Monmouth Real Estate Investment Corporation A Public REIT Since 1968 NYSE: MNR www.mreic.reit 3499 Route 9 North Freehold, New Jersey 07728 732.577.9996 M o n m o u t h R e a l E s t a t e I n v e s t m e n t C o r p o r a t i o n 2 0 1 7 A n n u a l R e p o r t Monmouth Real Estate Investment Corporation 2017 Annual Report “When the market opens tomorrow, billions of dollars will change hands voluntarily and every single one of those transactions will involve an element of trust. But trust must be earned. A reputation of integrity is often the most valuable asset a business can have. Eugene Landy has earned such a reputation, and we must continue to conduct ourselves accordingly, to remain true to his legacy and to protect the enduring value that has been built.” – Michael P. Landy, President and CEO Monmouth Real Estate Investment Corporation A Public REIT Since 1968 NYSE: MNR www.mreic.reit 3499 Route 9 North Freehold, New Jersey 07728 732.577.9996 M o n m o u t h R e a l E s t a t e I n v e s t m e n t C o r p o r a t i o n 2 0 1 7 A n n u a l R e p o r t Monmouth Real Estate Investment Corporation 2017 Annual Report “When the market opens tomorrow, billions of dollars will change hands voluntarily and every single one of those transactions will involve an element of trust. But trust must be earned. A reputation of integrity is often the most valuable asset a business can have. Eugene Landy has earned such a reputation, and we must continue to conduct ourselves accordingly, to remain true to his legacy and to protect the enduring value that has been built.” – Michael P. Landy, President and CEO 50th Anniversary – 1 – 2017 Annual Report Daniel D. Cronheim Attorney-at-Law Executive Vice President, General Counsel David Cronheim Company Neal Herstik Attorney-at-Law Gross, Truss & Herstik, PC Michael P. Landy President and Chief Executive Officer Directors Catherine B. Elflein Senior Director Risk Management Celgene Corporation Matthew I. Hirsch Attorney-at-Law Law Office of Matthew I. Hirsch Samuel A. Landy Attorney-at-Law, President and Chief Executive Officer UMH Properties, Inc. Gregory T. Otto Maritime Consultant Paul F. Richardson & Associates Scott L. Robinson Managing Director Oberon Securities Brian H. Haimm Chief Financial Officer and Chief Operating Officer Ascend Capital Eugene W. Landy Chairman of the Board Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Stephen B. Wolgin Managing Director U.S. Real Estate Advisors, Inc. Officers and Management Eugene W. Landy Chairman of the Board Allison Nagelberg General Counsel Michael P. Landy President and Chief Executive Officer Michael D. Prashad In House Counsel Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Richard Molke Vice President of Asset Management Susan M. Jordan Vice President of Investor Relations Katie Rytter Controller Laura Teman Assistant Controller Yulia Hatch Senior Accountant Ashley Tripodi Assistant Property Manager Allison Viscardi Senior Property Manager Crystal Glas Executive Assistant Corporate Information m o c . i n o s d d a . w w w i n o s d d A y b i n g s e D Corporate Office 3499 Route 9 North Freehold, NJ 07728 Independent Auditors PKF O’Connor Davies, LLP 665 Fifth Avenue New York, NY 10022 Transfer Agent & Registrar American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Common Stock Listing NYSE:MNR www.mreic.reit Guest Speaker: The Honorable Guido Calabresi Keynote Speaker: James Grant, Grant’s Interest Rate Observer Honoree, Founder and Chairman: Eugene W. Landy People matter. Education and training matter. Great institutions matter. Pictured here are our family, friends and associates, all of whom have stood their watch to help build our great company. We have been privileged to know some of the great minds of our era, some of whom are seen here giving us counsel. Fifty years of leadership was only made possible because of the years spent at the United States Merchant Marine Academy and the Yale Law School. We acknowledge our success is built on the framework created by the New York Stock Exchange and the National Association of Real Estate Investment Trusts. This annual report is our official log book of our voyage to date. Great pride is taken in the accomplishments of our President and CEO, Michael Landy by both my wife Gloria and I. Gloria is a leader in her own right and is fittingly pictured here with me. – Eugene W. Landy, Founder and Chairman of the Board Daniel D. Cronheim Attorney-at-Law Executive Vice President, General Counsel David Cronheim Company Neal Herstik Attorney-at-Law Gross, Truss & Herstik, PC Michael P. Landy President and Chief Executive Officer Directors Catherine B. Elflein Senior Director Risk Management Celgene Corporation Matthew I. Hirsch Attorney-at-Law Law Office of Matthew I. Hirsch Samuel A. Landy Attorney-at-Law, President and Chief Executive Officer UMH Properties, Inc. Gregory T. Otto Maritime Consultant Paul F. Richardson & Associates Scott L. Robinson Managing Director Oberon Securities Brian H. Haimm Chief Financial Officer and Chief Operating Officer Ascend Capital Eugene W. Landy Chairman of the Board Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Stephen B. Wolgin Managing Director U.S. Real Estate Advisors, Inc. Officers and Management Eugene W. Landy Chairman of the Board Allison Nagelberg General Counsel Michael P. Landy President and Chief Executive Officer Michael D. Prashad In House Counsel Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Richard Molke Vice President of Asset Management Susan M. Jordan Vice President of Investor Relations Katie Rytter Controller Laura Teman Assistant Controller Yulia Hatch Senior Accountant Ashley Tripodi Assistant Property Manager Allison Viscardi Senior Property Manager Crystal Glas Executive Assistant Corporate Information m o c . i n o s d d a . w w w i n o s d d A y b i n g s e D Corporate Office 3499 Route 9 North