UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ___________________ to ____________________
Commission File Number 0-4258
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-1897375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Wyckoff Road Eatontown, NJ 07724
(Address of Principal Executive Offices ) (Zip Code)
Registrant's telephone number, including area code: (732) 542-4927
Securities registered pursuant to Section 12(b) of the Act:
Title of each class _____ Name of each exchange on which registered _____
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Class A $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the 12 preceding months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. X
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $28,979,450 (based on 5,329,554 shares of common stock at the
closing price of $5.4375 per share) December 9, 1998.
There were 5,986,844 shares of common stock outstanding as of
December 9, 1998. Documents Incorporated by Reference: Exhibits incorporated
by reference are listed in Part IV, Item (a) (3).
<PAGE>
PART I
ITEM 1 - BUSINESS
Monmouth Real Estate Investment Corporation (the Company) is a corporation
operating as a qualified real estate investment trust under Sections 856-858
of the Internal Revenue Code.
Currently, the Company derives its income primarily from real estate
rental operations. The Company has approximately 1,500,000 square feet of
property, of which approximately 282,000 square feet, or 19%, is leased to
Keebler Company; 181,500 square feet, or 12%, is leased to Federal Express
Corporation, 148,000 square feet, or 10%, is leased to Belk Enterprises,
Inc.; and 145,000 square feet, or 10%, is leased to McMaster Carr Corporation.
During 1998, 1997 and 1996 rental and occupancy charges from properties
leased to these companies approximated 54%, 42% and 43%, respectively, of
total rental and occupancy charges.
At September 30, 1998, the Company had investments in nineteen properties.
(See Item 2 for detailed description of the properties.) These properties
are located in New Jersey, New York, Pennsylvania, North Carolina,
Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois, Michigan and
Virginia. All properties are managed by a management company. Monsey, New
York and Monaca, Pennsylvania are not net-leased. The remaining seventeen
properties are all leased on a net basis.
The Company does not have an advisory contract. Its properties are
managed by Cronheim Management Services under a management contract which is
in effect on a year to year basis. Cronheim Management Services received
$41,466, $17,681 and $17,825 in 1998, 1997 and 1996, respectively, for the
management of various properties. Effective August 1, 1998, the Company
entered into a new management contract with Cronheim Management Services.
Under this contract, Cronheim Management Services receives 3% of gross rental
income for management fees. Cronheim Management Services provides sub-agents
as regional managers for the Company's properties and compensates them out of
this management fee. The David Cronheim Company received $45,786, $46,188
and $21,777 in commissions in 1998, 1997 and 1996, respectively.
Page 2
<PAGE>
ITEM 1 - BUSINESS (CONT'D)
The Company competes with other investors in real estate for attractive
investment opportunities. These investors include other "equity" real estate
investment trusts, limited partnerships, syndications and private investors,
among others.
The Company has a flexible investment policy concentrating its investments
in the area of net-leased industrial properties. The Company's strategy is
to obtain a favorable yield spread between the yield from the net-leased
industrial properties and mortgage interest costs. The Company continues to
purchase net-leased industrial properties, since management believes that
there is a potential for long-term capital appreciation through investing in
well-located industrial properties. There is the risk that, on expiration of
current leases, the properties can become vacant or re-leased at lower rents.
The results obtained by the Company by re-leasing the properties will depend
on the market for industrial properties at that time.
The Company also invests in both debt and equity securities of other
real estate investment trusts (REITs). Such securities are subject to risk
arising from adverse changes in market rates and prices, primarily interest
rate risk relating to debt securities and equity price risk relating to
equity securities. Based upon the Company's current market risk sensitive
security holdings, the Company faces no material market risk relating to
financial instruments.
In 1999, the Company plans to acquire approximately $15,000,000 of
net-leased industrial properties. The funds for these acquisitions may come
from the Company's available line of credit, other bank borrowings and
proceeds from the Dividend Reinvestment and Stock Purchase Plan. To the
extent that funds or appropriate properties are not available, fewer
acquisitions will be made.
Under New Jersey Environmental Laws, inspections of the properties are made
and certificates of compliance are obtained upon the sale of property or upon
a change of tenancy. Therefore, there is no assurance that, in connection
with compliance with state environmental regulations, substantial capital
expenditures would not be incurred at the time the Company desired to sell
its properties or at the time of a change of tenancy. Management is not
aware of any material environmental problems affecting the Company's
properties.
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES
The Company operates as a real estate investment trust. Its portfolio is
primarily in equity holdings, some of which have been long-term holdings
carried on the financial statements of the Company at depreciated cost. It
is believed that their current market values exceed both the original cost
and the depreciated cost. The following are photographs of the Company's
equity holdings at September 30, 1998, together with a brief description of
each. (See Item 14, Schedule III for additional information on Real Estate
and Accumulated Depreciation and Item 14, Note 7 of the Notes to the
Financial Statements for a discussion of encumbrances on these equity
holdings).
Page 3
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
SOMERSET, NEW JERSEY
The Company owns a two-thirds undivided interest in this Somerset, New
Jersey shopping center. The remaining one-third interest is owned by D & E
Realty, an unrelated entity. All assets, liabilities, income and expense are
allocated to the owners based upon their respective ownership percentages.
The total rentable space in this shopping center is approximately 42,800
square feet. In addition, 21,365 square feet of land was leased to Taco Bell,
Inc. on which a free-standing restaurant was completed during 1993. This
shopping center was 100% occupied at September 30, 1998. The main store
lease expires on September 30, 2000. The Company's portion of the annual
gross rental income on this facility was approximately $299,000.
(PHOTOGRAPH OF PROPERTY)
RAMSEY, NEW JERSEY
Ramsey Industrial Park, located on E. Crescent Avenue in Ramsey, New
Jersey is a 42,719 square foot building net-leased to Bogen Photo, Inc.
This lease was extended by agreement to 2001. The current annual gross
rental income is approximately $224,000.
Page 4
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
MONSEY, NEW YORK
This steel and block building, located at 40 Robert Pitt Drive, Monsey, New
York, has 55,000 square feet of rentable space and includes four warehouses
of about 11,000 square feet each and 10,000 square feet of offices in the
front. The current annual gross rental income is approximately $329,000. At
September 30, 1998, this property was 88% occupied. Monmouth Real Estate
Investment Corporation has contracted to sell this property for $2,500,000.
The sale is subject to various contingencies. Subject to these
contingencies, closing is anticipated to be in 1999.
(PHOTOGRAPH OF PROPERTY)
MONACA, PENNSYLVANIA
The Moor Industrial Park is located in Monaca, Pennsylvania. It consists
of approximately 292,000 feet of rentable space located on 23 acres. The
leases are all short term at relatively low rents compared to the Company's
other properties. The current annual gross rental income is approximately
$415,000. At September 30, 1998, this property was 64% occupied. This
property has 1,200 feet of undeveloped river frontage.
Page 5
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
ORANGEBURG, NEW YORK
This 50,400 square foot warehouse facility, located in Orangeburg, New
York, is net-leased to the Keebler Company . The average annual rental
income over the term of the lease is approximately $433,000. The lease
expires on November 30, 2000.
(PHOTOGRAPH OF PROPERTY)
SOUTH BRUNSWICK, NEW JERSEY
This 144,520 square foot building, located in South Brunswick, New Jersey,
was occupied by Amway Corporation as a distribution center on a 5-year lease
which expired on June 30, 1997. Average annual income over the term of the
lease was approximately $595,000. Amway Corporation occupied the building
until December, 1997 at a monthly rental of $162,585. Effective
January 1, 1998, the Company entered into a net-lease with McMaster Carr
Supply Co. This lease expires on December 31, 2000. Average annual rental
income over the term of the lease is $614,210.
Page 6
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
GREENSBORO, NORTH CAROLINA
This 40,560 square foot distribution center is the second such facility
leased to the Keebler Company. It is located in Greensboro, North Carolina.
This net-lease expires February 14, 2003. Annual rental income is
approximately $233,000.
(PHOTOGRAPH OF PROPERTY)
JACKSON, MISSISSIPPI
This 26,340 square foot warehouse facility, located in Jackson Mississippi
is the third in a series of net-leased warehouses occupied by the Keebler
Company. The average annual rental income over the term of the lease is
approximately $169,000. This lease expires September 30, 2003. The Keebler
Company has sub-leased this facility.
Page 7
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES ( CONT'D)
(PHOTOGRAPH OF PROPERTY)
FRANKLIN, MASSACHUSETTS
This 84,376 square foot warehouse facility, located in Franklin,
Massachusetts is the fourth of the acquisitions of Keebler Company net-leased
warehouses. The average annual rental income over the term of the lease is
approximately $516,000. This lease expires on January 31, 2004.
(PHOTOGRAPH OF PROPERTY)
WICHITA, KANSAS
This 44,136 square foot warehouse facility in Wichita, Kansas is the fifth
of the acquisitions of Keebler Company net-leased warehouses. The average
annual rental income over the term of the lease is approximately $195,000.
This lease expires May 30, 2005. The Keebler Company has sub-leased this
property to another tenant.
Page 8
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
URBANDALE, IOWA
This 36,150 square foot warehouse facility in Urbandale, Iowa is the sixth
of the acquisitions of Keebler Company net-leased warehouses. The average
annual rental income over the term of the lease is approximately $225,000.
This lease expires June 30, 2000. The Keebler Company has sub-leased this
facility to another tenant.
(PHOTOGRAPH OF PROPERTY)
RICHLAND, MISSISSIPPI
This 36,000 square foot warehouse facility located in Richland,
Mississippi is 100% net-leased to the Federal Express Corporation for an
average annual rental income of approximately $140,000 over the term of the
lease. This lease expires on March 31, 2004.
Page 9
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
O'FALLON MISSOURI
This 102,135 square foot warehouse facility located in O'Fallon, Missouri
is 100% net-leased to PPG Industries, Inc. The average annual rental income
over the term of the lease is approximately $353,000. This lease expires
June 30, 2001.
(PHOTOGRAPH OF PROPERTY)
VIRGINIA BEACH, VIRGINIA
This 67,926 square foot warehouse facility located in Virginia Beach,
Virginia is 100% net-leased to the Raytheon Service Company. The annual
rental income is approximately $307,000. This lease expires
February 28, 2001. Raytheon Service Company has vacated this property and is
reported to be negotiating a sub-lease with another tenant.
