MNR Mach Natural Resources LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2021

NOTE 1 – ORGANIZATION AND ACCOUNTING POLICIES

Monmouth Real Estate Investment Corporation, a Maryland corporation, together with its consolidated subsidiaries (we, our, us, the Company or MREIC), operates as a real estate investment trust (REIT) deriving its income primarily from real estate rental operations. We were founded in 1968 and are one of the oldest public equity REITs in the world. As of March 31, 2021, we owned 121 properties with total square footage of 24.6 million, as compared to 119 properties with total square footage of 23.4 million as of September 30, 2020. Our occupancy rate at the end of the quarter was 99.7% as compared to 99.4% as of September 30, 2020. Subsequent to quarter end, on April 15, 2021, we sold our 60,400 square foot building located in Carlstadt (New York, NY), NJ. As this property was one of our two joint venture holdings, we now have only one property that is not wholly-owned by MREIC (Somerset, NJ). Our properties are located in 31 states: Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin. As of the quarter ended March 31, 2021, our weighted average lease term was 7.4 years and our annualized average base rent per occupied square foot was $6.51. As of March 31, 2021, the weighted average building age, based on the square footage of our buildings, was 9.9 years.

The future effects of the evolving impact of the COVID-19 Pandemic are uncertain however, at this time COVID-19 has not had a material adverse effect on our financial condition. We invest in modern single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. Our investments are exclusively situated in the continental United States, and are primarily located in strategic locations that are mission-critical to our tenants’ needs. In many cases our buildings are highly automated in order to better serve the omni-channel distribution networks that have become essential today. Approximately 83% of our revenue is derived from investment-grade tenants, or their subsidiaries as defined by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). The references in this report to S&P Global Ratings and Moody’s are not intended to and do not include, or incorporate by reference into this report, the information of S&P Global Ratings or Moody’s on such websites.

For many years, ecommerce demand has increased, and it has now become an integral part of the retail landscape. The COVID-19 Pandemic has created an even greater move towards on-line shopping. As a result of state and local government-mandated shutdowns, public health guidance and changing consumer demand, ecommerce sales as a percentage of total retail sales has substantially increased during the past year. The COVID-19 Pandemic has also created a need for supply chain reconfiguration. It is estimated that ecommerce sales require three times the warehouse space relative to brick and mortar retail sales. Increased inventory stocking is currently taking place across many industries and it appears that this trend will continue in order to accommodate surges in demand.

Our portfolio of modern, net-leased industrial properties continues to provide shareholders with reliable and predictable income streams. Our resilient occupancy rates and rent collection results during these challenging times highlight the mission-critical nature of our assets and underscore the essential need for our tenants’ operations. Furthermore, because our weighted average lease term is 7.4 years and our weighted average fixed rate mortgage debt maturity is 11.3 years, we expect our cash flow to remain resilient over long periods of time. Our overall occupancy rate and our base rent collections have remained strong throughout the COVID-19 Pandemic. Our overall occupancy rate has been over 99% throughout the Pandemic and was 99.7% during the current quarter. Our base rent collections have averaged 99.9% throughout the COVID-19 Pandemic and we expect future months to be consistent with this trend.

On May 4, 2021, we announced that, following a comprehensive strategic alternatives process, we entered into a definitive merger agreement with Equity Commonwealth, a New York Stock Exchange traded real estate investment trust, by which Equity Commonwealth will acquire MREIC in an all-stock transaction. See Note 10-Subsequent Events.

Income Tax

We have elected to be taxed as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the Code), and we intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under Federal and certain state income tax laws at the corporate level on taxable income that we distribute to our shareholders. For special tax provisions applicable to REITs, refer to Sections 856-860 of the Code. We are subject to franchise taxes in several of the states in which we own properties.

In December 2017, as part of the Tax Cuts and Jobs Act of 2017 (the TCJA), Section 199A was added to the Code and became effective for tax years beginning after December 31, 2017 and before January 1, 2026. Under the TCJA, subject to certain income limitations, an individual taxpayer and estates and trusts may deduct 20% of the aggregate amount of qualified REIT dividends they receive from their taxable income. Qualified REIT dividends do not include any portion of a dividend received from a REIT that is classified as a capital gain dividend or non-qualified dividend income.

We follow the provisions of ASC Topic 740, Income Taxes, that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on our evaluation, we determined that we have no uncertain tax positions and no unrecognized tax benefits as of March 31, 2021. We record interest and penalties relating to unrecognized tax benefits, if any, as interest expense. As of March 31, 2021, the fiscal tax years 2017 through and including 2020 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.

The interim Consolidated Financial Statements furnished herein have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP) applicable to interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Use of Estimates

In preparing the financial statements in accordance with U.S. GAAP, we are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates and assumptions.

