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. We were founded in 1968 and are one
of the oldest public equity REITs in the world. During the nine months ended June 30, 2018, we purchased five net-leased industrial
properties, located in Charleston, SC; Oklahoma City, OK; Savannah, GA; Daytona Beach, FL; and Mobile, AL, totaling approximately
2,016,000 square feet, for approximately $174,045,000 in the aggregate. In connection with the five properties acquired during
the nine months ended June 30, 2018, we obtained two 15 year fully-amortizing mortgage loans, two 14 year fully-amortizing mortgage
loans and one 10 year loan amortizing over 18 years. The five mortgage loans originally totaled $105,600,000 with an original
weighted average mortgage loan maturity of 13.6 years and a weighted average interest rate of 3.89%. As of June 30, 2018, we owned
109 properties with total square footage of approximately 20,535,000. These properties are located in 30 states. As of the quarter
ended June 30, 2018, our weighted average lease maturity was approximately 7.8 years, our occupancy rate was 99.6% and our annualized
average base rent per occupied square foot was $5.89. As of June 30, 2018, the weighted average building age, based on the square
footage of our buildings, was 8.8 years. In addition, total gross real estate investments, excluding marketable REIT securities
investments of $167,594,279, were $1,606,017,461 as of June 30, 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 Redemption of Preferred Stock, 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,
Gain on Sale of Real Estate Investments and Lease Termination Income. 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 nine months ended
June 30, 2018 and 2017:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
6/30/2018
|
|
|
|
6/30/2017
|
|
|
|
6/30/2018
|
|
|
|
6/30/2017
|
|
Net Income Attributable to Common Shareholders
|
|
$
|
10,322,744
|
|
|
$
|
5,217,411
|
|
|
$
|
31,032,983
|
|
|
$
|
16,216,147
|
|
Plus: Redemption of Preferred Stock
|
|
|
-0-
|
|
|
|
2,467,165
|
|
|
|
-0-
|
|
|
|
2,467,165
|
|
Plus: Preferred Dividends
|
|
|
4,248,029
|
|
|
|
4,045,787
|
|
|
|
12,813,194
|
|
|
|
11,325,583
|
|
Plus: General & Administrative Expenses
|
|
|
1,887,722
|
|
|
|
1,786,852
|
|
|
|
6,052,791
|
|
|
|
5,307,853
|
|
Plus: Acquisition Costs
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
178,526
|
|
Plus: Depreciation
|
|
|
9,162,563
|
|
|
|
7,318,258
|
|
|
|
26,504,609
|
|
|
|
21,449,830
|
|
Plus: Amortization of Capitalized Lease Costs and Intangible Assets
|
|
|
613,927
|
|
|
|
451,823
|
|
|
|
1,740,620
|
|
|
|
1,327,376
|
|
Plus: Interest Expense, including Amortization of Financing Costs
|
|
|
8,279,324
|
|
|
|
6,135,381
|
|
|
|
23,640,556
|
|
|
|
18,835,864
|
|
Less: Dividend and Interest Income
|
|
|
(3,627,984
|
)
|
|
|
(1,899,320
|
)
|
|
|
(9,380,411
|
)
|
|
|
(4,630,653
|
)
|
Less: Gain on Sale of Securities Transactions
|
|
|
-0-
|
|
|
|
(1,487,836
|
)
|
|
|
(111,387
|
)
|
|
|
(2,293,944
|
)
|
Less: Gain on Sale of Real Estate Investments
|
|
|
(2,097,380
|
)
|
|
|
-0-
|
|
|
|
(7,485,266
|
)
|
|
|
-0-
|
|
Less: Lease Termination Income
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(210,261
|
)
|
|
|
-0-
|
|
Net Operating Income- NOI
|
|
$
|
28,788,945
|
|
|
$
|
24,035,521
|
|
|
$
|
84,597,428
|
|
|
$
|
70,183,747
|
|
The
components of our NOI for the three and nine months ended June 30, 2018 and 2017 are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
Rental Revenue
|
|
$
|
29,256,147
|
|
|
$
|
24,400,237
|
|
|
$
|
85,558,614
|
|
|
$
|
71,291,923
|
|
Reimbursement Revenue
|
|
|
6,941,678
|
|
|
|
4,208,859
|
|
|
|
17,002,541
|
|
|
|
11,806,975
|
|
Total Rental and Reimbursement Revenue
|
|
|
36,197,825
|
|
|
|
28,609,096
|
|
|
|
102,561,155
|
|
|
|
83,098,898
|
|
Real Estate Taxes
|
|
|
(5,950,262
|
)
|
|
|
(3,520,322
|
)
|
|
|
(13,592,573
|
)
|
|
|
(9,279,165
|
)
|
Operating Expenses
|
|
|
(1,458,618
|
)
|
|
|
(1,053,253
|
)
|
|
|
(4,371,154
|
)
|
|
|
(3,635,986
|
)
|
Net Operating Income- NOI
|
|
$
|
28,788,945
|
|
|
$
|
24,035,521
|
|
|
$
|
84,597,428
|
|
|
$
|
70,183,747
|
|
NOI
from property operations increased $4,753,424, or 20%, for the three months ended June 30, 2018 as compared to the three months
ended June 30, 2017 and increased $14,413,681, or 21%, for the nine months ended June 30, 2018 as compared to the nine months
