Q1 2021 Monmouth Real Estate Investment Corp Earnings Call
Good afternoon, and welcome to Monmouth real estate investment corporations first quarter, 'twenty and 'twenty, one and earnings conference call.
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It is not on my pleasure to introduce your host Ms. Becky Coleridge Vice President of Investor Relations. Thank you and it's Corey you may begin.
Thank you very much operator and.
In addition to the 10-Q that we filed with the SEC today, we have filed and unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q are available on the company's website and our E I see got Reed.
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.
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 on the company's first quarter 2021 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 <unk>.
Michael Landy, President and Chief Executive Officer, Kevin Miller, Chief Financial Officer, and Richard Monkey, Vice President of asset management. It is now my pleasure to turn the call over to <unk>, President and Chief Executive Officer, Michael Landy.
Thank you Becky and good afternoon, everyone and thank you for joining us before I get into our first quarter results I want to briefly address recent announcements regarding our strategic alternatives process and matters pertaining to our upcoming annual meeting.
On January 14th 2021, we announced that we would explore strategic alternatives and that we had retained J P. Morgan to work with CS capital advisors to assist us and that effort.
We are undertaking a comprehensive and thorough review of all alternatives available to us, including a possible sale or merger and our board and management team are fully committed to taking all appropriate actions to ensure we maximize value for our stockholders and.
In light of favorable current market conditions for our sector. We believe this is an opportune time to be evaluating our strategic options.
On December 31, 'twenty and 'twenty, we also announced that we were in receipt of notices from two stockholders declaring their intention to nominate candidates to stand for election to our board and submit several non binding proposals to be voted on at our annual meetings and.
As previously mentioned our board will carefully vet all proposed nominations and consider all proposals put forth by our stockholders.
Moving forward, we do not intend to disclose further developments unless and until our board approves a specific action or otherwise concludes the review of strategic alternatives.
Turning back to our results for the quarter ended December 31, 'twenty and 'twenty during the quarter. We acquired two brand new highly automated class a built to suit industrial properties containing 1.1 million square feet for $170 million.
The first property located on a substantial 99 acre parcel and the Columbus, Ohio MSA is leased to Fedex ground for 15 years.
The other property also located on a very large land parcel of 130 acres is located and the Atlanta, Georgia, MSA and is leased to home depot for 20 years.
These two acquisitions comprised 229 total acres, representing a substantial land to building ratio of 90 to one.
This provides us with a large amount of additional land at these two sites, which can be used for future building expansions as well as additional truck courts and parking.
These two leases are expected to generate annualized rental income of $10 $1 million for weighted average term of $17 nine years.
Further demonstrating our ability to accretively source acquisitions and bear in mind. These acquisitions were sourced well in excess of a year and advance of rent commencement. This equates to a blended cap rate of just under 6%.
We financed these acquisitions with a total of $104 million and debt comprised of two fully amortizing mortgage loans at a weighted average fixed interest rate of 3.11% in terms of 15 and 17 years respectively.
Following last year's 5% growth and our gross leasable area at the end of the first quarter. Our gross leasable area increased to approximately $24 5 million square feet, representing a 7% increase over the prior year period, and a 5% increase on a sequential basis.
As of the quarter and our portfolio consisted of 121 properties geographically diversified across 31 states with a weighted average lease maturity of seven five years and land to building ratio of five four to one and our weighted average building age of nine five years.
And <unk>.
We continue to experience strong demand for our properties. This past December we leased up our previously vacant 55000 square foot facility and the Hartford, Connecticut, MSA, two and investment grade tenant for 10.3 years, thereby increasing our occupancy rate to $99 seven per.
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82% of Mamas rental revenue generated from investment grade tenants and the remaining 18% generated from very strong unrated companies, our overall occupancy rate and base rent collections have been excellent throughout the COVID-19 pandemic our rent collections have averaged 99 eight.
Sent throughout the pandemic and we expect future months to be consistent with this trend.
During the quarter, we grew our acquisition pipeline to include four new built to suit properties containing one 2 million total square feet, representing $169 $3 million and future acquisitions. All four properties are leased to investment grade tenants.
These future acquisitions will have a weighted average lease term of 12.8 years subject to our customary due diligence we anticipate closing each of these transactions upon completion and occupancy which is currently expected to be during fiscal 'twenty 'twenty, one and the case of three of the properties and the first half.
Our fiscal 2022 for the remaining one.
And in connection with one of these four properties, we have entered into a commitment to obtain a 15 year fully amortizing mortgage loan of $35 $5 million at a fixed interest rate of 262%.
We expect to continue to grow our high quality acquisition pipeline further during fiscal 2021.
