Building 410,000 2,961,000 113,884 WISCONSIN: Cudahy Industrial Building 980,000 5,053,615 194,328 MARYLAND: Beltsville Industrial Building 3,200,000 5,958,773 229,175 _________ _________ _________ Total at September 30, 2002 $21,011,214 $121,965,885 $13,869,843 ========== ========== ==========
(1) This represents the Company's 2/3 undivided interest in the property. Page 41 NOTE 2 - REAL ESTATE INVESTMENTS, (CONT'D.)
Buildings, Improvements, Accumulated September 30, 2001 Land And Equipment Depreciation ______________________________ ________ _____________ ____________ NEW JERSEY: Ramsey Industrial Building $ 52,639 $1,354,151 $ 658,565 Somerset(1) Shopping Center 55,182 1,118,418 845,780 South Industrial Brunswick Building 1,128,000 4,145,361 1,147,672 PENNSYLVANIA: Monaca Industrial Park 330,773 1,946,451 1,172,888 NEW YORK: Orangeburg Industrial Building 694,720 2,977,372 838,967 NORTH CAROLINA: Fayetteville Industrial Building 172,000 4,467,885 515,508 Greensboro Industrial Building 327,100 1,853,700 497,990 MISSISSIPPI: Jackson Industrial Building 218,000 1,234,586 323,592 Richland Industrial Building 211,000 1,195,000 229,799 MASSACHUSETTS: Franklin Industrial Building 566,000 4,148,000 797,661 KANSAS: Wichita Industrial Building 268,000 1,518,000 291,929 IOWA: Urbandale Industrial Building 310,000 1,758,000 338,063 MISSOURI: Liberty Industrial Building 723,000 6,510,546 584,212 O'Fallon Industrial Building 264,000 3,302,000 550,183 St. Joseph Industrial Building 800,000 11,753,964 150,686 VIRGINIA: Charlottesville Industrial Building 1,170,000 2,845,000 182,370 Richmond Industrial Building 1,160,000 6,413,305 82,819 Virginia Beach Industrial Building 384,600 2,150,000 303,193 ILLINOIS: Burr Ridge Industrial Building 270,000 1,236,599 110,928 Schaumburg Industrial Building 1,039,800 3,694,321 426,249 MICHIGAN: Romulus Industrial Building 531,000 3,665,961 329,038 FLORIDA: Jacksonville Industrial Building 1,165,000 4,668,080 299,221 NEBRASKA: Omaha Industrial Building 1,170,000 4,425,500 283,675 OHIO: Union Township Industrial Building 695,000 3,342,000 128,608 CONNECTICUT Newington Industrial Building 410,000 2,961,000 37,960 WISCONSIN Cudahy Industrial Building 980,000 5,050,997 64,754 MARYLAND Beltsville Industrial Building 3,200,000 5,958,773 76,390 _________ _________ _________ 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 42 NOTE 3 - ACQUISITIONS AND DISPOSITIONS Fiscal 2002 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. To fund this purchase, the Company used 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. To fund this purchase, the Company used 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. On January 31, 2002, the Company purchased a 106,507 square foot warehouse facility in Winston-Salem, North Carolina. This warehouse facility is 100% net-leased to Fed Ex Ground Package System, a subsidiary of Federal Express Corporation. The purchase price was approximately $6,700,000. To fund this purchase, the Company used approximately $200,000 in cash, used approximately $1,700,000 of its credit line with Fleet Bank and obtained a mortgage of approximately $4,800,000. This mortgage payable is at an interest rate of 7.1% and is due February 1, 2012. On April 8, 2002, the Company purchased a 89,052 square feet warehouse facility located in Elgin, Illinois from Jones Elgin, LLC, and unrelated entity. This warehouse facility is 100% net leased to Reynolds Metals Company, which merged with Alcoa, Inc. The purchase price, including closing costs, was approximately $6,800,000. The Company used approximately $100,000 in cash, $1,700,000 of its Revolving Credit line with Fleet Bank and obtained a mortgage of $5,000,000. This mortgage is payable at a rate of 6.97% and matures on May 1, 2017. On May 1, 2002, the Company sold the warehouse facility in Virginia Beach, VA. The net proceeds from this sale was $2,019,270 resulting in a net loss of $175,376. Page 43 NOTE 3 - ACQUISITIONS AND DISPOSITIONS, (CONT'D.) 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 $7,600,000. The Company used approximately $100,000 in cash, used approximately $1,800,000 of its Revolving Credit Line with Fleet Bank (formerly Summit Bank) and obtained a mortgage of approximately $5,700,000. This mortgage is payable at a variable interest rate of 1.80% over LIBOR and matures December 1, 2015. This mortgage was converted to a fixed rate of 6.12% during 2002. 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 used approximately $100,000 in cash, borrowed approximately $800,000 against its security portfolio with Prudential Securities and obtained a mortgage of approximately $2,500,000. 