Reclassification

Certain prior period amounts in the accompanying Consolidated Financial Statements have been reclassified to conform to the current period’s presentation.

Stock Compensation Plan

We account for awards of stock, stock options and restricted stock in accordance with ASC 718-10, “Compensation-Stock Compensation.” ASC 718-10 requires that compensation cost for all stock awards be calculated and amortized over the service period (generally equal to the vesting period). The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. The compensation expense for restricted stock is recognized based on the fair value of the restricted stock awards less estimated forfeitures. The fair value of stock awards and restricted stock awards is equal to the fair value of our stock on the grant date. The amortization of compensation costs for the awards of stock, stock option grants and restricted stock are included in General and Administrative Expenses in the accompanying Consolidated Statements of Income and amounted to $77,000 and $114,000 for the three months ended March 31, 2021 and 2020, respectively and amounted to $134,000 and $270,000 for the six months ended March 31, 2021 and 2020, respectively.

During the six months ended March 31, 2021 and 2020, the following stock options, which vest one year after grant date, were granted under our Stock Option Plan:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the fiscal year indicated:

The weighted average fair value of options granted during the six months ended March 31, 2021 and 2020 was $1.49 and $1.24 per share subject to the option.

During the six months ended March 31, 2021 and 2020, no shares of restricted stock were granted. During the six months ended March 31, 2021, three participants exercised options to purchase 159,000 shares of common stock at a weighted average price of $12.37 per share for total proceeds of $2.0 million. During the six months ended March 31, 2020, two participants exercised options to purchase 95,000 shares of common stock at a weighted average price of $10.69 per share for total proceeds of $1.0 million. As of March 31, 2021, a total of 1.2 million shares were available for grant as stock, stock options, restricted stock, or other equity-based awards, plus any shares subject to outstanding options that expire or are forfeited without being exercised. As of March 31, 2021, there were outstanding options to purchase 856,000 shares with an aggregate intrinsic value of $3.5 million.

Lease Termination Income

Lease Termination Income is recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with us.

Effective October 1, 2020, we entered into a lease termination agreement with RGH Enterprises, Inc. (Cardinal Health) for our 75,000 square foot facility located in Halfmoon (Albany), NY whereby we received a termination fee in the amount of $377,000 representing approximately 50% of the then remaining rent due under the lease, which was set to expire in 1.2 years on November 30, 2021. We simultaneously entered into a 10.4 year lease agreement with United Parcel Service, Inc. (UPS) which became effective November 1, 2020. The lease agreement with UPS provides for five months of free rent, after which, on April 1, 2021, initial annual rent of $510,000, representing $6.80 per square foot, will commence, with 2.0% annual increases thereafter, resulting in a straight-line annualized rent of $541,000, representing $7.21 per square foot over the life of the lease, which expires March 31, 2031. This compares to the former U.S GAAP straight-line rent of $574,000, representing $7.65 per square foot and former cash rent of $8.19 per square foot, resulting in a decrease of $33,000, representing a 5.8% decrease on a U.S GAAP straight-line basis and a decrease of 17.0% on a cash basis. The new 10.4 year lease agreement with UPS provides for an additional 9.3 years of lease term versus the old lease with Cardinal Health.

Only four of our 121 properties have leases that contain an early termination provision. These four properties contain 260,000 total rentable square feet, representing 1% of our total rentable square feet. Our leases with early termination provisions are our 36,000 square foot location in Urbandale (Des Moines), IA, our 39,000 square foot location in Rockford, IL, our 83,000 square foot location in Roanoke, VA and our 102,000 square foot location in O’Fallon (St. Louis), MO. Each lease termination provision contains certain requirements that must be met in order to exercise each termination provision. These requirements include: the date termination can be exercised, the time frame that notice must be given by the tenant to us and the termination fee that would be required to be paid by the tenant to us. The total potential termination fee to be paid to us from the four tenants with leases that have a termination provision amounts to $2.0 million.

Gains on Sale of Real Estate Investment

Gains on the sale of real estate investment is recognized when the profit on a given sale is determinable, and the seller is not obliged to perform significant activities after the sale to earn such profit.

Recent Accounting Pronouncements

In April 2020, FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of the COVID-19 Pandemic that allows entities to treat the concession as if it was a part of the existing contract instead of applying lease modification accounting. This guidance is only applicable to the COVID-19 Pandemic related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We have elected this option relating to qualifying rent deferral and rent abatement agreements. For qualifying lease modifications with rent deferrals, this results in no change to our revenue recognition but an increase in the lease receivable balance until the deferred rent has been repaid. For qualifying lease modifications that include rent abatement concessions, this results in a direct reduction of rental income in the current period. As of March 31, 2021, we have entered into rent deferral agreements related to the COVID-19 Pandemic representing approximately $438,000 of base rent otherwise owed during the months of April through October 2020 representing 31 basis points of our total annual base rent. As of the quarter end, we have collected 85% of this $438,000 deferred rent amount.