ended June 30, 2017. These increases were primarily due to the acquisition of three industrial properties purchased during the
last quarter of fiscal 2017 and the five industrial properties purchased during the first three quarters 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.
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 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 $2,130,000.
On
June 28, 2018, we purchased a newly constructed 362,942 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 $33,688,276. We obtained a 14 year fully-amortizing mortgage loan of $19,000,000 at a
fixed interest rate of 4.14%. Annual rental revenue over the remaining term of the lease averages approximately $2,020,000.
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.
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.
Dispositions
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 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 of approximately $5,898,000. 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.
On
June 1, 2018, we sold a 68,370 square foot building located in Colorado Springs, CO for $5,800,000, with net sale proceeds of
approximately $5,465,000. 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
68,370 square foot facility to our newly 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 to FedEx Ground
Package System, Inc. for 10 years through January 2026.
On
June 5, 2018, we sold an 87,500 square foot vacant building located in Ft. Myers, FL for $6,400,000, with net sale proceeds of
approximately $6,119,000. 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 from our former 87,500 square
foot facility to our newly constructed 213,672 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 approximately $7,485,000, representing a
51% gain over the depreciated U.S. GAAP basis and a net realized gain over our historic undepreciated cost basis of approximately
$1,160,000, representing a 6% net gain over our historic undepreciated cost basis.
Commitments
The
Company has entered into agreements to purchase four new build-to-suit, industrial buildings that have recently been completed
or are currently being developed in Georgia, New Jersey and South Carolina, consisting of approximately 1,105,000 square feet,
with net-leased terms ranging from 10 to 15 years, with a weighted average lease term of 13.9 years. The purchase price for these
properties is approximately $221,369,000. These four properties are each 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 all four of these properties, we
have entered into commitments to obtain four, 15 year, fully-amortizing mortgage loans totaling $142,060,000 with a weighted average
fixed interest rate of 4.07%.
We
currently have two property expansions in progress consisting of one 154,800 square foot building expansion and one parking
lot expansion. Total expansion costs are expected to be approximately $10,906,000. Upon completion of the two expansions,
initial annual rent will be increased by approximately $1,045,000. One expansion will provide for a new 10 year lease extension
from the date of completion and one expansion will provide for a new 15 year lease extension 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 June 30, 2018, we owned 109 properties with total square footage of approximately 20,535,000, as compared to 105 properties
with total square footage of approximately 17,917,000, as of June 30, 2017, representing an increase in square footage of 15%.
At quarter end, our weighted average lease expiration term remained unchanged and was approximately 7.8 years at the end of both
the current year and prior year quarter. Our occupancy rate was 99.6% as of June 30, 2018 as compared to 99.8% as of June 30,
2017, representing a decrease of 20 basis points. Our weighted average building age was 8.8 years as of June 30, 2018 as compared
to 9.4 years as of June 30, 2017.
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, 10 of the 16 leases have been renewed. One of the 10 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 9 leases that have renewed thus far represent 889,779 square feet, or 58% of the expiring
square footage, and have a weighted average lease term of 6.5 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 2.4% increase on a cash basis.