During the quarter, we raised approximately $1.3 million and equity capital through our dividend reinvestment plan of this amount of total of $1 million and dividends were reinvested, representing a 6% participation rate.
We also raised $76 million and net proceeds through our preferred stock ATM program with the sale of $3 1 million shares of our six seven and eight series C preferred stock at a weighted average price of $24.88 per share our series C preferred stock becomes redeemable on Sept.
Timber 15th of this year, we believe a significant opportunity exists to generate additional earnings growth by replacing some of our series C preferred equity with lower cost of capital.
Subsequent to quarter end on January 14th 2021, and our board of directors approved a five 9% increase and our quarterly common stock dividend raising it to <unk> 18 per share from 17 cents per share on a quarterly basis and from 68 cents per share to <unk> 72 per share.
On an annual basis.
This increase is the third dividend increase and the past five years, representing a total increase of 20%.
We are now in our 13th consecutive year of maintaining or increasing our common stock cash dividend.
Our dividend track record is among the best and the entire REIT sector pay.
Paying out a consistent and growing dividend over the long term represents in our opinion good corporate governance.
By distributing our earnings directly to our shareholders the investor gets to decide how best to reallocate this capital.
Turning to the overall U S industrial market, our property sector continues to perform exceptionally well as percussion and Wakefield fourth quarter report net absorption for the fourth quarter represented the strongest single quarter ever recorded with $89 8 million square feet of net absorption.
This brought year to date net absorption for 'twenty and 'twenty to $268 4 million square feet, representing an 11, 4% increase over the prior year.
Net absorption has been greater than 200 million square feet for seven consecutive years and given the strong E. Commerce demand drivers. This trend is projected to continue in 'twenty and 'twenty one.
The U S. Industrial vacancy rate was flat sequentially, but increased 30 basis points year over year to five 2% currently weighted average asking rents increased four 6% over the prior year period to $6.76 per square foot.
New supply totalled 353 million square feet, and 'twenty and 'twenty, representing a five 7% increase over the prior year.
There is currently 367 million square feet of new industrial space under construction with just over 42% of this new construction being pre leased.
Following a record holiday season, and increasing amounts of modern industrial space are very much needed in order to serve continued strong demand for online shopping.
And now let me turn it over to rich. So he can provide you with more detail on the property level as well as to our progress on the leasing front.
Thank you Mike with respect to our property portfolio I'm pleased to report that our occupancy rate has been over 98 nine.
And 9% for six consecutive years, and we have maintained a weighted average lease term and excess of seven years for the past seven consecutive years now.
Our occupancy rate at quarter end was 99, 7%, representing a 50 basis point increase from a year ago, and a 30 basis point increase sequentially our.
Our weighted average lease term was seven five years as of quarter and as compared to seven six years and the prior year period.
Up from 7.1 years and the prior quarter.
During the first quarter of fiscal 'twenty and 'twenty, one our weighted average rent per square foot increased by 4% to $6.52 as compared to $6.27 a year ago.
During the quarter, we completed a large parking expansion project for Fedex ground and our property located in the Kansas City MSA for a total project cost of $3 $4 million.
This expansion resulted in a $340000 increase and annualized rent increasing the total annualized rent from $2 $2 million to $2.6 million.
We anticipate additional expansion market dislocation, which will further increase the rental rate and extend the lease term.
There are currently six additional parking expansion projects underway that are expected to total approximately $17 million.
These parking expansion projects will enable us to generate additional rent while extending the lease terms.
We are also and discussions to expand parking at 11 additional locations currently and due to growing demand for home deliveries. We expect this total amount to increase further.
From a leasing standpoint in fiscal 'twenty 'twenty, one approximately 5% of our gross leasable area, representing 10 leases totaling approximately $1 2 million square feet is scheduled to expire.
Of these 10 leases have been renewed the six leases that have been renewed represent 834000 square feet or 69% of the expiring square footage.
Six lease renewals have a weighted average lease term of three eight years and a weighted average lease rate of $4.59 per square foot on a GAAP basis and $4.49 per square foot on a cash basis.
This represents an increase of eight 5% on a GAAP basis, and an increase of 2% on a cash basis.
The remaining four leases totaling 372000 and square feet that are set to expire during fiscal 'twenty and 'twenty, one and are currently under discussion.
There are no known move outs at this time and we are aiming for 100% tenant retention this year.
Previously reported effective October one 2020, we entered into a lease termination agreement with Cardinal Health for 75000 square foot facility located in the Albany, New York MSA.
And we received a termination fee of $377000, representing approximately 50% of the then remaining rent due under the lease which was set to expire and 1.2 years.
And we simultaneously entered into a 10.4 year lease agreement with United Parcel service, which became effective November one 2020.