Page 10
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
FAYETTEVILLE, NORTH CAROLINA
This 148,000 square foot warehouse facility located in Fayetteville, North
Carolina is 100% net-leased to Belk Enterprises, Inc. The average annual
rental income over the term of the lease is approximately $473,000. This
lease expires June 4, 2006.
(PHOTOGRAPH OF PROPERTY)
SCHAUMBURG, ILLINOIS
This 73,500 square foot warehouse facility located in Schaumburg, Illinois
is 100% net-leased to Federal Express Corporation. The average annual rental
income over the term of the lease is approximately $463,000. This lease
expires April 1, 2007.
Page 11
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
TETERBORO, NEW JERSEY
The Company is a partner in a limited liability company, Hollister `97,
LLC, representing a 25% ownership interest. The sole business of this LLC is
the ownership and operation of the Hollister Corporate Park in Teterboro, New
Jersey. Under the agreement, the Company is to receive a cumulative
preferred 11% annual return on its investment.
(PHOTOGRAPH OF PROPERTY)
BURR RIDGE, ILLINOIS
This 12,477 square foot warehouse facility located in Burr Ridge,
Illinois, was purchased by the Company on December 18, 1997 for approximately
$1,500,000. This facility is 100% net-leased to Sherwin-Williams Company.
The average annual rental income over the term of the lease is $151,000.
This lease expires on October 31, 2009.
Page 12
<PAGE>
ITEM 2 - DETAILED DESCRIPTION OF PROPERTIES (CONT'D)
(PHOTOGRAPH OF PROPERTY)
ROMULUS, MICHIGAN
This 72,000 square foot warehouse facility, located in Romulus, Michigan,
was purchased by the Company on June 22, 1998 for approximately $4,200,000.
This warehouse facility is 100% net-leased to the Federal Express
Corporation. The average annual rental over the term of the lease is
approximately $396,000. This lease expires on November 30, 2007.
(PHOTOGRAPH OF PROPERTY)
LIBERTY, MISSOURI
This 98,200 square foot warehouse facility, located in Liberty, Missouri
was purchased by the Company on August 26, 1998 for approximately $7,200,000.
This warehouse facility is 100% net- leased to Johnson Controls, Inc. The
average annual rental income over the term of the lease is approximately
$705,000. This lease expires on December 18, 2007.
Page 13
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1998 to a vote of
security holders through the solicitation of proxies or otherwise.
Page 14
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Class A common stock of Monmouth Real Estate Investment
Corporation are traded on the National Association of Securities Dealers
Automated Quotation (NASDAQ symbol MNRTA). The per share range of high and
low market prices and distributions paid to shareholders during each quarter
of the last two years were as follows:
1998 1997
Market Price Market Price
Fiscal Qtr. High Low Distrib. Fiscal Qtr. High Low Distrib.
First 6-3/4 6 $ .13 First 6-5/8 5-1/4 $ .125
Second 7-3/4 6-3/16 .13 Second 6-15/16 5-3/4 .125
Third 7-3/4 6-1/2 .135 Third 5-5/16 5-1/2 .13
Fourth 6-23/32 5-9/16 .135 Fourth 6-5/8 5-5/8 .13
_____ ____
$ .53 $ .51
===== ====
The over-the-counter market quotations reflect the inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
On September 30, 1998, the closing price was 6-1/4.
As of September 30, 1998, there were approximately 973 shareholders of
record who held shares of Class A common stock of the Company.
It is the Company's intention to continue distributing quarterly
dividends. On September 23, 1998, the Company declared a dividend of
$.1375 per share to be paid on December 15, 1998 to shareholders of
record November 16, 1998.
Page 15
<PAGE>
<TABLE>
<CAPTION>
ITEM 6 - SELECTED FINANCIAL DATA
September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total Income $6,963,825 $5,798,699 $4,607,434 $4,240,859 $3,870,841
Total Expenses 4,493,595 3,965,002 3,233,584 3,293,692 2,856,210
Gains on Sales of Assets-
Investment Property 29,692 47,457 22,249 38,766 392,416
Net Income 2,499,922 1,881,154 1,396,099 985,933 1,407,047
Net Income Per Share -
Basic and Diluted .50 .46 .39 .31 .49
BALANCE SHEET DATA:
Total Assets $55,582,845 $44,942,723 $32,538,076 $30,289,860 $29,234,128
Long-Term
Obligations 24,436,941 20,498,016 14,197,529 14,522,503 13,681,614
Shareholders'
Equity 27,404,822 19,889,288 16,109,382 14,247,867 13,157,339
OTHER INFORMATION:
Average Number of
Shares Outstanding 4,997,775 4,047,759 3,584,364 3,212,064 2,878,951
Funds from
Operations* $3,647,345 $2,821,902 $2,226,079 $1,730,871 $1,640,707
Cash Dividends
Per Share .53 .51 .50 .50 .50
*Defined as net income, excluding gains (or losses) from sales of assets,
plus depreciation. Funds from Operations do not replace net income
determined in accordance with generally accepted accounting principles (GAAP)
as a measure of performance or net cash flows as a measure of liquidity.
Funds from Operations is not a GAAP measure of operating performance and
should be considered as a supplemental measure of operating performance used
by real estate investment trusts.
</TABLE>
Page 16
<PAGE>
<TABLE>
<CAPTION>
ITEM 6 - SELECTED FINANCIAL DATA (CONT'D)
SUMMARY OF OPERATIONS BY PROPERTY
FOR THE YEARS ENDED SEPTEMBER 30,
1998 1997 1996
Net Rental Income
<S> <C> <C> <C>
Somerset, New Jersey $ 262,871 $ 238,494 $ 226,065
Ramsey, New Jersey 180,278 183,459 177,242
Monaca, Pennsylvania 191,100 133,483 145,356
Monsey, New York 154,411 200,811 201,997
Orangeburg, New York 198,855 186,985 176,241
South Brunswick, New Jersey 712,373 656,756 280,857
Greensboro, North Carolina 93,498 32,362 30,621
Jackson, Mississippi 71,881 70,433 67,227
Franklin, Massachusetts 254,003 239,977 224,684
Wichita, Kansas 27,198 26,328 24,052
Urbandale, Iowa 106,012 99,184 92,834
Richland, Mississippi 52,418 48,818 44,260
O'Fallon, Missouri 82,100 74,447 63,508
Virginia Beach, Virginia 99,402 124,429 27,854
Fayetteville, North Carolina 84,451 5,953 -0-
Schaumburg, Illinois 72,551 5,815 -0-
Burr Ridge, Illinois 32,872 -0- -0-
Romulus, Michigan 9,276 -0- -0-
Liberty, Missouri 11,766 -0- -0-
_________ _________ _________
Net Rental Income 2,697,316 2,327,734 1,782,798
Net Interest and
Other Income 472,898 129,871 125,812
_________ _________ _________
TOTAL 3,170,214 2,457,605 1,908,610
General & Administrative
Expenses (699,984) (623,908) (534,760)
_________ _________ _________
Income Before Gains 2,470,230 1,833,697 1,373,850
Gain on Sale of Assets-
Investment Property 29,692 47,457 22,249
_________ _________ _________
NET INCOME $2,499,922 $1,881,154 $1,396,099
========= ========= =========
</TABLE>
Page 17
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Monmouth Real Estate Investment Corporation (the Company) operates as a
real estate investment trust deriving its income primarily from real estate
rental operations. At September 30, 1998, the Company's shareholders' equity
increased to $27,404,822 as compared to $19,889,288 in 1997.
The Company finances its purchases primarily through mortgages on its
acquisitions. The Company has a secured $8,000,000 line of credit of which
$6,664,618 was available at September 30, 1998. Interest is at Prime and is
due monthly. This credit line expires on July 29, 2000.
The Company's ability to generate cash adequate to meet its needs is
dependent primarily on income from its real estate investments, the sale of
real estate investments and securities, refinancing of mortgage debt,
leveraging of real estate investments, availability of bank borrowings,
proceeds from the Dividend Reinvestment and Stock Purchase Plan, and access to
the capital markets. Purchases of new properties, payments of expenses
related to real estate operations, capital improvements programs, debt
service, management and professional fees, and dividend requirements place
demands on the Company's liquidity.
The Company intends to operate its existing properties from the cash flow
generated by the properties. However, the Company's expenses are affected by
various factors, including inflation. Increases in operating expenses raise
the breakeven point for a property and, to the extent that they cannot be
passed on through higher rents, reduce the amount of available cash flow
which can adversely affect the market value of the property.
The Company's focus is on equity investments. During the past six years,
the Company purchased fifteen net-leased warehouse facilities at an aggregate
cost of approximately $51,000,000. The Company incurred a total of
approximately $38,000,000 in debt relating to these purchases.
The Company expects to make additional real estate investments from time
to time. In 1999, the Company plans to acquire approximately $15,000,000 of
net-leased industrial properties. The funds for these acquisitions may come
from the Company's available line of credit, other bank borrowings and
proceeds from the Dividend Reinvestment and Stock Purchase Plan. To the
extent that funds or appropriate properties are not available, fewer
acquisitions will be made.
Page 18
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
Funds generated are expected to be sufficient to meet debt service
requirements and capital expenditures of the Company.
Cash provided from operating activities amounted to $3,431,422 in 1998 as
compared to $2,594,380 in 1997 and $2,183,561 in 1996.
At September 30, 1998, the Company had total liabilities of $28,178,023
and total assets of $55,582,845. The Company believes that it has the
ability to meet its obligations and to generate funds for new investments.
The Company has a Dividend Reinvestment and Stock Purchase Plan. During
1998, a total of $8,106,480 in additional capital was raised. The success
of the Plan has resulted in a substantial improvement in the Company's
liquidity and capital resources in 1998. It is anticipated that a comparable
level of participation will continue in the Plan in fiscal 1999. Therefore,
the Company anticipates that the Plan will result in further increased
liquidity and capital resources in 1999.