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 used approximately $100,000 in cash, borrowed approximately $1,700,000 against its security portfolio with Prudential Securities and obtained a mortgage of approximately $4,300,000 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 used approximately $400,000 in cash, borrowed approximately $2,800,000 against its security portfolio with Prudential Securities and obtained a mortgage of approximately $6,000,000 at an interest rate of 7.53% which matures on May 1, 2016. Page 44 NOTE 4 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK The Company has approximately 2,986,000 square feet of property, of which approximately 944,000 square feet or 32% is leased to Federal Express Corporation and subsidiaries and approximately 301,000 square feet, or 10%, is leased to Keebler Company. Rental and occupancy charges from Federal Express Corporation and subsidiaries totaled approximately $5,662,000, $4,113,000 and $2,891,000 years ended September 30, 2002, 2001 and 2000, respectively. Rental and occupancy charges from Keebler Company totaled approximately $1,853,000, $1,702,000 and $1,578,000 for the years ended September 30, 2002, 2001 and 2000. During 2002, 2001 and 2000, rental income and occupancy charges from properties leased to these companies approximated 52%, 55%, 52% 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, 2002, 2001 and 2000 amounted to $915,904, $1,534,255 and $1,484,646, respectively. Interest income for the years ended September 30, 2002, 2001 and 2000 amounted to $221,316, $216,882 and $243,363, respectively. Page 45
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D) The following is a summary of Securities Available for Sale at September 30, 2002 and 2001: 2002 Shares/ $ Amount Cost Market Debt Securities: 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 1,914,000 $ 1,884,333 $ 1,949,889 __________ __________ Total Debt Securities 1,884,333 1,949,889 __________ __________ Equity Securities: Preferred Stock: Alexandria Real Estate 9.50% Sr A 1,000 19,870 26,470 Apartment Inv. 8.75% Class D Cum 1,000 18,120 24,260 Apartment Inv. ser H 1,000 20,582 25,030 Apartment Inv. CI R 10% 3,000 80,250 78,450 Archstone Smith 8.75% 2,000 51,491 53,800 Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH 9.75% CL A CUM Redeem 1,000 18,063 24,900 CBL&Assoc 8.75%PRB 4,000 202,100 210,600 Colonial Propertys 8.75% 2,500 63,475 62,575 Commercial NetLease SR A 1,000 26,248 26,000 Cresent R/E 6.75% Sr A Conv -0- -0- -0- Crown American 11% Ser 10,000 458,810 555,000 Developers Div. 9.44% -0- -0- -0- Developers Div. Dep Shs CL F 2,000 49,762 50,600 Developers Div CL C 8.375% 4,200 105,290 105,000 Developers Div Cl D 9.68% 1,100 28,204 27,621 Equity Inns 9.50%SrA cum 11,400 210,007 269,724 Equity Office Trust 8.625% SR C cum 1,600 33,117 41,664 Equity Office Trust 8.98% -0- -0- -0- Equity Res. Ppts 9.125% 3,000 63,923 80,790 Felcor Lodging 1.95% PFD 1,000 15,350 21,200 Felcor Lodging 9% B 18,000 410,096 439,200 First In Rlty 8.75% Sr B cum -0- -0- -0- Glenborough R/E 7.75% Sr A Conv 3,000 52,311 66,300 G&L Realty 10.25% Sr A Cum -0- -0- -0- Gleimcher Realty 9.25% B 9,000 204,116 224,460 HRPT 0.875% PFD SR A 5,500 145,660 143,000 HRPT 8.75% SR B 12,000 299,880 298,440 Healthcare Dep Shrs 8.60% 2,000 50,164 50,000 Healthcare Pro.8.70% SR B 4,000 72,667 102,400 Healthcare Pro.Ser A 7.875% 10,500 189,749 265,860 Healthcare 8.875% 2,000 51,400 49,900 Highwoods Pro 8% Sr D 1,000 17,245 23,550 Hospitality Ppts 9.50% 7,000 129,983 182,700 Host Marriott 10% CL C 1,000 25,600 25,170 Inkeepers USA 8.625% 4,000 98,924 93,000 Instar 8% Sr D 11,500 166,641 271,400 Instar 9.20 Sr C 2,500 44,288 62,675 Instar 9.375 B -0- -0- -0- JDN Realty 9 3/8 28,100 609,208 706,434 Kimco Realty 8.375% 9,100 218,224 231,140 Kimco Realty 7.75% A -0- -0- -0-
Page 46A
2001 Shares/ $ Amount Cost Market Debt Securities: 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 100.00 794,000 $ 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 Apartment Inv. CI R 10% -0- -0- -0- Archstone Smith 8.75% -0- -0- -0- Associated Estates Realty Corp DEP SHS REPSTG 1/10 SH 9.75% CL A CUM Redeem 24,200 440,535 605,000 CBL&Assoc 8.75%PRB -0- -0- -0- Colonial Propertys 8.75% -0- -0- -0- Commercial NetLease SR A -0- -0- -0- Cresent 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 Developers Div. Dep Shs CL F -0- -0- -0- Developers Div CL C 8.375% -0- -0- -0- Developers Div Cl D 9.68% -0- -0- -0- Equity Inns 9.50%SrA cum 10,400 176,543 200,096 Equity Office Trust 8.625% SR C cum 1,600 33,117 40,320 Equity Office Trust 8.98% 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 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 HRPT 0.875% PFD SR A -0- -0- -0- HRPT 8.75% SR B -0- -0- -0- Healthcare Dep Shrs 8.60% -0- -0- -0- Healthcare Pro.8.70% SR B 4,000 72,667 100,400 Healthcare Pro.Ser A 7.875% 13,700 247,157 328,800 Healthcare 8.875% -0- -0- -0- Highwoods Pro 8% Sr D 1,000 17,245 22,010 Hospitality Ppts 9.50% 7,000 129,983 168,560 Host Marriott 10% CL C -0- -0- -0- Inkeepers USA 8.625% -0- -0- -0- 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 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
