ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
and Recent Activity
The
following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction
with the Consolidated Financial Statements and notes thereto provided elsewhere herein and our Annual Report on Form 10-K for
the fiscal year ended September 30, 2017.
We
operate as a real estate investment trust (REIT). We seek to invest in well-located, modern single-tenant industrial buildings
leased primarily to investment grade tenants or their subsidiaries on long-term net leases. During the six months ended March
31, 2018, we purchased three net-leased industrial properties, located in Charleston, SC, Oklahoma City, OK and Savannah, GA totaling
approximately 1,253,000 square feet, for approximately $109,606,000. In connection with the three properties acquired during the
six months ended March 31, 2018, we entered into one 15 year fully-amortizing mortgage loan, one 10 year mortgage loan amortizing
over 18 years, and one 14 year fully-amortizing mortgage loan. The three mortgage loans originally totaled $67,100,000 with an
original weighted average loan maturity of 13.0 years and a weighted average interest rate of 3.71%. As of March 31, 2018, we
owned 109 properties with total square footage of approximately 19,928,000. These properties are located in 30 states. As of the
quarter ended March 31, 2018, our weighted average lease maturity was approximately 7.8 years, our occupancy rate was 99.2% and
our annualized average base rent per occupied square foot was $5.91. Subsequent to quarter end, we purchased a newly constructed
399,440 square foot industrial building located in Daytona Beach, FL. As of March 31, 2018, the weighted average building age,
based on the square footage of our buildings, was 9.2 years. In addition, total gross real estate investments, excluding marketable
REIT securities investments of $144,630,426, were $1,540,236,302 as of March 31, 2018.
We
evaluate our financial performance using Net Operating Income (NOI) from property operations, which is a non-GAAP financial measure
that we define as Net Income Attributable to Common Shareholders plus Preferred Dividends, General and Administrative Expenses,
Acquisition Costs, Depreciation, Amortization of Capitalized Lease Costs and Intangible Assets, Interest Expense, including Amortization
of Financing Costs, less Dividend and Interest Income, Gain on Sale of Securities Transactions, Lease Termination Income and Gain
on Sale of Real Estate Investments. The components of NOI are recurring Rental and Reimbursement Revenue, less Real Estate Taxes
and Operating Expenses, such as insurance, utilities and repairs and maintenance. Other REITs may use different methodologies
to calculate NOI and, accordingly, our NOI may not be comparable to all other REITs.
The
following is a reconciliation of our Net Income Attributable to Common Shareholders to our NOI for the three and six months ended
March 31, 2018 and 2017:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
Net
Income Attributable to Common Shareholders
|
|
$
|
7,396,784
|
|
|
$
|
4,842,575
|
|
|
$
|
20,710,239
|
|
|
$
|
10,998,736
|
|
Plus:
Preferred Dividends
|
|
|
4,248,219
|
|
|
|
3,582,036
|
|
|
|
8,565,165
|
|
|
|
7,279,796
|
|
Plus:
General & Administrative Expenses
|
|
|
2,218,037
|
|
|
|
2,078,538
|
|
|
|
4,165,069
|
|
|
|
3,521,001
|
|
Plus:
Acquisition Costs
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
178,526
|
|
Plus:
Depreciation
|
|
|
8,858,062
|
|
|
|
7,139,077
|
|
|
|
17,342,046
|
|
|
|
14,131,572
|
|
Plus:
Amortization of Capitalized Lease Costs and
Intangible Assets
|
|
|
588,622
|
|
|
|
427,756
|
|
|
|
1,126,693
|
|
|
|
875,553
|
|
Plus:
Interest Expense, including Amortization of
Financing Costs
|
|
|
7,955,285
|
|
|
|
6,537,264
|
|
|
|
15,361,232
|
|
|
|
12,700,483
|
|
Less:
Dividend and Interest Income
|
|
|
(2,888,210
|
)
|
|
|
(1,439,182
|
)
|
|
|
(5,752,427
|
)
|
|
|
(2,731,333
|
)
|
Less:
Gain on Sale of Securities Transactions
|
|
|
(11,234
|
)
|
|
|
-0-
|
|
|
|
(111,387
|
)
|
|
|
(806,108
|
)
|
Less:
Gain on Sale of Real Estate Investments
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(5,387,886
|
)
|
|
|
-0-
|
|
Less:
Lease Termination Income
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(210,261
|
)
|
|
|
-0-
|
|
Net
Operating Income- NOI
|
|
$
|
28,365,565
|
|
|
$
|
23,168,064
|
|
|
$
|
55,808,483
|
|
|
$
|
46,148,226
|
|
The
components of our NOI for the three and six months ended March 31, 2018 and 2017 are as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
Revenue
|
|
$
|
28,609,985
|
|
|
$
|
23,610,830
|
|
|
$
|
56,302,467
|
|
|
$
|
46,891,686
|
|
Reimbursement
Revenue
|
|
|
5,011,523
|
|
|
|
3,697,361
|
|
|
|
10,060,863
|
|
|
|
7,598,116
|
|
Total
Rental and Reimbursement Revenue
|
|
|
33,621,508
|
|
|
|
27,308,191
|
|
|
|
66,363,330
|
|
|
|
54,489,802
|
|
Real
Estate Taxes
|
|
|
(3,779,648
|
)
|
|
|
(2,851,862
|
)
|
|
|
(7,642,311
|
)
|
|
|
(5,758,843
|
)
|
Operating
Expense
|
|
|
(1,476,295
|
)
|
|
|
(1,288,265
|
)
|
|
|
(2,912,536
|
)
|
|
|
(2,582,733
|
)
|
Net
Operating Income- NOI
|
|
$
|
28,365,565
|
|
|
$
|
23,168,064
|
|
|
$
|
55,808,483
|
|
|
$
|
46,148,226
|
|
NOI
from property operations increased $5,197,501, or 22%, for the three months ended March 31, 2018 as compared to the three months
ended March 31, 2017 and increased $9,660,257, or 21%, for the six months ended March 31, 2018 as compared to the six months ended
March 31, 2017. These increases were primarily due to the acquisition of eight industrial properties purchased during the last
half of fiscal 2017 and the three industrial properties purchased during the first half of fiscal 2018.
