Good morning, and welcome to Monmouth Real Estate Investment Corporation's Second Quarter 2013 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.

Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited quarterly supplemental information presentation. This supplemental information presentation along with the 10-Q are available on the company's website at www.mreic.com with a link on the home page. I would like to remind everyone that certain statements made during this the 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 the actual results to differ materially from expectations are detailed in the company's second quarter 2013 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. Kevin Miller, Chief Financial Officer; and Michael Landy, President and Chief Executive Officer. It is now my pleasure to turn the call over to Monmouth's President and Chief Executive Officer, Michael Landy. Michael P. Landy: Thank you very much, Susan. Good morning, everyone, and thanks for joining us. We are pleased to discuss our results for the second quarter ended March 31 as we continue to make good progress across multiple fronts. First, we made significant progress on the leasing front this quarter of our 11 properties, totaling approximately 897,000 square feet, whose leases were originally set to expire this fiscal year. Ten lease renewals representing 837,000 square feet were approximately 93% of such lease expirations have been consummated. These leases have been renewed for a weighted average term of 4.7 years and at an average lease rate of $4.68 per square foot as compared to $4.84 per square foot formerly, or a reduction of 3.3%. Our portfolio is known to deliver very reliable performance over the long term, and tenant retention is a key factor in this regard. Our tenant retention rates were 100% in fiscal 2010, 100% in fiscal 2011, 86% in fiscal 2012 and we are very pleased with our 93% tenant retention rate this year. In addition, during the quarter, we entered into a 7.5 year lease on our 68,385 square foot building in Tampa, Florida that was previously vacant. Also during the quarter, we sold our 40,560 square foot vacant building in Greensboro, North Carolina for $1,525,000, which resulted in a net gain to us of $346,000. As a result of all these leasing activities, our occupancy rate increased to 95% versus 94% last quarter and is in line with our 95% occupancy rate in the prior year period. Our gross leasable area now stands at 9.2 million square feet and consists of 72 industrial properties and 1 shopping center located across 26 states. We now have a weighted average lease maturity of 6.1 years, with in-place leases going out as far as 2024. We are currently working with our largest tenant, FedEx, on the expansion of 3 of our facilities, totaling approximately 170,000 square feet. The total costs for these 3 expansions will be approximately $14 million. Upon completion, these expansions will result in total increased rent of approximately $1.4 million annually. In addition, these expansions will result in a new 10-year lease extension for each building being expanded. Although the second quarter saw no new acquisitions, following last quarter's substantial activity of 787,000 square feet totaling $41.7 million in acquisitions, we expect these significant amount of deal closings throughout the remainder of fiscal 2013 and into 2014. We currently have 1.4 million square feet representing $96 million in total acquisitions scheduled to close over the next 6 quarters. In keeping with our business model, all of the deals in our current pipeline contain leases of 10 years or greater and are all leased to investment-grade tenants. The cap rates on these deals typically range in the low- to mid-7% range and are substantially higher than the 5% to 6% cap rates that we are seeing today for comparable assets in the market. Subject to satisfactory due diligence, we anticipate closing these transactions upon completion and occupancy. With regards to the overall U.S. industrial market outlook, we have now observed 12 consecutive quarters of positive net absorption, with approximately 32 million square feet of net absorption over the most recent quarter. Demand for industrial space has pushed the natural vacancy rate to 8.5%, its lowest level in 4 years. Rental rates are improving and are expected to continue to increase given the strengthening occupancy rate, which at 91.5% is now only 100 basis points below the pre-recessionary level. New industrial construction, although increasing slightly to 68 million square feet in 2012, remains at historically low levels for the past 5 years now. Each of the past 5 years saw well under 100 million square feet of new construction. Looking back over a 30-year period, an average year would provide approximately 250 million square feet of new industrial construction. Recent growth