Results of Operations
The Company's activities primarily generate rental income. Net income for
the fiscal year ended September 30, 1998 was $2,499,922 as compared to
$1,881,154 in 1997 and $1,396,099 in 1996. Net rental income for the fiscal
year ended September 30, 1998 was $2,697,316 as compared to $2,327,734 in
1997 and $1,782,798 in 1996. The following is a discussion of the results of
operations by location for 1998 as compared to 1997 and 1997 as compared to
1996:
Somerset, New Jersey
During 1998, net rental income increased due to a decrease in operating
expenses as a result of lower snow removal costs. During 1997, net rental
income remained relatively stable as compared to 1996.
Ramsey, New Jersey
Net rental income remained relatively stable for 1998, 1997 and 1996.
Monaca, Pennsylvania
Net rental income increased in 1998 as compared to 1997 due primarily to
an increase in tenant reimbursements. Net rental income remained relatively
stable for 1997 as compared to 1996.
Monsey, New York
Net rental income decreased in 1998 as compared to 1997 due primarily to
an increase in repairs and maintenance due to new tenants. Net rental
income remained relatively stable for 1997 as compared to 1996.
Orangeburg, New York
Net rental income increased in 1998 and 1997 due to lower interest costs
on related borrowings outstanding.
Page 19
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
South Brunswick, New Jersey
Net rental income increased during 1998 as compared to 1997 and 1997 as
compared to 1996, due primarily to a lease extension by the Amway
Corporation from July 1, 1997 to December 31, 1997 at a monthly rental of
$162,585. The previous monthly rental was $54,195.
Greensboro, North Carolina
Net rental income increased in 1998 as compared to 1997 due to a decrease
in interest expense as a result of the payoff of the mortgage on this
property. Net rental income remained relatively stable during 1997 as
compared to 1996.
Jackson, Mississippi
Net rental income remained relatively stable during 1998, 1997 and 1996.
Franklin, Massachusetts
Net rental income remained relatively stable during 1998, 1997 and 1996.
Wichita, Kansas
Net rental income remained relatively stable during 1998, 1997and 1996.
Urbandale, Iowa
Net rental income remained relatively stable during 1998, 1997 and 1996.
Richland, Mississippi
Net rental income remained relatively stable during 1998, 1997 and 1996.
O'Fallon, Missouri
Net rental income remained relatively stable during 1998, 1997 and 1996.
Virginia Beach, Virginia
Net rental income decreased in 1998 as compared to 1997 as a result of a
decrease in tenant reimbursements. During 1997, net rental income
increased due to a full year's income. This warehouse facility was
acquired during 1996. It is net-leased to Raytheon Service Company.
Average monthly rental income over the term of the lease is $25,555.
Fayetteville, North Carolina
Net rental income increased due to a full year's income in fiscal 1998.
This warehouse facility was acquired in May, 1997. It is net-leased to
Belk Enterprises, Inc. Average monthly rental income over the term of the
lease is $39,411.
Schaumburg, Illinois
Net rental income increased due to a full year's income in fiscal 1998.
This warehouse facility was acquired in June, 1997. It is net-leased to
Federal Express Corporation. Average monthly rental income over the term
of the lease is $38,517.
Page 20
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
Burr Ridge, Illinois
This warehouse facility was acquired during December, 1997. It is
net-leased to Sherwin- Williams. Average monthly rental over the term of
the lease is $12,622.
Romulus, Illinois
This warehouse facility was acquired in June, 1998. It is net-leased to
Federal Express Corporation. Average monthly rental income over the term
of the lease is $32,962.
Liberty, Missouri
This warehouse facility was acquired in August, 1998. It is net-leased to
Johnson Controls, Inc. Average monthly rental over the term of the lease
is $58,852.
The Company also generated net interest and other income from its
investments in securities available for sale, mortgages receivable and
Hollister `97, LLC. Net interest and other income increased during 1998
primarily due to a gain of $222,276 on the sale of securities available for
sale. Net interest and other income remained relatively stable during 1997.
General and administrative expenses increased during 1998 primarily as a
result of increased personnel costs. General and administrative expenses
increased during 1997 as a result of increased professional fees.
Funds from operations (FFO), defined as net income, excluding gains (or
losses) from sales of depreciable assets, plus depreciation, increased from
$2,226,079 for the year ended September 30, 1996 to $2,821,902 for the year
ended September 30, 1997 to $3,647,345 for the year ended September 30, 1998.
FFO does not replace net income (determined in accordance with generally
accepted accounting principles) as a measure of performance or net cash flows
as a measure of liquidity. FFO should be considered as a supplemental
measure of operating performance used by real estate investment trusts.
The Company recognized a deferred gain from the Howell Township
installment sale of approximately $30,000, $47,000 and $22,000 for 1998, 1997
and 1996, respectively.
YEAR 2000
The Company is currently in the process of implementing its Year 2000
compliance plan. The Company has assessed all hardware and software for
Year 2000 readiness. The Company has developed and is currently implementing
renovation plans, including hardware replacement and software upgrades, to
ensure all hardware and software is Year 2000 compliant. The Company has no
significant suppliers or vendors. The Company is in the process of assessing
the Year 2000 readiness of its major tenants. Renovation and testing are
scheduled to be completed during the first half of 1999.
Page 21
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
The Company has developed contingency plans for each of its critical
systems which includes moving many of the Company's operations to a manual
system. There can be no assurances given that the Year 2000 compliance plan
will be completed successfully by the Year 2000, in which event the Company
could incur additional costs to implement its contingency plans. Management
does not anticipate that such costs would be significant to the Company. The
total costs associated with the Company's Year 2000 plan are anticipated to
be less than $20,000.
Successful and timely completion of the Year 2000 plan is based on
management's best estimates derived from various assumptions of future
events, which are inherently uncertain, including the effectiveness of
remediation and validation plans, and all vendors and suppliers readiness.
ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 1 - Business.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Part VI, Item 14
are incorporated herein by reference and filed as part of this report.
The following is the Unaudited Selected Quarterly Financial Data:
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------
FISCAL 1998 12/31/97 3/31/98 6/30/98 9/30/98
-------------------------------------------------------------------------
Total Income $1,899,569 $1,671,150 $1,600,854 $1,792,252
Total Expenses 1,204,013 1,109,865 1,001,438 1,178,279
Gains on Sales of
Assets-Investment
Property 6,000 6,000 6,000 11,692
Net Income 701,556 567,285 605,416 625,665
Net Income per Share .15 .12 .12 .11
-------------------------------------------------------------------------
FISCAL 1997 12/31/96 3/31/97 6/30/97 9/30/97
-------------------------------------------------------------------------
Total Income $1,297,931 $1,299,347 $1,330,086 $1,871,335
Total Expenses 992,888 897,481 973,674 1,100,959
Gains on Sales of
Assets-Investment
Property 6,000 6,000 6,000 29,457
Net Income 311,043 407,866 362,412 799,833
Net Income per Share .08 .10 .09 .19
</TABLE>
Page 22
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Page 23
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Principal Occupation Director Shares Percent
Name, Age and Title Past Five Years Since Owned(1) of Stock
Ernest V. Bencivenga Financial Consultant; 1968 9,288 0.16%
(80) Treasurer and Director (1961
Treasurer and to present) and Secretary (1967
Director to present) of Monmouth Capital
Corporation; Director (1969 to
present) and Secretary/Treasurer
(1984 to present) of United
Mobile Homes, Inc.
Anna T. Chew Certified Public Accountant; 1993 8,578(2) 0.15%
(40) Controller (1991 to present)
Controller and and Director (1994 to present)
Director of Monmouth Capital Corporation;
Vice President (1995 to present),
Director (1994 to present), and
Chief Financial Officer (1991 to
present) of United Mobile Homes,
Inc.
Daniel D. Cronheim Attorney at Law, Daniel D. 1989 18,575 0.33%
(44) Cronheim, Esq. (1982 to present);
Director Executive Vice President (1989
to present) and General Counsel
(1983 to present), of David
Cronheim Company.
Boniface DeBlasio Chairman of the Board (1968 to 1968 10,788 0.19%
(77) present) and Director (1961 to
Director present) of Monmouth Capital
Corporation.
Ara K. Hovnanian President (1988 to present) and 1989 41 ---
(39) Director (1981 to present) of
Director Hovnanian Enterprises, Inc., a
publicly-owned company
specializing in the construction
of housing.
Charles P. Kaempffer Investor; Director (1970 to 1974 36,663(3) 0.65%
(61) present) of Monmouth Capital
Director Corporation; Director (1969 to
present)of United Mobile
Homes, Inc.
Page 24
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
Principal Occupation Director Shares Percent
Name, Age and Title Past Five Years Since Owned(1) of Stock
Eugene W. Landy Attorney at Law, Landy and 1968 322,849(4) 5.65%
(65) Landy; President and Director
President, CEO (1961 to present) of Monmouth
and Director Capital Corporation; Chairman
of the Board (1995 to present)
Director (1969 to present) and
President (1969 to 1996) of
United Mobile Homes, Inc.
Samuel A. Landy Attorney at Law (1987 to present) 1989 125,517(5) 2.20%
(37) Landy and Landy; President (1995
Director to present), Director (1991 to
present), and Vice President (1991
to 1995) of United Mobile Homes,
Inc.; Director (1994 to present) of
Monmouth Capital Corporation.
W. Dunham Morey Certified Public Accountant, 1968 57,216(6) 1.01%
(76) W. Dunham Morey, CPA;
Director Director (1961 to present) of
Monmouth Capital Corporation.
Robert G. Sampson Investor; Director (1963 to 1968 67,775(7) 1.19%
(73) present) of Monmouth Capital
Director Corporation; Director (1969 to
present) of United Mobile Homes,
Inc.; Director (1972 to 1993) of
United Jersey Bank, N.A.
(formerly Franklin State Bank);
General Partner (1983 to present)
of Sampco, Ltd., an investment
group.
Page 25
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT'D)
(1) Beneficial ownership, as defined herein, includes Class A Common Stock
as to which a person has or shares voting and/or investment power.
(2) Held jointly with Ms. Chew's husband; includes 3,192 shares held in
Ms. Chew's 401(k) Plan.
(3) Includes (a) 13,930 shares owned by Mr. Kaempffer's wife; and (b) 1,080
shares in joint name with Mrs. Kaempffer.