Acquisitions
On
November 2, 2017, we purchased a newly constructed 121,683 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 $21,872,170. We obtained a 15 year fully-amortizing mortgage loan of $14,200,000 at a fixed interest rate of 4.23%. Annual
rental revenue over the remaining term of the lease averages approximately $1,315,000.
On
November 30, 2017, we purchased a newly constructed 300,000 square foot industrial building, situated on 123 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 $30,250,000. We obtained a 10 year mortgage loan amortizing over
18 years, of $19,600,000 at a fixed interest rate of 3.64%. Annual rental revenue over the remaining term of the lease averages
approximately $1,884,000.
On
January 22, 2018, we purchased a newly constructed 831,764 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 $57,483,636. We obtained a 14 year fully-amortizing mortgage loan of $33,300,000 at a fixed interest rate of 3.53%. Annual
rental revenue over the remaining term of the lease averages approximately $3,551,000.
FDX,
Amazon.com Services, Inc.’s ultimate parent, 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 those websites.
Subsequent
to quarter end, on April 6, 2018, we purchased a newly constructed 399,440 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 1, 2028. The
purchase price was $30,750,540. We obtained a 15 year fully-amortizing mortgage loan of $19,500,000 at a fixed interest rate of
4.25%. Annual rental revenue over the remaining term of the lease averages approximately $2,128,000.
Expansions
On
November 1, 2017, a parking lot expansion for a property leased to FedEx Ground Package System, Inc., a subsidiary of FDX, located
in Indianapolis, IN was completed for a total project cost of approximately $1,683,000, 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 of approximately $184,000 from approximately $1,533,000, or $4.67 per square
foot, to approximately $1,717,000, or $5.24 per square foot.
Disposition
Two
leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility
located in Kansas City, MO through July 31, 2018 and at our 50,400 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 $4,900,000, with net sale proceeds to us of approximately $4,602,000 and on December 22, 2017, we sold
our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds to us of approximately $5,898,000. The sale of
these two properties resulted in a realized gain of approximately $5,388,000, representing a 105% gain over the depreciated U.S.
GAAP basis and a realized net gain of approximately $1,804,000, representing a 21% net gain over our historic undepreciated cost
basis. 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 approximately $210,000 which represents a weighted average
of 80% of the then remaining rent due under each respective lease.
Commitments
In
addition to the property purchased subsequent to quarter end, as described previously, we have entered into agreements to purchase
two new industrial buildings. One of the purchase commitments is for a new built-to-suit industrial building that is leased to
Amazon Fulfillment Services, Inc. and is guaranteed by Amazon.com, Inc. The other purchase commitment is for a new build-to-suit
industrial building that is currently being developed in Charleston, SC and is leased to FedEx Ground Package System, Inc. The
two new buildings consist of approximately 624,000 square feet, with a weighted average net-leased term of 12.3 years. The total
purchase price for these two properties is approximately $80,863,000. Approximately 363,000 square feet, or 58%, is leased to
Amazon Fulfillment Services, Inc. and approximately 261,000 square feet, or 42%, is leased to FedEx Ground Package System, Inc.
Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing these transactions
sometime during the remainder of fiscal 2018 and the first quarter of fiscal 2019. In connection with one of these properties,
we have entered into a commitment to obtain a 15 year, fully-amortizing mortgage loan of $29,860,000 at a fixed rate of 3.82%.
We
are under contract to sell two properties consisting of (i) an 87,500 square foot vacant building located in Ft. Myers, FL, for
$6,400,000, which is approximately $2,400,000 above our U.S. GAAP net book carrying value, and (ii) a 68,370 square foot building
located in Colorado Springs, CO for $5,800,000, which was approximately our U.S. GAAP net book carrying value. The completion
of these two sales are each anticipated to close during the third quarter of fiscal 2018 and are subject to customary closing
conditions and requirements.
We
have committed to construct a parking lot expansion at a property that is being leased to FedEx Ground Package System, Inc. located
in Ft. Mills, SC. The expansion costs are expected to be approximately $1,834,000. Upon completion, annualized rent will be increased
by approximately $183,000 from approximately $1,415,000 to approximately $1,598,000. Additionally, the lease will be extended
for 10 years from the date of completion.
See
PART I, Item 1 – Business in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for a more complete
discussion of the economic and industry-wide factors relevant to us and the opportunities, challenges, and risks on which we are
focused.
Significant
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements,
which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP).
The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date
of our Consolidated Financial Statements. Actual results may differ from these estimates under different assumptions or conditions.
On
a regular basis, we evaluate our assumptions, judgments and estimates. We believe that there have been no material changes to
the items that we disclosed as our significant accounting policies and estimates under Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” in our annual report on Form 10-K for fiscal year ended
September 30, 2017.
Changes
in Results of Operations
As
of March 31, 2018, we owned 109 properties with total square footage of approximately 19,928,000, as compared to 100 properties
with total square footage of approximately 16,554,000, as of March 31, 2017, representing an increase in square footage of 20%.
At quarter end, our weighted average lease expiration term was approximately 7.8 years as compared to 7.4 years at the end of
the prior year period. Our occupancy rate was 99.2% as of March 31, 2018 as compared to 100.0% as of March 31, 2017, representing
a decrease of 80 basis points. Our weighted average building age was 9.2 years as of March 31, 2018 as compared to 10.0 years
as of March 31, 2017. Subsequent to quarter end, we purchased a newly constructed 399,440 square foot industrial building located
in Daytona Beach, FL.
Fiscal
2018 Renewals
In
fiscal 2018, approximately 8% of our gross leasable area, representing 16 leases totaling 1,546,637 square feet, was set to expire.
