-----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, QND0T+oe3F9nFujDS4dwf8JBKU3i5ojaCFqXgk3lfZYp+jMCjLThyfJnwHkYBFy9 zRuApKkKrU3dDNbc944f+w== 0000067625-97-000011.txt : 19971229 0000067625-97-000011.hdr.sgml : 19971229 ACCESSION NUMBER: 0000067625-97-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971224 SROS: NASD 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: SEC FILE NUMBER: 000-04258 FILM NUMBER: 97744504 BUSINESS ADDRESS: STREET 1: 125 WYCKOFF RD STREET 2: PO BOX 335 CITY: EATONTOWN STATE: NJ ZIP: 07724 BUSINESS PHONE: 9085424927 MAIL ADDRESS: STREET 1: PO BOX 335 STREET 2: 125 WYCKOFF ROAD CITY: EATONTOWN STATE: NJ ZIP: 07724 FORMER COMPANY: FORMER CONFORMED NAME: MONMOUTH REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19900403 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1997 [ ] 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.) 125 Wyckoff Road, Eatontown, NJ 07724 (Address of Principal Executive Offices ) (Zip Code) Registrant's telephone number, including area code: (732) 542-4927 Securities registered pursuant to Section 12(b) of the Act: Title of each class ____ Name of each exchange on which registered ____ Securities registered pursuant to Section 12(g) of the Act: Common Stock Class A $.01 par value (Title of Class) 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 $24,849,769 (based on 3,898,003 shares of common stock at the closing price of 6.375 per share) on December 5, 1997. There were 4,550,613 shares of common stock outstanding as of December 5, 1997. Documents Incorporated by Reference: Exhibits incorporated by reference are listed in Part IV, Item (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 1,287,000 square feet of property, of which approximately 282,000 square feet, or 22%, is leased to the Keebler Company; 148,000 square feet, or 12%, is leased to Belk Enterprises, Inc.; and 145,000 square feet, or 11%, is leased to Amway Corporation. During 1997 and 1996, rental income and occupancy charges from properties leased to these companies approximated 54% and 56%, respectively, of total rental and occupancy charges. At September 30, 1997, the Company had investments in sixteen 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 and Virginia. All properties are managed by a management company. Monsey, New York and Monaca, Pennsylvania are not net-leased. The remaining fourteen properties are all leased on a net basis. The Company does not have an advisory contract. Its properties are managed by the David Cronheim Management Company under a management contract which is in effect on a year to year basis. The David Cronheim Management Company received $17,681, $17,825 and $10,540 in 1997, 1996 and 1995, respectively, for the management of various properties. The David Cronheim Company also received $46,188, $21,777 and $11,877 in commissions in 1997, 1996 and 1995, respectively. Page 2 ITEM 1 - BUSINESS (CONT'D) 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. The Company will also invest in the securities of other real estate investment trusts (REITs) and may, from time to time, invest in mortgages. In 1998, the Company plans to acquire $15,000,000 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. Under New Jersey Environmental Laws, inspections of the properties are made and certificates of compliance are obtained upon the sale of property or upon a change of tenancy. Therefore, there is no assurance that, in connection with compliance with state environmental regulations, substantial capital expenditures would not be incurred at the time the Company desired to sell its properties or at the time of a change of tenancy. Management is not aware of any material environmental problems affecting the Company's properties. ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES The Company operates as a real estate investment trust. Its portfolio is primarily in equity 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 are photographs of the Company's equity holdings at September 30, 1997, together with a brief description of each. (See Item 14,Schedule III for additional information on Real Estate and Accumulated Depreciation and Item 14, Note 7 of the Notes to the Financial Statements for a discussion of encumbrances on these equity holdings). Page 3 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) SOMERSET, NEW JERSEY The Company owns a two-thirds 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 free standing restaurant was completed during 1993. This shopping center was 100% occupied at September 30, 1997. Effective October 1, 1995, the main store was leased on a net-net basis. This lease expires on September 30, 2000. The Company's portion of the annual rental income on this facility was approximately $287,000. (PICTURE OF PROPERTY) RAMSEY, NEW JERSEY Ramsey Industrial Park, located on E. Crescent Avenue in Ramsey, New Jersey is a 42,719 square foot building leased on a net- net basis to Bogen Photo, Inc. This lease was extended by agreement to 2001. The current annual rental income is approximately $224,000. Page 4 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) MONSEY, NEW YORK This steel and block building, located at 40 Robert Pitt Drive, Monsey, New York, was purchased by the Company on September 30, 1980, for $1,025,000. The 55,000 square foot building includes four warehouses of about 11,000 square feet each and 10,000 square feet of offices in the front. The current annual rental income is approximately $310,000. At September 30, 1997, this property was 87% occupied. (PICTURE OF PROPERTY) 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. The current annual rental income is approximately $399,000. At September 30, 1997, this property was 64% occupied. This property has 1,200 feet of undeveloped river frontage. Page 5 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) ORANGEBURG, NEW YORK This 50,400 square foot warehouse facility, located in Orangeburg, New York, was purchased by the Company on November 25, 1992 for a purchase price of $3,650,000. This warehouse facility is leased to the Keebler Company on a net-net basis. The average annual rental income over the term of the lease is approximately $433,000. The lease expires on November 30, 2000. (PICTURE OF PROPERTY) SOUTH BRUNSWICK, NEW JERSEY This 144,520 square foot building, located in South Brunswick, New Jersey was purchased from Equitable Life Assurance Society for $5,100,000 on March 30, 1993. It is occupied by Amway Corporation as a distribution center on a 5-year lease which expired on June 30, 1997. Average annual income over the term of the lease was approximately $595,000. Amway Corporation will occupy the building until December, 1997 at a monthly rental of $162,585. Effective January 1, 1998, the Company entered into a lease with McMaster Carr Supply Co. This lease expires on December 31, 2000. Average annual rental income over the term of the lease is $614,210. Page 6 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) GREENSBORO, NORTH CAROLINA This 40,560 square foot distribution center is the second such facility leased to the Keebler Company. It is located in Greensboro, North Carolina and was purchased on April 15, 1993 for $2,165,000. This net-net lease expires February 14, 2003. Annual rental income is approximately $233,000. (PICTURE OF PROPERTY) JACKSON, MISSISSIPPI This 26,340 square foot warehouse facility, located in Jackson Mississippi was purchased July 30, 1993 for a purchase price of $1,435,000. This is the third in a series of warehouses occupied by the Keebler Company on a net-net lease. The average annual rental income over the term of the lease is approximately $169,000. This lease expires September 30, 2003. The Keebler Company has sub- leased this facility. Page 7 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES ( CONT'D) (PICTURE OF PROPERTY) FRANKLIN, MASSACHUSETTS This 84,376 square foot warehouse facility, located in Franklin, Massachusetts was purchased on October 20, 1993 for a purchase price of $4,700,000. This is the fourth of the acquisitions of Keebler Company net-leased warehouses. The average annual rental income over the term of the lease is approximately $516,000. This lease expires on January 31, 2004. (PICTURE OF PROPERTY) WICHITA, KANSAS This 44,136 square foot warehouse facility in Wichita, Kansas was purchased on February 