We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying Consolidated Financial Statements.

Segment Reporting & Financial Information

Our primary business is the ownership and management of real estate properties. We invest in well-located, modern, single-tenant, industrial buildings, leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases. We review operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. We evaluate financial performance using Net Operating Income (NOI) from property operations. NOI is a non-GAAP financial measure, which we define as recurring Rental and Reimbursement Revenue, less Real Estate Taxes and Operating Expenses, such as insurance, utilities and repairs and maintenance. We have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated as industrial properties subject to long-term net-leases primarily to investment-grade tenants or their subsidiaries.

Derivative Instruments and Hedging Activities

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our variable rate debt. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of derivative financial instruments. Our primary strategy in entering into derivative contracts is to minimize the variability that changes in interest rates could have on its future cash flows. We generally employ derivative instruments that effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes. As further described in “Note 5 – Debt”, in November 2019 we entered into an interest rate swap agreement that has the effect of fixing the interest rate on our $75.0 million unsecured term loan (the “Term Loan”).

The interest rate for borrowings under the Term Loan will at our election, either i) bear interest at LIBOR plus 130 basis points to 200 basis points, depending on our leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 30 basis points to 100 basis points, depending on our leverage ratio. The re-pricing and scheduled maturity dates, payment dates, index and the notional amounts of the interest rate swap agreement coincides with those of the underlying Term Loan. The interest rate swap agreement is net settled monthly. The Company has designated this derivative as a cash flow hedge and has recorded the fair value on the balance sheet in accordance with ASC 815, Derivatives and Hedging (See Note 7 for information on the determination of fair value). The effective portion of the gain or loss on this hedge will be reported as a component of Accumulated Other Comprehensive Loss on our Consolidated Balance Sheets. To the extent that the hedging relationship is not effective or does not qualify as a cash flow hedge, the ineffective portion is recorded in interest expense. Hedges that received designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as through the hedging period. As of March 31, 2021, the Company has determined that this interest rate swap agreement is highly effective as a cash flow hedge. As a result, the fair value of this derivative of $2.6 million and $4.4 million as of March 31, 2021 and September 30, 2020, respectively, was recorded as a component of Accumulated Other Comprehensive Loss in the Consolidated Balance Sheets, with the corresponding liability included in Other Liabilities. The change in the fair value of the interest rate swap agreement is reflected in the Consolidated Statement of Comprehensive Income and amounted to $1.4 million and $1.8 million for the three and six months ended March 31, 2021.

NOTE 2 – NET INCOME PER SHARE

Basic Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted average number of common shares outstanding during the period. Diluted Net Income per Common Share is calculated by dividing Net Income Attributable to Common Shareholders by the weighted average number of common shares outstanding for the period and, when dilutive, the potential net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. In periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation because they are anti-dilutive.

In addition, common stock equivalents of 198,000 and 77,000 shares are included in the diluted weighted average shares outstanding for the three months ended March 31, 2021 and 2020, respectively, and common stock equivalents of 151,000 and 96,000 shares are included in the diluted weighted average shares outstanding for the six months ended March 31, 2021 and 2020. For the diluted weighted average shares outstanding for the three months ended March 31, 2021 and 2020, 65,000 and 315,000 options to purchase shares of common stock were antidilutive. For the diluted weighted average shares outstanding for the six months ended March 31, 2021 and 2020, 130,000 and 195,000 options to purchase shares of common stock, respectively, were antidilutive.

NOTE 3 – REAL ESTATE INVESTMENTS

Acquisitions

On December 17, 2020, we purchased a newly constructed 488,000 square foot industrial building, situated on 99.0 acres, located in the Columbus, OH MSA. The building is 100% net-leased to FedEx Ground Package System, Inc. for 15 years through September 2035. The purchase price was $73.3 million. We obtained a 15 year, fully-amortizing mortgage loan of $47.0 million at a fixed interest rate of 2.95%. Annual rental revenue over the remaining term of the lease averages $4.6 million.

On December 24, 2020, we purchased a newly constructed 658,000 square foot industrial building, situated on 129.9 acres, located in the Atlanta, GA MSA. The building is 100% net-leased to Home Depot U.S.A., Inc. for 20 years through November 2040. The purchase price was $96.7 million. We obtained a 17 year, fully-amortizing mortgage loan of $57.0 million at a fixed interest rate of 3.25%. Annual rental revenue over the remaining term of the lease averages $5.5 million.