As of the date of this quarterly report, 7 of the 16 leases have been renewed. One of the seven leases, which is with FedEx Ground
Package System, Inc. for a property located in Hanahan (Charleston), SC, has renewed for only four months because the tenant plans
to move its operations from our 91,776 square foot facility to a newly constructed facility, which is also located in Charleston,
SC. Once the construction is complete, we are under contract to purchase this new facility, consisting of 261,240 square feet,
subject to satisfactory completion of due diligence and other customary closing conditions and requirements. In addition, once
the construction is complete, this brand-new facility will be leased for 15 years. Excluding the four month lease renewal at the
Hanahan (Charleston), SC, location, the six leases that have renewed thus far represent 568,898 square feet, or 37% of the expiring
square footage, and have a weighted average lease term of 6.1 years. These lease renewals resulted in an increase in the weighted
average lease rate of 3.9% on a U.S. GAAP straight-line basis and a 1.5% increase on a cash basis.
We
have incurred, or we expect to incur tenant improvement costs of approximately $435,000 and leasing commission costs of approximately
$432,000 in connection with these six lease renewals. The table below summarizes the lease terms of the six leases which were
renewed. In addition, the table below includes both the tenant improvement costs and the leasing commission costs, which are presented
on a per square foot (PSF) basis averaged over the renewal term.
Property
|
|
Tenant
|
|
Square
Feet
|
|
|
Former
U.S. GAAP Straight- Line
Rent
PSF
|
|
|
Former
Cash Rent
PSF
|
|
|
Former
Lease
Expiration
|
|
Renewal
U.S GAAP Straight- Line Rent
PSF
|
|
|
Renewal
Initial
Cash
Rent
PSF
|
|
|
Renewal
Lease
Expiration
|
|
Renewal
Term
(years)
|
|
|
Tenant
Improvement
Cost
PSF over
Renewal
Term
(1)
|
|
|
Leasing
Commission Cost
PSF
over
Renewal
Term (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanahan
(Charleston), SC (3)
|
|
FedEx
Ground
|
|
|
91,776
|
|
|
$
|
7.35
|
|
|
$
|
7.35
|
|
|
7/31/18
|
|
$
|
7.35
|
|
|
$
|
7.35
|
|
|
11/30/18
|
|
|
0.3
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chattanooga,
TN
|
|
FedEx
Express
|
|
|
60,637
|
|
|
$
|
5.13
|
|
|
$
|
5.13
|
|
|
10/31/17
|
|
$
|
5.26
|
|
|
$
|
5.26
|
|
|
10/31/22
|
|
|
5.0
|
|
|
$
|
0.43
|
|
|
$
|
0.11
|
|
Lakeland,
FL
|
|
FedEx
Express
|
|
|
32,105
|
|
|
|
4.83
|
|
|
|
4.83
|
|
|
11/30/17
|
|
|
4.83
|
|
|
|
4.83
|
|
|
11/30/27
|
|
|
10.0
|
|
|
|
0.37
|
|
|
|
0.10
|
|
Orlando,
FL
|
|
FedEx
Express
|
|
|
110,638
|
|
|
|
5.69
|
|
|
|
6.02
|
|
|
11/30/17
|
|
|
6.02
|
|
|
|
6.02
|
|
|
11/30/27
|
|
|
10.0
|
|
|
|
0.12
|
|
|
|
0.12
|
|
St.
Joseph, MO
|
|
Altec
Industries
|
|
|
126,880
|
|
|
|
2.75
|
|
|
|
2.75
|
|
|
2/28/18
|
|
|
2.94
|
|
|
|
2.87
|
|
|
2/28/23
|
|
|
5.0
|
|
|
|
0.01
|
|
|
|
0.13
|
|
Edwardsville,
KS
|
|
Carlisle
Tire
|
|
|
179,280
|
|
|
|
4.23
|
|
|
|
4.39
|
|
|
5/31/18
|
|
|
4.10
|
|
|
|
4.15
|
|
|
7/31/23
|
|
|
5.2
|
|
|
|
0.05
|
|
|
|
0.16
|
|
Augusta,
GA
|
|
FedEx
Ground
|
|
|
59,358
|
|
|
|
7.64
|
|
|
|
7.64
|
|
|
6/30/18
|
|
|
8.64
|
|
|
|
8.64
|
|
|
6/30/21
|
|
|
3.0
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
Total
|
|
|
568,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average (2)
|
|
|
|
|
|
|
|
$
|
4.67
|
|
|
$
|
4.78
|
|
|
|
|
$
|
4.85
|
|
|
$
|
4.85
|
|
|
|
|
|
6.1
|
|
|
$
|
0.13
|
|
|
$
|
0.12
|
|
|
|
Amount
calculated based on the total cost divided by the square feet, divided by the renewal
term.
|
|
(1)
|
Total
and Weighted Average amounts exclude the Hanahan (Charleston), SC property.
|
|
(2)
|
Renewed
for only four months because the tenant plans to move its operations from our 91,776 square foot facility located in Hanahan
(Charleston), SC to a brand new, build-to-suit 261,240 square foot facility, which is currently under construction and is
also in Charleston, SC. We are under contract to purchase this newly constructed facility once construction is complete.
|
Excluding
the four-month lease renewal at the Hanahan (Charleston), SC location, the remaining six lease renewals result in a weighted average
term of 6.1 years and a renewed U.S. GAAP straight-line weighted average lease rate of $4.85 per square foot. The renewed weighted
average initial cash rent per square foot is also $4.85. This compares to the former weighted average rent of $4.67 per square
foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $4.78 per square foot, representing an increase
in the weighted average lease rate of 3.9% on a U.S. GAAP straight-line basis and an increase of 1.5% on a cash basis.
Two
leases that were set to expire during fiscal 2018 were leased to Kellogg Sales Company (Kellogg) at our 65,067 square foot facility
located in Kansas City, MO through July 31, 2018 and at our 50,400 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 $4,900,000, with net sale proceeds to us of approximately $4,602,000 and on December 22, 2017, we sold
our property, located in Orangeburg, NY for $6,170,000, with net sale proceeds to us of approximately $5,898,000. The sale of
these two properties resulted in a realized gain of approximately $5,388,000, representing a 105% gain over the depreciated U.S.
GAAP basis and a realized net gain of approximately $1,804,000, representing a 21% net gain over our historic undepreciated cost
basis. 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 approximately $210,000 which represents a weighted average
of 80% of the then remaining rent due under each respective lease.