Freehold, NJ 07728 Independent Auditors PKF O’Connor Davies, LLP 665 Fifth Avenue New York, NY 10022 Transfer Agent & Registrar American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Common Stock Listing NYSE:MNR www.mreic.reit Guest Speaker: The Honorable Guido Calabresi Keynote Speaker: James Grant, Grant’s Interest Rate Observer Honoree, Founder and Chairman: Eugene W. Landy People matter. Education and training matter. Great institutions matter. Pictured here are our family, friends and associates, all of whom have stood their watch to help build our great company. We have been privileged to know some of the great minds of our era, some of whom are seen here giving us counsel. Fifty years of leadership was only made possible because of the years spent at the United States Merchant Marine Academy and the Yale Law School. We acknowledge our success is built on the framework created by the New York Stock Exchange and the National Association of Real Estate Investment Trusts. This annual report is our official log book of our voyage to date. Great pride is taken in the accomplishments of our President and CEO, Michael Landy by both my wife Gloria and I. Gloria is a leader in her own right and is fittingly pictured here with me. – Eugene W. Landy, Founder and Chairman of the Board Letter to Shareholders Michael P. Landy President and Chief Executive Officer “Machines cannot dream, not even in sleep mode. If we stop dreaming big dreams, if we stop looking for a greater purpose, then we may as well be machines ourselves.” Gary Kasparov First World Chess Champion to be defeated by a computer JANUARY, 2018 Dear Fellow Human Shareholders, Welcome to our 2017 annual report. Sadly, some of our largest investors will not be reading this annual report because their computer-driven algorithms are not programmed to seek value here. While I certainly hope it never comes to pass, because these massive computer-based index funds have grown exponentially, currently representing approximately 40% of total public- equity ownership, we may see the day when writing a letter to shareholders will be a futile endeavor. For even if these computers somehow became interested in reading this letter, it would be a very difficult letter to write, as humans and computers think so differently. Paramount in the mind of a human investor is gaining an understanding of a company’s intrinsic value. While placing funds regardless of price across a broad spectrum of companies has, to date, been the relatively simple-minded task of the robot advisor. So, let us proceed with the former and drill down on the intrinsic value that has been growing here at Monmouth Real Estate Investment Corporation (Monmouth), keeping in mind that one of the big detriments and opportunities created by these large, passive computer-driven ownership positions, is that they can cause stock prices to diverge greatly from their intrinsic value. – 2 – Monmouth Real Estate Investment Corporation • Entered into commitments to purchase four new build-to-suit properties containing approximately 1.65 million square feet, for a purchase price of approximately $139.3 million scheduled to close over the next several quarters, including two properties we acquired subsequent to fiscal yearend, • Renewed 11 of the 13 leases totaling 1.4 million square feet that were scheduled to expire in fiscal 2017, resulting in a 92% tenant retention rate, • Maintained a sector leading occupancy rate of 99.3% at fiscal yearend, representing our second consecutive year with above 99% occupancy, • Extended our weighted average lease maturity from 7.4 years to 7.9 years, • Achieved a 19% total shareholder return for fiscal 2017, versus less than a 1% total return for the MSCI US REIT Index during the same period, • Increased our total market capitalization by 22% to $2.2 billion at fiscal yearend, • Raised $73.5 million in gross proceeds through our Series C Perpetual Preferred Stock follow-on offering at 6.125%, • Raised an additional $36.4 million in gross proceeds from the issuance of shares of our 6.125% Series C Perpetual Preferred Stock through our Preferred Stock ATM Program, • Raised approximately $91.9 million in equity through our Dividend Reinvestment and Stock Purchase Plan, • Redeemed our high coupon 7.625% Series A Preferred Stock and our high coupon 7.875% Series B Preferred Stock, • Extended our weighted average debt maturity from 9.6 years to 10.2 years at fiscal yearend, • Reduced our weighted average interest rate on our fixed rate debt from 4.5% to 4.2%, • Generated $2.3 million in net realized gains in addition to the $6.6 million in unrealized gains we held at fiscal yearend on our REIT securities investments, and • Subsequent to yearend, increased our common stock dividend by 6.25% on October 2, 2017, representing our second dividend increase in three years. On January 19, 2017, we celebrated our 50-year anniversary as a public REIT at the NYSE. Our longevity is a testament to our conservative principles. We have always been guided in our quest for value creation by keeping a long-term outlook. When looking back over the cycles, although we have performed well throughout, it has been the downturns that saw Monmouth’s business model outperform the most. Our anniversary celebration began with the ringing of the closing bell. This is an honor that we will always hold near and dear to our hearts. Our celebration continued with a dinner honoring our Founder and Chairman, Eugene Landy. Guests attended from all over the country and the room was overflowing with love and respect. Fiscal 2017 was a banner year for Monmouth. Our Company executed exceptionally well, and our achievements were many. During the year, the Company accomplished the following: • Generated AFFO per share growth of 9%, • Increased our Gross Revenue by 20% to $120.5 million, • Increased our Net Operating Income by 20% to $96.2 