The new lease with UBS provides for five months of free rent after which initial rent of $510000 commences with 2% annual escalators throughout the 10 year term.
The new lease represents a straight line annualized rent of $541000 or $7.21 per square foot over the life of the lease through the end of March 2031.
This compares to the former GAAP rent of $7 65 per square foot, representing a five 8% decrease on a GAAP basis, which equates to a $33000 reduction compared to the prior Cardinal health threat.
In addition to the $377000 termination fee, we collected from Cardinal health and the new lease with UBS provides us with an additional 9.3 years of lease term as well as providing us a new investment grade tenant to add to our all star tenant roster.
In addition, and as mentioned earlier effective December 2020, we entered into a new 10.3 year lease agreement with Hartford Health Care Corporation for a previously vacant and 55000 square foot facility located in the Hartford, Connecticut, MSA, which increased our current overall occupancy rate to $99 seven.
Percentage.
The new lease has free rent for the first four months after which initial annual rent will be $288000, representing $5.25 per square foot with 2% annual increases thereafter.
This results and the U S. GAAP straight line annualized rent of $307000, representing $5 60 per square foot over the life and the lease.
As a result, we now have only one vacant building with a total of 81000 square feet and of our entire 121 properties, representing just 30 basis points of vacancy for our 24 and a half million square foot portfolio.
With a weighted average lease term of seven five years and some leases going out all the way until 2041 are resilient income streams secured predominantly by investment grade tenants should continue to perform very well for many years to come and now Kevin will provide you with greater detail on our financial results.
Thank you rich funds from operations or F. F O for the first quarter of fiscal 2021 were $18 $9 million on 19 cents per diluted share. This compares to <unk> for the same period, one year ago of $19 $3 million or 20 cents per diluted share and $19 $2 million or 20.
<unk> per diluted share sequentially, representing a 5% share decrease.
Adjusted funds from operations or <unk> was $18 $2 million or <unk> 19 cents per diluted share for the quarter as compared to $19 $9 million or 21 cents per diluted share and the prior year period, representing a nine 5% share decrease this decrease was largely the result of.
And increase and preferred dividend expense of $2 $1 million and a reduction.
And <unk> and dividend income of $1 $6 million, partially offset by an increase and net operating income of $2 $1 million.
This quarters <unk> 19 cents per diluted share is unchanged sequentially.
As mentioned during the recent quarter, we purchased two large properties for an aggregate purchase price of $170 million, which will generate $10 $1 million and annualized revenue.
These two acquisitions were purchased very late in the quarter and therefore, the current quarter does not reflect the positive impact of these two recent acquisitions.
We expect that the NOI generated from these recent acquisitions, coupled with the deployment of our excess cash proceeds along with our $169 $3 million acquisition pipeline as well as our large expansion pipeline will meaningfully grow our <unk> and <unk> per share earnings going forward.
Rental and reimbursement revenues for the quarter were $43 $6 million compared to $41 $7 million, representing an increase of 5% over the prior year period.
Net operating income or NOI, which we define as recurring rental and reimbursement revenues less property taxes, and operating expenses was $36 $5 million for the quarter, reflecting a 6% increase over the comparable period a year ago.
On net income was $33 $9 million for the first quarter as compared to a net income of $9 $6 million and the previous year's first quarter. The large increase and net income. This quarter was primarily driven by a $19 $7 million unrealized holding gain on our securities portfolio.
With the widespread COVID-19 vaccination process now and progress many of the large decreases in our securities investments have begun to reverse themselves.
As we previously announced we plan to substantially reduce our securities holdings over time to that and subsequent to the quarter and we sold marketable REIT securities for gross proceeds totaling $12 $3 million generating a realized gain of $1 $8 million that will show up and our next earnings filing.
Same property NOI increased 20 basis points on a GAAP basis, and increased 60 basis points on a cash basis over the prior year period.
These increases in same property NOI were mostly due to a 50 basis point increase in same property occupancy to 99, 6%.
As rich mentioned on December 15, 2020, we entered into a new 10.3 year lease agreement with an investment grade tenant for the Hartford, Connecticut property, increasing our overall occupancy rate to 99, 7%.
Subsequent to the quarter and we fully repaid a $6 $2 million mortgage loan for one of our properties located in Kansas City, Missouri.
The loan was originally set to mature on December one 2021 and had an interest rate of 5.18%.
As at the end of the quarter, our capital structure consisted of approximately $963 million and debt of which $888 million was property level fixed rate mortgage debt and $75 million were loans payable.
92% over that is property level fixed rate mortgage debt with a weighted average interest rate of 388% as compared to 4.05% and the prior year period.
Our weighted average debt maturity for our property level fixed rate debt remained unchanged at 11, five years at quarter and as compared to the prior year period.
