Good morning and welcome to Monmouth Real Estate Investment Corporation's Third Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to introduce your host, Ms. Susan Jordan, Vice President 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 mreic.com. 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 2015 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; 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.

Thank you very much, Susan. Good morning, everyone, and thanks for joining us. Monmouth continued to make substantial progress across several fronts during our third quarter of fiscal 2015. Through the first three quarters we have generated 22% portfolio growth by acquiring 8 industrial properties totally approximately 2.4 million square feet for $149.9 million. Year-over-year, gross leasable area growth was 27%. Our gross leasable area at quarter end comprised 13.6 million square feet consisting of 90 properties geographically diversified across 28 states. During the quarter we acquired a brand new 671,000 square foot e-commerce fulfillment center in Indianapolis for $37.5 million. This class A built-to-suit facility is leased for 10 years to ULTA, Inc. ULTA has made a substantial investment in the e-commerce infrastructure inside this facility at a cost well in excess of our purchase price. Additionally, many of the packages that will be shipped from this facility will flow through our FedEx SmartPost building, which is located nearby at the Indianapolis International Airport. We are very excited about our best-in-class acquisition pipeline which now contains 2.7 million square feet, representing $290.7 million in total acquisitions scheduled to close over the next several quarters. In keeping with our business model, all of these future acquisitions comprise brand new, well located, built to suit projects under construction with long-term leases to investment-grade tenants. These properties are situated near major airports, major transportation hubs and manufacturing plants that are integral to our tenants' operations. Approximately 93% of our acquisition pipeline consists of deals with FedEx, while the remaining balance of 7% includes two additional investment-grade tenants. The cap rates on these deals average 6.7% and the weighted added lease maturity is 13.4 years. Subject to satisfactory due diligence, we anticipate closing these transactions upon completion and occupancy. During the third quarter we completed two expansion projects for approximately $5.8 million consisting of one building expansion, adding additional rental space of 38,428 square feet, and one parking lot expansion. The properties are leased to FedEx Ground and are located in Texas and Oklahoma. As a result of these expansions, effective in the fourth quarter annual rent increased by approximately $633,000 and a new 10 year lease extended the building expansion lease term to July 2025. We currently have two additional FedEx Ground expansion projects in progress consisting of one building expansion, adding additional rental space of 48,116 square feet, and one parking lot expansion. These properties are located in Texas and Florida. Expansion costs are expected to be approximately $4.4 million of which $3.1 million has been incurred to date. Upon completion of the expansions, annual rent for the properties will be increased by approximately $447,000 and these expansions will result in a new 10-year lease extension from the date of completion for each property. As a result of our strong tenant base, we have benefited from numerous building expansions over the past several years. Since June of 2013 to date, we've completed expansions at 10 of our locations consisting of 8 building expansions, adding approximately 442,000 square feet and 5 parking lot expansions. These expansions cost approximately $41.5 million and resulted in increased annual rent of approximately $4.2 million, representing an average unlevered return of 10%. These building expansions have resulted in very favorable returns and have provided for substantial lease extensions. While most of these building expansions have been with our largest tenant, FedEx Ground, we anticipate additional expansions for some of our other tenants going forward as well. Although most of our growth is attributable to our acquisitions and expansions, we've also been able to grow organically. Same-property NOI for the 3 months ended June 30th, 2015 increased 7.8% on a US GAAP basis and increased 5.6% on a cash basis. In July we entered into a sale agreement to sell our 160,000 square foot building located in Monroe, North Carolina to the building's current tenant for $9 million. We purchased this property in 2001 and it has a historic cost basis of $5.5 million and a current net book value, net of accumulated depreciation, of $3.8 million. Once the sale is finalized, which we anticipate to be sometime in the fourth quarter, we expect to realize a GAAP gain net of closing costs of approximately $5 million, representing a gain of approximately 61% over our historic cost and a gain of approximately 132% over our GAAP carrying basis. In fiscal 2015 6% of our gross leasable area, representing six leases totally approximately 780,000 square feet, was scheduled to expire. As previously reported, all six of these leases have been renewed, giving Monmouth a 100% tenant retention rate for fiscal 2015. These renewed leases have an average term of 3.8 years and an average GAAP lease rate of $5.06 per square foot and a cash lease rate of $4.95 per square foot. This represents an increase of 6.3% on a straight-line GAAP basis and an increase of 1% on a cash basis. Looking at the overall US industrial market, 2015 is shaping up to be another record-breaking year. Through the first six months of this year, net absorption has totaled 87 million square feet, representing an increase of 22% over the prior-year period. The industrial property type has now experienced positive net absorption for 21 consecutive quarters. US industrial vacancy now stands at a cyclical low of 7.3%, representing a 30 basis point improvement over the quarter. The second quarter average asking rents grew at their fastest pace since the beginning of 2008 and are at $5.42 per square foot, representing a 4.8% increase over the prior-year period. Strong demand for industrial space is occurring in nearly every region throughout the US. E-commerce continues to be a strong driver of industrial space demand with over $300 billion in online sales expected to be reached this year. An increasing amount of online commerce is now taking place on smartphones, which now account for 10% of all e-commerce revenues. The resurge in the housing sector is also emerging as a strong catalyst for industrial space demand, with existing home sales, new home sales and housing starts all beginning to show meaningful increases over the prior year period. The automotive sector has been another catalyst with 8.6 million vehicle sales through the 6 month period, representing a 5% increase over the prior-year period. Manufacturing activity has slowed somewhat as a result of the stronger dollar, but new factory orders have been on a solid upward trajectory since March of this year. The ISM Manufacturing Index posted its 30th consecutive month of expansion this past June. Following the first quarter's weak GDP reading, recently revised upward to 0.6%, Q2's initial reading was improved at 2.3%. Lastly, and looking out a bit further on the horizon, the expanded Panama Canal, now scheduled to open in April of 2016, will over time dramatically change the way merchandise is distributed. As we mentioned last quarter, work stoppages at the West Coast ports earlier this year resulted in a redirection of cargo traffic to the East Coast ports. This is expected to be a continuing trend once the new Panama Canal opens, allowing larger vessels to be able to utilize this more efficient trade route. It is conservatively estimated that up to 10% of container traffic to the US from East Asia could shift from West Coast ports to East Coast ports by the year 2020. Given Monmouth's geographic footprint, this represents a very favorable trend. And now, Kevin will provide you with greater detail on our results for the third quarter of fiscal 2015.