FedEx Ground Package System, Inc.’s ultimate parent, FedEx Corporation and Home Depot U.S.A., Inc’s ultimate parent, Home Depot, Inc. are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. The references in this report to the SEC’s website are not intended to and do not include, or incorporate by reference into this report, the information on the www.sec.gov website.

We evaluated the property acquisitions which took place during the six months ended March 31, 2021, to determine whether an integrated set of assets and activities meets the definition of a business, pursuant to ASU 2017-01. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Accordingly, we accounted for the properties purchased during fiscal 2021 as asset acquisitions and allocated the total cash consideration, including transaction costs of approximately $576,000, to the individual assets acquired on a relative fair value basis. There were no liabilities assumed in these acquisitions. The financial information set forth below summarizes our purchase price allocation for these properties acquired during the six months ended March 31, 2021 that is accounted for as an asset acquisition (in thousands):

The following table summarizes the operating results included in our Consolidated Statements of Income for the properties acquired during the six months ended March 31, 2021 (in thousands):

Expansions

During the six months ended March 31, 2021, we completed the first phase of a two-phase parking expansion project for FedEx Ground Package System, Inc. at our property located in Olathe (Kansas City), KS. The first phase of this parking expansion project was completed for a total cost of $3.4 million, which resulted in a $340,000 increase in annualized rent effective November 5, 2020 increasing the annualized rent from $2.2 million to $2.6 million. We will soon be starting the second phase of this parking expansion project at this location, which will increase the rental rate further and extend the lease term.

Proforma information

The following unaudited pro-forma condensed financial information has been prepared utilizing our historical financial statements and the effect of the reduction of revenue and expenses that will no longer be generated from a property that was sold after March 31, 2021 and the effect of additional revenue and expenses generated from properties acquired and expanded during fiscal 2021 to date, and during fiscal 2020, assuming that the property acquisitions, completed expansions and the sale of one property had occurred as of October 1, 2019, after giving effect to certain adjustments including: (a) Rental Revenue adjustments resulting from the straight-lining of scheduled rent increases, (b) Interest Expense resulting from the assumed increase in Fixed Rate Mortgage Notes Payable and Loans Payable related to the new acquisitions, and (c) Depreciation Expense related to the new acquisitions and expansions. Furthermore, the net proceeds raised from our Dividend Reinvestment and Stock Purchase Plan (the DRIP) were used to fund property acquisitions and expansions and therefore, the weighted average shares outstanding used in calculating the pro-forma Basic and Diluted Net Income per Share Attributable to Common Shareholders has been adjusted to account for the increase in shares issued pursuant to the DRIP, as if all such shares has been issued on October 1, 2019. Additionally, the net proceeds raised from the issuance of additional shares of our 6.125 %Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (6.125% Series C Preferred Stock), through our At-The-Market Sales Agreement Program were used to help fund property acquisitions and, therefore, the pro-forma preferred dividend has been adjusted to account for its effect on pro-forma Net Income Attributable to Common Shareholders as if all the preferred stock issuances had occurred on October 1, 2019. The unaudited pro-forma condensed financial information is not indicative of the results of operations that would have been achieved had the acquisitions and expansions reflected herein been consummated on the dates indicated or that will be achieved in the future.

Tenant Concentration

We have a concentration of properties leased to FedEx Corporation (FDX) and FDX subsidiaries, consisting of 63 separate stand-alone leases covering 11.2 million square feet as of March 31, 2021 and 60 separate stand-alone leases covering 10.4 million square feet as of March 31, 2020. FDX is experiencing record demand due to the continued strong growth in ecommerce. Additionally, in periods of unprecedented turbulence, the services of FedEx are essential in keeping supply chains moving and in delivering critically needed supplies throughout the world. As of March 31, 2021, the 63 separate stand-alone leases that are leased to FDX and FDX subsidiaries are located in 26 different states and have a weighted average lease maturity of 7.8 years. The percentage of FDX and its subsidiaries leased square footage to the total of our rental space was 46% (5% to FDX and 41% to FDX subsidiaries) as of March 31, 2021 and 45% (5% to FDX and 40% to FDX subsidiaries) as of March 31, 2020.

As of March 31, 2021, the only tenants, other than FDX and its subsidiaries, that leased 5% or more of our total square footage were subsidiaries of Amazon.com, Inc (Amazon), which consists of five separate stand-alone leases for properties located in four different states, containing 1.5 million total square feet, comprising 6% of our total leasable square feet. None of our properties are subject to a master lease or any cross-collateralization agreements.