Our loans payable is made up of a $75 million term loan that has a corresponding interest rate swap agreement to fixed LIBOR at an all in interest rate of 292%.
Including the term loan 100% of our debt is fixed rate with a weighted average interest rate of 381% along with a weighted average debt maturity of 10.9 years. This represents one of the longest debt maturity schedules and the entire REIT sector.
We also had $549 $6 million outstanding on our series C. Six and an eighth perpetual preferred equity at quarter end, which as previously mentioned becomes redeemable later this year, thereby providing a good opportunity to help generate additional earnings growth.
Combined with an equity market capitalization of $1 $7 billion. Our total market capitalization was approximately $3 $2 billion at quarter end.
From a credit standpoint, we continue to be conservatively capitalized with our net debt to total market capitalization at 29% our fixed charge coverage at two one times and our net debt to adjusted EBITDA at six four times for the quarter.
Our net debt to adjusted EBITDA as of the quarter and includes the entire $104 million and fixed rate mortgage debt that we incurred in connection with the two recent acquisitions, but does not include the full run rate NOI on a pro forma net debt to adjusted EBITDA is considerably lower.
From a liquidity standpoint, we ended the quarter with $29 3 million and cash and cash equivalents and we currently have no borrowings on our revolver.
In addition, we have $126 $3 million and marketable REIT securities representing 5% over on depreciated assets with an unrealized loss of $107 $1 million at quarter end.
As mentioned the value of our securities portfolio has continued to rise subsequent to quarter and and we've begun to opportunistically reduce our holdings.
Our securities portfolio currently generates approximately $6 million and annual dividends.
And now let me turn it back to Michael before we open up the call for questions.
Before we begin the Q&A portion of today's call I want to remind everyone that the purpose of today's call is to discuss our first quarter earnings. Please keep your questions focused on our financial results. As a reminder, we will not be commenting further on our strategic exploration process.
Or on matters related to our annual meeting at this time with that we will open the call up for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the key.
So withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Frank Lee with BMO. Please go ahead.
Hey, good afternoon, everyone first question on for Mike.
And just what has to understand the process and what are the next steps and timing and regards to the strategic review.
Yes, Frank I guess, you didn't hear our prepared remarks, but as I stated at the onset of our prepared remarks and at the conclusion of our prepared remarks, we will not be commenting further on our strategic exploration process or on matters related to our annual meeting at this time.
Okay.
And then you mentioned and the press release that cap rates have compressed across the industrial sector. Just curious if you've done it.
Sort of like internal rollout of cap rates across your markets and you're able to share what do you think and overall cap rate for your portfolio is today.
No, but we have been acquiring assets at ever decreasing cap rates, but at spreads positive spreads to on the spot cap rates.
And I just mentioned, we did a $170 million and acquisitions in Q1, those acquisitions closed at the very end of the quarter. So while you had the preferred expense and you had the $104 million and that you didn't see the $10 1 million and revenue, but you will see that next quarter now because we locked in those.
Deals over a year in advance and in fact over two years and advanced for one of the two deals and over a year and events for the other the cap rates were substantially higher than current on the spot cap rates. So we generate a tremendous accretion cap rates have been.
Pressing for.
And the better part of the decade, and we've been doing forward deals with positive spreads versus on the spot cap rates generating tremendous embedded gains on our balance sheet.
Yes.
Okay.
And then last one for me.
And regards to the securities portfolio and you saw some in the quarter.
And what are you what are your current thoughts about.
Taking on some more exposure given kind of on the recent strong gains and several of your holdings.
Yeah, just to be clear, we sold $12 3 million subsequent to quarter and generated $1 8 million and gains. So the portfolio today is even higher than it was at quarter end and if you add back the $12 3 million, it's not much higher so so the portfolio has gone up and.
Yes, we will continue to harvest gains and reduce the securities portfolio as Kevin mentioned, the pandemic is slowly becoming part of the rearview mirror and the securities portfolio valuations continue to rise and we made a conscious decision to.
Two years ago.
To not increase the securities portfolio, we made a conscious decision when the pandemic hit to ride the pandemic out and not harvest unrealized losses to wait for the securities valuations to stabilize and and Theyre starting to do that already and.
Industrial had the best quarter ever.
Meanwhile, office buildings had one of the worst quarters ever. So so we're still early in this pandemic driven economy, and we'll watch the securities portfolio, it's 5% of gross assets Theres no urgency to do anything at this time.
Okay got it thanks, Mike.
Welcome.
Our next question comes from Gaurav Mehta with National Securities. Please go ahead.
Yes. Thanks.
Following up on the securities portfolio and I guess as you think about the feature on the company should be should we expect that Monmouth real well and then.