Thank you, Michael. Core funds from operations for the third quarter of fiscal 2015 were $9 million or $0.15 per diluted share. This compares to core FFO for the same period one year ago of $7.9 million or $0.16 per diluted share. Adjusted funds from operations, or AFFO, which excludes securities gains or losses and excludes lease termination income were $0.15 per diluted share for the recent quarter as compared to $0.12 per diluted share a year ago, representing an increase of 25%. Growing our AFFO per share has been a key focus of ours, and in percentage terms this marks our third consecutive year of solid, double-digit, per-share AFFO growth. Rental and reimbursement revenues for the quarter were $20.7 million compared to $15.7 million, or an increase of 31% from the prior year. Net operating income increased $4.1 million to $17 million for the quarter, reflecting a 32% increase from the comparable period a year ago. This increase was due to the additional income related to six properties purchased during fiscal 2014 and eight properties purchased during the first three quarters of fiscal 2015. Net income, excluding depreciation, was $10.3 million for the third quarter compared to $9.6 million in the prior-year period, representing an increase of 7.2%. Again, this improvement was driven largely by the substantial acquisition activity that has occurred over the past year. With respect to our properties, end-of-period occupancy increased 330 basis points from 94.3% in the prior-year period to 97.6% at quarter end. Our weighted average lease maturity continues to increase and, as of the quarter end, was 7.1 years as compared to 6.8 years in the prior-year period. As a result of purchasing larger buildings, our weighted average rent for per square foot decreased to $5.38 as of the quarter end as compared to $5.56 a year ago. This average rent is in line with the current national average rent of $5.42 per square foot. As Michael mentioned, our acquisition pipeline now contains 2.7 million square feet, representing $290.7 million in total acquisitions scheduled to close over the next several quarters. To take advantage of today's attractive interest rate environment, we have already locked in very favorable financing for six of these acquisitions, which represent an aggregate cost of $186 million and total 1.6 million square feet. The combined financing terms for these six acquisitions consists of $127 million in proceeds, representing 68% of total cost and has a weighted average interest rate of 3.77%. Each of the six financings are 15 year self amortizing loans. These six acquisitions will result in a weighted average leverage return on equity of 16.5%. As of the end of the quarter, our capital structure consisted of approximately $430 million in debt of which $365 million was property level fixed rate mortgage debt and $65 million were loans payable. 85% of our total debt is fixed rate with the weighted average interest rate of 5% as compared to 5.3% in the prior-year period. We also had a total of $111 million in perpetual preferred equity at quarter end. Combined with an equity market capitalization of approximately $587 million, our total market capitalization was approximately $1.1 billion at quarter end. From a credit standpoint, we continue to be conservatively capitalized with out net debt to total market capitalization at 37% and our net debt plus preferred equity to total market capitalization at 47% at quarter end. In addition, our net debt less securities to total market capitalization was 33% and our net debt less securities plus preferred equity to total market capitalization was 42% at quarter end. For the three months ended June 30th, 2015 our fixed charge coverage was 2.3 times and our net debt to EBITDA was 6.4 times. From a liquidity standpoint, we ended the quarter with $14 million in cash and cash equivalents. In addition, we have $48.9 million in marketable REIT securities representing 4.9% of our undepreciated assets. As of the quarter end we had $20 million potentially available from the accordion feature on our existing line of credit. And now, let me turn it back to Michael before we open up the call for questions.