(4) Includes (a) 73,271 shares owned by Mr. Landy's wife; (b) 130,008 shares
held in the Landy & Landy, P.C. Profit Sharing Plan, of which Mr. Landy
is a Trustee with power to vote; and (c) 95,693 shares held in the Landy
& Landy, P.C. Pension Plan, of which Mr. Landy is a Trustee with power
to vote. Excludes 38,048 shares held by Mr. Landy's adult children, in
which he disclaims any beneficial interest.
(5) Includes (a) 3,215 shares owned by Mr. Landy's wife, and (b) 32,824
shares held in custodial accounts for Mr. Landy's minor children under
the Uniform Gift to Minors' Act in which he disclaims any beneficial
interest, but has power to vote and (c) 1,000 shares held in the Samuel
Landy Family Limited Partnership and (d) 11,214 shares held in Mr.
Landy's 401(k) Plan.
(6) Includes 14,296 shares owned by the estate of Mr. Morey's wife.
(7) Includes 27,755 shares held by Sampco, Ltd. in which he has a beneficial
interest.
The Directors as a class own 657,290 shares, which is 11.5% of the
outstanding shares.
Page 26
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows compensation paid or accrued
by the Company for services rendered during 1998, 1997 and 1996 to the Chief
Executive Officer. There were no other executive officers whose aggregate
cash compensation exceeded $100,000:
Annual Compensation
Name and Principal Position Year Salary Bonus Other
Eugene W. Landy 1998 $27,500 $55,000 $165,700(1)
Chief Executive Officer 1997 None 50,000 200,700
1996 None None 173,203
(1) Represents Director's fees of $3,200 paid to Mr. Landy, management fees
of $82,500, legal fees of $21,000 paid to the firm of Landy & Landy, and
$59,000 accrual for pension and other benefits in accordance with Mr. Landy's
employment contract.
Stock Option Plan
There were no stock options granted to the executive officer named in the
Summary Compensation Table, during the year ended September 30, 1998.
The following table sets forth for the executive officer named in the
Summary Compensation Table, information regarding stock options outstanding
at September 30, 1998:
Value of
Unexercised
Options
Number of Unexercised at Year-End
Shares Value Options at Year-End Exercisable/
Name Exercised Realized Exercisable/Unexercisable Unexercisable
Eugene W. Landy -0- N/A 150,000 / -0- $-0- / $-0-
Employment Agreement
On December 9, 1994, the Company and Eugene W. Landy entered into an
Employment Agreement under which Mr. Landy receives an annual base
compensation (management fee) of $110,000 (as amended) plus bonuses and
customary fringe benefits, including health insurance and five weeks
vacation. Additionally, there will be bonuses voted by the Board of
Directors. The Employment Agreement is terminable by either party at any
time, subject to certain notice requirements.
Page 27
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
On severance of employment for any reason, Mr. Landy will receive
severance of $300,000, payable $100,000 on severance and $100,000 on the
first and second anniversaries of severance. In the event of disability,
Mr. Landy's compensation shall continue for a period of three years, payable
monthly. On retirement, Mr. Landy shall receive a pension of $40,000 a year
for ten years, payable in monthly installments. In the event of death, Mr.
Landy's designated beneficiary shall receive $300,000, $150,000 thirty days
after death and the balance one year after death. The Employment agreement
terminates December 31, 1999. Thereafter, the term of the Employment
Agreement shall be automatically renewed and extended for successive one-year
periods.
Other Information
The Directors received a fee of $800 for each Board Meeting attended.
Except for specific agreements, the Company has no retirement plan in
effect for Officers, Directors or employees and, at present, has no intention
of instituting such a plan.
Cronheim Management Services received the sum of $41,466 in 1998 for
management fees. Effective August 1, 1998, the Company entered into a new
management contract with Cronheim Management Services. Under this contract,
Cronheim Management Services receives 3% of gross rental income for
management fees. Cronheim Management Services provides sub-agents as
regional managers for the Company's properties and compensates them out of
this management fee. The David Cronheim Company received $45,786 in 1998 for
commissions. These totals are based on amounts paid or accrued during the
fiscal year. Management believes that the aforesaid fees are no more than
what the Company would pay for comparable services elsewhere.
Report of Board of Directors on Executive Compensation
Overview and Philosophy
The Company has a Compensation Committee consisting of two independent
outside Directors. This Committee is responsible for making recommendations
to the Board of Directors concerning compensation. The Compensation
Committee takes into consideration three major factors in setting
compensation.
The first consideration is the overall performance of the Company. The
Board believes that the financial interests of the executive officers should
be aligned with the success of the Company and the financial interests of its
shareholders. Increases in funds from operations, the enhancement of the
Company's equity portfolio, and the success of the Dividend Reinvestment
and Stock Purchase Plan all contribute to increases in stock prices, thereby
maximizing shareholders' return.
Page 28
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONT'D)
Overview and Philosophy (Cont'd)
The second consideration is the individual achievements made by each
officer. The Company is a small real estate investment trust (REIT). The
Board of Directors is aware of the contributions made by each officer and
makes an evaluation of individual performance based on their own familiarity
with the officer.
The final criteria in setting compensation is comparable wages in the
industry. In this regard, the REIT industry maintains excellent statistics.
Evaluation
The Company's funds from operations continue to increase. The Committee
reviewed the progress made by Eugene W. Landy, Chief Executive Officer, in
shifting the Company's focus from mortgage loans to equity properties. The
Committee also noted that Mr. Landy's current compensation was less than the
average salary received by Chief Executive Officers of other REITs. His base
compensation under this contract was increased in 1997 to $110,000 per year.
The Committee granted Mr. Landy a bonus of $55,000 for 1997 which was paid in
1998.
Comparative Stock Performance
The following line graph compares the total return of the Company's common
stock for the last five fiscal years to the NAREIT All REIT Total Return
Index, published by the National Association of Real Estate Investment Trusts
(NAREIT), and the S&P 500 Index for the same period. The total return
reflects stock price appreciation and dividend reinvestment for all three
comparative indices. The information herein has been obtained from sources
believed to be reliable, but neither its accuracy nor its completeness is
guaranteed.
Year Ended Monmouth Real Estate
September 30, Investment Corp. NAREIT S&P 500
1993 100 100 100
1994 98 96 104
1995 94 107 134
1996 107 128 162
1997 137 179 227
1998 140 153 248
Page 29
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On September 30, 1998, no person owned of record or was known by the
Company to own beneficially more than five percent of the shares of the
Company, except as follows:
Amount and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership of Class
Class A Eugene W. Landy 322,849 5.65%
Common 20 Tuxedo Road
Stock Rumson, NJ 07760
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain relationships and related party transactions are incorporated
herein by reference to Item 14 and Note 10 of the Notes to the Financial
Statements - Related Party Transactions.
Page 30
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE(S)
(a)(1) The following Financial Statements are filed as part of this report:
(i) Independent Auditors' Report 33
(ii) Balance Sheets as of September 30, 1998 and 1997 34
(iii) Statements of Income for the years ended
September 30, 1998, 1997 and 1996 35
(iv) Statements of Shareholders' Equity for the years
ended September 30, 1998, 1997 and 1996 36
(v) Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 37
(vi) Notes to the Financial Statements 38 - 51
(a)(2) The following Financial Statement Schedule is filed
as part of this report:
(i) Schedule III - Real Estate and Accumulated Depreciation
as of September 30, 1998 52 - 54
Page 31
<PAGE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(3) Exhibits
(3) Articles of Incorporation and By-Laws
(i) Reference is hereby made to the Certificate of Incorporation of
Monmouth Real Estate Investment Corporation filed with the Securities
and Exchange Commission on April 13, 1990 on Form S-4 (Registration
No. 33-34103).
(ii) Reference is hereby made to the By-laws of Monmouth Real Estate
Investment Corporation filed with the Securities and Exchange
Commission on April 3, 1990 on Form S-4 (Registration No. 33-34103).
(10) Material Contracts
(i) Employment Agreement with Mr. Eugene W. Landy dated December 9, 1994
is incorporated by reference to that filed with the Company's
Form 10-K filed with the Securities and Exchange Commission on
December 28, 1994.
(ii) Employment Agreement with Mr. Ernest V. Bencivenga dated
November 9, 1993 is incorporated by reference to that filed with the
Company's Form 10-K filed with the Securities and Exchange Commission
on December 28, 1994.
(28) Additional Exhibits
Reference is hereby made to the Agreement and Plan of Merger dated
April 23, 1990 by and between Monmouth Real Estate Investment Trust
and Monmouth Real Estate Investment Corporation filed with the
Securities and Exchange Commission on April 3, 1990 on Form S-4
(Registration No. 33-34103).
Report on Form 8-K
On August 26, 1998, the Company filed a report on Form 8-K for the
purchase of an Industrial building in Liberty, Missouri.