Annualized Rental and Reimbursement Revenue from FDX and its subsidiaries is estimated to be approximately 55% (5% to FDX and 50% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2021, and was 58% (5% to FDX and 53% to FDX subsidiaries) of total Rental and Reimbursement Revenue for fiscal 2020. The only tenants, other than FDX and its subsidiaries, that we estimate will comprise 5% or more of our total Rental and Reimbursement Revenue for fiscal 2021 are subsidiaries of Amazon, which is estimated to be 7% of our Annualized Rental and Reimbursement Revenue for fiscal 2021 and was 6% for of our Annualized Rental and Reimbursement Revenue for fiscal 2020. For the six months ended March 31, 2021, no other tenant accounted for 5% or more of our total Rental and Reimbursement Revenue.

FDX and Amazon are publicly-listed companies and financial information related to these entities are available at the SEC’s website, www.sec.gov. FDX and Amazon are rated “BBB” and “AA-”, respectively by S&P Global Ratings (www.standardandpoors.com) and are rated “Baa2” and “A2”, respectively by Moody’s (www.moodys.com), which are both considered “Investment Grade” ratings.

NOTE 4 – SECURITIES AVAILABLE FOR SALE AT FAIR VALUE

Our Securities Available for Sale at Fair Value consists primarily of marketable common and preferred stock of other REITs with a fair value of $131.7 million as of March 31, 2021. We limit the size of this portfolio to no more than approximately 5% of our undepreciated assets, which we define as total assets excluding accumulated depreciation. Total assets excluding accumulated depreciation were $2.4 billion as of March 31, 2021. Our REIT securities portfolio provides us with diversification, income, a source of potential liquidity when needed and also serves as a proxy for real estate when more favorable risk adjusted returns are not available in the private real estate markets. Our $131.7 million investment in marketable REIT securities as of March 31, 2021 represented 5.4% of our undepreciated assets. We normally hold REIT securities long-term and intend to hold these securities to recovery.

We recognized dividend income on our investments in securities of $1.6 million and $3.2 million for the three and six months ended March 31, 2021. There have been no open market purchases of securities during the six months ended March 31, 2021. We owned a total of 1.4 million common shares in UMH Properties, Inc. (UMH), a related REIT, as of March 31, 2021, at a total cost of $14.4 million and a fair value of $26.0 million, representing an 81% unrealized gain. Dividends received from our UMH common shares are reinvested through UMH’s Dividend Reinvestment and Stock Purchase Plan. During the six months ended March 31, 2021, UMH redeemed all of its outstanding 8.00% Series B Cumulative Redeemable Preferred Stock at a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends, of which we owned 100,000 shares at a total cost of $2.5 million.

In addition to the $2.5 million of UMH 8.00% Series B Cumulative Redeemable Preferred Stock that was redeemed during the six months ended March 31, 2021, we also sold marketable REIT securities for gross proceeds totaling $16.3 million with an original cost basis of $14.1 million, resulting in a realized gain of $2.2 million.

As of March 31, 2021, we had total net unrealized holding losses on our securities portfolio of $87.9 million. As a result of the adoption of ASU 2016-01, we recognized Unrealized Holding Gains (Losses) Arising During the Periods in the accompanying Consolidated Statements of Income for the three and six months ended March 31, 2021 of $19.2 million and $38.9 million, respectively. The components of the Unrealized Holding Gains (Losses) Arising During the Periods included in the accompanying Consolidated Statements of Income are as follows:

NOTE 5 – DEBT

For the three months ended March 31, 2021 and 2020, amortization of financing costs included in interest expense was $346,000 and $322,000, respectively. For the six months ended March 31, 2021 and 2020, amortization of financing costs included in interest expense was $676,000 and $758,000, respectively.

As of March 31, 2021, we owned 121 properties, of which 62 carried Fixed Rate Mortgage Notes Payable with outstanding principal balances totaling $874.2 million. Subsequent to quarter end, on April 15, 2021, we sold our 60,400 square foot building located in Carlstadt (New York, NY), NJ and we paid off the mortgage in the amount of $1.1 million. The following is a summary of our Fixed Rate Mortgage Notes Payable as of March 31, 2021 and September 30, 2020 (in thousands):

As of March 31, 2021, interest payable on these mortgages were at fixed rates ranging from 2.95% to 6.875%, with a weighted average interest rate of 3.87%. This compares to a weighted average interest rate of 3.98% as of September 30, 2020 and 4.04% as of March 31, 2020. As of March 31, 2021, the weighted average loan maturity of the Fixed Rate Mortgage Notes Payable was 11.3 years. This compares to a weighted average loan maturity of the Fixed Rate Mortgage Notes Payable of 11.1 years as of September 30, 2020 and 11.3 years as of March 31, 2020.