Maintaining the securities portfolio from 5% of gross assets are all you can document and exit the securities portfolio at some point.
Yes, I think at some point, we will it served us well over the long term it provides tremendous liquidity to our balance sheet, but.
The accounting changed about two years ago. So it's no longer part of our balance sheet. Other comprehensive income it flows through our income statement and creates tremendous noise and volatility and and so.
I think it is a distraction at this point, it's only 5% of assets and we will slowly wind it down.
I don't know, it's taking it to zero is the right number but 5% is maximum and like I said, we plan to take it even lower.
Okay second question on the acquisition funding.
And stock has done well and last couple of months I was wondering if you would consider using common stock and stood up that could start to fund your 116 on land.
Acquisition that you have on the under your pipeline.
Yeah and not at this precise time.
Perhaps down the road.
70% of our pipeline will close in the fourth quarter of this year. The other 30% of the pipeline will close and the first half of 2022.
And right now we have ample liquidity and no need to access the capital markets at this time.
Okay and lastly.
I certainly heard that you guys are not commenting on the on the process going forward, but I was wondering if you could.
And what happened in mid summer and tell them about $18 per share.
And that Doug you guys didn't see and the best interest on shareholders are you able to comment at all has been on what your concerns are all about that offer and it was the devaluation or anything else that day.
Should we should think about.
Yeah, we issued a statement on January 14th in that regard and I refer you to that January 14th press release.
Okay. Thank.
Thank you.
And thank you.
Our next question comes from Rob Stevenson with Janney. Please go ahead.
Good evening guys.
Mike can you talk about the current acquisition environment and the <unk>.
<unk> pipeline and how aggressively you're pursuing deals these days.
Yeah, we are pursuing deals aggressively it's a very competitive market as you know it's been a very competitive market.
And we're 53 year old company with strong relationships with the merchant builders and they show us deals often and.
Yes cap rates are ever decreasing and to win deals you have to go further out on the limb.
Our financing costs are also coming down so.
And we're happy with the pipeline we have its four properties all leased to investment grade tenants one of them represents a new relationship as far as a merchant builder relationship and tenant relationship.
And its Mercedes Benz. So we continue I have calls every week with developers and we continue to try to grow the shadow pipeline.
Okay, and I mean from your standpoint, I mean, this cap rate keeps coming down, but youre talking about your cost of capital going down I mean, especially with the stock price where it is now I mean, how do you sort of balance out I mean are you willing to go into the low fives and high fours for a high quality deal with one of your existing tenants or new tenants.
Is that is there a limit there where you say you know I don't want to go below this type of valuation.
How are you guys thinking about that.
Well the two deals we closed and the first quarter have a weighted average lease term of $17 nine years. One deal goes out to 2041 with 185 basis point bumps every year for 20 years, So and like I said, we consummated those deals over a year before rent commenced and.
And the merchant builders.
When they show us deals often and they haven't even broken ground yet the 10 year Treasury has moved about 40% higher and yield over the last quarter and so it's a moving target nobody knows where interest rates are going and they're trying to lock in their development margin and and they're being conservative.
And so if we could help them lock in our profit margin that they find satisfactory.
The win win.
Yeah. The short answer to your question is.
A 20 year deal with good bumps.
And would price and then.
Mid fours, some people would price it even lower.
And to win it.
It's certainly not going to have a five and front of it so net leased to an investment grade tenants. These these are the highest quality industrial properties out there our portfolio average building age is nine and a half years rich mentioned, 82% of our revenues investment grade. The other 18% is unrated investment grade quality tenant.
These are single tenant omni channel buildings, there's tremendous amount of land, we're doing over $50 million and Fedex expansions, which is monetizing non income producing land that we already own.
So anytime you could do that and generate 10% Unlevered returns and you are taking hidden assets on your balance sheet and putting them to work. So there's a lot more to it and just the initial yield there is the ability to expand the building there's the ability to keep the tenants in the building Fedex still remains in the very first deal we did and 19.
994, they are still in that building. So rich mentioned, we're in our seventh consecutive year with over seven and a half years of weighted average lease term when our sixth consecutive year with over 98, 9% occupancy.
And there's something.
Very stabilizing and predictable about our business model and so we know the parameters and we know what we feel comfortable doing okay and.
And you're talking about the series preferred is the thought there to replace that with another series of preferred at a lower rate you guys thinking about just taking out the preferred altogether with and just use that Howard how are you and the board thinking about that these days.
Yes, there's just tremendous opportunity to replace that low hanging fruit.
If you remember Rob we had a series a preferred and a series B preferred day were to under 8%, but rounding up to 8% cost of capital and we issued the series C to replace the series, a and B and we generate tremendous dividend savings and earnings growth, if we get and and that was a smaller tranche a and b.