17, 1994 for a purchase price of $1,765,000. This is the fifth of the acquisitions of Keebler Company net-leased warehouses. The average annual rental income over the term of the lease is approximately $195,000. This lease expires May 30, 2005. Page 8 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) URBANDALE, IOWA This 36,150 square foot warehouse facility in Urbandale, Iowa was purchased on March 31, 1994 for the purchase price of $2,055,000. This is the sixth of the acquisitions of Keebler Company net-leased warehouses. The average annual rental income over the term of the lease is approximately $225,000. This lease expires June 30, 2000. The Keebler Company has sub-leased this facility. (PICTURE OF PROPERTY) RICHLAND, MISSISSIPPI This 36,000 square foot warehouse facility was purchased on March 31, 1994 for the purchase price of $1,400,000. This facility is 100% net-leased to the Federal Express Corporation for an annual rental income of approximately $140,000 over the term of the lease. This lease expires on March 31, 2004. Page 9 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) O'FALLON MISSOURI On October 13, 1994, the Company purchased a 102,135 square foot warehouse facility in O'Fallon, Missouri. This warehouse facility is 100% net-leased to PPG Industries, Inc. The purchase price was $3,525,000. The average annual rental income over the term of the lease is approximately $353,000. This lease expires June 30, 2001. (PICTURE OF PROPERTY) VIRGINIA BEACH, VIRGINIA On May 10, 1996, the Company purchased a 67,926 square foot warehouse facility in Virginia Beach, Virginia for approximately $2,500,000. This warehouse facility is 100% net leased to the Raytheon Service Company. The annual rental income is approximately $307,000. This lease expires February 28, 2001. Page 10 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) FAYETTEVILLE, NORTH CAROLINA On May 27, 1997, the Company purchased a 148,000 square foot warehouse facility in Fayetteville, North Carolina for approximately $4,600,000. This warehouse facility is 100% net-leased to Belk Enterprises, Inc. The annual rental income over the term of the lease is approximately $473,000. This lease expires June 4, 2006. (PICTURE OF PROPERTY) SCHAUMBURG, ILLINOIS On June 11, 1997, the Company purchased a 73,500 square foot warehouse facility in Schaumburg, Illinois for approximately $4,700,000. This warehouse facility is 100% net-leased to Federal Express Corporation. The annual rental income over the term of the lease is approximately $463,000. This lease expires April 1, 2007. Page 11 ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D) (PICTURE OF PROPERTY) TETERBORO, NEW JERSEY On June 4, 1997, the Company invested $1,000,000 in a limited liability company, Hollister `97, LLC, representing a 25% ownership interest. The sole business of this LLC is the ownership and operation of the Hollister Corporate Park in Teterboro, New Jersey. Under the agreement, the Company is to receive a cumulative preferred 11% annual return on its investment. ITEM 3 - LEGAL PROCEEDINGS None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1997 to a vote of security holders through the solicitation of proxies or otherwise. Page 12 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: 1997 1996 Market Price Market Price Fiscal Qtr. High Low Distrib. Fiscal Qtr. High Low Distrib. First 6-5/8 5-1/4 $ .125 First 6 5-1/8 $ .125 Second 6-15/16 5-3/4 .125 Second 6-1/4 5-1/4 .125 Third 5-5/16 5-1/2 .13 Third 6-3/8 5-9/16 .125 Fourth 6-5/8 5-5/8 .13 Fourth 6 5-3/8 .125 ______ ______ $ .51 $ .50 ====== ====== 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, 1997, the closing price was 6-5/8. As of September 30, 1997, there were approximately 938 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 23, 1997, the Company declared a dividend of $.13 a share to be paid on December 15, 1997 to shareholders of record November 17, 1997. Page 13
ITEM 6 - SELECTED FINANCIAL DATA September 30, 1997 1996 1995 1994 1993 INCOME STATEMENT DATA: Total Income $ 5,798,699 $ 4,607,434 $ 4,240,859 $ 3,870,841 $ 3,398,116 Total Expenses 3,965,002 3,233,584 3,293,692 2,856,210 2,134,666 Gains on Sales of Assets- Investment Property 47,457 22,249 38,766 392,416 16,551 Net Income 1,881,154 1,396,099 985,933 1,407,047 1,280,001 Net Income Per Share .46 .39 .31 .49 .51 BALANCE SHEET DATA: Total Assets $ 44,942,723 $ 32,538,076 $30,289,860 $29,234,128 $22,550,291 Long-Term Obligations 20,498,016 14,197,529 14,522,503 13,681,614 7,708,382 Shareholders' Equity 19,889,288 16,109,382 14,247,867 13,157,339 10,835,102 OTHER INFORMATION: Average Number of Shares Outstanding 4,047,759 3,584,364 3,212,064 2,878,951 2,536,034 Funds from Operations* $ 2,821,902 $ 2,226,079 $ 1,730,871 $1,640,707 $ 1,632,022 Cash Dividends Per Share .51 .50 .50 .50 .50 *Defined as net income, excluding gains (or losses) from sales of assets, plus depreciation. Funds from Operations do not replace net income determined in accordance with generally accepted accounting principles (GAAP) as a measure of performance or net cash flows as a measure of liquidity. Funds from Operations is not a GAAP measure of operating performance and should be considered as a supplemental measure of operating performance used by real estate investment trusts. Page 14
ITEM 6 - SELECTED FINANCIAL DATA (CONT'D) SUMMARY OF OPERATIONS BY PROPERTY FOR THE YEARS ENDED SEPTEMBER 30, 1997 1996 1995 Net Rental Income Somerset, New Jersey $ 238,494 $ 226,065 $ 58,814 Ramsey, New Jersey 183,459 177,242 180,301 Monaca, Pennsylvania 133,483 145,356 142,576 Monsey, New York 200,811 201,997 237,034 Orangeburg, New York 186,985 176,241 155,360 South Brunswick, New Jersey 656,756 280,857 157,965 Greensboro, North Carolina 32,362 30,621 28,994 Jackson, Mississippi 70,433 67,227 61,474 Franklin, Massachusetts 239,977 224,684 206,608 Wichita, Kansas 26,328 24,052 21,936 Urbandale, Iowa 99,184 92,834 83,855 Richland, Mississippi 48,818 44,260 38,843 O'Fallon, Missouri 74,447 63,508 84,769 Virginia Beach, Virginia 124,429 27,854 -0- Fayetteville, North Carolina 5,953 -0- -0- Schaumburg, Illinois 5,815 -0- -0- _________ _________ _________ Net Rental Income 2,327,734 1,782,798 1,458,529 Net Interest and Other Income 129,871 125,812 59,757 _________ _________ _________ TOTAL 2,457,605 1,908,610 1,518,286 General & Administrative Expenses (623,908) (534,760) (571,119) _________ _________ _________ Income Before Gains 1,833,697 1,373,850 947,167 Gain on Sale of Assets- Investment Property 47,457 22,249 38,766 _________ _________ _________ NET INCOME $ 1,881,154 $ 1,396,099 $ 985,933 ========= ========= ========= Page 15
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, 1997, the Company's shareholders' equity increased to $19,889,288 as compared to $16,109,382 in 1996. The Company finances its purchases primarily through mortgages on its acquisitions. The Company has a secured $1,000,000 line of credit all of which was available at September 30, 1997. This credit line expires on January 30, 1998. The Company also has a $5,000,000 unsecured line of credit. Interest is at prime and is due monthly. This line expires April 29, 2000. At September 30, 1997, the Company utilized $3,190,510 of this line of credit. 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, collection of mortgages receivable, 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 flow 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 equity investments. During the past five years, the Company purchased twelve net-leased warehouse facilities at an aggregate cost of approximately $38,000,000. The Company incurred a total of approximately $29,000,000 in debt relating to these purchases. The Company expects to make additional real estate investments from time to time. In 1998, the Company plans to acquire $15,000,000 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. Page 16 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 $2,594,380 in 1997 as compared to $2,183,561 in 1996 and $2,267,039 in 1995. At September 30, 1997, the Company had total liabilities of $25,053,435 and total assets of $44,942,723. 