Page 46B
NOTE 5 - SECURITIES AVAILABLE FOR SALE (CONT'D) 2002 Shares/ $ Amount Cost Market Kramont Sr D 9.50% 34,500 $ 743,817 $ 871,125 Lasalle Hotel 10.25% SR A 6,000 153,000 151,200 Mid Amer 8.875% 4,000 92,670 100,000 Mid Amer Sr A 9.50% 6,000 119,584 152,400 New Plan Excel 8 5/8% 18,000 443,077 450,900 New Plan Execl 8.50% A -0- -0- -0- Parkway Properties 8.75% Sr A 8,000 205,600 203,600 Post Properties 7.625% 1,000 23,440 23,010 Prime Group 9% B -0- -0- -0- Prime Retail Inc SRA 10.50% 1,000 15,433 5,200 Prime Retail Inc SRB 8.50% 8,000 26,720 21,600 Reckson Assoc 7.625% 1,000 18,707 23,700 Sizeler PFD B 9.75% 1,000 25,000 26,100 Sovran Self Stor 9.85 Sr B 2,000 39,115 52,800 SNH Capital 10.125% 1,000 26,460 25,790 Thornburg Mtg. 9.68% Sr A 2,000 40,740 53,800 United Dominion Realty Trust 9.25% SRA Cum. Redeemable -0- -0- -0- Vornado 8.5% PFD 6,000 119,393 151,800 Winston Hotels Sr A 9,25% 4,000 92,842 89,000 __________ __________ Total Preferred Stock 6,436,414 7,321,338 Common Stock: __________ __________ Assoc. Estates Realty -0- -0- -0- Banyan Strategic Realty Trust -0- -0- -0- BNP Residential 18,000 192,595 176,400 Centertrust Retail Prop 28,500 135,120 165,300 Crown American Realty Trust 41,000 324,564 376,790 Eastgroup Properties -0- -0- -0- Five Star Quality Care Inc 540 4,050 621 Getty Realty Corp -New 5,000 94,076 95,400 HPRT Properties 64,000 470,835 528,000 Health Care Properties -0- -0- -0- Humphrey Hospility 5,000 16,028 10,750 IRT Properties 26,500 256,864 311,375 JDN Realty 545 -0- 6,584 Lasalle Hotel Prop 1,000 12,394 12,000 Mid Atlantic Realty Trust 11,000 117,259 176,990 Monmouth Capital Corporation 32,280 113,653 122,665 New Plan Realty 45,731 776,616 843,280 Pan Pacific Retail Props -0- -0- -0- Penn R/E Trust 17,000 330,960 437,920 RFS Hotel Investors 1,000 10,769 10,070 Senior Housing 6,000 73,891 67,320 Sizeler Property Inv. 105,500 894,676 1,061,330 Trizec Ppts Inc 10,000 132,775 113,500 United Mobile Homes 100,200 1,050,221 1,327,644 Urstadt biddle Properties -A -0- -0- -0- Urstadt biddle Properties 9,500 50,920 108,775 __________ __________ Total Common Stock 5,058,266 5,952,714 __________ __________ Total Equity Securities 11,494,680 13,274,052 __________ __________ Total Securities Available for Sale $ 13,379,013 $ 15,223,941 ========== ==========
Page 47A
2001 Shares/ $ Amount Cost Market Kramont Sr D 9.50% 19,500 $ 360,338 $ 442,650 Lasalle Hotel 10.25% SR A -0- -0- -0- 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 Parkway Properties 8.75% Sr A -0- -0- -0- Post Properties 7.625% -0- -0- -0- 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 Sizeler PFD B 9.75% -0- -0- -0- Sovran Self Stor 9.85 Sr B 2,000 39,115 50,900 SNH Capital 10.125% -0- -0- -0- Thornburg Mtg. 9.68% Sr A 2,000 40,740 51,100 United Dominion Realty Trust 9.25% SRA Cum. Redeemable -0- -0- -0- Vornado 8.5% PFD 7,000 139,291 175,560 Winston Hotels Sr A 9,25% -0- -0- -0- __________ __________ 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 Five Star Quality Care Inc -0- -0- -0- Getty Realty Corp -New -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 JDN Realty -0- -0- -0- Lasalle Hotel Prop 2,000 24,952 18,480 Mid Atlantic Realty Trust 21,000 228,381 294,000 Monmouth Capital Corporation -0- -0- -0- 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 Senior Housing -0- -0- -0- Sizeler Property Inv. 105,500 894,676 931,565 Trizec Ppts 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 __________ __________ 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 47B NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE The following is a summary of the mortgage notes payable at September 30, 2002 and 2001:
Fixed Fiscal Balance Balance Property Rate Maturity 9/30/02 9/30/01 Orangeburg, NY 7% 2004 $ 677,351 $ 969,114 Jackson, MS 8.5% 2008 433,634 488,743 Franklin, MA 7% 2004 771,137 1,103,298 Wichita, KS 10.25% 2016 1,104,099 1,139,043 Urbandale, IA 7% 2004 353,642 512,790 Richland, MS 7.5% 2004 314,919 414,303 O'Fallon, MO 8.5% 2008 1,310,326 1,508,079 Virginia Beach, VA 8.5% 2021 -0- 1,381,495 Fayetteville, NC 7.8% 2006 2,923,508 3,036,730 Schaumburg, IL 8.48% 2012 2,734,241 2,907,418 Burr Ridge, IL 8% 2014 937,527 984,701 Romulus, MI 7.56% 2013 2,295,913 2,429,434 Liberty, MO 7.065% 2013 3,900,105 4,144,992 Omaha, NE 7.15% 2014 3,443,297 3,635,919 Charlottesville, VA 6.90% 2014 2,368,604 2,495,162 Jacksonville, FL 6.92% 2017 3,621,281 3,790,172 Union Township, OH 8.25% 2015 2,708,147 2,828,528 Richmond, VA 6.12% 2016 5,193,920 5,461,711 St. Joseph, MO 8.12% 2016 8,338,783 8,669,233 Newington, CT 8.1% 2016 2,335,074 2,426,827 Cudahy, WI 8.15% 2016 4,032,368 4,188,569 Beltsville, MD 7.53% 2016 5,676,839 5,908,493 Granite City, IL 7.11% 2017 9,163,601 -0- Monroe, NC 7.11% 2017 3,920,014 -0- Winston Salem, NC 7.10% 2012 4,725,650 -0- Elgin, IL 6.97% 2017 4,936,183 -0- __________ __________ Total Mortgage Notes Payable $78,220,163 $60,424,754 ========== ==========
