Good morning and welcome to the Monmouth Real Estate Investment Corporation's First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. It is now my pleasure to introduce your host, Ms. Becky Coleridge, Vice President of Investor Relations. Thank you. Ms. Coleridge, you may begin.

Thank you very much, operator. In addition to the 10-K that we filed with the SEC today, we have filed an unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, are available on the company's website at mreic.reit. I'd 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 first quarter 2021 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. Having said that, I'd like to introduce management with us today; Eugene Landy, Chairman; Michael Landy, President and Chief Executive Officer; Kevin Miller, Chief Financial Officer; and Richard Molke, Vice President of Asset Management. It is now my pleasure to turn the call over to Monmouth's President and Chief Executive Officer, Michael Landy.

Thank you, Becky. Good morning, everyone, and thank you for joining us. Before I get into our first quarter results, I want to briefly address recent announcements regarding our strategic alternatives process and matters pertaining to our upcoming annual meeting. On January 14, 2021, we announced that we would explore strategic alternatives and that we had retained JPMorgan to work with CS Capital Advisors to assist us in that effort. We are undertaking a comprehensive and thorough review of all alternatives available to us, including a possible sale or merger, and our Board and Management team are fully committed to taking all appropriate actions to ensure we maximize value for stockholders. In light of favorable current market conditions for our sector, we believe this is an opportune time to be evaluating our strategic options. On December 31, 2020, we also announced that we were in receipt of notices from two stockholders declaring their intention to nominate candidates to stand for election to our board and submit several nonbinding proposals to be voted on at our Annual Meeting.

Thank you, Mike. With respect to our property portfolio, I'm pleased to report that our occupancy rate has been over 98.9% for six consecutive years, and we have maintained a weighted average lease term in excess of seven years for the past seven consecutive years now. Our occupancy rate at quarter-end was 99.7%, representing a 50 basis point increase from a year ago and a 30 basis point increase sequentially. Our weighted average lease term was 7.5 years as of quarter-end, compared to 7.6 years in the prior year period, up from 7.1 years in the prior quarter. During the first quarter of fiscal 2021, our weighted average rent per square foot increased by 4% to $6.52, compared to $6.27 a year ago. During the quarter, we completed a large parking expansion project for FedEx Ground at our property located in the Kansas City MSA for a total project cost of $3.4 million. This expansion resulted in a $340,000 increase in annualized rent, increasing the total annualized rent from $2.2 million to $2.6 million. We anticipate additional expansion work at this location, which will further increase the rental rate and extend the lease term. There are currently six additional parking expansion projects underway that are expected to total approximately $17 million. These parking expansion projects will enable us to generate additional rent while extending the lease terms. We are also in discussions to expand parking at 11 additional locations currently, and due to growing demand for home deliveries, we expect this total amount to increase further. From a leasing standpoint, in fiscal 2021, approximately 5% of our gross leasable area, representing 10 leases totaling approximately 1.2 million square feet, is scheduled to expire. Six of these ten leases have been renewed. The six leases that have been renewed represent 834,000 square feet or 69% of the expiring square footage.