million, • Acquired 2.8 million square feet of high-quality industrial space for $286.5 million comprising 10 brand new, Class A built- to-suit properties, all leased long term, of which 77% is leased to investment grade tenants, • Completed two expansion projects for approximately $5.6 million, adding additional rental space of 51,000 square feet, • Generated 17% year-over-year growth in gross leasable area through acquisitions and expansions, – 3 – 2017 Annual Report Built one high-quality asset at a time, with a focus solely on single tenant, net leased industrial properties, leased long-term to investment grade tenants, Monmouth stands out as one of the most specialized of all REITs. Publicly traded since 1968, we are also one of the oldest REITs in the world. One of our most important assets, and a reason for our cycle-tested longevity, is our exceptional roster of tenant relationships. Our modern industrial property portfolio boasts an all-star tenant line up that currently includes Amazon, Anheuser-Busch, Beam Suntory, Coca-Cola, FedEx, GE, Home Depot, International Paper, National Oilwell Varco, Sherwin-Williams, Siemens, ULTA Cosmetics, United Technologies, and other high-quality companies. With approxi- mately 85% of our rental revenue derived from investment grade tenants, our earnings quality is among the highest in the entire REIT sector. Today, our property portfolio comprises 108 prop- erties totaling 19.1 million rentable square feet, geographically diversified across 30 states. This represents substantial progress, considering that our gross leasable area was less than half its cur- rent size just six years ago. Most importantly, because this growth was generated through the acquisition of brand new, Class A, built-to-suit properties, Monmouth owns the youngest and most state-of-the-art property portfolio in the industrial REIT sector. Gross Leasable Area 18.8 16.0 13.9 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 ) s n o i l l i M n I ( t e e F e r a u q S l a t o T 11.2 9.6 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 We’ve positioned our assets to benefit from three long-term cata- lysts. First and foremost is the continued migration of consumer spending from traditional store shopping, to the infinite virtual storefronts that can be found on the Internet. Excluding food and fuel, ecommerce now represents approximately 16% of total retail spending, and continues to climb rapidly. Second is our focus on locations that are near major transportation hubs, major airports, and manufacturing plants that are vital to our tenants’ opera- tions. This has proven over the long term to result in high tenant retention rates, and as a result we have averaged over 90% tenant retention for the past eight years. Third is strategically positioning our assets to benefit from the shift in the global supply chain that has been occurring due to the recently expanded Panama Canal. Over 70% of the U.S. population resides east of the Mississippi River, and because of the new, wider Panama Canal, shipping con- tainer growth at the East Coast ports has been outpacing the West Coast ports for several years now. Domestic manufacturing has been increasing dramatically this past year, with many companies relocating their plants near the Eastern Ports to benefit from the greater shipping capacity that the expanded canal provides. As you can see from the map on pages 14 and 15 of this report, our portfo- lio is very well positioned to benefit from these ongoing changes. Since 2011, our capital structure has grown by nearly 350%. We have achieved this substantial growth while reducing our overall leverage. This year’s $286.5 million in acquisitions represented the third straight record-breaking year of new acquisitions for Monmouth. In fiscal 2017 we acquired 10 brand-new Class A built- to-suit industrial properties totaling 2.8 million square feet. We completed two expansion projects this year, adding 51,000 square feet of new rental space, for approximately $5.6 million. We have assembled a modern industrial property portfolio that contains substantial acreage to accommodate future growth. The land-to- building ratio of our recent acquisitions is approximately 7:1, which will provide for ample future expansion space as needed. Growing Monmouth one high-quality asset at a time will continue to be a key focus here. We are not striving to be the biggest company. Our goal is simply to be a better company. Capital Structure Common Equity Preferred Equity Debt ) s n o i l l i B n i $ ( n o i t a z i l a t i p a C t e k r a M l a t o T $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 – 4 – Monmouth Real Estate Investment Corporation “We’re blind to our blindness. We have very little idea of how little we know. We’re not designed to know how little we know.” Daniel Kahneman 2002 Nobel Prize recipient in Economic Sciences Understanding behavioral economics is an essential tool for any- one wanting to be a successful investor. Death, taxes, and change stand alone in the province of certainty. All else comes down to probabilistic judgments based upon experience and knowledge. In our 2014 annual report, we featured an essay titled “A Few Thoughts on REIT Dividends and Total Return.” That essay is reprinted in its original form in this year’s annual report, as it explains a few fundamental pillars for understanding our philoso- phy and the value of our business model. The essay’s accompanying chart has been brought up to date to illustrate how prescient our predictions were. I encourage you to read it. Last year, we discussed how qualitative differences can at times more than offset quantitative differences and how this is one of the areas where computer comprehension has a blind spot. We talked about how a $5.00 rent can be more valuable than a $6.00 rent depending on who is paying it. Time is another key element where