ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

12 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

NOTE 3 – ACQUISITIONS, EXPANSIONS AND DISPOSITIONS

Fiscal 2021 Acquisitions

On December 17, 2020, we purchased a newly constructed 500,000 square foot industrial building, situated on 100.0 acres, located in the Columbus, OH MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through September 2035. The purchase price was $73.3 million. We obtained a 15 year, fully-amortizing mortgage loan of $47.0 million at a fixed interest rate of 2.95%. Annual rental revenue over the remaining term of the lease averages $4.6 million.

On December 24, 2020, we purchased a newly constructed 658,000 square foot industrial building, situated on 130.2 acres, located in the Atlanta, GA MSA. The building is 100% net-leased to Home Depot U.S.A., Inc. for 20 years through November 2040. The purchase price was $95.9 million. We obtained a 17 year, fully-amortizing mortgage loan of $57.0 million at a fixed interest rate of 3.25%. Annual rental revenue over the remaining term of the lease averages $5.5 million.

On July 29, 2021, we purchased a newly constructed 144,000 square foot industrial building, situated on 43.4 acres, located in the Burlington, VT MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through May 2036. The property was acquired for a purchase price of $54.8 million. Annual rental revenue over the remaining term of the lease averages $3.2 million. Subsequent to the closing of the purchase, we obtained a mortgage loan commitment for a 15 year, fully-amortizing mortgage loan of $35.5 million at a fixed interest rate of 2.50%.

On August 25, 2021, we purchased a newly constructed 259,000 square foot industrial building, situated on 42.6 acres, located in the Knoxville, TN MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through May 2036. The property was acquired for a purchase price of $34.4 million. Annual rental revenue over the remaining term of the lease averages $2.0 million. Subsequent to the closing of the purchase, we obtained a mortgage loan commitment for a 15 year, fully-amortizing mortgage loan of $22.3 million at a fixed interest rate of 2.50%.

Subsequent to fiscal yearend, on October 27, 2021, we purchased a newly constructed 291,000 square foot industrial building, situated on 46.0 acres, located in the Birmingham, AL MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through July 2036. The property was acquired for a purchase price of $30.2 million. Annual rental revenue over the remaining term of the lease averages $1.7 million. We obtained a mortgage loan commitment for a 15 year, fully-amortizing mortgage loan of $19.3 million at a fixed interest rate of 2.40%, which has not yet closed.

We evaluated the property acquisitions which took place during the twelve months ended September 30, 2021, 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 four properties purchased during fiscal 2021 as asset acquisitions and allocated the total cash consideration, including transaction costs of $720,000, 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 four properties acquired during the fiscal year 2021 that were accounted for as asset acquisitions (in thousands):

Land	$	26,868
Building		225,824
In-Place Leases		6,466

The following table summarizes the operating results included in our consolidated statements of income for the fiscal year ended September 30, 2021 for the four properties acquired during the twelve months ended September 30, 2021 (in thousands):

	Year Ended 9/30/2021
Rental Revenues	$	8,590
Net Income (Loss) Attributable to Common Shareholders		3,089

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation, and Home Depot U.S.A., Inc’s ultimate parent, Home Depot, Inc., are publicly-listed companies and financial information related to these entities are 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 2021 Expansions

During fiscal 2021, we completed the first phase of a two-phase parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed for a total cost of $3.4 million, resulting in an initial increase in annual rent effective November 5, 2020 of approximately $340,000 from approximately $2.1 million, or $6.83 per square foot, to approximately $2.5 million, or $7.91 per square foot. Furthermore, annual rent increased by 2.1% on June 1, 2021 and will continue to increase 2.1% every five years, resulting in an annualized rent from November 5, 2021 through the remaining term of the lease of approximately $2.6 million, or $8.15 per square foot. We recently began construction on the second phase of this parking expansion project at this location, which upon completion will further increase the rental rate and extend the lease term.