Thank you, Kevin. I'm very proud of the progress that has been ongoing at Monmouth. To summarize, our strong 97.6% current occupancy rate, our 100% tenant retention rate, our 25% growth in AFFO per share, our 27% growth in gross leasable area, our substantial $290.7 million acquisition pipeline, combined with our building expansions recently completed and currently underway, all provide a very clear illustration of the long-term value that has been built and continues to be built here at Monmouth. Over the past three years, while maintaining our high standards with regards to asset quality and tenant quality, we have been able to grow our portfolio by over 65% through the acquisition of brand new, state-of-the-art industrial facilities. By the end of this fiscal year we will have more than doubled our portfolio over a five-year period; again, all through the acquisition of brand new class A industrial assets. With a weighted average building age of only 10.3 years, Monmouth owns one of the youngest and most state-of-the-art portfolios in the industrial REIT sector. With 79% of our rental revenue derived from investment grade tenants and the remaining 21% generated by very strong, non-rated companies, our earnings quality is among the highest in the entire REIT sector. We'd now be happy to take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Craig Kucera of Wunderlich.

Hey, good morning, guys.

Good morning.

I wanted to follow-up on the acquisitions you were able to get under contract during the quarter. Where was pricing on that relative to the existing pipeline and did you see any upward pressure given the movement in the tenure during the quarter?

No, Craig. Cap rates continue to come down. We were doing an average cap rate in the low sevens, average cap rate's now in the high sixes. There is been some big portfolio transactions in the industrial space at very, very low cap rates. So, despite the upward movement in the treasury's rate, cap rates continue to compress. The industrial property type is one of the most favored property types. There's a lot of money flowing in, really strong demand. Kevin's been real successful in locking in low cost, long-term financing so we're real happy with the spreads, still achieving close to 300 basis point spreads. And that results in a levered return on equity of 15.5% to 16.5%. So, the double-digit per share AFFO accretion that we've generated for 3 years now will continue into its fourth year as a result of him locking in, about $120 million in financing, fully amortizing over 15 years at - rounding up 3.8%.