analysis can often go astray. Taking time for granted has undoubtedly been one of the costliest errors people make, and yet they make this error time and time again. Another common blind spot is many people see the world solely as a zero-sum game. They apply a very sharp pencil in their analysis and keep their heads up in the theoretical clouds. For instance, they argue that capital allocation should merely be a matter of raising capital when your currency is at a premium and then simply buying it back when it is at a discount. This is beyond overly simplistic. It may work well on the drawing board, but the reality on the ground is rarely so black and white. The entrepreneurial people we seek to do business with are those who can appreciate these nuances, for that is what is nec- essary to create value where there was none. These are the people we have been fortunate to partner with throughout our 50-year history. Walking away at the end of a transaction with all parties satisfied with the outcome is the norm here. In looking at the diffi- culties plaguing the retail real estate sector today, I can’t help but think that in many cases, had the landlords not pushed rents so aggressively year after year, perhaps they could be weathering the ecommerce storm better than they find themselves doing today. Here at Monmouth, by understanding the bigger picture, we have built some of the most dependable income streams the REIT world has to offer, and I’m proud to say that over the past 10 years, out of more than 180 REITs, Monmouth, with a total return of over 300%, is one of the top 10 performing companies. Approximately 85% of our rental revenue is derived from invest- ment-grade companies or their subsidiaries. The remaining 15% is derived from very strong credits as well; they are just non-rated. While from a geographic standpoint our portfolio is well diversi- fied across 30 states, from a tenant concentration standpoint our largest tenant, FedEx, currently represents 50% of our total square footage. Given the strength of FedEx, their long-term successful track record, and their increasingly bright prospects, we are more than comfortable with this high concentration. FedEx is an essen- tial component of the Internet ecosystem, and without them there would be no ecommerce. Since the turn of the century, ecommerce sales have been growing at a 15% compound annual growth rate. Demand, and therefore the value of the FedEx logistics network, has grown considerably as a result. Today, we have 59 properties totaling approximately 9.5 million square feet leased to FedEx. FedEx still occupies the very first building we purchased back in 1992, that was leased to them. They are a big reason our tenant retention rates have historically averaged over 90%, and they have been the primary source of the substantial building expansions we have been doing over the past several years. In our opinion, the value of the FedEx network is only going to increase further with time. Fiscal 2017 marked our second consecutive year of achieving above 99% occupancy. In fact, 100% occupancy was achieved for most of the year. We ended it with a 99.3% occupancy rate, which is down 30 basis points from the end of fiscal 2016. These occupancy rates represent the highest in the industrial REIT sector and illustrate the mission-critical nature of our properties. Subsequent to year- end, our occupancy rate has risen further, and is now 99.5%. In fiscal 2017, 10% of our gross leasable area, representing 13 leases totaling approximately 1.5 million square feet, was scheduled to expire. Eleven of the 13 leases were renewed this year, representing 1.4 million total square feet, giving Monmouth a 92% tenant reten- tion rate. Our fiscal 2017 lease renewals have an average term of 6.8 years, and an average GAAP lease rate of $5.70 per square foot. This represents a slight decrease of 0.5% on a straight-line GAAP basis. Given the strength of our tenants and the long average lease renewal term, we are pleased with these results. Occupancy 99.6% 99.3% 99.5% 97.7% 96.0% 95.9% 100% 98% 96% 94% 92% 90% FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Current – 5 – 2017 Annual Report In fiscal 2017, we raised approximately $91.9 million in equity capital through our Dividend Reinvestment and Stock Purchase Plan (DRIP). Of this amount, a total of $10.1 million in dividends was reinvested this year, representing a 22% participation rate in our dividend reinvestment plan. Investors who participate in our DRIP can enhance their returns by reinvesting their dividends and achieving a compounded return. This has proven to be a very reli- able program to help fund our growth. Additionally, we financed our new acquisitions with low-cost, long-term mortgage debt, raising $188.8 million in conjunction with our fiscal 2017 acqui- sitions at a weighted average interest rate of 3.9% and a weighted average debt maturity of 14.9 years. This year has seen increasingly strong competition for industrial property acquisitions, and as a result cap rates have reached record low levels. Interest rates are beginning to rise, thus tightening our investment spreads and reducing our levered returns on equity. We are very pleased to have executed substantial growth at precisely the right time in the cycle, and while it is still beneficial to seek opportunistic acquisitions, Warren Buffett’s famous admonition, “What the wise man does in the beginning, the fool does in the end,” is something to keep in mind should investment spreads continue to compress further. Dividend Growth (per share) Balance-sheet strength must be an essential focus for any REIT. Over our 50-year history, we have seen companies implode from excessive leverage and poorly structured debt-maturity schedules. A continuing theme here has been to capitalize on this protracted period of historically low interest rates by extending our