Page 32
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Monmouth Real Estate Investment Corporation:
We have audited the financial statements of Monmouth Real Estate Investment
Corporation as listed in the accompanying index. In connection with our
audits of the financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Monmouth Real Estate
Investment Corporation as of September 30, 1998 and 1997, and the results of
its operations and its cash flows for each of the years in the three-year
period ended September 30, 1998 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
November 27, 1998
Page 33
<PAGE>
<TABLE>
<CAPTION>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
BALANCE SHEETS
AS OF SEPTEMBER 30,
ASSETS
1998 1997
<S> <C> <C>
Real Estate Investments:
Land $ 7,665,724 $ 6,141,724
Buildings, Improvements and Equipment,
net of Accumulated Depreciation of
$6,659,642 and $5,482,527, respectively 42,952,713 32,606,220
Mortgage Loans Receivable 153,663 195,583
__________ __________
Total Real Estate Investments 50,772,100 38,943,527
Cash and Cash Equivalents 147,976 269,291
Securities Available for Sale at Fair Value 2,050,500 3,250,147
Interest and Other Receivables 597,723 542,177
Prepaid Expenses 130,911 125,498
Lease Costs - Net of Accumulated Amortization 196,320 100,602
Investments in Hollister '97, LLC 1,010,000 1,010,000
Other Assets 677,315 701,481
__________ __________
TOTAL ASSETS $55,582,845 $44,942,723
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage Notes Payable $25,949,782 $21,079,238
Loans Payable 1,335,382 3,190,510
Deferred Gains - Installment Sales 108,840 138,532
Other Liabilities 784,019 645,155
__________ __________
Total Liabilities 28,178,023 25,053,435
__________ __________
Shareholders' Equity:
Common Stock - Class A - $.01 Par Value,
8,000,000 Shares Authorized; 5,703,544 and
4,421,847 Shares Issued and Outstanding in
1998 and 1997, respectively 57,035 44,218
Common Stock - Class B - $.01 Par Value,
100,000 Shares Authorized, No Shares Issued
or Outstanding -0- -0-
Additional Paid-in Capital 27,375,711 19,450,137
Accumulated Other Comprehensive Income (27,924) 394,933
Undistributed Income -0- -0-
__________ __________
Total Shareholders' Equity 27,404,822 19,889,288
__________ __________
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $55,582,845 $44,942,723
========== ==========
</TABLE>
See Accompanying Notes to the Financial Statements
Page 34
<PAGE>
<TABLE>
<CAPTION>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
INCOME:
Rental and Occupancy Charges $6,397,840 $5,354,301 $4,474,279
Interest and Other Income 565,985 444,398 133,155
_________ _________ _________
TOTAL INCOME 6,963,825 5,798,699 4,607,434
_________ _________ _________
EXPENSES:
Interest Expense 1,802,590 1,711,466 1,252,180
Management Fees 41,466 17,681 17,825
Real Estate Taxes 330,372 295,830 268,594
Professional Fees 437,847 419,854 342,417
Operating Expenses 425,289 319,883 302,752
Office and General Expense 249,016 181,083 166,287
Director Fees 29,900 31,000 31,300
Depreciation 1,177,115 988,205 852,229
_________ _________ _________
TOTAL EXPENSES 4,493,595 3,965,002 3,233,584
_________ _________ _________
Income Before Gains 2,470,230 1,833,697 1,373,850
Gains on Sale of Assets -
Investment Property 29,692 47,457 22,249
_________ _________ _________
NET INCOME $2,499,922 $1,881,154 $1,396,099
========= ========= =========
PER SHARE INFORMATION:
Income Before Gains $ .49 $ .45 $ .38
Gains on Sale of Assets -
Investment Property .01 .01 .01
_________ _________ _________
NET INCOME - BASIC AND DILUTED $ .50 $ .46 $ .39
========= ========= =========
</TABLE>
See Accompanying Notes to the Financial Statements
Page 35
<PAGE>
<TABLE>
<CAPTION>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30,
Accumulated
Additional Other Com-
Common Stock Paid-In Undistrib- prehensive Comprehensive
Number Amount Capital uted Income Income Income
<S> <C> <C> <C> <C> <C> <C>
Balance
Sept. 30, 1995 3,392,045 $33,920 $14,155,207 $ -0- $58,740
Shares Issued
in connection
with the DRIP* 408,879 4,089 2,288,380 -0- -0-
Distributions -0- -0- (399,228)(1,396,099) -0-
Net Income -0- -0- -0- 1,396,099 -0- $1,396,099
Unrealized Net
Holding Losses
on Securities
Available for
Sale Net of
Reclassification
Adjustment -0- -0- -0- -0- (31,726) (31,726)
_________ ______ __________ ________ ______ _________
Balance
Sept. 30, 1996 3,800,924 $38,009 $16,044,359 $ -0- $27,014 $1,364,373
=========
Shares Issued
in connection
with the DRIP* 620,923 6,209 3,580,029 -0- -0-
Distributions -0- -0- (174,251)(1,881,154) -0-
Net Income -0- -0- -0- 1,881,154 -0- $1,881,154
Unrealized Net
Holding Gains
on Securities
Available for
Sale Net of
Reclassification
Adjustment -0- -0- -0- -0- 367,919 367,919
_________ ______ __________ _________ _______ _________
Balance
Sept. 30, 1997 4,421,847 $44,218 $19,450,137 $ -0- $394,933 $2,249,073
=========
Shares Issued
in connection
with the DRIP* 1,281,697 12,817 8,093,663 -0- -0-
Distributions -0- -0- (168,089)(2,499,922) -0-
Net Income -0- -0- -0- 2,499,922 -0- $2,499,922
Unrealized Net
Holding Losses
on Securities
Available for
Sale Net of
Reclassification
Adjustment -0- -0- -0- -0- (422,857) (422,857)
_________ ______ __________ ________ ________ _________
Balance
Sept. 30, 1998 5,703,544 $57,035 $27,375,711 $ -0- $ (27,924) $2,077,065
========= ====== ========== ======== ======== =========
*Dividend Reinvestment and Stock Purchase Plan
</TABLE>
See Accompanying Notes to the Financial Statements
Page 36
<PAGE>
<TABLE>
<CAPTION>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,499,922 $ 1,881,154 $ 1,396,099
Noncash Items Included in Net Income:
Depreciation 1,177,115 988,205 852,229
Amortization 77,402 36,861 73,122
Gains on Sales of Assets-
Investment Property (29,692) (47,457) (22,249)
Gains on Sales of Securities (222,276) (75,323) (66,933)
Changes In:
Interest & Other Receivables (55,546) 9,914 29,156
Prepaid Expenses (5,413) (1,829) (8,854)
Other Assets and Lease Costs (148,954) (316,205) (224,910)
Other Liabilities 138,864 119,060 155,901
__________ __________ __________
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 3,431,422 2,594,380 2,183,561
__________ __________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Land, Buildings and
Improvements (13,047,608) (9,511,526) (2,565,059)
Investment in Hollister '97, LLC -0- (1,010,000) -0-
Collections on Installment Sales 41,920 67,002 31,412
Purchase of Securities Available
for Sale (798,581) (2,778,904) (514,380)
Proceeds from Sale of Securities
Available for Sale 1,797,647 579,974 214,650
__________ __________ __________
NET CASH USED IN INVESTING ACTIVITIES (12,006,622) (12,653,454) (2,833,377)
__________ __________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Mortgages 8,700,000 6,930,776 1,500,000
Proceeds from Loans 10,686,871 9,390,510 500,000
Principal Payments of Mortgages (3,829,456) (1,068,148) (1,746,951)
Principal Payments of Loans (12,541,999) (6,700,000) -0-
Proceeds from Issuance of Class A
Common Stock 6,989,925 2,677,007 1,512,604
Dividends Paid (1,551,456) (1,146,174) (1,015,462)
__________ __________ __________
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 8,453,885 10,083,971 750,191
__________ __________ __________
Net Increase (Decrease) in Cash (121,315) 24,897 100,375
Cash and Cash Equivalents
at Beginning of Year 269,291 244,394 144,019
__________ __________ __________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 147,976 $ 269,291 $ 244,394
========== ========== ==========
</TABLE>
See Accompanying Notes to the Financial Statements
Page 37
<PAGE>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business
Monmouth Real Estate Investment Corporation (the Company) operates as a
real estate investment trust deriving its income primarily from real estate
rental operations. As of September 30, 1998 and 1997, rental properties
consist of nineteen and sixteen commercial holdings, respectively, These
properties are located in New Jersey, New York, Pennsylvania, North Carolina,
Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois, Michigan and
Virginia.
Use of Estimates
In preparing the financial statements, management is 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. Actual
results could differ from these estimates.
Buildings, Improvements and Equipment
Buildings, improvements and equipment are stated at the lower of
depreciated cost or net realizable value. Depreciation is computed based on
the straight-line method over the estimated useful lives of the assets.
These lives range from 5 to 40 years. The Company accounts for its undivided
interest in the Somerset property based upon its pro rata share of assets,
liabilities, revenues and expenses. If there is an event or change in
circumstances that indicates that the basis of an investment property may not
be recoverable, management assesses the possible impairment of value through
evaluation of the estimated future cash flows of the property, on an
undiscounted basis, as compared to the property's current carrying value. A
property's carrying value would be adjusted to fair value, if necessary, to
reflect an impairment in the value of the property.
Revenue Recognition
Rental income from tenants with leases having scheduled rental increases
are recognized on a straight-line basis over the term of the lease.
Gains and Deferred Gains on Installment Sales
Gains on the sale of real estate investments are recognized by the full
accrual method when the criteria for the method are met. Generally, the
criteria are met when the profit on a given sale is determinable, and the
seller is not obliged to perform significant activities after the sale to
earn the profit. Alternatively, when the foregoing criteria are not met, the
Company recognizes gains by the installment method. At September 30, 1998
and 1997, there was one deferred gain related to the 1986 sale of property
located in Howell Township in the amount of $108,840 and $138,532,
respectively.
Page 38
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Securities Available for Sale
The Company classifies its securities among three categories: Held-to-
maturity, trading and available-for-sale.
The Company's securities at September 30, 1998 and 1997 are all
classified as available-for-sale and are carried at fair value. Gains or
losses on the sale of securities are based on identifiable cost and are
accounted for on a trade date basis. Unrealized holding gains and losses
are excluded from earnings and reported as a separate component of
Shareholders' Equity until realized.
Cash Equivalents
Cash equivalents consist of money market funds.
Investment in Hollister `97, LLC
The Company's 25% investment in Hollister `97, LLC is accounted for under
the equity method. Under the equity method, the initial investment is
recorded at cost. The carrying amount of the investment is increased or
decreased to reflect the Company's share of income or loss and is also
reduced to reflect any dividends received. An unrelated New Jersey limited
partnership owns the remaining 75%.
Net Income Per Share
Effective October 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." All
prior years' net income per share have been restated in accordance with the
Statement. Basic net income per share is calculated by dividing net income
by the weighted-average number of common shares outstanding during the period
(4,997,775, 4,047,759, and 3,584,364 in 1998, 1997 and 1996, respectively).
Diluted net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding plus the weighted-
average number of net shares that would be issued upon exercise of stock
options pursuant to the treasury stock method (5,032,950, 4,047,759 and
3,584,364 in 1998, 1997 and 1996, respectively). Options in the amount of
35,175, are included in the diluted weighted average shares outstanding for
1998. Options in the amount of 300,000 were not included for 1997, since
they were anti-dilutive. There were no options outstanding for 1996.