Page 48 NOTE 6 - MORTGAGE NOTES AND LOANS PAYABLE, (CONT'D.) Principal on the foregoing debt is scheduled to be paid as follows: Year Ending September 30, 2003 $ 4,701,798 2004 5,191,911 2005 4,466,733 2006 7,118,714 2007 4,949,916 Thereafter 51,791,091 ___________ $78,220,163 =========== 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 $6,256,000 due primarily to the sale of the warehouse facility in Monsey, New York during 1999 and is now secured by a mortgage on the South Brunswick Industrial Building. This line of credit expires on November 29, 2003. As of September 30, 2002, approximately $4,576,000 is outstanding and approximately $1,680,000 is available. Margin Loans During fiscal 2002, the Company purchased securities on margin. The margin loans are at 3.75% and 4.25% and are due on demand. At September 30, 2002 and 2001, the margin loans amounted to approximately $5,728,000 and $4,389,000, respectively and are collateralized by the Company's securities portfolio. The Company must maintain a coverage ratio of approximately 50%. Other In connection with the purchase of the St. Joseph, Missouri property, the Company issued a $500,000 note to Butler at an interest rate of 8.12% due February 29, 2016. The balance of this note at September 30, 2002 was approximately $471,000. NOTE 7 - STOCK OPTION PLAN On April 24, 1997, the shareholders approved and ratified the Company's 1997 Stock Option Plan (the Plan) authorizing the grant to officers, directors and key employees options to purchase up to 750,000 shares of common stock. On April 25, 2002, the shareholders approved an increase to the number of shares of common stock under the Plan to 1,500,000 shares. Options may be granted any time up to December 31, 2006. No option shall be available for exercise beyond ten years. All options are exercisable after one year from the date of grant. 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. Page 49 NOTE 7 - STOCK OPTION PLAN, (CONT'D.) 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: 2002 2001 2000 ____ ____ ____ Net As Reported $4,478,145 $4,123,054 $3,589,397 Income Pro Forma 4,457,305 4,109,069 3,578,672 Net As Reported Income - Basic and Diluted $.40 $.43 $.44 Per Share Pro Forma - Basic and Diluted .40 .43 .44 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 2002, 2001 and 2000; dividend yield of 8% in 2002 and 9% in 2001 and 2000; expected volatility of 13% in 2002 and 25% in 2001 and 2000%; risk-free interest rate of 3.4% in 2002, 4.75% in 2001 and 6% in 2000, and expected lives of five years. During the year ended September 30, 2002, nine officers, directors and key employees exercised their stock options and purchased 255,000 shares for a total of $1,617,488. Of this amount, 225,000 shares, for a total of $1,439,363, were exercised through the issuance of notes receivable from officers. These notes receivable are at an interest rate of 5%, mature on April 30, 2012 and are collateralized by the underlying common shares. As of September 30, 2002, the balance of these notes receivable was $1,350,001. A summary of the status of the Company's stock option plan as of September 30, 2002, 2001 and 2000 is as follows: 2002 2001 2000 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ______ ________ ______ ________ ______ ________ Outstanding at beginning of year 385,000 $6.19 385,000 $6.20 320,000 $6.34 Granted 365,000 7.06 15,000 5.65 65,000 5.50 Exercised (255,000) 6.34 -0- -0- -0- -0- Expired (30,000) 5.94 (15,000) 5.94 -0- -0- _________ ________ _____ Outstanding at end of year 465,000 6.80 385,000 6.19 385,000 6.20 ======= ======= ======= Exercisable at end of year 100,000 370,000 320,000 ======= ======= ======= Weighted- average fair Value of options granted during the year .12 .54 .33
Page 50 NOTE 7 - STOCK OPTION PLAN, (CONT'D.) The following is a summary of stock options outstanding as of September 30, 2002:
Date of Number of Number of Option Expiration Grant Grants Shares Price Date _____ _____ _____ _____ _____ 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 10/4/01 1 65,000 6.765 10/4/06 6/21/02 15 300,000 7.13 6/21/10 _______ 465,000 =======