Another
remaining lease set to expire during fiscal 2018 was leased to Caterpillar Logistics Services, Inc. (Caterpillar) at our 218,120
square foot facility located in Griffin, GA through December 31, 2017. In September 2017, we entered into a three year lease agreement
with Rinnai America Corporation through December 31, 2020 for this location. The new lease commenced on January 1, 2018, with
initial annual rent of $807,044, representing $3.70 per square foot, with 3.0% annual increases thereafter, resulting in a straight-line
annualized rent of $831,000, representing $3.81 per square foot over the life of the lease. This compares to the former U.S. GAAP
straight-line and the former cash rent of $5.36 per square foot, representing a decrease in the average lease rate of 28.9% on
a U.S. GAAP straight-line basis and a decrease of 31.0% on a cash basis.
Our
68,370 square foot facility located in Colorado Springs, CO (which is included in Real Estate Held for Sale) is leased by FedEx
Ground Package System, Inc. through September 30, 2018. The tenant has informed us that they will not be renewing this lease because
they have moved their operations from our 68,370 square foot facility to our recently constructed 225,362 square foot facility,
which is also located in Colorado Springs, CO. On June 9, 2016, we purchased this newly constructed 225,362 square foot industrial
building, which is leased for 10 years through January 2026. The original 68,370 square foot Colorado Springs, CO facility is
under contract to be sold for $5,800,000, which is approximately our U.S. GAAP net book carrying value. The sale is anticipated
to close during the third quarter of fiscal 2018, subject to customary closing conditions and requirements.
One
of our tenants that leased 80,856 square feet at our 255,658 square foot industrial park located in Monaca (Pittsburgh), PA did
not renew their lease that expired on December 31, 2017.
The
remaining four leases that are still set to expire during fiscal 2018 are currently under discussion.
Effective
November 1, 2017, we entered into a 10.2 year lease agreement with FBM Gypsum Supply of Illinois, LLC for our 36,270 square foot
facility located in Urbandale (Des Moines), IA. The lease agreement provides for two months of free rent, after which, on January
1, 2018, initial annual rent of $159,588, representing $4.40 per square foot commenced, with 2.0% annual increases thereafter,
resulting in a straight-line annualized rent of approximately $172,000, representing $4.74 per square foot through the expiration
date of the lease, which is December 31, 2027. This new rent compares to the former average rent of $3.56 per square foot on a
U.S. GAAP straight-line basis and the former cash rent of $3.88 per square foot, representing an increase in the average lease
rate of 33.1% on a U.S. GAAP straight-line basis and an increase of 13.4% on a cash basis.
Rental
Revenue increased $4,999,155, or 21%, for the three months ended March 31, 2018 as compared to the three months ended March 31,
2017. Rental Revenue increased $9,410,781, or 20%, for the six months ended March 31, 2018 as compared to the six months ended
March 31, 2017. These increases were primarily due to the acquisition of eight industrial properties purchased during the last
half of fiscal 2017 and the three industrial properties purchased during the first half of fiscal 2018.
Our
single-tenant properties are subject to net leases which require the tenants to reimburse us for the cost of Real Estate Taxes
as well as certain Operating Expenses such as insurance and the majority of repairs and maintenance. For the three months ended
March 31, 2018 compared to the three months ended March 31, 2017, Reimbursement Revenue increased $1,314,162, or 36%, Real Estate
Tax Expense increased $927,786, or 33%, and Operating Expenses increased $188,030, or 15%. For the six months ended March 31,
2018 compared to the six months ended March 31, 2017, Reimbursement Revenue increased $2,462,747, or 32%, Real Estate Tax Expense
increased $1,883,468, or 33%, and Operating Expenses increased $329,803, or 13%. These increases in Reimbursement Revenue, Real
Estate Taxes and Operating Expenses for the three and six months ended March 31, 2018 were primarily due to our newly acquired
properties. Reimbursement Revenue as a percentage of Real Estate Taxes and Operating Expenses for the three months ended March
31, 2018 has increased to 95% from 89% for the three months ended March 31, 2017. Reimbursement Revenue as a percentage of Real
Estate Taxes and Operating Expenses for the six months ended March 31, 2018 has increased to 95% from 91% for the six months ended
March 31, 2017.
General
and Administrative Expenses increased $139,499, or 7%, for the three months ended March 31, 2018 as compared to the three months
ended March 31, 2017. General and Administrative Expenses increased $644,068, or 18%, for the six months ended March 31, 2018,
as compared to the six months ended March 31, 2017. The increase in both the three and six months ended March 31, 2018 was primarily
due to an increase in salaries and director fees which were due to a combination of increases in wage rates and head count of
employees and a combination of increases in director fees and head count of directors. General and Administrative Expenses, as
a percentage of gross revenue (which includes Rental Revenue, Reimbursement Revenue and Dividend and Interest Income) decreased
to 6.1% for the three months ended March 31, 2018 as compared to 7.2% for the three months ended March 31, 2017 and decreased
to 5.8% for the six months ended March 31, 2018 as compared to 6.2% for the six months ended March 31, 2017. Annualized General
and Administrative Expenses, as a percentage of undepreciated assets (which is our total assets excluding accumulated depreciation)
decreased to 48 basis points from 51 basis points for the six months ended March 31, 2018 and 2017, respectively.
There
were no Acquisition Costs for the three months ended March 31, 2018 and 2017, respectively. Acquisition Costs amounted to $-0-
and $178,526 for the six months ended March 31, 2018 and 2017, respectively. As a result of adopting ASU 2017-01, prospectively
as of April 1, 2017, as permitted under the standard, effective April 1, 2017, we no longer account for our property acquisitions
as business combinations and instead we account for our property acquisitions as acquisitions of assets. In an acquisition of
assets, certain acquisition costs are capitalized to real estate investments as part of the purchase price as opposed to being
expensed as Acquisition Costs under the previous accounting treatment for business combinations. Therefore, subsequent to April
1, 2017, we no longer expense Acquisition Costs for our property acquisitions.