And about $111 million and preferred combined and now we have 550 million outstanding and the series C. Every 100 basis point reduction will be five and $5 million and preferred dividend savings flowing right to the bottom line. If we can achieve a 200 basis point savings like we did when we issued the C and places the Eva.
And that would be $11 million and savings. We also have the ability to use debt and generate even more savings or even common equity would generate more savings. So theres no silver bullet, but refinancing that low hanging fruit at six one to five.
And as available as soon as it becomes redeemable, which is on or after September 15th of this year and whole or in part.
Okay and how soon do you start that process, given where rates are today and your comments about not knowing where rates are going to go on the future.
Active today do you guys start that process over the next couple of months and have <unk>.
Another series of preferred overlapping or some debt overlapping with that in order to lock in advantageous rates do you wait until you're within 30.
And 30 or 60 days of that redemption.
It's a little early now, but you're certainly not have to wait until the redemption date as we get closer we'll evaluate the landscape.
Alright, and then last one from me Kevin can you remind me are there any shareholder protection provisions and the series C preferred stock and the event of a sale of the company.
Yeah, there's the usual provisions that were put in and a change of control.
And we're all pretty standard now and and they're in the series C for sure. Okay. Perfect. Thanks, guys I appreciate it.
Our next question comes from Conor.
And our ski with Banca <unk>. Please go ahead.
Good evening, everyone and thank you for having me on the call Tonight.
Just one quick one on the investments at the end of December I think you had mentioned it on on the call just to get a sense of pricing I think it was the high fives on a GAAP basis.
Five nine.
Okay. Thanks for that and then and then on the pipeline and you know I'm just wondering on the geographic areas I think I saw from our Tennessee, Alabama and the filing.
Can you speak at all to maybe some of the infrastructure features in these areas near intermodal hubs or any of the interstate and things like that.
Yes, I'm happy to counter the first thing I'll point out is the biggest gateway for U S. Imports into America is the ports of L. A and long beach and they've been hit by a record bottleneck right now Theres 38 container ships.
Anchor to see waiting for berth space. The ships today are bigger than ever before there is no infrastructure to get these 38 ships and and unloaded on time, So we have a real supply chain disruption.
Covid has created a situation where people are not spending money on experiences and therefore, they're consuming more goods and it's helping industrial but we need more capacity, we need the ships to come to the Gulf region, we needed and that come up the eastern seaboard Mommas in anticipation of the expand.
And can now had already been investing heavily in those areas. The split was 170 30 container ship traffic on the West coast with 70% Gulf and East Coast 30, It's about 50 50 today, so and theres more containers coming into the country than ever before so.
We like our locations, we like Alabama, where we have assets at the port and mobile.
And of assets in Florida is our highest concentration and theres more seaports and the state of Florida than any other state and so now with Covid people are leaving the 24 seven cities, they're looking for more space.
Portfolio is predominantly east of the Mississippi over 70% and the U S population resides east of the Mississippi and we're in the areas of growth their business friendly areas the right to work states.
And these are where people are moving.
Okay. That's very helpful color and last one from me I'm just wondering if there is an upper limit to what kind of exposure you guys want to have with Fedex and then second to that I'm seeing your adding Mercedes Benz and Mercedes Benz to the tenant roster and I'm. Just wondering how conversations are progressing to maybe increase their presence within the portfolio and if.
And there might be any of the other automakers operating on the east coast and the future plans.
Alright.
I'll answer it in reverse order the Mercedes a distribution center.
We will be owning is at the largest Mercedes plant and North America's third largest plant in the world and it's where they're doing a huge initiative for electric cars are building will be distributing electric car parts to the plant and there'll be serving the plant with electric parts. So we're excited about that relationship with <unk>.
Fedex.
It wasn't long ago, where people were very concerned about the Monmouth Fedex concentration now Fedex is suddenly the largest airline in the world passenger.
The amount of traffic and on the Plains has been curtailed and revenue from most airlines is abating and Fedex is revenue because it's a cargo airline is skyrocketing and they suddenly leapfrog from the fifth largest airline and the world to the number one based on revenue airline and the world. So we've never turned down a good.
Fedex deal despite a lot of pundits, saying.
Too many eggs and the Fedex basket.
And now I don't know anybody who's saying that today in fact people are saying and we wish we had more Fedex is well we never turned down a good Fedex we on the best Fedex assets in the country and we will keep growing with Fedex.
Okay. Thanks for the color that's all from me.
Oh.
Our next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Yes, I was hoping you guys can provide some color on the are the remaining leases that are expiring in 2021, I think you have four left and I think you said you're in discussions with them.