We
have incurred, or we expect to incur, tenant improvement costs of approximately $458,000 and leasing commission costs of approximately
$811,000 in connection with these 9 lease renewals. The table below summarizes the lease terms of the 9 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
|
|
|
|
0.16
|
|
|
|
0.10
|
|
Orlando, FL
|
|
FedEx Express
|
|
|
110,638
|
|
|
|
5.69
|
|
|
|
6.02
|
|
|
11/30/17
|
|
|
6.02
|
|
|
|
6.02
|
|
|
11/30/27
|
|
|
10.0
|
|
|
|
0.18
|
|
|
|
0.12
|
|
St. Joseph, MO
|
|
Altec Industries
|
|
|
126,880
|
|
|
|
2.75
|
|
|
|
2.75
|
|
|
02/28/18
|
|
|
2.94
|
|
|
|
2.87
|
|
|
02/28/23
|
|
|
5.0
|
|
|
|
-0-
|
|
|
|
0.13
|
|
Edwardsville, KS
|
|
Carlisle Tire
|
|
|
179,280
|
|
|
|
4.23
|
|
|
|
4.39
|
|
|
05/31/18
|
|
|
4.10
|
|
|
|
4.15
|
|
|
07/31/23
|
|
|
5.2
|
|
|
|
0.05
|
|
|
|
0.16
|
|
Augusta, GA
|
|
FedEx Ground
|
|
|
59,358
|
|
|
|
7.64
|
|
|
|
7.64
|
|
|
06/30/18
|
|
|
8.64
|
|
|
|
8.64
|
|
|
06/30/21
|
|
|
3.0
|
|
|
|
-0-
|
|
|
|
-0-
|
|
O’Fallon, MO
|
|
Pittsburgh Glass Works,
LLC
|
|
|
102,135
|
|
|
|
4.18
|
|
|
|
4.18
|
|
|
06/30/18
|
|
|
4.37
|
|
|
|
4.31
|
|
|
06/30/21
|
|
|
3.0
|
|
|
|
0.08
|
|
|
|
-0-
|
|
Denver, CO
|
|
FedEx Ground
|
|
|
69,865
|
|
|
|
8.08
|
|
|
|
8.08
|
|
|
07/31/18
|
|
|
8.72
|
|
|
|
8.72
|
|
|
10/31/25
|
|
|
7.25
|
|
|
|
-0-
|
|
|
|
0.17
|
|
Beltsville,
MD
|
|
FedEx
Ground
|
|
|
148,881
|
|
|
|
9.58
|
|
|
|
9.58
|
|
|
07/31/18
|
|
|
9.77
|
|
|
|
9.77
|
|
|
07/31/28
|
|
|
10.0
|
|
|
|
-0-
|
|
|
|
0.20
|
|
|
|
Total
|
|
|
889,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average (2)
|
|
|
|
|
|
|
|
$
|
5.70
|
|
|
$
|
5.78
|
|
|
|
|
$
|
5.92
|
|
|
$
|
5.92
|
|
|
|
|
|
6.5
|
|
|
$
|
0.08
|
|
|
$
|
0.14
|
|
|
(1)
|
Amount
calculated based on the total cost divided by the square feet, divided by the renewal term.
|
|
(2)
|
Total
and Weighted Average amounts exclude the Hanahan (Charleston), SC property.
|
|
(3)
|
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 9 lease renewals result in a weighted average
term of 6.5 years and a renewed U.S. GAAP straight-line weighted average lease rate of $5.92 per square foot. The renewed weighted
average initial cash rent per square foot is also $5.92. This compares to the former weighted average rent of $5.70 per square
foot on a U.S. GAAP straight-line basis and the former weighted average cash rent of $5.78 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 2.4% on a cash basis.
As
further described in the three paragraphs below, of the six remaining leases originally set to expire during fiscal 2018, three
of the properties were sold. These three properties represent 12% of the expiring square footage for fiscal 2018, and one property
representing 14% of the expiring square footage for fiscal 2018 was re-tenanted for 3 years. Additionally, one of our tenants,
representing 5% of the expiring square footage for fiscal 2018, did not renew their lease which expired on December 31, 2017.