in the housing, auto and energy sectors should help drive additional demand for our property type as growth in all 3 of these vital sectors is highly correlated with increased demand for industrial space. And now, Kevin will provide you with greater detail on our results for the second quarter of fiscal 2013. Kevin S. Miller: Thank you, Michael. Core funds from operations for the second quarter of fiscal 2013 were $8.8 million or $0.21 per diluted share. This compares to core FFO for the same period 1 year ago of $10.7 million or $0.27 per diluted share. Excluding the $3.2 million early termination fee that was included in our prior year second quarter results, core FFO was $7.4 million or $0.19 per diluted share in the prior year period versus our $0.21 per diluted share result this year, representing an increase of 11%. Excluding securities gains realized during the quarter of $3.8 million or $0.09 per diluted share, core FFO was $5 million or $0.12 per diluted share. Adjusted funds from operations, or AFFO, which excludes securities gains or losses were $0.11 per diluted share for the recent quarter, compared to $0.13 per diluted share a year ago when excluding the lease termination income. This $0.02 per share reduction in AFFO is a result of an adjustment to straight-line rents that will no longer be necessary as of next quarter. Rental and reimbursement revenues for the quarter were $13.3 million, compared to $12.6 million or an increase of 6% from the previous year. Net operating income was $11.2 million for the quarter, reflecting a 9% increase from the comparable period a year ago. Net income was $7.6 million for the second quarter compared to $5 million, which excludes the early termination income in the previous year's second quarter, representing an increase of 52%. This improvement was driven largely by a $3.8 million in realized securities gains this quarter versus $2.2 million in the prior year period, as well as the substantial acquisition activity that has occurred over the past year. With respect to our properties, end-of-period occupancy held steady at 95% compared to a year ago and is up 100 basis points from the most recent quarter. Our average lease maturity as of the end of the quarter was 6.1 years as compared to 5.2 years a year ago. Our average annual rent per square foot was $5.46 as of the quarter end as compared to $5.58 a year ago, representing a decrease of 2.2%. As of the quarter end, our capital structure consisted of approximately $269 million in debt, of which $251 million was property-level, fixed-rate mortgage debt and $17 million were loans payable. 95% of our total debt is fixed rate with a weighted average interest rate of 5.8%, compared to 6.2% in the prior year period. We also had $111 million in perpetual preferred equity at quarter end. Combined with an equity market capitalization of $471 million, our total market capitalization was approximately $850 million at quarter end. From a credit standpoint, we continue to be conservatively capitalized with net debt to total market capitalization at 29%, net debt plus preferred equity to total market capitalization at 42%, fixed charge coverage at 1.9x and our total debt to EBITDA at 6x for the quarter. From a liquidity standpoint, we ended the quarter with $20.1 million in cash and cash equivalents. We also have $8 million in additional liquidity currently available from our credit facility. We expect to increase our credit facility by an additional $20 million with an accordion feature of up to $60 million in the near future. In addition, we have $52.3 million in marketable REIT securities representing 7.6% of our underappreciated assets. At the end of the quarter, we had $5.9 million in unrealized gains on our securities investments, in addition to the $3.8 million in gains realized during the second quarter and $5.9 million in realized gains thus far in fiscal 2013. And now let me turn it back to Michael before we open up the call for questions. Michael P. Landy: Thanks, Kevin. To summarize, the second quarter represented continued progress on the leasing front, with occupancy improving by 100 basis points to 95%, our weighted average lease maturity improving to 6.1 years, continued excellent performance from our liquid real estate investments with substantial gains of $3.8 million realized over the quarter and continued strengthening of our already-strong balance sheet with a 40-basis-point improvement in our weighted average interest rate, as well as the anticipated announcement of our expanded credit facility. Following substantial acquisition activity in our first quarter, our acquisition pipeline is robust and grew over the quarter to 1.4 million square feet currently. As I've stated earlier, we anticipate significant acquisition activity to occur over the next 6 quarters. We'd now be happy to take your questions.