Thank you, Rich. Funds from operations or FFO for the first quarter of fiscal 2021 were $18.9 million or $0.19 per diluted share. This compares to FFO for the same period one year ago of $19.3 million or $0.20 per diluted share and $19.2 million or $0.20 per diluted share sequentially, representing a 5% share decrease. Adjusted funds from operations or AFFO was $18.2 million or $0.19 per diluted share for the quarter as compared to $19.9 million or $0.21 per diluted share in the prior year period, representing a 9.5% share decrease. This decrease was largely the result of an increase in preferred dividend expense of $2.1 million and a reduction in dividend income of $1.6 million, partially offset by an increase in net operating income of $2.1 million. This quarter’s AFFO of $0.19 per diluted share is unchanged sequentially. As mentioned, during the recent quarter, we purchased two large properties for an aggregate purchase price of $170 million, which will generate $10.1 million in annualized revenue. These two acquisitions were purchased very late in the quarter, and therefore, the current quarter does not reflect the positive impact of these two recent acquisitions. We expect that the NOI generated from these recent acquisitions, coupled with the deployment of our excess cash proceeds, along with our $169.3 million acquisition pipeline, as well as our large expansion pipeline will meaningfully grow our FFO and AFFO per share earnings going forward. Rental and reimbursement revenues for the quarter were $43.6 million, compared to $41.7 million, representing an increase of 5% over the prior-year period. Net operating income or NOI, which we define as recurring rental and reimbursement revenues, less property taxes and operating expenses, was $36.5 million for the quarter, reflecting a 6% increase over the comparable period a year ago. Our net income was $33.9 million for the first quarter as compared to a net income of $9.6 million in the previous year's first quarter. The large increase in net income this quarter was primarily driven by a $19.7 million unrealized holding gain on our securities portfolio. With the widespread COVID-19 vaccination process now in progress, many of the large decreases in our securities investments have begun to reverse themselves. As we previously announced, we plan to substantially reduce our securities holdings over time. To that end, subsequent to the quarter-end, we sold marketable REIT securities for gross proceeds totaling $12.3 million, generating a realized gain of $1.8 million that will show up in our next earnings filing. Same property NOI increased 20 basis points on a GAAP basis and increased 60 basis points on a cash basis over the prior-year period. These increases in same property NOI were mostly due to a 50 basis point increase in same property occupancy to 99.6%. As Rich mentioned on December 15, 2020, we entered into a new 10.3 year lease agreement with an investment-grade tenant for the Hartford, Connecticut property, increasing our overall occupancy rate to 99.7%. Subsequent to the quarter-end, we fully repaid a $6.2 million mortgage loan for one of our properties located in Kansas City, Missouri. The loan was originally set to mature on December 1, 2021, and had an interest rate of 5.18%. As of the end of the quarter, our capital structure consisted of approximately $963 million in debt, of which $888 million was property level fixed-rate mortgage debt, and $75 million were loans payable. 92% of our debt is property level fixed-rate mortgage debt with a weighted average interest rate of 3.88% as compared to 4.05% in the prior-year period. Our weighted average debt maturity for property level fixed-rate debt remained unchanged at 11.5 years at quarter-end, as compared to the prior-year period. Our loans payable are made up of a $75 million term loan that has a corresponding interest rate swap agreement to fix LIBOR at an all-in interest rate of 2.92%. Including the term loan, 100% of our debt is fixed rate with a weighted average interest rate of 3.81% along with a weighted average debt maturity of 10.9 years. This represents one of the longest debt maturity schedules in the entire REIT sector. We also have $549.6 million outstanding on our Series C 6.125% perpetual preferred equity at quarter-end, which, as previously mentioned, becomes redeemable later this year, thereby providing a good opportunity to help generate additional earnings growth. Combined with an equity market capitalization of $1.7 billion, our total market capitalization was approximately $3.2 billion at quarter-end. From a credit standpoint, we continue to be conservatively capitalized with our net debt to total market capitalization at 29%. Our fixed charge coverage at 2.1 times and our net debt to adjusted EBITDA at 6.4 times for the quarter because our net debt to adjusted EBITDA as of the quarter-end includes the entire $104 million in fixed-rate mortgage debt that we incurred in connection with the two recent acquisitions but does not include the full run rate NOI, our pro forma net debt to adjusted EBITDA is considerably lower. From a liquidity standpoint, we ended the quarter with $29.3 million in cash and cash equivalents, and we currently have no borrowings on our revolver. In addition, we have $126.3 million in marketable REIT securities, representing 5% of our undepreciated assets with an unrealized loss of $107.1 million at quarter-end. As mentioned, the value of our securities portfolio has continued to rise subsequent to quarter-end, and we've begun to opportunistically reduce our holdings. Our securities portfolio currently generates approximately $6 million in annual dividends. And now, let me turn it back to Michael before we open up the call for questions.