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 1997, a total of $3,586,238 in additional capital was raised. The success of the Plan resulted in a substantial improvement in the Company's liquidity and capital resources in 1997. It is anticipated that a comparable level of participation will continue in the Plan in fiscal 1998. Therefore, the Company anticipates that the Plan will result in further increased liquidity and capital resources in 1998. Results of Operations The Company's activities primarily generate rental income. Net income for the fiscal year ended September 30, 1997 was $1,881,154 as compared to $1,396,099 in 1996 and $985,933 in 1995. Net rental income for the fiscal year ended September 30, 1997 was $2,327,734 as compared to $1,782,798 in 1996 and $1,458,529 in 1995. The following is a discussion of the results of operations by location for 1997 as compared to 1996 and 1996 as compared to 1995: Somerset, New Jersey During 1997, net rental income remained relatively stable. During 1996, net rental income increased due to the main store being occupied for the full year, whereas in 1995 it was vacant for part of the year. This shopping center was 100% occupied at September 30, 1997. Ramsey, New Jersey Net rental income remained relatively stable for 1997 and 1996. Monaca, Pennsylvania Net rental income remained relatively stable for 1997 and 1996. Monsey, New York Net rental income remained relatively stable for 1997 and 1996. Orangeburg, New York Net rental income remained relatively stable during 1997 and 1996. Page 17 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) South Brunswick, New Jersey Net rental income increased during 1997 due to a lease extension from July 1, 1997 to December 31, 1997 at a monthly rental of $162,585. The previous monthly rental was $54,195. Net rental income increased $123,000 during 1996. This increase was a result of a decrease in interest expense due to principal repayments. Greensboro, North Carolina Net rental income remained relatively stable during 1997 and 1996. Jackson, Mississippi Net rental income remained relatively stable during 1997 and 1996. Franklin, Massachusetts Net rental income remained relatively stable during 1997 and 1996. Wichita, Kansas Net rental income remained relatively stable during 1997 and 1996. Urbandale, Iowa Net rental income remained relatively stable during 1997 and 1996. Richland, Mississippi Net rental income remained relatively stable during 1997 and 1996. O'Fallon, Missouri This warehouse facility was acquired during 1995. Net rental income remained stable for 1997. Net rental income decreased during 1996 due to an increase in depreciation expense over 1995's half year convention. Virginia Beach, Virginia This warehouse facility was acquired during 1996. It is net-leased to Raytheon Service Company. Average monthly rental income over the term of the lease is $25,555. During 1997, rental income increased due to a full year's income. Fayetteville, North Carolina This warehouse facility was acquired during 1997. It is net-leased to Belk Enterprises, Inc. Average monthly rental income over the term of the lease is $39,411. Schaumburg, Illinois This warehouse facility was acquired during 1997. It is net-leased to Federal Express Corporation. Average monthly rental income over the term of the lease is $38,517. Page 18 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D) The Company also generated net interest and other income from its investments in securities available for sale, which are subject to general market price risks, mortgages receivable and Hollister`97, LLC. Net interest and other income remained relatively stable during 1997. The increase in 1996 was primarily due to a gain of $66,933 on the sale of securities available for sale. General and administrative expenses increased during 1997 primarily as a result of increased professional fees. General and administrative expenses remained relatively stable during 1996. The Company recognized a deferred gain from the Howell Township installment sale of approximately $47,000, $22,000 and $39,000 for 1997, 1996 and 1995, respectively. Page 19 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 1997 12/31/96 3/31/97 6/30/97 9/30/97 - ------------------------------------------------------------------------------ Total Income $1,297,931 $1,299,347 $1,330,086 $1,871,335 Total Expenses 992,888 897,481 973,674 1,100,959 Gains on Sales of Assets-Investment Property 6,000 6,000 6,000 29,457 Net Income 311,043 407,866 362,412 799,833 Net Income per Share .08 .10 .09 .19 - ------------------------------------------------------------------------------ THREE MONTHS ENDED - ------------------------------------------------------------------------------ FISCAL 1996 12/31/95 3/31/96 6/30/96 9/30/96 - ------------------------------------------------------------------------------ Total Income $1,131,759 $1,129,264 $1,148,182 $1,198,229 Total Expenses 780,174 864,534 816,225 772,651 Gains on Sales of Assets-Investment Property 6,000 6,000 6,000 4,249 Net Income 357,585 270,730 337,957 429,827 Net Income per Share .10 .08 .09 .12
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 20 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Principal Occupation Director Shares Percent Name, Age and Title Past Five Years Since Owned(1) of Stock Ernest V. Bencivenga Financial Consultant; 1968 8,529 0.19% (79) Treasurer and Director (1961 Treasurer and Director 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 Certified Public Accountant; 1993 6,972(2) 0.16% (39) Controller (1991 to present) and Controller and Director (1994 to present) of Director Monmouth Capital Corporation; Vice President (1995 to present), Director (1994 to present), and Chief Financial Officer (1991 to present) of United Mobile Homes, Inc. Daniel D. Cronheim Attorney at Law, Daniel D. 1989 17,058 0.39% (43) Cronheim, Esq. (1982 to present); Director Executive Vice President (1989 to present) and General Counsel (1983 to present), of David Cronheim Company. Boniface DeBlasio Chairman of the Board 1968 10,788 0.24% (76) (1968 to present) and Director Director (1961 to present) of Monmouth Capital Corporation. Ara K. Hovnanian President (1988 to present) 1989 41 --- (38) and Director (1981 to present) Director of Hovnanian Enterprises, Inc., a publicly-owned company specializing in the construction of housing. Charles P. Kaempffer Investor; Director (1970 1974 36,188(3) 0.82% (60) to present) of Monmouth Capital Director Corporation; Director (1969 to present) of United Mobile Homes, Inc. Page 21 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D) Principal Occupation Director Shares Percent Name, Age and Title Past Five Years Since Owned(1) of Stock Eugene W. Landy Attorney at Law, Landy and 1968 344,099(4) 7.78% (64) Landy; President and Director President, CEO (1961 to present) of Monmouth and Director Capital Corporation; Chairman of the Board (1995 to present) Director (1969 to present) and President (1969 to 1996) of United Mobile Homes, Inc. Samuel A. Landy Attorney at Law (1987 to 1989 110,066(5) 2.75% (36) present Landy and Landy; Director President (1995 to present), Director (1991 to present), and Vice President (1991 to 1995) of United Mobile Homes, Inc.; Director (1994 to present) of Monmouth Capital Corporation. W. Dunham Morey Certified Public Accountant, 1968 51,095(6) 1.16% (75) W. Dunham Morey, CPA; Director Director (1961 to present) of Monmouth Capital Corporation. Robert G. Sampson Investor; Director (1963 to 1968 67,774(7) 1.53% (72) present) of Monmouth Capital Director Corporation; Director (1969 to present) of United Mobile Homes, Inc.; Director (1972 to 1993) of United Jersey Bank, N.A. (formerly Franklin State Bank); General Partner (1983 to present) of Sampco, Ltd., an investment group. Page 22 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D) (1) Beneficial ownership, as defined herein, includes Class A Common Stock as to which a person has or shares voting and/or investment power. (2) Held jointly with Ms. Chew's husband; includes 1,181 shares held in Ms. Chew's 401 (k) Plan. (3) Includes (a) 13,630 shares owned by Mr. Kaempffer's wife; and (b) 1,080 shares in joint name with Mrs. Kaempffer. (4) Includes (a) 67,777 shares owned by Mr. Landy's wife; (b) 165,541 shares held in the Landy & Landy, P.C. Profit Sharing Plan, of which Mr. Landy is a Trustee with power to vote; and (c) 88,738 shares held in the Landy & Landy, P.C. Pension Plan, of which Mr. Landy is a Trustee with power to vote. Excludes 35,882 shares held by Mr. Landy's adult