This tenant leased 80,856 square feet at our 255,658 square foot industrial park located in Monaca (Pittsburgh), PA. The remaining
lease that is still set to expire during fiscal 2018 is currently under discussion.
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 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 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.
On
June 1, 2018, we sold a 68,370 square foot building located in Colorado Springs, CO for $5,800,000, with net sale proceeds of
approximately $5,465,000, which was our approximate U.S. GAAP net book carrying value. 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 68,370 square foot facility to our newly 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 to FedEx Ground Package System, Inc. for 10 years through January 2026.
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.
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 $4,855,910, or 20%, for the three months ended June 30, 2018 as compared to the three months ended June 30,
2017. Rental Revenue increased $14,266,691, or 20%, for the nine months ended June 30, 2018 as compared to the nine months ended
June 30, 2017. These increases were primarily due to the acquisition of three industrial properties purchased during the last
quarter of fiscal 2017 and the five industrial properties purchased during the first three quarters 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
June 30, 2018 compared to the three months ended June 30, 2017, Reimbursement Revenue increased $2,732,819, or 65%, Real Estate
Tax Expense increased $2,429,940, or 69%, and Operating Expenses increased $405,365, or 38%. For the nine months ended June 30,
2018 compared to the nine months ended June 30, 2017, Reimbursement Revenue increased $5,195,566, or 44%, Real Estate Tax Expense
increased $4,313,408, or 46%, and Operating Expenses increased $735,168, or 20%. These increases in Reimbursement Revenue, Real
Estate Taxes and Operating Expenses for the three and nine months ended June 30, 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 June
30, 2018 has increased to 94% from 92% for the three months ended June 30, 2017. Reimbursement Revenue as a percentage of Real
Estate Taxes and Operating Expenses for the nine months ended June 30, 2018 has increased to 95% from 91% for the nine months
ended June 30, 2017.
General
and Administrative Expenses increased $100,870, or 6%, for the three months ended June 30, 2018 as compared to the three months
ended June 30, 2017. General and Administrative Expenses increased $744,938, or 14%, for the nine months ended June 30, 2018 as
compared to the nine months ended June 30, 2017. The increase in both the three and nine months ended June 30, 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 4.7% for the three months ended June 30, 2018 as compared to 5.9% for the three months ended June 30, 2017 and decreased to
5.4% for the nine months ended June 30, 2018 as compared to 6.1% for the nine months ended June 30, 2017. Annualized General and
Administrative Expenses, as a percentage of undepreciated assets (which is our total assets excluding accumulated depreciation)
decreased to 44 basis points from 51 basis points for the nine months ended June 30, 2018 and 2017, respectively.
There
were no Acquisition Costs for the three months ended June 30, 2018 and 2017. Acquisition Costs amounted to $-0- and $178,526 for
the nine months ended June 30, 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 $-0- and $1,487,836 for the three months ended June 30, 2018 and 2017,
respectively and recognized a Gain on Sale of Securities Transactions of $111,387 and $2,293,944 for the nine months ended June
30, 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 $8,368,968 as of June 30, 2018, resulting
in a decrease for the nine months ended June 30, 2018 of $14,939,533. We recognized dividend income on our investment in securities
of $3,625,002 and $1,896,029 for the three months ended June 30, 2018 and 2017, respectively, representing an increase of 91%.
We recognized dividend income on our investments in securities of $9,373,467 and $4,622,836 for the nine months ended June 30,
2018 and 2017, respectively, representing an increase of 103%. These increases are due to a higher average carrying value of the
REIT securities portfolio during the current three and nine months period compared to the prior year three and nine months period.
We held $167,594,279 in marketable REIT securities as of June 30, 2018, representing 9.2% of our undepreciated assets. The REIT
securities portfolio’s weighted average yield for nine months ended June 30, 2018 was approximately 9.6% as compared to
7.1% for the nine months ended June 30, 2017.