In connection with the two properties acquired during the six months ended March 31, 2021, which are located in the Columbus, OH and Atlanta, GA MSAs (as described in Note 3), we obtained a 15 year fully-amortizing mortgage loan and a 17 year fully-amortizing loan, respectively. The two mortgage loans originally totaled $104.0 million with a weighted average maturity of 16.1 years and a weighted average interest rate of 3.11%.

On January 26, 2021, we fully prepaid a $6.2 million mortgage loan for our property located in Kansas City, MO. The loan was originally set to mature on December 1, 2021 and had an interest rate of 5.18%. On February 26, 2021, we fully prepaid a $159,000 mortgage loan for our property located in Topeka, KS. The loan was originally set to mature on August 10, 2021 and had an interest rate of 6.50%.

On November 15, 2019, we entered into a new line of credit facility (the “New Facility”) consisting of a $225.0 million unsecured line of credit facility (the “Revolver”) and a new $75.0 million unsecured term loan (the “Term Loan”), resulting in the total potential availability under both the Revolver and the Term Loan of $300.0 million, which is an additional $100.0 million over the former line of credit facility. In addition, the Revolver includes an accordion feature that will allow the total potential availability under the New Facility to further increase to $400.0 million, under certain conditions. The $225.0 million Revolver matures in January 2024 with two options to extend for additional six-month periods. Availability under the New Facility is limited to 60% of the value of the borrowing base properties. The value of the borrowing base properties is determined by applying a capitalization rate to the NOI generated by our unencumbered, wholly-owned industrial properties. Under the New Facility the capitalization rate applied to our NOI generated by our unencumbered, wholly-owned industrial properties was lowered from 6.5% under the former line of credit facility to 6.25%, thus increasing the value of the borrowing base properties under the terms of the New Facility. In addition, the interest rate for borrowings under the Revolver was lowered by a range of 5 basis points to 35 basis points, depending on our leverage ratio, and will, at our election, either i) bear interest at LIBOR plus 135 basis points to 205 basis points, depending on our leverage ratio, or ii) bear interest at Bank of Montreal’s (BMO) prime lending rate plus 35 basis points to 105 basis points, depending on our leverage ratio. Currently, our borrowings bear interest under the Revolver at LIBOR plus 145 basis points, which results in an interest rate of 1.56%. As of the quarter end and currently, we do not have any amount drawn down under our Revolver, resulting in the full $225.0 million being currently available. The $75.0 million Term Loan matures January 2025. The interest rate for borrowings under the Term Loan will at our election, either i) bear interest at LIBOR plus 130 basis points to 200 basis points, depending on our leverage ratio, or ii) bear interest at BMO’s prime lending rate plus 30 basis points to 100 basis points, depending on our leverage ratio. To reduce floating interest rate exposure under the Term Loan, we also entered into an interest rate swap agreement to fix LIBOR on the entire $75.0 million for the full duration of the Term Loan resulting in an all-in rate of 2.92%.

From time to time we may use a margin loan for temporary funding of acquisitions and for working capital purposes. This loan is due on demand and is collateralized by our securities portfolio. We must maintain a coverage ratio of approximately 50%. The interest rate charged on the margin loan is the bank’s margin rate and was 0.75% as of March 31, 2021 and 2020. At March 31, 2021 and 2020, there were no amounts drawn down under the margin loan.

NOTE 6 – SHAREHOLDERS’ EQUITY

Our authorized stock as of March 31, 2021 consisted of 300.0 million shares of common stock, of which 98.3 million shares were issued and outstanding, 26.6 million authorized shares of 6.125% Series C Preferred Stock, of which 22.0 million shares were issued and outstanding, and 200.0 million authorized shares of Excess Stock, $0.01 par value per share, of which none were issued or outstanding.

Common Stock

We raised $1.3 million (including dividend reinvestments of $1.0 million) from the issuance of 87,000 shares of common stock under our DRIP during the six months ended March 31, 2021. During the six months ended March 31, 2021, we paid $34.4 million in total cash dividends, or $0.35 per share, to common shareholders, of which $1.0 million was reinvested in the DRIP.

On January 14, 2021, our Board of Directors approved a 5.9% increase in our quarterly common stock dividend, raising it to $0.18 per share from $0.17 per share. This represents an annualized dividend rate of $0.72 per share. This increase represents the third dividend increase in the past five years, representing a total increase of 20%. We have maintained or increased our common stock cash dividend for 30 consecutive years. We are one of the few REITs that maintained our dividend throughout the Global Financial Crisis. We are also one of the few REITs that is paying out a higher per share dividend today than prior to the Global Financial Crisis. On April 1, 2021, our Board of Directors declared a dividend of $0.18 per share to be paid June 15, 2021 to common shareholders of record as of the close of business on May 17, 2021.