[Operator Instructions] First, we would have our with brief announcement from Eugene Landy, Chairman of the Board. Eugene W. Landy: [indiscernible] And we are inside of the Western Wall. Can everyone hear me? Michael P. Landy: Yes, we can hear you. Eugene W. Landy: All right, go ahead. I have been honored to be a delegate at the World Jewish Congress in Budapest, Hungary. And as I said now, I'm in Jerusalem and I'm standing here facing the Western Wall. And I want to, in behalf of Sam Landy and I and the family, wish everyone peace, prosperity and health, and I will be available in the call for any questions and I may have a closing remark. I appreciate the wonderful report given by Michael Landy and Kevin. And I'll turn the call back to you. Thank you.

Our first question comes from Paul Adornato of BMO Capital Markets. Paul E. Adornato: Mike, with respect to the prospective acquisition pipeline, I think you said you had $96 million in the pipeline. Michael P. Landy: That's correct, Paul. $96.1 million to be more precise. Paul E. Adornato: Yes. And so what should we expect the breakout of those investments to be with respect to FedEx investments versus Non-FedEx? Michael P. Landy: Okay. So that represents 1.4 million square feet in acquisitions, and I'm pretty confident we have another 280,000 square feet coming into the pipeline, which would take us to about 114 million and almost 1.7 million in acquisitions. And that -- with the addition of that new built-to-suit to our pipeline, our pipeline would be split between FedEx and non-FedEx right down the middle, 50% FedEx and 50% non-FedEx. So our concentration, it will be neutral relative to our current concentration of 41% GLA to FedEx and roughly 50% of rental revenue with FedEx. Paul E. Adornato: Okay, great. And just looking -- as the industrial markets recover and more capital is deployed into the development side of the business, I was wondering if you're seeing a change in the competitive landscape for your deals. Michael P. Landy: No question, Paul. The REIT market has been a leading indicator, as it often is. And while REITs were trading at premiums to NAV, there's capital coming into the private market as cap rates are coming down dramatically. So it's getting much more competitive. As I said in my prepared remarks, our pipeline average cap rate is 7.36% locked in. And if you were to market these buildings today, they'd be in the high 5%, low 6% cap rate range. So we're really pleased to have such a premium over current cap rates and represents a compelling opportunity to harvest the substantial gains in our securities, given that REITs are trading at historically low implied cap rates and redeploy them into higher yield in the private market. Given what spreads are to the treasury or corporate bonds, you could see the REIT market still has a potential to increase even further. But comparing the securities to the private market, even with the competition increasing, our current pipeline is highly accretive but it is going to get more difficult to source additional acquisitions. But we're not going to sacrifice our standards. I think our pipeline is all new built-to-suits, all long-term leases, all investment-grade tenants and so we're really happy with the spread and the growth in our pipeline. Paul E. Adornato: Okay. And finally, you talked about a 93% retention -- tenant retention rate this year. Is it still possible to get to 100%? Or do you know that -- one tenant will not renew? Michael P. Landy: Yes. We announced last quarter that the small FedEx building in White Bear Lake is not renewing, so 93% is 10 renewals out of 11 and that's baked in the cake. That's what it is for the fiscal '13. We have very few leases coming off, lease next year only rounding up 500,000 square feet, it's a little less than that. And it's a little early to report on that. It's only 6 leases, but we're shooting for 100% next year and I'll report further ensuing quarters.

[Operator Instructions] The next question comes from Jeff Lau of Sidoti & Company.

First question was on the securities portfolio. You guys continued to perform pretty well, utilizing gains there. Can you talk about where, I guess, some of those gains came from? Is that something you guys are willing to talk about? Michael P. Landy: Sure. We invest in all different REIT securities. Our portfolio is about 55% preferred, about 45% common currently. The REIT preferreds are trading at substantial premiums to par and a lot of preferreds are getting called. So some of the gains, we're being forced to take as the preferreds get redeemed. In the common sector, we follow the housing sector closely. We know the housing sector very well and when conventional home ownership was artificially subsidized. We had no doubt that as the conventional housing bubble corrected the multi-family sector with benefits and we had a lot of gains with our investments there.

Okay. And, I guess, another follow-up question to that. And when do you -- I don't know if you guys talked about this before, but when like, say, if you made a sale, say, this quarter, June, third -- 3Q fiscal, do you have to report those gains in that specific quarter? Or can you -- or how does that work? Kevin S. Miller: Yes. Whenever you have a sale of securities, you have to recognize the gains on the date it was sold.

Okay. I was just curious if that's something -- if there was a different type of way to realize those or anything but... Kevin S. Miller: And then everything that's being held -- held for sale request by all the securities, so the unrealized gains are former to the equity section and everything is mark-to-market on the balance sheet.

Okay. And then just my last question on the expansion. And, Mike, you said you had, what was it, $14 million in FedEx expansions? Michael P. Landy: We have $14 million in development costs, $1.4 million -- let me look at the square footage for you, 175,000 square feet.

Okay. And when does that -- does that come on line? Michael P. Landy: $14 million in costs, 175,000 square feet generating about $1.4 million in revenue. And coming on line, you're going to see expansions coming on line starting next quarter and going all the way to next summer of 2014.

Okay. And any other expansions in the works considering that's, I guess, a pretty good, I guess, yield in terms of expansions? Michael P. Landy: It's a great yield and there's a lot of -- several other expansions under discussions. So it's kind of ironic to us that people look at the FedEx concentration as perhaps a risk factor when we're seeing a growing tenant, we're accommodating the growth for the tenant, we're realizing substantial gains, we're getting lease extensions, a new 10-year lease and so we're really pleased with our FedEx concentration because it has resulted in the current 3 expansions I have under contract and several more under discussion.