debt maturities as far as possible, and by reducing our cost of capital throughout our capital structure. During the year, we successfully finished replacing all $111 million of our high-dividend Series A and Series B Preferred Stock, which had a weighted-average cou- pon of 7.75%, with our new 6.125% Series C Perpetual Preferred Stock. This resulted in approximately $1.8 million in annual preferred dividend savings going forward. At fiscal yearend, our net debt to total market capitalization ratio was a conservative 32%. Our total market capitalization was approximately $2.2 bil- lion, representing a 22% increase over the prior year. Our capital structure at fiscal yearend is composed of $1.2 billion in equity capitalization, $246 million in perpetual preferred capital and $711 million in debt. Eighty-three percent of our total debt is fixed-rate, with a weighted-average interest rate of 4.2% and a weighted-average maturity of 11.6 years, representing one of the longest debt maturity schedules in the entire REIT sector. We also held $123.8 million in marketable REIT securities, representing 8% of our undepreciated assets. Our securities portfolio delivered strong results this year, with $2.3 million in net realized gains as well as substantial dividend income. During the year, we fully repaid $40 million in mortgage loans, thereby unencumbering approximately $160 million worth of properties. Our Company remains very well capitalized to execute our qualitative growth strategy going forward. $0.64 $0.64 $0.60 $0.60 $0.68 Debt Maturity Schedule Mortgages (all fixed rate) Loans Payable FY 2014 FY 2015 FY 2016 FY 2017 FY 2018E $400 $350 $300 $250 $200 $150 $100 $50 $0 ) s n o i l l i M n i ( t b e D l a t o T 49.2% 21.0% 8.0% 7.7% 8.6% 5.5% 2018 2019 2020 2021 2022 Thereafter – 6 – $0.80 $0.70 $0.60 $0.50 $0.40 Monmouth Real Estate Investment Corporation Monmouth’s Funds from Operations (FFO) for fiscal 2017 were $54.4 million, or $0.75 per diluted share, as compared to $46.6 million, or $0.71 per diluted share, for the same period a year ago, representing an increase in FFO per share of 6%. Growing our recurring earnings, or what are commonly referred to as Adjusted Funds from Operations (AFFO), is always a major focus here. AFFO excludes gains or losses on the sale of real estate and gains or losses on the sale of REIT securities, as well as lease termination income and the effects of straight-lined rent adjustments. Therefore, we believe AFFO serves as the best proxy for recurring cash earnings. Following three consecutive years of double-digit per-share growth for this important metric, our AFFO per diluted share increased this year to $0.76 per diluted share from $0.70 in the prior year, representing a 9% increase. The significant growth in our AFFO per diluted share has allowed us to raise our common stock dividend twice in the last three years. Because Monmouth’s dividend was maintained throughout the Global Financial Crisis, our current $0.68 annual common share dividend is greater than it has ever been. AFFO Growth (per share) $0.80 $0.70 $0.60 $0.50 $0.40 $0.76 $0.70 $0.57 $0.52 $0.46 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 – 7 – 2017 Annual Report Federal Reserve Monetary Base Federal Reserve monetary base (M1) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 s n o i l l i r T n 0$ 0.5 i QE3 QE2 QE1 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: BofA Merrill Lynch Global Investment Strategy, Federal Reserve “Inflation is always and everywhere a monetary phenomenon.” Milton Friedman 1976 Nobel Prize recipient in Economic Sciences At $4.5 trillion, the Federal Reserve’s balance sheet has never been larger. Because the European Central Bank, the Bank of Japan, and others followed suit with their own monetary expansions, the amount of added global liquidity equates to over $22 trillion. Debt-to-GDP ratios have risen to levels too high both here and abroad. Increased price inflation is one of the only solutions available in order to bring these ratios down to sustainable levels. Despite record-low unemployment, to date, these experiments in monetary policy have not produced the inflation levels that the central bankers have been targeting. While we have seen wide- spread asset price inflation in the bond market, the stock market, the commercial and residential real estate markets, the world of art, classic cars, and even the surreal world of crypto-currencies, the consumer price index (CPI) has stubbornly remained below the 2% level the central bankers desire. With so much new money being pumped into the system globally, why have we not seen rampant inflation? A large part of the answer can be found in the deflationary forces that the digital revolution has unleashed. The speed of change brought on by digitization has been remarkable. Computer processing power has been growing two-fold every 12–24 months since the 1970s. This has resulted in exponential increases in power at exponentially reduced costs. Tremendous gains in productivity have been unleashed that have thus far more than offset the inflationary pressures that these enormous liquidity injections were intended to produce. While it is hard to calculate all the deflation the digital revolution has created, it is not outside the realm of possibility that our real GDP is actually higher than our nominal GDP if all things are considered. While deflation- ary forces have until now ruled the day, inflation will inevitably return at some point, and likely at higher levels than anticipated. Historically, real estate has provided one of the few safe harbors from inflationary forces as land values, rental rates, and construc- tion costs will all rise with inflation. With regard to the overall US industrial market, our property sector is experiencing record results. In addition to the continued growth in ecommerce, there has been strong growth