In addition, effective June 4, 2021, we completed a parking lot expansion for UPS at our property located in Halfmoon (Albany), NY for a cost of approximately $835,000, resulting in an initial increase in annual rent effective on the date of completion of approximately $52,000 from approximately $510,000, or $6.80 per square foot, to approximately $562,000, or $7.50 per square foot. Furthermore, annual rent will continue to increase each year by 2.0% resulting in an annualized rent from June 4, 2021 through the remaining term of the lease of approximately $622,000, or $8.29 per square foot.

We have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are nine parking expansion projects underway, which we expect to cost approximately $42.6 million. These parking expansion projects will enable us to capture additional rent while lengthening the terms of these leases. We are also in discussions to expand the parking at eight additional locations bringing the total recently completed and likely future parking lot expansion projects to 18 currently.

Due to the proliferation of ecommerce sales and last mile deliveries, it is important to take into account the large amounts of real estate utilized for trailer, van, and car parking at many of our properties in determining how our in-place rental rates compare to market rental rates for properties being used in a similar manner. Rents per square foot on properties that may be nearby, but have only limited acreage devoted to parking, are poor comparisons as they cannot accommodate the same tenant needs.

Fiscal 2021 Disposition

On April 15, 2021, we sold our 60,400 square foot building located in Carlstadt, NJ which is in the New York, NY MSA, for gross proceeds of $13.0 million. Prior to the sale, we owned a 51% interest in this property. Our 51% portion of the sale proceeds resulted in a U.S. GAAP net realized gain applicable to common shareholders of approximately $3.3 million, representing a 159% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of approximately $2.6 million, representing a 96% net gain over our historic undepreciated cost basis.

Fiscal 2020 Acquisitions

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 Metropolitan Statistical Area (MSA). The building is 100% net-leased to a subsidiary of Amazon.com Services, Inc. (Amazon) for 15 years through August 2034. The lease is guaranteed by Amazon. 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.

On March 30, 2020, we purchased a newly constructed 153,000 square foot industrial building, situated on 24.2 acres, located in the Columbus, OH MSA. The building is 100% net-leased to Magna Seating of America, Inc. for 10 years through January 2030. The purchase price was $17.9 million. We obtained a 10 year, fully-amortizing mortgage loan of $9.4 million at a fixed interest rate of 3.47%. Annual rental revenue over the remaining term of the lease averages $1.2 million.

On May 21, 2020, we purchased a newly constructed 286,000 square foot industrial building, situated on 39.3 acres, located in the Greensboro, NC MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through April 2035. The purchase price was $47.6 million. We obtained a 15 year, fully-amortizing mortgage loan of $30.3 million at a fixed interest rate of 3.10%. Annual rental revenue over the remaining term of the lease averages $3.0 million.

On May 21, 2020, we purchased a newly constructed 70,000 square foot industrial building, situated on 7.5 acres, located in the Salt Lake City, UT MSA. The building is 100% net-leased to FedEx Corporation for 15 years through March 2035. The purchase price was $12.9 million. We obtained a 15 year, fully-amortizing mortgage loan of $8.4 million at a fixed interest rate of 3.18%. Annual rental revenue over the remaining term of the lease averages $772,000.

On September 15, 2020, we purchased a newly constructed 121,000 square foot industrial building, situated on 21.5 acres, located in Oklahoma City, OK. The building is 100% net-leased to a subsidiary of Amazon for 10 years through August 2030. The lease is guaranteed by Amazon. The purchase price was $15.2 million. We obtained a 15 year, fully-amortizing mortgage loan of $9.8 million at a fixed interest rate of 3.00%. Annual rental revenue over the remaining term of the lease averages $934,000.