The next question comes from Michael Boulgaris of Boulgaris Advisors.

And first, I'd -- just congratulations, Michael, on your appointment as CEO and President of Monmouth Real Estate. Michael P. Landy: I appreciate that. It's tremendously big shoes to fill and fortunately, we have a great team here -- and we've all worked closely with Gene for many years. And fortunately, he's not going anywhere. But everybody here has benefited from working under Gene's guidance. We all share his conservative philosophy and his principles, and so I think you'll just see a continuation of the same strong business model upon which this company has been led under his tremendous watch for 45 years.

Great. Michael, you mentioned the split of -- in the pipeline of FedEx and non-FedEx. Going back to the FedEx portion, is the FedEx acquisition there, would they be the FedEx Ground packaging system? Or do we have any FedEx rate? Michael P. Landy: Yes, yes. Well, the FedEx divisions were heavily concentrated on FedEx Ground and they continue to focus on FedEx Ground. It's the division that has grown 50% over last 5 years. It's benefited from the global supply chain shift from brick-and-mortar retail to e-commerce. The Ground building has contained substantial investments that FedEx makes in the material and handling equipment inside the building. So it's definitely the growth engine of FedEx, and that's where all our expansions are and that's where all our future FedEx acquisitions are. Our current 4 million square feet with FedEx is -- over 3 million square feet is leased to FedEx Ground.

Okay, thank you for that clarity. Looking at the competitive increasing competition in perhaps the next several years, can you give us some insight as to maybe beyond, let's say, the next year of this existing pipeline that you've -- hopefully have locked in? Can you give us some insight as to how Monmouth may have some agility to be able to compete in this environment? Obviously, you're competing against some larger players in the sector. Maybe you're going to speak to some of your relationships with the merchant builders? Or maybe you can give us some historical insight as to looking forward? Kevin S. Miller: Sure, Mike. Well the first thing I would bring up is our existing portfolio of 9.2 million square feet is well-positioned to benefit from all the stores that are lining up in favor of the industrial property type and that's what's causing the competition. It's not just the global easy money. People are favoring our property type over all others, and the reasons being supply and demand has been very much in favor of industrial. There's been no new construction for 5 years. You have manufacturing coming back to the U.S. You have rising auto sales. You have housing coming back and you have the tremendous energy resources that as a result of the technological breakthrough in frac-ing, we're able to find the resources, exploit the resources. So all that bodes really well for increased demand for industrial warehouses. E-commerce is a huge factor. So people are shifting their supply chain to larger, new warehouses all over the country. And finally, the Panama Canal, which is truly a game changer, about 15% of the ships concurrently not make it through the canal as of the first half of 2015. When the expanded canal comes online, they'll be able to take an 8,000-mile shortcut through the canal and not going around South America. And this will shift the global supply chain dramatically. You have most of the imports and exports flowing through the West Coast. Monmouth's portfolio is really situated to benefit from this event. You'll have much more demand at the Gulf of Mexico and the Eastern Seaboard where we have high concentrations. And so I think our existing portfolio is really poised to benefit from these changes. As far as doing new deals and sourcing new deals, our merchant-builder relationships are strong and growing, and that's kind of evident from our having the pipeline we have. We announced 1.4 million square feet. With the deal that's pretty much signed, sealed and delivered, it will take it to almost 1.7 million square feet. But it's going to be difficult to keep that sort of growth but we're going to work hard to continue to grow.

Going back just to the pipeline. In funding the pipeline, it appears that you've already started to take some measures to realize some of your -- the gains in your securities portfolio. Might we expect further gains to be taken to help fund these new acquisitions as opposed to tapping into the equity markets or secondary? Kevin S. Miller: Well, we -- there's a time to reap and a time to sow, and we've been harvesting gains. We have 6 million unrealized yet to be harvested. We always want to keep some of our balance sheet in liquid real estate so we're not going to entirely liquidate our portfolio. I could easily envision a scenario where there's a great rotation from fixed income, where you're getting negative real rates... [Technical Difficulty] Sorry, I don't know where [indiscernible]. Somebody needs to mute their phone, please. Okay, where was I? We always want to be exposed to the liquid real estate market [indiscernible]. Anyhow, Mike...

Yes. I'm sorry, there's some static on the line here. [Technical Difficulty] Kevin S. Miller: [indiscernible] Maybe the international canal [indiscernible]. I apologize for that, I'm not sure where it's coming from. Mike are you still there?