Before we begin the Q&A portion of today's call, I want to remind everyone that the purpose of today's call is to discuss our first quarter earnings. Please keep your questions focused on our financial results. As a reminder, we will not be commenting further on our strategic exploration process or on matters related to our annual meeting at this time. With that, we'll open the call up for questions.

We will now begin the question-and-answer session. Our first question comes from Frank Lee with BMO. Please go ahead.

Hey, good afternoon, everyone. First question I have is for Mike. Just for us to understand the process, what are the next steps and timing in regards to this strategic review?

Yes, Frank, I guess you didn't hear our prepared remarks. But as I stated at the onset of our prepared remarks, and at the conclusion of our prepared remarks, we will not be commenting further on our strategic exploration process or on matters related to our annual meeting at this time.

Okay. I guess then, you mentioned in the press release that cap rates have compressed across the industrial sector. Just curious if you've done a sort of like internal roll-up of cap rates across your markets, and you're able to share what you think an overall cap rate for your portfolio is today?

No, but we've been acquiring assets at ever-decreasing cap rates, but at positive spreads to on-the-spot cap rates. I just mentioned we did $170 million in acquisitions in Q1, those acquisitions closed at the very end of the quarter. So while you had the preferred expense, and you had the $104 million in debt, you didn't see the $10.1 million in revenue, but you will see that next quarter. Now because we locked in those deals over a year in advance, in fact, over two years in advance for one of the two deals and over a year in advance for the other, the cap rates were substantially higher than current on-the-spot cap rates. So we generated tremendous accretion; cap rates have been compressing for the better part of the decade. And we've been doing forward deals with positive spreads versus on-the-spot cap rates, generating tremendous embedded gains on our balance sheet.

Okay, thanks. And then last one for me, in regards to the securities portfolio, and you sold some in the quarter, what are your current thoughts about taking out some more exposure given kind of the recent strong gains in several of your holdings?

Yes, to be clear, we sold $12.3 million subsequent to quarter-end, generating $1.8 million in gains. So the portfolio today is even higher than it was at quarter-end. And if you add back the $12.3 million, it's not much higher, so the portfolio's gone up. And yes, we’ll continue to harvest gains and reduce the securities portfolio. As Kevin mentioned, the pandemic is slowly becoming part of the rear-view mirror, and the securities portfolio valuations continue to rise. And we made a conscious decision two years ago to not increase the securities portfolio. We made a conscious decision when the pandemic hit to ride the pandemic out and not harvest unrealized losses to wait for the securities valuations to stabilize. And they're starting to do that already. Industrial had the best quarter ever. Meanwhile, office buildings had one of the worst quarters ever. So we're still early in this pandemic-driven economy and we'll watch the securities portfolio; it's 5% of gross assets. There's no urgency to do anything at this time. Welcome.

Our next question comes from Gaurav Mehta with National Securities. Please go ahead.

Yes, thanks. Following up on the securities portfolio, I guess as you think about the future of the company, should we expect that Monmouth will remain committed to maintaining a securities portfolio around 5% of gross assets? Or do you think that you may exit the securities portfolio at some point?

Yes, I think at some point, we will. It served us well over the long-term. It provides tremendous liquidity to our balance sheet. But the accounting changed about two years ago. So it's no longer part of our balance sheet; other comprehensive income flows through our income statement and creates tremendous noise and volatility. And so I think it is a distraction at this point. It's only 5% of assets, and we'll slowly wean it down. I don't know if taking it to zero is the right number, but 5% is the maximum. And like I said, we plan to take it even lower.

Okay. Second question on acquisition funding, your common stock has done well in the last couple of months. I was wondering if you would consider using common stock instead of stock to fund your $169 million of acquisitions that you have under your pipeline?

Yes, not at this precise time; perhaps down the road, 70% of our pipeline will close in the fourth quarter of this year, and the other 30% of the pipeline will close in the first half of 2022. Right now, we have ample liquidity, and no need to access the capital markets at this time.