in the man- ufacturing sector, with new plants springing up near the Gulf and Eastern Ports as a result of the aforementioned recently expanded Panama Canal. Port activity, rail volume, and imports are all at very high levels. Consumer spending levels are strong and rising. The above 3% real GDP growth reported for the second and third quarter of this year represents more than a 50% improvement over the anemic GDP levels that have held the US economy back throughout this recovery. The industrial property sector is heading into 2018 with very strong momentum. Net absorption has now been positive for a record 30 consecutive quarters and will surpass 230 million square feet for the fourth year in a row. This growth has resulted in a continued decline in vacancy rates, which have fallen by 40 basis points from the prior-year period to a record low of 5.1% currently. New construction has increased, with 233 mil- lion square feet currently being built. However, demand continues – 8 – Monmouth Real Estate Investment Corporation to outpace new supply by a healthy margin. National rental rates are up 4.1% year over year to an average asking rate of $5.80 per square foot. It is anticipated that industrial rent growth will continue in 2018 due to these favorable conditions. Our portfolio is currently 99.5% occupied, and clearly our strong linkages to the digital economy have been one of the key drivers of our success. In conclusion, I’d like to thank my great teammates at Monmouth. It is truly an honor to work with each and every one of you. We have grown so much over the past several years, and it is in no small part due to the fact that our industrious group embraces our culture and philosophy. So, thank you all for your hard work, sound judgment, honesty, and integrity. Thank you for thinking BIG and for not seeing the world as a zero-sum game. To our directors, thank you for your strong oversight, vigilance, and care. Experience, continuity, predictability, and reliability are all still virtues in my book. Each of you has a deep understanding of our business model and our philosophy. Here’s to keeping our ship sailing in smooth seas for the next 50 years. Last but not least, to our long-term human shareholders, thank you, as you are essential to our success. In constructing plans, one of the inherent weaknesses in human nature is that people often cling to the best-case scenario. Always assuming that their desired outcome will follow their plan. Even when the facts change, and the plan should be reevaluated and adjusted accordingly, they are blind to see it. People have a strong propensity to fall in love with their plans. An inherent advantage of artificial intelligence is that each decision is made without any emotional attachment to the prior decision. Each step is evaluated in complete isolation. This is one of the major reasons artificial intelligence now plays chess at levels humans cannot. Notwithstanding the tremendous progress being made in artificial intelligence, I remain hopeful that the human component will always be an integral part of the value creation process, as it alone can provide the imagination necessary to dream the big dreams. Monmouth’s long-term track record pro- vides empirical proof that we have executed the sound judgment needed to realize these dreams. We are eternally grateful for the faith that you have shown in us. Your continued faith is something that we will never take for granted. It is essential to realizing our dreams of tomorrow. Sincerely yours, Michael P. Landy President and Chief Executive Officer – 9 – 2017 Annual Report A Few Thoughts on REIT Dividends and Total Return* Historically, REIT dividends have accounted for approximately 65% of the total investment return. The remaining 35% being derived from share price appreciation. Because REIT dividends are generally secured by contracts in the form of leases, there is a higher probability associated with receiving the cash flows from which the dividend is derived than that of the other component of total return; price appreciation. The price appreciation component is far more nebulous as much depends on the prevailing winds of investment fund flows throughout all asset classes. These fund flows can be fickle and are beyond anyone’s control. Therefore, a hypothetical 10% total return comprised of 6.5% in dividend income plus 3.5% in price appreciation, is much more preferable than the same 10% total return comprised of 3.5% in dividend income plus 6.5% in price appreciation. The reason being the first scenario has a greater probability of continued perfor- mance than that of the second scenario. Because Monmouth’s assets are secured by long-term leases to investment grade tenants, the probability associated with receiv- ing the high quality cash flows from which our dividend is derived, is greater than that of the REIT sector as a whole. This fact was evidenced throughout the recent Great Recession when REIT divi- dends were severely cut and in some cases even eliminated entirely. Meanwhile, Monmouth’s dividend didn’t miss a beat. Therefore, a hypothetical 10% total return comprised of 6.5% in dividend income generated by our real estate portfolio, plus 3.5% in price appreciation, is much more preferable than the same 10% total return comprised of 6.5% in dividend income generated from the average REIT portfolio, plus 3.5% in price appreciation. Again, the reason being the first scenario has a greater probability of con- tinued performance than that of the second scenario. Yet, as shown in the adjacent chart, the dividend income generated from an investment in Monmouth continues to be substantially greater than that of the average REIT today. The main explanation for this is in today’s world bigger is better when it comes to valuing stocks. In an efficient market, we feel that our dividend yield would be in-line with the REIT average, if