And Craig, I just wanted to add, with the pressure of the interest rate inflating recently, I've recently locked in loans sub 4%. So we really haven't felt that. I guess the lenders are still lending at these low rates despite the pressures.

Great. And when you think about, I mean, obviously the pipeline it's $290 million. When you think about the pace at which those will be completed, do you have any sense of what you think might close in the fourth quarter? And recognizing 2016's a little tougher to figure, but is it going to be more front loaded or back loaded next year or is it going to be sort of straight lined.

Okay. So we've already done a record breaking year of about $150 million in acquisitions this fiscal year. We're in our fourth quarter. I'm pretty confident that we'll close approximately $40 million in additional acquisitions in this fourth quarter, perhaps more than that. And then – so the pipeline remaining would be about $0.25 billion, $250 million and some of that goes into fiscal '17. But I would say ratably would be a good way to model it over the next seven quarters. But I'm confident, even though it's been a record-breaking year of $150 million in acquisitions that we'll be close to $200 million, maybe over $200 million before the year's over, which is September 30th for Monmouth.

Got it. Appreciate the color on that. And I know you mentioned you had two additional FedEx expansions and they obviously are very accretive as soon as those are completed. Do you have a sense of when the remaining expansions will be complete?

Yes. Yes, Craig. We have two expansions that we just recently completed this quarter, which the rent will go up in the fourth quarter, in the very beginning of the fourth quarter. And then we have two ongoing expansions currently going on which we expect to complete maybe one of them during the fourth quarter and the second one in the first quarter of next year. And we have a lot on the horizon of potential expansions that we haven't yet reported and some will be non-FedEx.

Yes. We're in discussion of a very large expansion on a non-FedEx asset. We should have confirmation for you by the end of next quarter.

Got it. I appreciate the detail. One last question just on your real estate taxes this quarter. There was a pretty sizeable lift relative to where taxes had been. Is there any seasonality in that or were there any one timers or is that just sort of where we are today and likely going forward?

That's where we are today. I guess you're comparing this quarter this year compared to last quarter last year. And all the acquisitions that we've done last year and this year just increase those real estate taxes. But you could see that they're offset by the increase in the reimbursement revenue. We generally run around 80% when you combine the real estate taxes and the operating expenses and you compare that to reimbursement revenues. So although the real estate taxes have gone up, they've been offset by reimbursement revenue. We basically have triple-net leases. The real estate taxes are billed back and they really have no effect on our net P&L.

Great. Thanks, guys.

Thank you.

And the next question comes from Joe Benda of National Securities.

Hey. Good morning, everybody. How are you today?

Good morning.

So just quickly, in your prepared remarks you highlighted that weighted average lease term “continues to increase”. So could you kind of talk about why being longer in this environment is more of a positive than maybe be shorter as some of the peers are?

Sure. Visibility and predictability of earnings is kind of at the heart of Monmouth's business model. We only invest in long-term leases to investment grade tenants, and as Kevin mentioned, our leases are net leases. So while there is inflationary forces brewing on the horizon, rising taxes, rising insurance costs, rising operating expenses, they're all born by the tenant. That results in very predictable income streams. Having a weighted average lease maturity that's gone up, not down, gone up over the last year from 6.8 years to 7.1 years, results in more probability and predictability of generating the returns that we generated in the past. And don't forget, these returns are secured by investment grade tenants so the leases are honored, the retention rate tends to be 100%. So very high probability of renewals. The other factor is we're locking in, we're matching our assets with our debt. We're locking in mortgages and the weighted average mortgage maturity is now 8.3 years. So the spreads we're achieving, the ability to generate 15%, 16% levered returns on equity will continue. Now, compare that to - on the other extreme end of the spectrum would be a hotel REIT. They have no leases at all. They have a nightly license to rent a room. I wouldn't be so dependent on the long-term probability of getting the same returns I've achieved in the past if I don't have a long-term lease to investment grade tenant. So, Monmouth's all about quality of earnings, stability of earnings, predictability of earnings. So we feel having a weighted average lease maturity of 7.1 years, net leases which protect us from inflationary forces and matching our debt with our assets provides very probable, stable, predictable results. And I think that was achieved during - it was illustrated during the great recession when our dividend was sustained and companies with very low payout ratios, dividends were decimated. In fact, pretty much for the whole REIT sector dividends did not perform during the recession.