We
recognized a Gain on Sale of Securities Transactions of $11,234 and $-0- for the three months ended March 31, 2018 and 2017, respectively
and recognized a Gain on Sale of Securities Transactions of $111,387 and $806,108 for the six months ended March 31, 2018 and
2017, respectively. In addition, our unrealized holding gains (losses) on our investment in securities decreased from an unrealized
gain of $6,570,565 as of September 30, 2017 to an unrealized loss of $31,124,653 as of March 31, 2018, resulting in a decrease
for the six months ended March 31, 2018 of $37,695,218. We recognized dividend income on our investment in securities of $2,885,821
and $1,438,005 for the three months ended March 31, 2018 and 2017, respectively, representing an increase of 101%. We recognized
dividend income on our investments in securities of $5,748,465 and $2,726,807 for the six months ended March 31, 2018 and 2017,
respectively, representing an increase of 111%. These increases are due to a higher average carrying value of the REIT securities
portfolio during the current three and six month periods compared to the prior year three and six month periods. The REIT securities
portfolio’s weighted average yield for six months ended March 31, 2018 was approximately 10.5% as compared to 7.5% for the
six months ended March 31, 2017. We held $144,630,426 in marketable REIT securities as of March 31, 2018, representing 8.3% of
our undepreciated assets.
Interest
Expense, including Amortization of Financing Costs, increased $1,418,021, or 22%, for the three months ended March 31, 2018 as
compared to the three months ended March 31, 2017. Interest Expense, including Amortization of Financing Costs, increased $2,660,749,
or 21%, for the six months ended March 31, 2018 as compared to the six months ended March 31, 2017. This increase is primarily
due to an increase in the average balance of Fixed Rate Mortgage Notes Payable due to the 11 newly acquired properties purchased
since April 1, 2017. The Fixed Rate Mortgage Notes Payable balance increased $155,789,214, or 32% from March 31, 2017 to March
31, 2018. This increase was partially offset by a decrease of 26 basis points in the weighted average interest rate of the Fixed
Rate Mortgage Notes Payable, which decreased from 4.37% at March 31, 2017 to 4.11% at March 31, 2018.
Changes
in Financial Condition
We
generated Net Cash from Operating Activities of $42,838,574 and $30,845,775 for the six months ended March 31, 2018 and 2017,
respectively.
Net
Real Estate Investments increased $91,069,489 from September 30, 2017 to March 31, 2018. This increase was mainly due to the purchase
of three net-leased industrial properties, located in Charleston, SC, Oklahoma City, OK and Savannah, GA, totaling approximately
1,253,000 square feet, for approximately $109,606,000, of which approximately $107,392,000 was allocated to Net Real Estate Investments.
The increase was partially offset by Depreciation Expense for the six months ended March 31, 2018 of $17,342,046.
Securities
Available for Sale increased $20,865,656 from September 30, 2017 to March 31, 2018. The increase was due to the purchase of securities
totaling $61,068,920, offset by the sale of securities with a cost basis of $2,508,046 and by a net decrease in Unrealized Holding
Gain (Loss) of $37,695,218. The securities sold during the six month period resulted in realized gains totaling $111,387.
Fixed
Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs (Mortgage Notes Payable) increased $40,686,862 from September
30, 2017 to March 31, 2018. The increase was mostly due to the origination of three fixed rate mortgages totaling $67,100,000
obtained in connection with the acquisitions of three industrial properties purchased in the first half of fiscal 2018. These
three mortgage loans have an original weighted average loan maturity of 13.0 years and a weighted average interest rate of 3.71%.
Details on these three fixed rate mortgages are as follows:
Property
|
|
Mortgage
amount
|
|
|
Maturity
Date
|
|
Interest
Rate
|
|
Charleston,
SC
|
|
$
|
14,200,000
|
|
|
12/1/2032
|
|
|
4.23
|
%
|
Oklahoma
City, OK
|
|
|
19,600,000
|
|
|
12/1/2027
|
|
|
3.64
|
%
|
Savannah,
GA
|
|
|
33,300,000
|
|
|
2/1/2032
|
|
|
3.53
|
%
|
The
increase in Mortgage Notes Payable was also partially due to the amortization of financing costs associated with the Mortgage
Notes Payable of approximately $409,000. This increase was partially offset by scheduled payments of principal of approximately
$26,226,000, which includes the full repayment of two mortgages associated with two properties located in Richfield, OH and Tampa,
FL, totaling approximately $6,160,000. In addition, the increase in Mortgage Notes Payable was partially offset by the addition
of deferred financing costs of approximately $596,000, of which approximately $578,000 is associated with the three mortgages
obtained in connection with the acquisitions of the three industrial properties purchased in the first half of fiscal 2018.
Excluding
Debt Issuance Costs, the weighted average interest rate on the Fixed Rate Mortgage Notes Payable decreased by 26 basis points
from the prior year quarter from 4.37% at March 31, 2017 to 4.11% at March 31, 2018.
We
are scheduled to repay a total of approximately $53,376,000 in mortgage principal payments over the next 12 months. We intend
to make these principal payments from the funds generated from Cash from Operations, the DRIP, the At-The-Market Preferred Equity
Program (Preferred Stock ATM Program) and draws from the unsecured line of credit facility.
Liquidity
and Capital Resources
Net
Cash Provided by Operating Activities was $42,838,574 and $30,845,775 for the six months ended March 31, 2018 and 2017, respectively.
Dividends paid on common stock for the six months ended March 31, 2018 and 2017 were $26,319,599 and $22,613,315, respectively
(of which $6,045,930 and $4,536,751, respectively, were reinvested). We pay dividends from cash generated from operations.