And those discussions going right now and what's the expectation there.
Sure so that as he said we got four left we've talked to them. All we feel pretty confident we're going to have 100% retention and are you now.
On a spread basis, it's going to be and the bandwidth of our last five years. So nothing nothing out of the ordinary on spreads and a real good tenant retention for the year.
Okay. So what's what's taking them I guess I guess, how long does that typically take to sign leases and I that brand and the beginning of the year.
And they still haven't made a decision yet or did they have made a decision and they just have to sign the contract.
Yeah, it's not odd we know they're staying and it's just a matter of working things out and I will point out all these fedex expansions. If you blend the Fedex expansions that are going to be consummated. This year with the six renewals that rich has achieved the eight 5% GAAP spread.
Becomes a 24, 3% GAAP spread and the 2% cash spread becomes a 12, 8% cash spreads. So these expansions are incredibly lucrative and we wouldn't be reporting that we werent shooting for 100%.
We had any concern about tenants not renewing.
Okay, Great and then I guess last one Mike can you talk a little bit about the preferred that's redeemable and the end of December is it safe to assume this.
Current marketing conditions home, you'll just redeem that entire preferred.
Areas and and either issue new prefers or debtor equity Theres no reason to have an outstanding right.
If the current conditions hold.
Well, it's a big tranche and its redeemable on or after September 15th of this year I don't know that we'll take out all of it at once and I don't see a need to take it all at once.
So we may if it's opportunistic.
If the opportunity presents itself, great otherwise, we'll take it out and tranches.
Tremendous opportunity to generate savings, but we're not there yet it's not redeemable, yet and I don't want to rule anything in or out on how we're going to redeem it.
Okay are you still committed to having and preferreds does that still warranted and the capital stack, given where debt rates are.
And is it safe to assume that you would want is still issue a decent size preferred to redeem those.
Yeah, well always have preferred and our capital stack.
No you could generate short term gains by going floating rate short term debt as I mentioned, the 10 year Treasury yield has gone up 40 basis for 40%.
And in three months, so and a year ago. It was close to 2%. So the interest rates move all over the place and if you have perpetual capital that's locked in and permanently and there was a time when people will slide 8% perpetual capital was very advantageous today, 6% is considered too high.
So if we can lock in a perpetual instrument.
<unk> hundred basis points inside our sixth and and as I think that would be very advantageous for a non rated issuer and yeah and the short term you can do better, but you sleep well at night funding long term assets to investment grade tenants with short with long term capital instead of playing the short term gain.
<unk>, which unfortunately the market is fixated on these days, but we've always had a lot of skin and the game, we've always with way out on the horizon and we've always planned.
To do what's right for the shareholders long term interest.
Okay, great. Thank you.
Hello.
Our next question comes from Greg <unk> with B Riley financial Please go ahead.
Yeah. Thanks.
So I'd like to talk about your recent leasing really since Covid I think you've generally been getting renewals and the three to four year range and you go back to 17, 18, 19, and typically you're getting closer to seven years.
You get the sense that this is a new normal or are you seeing any science and as we get further along with vaccine distribution.
That tenants may be willing to commit longer.
Yeah. It for the short term it does seem to be the new normal listening to the other industrial REIT.
The weighted average lease terms on renewals has been curtailed.
The board.
But I do think it is a short term thing and it's hard to look way out on the horizon and a pandemic stricken economy, but are.
Offsetting the $3 eight year, Walt that rich got on the renewals is the expansions and some of those expansions are mostly there they're toggling out 10 additional years, but summer toggling out 15 additional years so.
That's why our weighted average lease term quarter to quarter went from seven years to seven five years and it's been over seven years for seven consecutive years. So so that's the stability, it's not volatile for over seven consecutive years, it's been over seven years of Walt and it will continue to be but you're absolutely right. The six renewals.
<unk> had great spreads, but the the wall a little light relative to what we're used to.
Got it and I know you've mentioned a few times about potentially taking out the series C preferred with some lower cost capital, but Kevin I would be curious when youre getting lenders getting a two 6% mortgage quotes you've had a couple of mortgages at least that have five handles.
Is there a point, where it where the math pencils out and it makes sense to start refinancing some of that debt and advance or are there prepayment penalties that are maybe two on us.
Yeah, there are prepayment penalties on their self amortizing debt, so even though a lot of those older ones that have the higher interest rates you know they've been advertising down so their loan balances arent. So high so they don't have that big of an effect, but yes. We are definitely taking a look and seeing a maybe there are some loans with some high interest rates that maybe it is worse.
To to prepay and and we actually right after the quarter, we prepaid alone on there.
That was set and it was and the 5% range. It was $5 one 8%.
That was a we prepaid and in January.