not lower. As a result of our recent growth this differential has improved. We expect this favor- able trend to continue. *This essay is reprinted in its original form, which first appeared in our 2014 Annual Report. The accompanying chart has been brought up to date to show how prescient our predictions were. – 10 – Monmouth Real Estate Investment Corporation FTSE NAREIT Index Versus Monmouth Annual Dividend Return Monmouth FTSE NAREIT 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 – 11 – 2017 Annual Report Could you change the flag on the home page to: ...opens Saturday February 17th at Albright-Knox Art Gallery, Buffalo, NY February 17th - May 27th, Albright-Knox Art Gallery, Buffalo, NY. _________________________________________________________ ________________________________________________________ could you please change the Carriage House Residency to reflect the following? - Writer-In-Residence at The Carriage House/Ibex Puppetry 2015–2017 - Writer-In-Residence at The Carriage House/Ibex Puppetry 2015– present _______________________________________________________ Home Page: (or it could read _ CV) Fellowships, etc It appears this way: Change to this: Lectures: Bibliography Stanford University Department of Theater and Performance Studies Guest Playwright Series: Intimate Apparel/ Alva Rogers Wednesday January 24th 1:30-3:30 pm, Robie Gym 139 _______________________________________________________________________ We Wanted A Revolution, Black Radical Women 1965-1985: A Sourcebook, Editors: Catherine Morris, Rujeko Hockley Publisher Duke University Press/Brooklyn Museum, April 2017 We Wanted A Revolution, Black Radical Women 1965-1985: New Perspectives, Editors: Catherine Morris, Rujeko Hockley Publisher: Brooklyn Museum/ Duke University Press, February 2018 _______________________________________________________________________________________________________________________________ Exhibitions fellowships, etc: - We Wanted a Revolution: Black Radical Women, 1965–1985 California African American Museum October 13, 2017-January 14, 2018, Los Angeles, CA - We Wanted a Revolution: Black Radical Women, 1965–1985 Albright-Knox Art Gallery February 17- May 27, 2018, Buffalo, NY - We Wanted a Revolution: Black Radical Women, 1965–1985 Institute of Contemporary Art/ Boston June 26 - September 30, 2018 ________________________________________________________________________________________________________________________ It appears as this: Please change to this: New York University’s Fales Special Collections Library acquired her personal papers to be archived in its Downtown Art Collection in 2014. New York University’s Fales Special Collections Library acquired her personal papers for its Downtown Art Collection. She is currently working on a novel, a work of creative non-fiction, and an archival website for her performance work. Bio on website:spacer spacer spacer Alva Rogers is a writer, dramatist, lyricist and educator whose writing utilizes magic realism to explore themes of American identity, gender, otherness and “the uses of enchantment.” Her writing for solo performance uses deconstructed nursery rhymes recapitulated with musical memories from childhood. While studying creative writing at Brown University, Rogers was encouraged by professor Robert Coover to look for places where music and performance practices could fit into her genre-crossing writing using a hypertext structure. Her use of dolls and puppets reveals the uses of enchantment and highlights the need to return to that childlike state of dwelling harmoniously in both reality and imagination. Rogers is the recipient of grants from the Rockefeller Foundation, Jim Henson Foundation, New York Foundation for the Arts, National Endowment for the Arts, Meet the Composer and a New York Dance and Performance Bessie Award, among others. The Joseph Papp Public Theater, Dixon Place, Heather Henson’s Handmade Puppet Films, The Kitchen and the Spoleto Festival, USA have commissioned works. Readings and productions have been presented by HERE, Actor’s Express Theater, New Georges, The Women’s Project, Trinity Repertory Theater, Seattle Repertory Theater, The Walker Art Center, P.S. 122, The New Museum, Pillsbury House Theater, The O’Neill Puppetry Conference and the American Museum of Natural History. She was a co-founder, lead performer and muse in Rodeo Caldonia, a performance collective/art lab/theater troupe that worked together in New York City from 1985–1989. 101 82 69 59 $100 $75 $50 $25 s n o i l l i M n I $ FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 – 12 – Gross Leasable Area 18.8 16.0 13.9 11.2 9.6 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Gross Revenue 121 ) s n o i l l i M n I ( t e e F e r a u q S l a t o T 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 $125 Monmouth Real Estate Investment Corporation Total Return Performance 10 Year MNR MNR S&P 500 S&P 500 MSCI US REIT INDEX (RMS) MSCI US REIT INDEX (RMS) 300% 200% 100% 0% -100% 12/31/2007 06/30/2008 12/31/2008 06/30/2009 12/31/2009 06/30/2010 12/31/2010 06/30/2011 12/31/2011 06/30/2012 12/31/2012 06/30/2013 12/31/2013 06/30/2014 12/31/2014 06/30/2015 12/31/2015 06/30/2016 12/31/2016 06/30/2017 12/31/2017 1 Year MNR S&P 500 MSCI US REIT INDEX (RMS) 20% 10% 0% -10% -20% Jan ’17 Mar ’17 May ’17 Jul ’17 Sep ’17 Nov ’17 – 13 – 322.89% 126.03% 105.05% 21.90% 21.83% 5.07% 2017 Annual Report Property Locations MREIC owns 108 properties. Our gross leasable area as of January 2018 is 19.1 million square feet, geographically diversified across 30 states. – 14 – Monmouth Real Estate Investment Corporation – 15 – 2017 Annual Report Featured Acquisition Big Town Shopping Mall – Dallas, Texas Retailing is thriving. It is the methodology that is changing. This year saw thousands of retail store closings while overall consumer spending continued to increase. This growth