As
of March 31, 2018, we held $144,630,426 in marketable REIT securities, representing 8.3% of our undepreciated assets (which is
our total assets excluding accumulated depreciation). We generally limit our marketable securities investments to no more than
approximately 10% of our undepreciated assets. From time to time, we may purchase these securities on margin when the interest
and dividend yields exceed the cost of funds. In general, we may borrow up to 50% of the value of the marketable securities. As
of March 31, 2018, we had $44,341,511 drawn against the margin. The marketable REIT securities portfolio provides us with additional
liquidity, diversification and income, and serves as a proxy for real estate when more favorable risk adjusted returns are not
available. As of March 31, 2018, we had net Unrealized Holding Losses on our portfolio of $31,124,653 as compared to net Unrealized
Holding Gains of $6,570,565 as of September 30, 2017, representing a decrease of $37,695,218. We recognized a Gain on Sale of
Securities Transactions of $11,234 and $-0- for the three months ended March 31, 2018 and 2017, respectively, and recognized a
Gain on Sale of Securities Transactions of $111,387 and $806,108 for the six months ended March 31, 2018 and 2017, respectively.
We recognized dividend income on our investment in securities of $2,885,821 and $1,438,005 for the three months ended March 31,
2018 and 2017, respectively, representing an increase of 101%, and $5,748,465 and $2,726,807 for the six months ended March 31,
2018 and 2017, respectively, representing an increase of 111%. The dividends received from our investments continue to meet our
expectations.
As
of March 31, 2018, the we owned 109 properties, of which 60 carried mortgage loans with outstanding principal balances totaling
$639,836,890. The 49 unencumbered properties could be refinanced to raise additional funds, although covenants in our unsecured
line of credit facility (the Facility) limit the amount of unencumbered properties that can be mortgaged. As of March 31, 2018,
we have drawn down $110,000,000 on the Facility, which had an interest rate of 3.58%. The Facility has total potential availability
up to $300,000,000, including the additional $100,000,000 accordion feature. The Facility matures September 2020, with a one-year
extension at our option.
As
of March 31, 2018, we had total assets of $1,559,891,572 and liabilities of $809,533,791. Our net debt (net of unamortized debt
issuance costs and net of cash and cash equivalents) to total market capitalization as of March 31, 2018 was approximately 34%
and our net debt, less marketable securities (net of unamortized debt issuance costs, net of cash and cash equivalents and net
of marketable securities) to total market capitalization as of March 31, 2018 was approximately 28%. We believe that we have the
ability to meet our obligations and to generate funds for new investments.
On
June 29, 2017, we entered into a Preferred Stock ATM Program with FBR Capital Markets & Co. in which we may, from time to
time, offer and sell additional shares of our 6.125% Series C Preferred Stock, with a liquidation preference of $25.00 per share,
having an aggregate sales price of up to $100,000,000. We began selling shares through the Preferred Stock ATM Program on July
3, 2017. During the six months ended March 31, 2018, we sold 1,255,931 shares under our Preferred Stock ATM Program at a weighted
average price of $25.09 per share, and generated net proceeds, after offering expenses, of approximately $30,942,000.
As
of March 31, 2018, 11,095,376 shares of the 6.125% Series C Preferred Stock were issued and outstanding.
We
raised $49,042,921 (including dividend reinvestments of $6,045,930) from the issuance of 3,161,320 shares of common stock under
the DRIP during the six months ended March 31, 2018. Of this amount, UMH Properties, Inc. (UMH), a related REIT, made total purchases
of 49,851 common shares for a total cost of $769,482, or a weighted average cost of $15.44 per share. During the six months ended
March 31, 2018, we paid $26,319,599 in total cash dividends, or $0.17 per share to common shareholders, of which $6,045,930 was
reinvested in the DRIP. On April 2, 2018, our Board of Directors declared a dividend of $0.17 per common share to be paid on June
15, 2018 to common shareholders of record as of the close of business on May 15, 2018.
During
the six months ended March 31, 2018, we paid $8,301,342 in Preferred Dividends, or $0.765625 per share, on our outstanding 6.125%
Series C Preferred Stock for the period September 1, 2017 through February 28, 2018. As of March 31, 2018, we have accrued Preferred
Dividends of $1,415,816 covering the period March 1, 2018 to March 31, 2018. Dividends on the 6.125% Series C Preferred Stock
are cumulative and payable quarterly at an annual rate of $1.53125 per share. On April 2, 2018, our Board of Directors declared
a dividend of $0.3828125 per share to be paid June 15, 2018 to the 6.125% Series C Preferred shareholders of record as of the
close of business on May 15, 2018.
We
use a variety of sources to fund our cash needs in addition to cash generated from operations. We may sell marketable securities
from our investment portfolio, borrow on our unsecured line of credit facility or securities margin loans, refinance debt, or
raise capital through the DRIP, the Preferred Stock ATM Program or capital markets.
We
have been raising capital through our DRIP, the Preferred Stock ATM Program, mortgage loans, draws on our unsecured line of credit,
sale of marketable securities and funds generated from our investments in net-leased industrial properties. We may raise capital
through registered direct placements and public offerings of common and preferred stock. We believe that funds generated from
operations, from the DRIP and from the Preferred Stock ATM Program, our ability to finance and refinance our properties, and our
availability under our unsecured line of credit will provide sufficient funds to adequately meet our obligations over the next
year.
We
have a concentration of FDX and FDX subsidiary-leased properties, consisting of 59 separate stand-alone leases covering approximately
9,513,000 square feet as of March 31, 2018 and 55 separate stand-alone leases covering approximately 8,187,000 square feet as
of March 31, 2017. The 59 separate stand-alone leases that are leased to FDX and FDX subsidiaries have a weighted average lease
maturity of 8.5 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental space was 48%
(8% to FDX and 40% to FDX subsidiaries) as of March 31, 2018 and 49% (6% to FDX and 43% to FDX subsidiaries) as of March 31, 2017.
As of March 31, 2018, no other tenant accounted for 5% or more of our total rental space.
Annualized
Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 60% (7% to FDX and 53% to FDX
subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2018 and was 59% (6% to FDX and 53% to FDX subsidiaries) of
total Rental and Reimbursement Revenue for fiscal 2017. No other tenant accounted for 5% or more of our total Rental and Reimbursement
Revenue for the six months ended March 31, 2018 and 2017.
FDX
is a publicly-owned company and financial information related to this entity is available at the SEC’s website,
www.sec.gov
.
