Monmouth Real Estate Investment Management Discusses Q3 2012 Results - Earnings Call Transcript

Monmouth Real Estate Investment (MNR)

Q3 2012 Earnings Call

August 10, 2012 10:00 am ET

Executives

Susan Jordan

Michael P. Landy - Chief Operating Officer, Director and Chairman of Executive Committee

Kevin S. Miller - Chief Financial Officer, Chief Accounting Officer, and Director

Eugene W. Landy - Chairman, Chief Executive Officer and President

Analysts

Paul E. Adornato - BMO Capital Markets U.S.

Jeffrey Lau - Sidoti & Company, LLC

Michael Boulgaris

Presentation

Operator

Good morning and welcome to Monmouth Real Estate Investment Corporation's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. It is now my pleasure to introduce your host, Ms. Susan Jordan, Director of Investor Relations. Thank you, Ms. Jordan, you may begin.

Susan Jordan

Thank you very much, operator. I would like to remind everyone that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's third quarter 2012 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements.

Having said that, I'd like to introduce management with us today. Eugene Landy, Chairman and Chief Executive Officer; Kevin Miller, Chief Financial Officer; and Michael Landy, Chief Operating Officer. It is now my pleasure to turn the call over to Monmouth's Chief Operating Officer, Michael Landy.

Michael P. Landy

Thank you very much, Susan. Good morning, everyone, and thanks for joining us. Following last quarter's results, which marked one of our strongest quarters in recent years, our third quarter results were satisfactory. We have now completed 7 acquisitions this year, representing a total of 1 million square feet and an aggregate cost of $70 million. These acquisitions were all new built-to-suit constructions. This brings our gross leasable area to 8.5 million square feet, consisting of 71 industrial properties and 1 shopping center located across 26 states.

As of quarter-end, FedEx remains our largest tenant, representing approximately 42% of our gross leasable area and 50% of our rental revenue. We are currently working with FedEx on the expansion of 4 of our existing facilities totaling approximately 180,000 square feet and anticipate additional expansion requests from them over the next few years.

With regards to our most recent acquisitions, on June 8, we acquired a 120,000-square-foot industrial building in Oklahoma City, Oklahoma for $9.5 million. This new built-to-suit facility is leased to FedEx Ground for the next 10 years and is ideally located midway between that city's airport and downtown. Subsequent to quarter-end, on July 18, we acquired a 103,000-square-foot industrial building in Waco, Texas, for $8.7 million. This new built-to-suit facility is also leased to FedEx Ground for 10 years. Both of these new acquisitions also have future expansion capabilities.

We ended the quarter with an occupancy rate of 94%. Following 2 consecutive years of 100% tenant retention, this year, we had 12 lease expirations representing approximately 1.3 million square feet or 16% of our gross leasable area. We were successful in renewing 10 of our 12 leases, representing an 86% tenant retention rate. The average term for these renewals was 3.6 years and the average rent was $4.66 per square foot, representing a reduction of approximately 3% from prior rents.

Leasing spreads continue to improve compared to prior years. On the total property portfolio level, at quarter-end, we had a weighted average lease maturity of 5.3 years, with in-place leases going out as far as 2024. Subsequent to quarter-end, we were successful in leasing out 1 of the 2 buildings that did not renew this year by entering into a 5-year lease with hepdirect for 100% of our 107,000-square-foot facility in Winston-Salem, North Carolina. This lease commenced on August 1 and brings our current occupancy rate up to 95%.

With regards to our capital markets activities, in June, we announced the closing of a preferred equity offering, which generated net proceeds of approximately $55.5 million. This offering positions us well to continue to execute our growth strategy going forward. In addition, subsequent to quarter-end, on August 2, we reinstated our dividend reinvestment and shareholder investment plans.

Looking at the overall U.S. industrial market, we have now observed 7 consecutive quarters of positive net absorption, with approximately 26 million square feet of positive absorption over the most recent quarter. This marks the highest quarterly total in 4 years. The 10 billion-square-foot U.S. industrial market is currently 89% occupied. National average rents remained unchanged at approximately $4.50 per square foot. There is currently approximately 26 million square feet of industrial properties under construction. While this represents a low level relative to historic norms, it is the largest quarterly number since 2009. Although our nation's broad economy has recently slowed, looking at the industrial sector as a whole, a modest portfolio in particular, all indicators point to continued solid performance for our property type. Now, Kevin will provide you with greater detail on our results for the third quarter of fiscal 2012.

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