ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

12 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

NOTE 3 – ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

Fiscal 2019 Acquisitions

On October 19, 2018, we purchased a newly constructed 347,000 square foot industrial building, situated on 62.0 acres, located in Trenton, NJ. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through June 2032. The purchase price was $85.2 million. We obtained a 15 year, fully-amortizing mortgage loan of $55.0 million at a fixed interest rate of 4.13%. Annual rental revenue over the remaining term of the lease averages $5.3 million.

On November 30, 2018, we purchased a newly constructed 127,000 square foot industrial building, situated on 29.4 acres, located in Savannah, GA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 10 years through October 2028. The purchase price was $27.8 million. We obtained a 15 year, fully-amortizing mortgage loan of $17.5 million at a fixed interest rate of 4.40%. Annual rental revenue over the remaining term of the lease averages $1.8 million.

On July 26, 2019, we purchased a newly constructed 350,000 square foot industrial building, situated on 45.6 acres, located in Lafayette, IN. The building is 100% net-leased to Toyota Tsusho America, Inc. (Toyota) for 10 years through June 2029. The purchase price was $25.5 million. We obtained a 15 year, fully-amortizing mortgage loan of $17.0 million at a fixed interest rate of 4.25%. Annual rental revenue over the remaining term of the lease averages $1.7 million.

We evaluated the property acquisitions which took place during the twelve months ended September 30, 2019, to determine whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU 2017-01. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Accordingly, we accounted for all three properties purchased during fiscal 2019 as asset acquisitions and allocated the total cash consideration, including transaction costs of $347,000, to the individual assets acquired on a relative fair value basis. There were no liabilities assumed in these acquisitions.

The financial information set forth below summarizes our purchase price allocation for these three properties acquired during the fiscal year 2019 that were accounted for as asset acquisitions (in thousands):

Land	$	14,579
Building		122,018
In-Place Leases		2,367

The following table summarizes the operating results included in our consolidated statements of income for the fiscal year ended September 30, 2019 for the three properties acquired during the twelve months ended September 30, 2019 (in thousands): 

	Year Ended 9/30/2019
Rental Revenues	$	7,073
Net Income Attributable to Common Shareholders		1,723

Subsequent to 2019 fiscal yearend, on October 10, 2019, we purchased a newly constructed 616,000 square foot industrial building, situated on 78.6 acres, located in the Indianapolis, IN MSA. The building is 100% net-leased to Amazon.com Services, Inc. for 15 years through August 2034. The lease is guaranteed by Amazon.com, Inc. The purchase price was $81.5 million. We obtained an 18 year, fully-amortizing mortgage loan of $52.5 million at a fixed interest rate of 4.27%. Annual rental revenue over the remaining term of the lease averages $5.0 million.

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation, Toyota Tsusho America, Inc’s parent, Toyota Tsusho Corporation and Amazon.com, Inc. are publicly-owned companies that are considered Investment Grade by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). The references in this report to the S&P Global Ratings’ website and the Moody’s website are not intended to and do not include, or incorporate by reference into this report, the information of S&P Global Ratings or Moody’s on such websites.

Fiscal 2019 Expansions

In February 2019, we completed a 155,000 square foot building expansion at our property located in Monroe (Cincinnati), OH for a total project cost of $8.6 million. The expansion resulted in a new 15-year lease which extended the prior lease expiration date from February 2030 to February 2034. The expansion also resulted in an increase in initial annual rent effective March 1, 2019 of $821,000 from $980,000, or $4.22 per square foot, to $1.8 million, or $4.65 per square foot. In addition, the annual rent will increase by 2% per annum, resulting in an average annualized rent of $2.1 million over the 15-year term. In connection with this expansion, we obtained a 10.6 year , fully-amortizing second mortgage loan of $7.0 million at a fixed interest rate of 3.85%. The maturity of the second mortgage loan coincides with the maturity of the property’s first fully-amortizing mortgage loan which is at a fixed interest rate of 3.77% and has a principal balance of $6.6 million as of the fiscal yearend.

Fiscal 2018 Acquisitions

On November 2, 2017, we purchased a newly constructed 122,000 square foot industrial building, situated on 16.2 acres, located in Charleston, SC. The building is 100% net-leased to FedEx Corporation (FDX), for 15 years through August 2032. The purchase price was $21.9 million. We obtained a 15 year fully-amortizing mortgage loan of $14.2 million at a fixed interest rate of 4.23%. Annual rental revenue over the remaining term of the lease averages $1.3 million.

On November 30, 2017, we purchased a newly constructed 300,000 square foot industrial building, situated on 123.0 acres, located in Oklahoma City, OK. The building is 100% net-leased to Amazon.com Services, Inc. for 10 years through October 2027. The lease is guaranteed by Amazon.com, Inc. The purchase price was $30.3 million. We obtained a 10 year mortgage loan, amortizing over 18 years, of $19.6 million at a fixed interest rate of 3.64%. Annual rental revenue over the remaining term of the lease averages $1.9 million.