was primarily driven by the dramatic shift toward ecommerce. Growing at a 15% compound annual growth rate since the turn of the century, ecom- merce sales now represent approximately 16% of total retail sales excluding food, fuel, and auto. The 2017 holiday shopping season achieved record numbers for online sales. It also resulted in record numbers for package deliveries for our largest tenant, FedEx. – 16 – Monmouth Real Estate Investment Corporation FedEx Ground – Dallas, Texas 352,000 Square Feet The large FedEx Ground distribution center pictured here, replaced what was a giant shopping mall named, Big Town Mall. Originally constructed in 1959, Big Town Mall was once the largest mall in Texas. This example of creative destruction is indicative of the changing of the guard that has been taking place in the world of consumer spending. Because consumer spending has been migrating from the physical stores on Main Street, to the virtual stores out in Cyberspace, this valuable land is now better utilized as a distribution center than it is for retail storefronts. Situated just six miles east of downtown Dallas, and in close proximity to the Union Pacific rail hub, this property leased for 15 years to FedEx Ground, is a welcome new addition to our high-caliber portfolio. Our property portfolio is currently 99.5% occupied and clearly our strong linkages to the digital economy have been one of the big drivers of our success. – 17 – 2017 Annual Report Financial Highlights The following is a calendar yearend common stock review: Year 2017 2016 2015 2014 2013 Share Volume Opening Price ($) Closing Price ($) Dividend Paid ($) Appreciation (Depreciation) Total Return 80,472,400 15.24 80,440,900 10.46 53,003,500 58,753,100 11.07 9.09 33,110,000 10.36 17.80 15.24 10.46 11.07 9.09 0.65 0.64 0.61 0.60 0.60 16.8% 21.9% 45.7% 53.5% -5.5% 0.3% 21.8% 29.2% -12.3% -6.8% The shares of common stock of Monmouth Real Estate Investment Corporation are traded on the New York Stock Exchange (NYSE:MNR). The following is a 5-year dividend payment and Core FFO analysis: Fiscal Year Ended September 30 Core Funds From Operations ($) Dividends Per Share ($) 2017 2016 2015 2014 2013 57,088,302 50,270,633 35,276,535 29,482,323 27,852,944 0.64 0.64 0.60 0.60 0.60 – 18 – Monmouth Real Estate Investment Corporation Daniel D. Cronheim Attorney-at-Law Executive Vice President, General Counsel David Cronheim Company Neal Herstik Attorney-at-Law Gross, Truss & Herstik, PC Michael P. Landy President and Chief Executive Officer Directors Catherine B. Elflein Senior Director Risk Management Celgene Corporation Matthew I. Hirsch Attorney-at-Law Law Office of Matthew I. Hirsch Samuel A. Landy Attorney-at-Law, President and Chief Executive Officer UMH Properties, Inc. Gregory T. Otto Maritime Consultant Paul F. Richardson & Associates Scott L. Robinson Managing Director Oberon Securities Brian H. Haimm Chief Financial Officer and Chief Operating Officer Ascend Capital Eugene W. Landy Chairman of the Board Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Stephen B. Wolgin Managing Director U.S. Real Estate Advisors, Inc. Officers and Management Eugene W. Landy Chairman of the Board Allison Nagelberg General Counsel Michael P. Landy President and Chief Executive Officer Michael D. Prashad In House Counsel Kevin S. Miller Chief Financial and Accounting Officer, and Treasurer Richard Molke Vice President of Asset Management Susan M. Jordan Vice President of Investor Relations Katie Rytter Controller Laura Teman Assistant Controller Yulia Hatch Senior Accountant Ashley Tripodi Assistant Property Manager Allison Viscardi Senior Property Manager Crystal Glas Executive Assistant Corporate Information m o c . i n o s d d a . w w w i n o s d d A y b i n g s e D Corporate Office 3499 Route 9 North Freehold, NJ 07728 Independent Auditors PKF O’Connor Davies, LLP 665 Fifth Avenue New York, NY 10022 Transfer Agent & Registrar American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Common Stock Listing NYSE:MNR www.mreic.reit Guest Speaker: The Honorable Guido Calabresi Keynote Speaker: James Grant, Grant’s Interest Rate Observer Honoree, Founder and Chairman: Eugene W. Landy People matter. Education and training matter. Great institutions matter. Pictured here are our family, friends and associates, all of whom have stood their watch to help build our great company. We have been privileged to know some of the great minds of our era, some of whom are seen here giving us counsel. Fifty years of leadership was only made possible because of the years spent at the United States Merchant Marine Academy and the Yale Law School. We acknowledge our success is built on the framework created by the New York Stock Exchange and the National Association of Real Estate Investment Trusts. This annual report is our official log book of our voyage to date. Great pride is taken in the accomplishments of our President and CEO, Michael Landy by both my wife Gloria and I. Gloria is a leader in her own right and is fittingly pictured here with me. – Eugene W. Landy, Founder and Chairman of the Board Monmouth Real Estate Investment Corporation A Public REIT Since 1968 NYSE: MNR www.mreic.reit 3499 Route 9 North Freehold, New Jersey 07728 732.577.9996 M o n m o u t h R e a l E s t a t e I n v e s t m e n t C o r p o r a t i o n 2 0 1 7 A n n u a l R e p o r t Monmouth Real Estate Investment Corporation 2017 Annual Report “When the market opens tomorrow, billions of dollars will change hands voluntarily and every single one of those transactions will involve an element of trust. But trust must be earned. A reputation of integrity is often the most valuable asset a business can have. Eugene Landy has earned such a reputation, and we must continue to conduct ourselves accordingly, to remain true to his legacy and to protect the enduring value that has been built.” – Michael P. Landy, President and CEO