children, in which he disclaims any beneficial interest. (5) Includes (a) 2,953 shares owned by Mr. Landy's wife, and (b) 21,252 shares held in custodial accounts for Mr. Landy's minor children under the Uniform Gift to Minors'Act in which he disclaims any beneficial interest, but has power to vote, and (c) 9,001 shares held in Mr. Landy's 401 (k) Plan. (6) Includes 12,524 shares owned by Mr. Morey's wife. (7) Includes 6,000 shares held by Sampco, Ltd. in which he has a beneficial interest. The Directors as a class own 652,610 shares, which is 15% of the outstanding shares. Page 23 ITEM 11 - EXECUTIVE COMPENSATION Summary Compensation Table The following Summary Compensation Table shows compensation paid or accrued by the Company for services rendered during 1997, 1996 and 1995 to the Chief Executive Officer. There were no other executive officers whose aggregate cash compensation exceeded $100,000: Annual Compensation Name and Principal Position Year Salary Bonus Other Eugene W. Landy 1997 None $50,000 $250,700(1) Chief Executive Officer 1996 None None 173,203 1995 None None 162,445 (1) Represents Director's fees of $3,200 paid to Mr. Landy, management fees of $110,000, legal fees of $28,500 paid to the firm of Landy & Landy and $109,000 accrual for pension and other benefits in accordance with Mr. Landy's employment contract. Stock Option Plan The following table sets forth, for the executive officer named in the Summary Compensation Table, information regarding individual grants of stock options made during the year ended September 30, 1997: Potential Realized % of Total Price Value at Assumed Options Granted to Per Expiration Annual Rates for Name Granted Employees Share Date 5% 10% Eugene W. Landy 150,000 50% $6.5625 4/30/02 $152,310 $449,985 The following table sets forth for the executive officer named in the Summary Compensation Table, information regarding stock options outstanding at September 30, 1997: Value of Unexercised Options Number of Unexercised at Year-End Shares Value Options at Year-End Exercisable/ Name Exercised Realized Exercisable/Unexercisable Unexercisable Eugene W. Landy -0- N/A -0- 150,000 $-0- / $9,375 Employment Agreement On December 9, 1994, the Company and Eugene W. Landy entered into an Employment Agreement under which Mr. Landy receives an annual base compensation (management fee) of $110,000 (as amended) plus bonuses and customary fringe benefits, including health insurance and five weeks vacation. Additionally, there will be bonuses voted by the Board of Directors. The Employment Agreement is terminable by either party at any time, subject to certain notice requirements. Page 24 ITEM 11 - EXECUTIVE COMPENSATION (CONT'D) On severance of employment for any reason, Mr. Landy will receive severance of $300,000, payable $100,000 on severance and $100,000 on the first and second anniversaries of severance. In the event of disability, Mr. Landy's compensation shall continue for a period of three years, payable monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year for ten years, payable in monthly installments. In the event of death, Mr. Landy's designated beneficiary shall receive $300,000, $150,000 thirty days after death and the balance one year after death. The Employment agreement terminates December 31, 1999. Thereafter, the term of the Employment Agreement shall be automatically renewed and extended for successive one-year periods. Other Information The Directors received a fee of $800 for each Board Meeting attended. 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 Company received the sum of $17,681 in 1997 for management fees. David Cronheim Company received $26,510 in 1997 for commissions. These totals are based on amounts paid or accrued during the fiscal year. 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. Page 25 ITEM 11 - EXECUTIVE COMPENSATION (CONT'D) Overview and Philosophy (Cont'd) 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 progress made by Eugene W. Landy, Chief Executive Officer, in shifting the Company's focus from mortgage loans to equity properties. The Committee also noted that Mr. Landy's current compensation was less than the average salary received by Chief Executive Officers of other REIT's. His base compensation under this contract was increased to $110,000 per year. The Committee has also decided to grant Mr. Landy a bonus of $50,000 in 1997. 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 Year Estate Corporation NAREIT S&P 500 1992 100 100 100 1993 127 113 131 1994 124 117 125 1995 120 152 140 1996 136 183 168 1997 170 257 234 Page 26 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT On September 30, 1997, no person owned of record or was known by the Company to own beneficially more than five percent of the shares of the Corporation, except as follows: Amount and Nature Title of Name and Address of Beneficial Percent Class of Beneficial Owner Ownership of Class Class A Eugene W. Landy 344,099 7.78% Common 20 Tuxedo Road Stock Rumson, NJ 07760 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Certain relationships and related party transactions are incorporated herein by reference to Item 14 and Note 10 of the Notes to the Financial Statements - Related Party Transactions. Page 27 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 30 (ii) Balance Sheets as of September 30, 1997 and 1996 31 (iii) Statements of Income for the years ended September 30, 1997, 1996 and 1995 32 (iv) Statements of Shareholders' Equity for the years ended September 30, 1997, 1996 and 1995 33 (v) Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995 34 (vi) Notes to the Financial Statements 35 - 48 (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, 1997 49 - 51 Page 28 ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 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, 1990 on Form S-4 (Registration No. 33-34103). (ii) Reference is hereby made to the By-laws of Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103). (10) Material Contracts (i) Employment Agreement with Mr. Eugene W. Landy dated December 9, 1994 is incorporated by reference to that filed with the Company's Form 10-K filed with the Securities and Exchange Commission on December 28, 1994. (ii) Employment Agreement with Mr. Ernest V. Bencivenga dated November 9, 1993 is incorporated by reference to that filed with the Company's Form 10-K filed with the Securities and Exchange Commission on December 28, 1994. (28) Additional Exhibits Reference is hereby made to the Agreement and Plan of Merger dated April 23, 1990 by and between Monmouth Real Estate Investment Trust and Monmouth Real Estate Investment Corporation filed with the Securities and Exchange Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103). Report on Form 8-K None Page 29 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 generally accepted auditing standards. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 1997 in conformity with generally accepted accounting principles. 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 Peat Marwick LLP Short Hills, New Jersey November 21, 1997 Page 30
MONMOUTH REAL ESTATE INVESTMENT CORPORATION BALANCE SHEETS AS OF SEPTEMBER 30, ASSETS 1997 1996 Real Estate Investments: Land $ 6,141,724 $ 4,929,924 Buildings, Improvements and Equipment, net of Accumulated Depreciation of $5,482,527 and $4,494,322, respectively 32,606,220 25,294,699 Mortgage Loans Receivable 195,583 262,585 __________ __________ Total Real Estate Investments 38,943,527 30,487,208 Cash and Cash Equivalents 269,291 244,394 Securities Available for Sale at Fair Value 3,250,147 607,975 Interest and Other Receivables 542,177 552,091 Prepaid Expenses 125,498 123,669 Lease Costs - Net of Accumulated Amortization 100,602 55,347 Investments in Hollister '97, LLC 1,010,000 -0- Other Assets 701,481 467,392 __________ __________ TOTAL ASSETS $ 44,942,723 $ 32,538,076 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage Notes Payable $ 21,079,238 $ 15,216,610 Loans Payable 3,190,510 500,000 Deferred Gains - Installment Sales 138,532 185,989 Other Liabilities 645,155 526,095 __________ __________ Total Liabilities 25,053,435 16,428,694 __________ __________ Shareholders' Equity: Common Stock - Class A - $.01 Par Value, 8,000,000 Shares Authorized; 4,421,847 and 3,800,924 Shares Issues and Outstanding in 1997 and 1996, respectively 44,218 38,009 Common Stock - Class B - $.01 Par Value, 100,000 Shares Authorized, No Shares Issued or Outstanding -0- -0- Additional Paid-in Capital 19,450,137 16,044,359 Unrealized Holding Gains on Securities Available for Sale 394,933 27,014 __________ __________ Total Shareholders' Equity 19,889,288 16,109,382 __________ __________ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 44,942,723 $ 32,538,076 ========== ========== See Accompanying Notes to the Financial Statements Page 31