On January 22, 2018, we purchased a newly constructed 832,000 square foot industrial building, situated on 62.4 acres, located in Savannah, GA. The building is 100% net-leased to Shaw Industries, Inc. for 10 years through September 2027. The purchase price was $57.5 million. We obtained a 14 year fully-amortizing mortgage loan of $33.3 million at a fixed interest rate of 3.53%. Annual rental revenue over the remaining term of the lease averages $3.6 million.

On April 6, 2018, we purchased a newly constructed 399,000 square foot industrial building, situated on 27.5 acres, located in Daytona Beach, FL. The building is 100% net-leased to B. Braun Medical Inc. for 10 years through April 2028. The purchase price was $30.8 million. We obtained a 15 year fully-amortizing mortgage loan of $19.5 million at a fixed interest rate of 4.25%. Annual rental revenue over the remaining term of the lease averages $2.1 million.

On June 28, 2018, we purchased a newly constructed 363,000 square foot industrial building, situated on 31.3 acres, located in Mobile, AL. The building is 100% net-leased to Amazon.com Services, Inc. for 11 years through November 2028. The lease is guaranteed by Amazon.com, Inc. The purchase price was $33.7 million. We obtained a 14 year fully-amortizing mortgage loan of $19.0 million at a fixed interest rate of 4.14%. Annual rental revenue over the remaining term of the lease averages $2.0 million.

On August 15, 2018, we purchased a newly constructed 265,000 square foot industrial building, situated on 48.9 acres, located in Charleston, SC. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through June 2033. The purchase price was $47.2 million. We obtained a 15 year fully-amortizing mortgage loan of $29.9 million at a fixed interest rate of 3.82%. Annual rental revenue over the remaining term of the lease averages $2.7 million.

On September 6, 2018, we purchased a newly constructed 374,000 square foot industrial building, situated on 92.6 acres, located in Braselton, GA which is in the Atlanta Metropolitan Statistical Area (MSA). The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through February 2033. The purchase price was $61.1 million. We obtained a 15 year fully-amortizing mortgage loan of $39.7 million at a fixed interest rate of 4.02%. Annual rental revenue over the remaining term of the lease averages $3.8 million.

We evaluated the property acquisitions which took place during the twelve months ended September 30, 2018, to determine whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU 2017-01. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Accordingly, we accounted for all seven properties purchased during fiscal 2018 as asset acquisitions and allocated the total cash consideration, including transaction costs of $1.1 million, to the individual assets acquired on a relative fair value basis. There were no liabilities assumed in these acquisitions.

The financial information set forth below summarizes our purchase price allocation for these seven properties acquired during the fiscal year 2018 that were accounted for as asset acquisitions (in thousands):

Land	$	37,330
Building		239,891
In-Place Leases		6,182

The following table summarizes the operating results included in our consolidated statements of income for the fiscal year ended September 30, 2018 for the seven properties acquired during the twelve months ended September 30, 2018 (in thousands):

	Year Ended 9/30/2018
Rental Revenues	$	7,430
Net Income Attributable to Common Shareholders		2,131

FedEx Ground Package System, Inc.’s ultimate parent, FDX, Amazon.com, Inc. and Shaw Industries, Inc.’s ultimate parent, Berkshire Hathaway, Inc. are publicly-owned companies and financial information related to these entities is available at the SEC’s website, www.sec.gov. The references in this report to the SEC’s website are not intended to and do not include, or incorporate by reference into this report, the information on the www.sec.gov website.

Fiscal 2018 Expansions

On November 1, 2017, a parking lot expansion for a property leased to FedEx Ground Package System, Inc., located in Indianapolis, IN was completed for a total project cost of $1.7 million, resulting in a new 10-year lease which extended the prior lease expiration date from April 2024 to October 2027. In addition, the expansion resulted in an increase in annual rent effective from the date of completion $184,000 from $1.5 million, or $4.67 per square foot, to $1.7 million, or $5.23 per square foot.

On September 27, 2018, a parking lot expansion for a property leased to FedEx Ground Package System, Inc., located in Ft. Mill, SC was completed for a total project cost of $1.8 million, resulting in a new 10-year lease which extended the prior lease expiration date from October 2023 to August 2028. In addition, the expansion resulted in an increase in annual rent effective from the date of completion of $183,000 from $1.4 million, or $8.00 per square foot, to $1.6 million, or $9.03 per square foot.

Fiscal 2018 Dispositions

Two leases were set to expire during fiscal 2018 with Kellogg Sales Company (Kellogg) for our 65,000 square foot facility located in Kansas City, MO through July 31, 2018 and our 50,000 square foot facility located in Orangeburg, NY through February 28, 2018. Kellogg informed us that they would not be renewing these leases. On December 18, 2017, we sold our property located in Kansas City, MO for $4.9 million, with net sale proceeds of $4.6 million, and on December 22, 2017, we sold our property located in Orangeburg, NY for $6.2 million, with net sale proceeds of $5.9 million. In conjunction with the sale of these two properties, we simultaneously entered into a lease termination agreement for each property whereby we received a termination fee from Kellogg totaling $210,000 which represents a weighted average of 80% of the then remaining rent due under each respective lease.