Okay, great. Thank you.
Thank you.
Our next question comes from Merrill Ross with Compass point Research and trading. Please go ahead.
Good evening.
I have two questions.
First on that.
And land to building ratio is there any restriction could you, possibly work with American and building to build the property.
That's not for the existing tenant.
I'm, sorry, I'm, sorry, different noncompetitive tenant who might and you don't find that location and interesting.
Yeah, well if you look on our presentation Youll see a fedex on I four in Orlando that's.
On each side, it's surrounded by million square foot Walmart buildings, and so the merchant builder there was able to work with Fedex and then layer Walmart wanted to be as close to Fedex as possible. So on each side of the Fedex distribution Center, you see millions square foot Walmart buildings, and there's actually a third one now there's three buildings.
Our presentation will show you the two there's actually three now but to answer. Your question is when you have that much land like our home depot asset is 130 acres, there's definitely room for additional buildings, there's tons of parking tremendous amount of land, but its usually subsequent to the tenant taking occupancy.
And.
And habits and the building for a period of time Walmart came later on the Fedex asset and so and usually it comes after the fact, but your point is well taken and there's a tremendous amount of land and while we're on the subject I'll also bring up you know whenever we say the square footage from our Fedex assets. That's the square footage of the distribution center.
In addition to that just usually a 5000 square foot gateway security building than anybody coming or going needs to go through it's like going into the airport and check for security and there's also a vehicle maintenance garage. That's another 5000 square feet. So so it's about 10000 square feet per Fedex building and additional <unk>.
Structures that are on the property, but are not part of the distribution center above and beyond.
Hum.
And another question.
And it's related but not really.
When you look at day 170 million and you acquired in the quarter.
Did the tenants put into those properties did they put in.
And the other 20% or was it more significant in terms of their investment and and there you know.
Yeah and makes it more predictable.
And we knew.
And what's their skin and again.
More than 20% much more I've been to both properties.
The home depot is a state of the art Omni channel facility tons of automation and they have electric forklifts with liquid hydrogen tanks and it's it's a modern state of the art building and just the IP investment alone.
I would say is 10% so and then you have all the other automation and so youre around 40.
Percent it goes into the infrastructure, it's not racks and forklifts. This is this is robotics highly automated and.
Often the material handling infrastructure, it takes as long or longer than constructing the building itself and there is instances where it costs more than constructing like on.
On the cosmetics E Commerce fulfillment center in Indianapolis, and so I would say, both with home depot, and Fedex substantial investments and the infrastructure and that's indicative for all the modern omni channel facilities today and it's.
And our annual report, we talk about how they call everything industrial but this digital buildings and analog buildings and their worlds apart if youre, serving the home delivery part of the supply chain. It's gotta be robotics, it's gotta be automated it's gotta be a modern building lots of land and the big trucks and lots of employees.
Peak season, you know these facilities of 550 employee vehicles and then another thousand truck parking lots.
And and robotics are like and.
The wells and and and the floor and they don't look great.
That's right that's right.
Okay.
We have pictures on our website and in our annual report and in our presentation. We have pictures. So so no no. It's a it's a major investment by the tenant and.
The companies that do this hi Tech technology, it's plug and play there very backlogged and you could have the building complete and another year before the infrastructure is built out.
So my point is even though this is greenfield they can't and that's up and move across the street.
No. It's a good point, it's a good point.
And as I mentioned Fedex is still in the same building that we first invested in with Fedex and 1994, very sticky tenant and a it's not the kind of situation when the leases rolling where they could price things across the street and say, they're going to pick up stakes because it is very cumbersome.
Expenses and difficult to re set up the infrastructure.
Thank you.
Thank you.
Our next question comes from Barry, Oxford with D. A Davidson. Please go ahead.
Great. Thanks, Hey, Mike a question when you guys are looking at acquisitions and I know its relationship.
And driven and in light of the fact that youre going through strategic alternatives is that giving any of the potential sellers to you any pause or look Barry that's kind of a non issue.
Yeah.
I'm sure it's somewhere in between.
And I'm talking about deals.
But I can't say, it's a non issue.
But we've been around 53 years, and so they've seen over the 53 year period.
And our resilience and so.
They are counting on our resilience remaining.
Right.
Got it got it alright, thanks, Mike appreciate it.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Becky Coleridge for any closing remarks.
Thank you operator, I would first like to point out that our recently published annual report is now up on our website.
It represents an excellent resource for understanding our company and our outlook. We encourage you to every day. Please contact our IR department, if he would like to receive a hard copy and.
And thank everyone for joining us on this call and for their continued support and interest in Monmouth as always we are all available for any follow up questions. We look forward to reporting back to you after our second quarter. Thank you.
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