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1997 1996 1995 INCOME: Rental and Occupancy Charges $ 5,354,301 $ 4,474,279 $ 4,168,549 Interest and Other Income 444,398 133,155 72,310 _________ _________ _________ TOTAL INCOME 5,798,699 4,607,434 4,240,859 _________ _________ _________ EXPENSES: Interest Expense 1,711,466 1,252,180 1,372,596 Management Fees 17,681 17,825 10,540 Real Estate Taxes 295,830 268,594 214,527 Professional Fees 419,854 342,417 314,335 Operating Expenses 319,883 302,752 340,204 Office and General Expense 181,083 166,287 229,386 Director Fees 31,000 31,300 28,400 Depreciation 988,205 852,229 783,704 _________ _________ _________ TOTAL EXPENSES 3,965,002 3,233,584 3,293,692 _________ _________ _________ Income Before Gains 1,833,697 1,373,850 947,167 Gains on Sale of Assets - Investment Property 47,457 22,249 38,766 _________ _________ _________ NET INCOME $ 1,881,154 $ 1,396,099 $ 985,933 ========= ========= ========= PER SHARE INFORMATION: Average Number of Shares Outstanding 4,047,759 3,584,364 3,212,064 Income Before Gains $ .45 $ .38 $ .30 Gains on Sale of Assets - Investment Property .01 .01 .01 _____ _____ _____ NET INCOME $ .46 $ .39 $ .31 ===== ===== ===== See Accompanying Notes to the Financial Statements Page 32
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, Unrealized Holding Gains on Additional Undis- Securities Common Stock Paid-In tributed Available Number Amount Capital Income for Sale Balance September 30, 1994 3,066,002 $30,660 $12,796,784 $ 329,895 $ -0- Shares Issued in connection with the Dividend Reinvestment and Stock Purchase Plan 326,043 3,260 1,647,314 -0- -0- Distributions -0- -0- (288,891)(1,315,828) -0- Net Income -0- -0- -0- 985,933 -0- Unrealized Holding Gains on Securities Available for Sale -0- -0- -0- -0- 58,740 _________ ______ __________ _________ ______ Balance September 30, 1995 3,392,045 33,920 14,155,207 -0- 58,740 Shares Issued in connection with the Dividend Reinvestment and Stock Purchase Plan 408,879 4,089 2,288,380 -0- -0- Distributions -0- -0- (399,228)(1,396,099) -0- Net Income -0- -0- -0- 1,396,099 -0- Unrealized Holding Gains on Securities Available for Sale -0- -0- -0- -0- (31,726) _________ ______ __________ _________ ______ Balance September 30, 1996 3,800,924 38,009 16,044,359 -0- 27,014 Shares Issued in connection with the Dividend Reinvestment and Stock Purchase Plan 620,923 6,209 3,580,029 -0- -0- Distributions -0- -0- (174,251)(1,881,154) -0- Net Income -0- -0- -0- 1,881,154 -0- Unrealized Holding Gains on Securities Available for Sale -0- -0- -0- -0- 367,919 _________ ______ __________ _________ _______ Balance September 30, 1997 4,421,847 $44,218 $19,450,137 $ -0- $394,933 ========= ====== ========== ========= ======= See Accompanying Notes to the Financial Statements Page 33
MONMOUTH REAL ESTATE INVESTMENT CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,881,154 $ 1,396,099 $ 985,933 Noncash Items Included in Net Income: Depreciation 988,205 852,229 783,704 Amortization 36,861 73,122 160,449 Gains on Sales of Assets- Investment Property (47,457) (22,249) (38,766) Gains on Sales of Securities (75,323) (66,933) -0- Changes In: Interest & Other Receivables 9,914 29,156 (142,887) Prepaid Expenses (1,829) (8,854) (209) Other Assets and Lease Costs (316,205) (224,910) 520,096 Other Liabilities 119,060 155,901 (1,281) __________ __________ __________ NET CASH PROVIDED FROM OPERATING ACTIVITIES 2,594,380 2,183,561 2,267,039 __________ __________ __________ CASH FLOWS FROM INVESTING ACTIVITIES Additions to Land, Buildings and Improvements (9,511,526) (2,565,059) (3,683,098) Investment in Hollister '97, LLC (1,010,000) -0- -0- Collections on Installment Sales 67,002 31,412 54,732 Purchase of Securities Available for Sale (2,778,904) (514,380) -0- Proceeds from Sale of Securities Available for Sale 579,974 214,650 -0- __________ __________ __________ NET CASH USED IN INVESTING ACTIVITIES (12,653,454) (2,833,377) (3,628,366) __________ __________ __________ NET CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Mortgages 6,930,776 1,500,000 2,500,000 Proceeds from Loans 9,390,510 500,000 -0- Principal Payments of Mortgages (1,068,148) (1,746,951) (2,494,749) Principal Payments of Loans (6,700,000) -0- -0- Proceeds from Issuance of Class A Common Stock 2,677,007 1,512,604 897,115 Dividends Paid (1,146,174) (1,015,462) (851,260) __________ __________ __________ NET CASH PROVIDED FROM FINANCING ACTIVITIES 10,083,971 750,191 51,106 __________ __________ __________ Net Increase (Decrease) in Cash 24,897 100,375 (1,310,221) Cash and Cash Equivalents at Beginning of Year 244,394 144,019 1,454,240 __________ __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 269,291 $ 244,394 $ 144,019 ========== ========== ========== See Accompanying Notes to the Financial Statements Page 34
MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 1997 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, 1997 and 1996, rental properties consist of sixteen and fourteen commercial holdings, respectively, These properties are located in New Jersey, New York, Pennsylvania, North Carolina, Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois and Virginia. 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. 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, if necessary, to reflect an impairment in the value of the property. 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. At September 30, 1997 and 1996, there was one deferred gain related to the 1986 sale of property located in Howell Township in the amount of $138,532 and $185,989, respectively. Page 35 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, 1997 and 1996 are all classified as available-for-sale and are carried at fair value. Gains or losses on the sale of securities are based on identifiable cost and are accounted for on a trade date basis. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of Shareholders' Equity until realized. 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%. Earnings Per Share Net income per share is computed using the weighted average number of shares outstanding, adjusted for the exercise, or potential exercise, of any dilutive outstanding stock options (See Note 8). Income Tax The Company has elected to be taxed as a Real Estate Investment Trust (REIT) under Sections 856-858 of the Internal Revenue Code. The Company will not be taxed on the portion of its income which is distributed to shareholders, provided it distributes at least 95% 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. Page 36 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Stock Option Plan Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made as if the fairvalue-based method defined in SFAS No. 123 has been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and record compensation expense on the date of the grant only if the current market price of the underlying stock exceeded the exercise price. The Company will also provide the pro forma disclosure provisions of SFAS No. 123. 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 - MORTGAGE LOANS RECEIVABLE The following is a summary of the mortgage loans receivable at September 30, 1997 and 1996: Rate Maturity 9/30/97 9/30/96 Bonim Associates, Inc. Howell Township Property 9% 1999 $195,583 $262,585 The original amount of the mortgage receivable with Bonim Associates, Inc. was $514,000. Page 37