Okay. And lastly, I certainly heard that you guys are not commenting on the process going forward. But I was wondering if you could comment on what happened in December in terms of the $18 per share offer that you guys didn't see in the best interest of shareholders? Are you able to comment at all as to what your concerns were about that offer? Was that a valuation or anything else that we should think about?

Yes, we issued a statement on January 14 in that regard, and I refer you to that January 14th press release.

Okay, thank you.

Welcome, thank you.

Your next question comes from Rob Stevenson with Janney. Please go ahead.

Good evening, guys. Mike, can you talk about the current acquisition environment and the shadow pipeline and how aggressively you're pursuing deals these days?

Yes, we’re pursuing deals aggressively. It's a very competitive market. As you know, it's been a very competitive market. We're a 53-year-old company with strong relationships with the merchant builders, and they show us deals often. And yes, cap rates are ever decreasing and to win deals, you have to go further out on the limb. But financing costs are also coming down. So we're happy with the pipeline we have; it's four properties, all these two investment-grade tenants. One of them represents a new relationship as far as a merchant builder relationship and a tenant relationship. The tenant is Mercedes Benz, so we continue. I have calls every week with developers, and we continue to try to grow the shadow pipeline.

Okay. And mainly, from your standpoint, I mean this cap rate keeps coming down. But you're talking about your cost of capital going down. I mean, especially with the stock price where it is now, I mean how do you sort of balance that? I mean, are you willing to go into low 5s and high 4s for a high-quality deal with one of your existing tenants or new tenants? Is there a limit there where you say, I don't want to go below this type of valuation? How are you guys thinking about that?

Well, the two deals we closed in the first quarter have a weighted average lease term of 17.9 years; one deal goes out to 2041 with 185 basis point bumps every year for 20 years. So, like I said, we consummated those deals over a year before rent commenced, and the merchant builders when they show us deals, often they haven't even broken ground yet. The 10-year Treasury has moved about 40% higher in yield over the last quarter. And so it's a moving target. Nobody knows where interest rates are going. They're trying to lock in their development margin. And they're being conservative. And so if we could help them lock in a profit margin that they find satisfactory, it's a win-win. But the short answer to your question is a 20-year deal with good bumps would price in the mid-4s; some people would price it even lower. And to win it, it’s certainly not going to have a five in front of it. So net lease to investment-grade tenants—these are the highest quality industrial properties out there. Our portfolio average building age is 9.5 years. Rich mentioned 82% of our revenue is investment grade; the other 18% is unrated investment-grade quality tenants. These are single-tenant omnichannel buildings; there is a tremendous amount of land. We're doing over $50 million in FedEx expansions, which is monetizing non-income producing land that we already own. So anytime you could do that and generate 10% unlevered returns, you're taking hidden assets on your balance sheet and putting them to work. So there's a lot more to it than just the initial yield. There's the ability to expand the building; there's the ability to keep the tenants in the building. FedEx still remains in the very first deal we did in 1994. They're still in that building. So Rich mentioned we're in our seventh consecutive year with over 7.5 years of weighted average lease term, with our sixth consecutive year with over 98.9% occupancy. There's something very stabilizing and predictable about our business model. And so we know the parameters, and we know what we feel comfortable doing.

Okay. And you're talking about the Series preferred; is the thought there to replace that with another series of preferred at a lower rate? Are you guys thinking about just taking out the preferred altogether and just using debt? How are you and the board thinking about that these days?

Yes, there's tremendous opportunity to replace that low-hanging fruit. If you remember, Rob, we had a Series A preferred and a Series B preferred, they were under 8%. But rounding up, they're about 8% cost of capital, and we issued the Series C to replace the Series A and B, and we generate tremendous dividend savings and earnings growth. That was a smaller tranche; A and B equal to about $111 million preferred combined. And now we have $550 million outstanding in the Series C. Every 100 basis point reduction will be $5.5 million in preferred dividend savings flowing right to the bottom line. If we could achieve a 200 basis point savings like we did when we issued the C and replaced A and B, that would be $11 million in savings. We also have the ability to use debt to generate even more savings, or even common equity would generate more savings. So there's no silver bullet, but refinancing that low-hanging fruit at 6.125% is available as soon as it becomes redeemable, which is on or after September 15 of this year, in whole or in part.