As of September 30, 2002, there were 780,000 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, 2002 are scheduled as follows: 2003 - $14,403,000; 2004 - $13,052,000; 2005 - $11,946,000; 2006 - - $11,461,000; 2007 - $10,333,000; thereafter - $33,110,000. NOTE 9 - RELATED PARTY TRANSACTIONS Eugene W. Landy received $16,300, $8,700 and $5,500 for the years ended September 30, 2002, 2001 and 2000 as Director. The firm of Eugene W. Landy received $-0-, $47,500, and $32,500 during the years ended 2002, 2001 and 2000, respectively, as legal fees. An accrual of $59,000, $49,000 and $34,000 was made during the years ended September 30, 2002, 2001 and 2000, respectively, for pension and other benefits in accordance with Mr. Landy's employment agreement. Additionally, the Board of Directors has granted to Mr. Landy loans totaling $1,312,501 at interest rates ranging from 5% to 7% and maturity dates ranging from 2003 to 2012. 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. Page 51 NOTE 9 - RELATED PARTY TRANSACTIONS, (CONT'D.) Effective January 15, 2002, the Company and Cynthia J. Morgenstern entered into a one year employment agreement under which Ms. Morgenstern receives an annual base salary of $125,000 plus bonuses and customary fringe benefits. In the event of disability, her salary shall continue for a period of two years. Cronheim Management Services received the sum of $245,597, $220,521 and $199,432 for management fees during the years ended 2002, 2001 and 2000, 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 $20,194, $26,708 and $14,347 in lease brokerage commissions in 2002, 2001 and 2000, respectively. Daniel Cronheim received $16,300, $8,700 and $5,650 for Director and Committee fees in 2002, 2001 and 2000, 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 90% of its taxable income is distributed. As the Company has and intends to continue to distribute all of its income currently, no provision has been made for income taxes. Federal Excise Tax The Company does not have an excise tax liability for the calendar years 2002, 2001 and 2000, since it intends to or has distributed all of its annual income. 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. Page 52 NOTE 11 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN, (CONT'D.) Amounts received, including dividend reinvestment of $2,263,827 and $1,871,521 in 2002 and 2001, respectively, and shares issued in connection with the Plan for the years ended September 30, 2002 and 2001 were as follows: 2002 2001 ____ ____ Amounts Received $10,535,311 $8,179,845 Shares Issued 1,613,020 1,556,768 NOTE 12 - DISTRIBUTIONS The following cash distributions were paid to shareholders during the years ended September 30, 2002 and 2001: 2002 2001 ____ ____ Quarter Ended Amount Per Share Amount Per Share _____________ ______ _________ ______ _________ December 31 $1,519,885 $.145 $1,290,979 $.145 March 31 1,587,414 .145 1,364,374 .145 June 30 1,683,029 .145 1,413,499 .145 September 30 1,718,022 .145 1,463,806 .145 __________ __________ __________ _______ $6,508,350 $.58 $5,532,658 $ .58 ========== ========= ========== ========== On September 25, 2002, the Company declared a dividend of $ .145 per share to be paid on December 16, 2002 to shareholders of record November 15, 2002. 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. Page 53 NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS, (CONT'D.) 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, 2002, 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 $81,951,074 and $78,220,163, respectively. At September 30, 2001, the fair value and carrying value of fixed rate mortgage notes payable amounted to $56,313,559 and $54,963,043, respectively. NOTE 14 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION Cash paid during the years ended September 30, 2002, 2001 and 2000, for interest is $6,030,744, $4,590,757 and $3,334,861, respectively. During 2002, 2001 and 2000, the Company had $2,263,827, $1,871,521 and $1,606,691, respectively, of dividends which were reinvested that required no cash transfers. The following are the reclassification adjustments related to securities available for sale included in Other Comprehensive Income (Loss): 2002 2001 2000 Unrealized holding gains arising during the year $1,212,588 $2,777,864 $ 230,091 Less: reclassifcation adjustment for gains realized in income (909,704) (632,492) (110,960) ________ ________ ________ Net unrealized gains $302,884 $2,145,372 $119,131 ========= ========= ========= NOTE 15 - SUBSEQUENT EVENTS On November 6, 2002, the Company purchased a 288,211 square foot manufacturing and warehouse facility in Tolleson, Arizona from Centex Industrial Buckeye I, LLC, an unrelated entity. This warehouse facility is 100% net leased to Western Container Corporation, which manufactures plastic bottles for Coca-Cola