Interest
Expense, including Amortization of Financing Costs, increased $2,143,943, or 35%, for the three months ended June 30, 2018 as
compared to the three months ended June 30, 2017. Interest Expense, including Amortization of Financing Costs, increased $4,804,692,
or 26%, for the nine months ended June 30, 2018 as compared to the nine months ended June 30, 2017. This increase is primarily
due to an increase in the average balance of Fixed Rate Mortgage Notes Payable due to the eight newly acquired properties purchased
since July 1, 2017. The Fixed Rate Mortgage Notes Payable balance increased $103,381,999 or 18% from June 30, 2017 to June 30,
2018. This increase was partially offset by a decrease of 10 basis points in the weighted average interest rate of the Fixed Rate
Mortgage Notes Payable, which decreased from 4.21% at June 30, 2017 to 4.11% at June 30, 2018.
Changes
in Financial Condition
We
generated Net Cash from Operating Activities of $63,093,990 and $50,191,019 for the nine months ended June 30, 2018 and 2017,
respectively.
Net
Real Estate Investments increased $147,727,579 from September 30, 2017 to June 30, 2018. This increase was mainly due to the purchase
of five net-leased industrial properties, located in Charleston, SC; Oklahoma City, OK; Savannah, GA; Daytona Beach, FL; and Mobile,
AL, totaling approximately 2,016,000 square feet, for approximately $174,045,000 in the aggregate, of which approximately $170,418,000
was allocated to Net Real Estate Investments. The increase was partially offset by Depreciation Expense for the nine months ended
June 30, 2018 of $26,504,609.
Securities
Available for Sale increased $43,829,509 from September 30, 2017 to June 30, 2018. The increase was due to the purchase of securities
totaling $61,277,604, offset by the sale of securities with a cost basis of $2,508,562 and by a net decrease in Unrealized Holding
Gain (Loss) of $14,939,533. The securities sold during the nine month period resulted in realized gains totaling $111,387.
Fixed
Rate Mortgage Notes Payable, net of Unamortized Debt Issuance Costs (Mortgage Notes Payable), increased $65,718,878 from September
30, 2017 to June 30, 2018. The increase was mostly due to the origination of five fixed-rate mortgages totaling $105,600,000 obtained
in connection with the five industrial properties purchased during the first three quarters of fiscal 2018. These five mortgage
loans have an original weighted average loan maturity of 13.6 years and a weighted average interest rate of 3.89%. Details on
these five 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
|
|
|
02/1/2032
|
|
|
3.53
|
%
|
Daytona Beach, FL
|
|
|
19,500,000
|
|
|
05/1/2033
|
|
|
4.25
|
%
|
Mobile, AL
|
|
|
19,000,000
|
|
|
07/1/2032
|
|
|
4.14
|
%
|
The
increase in Mortgage Notes Payable was also partially due to the amortization of financing costs associated with the Mortgage
Notes Payable of approximately $629,000. This increase was partially offset by scheduled payments of principal of approximately
$39,444,000, which includes the full repayment of four mortgages associated with four properties located in Richfield (Cleveland),
OH; Tampa, FL; Colorado Springs, CO and West Chester Twp. (Cincinnati), OH, totaling approximately $8,649,000. In addition, the
increase in Mortgage Notes Payable was partially offset by the addition of deferred financing costs of approximately $1,066,000,
of which approximately $1,047,000 is associated with the five mortgages obtained in connection with the five industrial properties
purchased during the first three quarters of fiscal 2018.
Excluding
Debt Issuance Costs, the weighted average interest rate on the Fixed Rate Mortgage Notes Payable decreased by 10 basis points
from the prior year quarter from 4.21% at June 30, 2017 to 4.11% at June 30, 2018.
We
are scheduled to repay a total of approximately $53,453,000 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 $63,093,990 and $50,191,019 for the nine months ended June 30, 2018 and 2017, respectively.
Dividends paid on common stock for the nine months ended June 30, 2018 and 2017 were $39,842,168 and $34,311,041, respectively
(of which $9,467,085 and $7,229,654, respectively, were reinvested). We pay dividends from cash generated from operations.
As
of June 30, 2018, we held $167,594,279 in marketable REIT securities, representing 9.2% 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 June 30, 2018, we had $47,792,824 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 June 30, 2018, we had net Unrealized Holding Losses on our portfolio of $8,368,968 as compared to net Unrealized
Holding Gains of $6,570,565 as of September 30, 2017, representing a decrease of $14,939,533. We recognized a Gain on Sale of
Securities Transactions of $-0- and $1,487,836 for the three months ended June 30, 2018 and 2017, respectively, and recognized
a Gain on Sale of Securities Transactions of $111,387 and $2,293,944 for the nine months ended June 30, 2018 and 2017, respectively.