FDX is rated “BBB” by S&P Global Ratings (www.standardandpoors.com) and is rated “Baa2” by Moody’s
(www.moodys.com), which are both considered “Investment Grade” ratings. The references in this report to the SEC’s
website, S&P Global Ratings’ website and Moody’s website are not intended to and do not include, or incorporate
by reference into this report, the information of FDX, S&P Global Ratings or Moody’s on such websites.
In
addition to real estate property holdings, we held $144,630,426 in marketable REIT securities at March 31, 2018, representing
8.3% of our undepreciated assets (which is our total assets excluding accumulated depreciation). These liquid real estate holdings
are not included in calculating the tenant concentration ratios above and therefore further enhance our diversification. The securities
portfolio provides us with additional liquidity, diversification and income and serves as a proxy for real estate when more favorable
risk adjusted returns are not available.
In
addition to the property purchased subsequent to quarter end, we have entered into agreements to purchase two new industrial
buildings. One of the purchase commitments is for a new built-to-suit industrial building that is leased to Amazon Fulfillment
Services, Inc. and is guaranteed by Amazon.com, Inc. The other purchase commitment is for a new build-to-suit industrial building
that is currently being developed in Charleston, SC and is leased to FedEx Ground Package System, Inc. The two new buildings consist
of approximately 624,000 square feet, with a weighted average net-leased term of 12.3 years. The total purchase price for these
two properties is approximately $80,863,000. Approximately 363,000 square feet, or 58%, is leased to Amazon Fulfillment Services,
Inc. and approximately 261,000 square feet, or 42%, is leased to FedEx Ground Package System, Inc. Subject to satisfactory due
diligence and other customary closing conditions and requirements, we anticipate closing these transactions sometime during the
remainder of fiscal 2018 and the first quarter of fiscal 2019. In connection with one of these properties, we have entered into
a commitment to obtain a 15 year, fully-amortizing mortgage loan of $29,860,000 at a fixed rate of 3.82%.
We
are under contract to sell two properties consisting of (i) an 87,500 square foot vacant building located in Ft. Myers, FL, for
$6,400,000, which is approximately $2,400,000 above our U.S. GAAP net book carrying value, and (ii) a 68,370 square foot building
located in Colorado Springs, CO for $5,800,000, which was approximately our U.S. GAAP net book carrying value. The completion
of these two sales are each anticipated to close during the third quarter of fiscal 2018 and are subject to customary closing
conditions and requirements.
We
have committed to construct a parking lot expansion at a property that is being leased to FedEx Ground Package System, Inc. located
in Ft. Mills, SC. The expansion costs are expected to be approximately $1,834,000. Upon completion, annualized rent will be increased
by approximately $183,000 from approximately $1,415,000 to approximately $1,598,000. Additionally, the lease will be extended
for 10 years from the date of completion.
We
intend to acquire additional net-leased industrial properties on long-term leases, primarily to investment grade tenants or their
subsidiaries, and when needed, expand our current properties. The funds may come from free cash flow from operations, mortgage
loans, draws on our unsecured line of credit, cash on hand, sale of marketable securities, other bank borrowings, proceeds from
the DRIP, proceeds from the Preferred Stock ATM Program, private placements and public offerings of additional common or preferred
stock or other securities. To the extent that funds or appropriate properties are not available, fewer acquisitions will be made.
Off-Balance
Sheet Arrangements
We
do not have any material off-balance sheet arrangements.
Funds
From Operations, Core Funds From Operations and Adjusted Funds From Operations
We
assess and measure our overall operating results based upon an industry performance measure referred to as Funds From Operations
(FFO), which management believes is a useful indicator of our operating performance. FFO is used by industry analysts and investors
as a supplemental operating performance measure of a REIT. FFO, as defined by the National Association of Real Estate Investment
Trusts (NAREIT), represents net income attributable to common shareholders, as defined by accounting principles generally accepted
in the United States of America (U.S. GAAP), excluding extraordinary items, as defined under U.S. GAAP, gains or losses from sales
of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, plus certain non-cash
items such as real estate asset depreciation and amortization. NAREIT created FFO as a non-GAAP supplemental measure of REIT operating
performance. We define Core Funds From Operations (Core FFO) as FFO, excluding acquisition costs. We define Adjusted Funds From
Operations (AFFO) as Core FFO, excluding stock based compensation expense, depreciation of corporate office tenant improvements,
amortization of deferred financing costs, lease termination income, net gain or loss on sale of securities transactions, effect
of non-cash U.S. GAAP straight-line rent adjustments, non-recurring other expenses and less recurring capital expenditures. We
define recurring capital expenditures as all capital expenditures, excluding capital expenditures related to expansions at our
current locations or capital expenditures that are incurred in conjunction with obtaining a new lease or a lease renewal. We believe
that, as widely recognized measures of performance used by other REITs, FFO, Core FFO and AFFO may be considered by investors
as supplemental measures to compare our operating performance to those of other REITs. FFO, Core FFO and AFFO exclude historical
cost depreciation as an expense and may facilitate the comparison of REITs which have a different cost basis. However, other REITs
may use different methodologies to calculate FFO, Core FFO and AFFO and, accordingly, our FFO, Core FFO and AFFO may not be comparable
to all other REITs. The items excluded from FFO, Core FFO and AFFO are significant components in understanding our financial performance.
FFO,
Core FFO and AFFO are non-GAAP performance measures and (i) do not represent Cash Flow from Operations as defined by U.S. GAAP;
(ii) should not be considered as an alternative to Net Income or Net Income Attributable to Common Shareholders as a measure of
operating performance or to Cash Flows from Operating, Investing and Financing Activities; and (iii) are not an alternative to
Cash Flows from Operating, Investing and Financing Activities as a measure of liquidity. FFO, Core FFO and AFFO, as calculated
by us, may not be comparable to similarly titled measures reported by other REITs.