NOTE 3 - REAL ESTATE INVESTMENTS The following is a summary of the cost and accumulated depreciation of the Company's property and equipment at September 30, 1997 and 1996: Buildings, Improvements, Accumulated September 30, 1997 Land and Equipment Depreciation NEW JERSEY: Ramsey Industrial Building $ 52,639 $ 1,130,214 $ 524,520 Somerset(1) Shopping Center 55,182 1,065,995 689,158 Eatontown Admin. Office -0- 7,517 1,505 South Brunswick Industrial Building 1,128,000 4,087,400 589,403 PENNSYLVANIA: Monaca Industrial Park 330,773 1,757,322 852,695 NEW YORK: Monsey Industrial Building 119,910 1,742,521 764,803 Orangeburg Industrial Building 694,720 2,977,372 460,839 NORTH CAROLINA: Greensboro Industrial Building 327,100 1,853,700 262,450 Fayetteville Industrial Building 172,000 4,467,885 57,278 MISSISSIPPI: Jackson Industrial Building 218,000 1,233,500 164,809 Richland Industrial Building 211,000 1,195,000 107,239 MASSACHUSETTS: Franklin Industrial Building 566,000 4,148,000 372,241 KANSAS: Wichita Industrial Building 268,000 1,518,000 136,244 IOWA: Urbandale Industrial Building 310,000 1,758,000 157,763 MISSOURI: O'Fallon Industrial Building 264,000 3,302,000 211,530 VIRGINIA: Virginia Beach Industrial Building 384,600 2,150,000 82,689 ILLINOIS: Schaumburg Industrial Building 1,039,800 3,694,321 47,361 _________ __________ _________ Total at September 30, 1997 $ 6,141,724 $ 38,088,747 $ 5,482,527 ========= ========== ========= (1) This represents the Company's 2/3 undivided interest in the property. Page 38
NOTE 3 - REAL ESTATE INVESTMENTS (CONT'D) Buildings, Improvements, Accumulated September 30, 1996 Land and Equipment Depreciation NEW JERSEY: Ramsey Industrial Building $ 52,639 $ 1,123,839 $ 496,432 Somerset(1) Shopping Center 55,182 1,062,395 648,406 South Brunswick Industrial Building 1,128,000 4,087,400 459,633 PENNSYLVANIA: Monaca Industrial Park 330,773 1,672,262 779,931 NEW YORK: Monsey Industrial Building 119,910 1,707,553 707,476 Orangeburg Industrial Building 694,720 2,977,372 366,307 NORTH CAROLINA: Greensboro Industrial Building 327,100 1,853,700 203,565 MISSISSIPPI: Jackson Industrial Building 218,000 1,233,500 125,645 Richland Industrial Building 211,000 1,195,000 76,600 MASSACHUSETTS: Franklin Industrial Building 566,000 4,148,000 265,886 KANSAS: Wichita Industrial Building 268,000 1,518,000 97,322 IOWA: Urbandale Industrial Building 310,000 1,758,000 112,688 MISSOURI: O'Fallon Industrial Building 264,000 3,302,000 126,867 VIRGINIA: Virginia Beach Industrial Building 384,600 2,150,000 27,564 _________ __________ _________ Total at September 30, 1996 $ 4,929,924 $ 29,789,021 $ 4,494,322 ========= ========== ========= (1) This represents the Company's 2/3 undivided interest in the property. Page 39
NOTE 4 - ACQUISITIONS On May 27, 1997, the Company purchased a 148,000 foot warehouse facility in Fayetteville, North Carolina. This warehouse facility is 100% net-leased to Belk Enterprises, Inc. The total price, including closing costs, was $4,639,885. The Company assumed an existing mortgage of approximately $3,400,000. This mortgage payable is at an interest rate of 7.8% and is due August 1, 2006. The Company also utilized $1,100,000 of its revolving credit line with Summit Bank. On June 4, 1997, the Company invested $1,000,000 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. On June 11, 1997, the Company purchased a 73,500 square foot warehouse facility in Schaumburg, Illinois. The warehouse facility is 100% net-leased to Federal Express Corporation. The total purchase price, including closing costs, was $4,734,121. The Company entered into a mortgage loan for $3,500,000. This mortgage payable is at an interest rate of 8.48% and is due July 1, 2012. The Company also utilized approximately $1,100,000 of its revolving credit line with Summit Bank. On May 10, 1996, the Company purchased a 67,926 square foot warehouse facility in Virginia Beach, Virginia. This warehouse facility is 100% net-leased to the Raytheon Service Company (Raytheon). The total purchase price, including closing costs was $2,534,600. The Company entered into a $1,500,000 mortgage loan with Life Savings Bank at an interest rate of 8.4% (subject to an adjustment after five years based on the US Treasury Index, plus 2.5%) which matures on June 1, 2021. The Company also used $1,000,000 of its line of credit with Summit Bank. Page 40 NOTE 5 - SECURITIES AVAILABLE FOR SALE The following is a summary of securities available for sale at September 30, 1997 and 1996: 1997 1996 Market Market Description Cost Value Cost Value Sizeler Property Investors Convert. Subordinated Debentures-2003 $ 612,160 $ 648,930 $ 91,033 $ 88,500 Alexander Haagen Properties, Inc. Ser A Convert. Subordinated Debentures-2001 329,552 350,438 -0- -0- Pacific Gulf Properties, Inc. Convert. Subordinated Debenture-2001 50,999 60,000 -0- -0- MidAtlantic Realty Corp. Conv. Subordinated Debenture-2003 95,352 120,000 -0- -0- First Union Real Estate Equity & Subord. Convert. Deb. Mortgage Inv.-2003 240,459 257,188 -0- -0- Oasis Residential Inc. (OASPRA) 252,089 263,750 -0- -0- Bradley Real Estate Inc. (BTR) 33,200 42,000 -0- -0- Western Inv.REIT Share Ben.Int.(WIR) 25,450 27,000 -0- -0- PA Real Estate Investment (PEI) 108,227 126,250 -0- -0- IRT Property Company (IRT) 19,240 25,500 -0- -0- HRE Properties (HRE) 242,282 294,450 205,528 219,600 MGI Properties (MGI) 72,850 100,500 122,125 131,250 Mid America Realty Inv.Inc.(MDI) 444,280 531,250 162,275 168,625 Sizeler Properties Investors, Inc.(SIZ) 300,874 370,015 -0- -0- Alexander Haagen Properties, Inc.(ACH) 28,200 32,876 -0- -0- _________ _________ _______ _______ Total $2,855,214 $3,250,147 $580,961 $607,975 ========= ========= ======= ======= During the fiscal years ended September 30, 1997, 1996 and 1995, gains on sales of securities amounted to $75,323, $66,933 and $-0-, respectively, which has been included in Other Income. Gross unrealized gains at September 30, 1997 and 1996 were $394,933 and $27,014, respectively, with no unrealized losses. NOTE 6 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK The Company has approximately 1,287,000 square feet of property of which approximately 282,000 square feet, or 22%, is leased to Keebler, approximately 148,000 square feet, or 12%, is leased to Belk Enterprises and approximately 145,000 square feet, or 11%, is leased to Amway Corporation at September 30, 1997. Rental and occupancy charges from Keebler totaled approximately $1,773,000, $1,773,000 and $1,772,000, respectively, for the years ended September 30, 1997, 1996 and 1995, respectively. Rental and occupancy charges from the Amway Corporation totaled approximately $933,748 for the year ended September 30, 1997 and $595,000 for each of the years ended September 30, 1996 and 1995. Rental and occupancy charges from Belk Distributors Inc. totaled $181,426 for year end September 30, 1997. During 1997, 1996 and 1995, rental income and occupancy charges from properties leased to these companies approximated 54%, 56% and 57% of total rental and occupancy charges, respectively. Page 41 NOTE 7 - MORTGAGE NOTES PAYABLE The following is a summary of the mortgages payable at September 30, 1997 and 1996: Fiscal Balance Mortgage Rate Maturity 9/30/97 9/30/96 Industrial Building Orangeburg, New York 7% 2004 $ 1,952,286 $ 2,158,097 Industrial Building South Brunswick, NJ P+1% 1998 1,295,000 1,470,000 Industrial Building Jackson, Mississippi 8.5% 2008 667,882 703,964 Industrial Building Greensboro, N.Carolina 10% 1998 1,381,238 1,400,043 Industrial Building Franklin, Massachusetts 7% 2004 2,222,602 2,456,910 Industrial Building Wichita, Kansas 10.25% 2016 1,248,045 1,269,021 Industrial Building Urbandale, Iowa 7% 2004 1,058,740 1,170,352 Industrial Building Richland, Mississippi 7.5% 2004 745,220 813,606 Industrial Building O'Fallon, Missouri 8.5% 2007 2,151,014 2,280,493 Industrial Building Virginia Beach, VA 8.50% 2021 1,475,468 1,494,124 Industrial Building Fayetteville, NC 7.8% 2006 3,411,024 -0- Industrial Building Schaumburg, IL 8.48% 2012 3,470,719 -0- __________ __________ Total Mortgage Notes Receivable $21,079,238 $15,216,610 ========== ========== Page 42 NOTE 7 - MORTGAGE NOTES PAYABLE (CONT'D) Principal on the foregoing debt is scheduled to be paid as follows: Year Ending September 30, 1998 $ 3,771,732 1999 1,181,801 2000 1,274,979 2001 1,375,583 2002 1,484,213 Thereafter 11,990,930 __________ $21,079,238 ========== Lines of Credit The Company has a $1,000,000 line of credit with Summit at an interest rate of prime plus 1%. This line of credit is secured by a second mortgage on the South Brunswick Industrial Building which expires on January 30, 1998. As of September 30, 1997, this was fully available. The Company also has an unsecured $5,000,000 line of credit at an interest rate of Prime which expires on April 17, 2000. At