Right. And then on expansion projects versus moving in a new tenant or an acquisition, what is the kind of average rate increase on an expansion project versus a lease renewal versus a new tenant? And how do you guys think about expanding a property when you're asking to or choosing not to renew and searching for a new tenant to fill a space?

Well, I'll start with the end of that question. We would never choose another tenant. I mean, when you're collecting $5 rent from Coca-Cola, Anheuser-Busch, Kellogg's, FedEx, United Technologies, Siemens, Sherwin-Williams, that's a lot better $5 result than start-up company XYZ. So we work very hard to keep our tenants happy. We understand the landlord, tenant relationship is a symbiotic relationship. So as long as their business is successful and we're doing our job, they'll stay in our buildings forever. So, we never think about re-tenanting our building. We think about keeping our tenants happy. If the tenant's demand is growing, they need more space, of course we want to accommodate that demand given the quality of the tenant. So business is growing, commerce is shifting from traditional brick-and-mortar to online and a lot of our tenants need more space and we're happy to provide them with more space. The economics are very favorable often in the original lease the economics are already dictated of what the expansion will return and they are very favorable returns, as you heard in my prepared remarks. The lease gets extended. Our return on equity, on leverage is double digit. So it's always very favorable if our tenant needs more space, providing we can accommodate that space. As far as rent rolls on renewals, the vacancy factor in industrial keeps going down. We're now up to 93% occupancy, 7% vacancy. Rents are generating higher growth year-over-year than they have since the recession so we have very favorable prospects to generate embedded rent growth. We had 100% retention this year at a 6.3% increase in rent. Next year only 2% of our annual base rent comes off lease and that 2% coming off lease is at our average rent per square foot of $4.11. The national average is $5.42. So, good prospects on renewal to generate our rent growth, providing we generate 100% retention in fiscal '16 like we did in '15 and that's certainly our goal.

And then just one last thing, if I could, back to the real estate tax question. When you guys do an expansion project or complete an expansion project, does the local township or local government come out and then revalue the property and that might explain why your taxes have gone up in some businesses, or do they not reassess one if there's a construction project going on?

Yes, absolutely. Of course if you add value to a property the local township is going to reassess the property and increase the taxes based on the new assessment, but that could be - that's a small portion of the increase. But the main reason for the increase is, you know, the 8 properties that we've closed on this year and all the properties that we closed on last year that now have a full year effect of those real estate taxes, so that's really the bulk of it. But yes, there's a small percentage of that related to expansion. But like I said earlier, more importantly it really has no net effect on us because it's all billed back to the tenant.

Alright, great. Thank you.

You're welcome.

And next we have a question from Louis Feldman of Wells Capital Management.

Good morning, gentlemen.

Good morning.

A couple of questions for you. One, Michael can you give a little color. You made a comment during your prepared remarks about occupancy now being about 7% and demand appears to be continuing to increase. Are you starting to see additional construction starts or some speculative building in the space or has that not started yet? Could you give a little more color on that?

Spec building is back in certain markets and they are doing very well, those that engage in spec building. Vacancy factor has gone down to only 7% now, rents are generating strong growth, so you are going to see more construction. Ever since the recession, new construction came to a standstill. A normal year of new industrial construction is about 200 million square feet, 250 million square feet, and you saw in 2009 through 2012 an average of 50 million, 60 million, 70 million square feet annually in new construction. This year it's back up to about 125 million square feet. So still relative to historic norms, a small fraction, but there's substantial increase and it's going to continue to increase. There is a lot of catalysts driving demand for industrial. I mentioned e-commerce, the re-on-shoring of manufacturing plants, the Panama Canal. So, you're going to see a need for more industrial space, particularly on the eastern seaboard. The people who are engaging in spec building are doing so thoughtfully in the right markets and generating good returns in doing so.