On February 6, 2020, we entered into a Common Stock ATM Program with BMO Capital Markets Corp., B. Riley FBR, Inc., D.A. Davidson & Co., Janney Montgomery Scott LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC (together the “Distribution Agents”) under which we may offer and sell shares of our common stock, $0.01 par value per share, having an aggregate sales price of up to $150.0 million from time to time through the Distribution Agents. Sales of the shares of Common Stock under the Agreement, if any, will be in “at the market offerings.” We implemented the Common Stock ATM program for the flexibility that it provides to opportunistically access the capital markets and to best time our equity capital needs as we close on acquisitions. To date, we have not raised any equity though our Common Stock Equity Program.

Our Common Stock Repurchase Program (the “Program”) authorizes us to purchase up to $50.0 million of shares of our common stock. The Program does not have a termination date and may be suspended or discontinued at our discretion without prior notice.

Under the Program, during fiscal 2020, we repurchased 400,000 shares of our common stock for $4.3 million at an average price of $10.69 per share. These are the only repurchases made under the Program to date and we may elect not to repurchase any additional common stock in the future. The remaining maximum dollar value that may be purchased under the Program as of March 31, 2021 is $45.7 million.

6.125% Series C Cumulative Redeemable Preferred Stock

During the six months ended March 31, 2021, we paid $16.2 million in Preferred Dividends, or $0.765625 per share, on our outstanding 6.125% Series C Preferred Stock for the period September 1, 2020 through February 28, 2021. As of March 31, 2021, we had accrued Preferred Dividends of $2.8 million covering the period March 1, 2021 to March 31, 2021. Dividends on the 6.125% Series C Preferred Stock are cumulative and payable quarterly at an annual rate of $1.53125 per share. The 6.125% Series C Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed or otherwise repurchased. Except in limited circumstances relating to our qualification as a REIT, or in connection with a change of control, the 6.125% Series C Preferred Stock is not redeemable prior to September 15, 2021. On and after September 15, 2021, at any time, and from time to time, the 6.125% Series C Preferred Stock will be redeemable in whole, or in part, at our option, at a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption. On April 1, 2021, our Board of Directors declared a dividend of $0.3828125 per share to be paid June 15, 2021 to the 6.125% Series C Preferred shareholders of record as of the close of business on May 17, 2021.

At-the-Market Sales Agreement Program for our 6.125% Series C Cumulative Redeemable Preferred Stock

On June 29, 2017, we entered into a Preferred Stock At-The-Market Sales Agreement Program with B. Riley FBR, Inc., or B. Riley (formerly FBR Capital Markets & Co.), that provided for the offer and sale of shares of our 6.125% Series C Preferred Stock, having an aggregate sales price of up to $100.0 million.

On August 2, 2018, we replaced this program with a new Preferred Stock At-The-Market Sales Agreement Program that provides for the offer and sale from time to time of $125.0 million of our 6.125% Series C Preferred Stock, representing an additional $96.5 million, with $28.5 million being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on June 29, 2017.

On December 4, 2019, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on August 2, 2018 with another Preferred Stock At-The-Market Sales Agreement Program that provides for the offer and sale from time to time of $125.0 million of our 6.125% Series C Preferred Stock, representing an additional $101.0 million, with $24.0 million being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on August 2, 2018.

On November 25, 2020, we replaced the Preferred Stock At-The-Market Sales Agreement Program entered into on December 4, 2019 with another new Preferred Stock At-The-Market Sales Agreement Program (Preferred Stock ATM Program) that provides for the offer and sale from time to time of up to $150.0 million of our 6.125% Series C Preferred Stock, representing an additional $149.3 million, with $747,000 being carried over from the Preferred Stock At-The-Market Sales Agreement Program entered into on December 4, 2019.

Sales of shares of our 6.125% Series C Preferred Stock under the Preferred Stock ATM Program are in “at the market offerings” as defined in Rule 415 under the Securities Act, including, without limitation, sales made directly on or through the NYSE, or on any other existing trading market for the 6.125% Series C Preferred Stock, or to or through a market maker, or any other method permitted by law, including, without limitation, negotiated transactions and block trades. We began selling shares through these programs on July 3, 2017. Since inception through March 31, 2021, we sold 13.6 million shares of our 6.125% Series C Preferred Stock under these programs at a weighted average price of $24.91 per share, and generated net proceeds, after offering expenses, of $332.4 million, of which 3.1 million shares were sold during the six months ended March 31, 2021 at a weighted average price of $24.88 per share, generating net proceeds after offering expenses of $76.0 million. As of March 31, 2021, there is $108.3 million remaining that may be sold under the Preferred Stock ATM Program. No shares have been sold pursuant to the Preferred Stock ATM Program since December 2020.