September 30, 1997, the Company had utilized $3,190,510 of this line of credit. NOTE 8 - STOCK OPTION PLAN On April 24, 1997, the shareholders approved and ratified the Company's 1997 Stock Option Plan authorizing the grant to officers, directors and key employees options to purchase up to 750,000 shares of common stock. Options may be granted any time up to December 31, 2006. No option shall be available for exercise beyond ten years. All options are exercisable after one year from the date of grant. The option price shall not be below the fair market value at date of grant. Canceled or expired options are added back to the "pool" of shares available under the Plan. The Company elected to follow APB Opinion No. 25 in accounting for its stock option plans, 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: 1997 Net Income As reported $1,881,154 Pro forma 1,865,941 Net Income Per share As reported $ .46 Pro forma .46 Page 43 NOTE 8 - STOCK OPTIONS PLAN (CONT'D) 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 1997: dividend yield of 9 percent; expected volatility of 25 percent; risk- free interest rates of 6.5 percent; and expected lives of five years. A summary of the status of the Company's stock option plan as of September 30, 1997 are as follows: Weighted- Average Exercise Shares Price Outstanding at beginning of year -0- $ -0- Granted 300,000 6.28 Exercised -0- -0- _______ Outstanding at end of year 300,000 ======= Options exercisable at end of year -0- ======= Weighted-average fair value of options granted during the year .61 ====== The following is a summary of stock options outstanding as of September 30, 1997: Date of Number of Number of Option Expiration Grant Grants Shares Price Date 04/30/97 10 135,000 $5.9375 04/30/02 04/30/97 2 165,000 6.5625 04/30/02 As of September 30, 1997, there were 450,000 shares available for grant under this plan. NOTE 9 - 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, 1997 are scheduled as follows: 1998 - $5,351,000; 1999 - $4,735,000; 2000 - $4,667,000; 2001 $3,221,000; thereafter - $8,614,000. Page 44 NOTE 10 - RELATED PARTY TRANSACTIONS Eugene W. Landy received $3,200, $3,200 and $2,800 during the years ended 1997, 1996 and 1995, respectively, as Director. The firm of Landy & Landy received $138,500, $111,003 and $100,645 during the years ended 1997, 1996 and 1995, respectively, as management and legal fees. An accrual of $109, 000 was made in 1997, and $59,000 in 1996 and 1995 for pension and other benefits in accordance with Mr. Landy's employment contract. Additionally, the Board of Directors has granted to Mr. Landy a loan of $100,000 at an interest rate of 10% due May 23, 1998. Principal and accrued interest is payable at maturity. 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 terminates December 31, 1999. Thereafter, the term of the Employment Agreement shall be automatically renewed and extended for successive one-year periods. The Employment Agreement is terminable by either party at any time, subject to certain notice requirements. Cronheim Management Company received the sum of $17,681, $17,825 and $10,540 for management fees during the years ended 1997, 1996 and 1995, respectively. David Cronheim Company received $46,188, $21,777 and $11,877 in commissions in 1997, 1996 and 1995, respectively. Daniel Cronheim received $3,200, $3,350 and $2,800 for Director and Committee fees in 1997, 1996 and 1995, respectively. NOTE 11 - TAXES Income Tax The Company has elected to be taxed as a Real Estate Investment Trust under the applicable provisions of the Internal Revenue Code and the comparable New Jersey Statutes. Under such provisions, the Company will not be taxed on that portion of its taxable income distributed currently to shareholders, provided that at least 95% of its taxable income is distributed. As the Company intends 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 1997, 1996 and 1995, since it intends to or has distributed all of its annual income. Page 45 NOTE 12 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company implemented a dividend reinvestment and stock purchase plan (the "Plan") effective December 15, 1987. Under the terms of the Plan, and subsequent offerings, shareholders who participate may reinvest all or part of their dividends in additional shares of the Company at approximately 95% of market price. According to the terms of the Plan, shareholders may also purchase additional shares, at approximately 95% of market price by making optional cash payments monthly. Amounts received, including dividend reinvestment of $909,231 and $779, 865 in 1997 and 1996, respectively, and shares issued in connection with the Plan for the years ended September 30, 1997 and 1996 were as follows: 1997 1996 Amounts Received* $3,586,238 $2,292,469 Shares Issued 620,923 408,879 *These amounts are net of the 5% discount under the Plan. The total discount amounted to $145,623 and $79,889 during the fiscal year ended September 30, 1997 and 1996, respectively. NOTE 13 - DISTRIBUTIONS The following cash distributions were paid to shareholders during the years ended September 30, 1997 and 1996: 1997 1996 Quarter Ended Amount Per Share Amount Per Share December 31 $ 484,069 $.125 $ 431,342 $.125 March 31 492,511 .125 441,807 .125 June 30 516,490 .130 455,637 .125 September 30 562,335 .130 466,541 .125 _________ ____ _________ ____ $2,055,405 $ .51 $1,795,327 $ .50 ========= ==== ========= ==== The above amounts do not include discounts under the Dividend Reinvestment and Stock Purchase Plan. On September 25, 1997, the Company declared a dividend of $0.13 to be paid on December 15,1997 to shareholders of record November 17, 1997. Page 46 NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS The Company is required to disclose certain information about fair values of financial instruments, as defined in Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." Limitations Estimates of fair value are made at a specific point in time based upon where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. For a portion of the Company's financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions (many of which involve events outside the control of management). Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties, future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only and, therefore, cannot be compared to the historical accounting model. Use of different assumptions or methodologies is likely to result in significantly different fair value estimates. The fair value of cash and cash equivalents and mortgage loans receivable 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 mortgage notes payable and loans payable approximate their current carrying amounts since such amounts payable are at a weighted-average current market rate of interest. NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128). Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share", and specifies the computation, presentation, and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock or potential common stock. Statement 128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. Statement 128 also requires dual presentation of Basic and Diluted EPS on the face of the income statement for entities with complex capital structures and a reconciliation of the information utilized to calculate Basic EPS to that used to calculate Diluted EPS. Statement 128 is effective for financial statement periods ending after December 15, 1997. Earlier application is not permitted. After adoption, all prior period EPS is required to be restated to conform with Statement 128. The adoption of Statement 128 is not expected to have a significant impact on EPS, as currently reported. In June 1997, FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130). Statement 130 established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Under Statement 130, comprehensive income is divided into net income and other comprehensive income. Other comprehensive income includes items previously recorded directly in equity, such as Page 47 NOTE 15 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONT'D) unrealized gains or losses on securities available for sale. Statement 130 is effective for interim and annual periods beginning after December 15, 1997. Comparative financial statements provided for earlier periods are required to be reclassified to reflect application of the provisions of the Statement. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131). Statement 131 established standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected financial information about operating segments in interim financial reports to shareholders. Statement 131 is effective for financial statements for periods beginning after December 15, 1997. The adoption of Statement 131 is not expected to have a significant impact on the disclosures in the financial statements of the Company. NOTE 16 - CASH FLOW INFORMATION Cash paid during the years ended September 30, 1997, 1996 and 1995, for interest is $1,711,466, $1,252,180 and $1,372,596, respectively. During 1997, 1996 and 1995, the Company had $909,231, $779, 865 and $753,459, respectively, of dividends which were reinvested that required no cash transfers. In 1997 and 1996, equity securities available for sale is shown at fair value pursuant to the 1995 adoption of SFAS 115. The resultant portfolio increases of $394,933 and $27,014, respectively, relating to unrealized holding gains are shown as a separate component of shareholders' equity. Page 48 Column A Column B Column C Column D ________ ________ ___________________ ________ Initial Cost ___________________ Buildings, Capitalization Improvements Subsequent to Description Encumbrances Land & Equipment Acquisition ___________ ____________ ____ ___________ ___________ Industrial Building Ramsey, NJ $ -0- $ 52,639 $ 291,500 $ 838,714 Shopping Center Somerset, NJ -0- 55,182 637,097 428,898 Industrial Building Monaca, PA -0- 330,773 878,081 879,241 Industrial Building Monsey, NY -0- 119,910 908,473 834,048 Industrial Building Orangeburg, NY 1,952,286 694,720 2,977,372 -0- Industrial Building South Brunswick,NJ 1,295,000 1,128,000 4,087,400 -0- Industrial Building Greensboro, NC 1,381,238 327,100 1,853,700 -0- Industrial Building Jackson, MS 667,882 218,000 1,233,500 -0- Industrial Building Franklin, MA 2,222,602 566,000 4,148,000 -0- Industrial Building Wichita, KS 1,248,045 268,000 1,518,000 -0- Industrial Building Urbandale, IO 1,058,740 310,000 1,758,000 -0- Industrial Building Richland, MS 745,220 211,000 1,195,000 -0- Industrial Building O'Fallon, MO 2,151,014 264,000 3,302,000 -0- Industrial Building Virginia Beach, VA 1,475,468 384,600 2,150,000 -0- Industrial Building Fayetteville, NC 3,411,024 172,000 4,467,885 -0- Industrial Building Schaumburg, IL 3,470,719 1,039,800 3,694,321 -0- __________ _________ __________ _________ $ 21,079,238 $ 6,141,724 $ 35,100,329 $ 2,980,901 ========== ========= ========== ========= Page 49A Column A Column E(1)(2) Column F ________ ______________________________________ ________ Gross Amount at Which Carried September 30, 1997 Accumulated Description Land Bldg, Equip & Imp Total Depreciation ___________ ____ _________________ _____ ____________ Industrial Building Ramsey, NJ $ 52,639 $ 1,130,214 $ 1,182,853 $ 524,520 Shopping Center Somerset, NJ 55,182 1,065,995 1,121,177 689,158 Industrial Building Monaca, PA 330,773 1,757,322 2,088,095 852,695 Industrial Building Monsey, NY 119,910 1,742,521 1,862,431 764,803 Industrial Building Orangeburg, NY 694,720 2,977,372 3,672,092 460,839 Industrial Building South Brunswick,NJ 1,128,000 4,087,400 5,215,400 589,403 Industrial Building Greensboro, NC 327,100 1,853,700 2,180,800 262,450 Industrial Building Jackson, MS 218,000 1,233,500 1,451,500 164,809 Industrial Building Franklin, MA 566,000 4,148,000 4,714,000 372,241 Industrial Building Wichita, KS 268,000 1,518,000 1,786,000 136,244 Industrial Building Urbandale, IO 310,000 1,758,000 2,068,000 157,763 Industrial Building Richland, MS 211,000 1,195,000 1,406,000 107,239 Industrial Building O'Fallon, MO 264,000 3,302,000 3,566,000 211,530 Industrial Building Virginia Beach, VA 384,600 2,150,000 2,534,600 82,689 Industrial Building Fayetteville, NC 172,000 4,467,885 4,639,885 57,278 Industrial Building Schaumburg, IL 1,039,800 3,694,321 4,734,121 47,361 _________ __________ __________ _________ $6,141,724 $38,081,230 $44,222,954 $5,481,022 ========= ========== ========== ========= Page 49B Column A Column G Column H Column I ________ ________ ________ ________ Date of Date Depreciable Description Construction Acquired Life ___________ ____________ ________ ___________ Industrial Building Ramsey, NJ 1969 1969 7-40 Shopping Center Somerset, NJ 1970 1970 10-33 Industrial Building Monaca, PA 1977 1977* 5-31.5 Industrial Building Monsey, NY 1965 1980 30-31.5 Industrial Building Orangeburg, NY 1990 1993 31.5 Industrial Building South Brunswick, NJ 1974 1993 31.5 Industrial Building Greensboro, NC 1988 1993 31.5 Industrial Building Jackson, MS 1988 1993 39 Industrial Building Franklin, MA 1969 1994 39 Industrial Building Wichita, KS 1974 1994 39 Industrial Building Urbandale, IO 1985 1994 39 Industrial Building Richland, MS 1986 1994 39 Industrial Building O'Fallon, MO 1989 1994 39 Industrial Building Virginia Beach, VA 1976 1996 39 Industrial Building Fayetteville, NC 1996 1997 39 Industrial Building Schaumburg, IL 1997 1997 39 *Buildings and Improvements reacquired in 1986. Page 49C MONMOUTH REAL ESTATE INVESTMENT CORPORATION SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION (CONT'D) (1) Reconciliation FIXED ASSETS 9/30/97 9/30/96 9/30/95 Balance-Beginning of Year $34,718,945 $32,153,886 $28,470,788 __________ __________ __________ Additions: Acquisitions 9,374,006 2,534,600 3,566,000 Improvements 130,003 30,459 117,098 __________ __________ __________ Total Additions 9,504,009 2,565,059 3,683,098 __________ __________ __________ Balance-End of Year (1) $44,222,954 $34,718,945 $32,153,886 ========== ========== ========== ACCUMULATED DEPRECIATION 9/30/97 9/30/96 9/30/95 Balance-Beginning of Year $4,494,322 $3,642,542 $2,859,285 Depreciation 986,700 851,780 783,257 _________ _________ _________ Balance-End of Year $5,481,022 $4,494,322 $3,642,542 ========= ========= ========= Page 50 MONMOUTH REAL ESTATE INVESTMENT CORPORATION NOTES TO SCHEDULE III SEPTEMBER 30, (1) Reconciliation 1997 1996 1995 Balance - Beginning of Year $34,718,945 $32,153,886 $28,470,788 __________ __________ __________ Additions: Ramsey, New Jersey 6,375 -0- 81,953 Somerset, New Jersey 3,600 -0- 10,784 Monaca, Pennsylvania 85,060 4,725 21,361 Monsey, New York 34,968 25,734 3,000 Orangeburg, New York -0- -0- -0- South Brunswick, New Jersey -0- -0- -0- Greensboro, North Carolina -0- -0- -0- Jackson, Mississippi -0- -0- -0- Franklin, Massachusetts -0- -0- -0- Wichita, Kansas -0- -0- -0- Urbandale, Iowa -0- -0- -0- Richland, Mississippi -0- -0- -0- O'Fallon, Missouri -0- -0- 3,566,000 Virginia Beach, Virginia -0- 2,534,600 -0- Fayetteville, North Carolina 4,639,885 -0- -0- Schaumburg, Illinois 4,734,121 -0- -0- __________ __________ __________ Total Additions 9,504,009 2,565,059 3,683,098 __________ __________ __________ $44,222,954 $34,718,945 $32,153,886 ========== ========== ========== (2) The aggregate cost for Federal tax purposes approximates historical cost. Page 51 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 9, 1997 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 9, 1997 By: /s/ Eugene W. Landy Eugene W. Landy, President and Director Date: December 9, 1997 By: /s/ Ernest V. Bencivenga Ernest V. Bencivenga, Treasurer and Director Date: December 9, 1997 By: /s/ Anna T. Chew Anna T. Chew, Controller and Director Date: December 9, 1997 By: /s/ Daniel D. Cronheim Daniel D. Cronheim, Director Date: December 9, 1997 By: /s/ Boniface DeBlasio Boniface DeBlasio, Director Date: December 9, 1997 By: /s/ Ara K. Hovnanian Ara K. Hovnanian, Director Date: December 9, 1997 By: /s/ Charles P. Kaempffer Charles P. Kaempffer, Director Date: December 9, 1997 By: /s/ Samuel A. Landy Samuel A. Landy, Director Date: December 9, 1997 By: /s/ W. Dunham Morey W. Dunham Morey, Director Date: December 9, 1997 By: /s/ Robert G. Sampson Robert G. Sampson, Director Page 52 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MONMOUTH REAL ESTATE INVESTMENT CORPORATION AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-30-1997 SEP-30-1997 269,291 3,250,147 542,177 0 0 4,187,113 44,230,471 5,482,527 44,942,723 645,155 21,079,238 0 0 44,218 19,845,070 44,942,723 0 5,846,156 0 633,394 1,620,142 0 1,711,466 1,881,154 0 1,881,154 0 0 0 1,881,154 .46 .46
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