Stock Option Plan
The Company's stock option plan is accounted for under the intrinsic value
based method as prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". As such, compensation
expense would be recorded on the date of grant only if the current market
price on the underlying stock exceeds the exercise price. Included in
Note 8 to these Financial Statements are the pro forma disclosures required
by SFAS No. 123, "Accounting for Stock-Based Compensation," which assumes the
fair value based method of accounting had been adopted.
Page 39
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust
(REIT) under Sections 856-858 of the Internal Revenue Code. The Company will
not be taxed on the portion of its income which is distributed to
shareholders, provided it distributes at least 95% of its taxable income,
has at least 75% of its assets in real estate investments and meets certain
other requirements for qualification as a REIT.
Other Comprehensive Income
Effective October 1, 1997, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income" (Statement 130). Statement 130
established standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. Under
Statement 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale.
Reclassifications
Certain amounts in the financial statements for the prior years have been
reclassified to conform to the statement presentation for the current year.
NOTE 2 - MORTGAGE LOANS RECEIVABLE
The following is a summary of the mortgage loans receivable at
September 30, 1998 and 1997:
Rate Maturity 9/30/98 9/30/97
Bonim Associates, Inc.
Howell Township Property 9% 1999 $153,663 $195,583
Page 40
<PAGE>
<TABLE>
<CAPTION>
NOTE 3 - REAL ESTATE INVESTMENTS
The following is a summary of the cost and accumulated depreciation of the
Company's land, buildings, improvements and equipment at September 30, 1998
and 1997:
Buildings,
Improvements, Accumulated
September 30, 1998 Land and Equipment Depreciation
<S> <C> <C> <C>
NEW JERSEY:
Ramsey Industrial Building $ 52,639 $ 1,175,214 $ 553,275
Somerset(1) Shopping Center 55,182 1,065,995 726,584
Eatontown Admin. Office -0- 7,517 3,008
South Brunswick Industrial Building 1,128,000 4,120,487 723,199
PENNSYLVANIA:
Monaca Industrial Park 330,773 1,797,526 930,492
NEW YORK:
Monsey Industrial Building 119,910 1,757,588 823,065
Orangeburg Industrial Building 694,720 2,977,372 555,371
NORTH CAROLINA:
Fayetteville Industrial Building 172,000 4,467,885 171,835
Greensboro Industrial Building 327,100 1,853,700 321,335
MISSISSIPPI:
Jackson Industrial Building 218,000 1,233,500 204,423
Richland Industrial Building 211,000 1,195,000 137,877
MASSACHUSETTS:
Franklin Industrial Building 566,000 4,148,000 478,596
KANSAS:
Wichita Industrial Building 268,000 1,518,000 175,165
IOWA:
Urbandale Industrial Building 310,000 1,758,000 202,838
MISSOURI:
Liberty Industrial Building 723,000 6,507,000 13,903
O'Fallon Industrial Building 264,000 3,302,000 296,193
VIRGINIA:
Virginia Beach Industrial Building 384,600 2,150,000 137,815
ILLINOIS:
Burr Ridge Industrial Building 270,000 1,233,250 15,810
Schaumburg Industrial Building 1,039,800 3,694,321 142,083
MICHIGAN:
Romulus Industrial Building 531,000 3,650,000 46,775
_________ __________ _________
Total at September 30, 1998 $7,665,724 $49,612,355 $6,659,642
========= ========== =========
(1) This represents the Company's 2/3 undivided interest in the property.
</TABLE>
Page 41
<PAGE>
<TABLE>
<CAPTION>
NOTE 3 - REAL ESTATE INVESTMENTS (CONT'D)
Buildings,
Improvements, Accumulated
September 30, 1997 Land and Equipment Depreciation
<S> <C> <C> <C> <C>
NEW JERSEY:
Ramsey Industrial Building $ 52,639 $ 1,130,214 $ 524,520
Somerset(1) Shopping Center 55,182 1,065,995 689,158
Eatontown Admin. Office -0- 7,517 1,505
South Brunswick Industrial Building 1,128,000 4,087,400 589,403
PENNSYLVANIA:
Monaca Industrial Park 330,773 1,757,322 852,695
NEW YORK:
Monsey Industrial Building 119,910 1,742,521 764,803
Orangeburg Industrial Building 694,720 2,977,372 460,839
NORTH CAROLINA:
Fayetteville Industrial Building 172,000 4,467,885 57,278
Greensboro Industrial Building 327,100 1,853,700 262,450
MISSISSIPPI:
Jackson Industrial Building 218,000 1,233,500 164,809
Richland Industrial Building 211,000 1,195,000 107,239
MASSACHUSETTS:
Franklin Industrial Building 566,000 4,148,000 372,241
KANSAS:
Wichita Industrial Building 268,000 1,518,000 136,244
IOWA:
Urbandale Industrial Building 310,000 1,758,000 157,763
MISSOURI:
O'Fallon Industrial Building 264,000 3,302,000 211,530
VIRGINIA:
Virginia Beach Industrial Building 384,600 2,150,000 82,689
ILLINOIS:
Schaumburg Industrial Building 1,039,800 3,694,321 47,361
_________ __________ _________
Total at September 30, 1997 $6,141,724 $38,088,747 $5,482,527
========= ========== =========
(1) This represents the Company's 2/3 undivided interest in the property.
</TABLE>
Page 42
<PAGE>
NOTE 4 - ACQUISITIONS
FISCAL 1998
On December 18, 1997, the Company purchased a 12,477 square foot warehouse
facility in Burr-Ridge, Illinois from SK Properties II, LLC, an unrelated
entity. This warehouse facility is 100% net leased to Sherwin-Williams
Company. The purchase price, including closing costs, was $1,503,250 . The
Company paid approximately $120,000 in cash, used approximately $280,000 of
its revolving line of credit with Summit Bank and obtained a mortgage of
$1,100,000. This mortgage is at an interest rate of 8% and is due
January 1, 2014.
On June 22, 1998, the Company purchased a 72,000 square foot warehouse
facility in Romulus, Michigan from SK Properties I, LLC, an unrelated entity.
This warehouse facility is 100% net leased to Federal Express Corporation.
The purchase price, including closing costs, was $4,181,000. The Company
utilized $1,200,000 of its revolving credit line with Summit Bank and
obtained a mortgage of $2,800,000. This mortgage is at an interest rate of
7.56% and is due June 22, 2013.
On August 26, 1998, the Company purchased a 98,200 square foot warehouse
facility in Liberty, Missouri. This warehouse facility is 100% net-leased to
Johnson Controls, Inc. The total price, including closing costs was
$7,230,000. The Company obtained a mortgage for $4,800,000, used
approximately $1,500,000 of its revolving credit line, and paid approximately
$900,000 in cash. This mortgage is at an interest rate of 7.07% and matures
March 1, 2013.
FISCAL 1997
On May 27, 1997, the Company purchased a 148,000 square foot warehouse
facility in Fayetteville, North Carolina. This warehouse facility is 100%
net-leased to Belk Enterprises, Inc. The total price, including closing
costs, was $4,639,885. The Company assumed an existing mortgage of
approximately $3,400,000. This mortgage payable is at an interest rate of
7.8% and is due August 1, 2006. The Company also utilized $1,100,000 of its
revolving credit line with Summit Bank.
On June 4, 1997, the Company invested $1,000,000 in a limited liability
company, Hollister `97, LLC, representing a 25% ownership interest. The sole
business of this LLC is the ownership and operation of the Hollister
Corporate Park in Teterboro, New Jersey. Under the agreement, the Company is
to receive a cumulative preferred 11% annual return on its investment.
On June 11, 1997, the Company purchased a 73,500 square foot warehouse
facility in Schaumburg, Illinois. The warehouse facility is 100% net-leased
to Federal Express Corporation. The total purchase price, including closing
costs, was $4,734,121. The Company entered into a mortgage loan for
$3,500,000. This mortgage payable is at an interest rate of 8.48% and is due
July 1, 1012. The Company also utilized approximately $1,100,000 of its
revolving credit line with Summit Bank.
Page 43
<PAGE>
NOTE 5 - SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale at
September 30, 1998 and 1997:
1998 1997
Market Market
Equity Securities Cost Value Cost Value
United Mobile Homes, Inc.*
(10,000 shares at
September 30, 1998) $ 100,815 $ 106,250 $ -0- $ -0-
Other Equity Securities 934,259 889,937 1,526,692 1,813,591
Debt Securities(maturing
in 2001 to 2003) 1,043,350 1,054,313 1,328,522 1,436,556
_________ _________ _________ _________
Total $2,078,424 $2,050,500 $2,855,214 $3,250,147
========= ========= ========= =========
* a related entity.
During the fiscal years ended September 30, 1998, 1997 and 1996, gross
gains on sales of securities amounted to $222,276, $75,323 and $66,933,
respectively, which have been included in Other Income. Gross unrealized
gains on debt securities amounted to $10,963 as of September 30, 1998.
Gross unrealized losses and gains on equity securities at September 30, 1998
were $(47,075) and $8,188, respectively. Gross unrealized gains at
September 30, 1997 were $394,933 with no unrealized losses.
NOTE 6 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company has approximately 1,470,000 square feet of property of which
approximately 282,000 square feet, or 19%, is leased to Keebler Company,
approximately 181,500 square feet, or 12%, is leased to Federal Express
Corporation, approximately 148,000 square feet, or 10%, is leased to Belk
Enterprises, Inc. and approximately 145,000 square feet, or 10%, is leased
to McMaster Carr Corporation at September 30, 1998. Rental and occupancy
charges from Keebler Company totaled approximately $1,800,000, for each of
the years ended September 30, 1998, 1997 and 1996. Rental and occupancy
charges from Federal Express Corporation totaled approximately $716,000,
$286,000 and $140,000 for the years ended September 30, 1998, 1997 and 1996,
respectively. Rental and occupancy charges from the McMaster Carr
Corporation totaled approximately $461,000 for the year ended September 30,
1998 and $-0- for each of the years ended September 30, 1997 and 1996.