So you don't feel there's a bubble at this point in time or getting close?

People who think that way are looking backwards and there are indications to be cautious about that because that's what always gets real estate in trouble, over supply, developers being irrationally exuberant. But we have an $18.5 trillion economy, two-thirds of it is consumer spending, and of that two-thirds 10% has migrated from nowhere to online and now there's a whole runway of more growth to shift from traditional brick-and-mortar to online. And you look at the economics of it. The thing that's driving it is the ease of use, how much easier it is to go online and research what you're looking for and then consummate the sale online. But the economics are also very compelling. For retail brick-and-mortar sales you're paying $40, $50 a foot and you're generating $300 a foot in sales. In an industrial warehouse you're spending $6 a square foot and you're generating $3,000 per square foot in sales. So the economics are very compelling. And so that didn't exist looking at past cycles as far as supply and demand. Going forward, you now have this thing called omni-channel e-commerce fulfillment centers, a new type of industrial where the infrastructure inside the building is more intensive, more costly than the warehouse itself. So it's a whole new product, a whole new world out there. And so I don't think we're going to see oversupply, providing its state-of-the-art e-commerce fulfillment centers that are being built.

Okay. And Kevin, I have a question for you. You said in your prepared remarks that the average weight on debt was 5% and then in the question period you said you were booking some stuff in the fours. How far forward are you booking out and trying to lock in rates for your - for the acquisition pipeline? And where do you think you can drive it down further below 5% at this point in time and lock it in?

Yes, absolutely. Actually, what I said was we're locking in rates right now sub four. I just didn't want to give the details. And actually, the weighted average interest rate of the six loans that I've locked in that are included in the pipeline is a weighted average of 3.77%. I'm not sure if I can get any lower than that. I think we could probably stay that way. And to answer your other question about how far ahead, the most recent one that I've locked in I've locked until July of 2016. So they are giving me very forward lock-in rates for these - for everything in our pipeline. So as soon as the lenders are willing to give me a loan that far in advance, I try to lock them in as soon as possible because everyone knows just the uncertainty of where interest rates will go. I'm trying to lock in as much as I can, and I've locked in on our pipeline of the 11, I've locked in six, and if you look at a cost base, it's about 68% of our pipeline is already locked in.

If I could just jump in, we're reporting a lot of favorable results this quarter and I think that's one of the most favorable. We've locked in $126 million in financing, 3.8% rounding up, 15 year month fully amortizing. And just stepping back, this protracted period of low interest rates, it wasn't long ago our weighted average interest rate was in the high sixes and now it's 5%, heading into the high fours. And that's just going to continue as Kevin locks in these deals. And even with the rising treasury rate and upward sloping yield curve, it's still a long way from increasing our weighted average interest rate. So I think our weighted average interest rate will continue to come down. And getting back to the question of long-term leases versus short-term leases, we're locking in really favorable spreads, predictable results, secured by quality tenants. And if you prefer something where you could roll quicker, there is other property types, but our model is completely different.

And just one more thing I'd like to just add as far as getting our weighted average interest rate of 5% on the whole portfolio down. Also our higher interest rate loans that were taken out 10, 15 years ago, they're amortizing down and they're being paid off. So that will also help reduce the weighted average interest rate on the portfolio.

If I can just get Gene in because, I see you want to comment and we've covered a lot of territory. I'm sorry to cut in on the questions, but any overall comments thus far?

No, I think we're covering everything fairly well. There is a misconception about the - how sensitive REITs are to interest rates. And as Michael just pointed out, our interest rates are going down and will continue to go down and then they will level off at a rather low level. So the spreads are there and we're not as interest rate sensitive as some investors believe.