The
following is a reconciliation of our U.S. GAAP Net Income to our FFO, Core FFO and AFFO for the three and six months ended March
31, 2018 and 2017:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
Net
Income Attributable to Common Shareholders
|
|
$
|
7,396,784
|
|
|
$
|
4,842,575
|
|
|
$
|
20,710,239
|
|
|
$
|
10,998,736
|
|
Plus:
Depreciation Expense (excluding Corporate Office Capitalized Costs)
|
|
|
8,818,574
|
|
|
|
7,099,906
|
|
|
|
17,263,081
|
|
|
|
14,053,686
|
|
Plus:
Amortization of Intangible Assets
|
|
|
397,116
|
|
|
|
240,973
|
|
|
|
740,862
|
|
|
|
508,820
|
|
Plus:
Amortization of Capitalized Lease Costs
|
|
|
217,183
|
|
|
|
212,275
|
|
|
|
437,185
|
|
|
|
417,717
|
|
Less:
(Gain) / Plus: Loss on Sale of Real Estate Investments
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(5,387,886
|
)
|
|
|
95,336
|
|
FFO
Attributable to Common Shareholders
|
|
|
16,829,657
|
|
|
|
12,395,729
|
|
|
|
33,763,481
|
|
|
|
26,074,295
|
|
Plus:
Acquisition Costs
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
178,526
|
|
Core
FFO Attributable to Common Shareholders
|
|
|
16,829,657
|
|
|
|
12,395,729
|
|
|
|
33,763,481
|
|
|
|
26,252,821
|
|
Plus:
Depreciation of Corporate Office Capitalized Costs
|
|
|
39,488
|
|
|
|
39,171
|
|
|
|
78,965
|
|
|
|
77,886
|
|
Plus:
Stock Compensation Expense
|
|
|
111,406
|
|
|
|
166,190
|
|
|
|
242,169
|
|
|
|
266,345
|
|
Plus:
Amortization of Financing Costs
|
|
|
302,556
|
|
|
|
384,984
|
|
|
|
596,450
|
|
|
|
665,897
|
|
Less:
Gain on Sale of Securities Transactions
|
|
|
(11,234
|
)
|
|
|
-0-
|
|
|
|
(111,387
|
)
|
|
|
(806,108
|
)
|
Less:
Lease Termination Income
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(210,261
|
)
|
|
|
-0-
|
|
Less:
Recurring Capital Expenditures
|
|
|
(64,474
|
)
|
|
|
(188,390
|
)
|
|
|
(283,720
|
)
|
|
|
(376,802
|
)
|
Less:
Effect of Non-cash U.S. GAAP Straight-line Rent Adjustment
|
|
|
(360,458
|
)
|
|
|
(286,617
|
)
|
|
|
(756,486
|
)
|
|
|
(629,856
|
)
|
AFFO
Attributable to Common Shareholders
|
|
$
|
16,846,941
|
|
|
$
|
12,511,067
|
|
|
$
|
33,319,211
|
|
|
$
|
25,450,183
|
|
The
following are the Cash Flows provided (used) by Operating, Investing and Financing Activities for the six months ended March 31,
2018 and 2017:
|
|
Six
Months Ended
|
|
|
|
3/31/2018
|
|
|
3/31/2017
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
$
|
42,838,574
|
|
|
$
|
30,845,775
|
|
Investing
Activities
|
|
|
(161,056,280
|
)
|
|
|
(79,130,314
|
)
|
Financing
Activities
|
|
|
120,461,848
|
|
|
|
(24,513,070
|
)
|
Forward-Looking
Statements
This
quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide our current
expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, intentions,
plans, objectives, goals, strategies, future events, performance and underlying assumptions and other statements that are not
historical facts. Forward-looking statements can be identified by their use of forward-looking words, such as “may,”
“will,” “anticipate,” “expect,” “believe,” “intend,” “plan,”
“should,” “seek” or comparable terms, or the negative use of those words, but the absence of these words
does not necessarily mean that a statement is not forward-looking.
The
forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account
all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions
and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors
are described below and are described under the above heading “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” above and the headings “Business”, “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for
the fiscal year ended September 30, 2017. These and other risks, uncertainties and factors could cause our actual results to differ
materially from those included in any forward-looking statements we make. Any forward-looking statement speaks only as of the
date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or
how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results
to differ materially from our expectations include, among others:
|
●
|
the
ability of our tenants to make payments under their respective leases;
|
|
●
|
our
reliance on certain major tenants;
|
|
●
|
our
ability to re-lease properties that are currently vacant or that become vacant;
|
|
●
|
our
ability to obtain suitable tenants for our properties;
|
|
●
|
changes
in real estate market conditions, economic conditions in the industrial sector and the
market in which our properties are located and general economic conditions;
|
|
●
|
the
inherent risks associated with owning real estate, including local real estate market
conditions, governing laws and regulations and illiquidity of real estate investments;
|
|
●
|
our
ability to acquire, finance and sell properties on attractive terms;
|
|
●
|
our
ability to repay debt financing obligations;
|
|
●
|
our
ability to refinance amounts outstanding under our mortgages and credit facilities at
maturity on terms favorable to us, or at all;
|
|
●
|
the
loss of any member of our management team;
|
|
●
|
our
ability to comply with debt covenants;
|
|
●
|
our
ability to integrate acquired properties and operations into existing operations;
|
|
●
|
continued
availability of proceeds from issuances of our debt or equity securities;
|
|
●
|
the
availability of other debt and equity financing alternatives;
|
|
●
|
market
conditions affecting our investment in marketable securities of other REIT’s;
|
|
●
|
changes
in interest rates under our current credit facility and under any additional variable
rate debt arrangements that we may enter into in the future;
|
|
●
|
our
ability to successfully implement our selective acquisition strategy;
|
|
●
|
our
ability to maintain internal controls and procedures to ensure all transactions are accounted
for properly, all relevant disclosures and filings are timely made in accordance with
all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;
|
|
●
|
changes
in federal or state tax rules or regulations that could have adverse tax consequences;
|
|
●
|
declines
in the market prices of our investment securities; and
|
|
●
|
our
ability to qualify as a REIT for federal income tax purposes.
|
You
should not place undue reliance on these forward-looking statements, as events described or implied in such statements may not
occur. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events
or otherwise.