soft drink products. The lease is guaranteed by Coca-Cola Enterprises. The purchase price was approximately $14,800,000. The Company paid approximately $550,000 in cash, borrowed approximately $2,200,000 against its security portfolio with Prudential Securities, used approximately $1,100,000 of its revolving line of credit with Fleet Bank and obtained a mortgage of approximately $10,950,000. This mortgage payable is at an interest rate of 5.8% and is due November 1, 2012. Page 54 NOTE 15 - SUBSEQUENT EVENTS, (CONT'D.) On November 21, 2002, the Company purchased a 90,020 square foot warehouse facility in Ft. Myers, Florida from Jones Development Company, LLC, 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 was approximately $4,400,000. The Company paid approximately $100,000 in cash, used approximately $1,100,000 of its revolving line of credit with Fleet Bank and obtained a mortgage of approximately $3,200,000. This mortgage payable is at an interest rate of 6.33% and is due November 1, 2012. The property acquired is commercial rental property and will continue to be used as such. Page 55
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2002 Column A Column B Column C Column D ________ ________ __________________________ ________ Capitalization Buildings and Subsequent to Description Encumbrances Land Improvements Acquisition ___________ __________ __________ ___________ ___________ Shopping Center Somerset, NJ $ -0- $ 55,182 $ 637,097 $ 511,809 Industrial Building Ramsey, NJ -0- 52,639 291,500 1,066,648 Monaca, PA -0- 330,773 878,081 1,203,303 Orangeburg, NY 677,351 694,720 2,977,372 -0- South Brunswick, NJ -0- 1,128,000 4,087,400 103,198 Greensboro, NC -0- 327,100 1,853,700 -0- Jackson, MS 433,634 218,000 1,233,500 1,086 Franklin , MA 771,137 566,000 4,148,000 -0- Witchita, KS 1,104,099 268,000 1,518,000 -0- Urbandale, IO 353,642 310,000 1,758,000 2,736 Richland, MS 314,919 211,000 1,195,000 -0- O'Fallon, MO 1,310,326 264,000 3,302,000 7,000 Fayetteville, NC 2,923,508 172,000 4,467,885 -0- Schaumburg, IL 2,734,241 1,039,800 3,694,321 -0- Burr Ridge, IL 937,527 270,000 1,236,599 -0- Romulus, MI 2,295,913 531,000 3,653,883 12,078 Liberty, MO 3,900,105 723,000 6,510,546 -0- Omaha, NE 3,443,297 1,170,000 4,425,500 -0- Charlottesville, VA 2,368,604 1,170,000 2,845,000 -0- Jacksonville, FL 3,621,281 1,165,000 4,668,080 -0- Union Township, OH 2,708,147 695,000 3,342,000 -0- Richmond, VA 5,193,920 1,160,000 6,413,305 -0- St. Joseph, MO 8,338,783 800,000 11,753,964 -0- Newington, CT 2,335,074 410,000 2,961,000 -0- Cudahy, WI 4,032,368 980,000 5,050,997 2,618 Beltsville, MD 5,676,839 3,200,000 5,958,773 -0- Granite City, IL 9,163,601 340,000 12,054,175 -0- Monroe, NC 3,920,014 500,000 4,981,022 -0- Winston-Salem, NC 4,725,650 980,000 5,610,000 -0- Elgin, IL 4,936,183 1,280,000 5,529,488 -0- __________ __________ __________ __________ $ 78,220,163 $ 21,011,214 $ 119,036,188 $ 2,910,476 ========== ========== ========== ========== *Buildings and improvements reacquired in 1986.
Page 56A
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2002 Column A Column E (1)(2) ________ ___________________________________________ Gross Amount at Which Carried September 30, 2002 Description Land Bldg & Imp Total ___________ ________ __________ __________ Shopping Center Somerset, NJ $ 55,182 $ 1,148,906 $ 1,204,088 Industrial Building Ramsey, NJ 52,639 1,358,148 1,410,787 Monaca, PA 330,773 2,081,384 2,412,157 Orangeburg, NY 694,720 2,977,372 3,672,092 South Brunswick, NJ 1,128,000 4,190,598 5,318,598 Greensboro, NC 327,100 1,853,700 2,180,800 Jackson, MS 218,000 1,234,586 1,452,586 Franklin , MA 566,000 4,148,000 4,714,000 Witchita, KS 268,000 1,518,000 1,786,000 Urbandale, IO 310,000 1,760,736 2,070,736 Richland, MS 211,000 1,195,000 1,406,000 O'Fallon, MO 264,000 3,309,000 3,573,000 Fayetteville, NC 172,000 4,467,885 4,639,885 Schaumburg, IL 1,039,800 3,694,321 4,734,121 Burr Ridge, IL 270,000 1,236,599 1,506,599 Romulus, MI 531,000 3,665,961 4,196,961 Liberty, MO 723,000 6,510,546 7,233,546 Omaha, NE 1,170,000 4,425,500 5,595,500 Charlottesville, VA 1,170,000 2,845,000 4,015,000 Jacksonville, FL 1,165,000 4,668,080 5,833,080 Union Township, OH 695,000 3,342,000 4,037,000 Richmond, VA 1,160,000 6,413,305 7,573,305 St. Joseph, MO 800,000 11,753,964 12,553,964 Newington, CT 410,000 2,961,000 3,371,000 Cudahy, WI 980,000 5,053,615 6,033,615 Beltsville, MD 3,200,000 5,958,773 9,158,773 Granite City, IL 340,000 12,054,175 12,394,175 Monroe, NC 500,000 4,981,022 5,481,022 Winston-Salem, NC 980,000 5,610,000 6,590,000 Elgin, IL 1,280,000 5,529,488 6,809,488 __________ __________ __________ $ 21,011,214 $ 121,946,664 $ 142,957,878 ========== ========== ========== *Buildings and improvements reacquired in 1986.