Louis?

That's it for me, sir.

Okay. Thank you.

And the next question comes from Michael Boulegeris of Boulegeris Investments.

Good morning, everyone. And thank you for taking my questions.

Good morning, Mike.

Congratulations on your prolific qualitative growth that you've achieved over the last 4 to 5 years and your accelerating pipeline. I think NAREIT you had 8 acquisitions in the pipeline and now you have 11. And of course on your standalone AFFO that's supportive of a quarterly dividend. Michael, I first want to ask you, certainly Monmouth is almost at the tip of the spear in terms of e-commerce with your FedEx exposure and given the investment you're seeing in your warehouses by tenants like ULTA. What does that suggest to you in terms of some of your long-term renewal trends, occupancy rates and certainly the certainty attached to your income streams?

Well, I appreciate the question because years ago the question was a concern about our FedEx concentration and the predilection on Wall Street to be more diversified. And some people would have preferred us to have a retail portfolio secured by a diverse array of tenants such as Kmart and Sears and Radio Shack and Borders and Circuit City. And the fact is, those companies are all gone and those goods are still being consumed and those goods are all in our FedEx warehouses. So I think diversification can be a terrible mistake. If you find a really strong company like FedEx, and we've been with FedEx since 1992, it really makes sense to increase your exposure. And what we're seeing today, back in 1992 online shopping didn't exist. But what we're seeing today is our FedEx distribution centers are magnets for other people to set up their e-commerce fulfillment centers. And we've seen that with the most recent acquisition ULTA Cosmetics, 700,000 square feet in Indianapolis shipping out of our FedEx at the Indi Airport. Our Milwaukee Tool Facility in Memphis shipping out of our FedEx building. Our Watson Pharmaceuticals moved from Ohio to be near one of our FedEx buildings. So the FedEx buildings are now magnets and that means those locations are more valuable than ever. So by not diversifying, by having a high FedEx concentration, FedEx is really benefiting from the amount of retail consumption that's moving from brick-and-mortar to online. So much of it takes place over the Christmas season. And we're not getting as the FedEx concentration anymore, and there's an investment slogan, Don't Fight the Fed. It applies to the federal reserve, but it can equally apply to our number one tenant, FedEx, because their business is just tremendously strong.

Well, I appreciate that. And maybe I could ask Gene, the leadership of one of your largest competitors when reflecting on his 30 years in the industry recently made quite favorable comments as to his outlook on the US industrial warehouse segment? And Gene, you have a significant industry experience, too, so I just would like to see if you would share with us your outlook as you look out over the next decade or so.

Well, I can only add to what Michael said. The interesting statistic about industrial property is that it grows directly in proportion to the gross national product. If the gross national product goes up 3.5% a year, the amount of square feet you need goes up 3.5% a year. Now you may get further demand because, as Michael pointed out, the need for these new type buildings gives us a special advantage. But the population is growing 3 - 3.5 million a year. In 10 years that's 35 million people. The amount of land is limited, so that the replacement cost of these buildings continues to rise. We've been very fortunate. We've picked one of the best sectors in the real estate world, the industrial sector. We've picked the best tenants and we think that the future of the Company is really going to be strong. And the last point I want to make is, again, in terms of what people think about REITs, they're continuing to look at funds from operation, and of course we've got a great story to tell on funds from operation. But I have to tell you that a large part of the gain comes from total return, what these properties are going to be worth in the future. And we have tremendous gains in our portfolio, maybe as much as $250 million. I saw in the remarks that Michael made he commented on the one property. We generally don't sell properties, by the way, but we do have certain exceptions. If a tenant wants to buy the building, we generally feel that a tenant will pay more than another investor so that we will talk to a tenant So again, it's part of our relationship. If the tenant wants to own the building and he makes a very attractive offer to us, we will accept that. And we're planning this out just one building at a gain of 61% of historic value. And that's - how many years is that, Mike?

We had it 14 years.