We recognized dividend income on our investment in securities of $3,625,002 and $1,896,029 for the three months ended June 30,
2018 and 2017, respectively, representing an increase of 91%, and $9,373,467 and $4,622,836 for the nine months ended June 30,
2018 and 2017, respectively, representing an increase of 103%. The dividends received from our investments continue to meet our
expectations.
As
of June 30, 2018, we owned 109 properties, of which 60 carried mortgage loans with outstanding principal balances totaling $665,118,463.
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 June 30, 2018, we have drawn
down $110,000,000 on the Facility, which had an interest rate of 3.79%. 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 June 30, 2018, we had total assets of $1,624,480,567 and liabilities of $835,567,065. Our net debt (net of unamortized debt
issuance costs and net of cash and cash equivalents) to total market capitalization as of June 30, 2018 was approximately 33%
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 June 30, 2018 was approximately 26%. 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 the Preferred Stock ATM Program with B. Riley FBR, Inc. 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 nine months ended June 30, 2018, we sold 1,260,016 shares under our Preferred Stock ATM Program at a weighted average
price of $25.08 per share, and realized net proceeds, after offering expenses, of approximately $30,992,000.
As
of June 30, 2018, 11,099,461 shares of the 6.125% Series C Preferred Stock were issued and outstanding.
Subsequent
to the June 30, 2018 quarter end, through July 18, 2018, we sold 143,338 shares under our Preferred Stock ATM Program at a weighted
average price of $24.00 per share, and realized net proceeds, after offering expenses, of approximately $3,386,000.
We
raised $67,895,831 (including dividend reinvestments of $9,467,085) from the issuance of 4,451,289 shares of common stock under
the DRIP during the nine months ended June 30, 2018. Of this amount, UMH Properties, Inc. (UMH), a related REIT, made total purchases
of 76,543 common shares for a total cost of $1,160,784, or a weighted average cost of $15.17 per share. During the nine months
ended June 30, 2018, we paid $39,842,168 in total cash dividends, or $0.17 per share to common shareholders, of which $9,467,085
was reinvested in the DRIP. On July 2, 2018, our Board of Directors declared a dividend of $0.17 per common share to be paid on
September 17, 2018 to common shareholders of record as of the close of business on August 15, 2018.
During
the nine months ended June 30, 2018, we paid $12,548,850 in Preferred Dividends, or $1.1484375 per share, on our outstanding 6.125%
Series C Preferred Stock for the period September 1, 2017 through May 31, 2018. As of June 30, 2018, we have accrued Preferred
Dividends of $1,416,337 covering the period June 1, 2018 to June 30, 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 July 2, 2018, our Board of Directors declared a dividend
of $0.3828125 per share to be paid September 17, 2018 to the 6.125% Series C Preferred shareholders of record as of the close
of business on August 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, from the Preferred Stock ATM Program, as well as 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 58 separate stand-alone leases covering approximately
9,444,000 square feet as of June 30, 2018 and 58 separate stand-alone leases covering approximately 9,124,000 square feet as of
June 30, 2017. As of June 30, 2018, the 58 separate stand-alone leases that are leased to FDX and FDX subsidiaries have a weighted
average lease maturity of 8.6 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental
space was 46% (7% to FDX and 39% to FDX subsidiaries) as of June 30, 2018 and 51% (8% to FDX and 43% to FDX subsidiaries) as of
June 30, 2017. As of June 30, 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 56% (7% to FDX and 49% to FDX
subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2018 and was 60% (7% 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 nine months ended June 30, 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 $167,594,279 in marketable REIT securities at June 30, 2018, representing 9.2%
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.
The
Company has entered into agreements to purchase four new build-to-suit, industrial buildings that have recently been completed
or are currently being developed in Georgia, New Jersey and South Carolina, consisting of approximately 1,105,000 square feet,
with net-leased terms ranging from 10 to 15 years, with a weighted average lease term of 13.9 years. The purchase price for these
properties is approximately $221,369,000. These four properties are each 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 all four of these properties, we
have entered into commitments to obtain four, 15 year, fully-amortizing mortgage loans totaling $142,060,000 with a weighted average
fixed interest rate of 4.07%.