Yes, I am. Kevin S. Miller: Did I adequately answer your question or do you want...?

No, that's fine. Maybe I could just follow up on just one aspect of your securities portfolio. Monmouth does have significant common in preferred holding in UMH and you name mobile homes, a sister company, I guess. And I just wanted to ask UMH does have a concentration of their communities that sit right on Marcellus. I'm just curious. Has UMH ever done a mineral rights study as to the mineral right to those communities? And would you share that with the shareholders? Kevin S. Miller: Right. So to just go over the ownership in UMH, Monmouth has a $8 million position in UMH common, a $5 million position in UMH preferred. We have substantial gains in our holdings in UMH. It's a great aspect of the REIT vehicle that if investors want exposure to the potential growth through Marcellus Shale and Utica Shale, there's no better vehicle currently than UMH. UMH has over 1,500 acres in the Marcellus and Utica Shale region. No other REIT has this much acreage or units exposed to the tremendous resources than UMH. So Monmouth is going to hold onto that investment for the long term and as far as the rest of your question, I encourage UMH conference call so they can answer in more depth, but UMH has certainly been growing dramatically and has very great prospects ahead of it.

The next question comes from Jon Petersen of MLV & Co. Jonathan M. Petersen: Occupancy was up sequentially. If I'm looking at it right, it looks like it was because of a lease in Tampa, Tampa Bay Grand Prix. I apologize if you already talked about this. So many distractions today. Can you talk about -- I guess, just talk a little more about that lease. How the rent compares to the tenant that was previously in there and essentially what the leasing spread is. And then also, maybe touch on some of your other vacant properties. Which ones are you most excited about? And which ones do you think will be the more difficult ones to lease up? Kevin S. Miller: All right. So Tampa Bay Grand Prix is coming in, in the high $3 rent but it's 3... [Technical Difficulty] I apologize for the technical difficulty. They have 3% escalation, so the average rent is in the low 4s. That building was vacant since December of '11. Keebler/Kelloggs occupied it prior, too, and their rent was $5.50 a square foot. So obviously, we're happy to lease it up because carrying a vacant building is roughly $1.50 a foot. So... [Technical Difficulty] We look at that delta as more as the delta between the ex-tenant because it's been vacant for over a year. It's -- as far as our other vacant buildings, there's not a lot of them. We have 450,000 square feet of vacancy. Our largest one would be 160,000 square feet in Monroe, North Carolina. We collected an early termination payment. So effectively, we've been receiving rent through this summer. We have great prospects in that building. So hopefully, we'll have a good announcement before year end in that building. We have 100,000 vacancy in Liberty, Missouri. It's near the Ford automotive plant, near the GM automotive plant and so a lot of automotive tenants have proposals on that building. So I'm really confident on both the building in Monroe, North Carolina and the building in Liberty, Missouri that we have announced to make, and that we'd get our occupancy into the high 90s. Other than that, it's just the vacant building we mentioned in Minnesota that went to us at the end of the calendar year and just one other vacancy, and that's a 380,000 square-foot building. That's 70% occupied. So it's just a third vacant and the tenant maybe growing into that space. So I think I have good prospects to continue to increase our growth in occupancy going forward. Jonathan M. Petersen: Great. And then just a slight income statement accounting thing. When you guys collect the dividends on... Michael P. Landy: To the moderator of the call, is there anyway you can delete the source of this noise? Sue? Evidently, she's...

Excuse me, there's only 2 lines open into the call, which is the speaker's line and the person asking a question. [Technical Difficulty] Jonathan M. Petersen: This is just brief. I was just curious about dividends on common and preferred. What line end does that roll through? Is that interest income? Or is that gains on securities? Kevin S. Miller: Those were the interest income.

This concludes our question-and-answer session. I would like to turn the conference back to Michael Landy for closing remarks. Michael P. Landy: Well, I appreciate those of you who beared with all the technical difficulties. I apologize. I'm not sure the source of it but, anyhow, I'd like to thank everyone for persevering on this call. Kevin, Gene and I are available for any follow-up questions. And as always, we look forward to meeting you at NAREIT in June. Hope to see you there. We look forward to reporting back to you after our third quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. The teleconference replay will be available in approximately 1 hour. To access this replay, please dial U.S. toll-free (877) 344-7529 or international toll (412) 317-0088. The conference ID number is 10025487. Thank you and please disconnect your lines at this time.