On June 1, 2018, we sold a 68,000 square foot building located in Colorado Springs, CO for $5.8 million, with net sale proceeds of $5.5 million. Prior to the sale of this property, it was leased to FedEx Ground Package System, Inc. through September 2018. The tenant informed us that they would not be renewing this lease because they have moved their operations from our former 68,000 square foot facility to our newly constructed 225,000 square foot facility, which is also located in Colorado Springs, CO. On June 9, 2016, we purchased this newly constructed 225,000 square foot industrial building, which is leased to FedEx Ground Package System, Inc. for 10 years through January 2026.

On June 5, 2018, we sold an 88,000 square foot vacant building located in Ft. Myers, FL for $6.4 million, with net sale proceeds of $6.1 million. Prior to this property becoming vacant, it was leased to FedEx Ground Package System, Inc. through June 2017. FedEx Ground Package System, Inc. vacated this property because they moved their operations to our newly constructed 214,000 square foot facility, which is also located in Ft. Myers, FL. We purchased this newly constructed facility on December 30, 2016 and it is leased to FedEx Ground Package System, Inc. for 10 years through August 2027.

These four properties sold during fiscal 2018, resulted in a U.S. GAAP net realized gain of $7.5 million, representing a 51% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of $1.2 million, representing a 6% net gain over our historic undepreciated cost basis.

Consolidated Statements of Income for the three fiscal years ended September 30, 2019, 2018 and 2017 of properties sold during the periods presented

Since the sale of the four properties sold during fiscal 2018 (as discussed previously) and the one property sold during fiscal 2017, do not represent a strategic shift that has a major effect on our operations and financial results, the operations generated from these five properties are not included in Discontinued Operations. There were no properties sold during fiscal 2019. The following table summarizes (in thousands) the operations of these five properties, prior to their sales, that are included in the accompanying Consolidated Statements of Income for the three fiscal years ended September 30, 2019, 2018 and 2017:

	2019		2018			2017
Rental and Reimbursement Revenue	$	0	$	929		$	2,052
Lease Termination Income		0		210			0
Real Estate Taxes		0		(212	)		(352	)
Operating Expenses		0		(110	)		(169	)
Depreciation & Amortization		0		(79	)		(514	)
Interest Expense		0		(38	)		(144	)
Income from Operations		0		700			873
Gain (Loss) on Sale of Real Estate Investment		0		7,485			(95	)
Net Income	$	0	$	8,185		$	778

Pro forma information (unaudited)

The following unaudited pro forma condensed financial information has been prepared utilizing our historical financial statements and the effect of additional revenue and expenses generated from the properties acquired and expanded subsequent to our 2019 fiscal yearend (see Note 17) and from the properties acquired and expanded during fiscal years 2019 and 2018, assuming that these acquisitions and these completed expansions had occurred as of October 1, 2017, after giving effect to certain adjustments including: (a) Rental Revenue adjustments resulting from the straight-lining of scheduled rent increases, (b) Interest Expense resulting from the assumed increase in Fixed Rate Mortgage Notes Payable and Loans Payable related to the new acquisitions, and (c) Depreciation Expense related to the new acquisitions and expansions. In addition, Net Income Attributable to Common Shareholders excludes the operations, including the exclusion of the related realized gain, of the four properties sold during fiscal 2018. Furthermore, the net proceeds raised from our public offering of 9.2 million shares of our Common Stock in October 2018 and from our Dividend Reinvestment and Stock Purchase Plan (the DRIP) were used to fund property acquisitions and expansions and therefore, the weighted average shares outstanding used in calculating the pro forma Basic and Diluted Net Income per Share Attributable to Common Shareholders has been adjusted to account for the increase in shares raised through the public offering and the DRIP, as if all the shares raised had occurred on October 1, 2017. Additionally, the net proceeds raised from the issuance of our 6.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125% Series C Preferred Stock), through our At-The-Market Sales Agreement Program were used to help fund property acquisitions and, therefore, the pro forma preferred dividend has been adjusted to account for its effect on pro-forma Net Income Attributable to Common Shareholders as if all the preferred stock issuances had occurred on October 1, 2017.

The unaudited pro forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisitions and expansions reflected herein been consummated on the dates indicated or that will be achieved in the future.

	Fiscal Year Ended (in thousands, except per share amounts)
	2019		2019		2018		2018
	As Reported		Pro-forma		As Reported		Pro-forma
Rental Revenue	$	132,524	$	139,380	$	115,864	$	139,439
Net Income Attributable to Common Shareholders	$	11,026	$	13,347	$	38,815	$	35,983
Basic and Diluted Net Income per Share Attributable to Common Shareholders	$	0.12	$	0.14	$	0.49	$	0.37