Rental and occupancy charges from Belk Enterprises, Inc. totaled
approximately $470,000, $180,000 and $-0- for the years ended
September 30, 1998, 1997 and 1996, respectively. During 1998, 1997 and 1996,
rental income and occupancy charges from properties leased to these companies
approximated 54%, 42% and 43% of total rental and occupancy charges,
respectively.
Page 44
<PAGE>
<TABLE>
<CAPTION>
NOTE 7 - MORTGAGE NOTES PAYABLE
The following is a summary of the mortgage notes payable at
September 30, 1998 and 1997:
Fiscal Balance
Mortgage Rate Maturity 9/30/98 9/30/97
<S> <C> C<> <C> <C>
Orangeburg, New York 7% 2004 $ 1,731,597 $ 1,952,286
South Brunswick, NJ P+1% 1998 -0- 1,295,000
Jackson, Mississippi 8.5% 2008 628,610 667,882
Greensboro, N.Carolina 10% 1998 -0- 1,381,238
Franklin, Massachusetts 7% 2004 1,971,357 2,222,602
Wichita, Kansas 10.25% 2016 1,224,815 1,248,045
Urbandale, Iowa 7% 2004 939,059 1,058,740
Richland, Mississippi 7.5% 2004 671,526 745,220
O'Fallon, Missouri 8.5% 2007 2,010,090 2,151,014
Virginia Beach, VA 8.5% 2021 1,455,163 1,475,468
Fayetteville, NC 7.8% 2006 3,328,065 3,411,024
Schaumburg, IL 8.48% 2012 3,347,211 3,470,719
Burr Ridge, IL 8% 2014 1,083,579 -0-
Romulus, MI 7.56% 2013 2,774,605 -0-
Liberty, MS 7.065% 2013 4,784,105 -0-
__________ __________
Total Mortgage Notes Payable $25,949,782 $21,079,238
========== ==========
</TABLE>
Page 45
<PAGE>
NOTE 7 - MORTGAGE NOTES PAYABLE (CONT'D)
Principal on the foregoing debt is scheduled to be paid as follows:
Year Ending September 30, 1999 $ 1,512,841
2000 1,631,016
2001 1,758,510
2002 1,896,064
2003 2,044,480
Thereafter 17,106,871
__________
$25,949,782
==========
Line of Credit
The Company has a $8,000,000 line of credit with Summit at an interest
rate of prime. This line of credit is secured by a second mortgage on the
South Brunswick Industrial Building and expires on July 29, 2000. As of
September 30, 1998, approximately $6,665,000 is available.
NOTE 8 - STOCK OPTION PLAN
On April 24, 1997, the shareholders approved and ratified the Company's
1997 Stock Option Plan authorizing the grant to officers, directors and key
employees options to purchase up to 750,000 shares of common stock. Options
may be granted any time up to December 31, 2006. No option shall be
available for exercise beyond ten years. All options are exercisable after
one year from the date of grant. The option price shall not be below the
fair market value at date of grant. Canceled or expired options are added
back to the "pool" of shares available under the Plan.
The Company elected to follow APB Opinion No. 25 in accounting for its
stock option plan, and accordingly, no compensation cost has been recognized.
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts as follows:
1998 1997
Net Income
As reported $2,499,922 $1,881,154
Pro forma 2,378,034 1,865,941
Net Income Per share-
Basic and Diluted
As reported-Basic
and Diluted $.50 $.46
Pro forma - Basic .48 .46
Pro forma - Diluted .47 .46
Page 46
<PAGE>
NOTE 8 - STOCK OPTION PLAN (CONT'D)
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 1998 and 1997, respectively: dividend
yield of 9%; expected volatility of 25%; risk-free interest rates of 6.0%
and 6.5%; and expected lives of five years.
A summary of the status of the Company's stock option plan as of
September 30, 1998 and 1997 is as follows:
1998 1997
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at beginning of year 300,000 $ 6.28 -0- $ -0-
Granted 20,000 7.25 300,000 6.28
Exercised -0- -0- -0- -0-
_______ _______
Outstanding at end of year 320,000 6.34 300,000 6.28
======= ==== ======= ====
Options exercisable at end of year 300,000 -0-
======= =======
Weighted-average fair value of
options granted during the year .77 .61
==== ====
The following is a summary of stock options outstanding as of
September 30, 1998:
Date of Number of Number of Option Expiration
Grant Grants Shares Price Date
04/30/97 10 135,000 $5.9375 04/30/02
04/30/97 2 165,000 6.5625 04/30/02
04/30/98 2 20,000 7.2500 04/30/03
As of September 30, 1998, there were 430,000 shares available for grant
under this plan.
NOTE 9 - INCOME FROM LEASES
The Company derives income primarily from operating leases on its
commercial properties. In general, these leases are written for periods up
to ten years with various provisions for renewal. These leases generally
contain clauses for reimbursement (or direct payment) of real estate taxes,
maintenance, insurance and certain other operating expenses of the properties.
Minimum rents due under noncancellable leases at September 30, 1998 are
scheduled as follows: 1999 - $6,465,000; 2000 - $6,343,000; 2001 -
$4,777,000; 2002 - $3,726,000; 2003 - $3,558,000; thereafter - $9,497,000.
Page 47
<PAGE>
NOTE 10 - RELATED PARTY TRANSACTIONS
Eugene W. Landy received $3,200, for each of the years ended
September 30, 1998, 1997 and 1996, as Director. The firm of Landy & Landy
received $103,500, $138,500 and $111,003 during the years ended 1998, 1997
and 1996, respectively, as management and legal fees. An accrual of $59,000
was made in each of the years ended September 30, 1998, 1997 and 1996 for
pension and other benefits in accordance with Mr. Landy's Employment
Agreement. Additionally, the Board of Directors has granted to Mr. Landy a
loan of $100,000 at an interest rate of 10% due May 23, 1999. Principal and
accrued interest is payable at maturity.
On December 9, 1994, the Company and Eugene W. Landy entered into an
Employment Agreement under which, on severance of employment for any reason,
Mr. Landy will receive severance of $300,000 payable $100,000 on severance
and $100,000 on the first and second anniversaries of severance. In the
event of disability, Mr. Landy's compensation shall continue for a period of
three years, payable monthly. On retirement, Mr. Landy shall receive a
pension of $40,000 a year for ten years, payable in monthly installments.
In the event of death, Mr. Landy's designated beneficiary shall receive
$300,000; $150,000 thirty days after death, and the balance one year after
death. The Employment Agreement terminates December 31, 1999. Thereafter,
the term of the Employment Agreement shall be automatically renewed and
extended for successive one-year periods. The Employment Agreement is
terminable by either party at any time, subject to certain notice
requirements.
Cronheim Management Services received the sum of $41,466, $17,681 and
$17,825 for management fees during the years ended 1998, 1997 and 1996,
respectively. Effective August 1, 1998, the Company entered into a new
management contract with Cronheim Management Services. Under this contract,
Cronheim Management Services receives 3% of gross rental income for
management fees. The David Cronheim Company received $45,786, $46,188 and
$21,777 in commissions in 1998, 1997 and 1996, respectively. Daniel Cronheim
received $3,200, $3,200 and $3,350 for Director and Committee fees in 1998,
1997 and 1996, respectively.
NOTE 11 - TAXES
Income Tax
The Company has elected to be taxed as a Real Estate Investment Trust
under the applicable provisions of the Internal Revenue Code and the
comparable New Jersey Statutes. Under such provisions, the Company will not
be taxed on that portion of its taxable income distributed currently to
shareholders, provided that at least 95% of its taxable income is
distributed. As the Company has and intends to continue to distribute all
of its income currently, no provision has been made for income taxes.
Federal Excise Tax
The Company does not have an excise tax liability for the calendar years
1998, 1997 and 1996, since it intends to or has distributed all of its annual
income.
Page 48
<PAGE>
NOTE 12 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company implemented a dividend reinvestment and stock purchase plan
(the "Plan") effective December 15, 1987. Under the terms of the Plan, and
subsequent offerings, shareholders who participate may reinvest all or part
of their dividends in additional shares of the Company at approximately 95%
of market price. According to the terms of the Plan, shareholders may also
purchase additional shares, at approximately 95% of market price by making
optional cash payments monthly.
Amounts received, including dividend reinvestment of $1,116,555 and
$909,231 in 1998 and 1997, respectively, and shares issued in connection with
the Plan for the years ended September 30, 1998 and 1997 were as follows:
1998 1997
Amounts Received* $8,106,480 $3,586,238
Shares Issued 1,281,697 620,923
*These amounts are net of the 5% discount under the Plan. The total
discount amounted to $307,766 and $145,623 during the fiscal years ended
September 30, 1998 and 1997, respectively.
NOTE 13 - DISTRIBUTIONS
The following cash distributions were paid to shareholders during the
years ended September 30, 1998 and 1997:
1998 1997
Quarter Ended Amount Per Share Amount Per Share
December 31 $ 591,580 $.13 $ 484,069 $.125
March 31 621,185 .13 492,511 .125
June 30 702,755 .135 516,490 .13
September 30 752,491 .135 562,335 .13
_________ ____ _________ ____
$2,668,011 $.53 $2,055,405 $.51
========= ==== ========= ====
The above amounts do not include discounts under the Dividend Reinvestment
and Stock Purchase Plan.
On September 23, 1998, the Company declared a dividend of $0.1375 per
share to be paid on December 15, 1998 to shareholders of record
November 16, 1998.
Page 49
<PAGE>
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information about fair values
of financial instruments, as defined in Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments."
Limitations
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 the Company's entire holdings of a
particular financial instrument. For a portion of the Company's 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.
Use of different assumptions or methodologies is likely to result in
significantly different fair value estimates.
The fair value of cash and cash equivalents and mortgage loans receivable
approximates their current carrying amounts since all such items are short-
term in nature. The fair value of securities available for sale is based
upon quoted market values. The fair value of mortgage notes payable and
loans payable approximate their current carrying amounts since such amounts
payable are at approximtely a weighted-average current market rate of
interest.
Page 50
<PAGE>
NOTE 15 - CASH FLOW AND COMPREHENSIVE INCOME INFORMATION
Cash paid during the years ended September 30, 1998, 1997 and 1996, for
interest is $1,802,590, $1,711,466 and $1,252,180, respectively.