As of March 31, 2021, 22.0 million shares of our 6.125% Series C Preferred Stock were outstanding.

NOTE 7 - FAIR VALUE MEASUREMENTS

We follow ASC 825, Financial Instruments, for financial assets and liabilities recognized at fair value on a recurring basis. We measure certain financial assets and liabilities at fair value on a recurring basis, including Securities Available for Sale at Fair Value. Our financial assets consist mainly of marketable REIT securities. The fair value of these financial assets was determined using the following inputs at March 31, 2021 and September 30, 2020 (in thousands):

In addition to our investments in Securities Available for Sale at Fair Value, we are required to disclose certain information about fair values of other financial instruments. Estimates of fair value are made at a specific point in time based upon, where available, relevant market prices and information about the financial instrument. Such estimates do not include any premium or discount that could result from offering for sale at one time our entire holdings of financial instruments. For a portion of our other financial instruments, no quoted market value exists. Therefore, estimates of fair value are necessarily based on a number of significant assumptions, many of which involve events outside the control of management. Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments and their counterparties; future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the reported fair values represent estimates only, and therefore cannot be compared to the historical accounting model. The use of different assumptions or methodologies is likely to result in significantly different fair value estimates.

The fair value of Cash and Cash Equivalents approximates their current carrying amounts since all such items are short term in nature. The fair value of variable rate Loans Payable approximates their current carrying amounts, since such amounts payable are at approximately a weighted average current market rate of interest. The estimated fair value of Fixed Rate Mortgage Notes Payable is based on discounting the future cash flows at a yearend risk adjusted borrowing rate currently available to us for issuance of debt with similar terms and remaining maturities. These fair value measurements fall within level 2 of the fair value hierarchy. At March 31, 2021, the Fixed Rate Mortgage Notes Payable fair value (estimated based upon expected cash outflows discounted at current market rates) amounted to $918.1 million and the carrying value amounted to $874.2 million. When we acquired a property, we allocated the purchase price based upon relative fair value of all the assets and liabilities, including intangible assets and liabilities, relating to the properties acquired lease (See Note 3). Those fair value measurements were estimated based upon independent third-party appraisals and fell within level 3 of the fair value hierarchy.

NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest during the six months ended March 31, 2021 and 2020 was $17.9 million and $17.5 million, respectively.

During the six months ended March 31, 2021 and 2020, we had dividend reinvestments of $1.0 million and $5.6 million, respectively, which required no cash transfers.

NOTE 9 – CONTINGENCIES AND COMMITMENTS

We have entered into agreements to purchase six new build-to-suit, industrial buildings that are currently being developed in Alabama (2), Georgia, Tennessee, Texas and Vermont. These six future acquisitions total 1.8 million square feet, with net-leased terms ranging from 10 to 15 years, resulting in a weighted average lease term of 13.5 years. The aggregate purchase price for these six properties is $238.1 million. Five of these six properties, consisting of approximately 1.3 million square feet, or 70%, are leased for 15 years to FedEx Ground Package System, Inc., with the remaining property, consisting of approximately 530,000 square feet or 30%, leased for 10 years to Mercedes Benz US International, Inc. All properties are leased to companies, or subsidiaries of companies, that are considered Investment Grade by S&P Global Ratings (www.standardandpoors.com) and by Moody’s (www.moodys.com). Subject to satisfactory due diligence and other customary closing conditions and requirements, we anticipate closing three of these transactions during fiscal 2021, two in the first half of fiscal 2022 and one in the second half of fiscal 2022. In connection with five of the six properties, we have entered into commitments to obtain five, 15 year, fully-amortizing mortgage loans, totaling $128.1 million with fixed interest rates ranging from 2.5% to 3.05%, resulting in a weighted average fixed interest rate of 2.74%.

We have several FedEx Ground parking expansion projects in progress with more under discussion. Currently there are eight parking expansion projects underway which we expect to cost approximately $31.4 million. In addition, the first phase of a parking expansion project was completed during the prior quarter at our property located in Olathe (Kansas City), KS for a total project cost of $3.4 million. This first phase of the expansion resulted in a $340,000 increase in annualized rent effective November 5, 2020 increasing the annualized rent from $2.2 million to $2.6 million. We will soon be starting the second phase of this parking expansion project at this location, which will increase the rental rate further and extend the lease term. These parking expansion projects will enable us to capture additional rent while lengthening the terms of these leases. We are also in discussions to expand the parking at nine additional locations bringing the total recently completed and potential parking lot expansion projects to 18 currently.

From time to time, we may be subject to claims and litigation in the ordinary course of business. We do not believe that any such claim or litigation will have a material adverse effect on the Consolidated Balance Sheets or results of operations.