We evaluated the property acquisitions which took place during the twelve months ended September 30, 2020, 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 five properties purchased during fiscal 2020 as asset acquisitions and allocated the total cash consideration, including transaction costs of $179,000, 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 five properties acquired during the fiscal year 2020 that were accounted for as asset acquisitions (in thousands):

Land	$	11,198
Building		160,064
In-Place Leases		3,999

The following table summarizes the operating results included in our consolidated statements of income for the fiscal year ended September 30, 2020 for the five properties acquired during the twelve months ended September 30, 2020 (in thousands):

	Year Ended 9/30/2020
Rental Revenues	$	6,846
Net Income (Loss) Attributable to Common Shareholders		1,624

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation, Magna Seating of America, Inc.’s ultimate parent, Magna International Inc. and Amazon are publicly-listed 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.

Consolidated Statements of Income for the three fiscal years ended September 30, 2021, 2020 and 2019 of properties sold during the periods presented

On April 15, 2021, we sold our 60,400 square foot building located in Carlstadt, NJ which is in the New York, NY MSA, for gross proceeds of $13.0 million. Prior to the sale, we owned a 51% interest in this property. Our 51% portion of the sale proceeds resulted in a U.S. GAAP net realized gain of approximately $3.3 million, representing a 159% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of approximately $2.6 million, representing a 96% net gain over our historic undepreciated cost basis.

Prior to the sale, the 49% Non-controlling interest (“NCI”) did not have a material impact on our financial position or results of operations and accordingly was not separately presented in the financial statements. However, upon the sale of the property on April 15, 2021, we presented the effects of the NCI in the Consolidated Statements of Income (Loss) for all periods presented.

Since the sale of this property does not represent a strategic shift that has a major effect on our operations and financial results, the results of operations generated from this property are not included in Discontinued Operations. There were no properties sold during fiscal 2019 or 2020. The following table summarizes (in thousands) the operations of this property, prior to its sale, that is included in the accompanying Consolidated Statements of Income (Loss) for the three fiscal years ended September 30, 2021, 2020 and 2019:

	2021			2020			2019
Rental and Reimbursement Revenue	$	467		$	702		$	684
Real Estate Taxes		(62	)		(113	)		(116	)
Operating Expenses		(218	)		(428	)		(50	)
Depreciation & Amortization		(244	)		(149	)		(123	)
Interest Expense		(205	)		(75	)		(84	)
Income from Operations		(262	)		(63	)		311
Gain on Sale of Real Estate Investment		6,376			0			0
Net Income		6,114			(63	)		311
Less: Net Income (Loss) Attributable to Non-Controlling Interest		2,996			(31	)		152
Net Income (Loss) Attributable to Shareholders	$	3,118		$	(32	)	$	159

Pro forma information (unaudited)

The following unaudited pro-forma condensed financial information has been prepared utilizing our historical financial statements, the effect of the reduction of revenue and expenses that will no longer be generated from a property that was sold on April 15, 2021 and the effect of additional revenue and expenses generated from properties acquired and expanded during fiscal 2021 and fiscal 2020, assuming that the property acquisitions, completed expansions and the sale of one property had occurred as of October 1, 2019, 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. Furthermore, the net proceeds raised 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 (Loss) per Share Attributable to Common Shareholders has been adjusted to account for the increase in shares issued pursuant to the DRIP, as if all such shares have been issued on October 1, 2019. Additionally, the net proceeds raised from the issuance of additional shares 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 (Loss) Attributable to Common Shareholders as if all the preferred stock issuances had occurred on October 1, 2019. 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)
	2021				2020
	As Reported		Pro-forma		As Reported			Pro-forma
Rental Revenue	$	155,044	$	163,097	$	141,583		$	162,463
Net Income (Loss) Attributable to Common Shareholders	$	44,764	$	43,020	$	(48,617	)	$	(50,443	)
Basic Net Income (Loss) per Share Attributable to Common Shareholders	$	0.46	$	0.44	$	(0.50	)	$	(0.51	)
Diluted Net Income (Loss) per Share Attributable to Common Shareholders	$	0.45	$	0.44	$	(0.50	)	$	(0.51	)