Page 56B
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III SEPTEMBER 30, 2002 Column A Column F Column G Column H Column I ________ ________ ________ ________ ________ Accumulated Date of Deprecia- Construc- Date Depreciable Description tion tion Acquired Life ___________ _________ ________ ________ ________ Shopping Center Somerset, NJ $ 889,384 1970 1970 10-33 Industrial Building Ramsey, NJ 701,621 1969 1969 7-40 Monaca, PA 1,269,547 1977 1977* 5-31.5 Orangeburg, NY 933,503 1990 1993 31.5 South Brunswick, NJ 1,290,001 1974 1993 31.5 Greensboro, NC 556,873 1988 1993 31.5 Jackson, MS 363,312 1988 1993 39 Franklin , MA 904,017 1991 1994 39 Witchita, KS 330,850 1995 1994 39 Urbandale, IO 383,138 1985 1994 39 Richland, MS 260,447 1986 1994 39 O'Fallon, MO 634,846 1989 1994 39 Fayetteville, NC 630,060 1996 1997 39 Schaumburg, IL 520,977 1997 1997 39 Burr Ridge, IL 142,632 1997 1997 39 Romulus, MI 423,934 1998 1998 39 Liberty, MO 751,144 1997 1998 39 Omaha, NE 397,147 1999 1999 39 Charlottesville, VA 255,318 1998 1999 39 Jacksonville, FL 418,909 1998 1999 39 Union Township, OH 214,288 1999 2000 39 Richmond, VA 247,255 2000 2001 39 St. Joseph, MO 452,054 2000 2001 39 Newington, CT 113,884 2001 2001 39 Cudahy, WI 194,328 2001 2001 39 Beltsville, MD 229,175 2000 2001 39 Granite City, IL 154,535 2001 2001 39 Monroe, NC 63,857 2001 2001 39 Winston-Salem, NC 71,920 2001 2002 39 Elgin, IL 70,888 2002 2002 39 __________ $ 13,869,844 ========== *Buildings and improvements reacquired in 1986.
Page 56c MONMOUTH REAL ESTATE INVESTMENT CORPORATION SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION, (CONT'D.) (1) Reconciliation REAL ESTATE INVESTMENTS _______________________
9/30/02 9/30/01 9/30/00 _________ _________ _________ Balance-Beginning of Year $ 113,971,563 $ 74,996,066 $ 70,871,655 __________ __________ __________ Additions: Acquisitions 31,274,685 38,688,039 4,037,000 Improvements 246,230 287,458 87,411 __________ __________ __________ Total Additions 31,520,915 38,975,497 4,124,411 __________ __________ __________ Sales (2,534,600) -0- -0- __________ __________ __________ Balance-End of Year $ 142,957,878 $ 113,971,563 $ 74,996,066 ========== ========== ==========
ACCUMULATED DEPRECIATION _________________________
9/30/02 9/30/01 9/30/00 __________ __________ __________ Balance-Beginning of Year $ 11,268,700 $ 9,102,373 $ 7,399,386 Depreciation 2,941,097 2,166,327 1,702,987 Sales (339,954) -0- -0- __________ __________ __________ Balance-End of Year $ 13,869,844 $ 11,268,700 $ 9,102,373 ========== ========== ==========
Page 57 MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO SCHEDULE III SEPTEMBER 30, (1) Reconciliation
2002 2001 2000 ____ ____ ____ Balance - Beginning of Year $ 113,971,563 $ 74,996,066 $ 70,871,655 ____________ ____________ ____________ Additions: Ramsey, NJ 3,997 178,937 -0- Somerset, NJ 30,488 -0- 52,423 Monaca, PA 154,154 84,543 22,014 Orangeburg, NY -0- -0- -0- South Brunswick, NJ 45,237 11,900 12,974 Greensboro, NC -0- -0- -0- Jackson, MS -0- -0- -0- Franklin, MA -0- -0- -0- Wichita, KA -0- -0- -0- Urbandale, IA 2,736 -0- -0- Richland, MS -0- -0- -0- O'Fallon, MO 7,000 -0- -0- Fayetteville, NC -0- -0- -0- Schaumburg, IL -0- -0- -0- Burr Ridge, IL -0- -0- -0- Romulus, MI -0- 12,078 -0- Liberty, MO -0- -0- -0- Omaha, NE -0- -0- -0- Charlottesville, VA -0- -0- -0- Jacksonville, FL -0- -0- -0- Union Township, OH -0- -0- 4,037,000 Richmond, VA -0- 7,573,305 -0- St. Joseph, MO -0- 12,553,964 -0- Newington, CT -0- 3,371,000 -0- Cudahy, WI 2,618 6,030,997 -0- Beltsville, MD -0- 9,158,773 -0- Granite City, IL 12,394,175 -0- -0- Monroe, NC 5,481,022 -0- -0- Winston Salem, NC 6,590,000 -0- -0- Elgin, IL 6,809,488 -0- -0- __________ __________ __________ Total Additions 31,520,915 38,975,497 4,124,411 __________ __________ __________ Sales: Virginia Beach, VA (2,534,600) -0- -0- __________ __________ __________ Balance - End of Year $ 142,957,878 $ 113,971,563 $ 74,996,066 ========== ========== ==========
(2) The aggregate cost for Federal tax purposes approximates historical cost. Page 58 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 19, 2002 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 19, 2002 By: /s/ Eugene W. Landy Eugene W. Landy, President and Director Date: December 19, 2002 By: /s/ Ernest V. Bencivenga Ernest V. Bencivenga, Treasurer and Director Date: December 19, 2002 By: /s/ Anna T. Chew Anna T. Chew, Controller and Director Date: December 19, 2002 By: /s/ Daniel D. Cronheim Daniel D. Cronheim, Director Date: December 19, 2002 By: /s/ Matthew I. Hirsch Matthew I. Hirsch, Director Date: December 19, 2002 By: /s/ Charles P. Kaempffer Charles P. Kaempffer, Director Date: December 19, 2002 By: /s/ Samuel A. Landy Samuel A. Landy, Director Date: December 19, 2002 By: /s/ Cynthia J.Morgenstern Cynthia J. Morgenstern Vice President and Director Date: December 19, 2002 By: /s/ John R. Sampson John R. Sampson, Director Date: December 19, 2002 By: /s/ Peter J. Weidhorn Peter J. Weidhorn, Director Page 59 EX-3.II 3 exhibit3ii.txt AMENDMENT TO CERTIFICATE OF INCORPORATION- MAY 9, 1995 EXHIBIT (3) (ii) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MONMOUTH REAL ESTATE INVESTMENT CORPORATION It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Monmouth Real Estate Investment Corporation. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article IV(a) thereof and by substituting in lieu of said Article IV(a) the following new Article IV(a): "Eight Million (8,000,000) shares of Class A Common Stock, with a par value of $0.01 for each share of such stock. In the event of a liquidation of the Corporation, Class A Common Stock shall be entitled to all assets allocated to holders of Common Stock. Class A Common Stock shall be subject to redemption by the Corporation in accordance with Article X of this Certificate". 3. The Amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed on May 9, 1995. MONMOUTH REAL ESTATE INVESTMENT CORPORATION /s/Eugene W. Landy Eugene W. Landy President EX-3.III 4 exhibit3iii.txt AMENDMENT TO CERTIFICATE OF INCORPORATION- JULY 22, 1999 EXHIBIT (3) (iii) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MONMOUTH REAL ESTATE INVESTMENT CORPORATION It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Monmouth Real Estate Investment Corporation. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article IV(a) thereof and by substituting in lieu of said Article IV(a) the following new Article IV(a): "Sixteen Million (16,000,000) shares of Class A Common Stock, with a par value of $0.01 for each share of such stock. In the event of a liquidation of the Corporation, Class A Common Stock shall be entitled to all assets allocated to holders of Common Stock. Class A Common Stock shall be subject to redemption by the Corporation in accordance with Article X of this Certificate". 3. The Amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed on July 22, 1999. MONMOUTH REAL ESTATE INVESTMENT CORPORATION /s/Eugene W. Landy Eugene W. Landy President EX-3.IV 5 exhibit3iv.txt AMENDMENT TO CERTIFICATE OF INCORPORATION- APRIL 26, 2002 EXHIBIT (3) (iv) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF MONMOUTH REAL ESTATE INVESTMENT CORPORATION It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Monmouth Real Estate Investment Corporation. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article IV(a) thereof and by substituting in lieu of said Article IV(a) the following new Article IV(a): "Twenty Million (20,000,000) shares of Class A Common Stock, with a par value of $0.01 for each share of such stock. In the event of a liquidation of the Corporation, Class A Common Stock shall be entitled to all assets allocated to holders of Common Stock. Class A Common Stock shall be subject to redemption by the Corporation in accordance with Article X of this Certificate". 3. The Amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed on April 26, 2002. MONMOUTH REAL ESTATE INVESTMENT CORPORATION /s/Eugene W. Landy Eugene W. Landy President EX-23 6 exhibit23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 Independent Auditors' Consent The Board of Directors Monmouth Real Estate Investment Corporation: We consent to the incorporation by reference in the Registration Statement on Form S-8 of Monmouth Real Estate Investment Corporation of our report dated December 18, 2002, relating to the balance sheets of Monmouth Real Estate Investment Corporation as of September 30, 2002 and 2001 and the related statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended September 30, 2002, and the related schedule, which report appears in the September 30, 2002 Annual Report on Form 10-K of Monmouth Real Estate Investment Corporation. /s/ KPMG LLP KPMG LLP Short Hills, New Jersey December 23, 2002 EX-99.1 7 mreic991k.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, 302 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Eugene W. Landy, Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Monmouth Real Estate Investment Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Eugene W. Landy Eugene W. Landy Chief Executive Officer December 19, 2002 EX-99.2 8 mreic992k.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, 302 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Anna T. Chew, Controller, certify that: 1. I have reviewed this annual report on Form 10-K of Monmouth Real Estate Investment Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Anna T. Chew Anna T. Chew Controller December 19, 2002 EX-99.3 9 mreic993k.txt CERTIFICAITON PURSUANT TO 18 U.S.C SECTION 350, 906 EXHIBIT 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Monmouth Real Estate Investment Corporation (the "Company") on Form 10-K for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eugene W. Landy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Eugene W. Landy Eugene W. Landy Chief Executive Officer December 19, 2002 EX-99.4 10 mreic994k.txt CERTIFICAITON PURSUANT TO 18 U.S.C SECTION 350, 906 EXHIBIT 99.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Monmouth Real Estate Investment Corporation (the "Company") on Form 10-K for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anna T. Chew, Controller of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Anna T. Chew Anna T. Chew Controller December 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----