During 1998, 1997 and 1996, the Company had $1,116,555, $909,231 and
$779,865, respectively, of dividends which were reinvested that required no
cash transfers.
In 1998, 1997 and 1996, equity securities available for sale are shown at
fair value. The resultant portfolio (decrease) increase of $(27,924),
$394,933 and $27,014, respectively, relating to unrealized holding gains and
losses is shown as a separate component of shareholders' equity.
The following are the reclassification adjustments related to securities
available for sale included in Other Comprehensive Income:
1998 1997 1996
Unrealized holding (losses)
gains arising during the year $(200,581) $443,242 $ 35,207
Less: reclassification adjustment
for gains realized in income (222,276) (75,323) (66,933)
_______ _______ ______
Net unrealized (losses) gains $(422,857) $367,919 $(31,726)
======= ======= ======
Page 51
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1998
Column A Column B Column C Column D
________ ________ ________________________ ________
Initial Cost
________________________
Buildings, Capitalization
Improvements Subsequent to
Description Encumbrances Land & Equipment Acquisition
___________ ____________ __________ ____________ ______________
<S> <C> <C> <C> <C>
Shopping Center:
Somerset, NJ $ -0- $ 55,182 $ 637,097 $ 428,898
Industrial Buildings:
Ramsey, NJ -0- 52,639 291,500 883,714
Monaca, PA -0- 330,773 878,081 919,445
Monsey, NY -0- 119,910 908,473 849,115
Orangeburg, NY 1,731,597 694,720 2,977,372 -0-
South Brunswick, NJ -0- 1,128,000 4,087,400 33,087
Greensboro, NC -0- 327,100 1,853,700 -0-
Jackson, MS 628,610 218,000 1,233,500 -0-
Franklin, MA 1,971,357 566,000 4,148,000 -0-
Wichita, KS 1,224,815 268,000 1,518,000 -0-
Urbandale, IO 939,059 310,000 1,758,000 -0-
Richland, MS 671,526 211,000 1,195,000 -0-
O'Fallon, MO 2,010,090 264,000 3,302,000 -0-
Virginia Beach, VA 1,455,163 384,600 2,150,000 -0-
Fayetteville, NC 3,328,065 172,000 4,467,885 -0-
Schaumburg, IL 3,347,211 1,039,800 3,694,321 -0-
Burr Ridge, IL 1,083,579 270,000 1,233,250 -0-
Romulus, MI 2,774,605 531,000 3,650,000 -0-
Liberty, MO 4,784,105 723,000 6,507,000 -0-
__________ _________ __________ _________
$25,949,782 $7,665,724 $46,490,579 $3,114,259
========== ========= ========== =========
</TABLE>
Page 52A
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONT'D)
SEPTEMBER 30, 1998
Column A Column E(1)(2) Column F
________ _______________________________________ ________
Gross Amount at Which Carried
September 30, 1998 Accumulated
Description Land Bldg, Equip & Imp. Total Depreciation
___________ __________ _________________ _________ ____________
<S> <C> <C> <C> <C>
Shopping Center:
Somerset, NJ $ 55,182 $ 1,065,995 $ 1,121,177 $ 726,584
Industrial Buildings:
Ramsey, NJ 52,639 1,175,214 1,227,853 553,275
Monaca, PA 330,773 1,797,526 2,128,299 930,492
Monsey, NY 119,910 1,757,588 1,877,498 823,065
Orangeburg, NY 694,720 2,977,372 3,672,092 555,371
South Brunswick, NJ 1,128,000 4,120,487 5,248,487 723,199
Greensboro, NC 327,100 1,853,700 2,180,800 321,335
Jackson, MS 218,000 1,233,500 1,451,500 204,423
Franklin, MA 566,000 4,148,000 4,714,000 478,596
Wichita, KS 268,000 1,518,000 1,786,000 175,165
Urbandale, IO 310,000 1,758,000 2,068,000 202,838
Richland, MS 211,000 1,195,000 1,406,000 137,877
O'Fallon, MO 264,000 3,302,000 3,566,000 296,193
Virginia Beach, VA 384,600 2,150,000 2,534,600 137,815
Fayetteville, NC 172,000 4,467,885 4,639,885 171,835
Schaumburg, IL 1,039,800 3,694,321 4,734,121 142,083
Burr Ridge, IL 270,000 1,233,250 1,503,250 15,810
Romulus, MI 531,000 3,650,000 4,181,000 46,775
Liberty, MO 723,000 6,507,000 7,230,000 13,903
_________ __________ __________ _________
$7,665,724 $49,604,838 $57,270,562 $6,656,634
========= ========== ========== =========
</TABLE>
Page 52B
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1998
Column A Column G Column H Column I
________ ________ ________ ________
Date of Date Depreciable
Description Construction Acquired Life
___________ ____________ ________ ___________
<S> <C> <C> <C>
Shopping Center:
Somerset, NJ 1970 1970 10-33
Industrial Buildings:
Ramsey, NJ 1969 1969 7-40
Monaca, PA 1977 1977* 5-31.5
Monsey, NY 1965 1980 30-31.5
Orangeburg, NY 1990 1993 31.5
South Brunswick, NJ 1974 1993 31.5
Greensboro, NC 1988 1993 31.5
Jackson, MS 1988 1993 39
Franklin, MA 1969 1994 39
Wichita, KS 1974 1994 39
Urbandale, IO 1985 1994 39
Richland, MS 1986 1994 39
O'Fallon, MO 1989 1994 39
Virginia Beach, VA 1976 1996 39
Fayetteville, NC 1996 1997 39
Schaumburg, IL 1997 1997 39
Burr Ridge, IL 1997 1997 39
Romulus, MI 1998 1998 39
Liberty, MO 1997 1998 39
</TABLE>
Page 52C
<PAGE>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONT'D)
(1) Reconciliation
<TABLE>
<CAPTION>
REAL ESTATE INVESTMENTS
9/30/98 9/30/97 9/30/96
<S> <C> <C> <C>
Balance-Beginning of Year $44,222,954 $34,718,945 $32,153,886
Additions:
Acquisitions 12,914,250 9,374,006 2,534,600
Improvements 133,358 130,003 30,459
__________ __________ __________
Total Additions 13,047,608 9,504,009 2,565,059
__________ __________ __________
Balance-End of Year (1) $57,270,562 $44,222,954 $34,718,945
========== ========== ==========
ACCUMULATED DEPRECIATION
9/30/98 9/30/97 9/30/96
Balance-Beginning of Year $ 5,481,022 $ 4,494,322 $ 3,642,542
Depreciation 1,175,612 986,700 851,780
__________ __________ __________
Balance-End of Year $ 6,656,634 $ 5,481,022 $ 4,494,322
========== ========== ==========
</TABLE>
Page 53
<PAGE>
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
NOTES TO SCHEDULE III
SEPTEMBER 30,
(1) Reconciliation
1998 1997 1996
Balance - Beginning of Year $44,222,954 $34,718,945 $32,153,886
Additions:
Ramsey, New Jersey 45,000 6,375 -0-
Somerset, New Jersey -0- 3,600 -0-
Monaca, Pennsylvania 40,204 85,060 4,725
Monsey, New York 15,067 34,968 25,734
Orangeburg, New York -0- -0- -0-
South Brunswick, New Jersey 33,087 -0- -0-
Greensboro, North Carolina -0- -0- -0-
Jackson, Mississippi -0- -0- -0-
Franklin, Massachusetts -0- -0- -0-
Wichita, Kansas -0- -0- -0-
Urbandale, Iowa -0- -0- -0-
Richland, Mississippi -0- -0- -0-
O'Fallon, Missouri -0- -0- -0-
Virginia Beach, Virginia -0- -0- 2,534,600
Fayetteville, North Carolina -0- 4,639,885 -0-
Schaumburg, Illinois -0- 4,734,121 -0-
Burr Ridge, Illinois 1,503,250 -0- -0-
Romulus, Michigan 4,181,000 -0- -0-
Liberty, Missouri 7,230,000 -0- -0-
__________ __________ __________
Total Additions 13,047,608 9,504,009 2,565,059
__________ __________ __________
Balance - End of Year $57,270,562 $44,222,954 $34,718,945
========== ========= ==========
(2) The aggregate cost for Federal tax purposes approximates historical cost.
Page 54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: December 16, 1998 By: /s/ Eugene W. Landy
Eugene W. Landy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date: December 16, 1998 By: /s/ Eugene W. Landy
Eugene W. Landy, President and Director
Date: December 16, 1998 By: /s/ Ernest V. Bencivenga
Ernest V. Bencivenga, Treasurer
and Director
Date: December 16, 1998 By: /s/ Anna T. Chew
Anna T. Chew, Controller and Director
Date: December 16, 1998 By: /s/ Daniel D. Cronheim
Daniel D. Cronheim, Director
Date: December 16, 1998 By: /s/ Boniface DeBlasio
Boniface DeBlasio, Director
Date: December 16, 1998 By: /s/ Ara K. Hovnanian
Ara K. Hovnanian, Director
Date: December 16, 1998 By: /s/ Charles P. Kaempffer
Charles P. Kaempffer, Director
Date: December 16, 1998 By: /s/ Samuel A. Landy
Samuel A. Landy, Director
Date: December 16, 1998 By: /s/ W. Dunham Morey
W. Dunham Morey, Director
Date: December 16, 1998 By: /s/ Robert G. Sampson
Robert G. Sampson, Director
Page 55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MONMOUTH REAL ESTATE INVESTMENT CORPORATION AS
OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 210,814
<SECURITIES> 2,065,050
<RECEIVABLES> 572,927
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,907,095
<PP&E> 49,980,857
<DEPRECIATION> 6,312,053
<TOTAL-ASSETS> 48,776,287
<CURRENT-LIABILITIES> 1,425,748
<BONDS> 21,477,984
0
0
<COMMON> 53,819
<OTHER-SE> 25,698,204
<TOTAL-LIABILITY-AND-EQUITY> 48,776,287
<SALES> 0
<TOTAL-REVENUES> 5,189,573
<CGS> 0
<TOTAL-COSTS> 645,759
<OTHER-EXPENSES> 1,345,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,323,890
<INCOME-PRETAX> 1,874,257
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,874,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,874,257
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