14 years. So my point is, if you have $1.2 billion in properties and they go up in value 1%, 2% a year or more, you have to add that to the funds from operation. And if you do that, you see that REITs, not just our REITs, but all REITs, represent a really good investment. And I'm bullish on the industry and I want to thank you for the question.

Well finally, if I could just ask one last follow up, Michael and Gene, I appreciate your comment on total return. I don't know if they teach that in business school today. But in light of the recent industry consolidation, what did that tell you in terms of the intrinsic worth of Monmouth's real estate? I guess Gene just shared with us one metric, that the unrealized appreciation of properties is nearly half of your, you know, almost half of your capitalization today that's not really maybe being fully reflected, would you agree?

Yes, I'd definitely agree. I think when you talk about total return, the component of current income is the more probable component. That's usually two thirds of the total return. And Monmouth's yielding over 6%, roughly 6.2% currently, and the average REIT yield is 3.6%. So, higher-quality return and a 260 basis point premium to what REITs are yielding. So, there's compelling value there. If you look at multiples, the average REIT multiple is now 21 times next year's earnings. 20 times current earnings would be $12. 20 times next year's earnings would be closer to $14. So on a multiple basis, that's a 20% to 40% discount currently. You look at those big transactions, there have been three. The biggest was Incor and Global Logistics, low 5% cap rate. That was followed with the KTR, Prologis deal, high 4% cap rate. And then most recently announced was the IIT, Industrial Income Trust, Global Logistics again, Singapore money again, and that was mid 5% cap rate not counting transaction costs of $0.25 billion. So, Monmouth's cheap any way you slice it. But I think long-term shareholder value will be created best by status quo, by management sticking to its standards, looking out, creating the long-term value we've created in the past. We can't control inefficiencies in the market, but we're focused on growing earnings per share. We've generated double-digit AFFO per share going on our fourth year. And having it rolled up into one of these giant portfolios I don't think is in the interest of the REIT asset class. I think it's good to have small cap, quality, focused REITs. We've been in an era where passive investing and ETFs has resulted in people just trying to grow for growth's sake and get rewarding by buying indiscriminately. Monmouth's never bought indiscriminately. We've grown the portfolio one quality asset at a time. If we were part of a bigger company, we'd be under pressure to sacrifice our standards for growth. And I think the REIT world is well served with a small cap REIT focused exclusively on high-quality industrial assets, single tenant, investment grade tenants on long-term leases. It wouldn't be able to have that business model if it were part of a bigger portfolio.

Well, we appreciate the strong execution of the team and, really the certainty that Monmouth brings in a very uncertain world. So, thank you.

Thank you, Mike.

The next is a follow-up question from Louis Feldman.

Yes. Michael, just something that you said that intrigued me about the e-commerce sites. So not you guys specifically, but if an industrial tenant owned say a B-class building or something like that, what would the retrofit costs be to bring it up to the current standard on a property on the triple net basis? What would the customer's costs to being it up to the standard be?

Yes. No, generally speaking, they'd be prohibitive. A class B property would find B2B users. It wouldn't find omni-channel B2B and B2C users. But because there's so much demand for omni-channel, there will be scarcity value and that B2B into older industrial facility will find tenants that need to use the space. But to convert it to state-of-the-art space, it's more than just 30 foot or greater clear, it's also acreage. You need the acreage to go from 50 employees to 550 employees for four months out of year for the holiday season, you need the larger truck courts. So most of those B and C-quality industrial assets are still relevant, they're just not relevant for omni-channel. And trying to make them relevant is pretty prohibitive because, usually, they just don't have the sizeable land parcel that you need.

Okay, great. Thank you.

You're welcome.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Michael Landy for any closing remarks.

Well, thank you, Laura. I'd like to thank everyone for joining us on this call and for their continued support and interest in Monmouth. As always, Kevin, Gene and I are available for any follow-up questions and we look forward to reporting back to you in December with our fiscal year-end results. Thank you.

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