We
currently have two property expansions in progress consisting of one 154,800 square foot building expansion and one parking lot
expansion. Total expansion costs are expected to be approximately $10,906,000. Upon completion of the two expansions, initial
annual rent will be increased by approximately $1,045,000. One expansion will provide for a new 10 year lease extension from the
date of completion and one expansion will provide for a new 15 year lease extension 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 and costs associated with the
Redemption of Preferred Stock. 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 that
are recurring in nature, 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 nine months ended June
30, 2018 and 2017:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
Net Income Attributable to Common Shareholders
|
|
$
|
10,322,744
|
|
|
$
|
5,217,411
|
|
|
$
|
31,032,983
|
|
|
$
|
16,216,147
|
|
Plus: Depreciation Expense (excluding Corporate Office Capitalized Costs)
|
|
|
9,123,069
|
|
|
|
7,278,976
|
|
|
|
26,386,150
|
|
|
|
21,332,662
|
|
Plus: Amortization of Intangible Assets
|
|
|
417,088
|
|
|
|
262,325
|
|
|
|
1,157,950
|
|
|
|
771,145
|
|
Plus: Amortization of Capitalized Lease Costs
|
|
|
222,516
|
|
|
|
214,990
|
|
|
|
659,701
|
|
|
|
632,707
|
|
Less: (Gain) / Plus: Loss on Sale of Real Estate Investments
|
|
|
(2,097,380
|
)
|
|
|
-0-
|
|
|
|
(7,485,266
|
)
|
|
|
95,336
|
|
FFO Attributable to Common Shareholders
|
|
|
17,988,037
|
|
|
|
12,973,702
|
|
|
|
51,751,518
|
|
|
|
39,047,997
|
|
Plus: Acquisition Costs
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
178,526
|
|
Plus: Redemption of Preferred Stock
|
|
|
-0-
|
|
|
|
2,467,165
|
|
|
|
-0-
|
|
|
|
2,467,165
|
|
Core FFO Attributable to Common Shareholders
|
|
|
17,988,037
|
|
|
|
15,440,867
|
|
|
|
51,751,518
|
|
|
|
41,693,688
|
|
Plus: Depreciation of Corporate Office Capitalized Costs
|
|
|
39,494
|
|
|
|
39,282
|
|
|
|
118,459
|
|
|
|
117,167
|
|
Plus: Stock Compensation Expense
|
|
|
96,970
|
|
|
|
174,709
|
|
|
|
339,139
|
|
|
|
441,054
|
|
Plus: Amortization of Financing Costs
|
|
|
314,527
|
|
|
|
283,573
|
|
|
|
910,977
|
|
|
|
949,470
|
|
Less: Gain on Sale of Securities Transactions
|
|
|
-0-
|
|
|
|
(1,487,836
|
)
|
|
|
(111,387
|
)
|
|
|
(2,293,944
|
)
|
Less: Lease Termination Income
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
(210,261
|
)
|
|
|
-0-
|
|
Less: Recurring Capital Expenditures
|
|
|
(490,371
|
)
|
|
|
(195,186
|
)
|
|
|
(774,091
|
)
|
|
|
(571,988
|
)
|
Less: Effect of Non-cash U.S. GAAP Straight-line Rent Adjustment
|
|
|
(600,659
|
)
|
|
|
(294,936
|
)
|
|
|
(1,357,145
|
)
|
|
|
(924,792
|
)
|
AFFO Attributable to Common Shareholders
|
|
$
|
17,347,998
|
|
|
$
|
13,960,473
|
|
|
$
|
50,667,209
|
|
|
$
|
39,410,655
|
|
The
following are the Cash Flows provided (used) by Operating, Investing and Financing Activities for the nine months ended June 30,
2018 and 2017:
|
|
Nine Months Ended
|
|
|
|
6/30/2018
|
|
|
6/30/2017
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
63,093,990
|
|
|
$
|
50,191,019
|
|
Investing Activities
|
|
|
(216,285,152
|
)
|
|
|
(232,827,215
|
)
|
Financing Activities
|
|
|
149,857,358
|
|
|
|
(98,636,685
|
)
|
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.