Okay, and how soon do you start that process, given where rates are today and your comments about not knowing where rates are going to go in the future? I mean, if it's attractive today, do you guys start that process over the next couple of months and have either another series of preferred overlapping or some debt overlapping with that in order to lock in advantageous rates? Do you wait until you're within 30 or 60 days of that redemption?

It’s a little early now, but you certainly don't have to wait till the redemption date. As we get closer, we'll evaluate the landscape.

All right, then last one for me, Kevin, can you remind me, are there any shareholder protection provisions in the Series C preferred stock in the event of a sale of the company?

Yes, there are the usual provisions that were put in for a change of control. They're all pretty standard now, and they're in the Series C for sure.

Okay, perfect. Thanks, guys. Appreciate it.

Welcome.

Our next question comes from Connor Siversky with Berenberg. Please go ahead.

Hi, everyone. Thank you for having me on the call tonight. Just one quick one on the investments at the end of December. I think you had mentioned it on the call. Just to get a sense of pricing, I think it was the high-5s on a GAAP basis?

Yes, 5.9.

Okay, thanks for that. And then on the pipeline, I'm just wondering of the geographic areas; I think I saw Vermont, Tennessee, Alabama in the filing. Can you speak at all to maybe some of the infrastructure features in these areas near intermodal hubs or any of the interstates and things like that?

Yes, I'm happy to, Connor. The first thing I'll point out is the biggest gateway for U.S. imports into America is the ports of LA and Long Beach. And they've been hit by a record bottleneck; right now there's 38 container ships anchored at sea waiting for berth space. The ships today are bigger than ever before, and there is no infrastructure to get these 38 ships in and unload it on time. So we have a real supply chain disruption. COVID has created a situation where people are not spending money on experiences; they're further consuming more goods, and it's helping industrial, but we need more capacity. We need the ships to come to the Gulf region; we need them to come up the Eastern Seaboard. Monmouth in anticipation of the expanded canal had already been investing heavily in those areas. The split was 70:30 container ship traffic on the West Coast with 70% Gulf and East Coast 30%. It's about 50:50 today, and there's more containers coming into the country than ever before. So we like our locations. We like Alabama; we have assets at the port. We have assets in Florida as our highest concentration; there are more seaports in the State of Florida than any other state. And so now with COVID, people are leaving the 24/7 cities; they're looking for more space. Our portfolio is predominantly East of the Mississippi; over 70% of the U.S. population resides East of the Mississippi, and we're in the areas of growth; they’re business-friendly areas, the right-to-work states, and these are where people are moving.

Okay, that's very helpful color. And last one from me, I'm just wondering if there's an upper limit to what kind of exposure you guys want to have with FedEx. And then second to that, I'm seeing you're adding Mercedes-Benz to the tenant roster; I'm just wondering how conversations are progressing to maybe increase their presence within the portfolio. And if there might be any of the other automakers operating on the East Coast in the future plans?

I’ll answer it in the reverse order. The Mercedes distribution center where we’ll be owning is at the largest Mercedes plant in North America; it's the third largest plant in the world. And it's where they're doing a huge initiative for electric cars; our building would be distributing electric car parts to the plant, and will be serving the plant with electric parts. So we're excited about that relationship. With FedEx, it wasn't long ago where people were very concerned about the Monmouth-FedEx concentration. Now FedEx is suddenly the largest airline in the world; passenger traffic on the planes has been curtailed, and revenue for most airlines is abating. FedEx’s revenue, because it's a cargo airline, is skyrocketing, and they suddenly leapfrogged from the fifth largest airline in the world to the number one based on revenue airline in the world. So we've never turned down a good FedEx deal, despite a lot of the pundits saying, 'too many eggs in the FedEx basket.' And now I don't know anybody who's saying that today. In fact, people are saying we wish we had more FedEx’s. Well, we never turned down a good FedEx. We own the best FedEx assets in the country. And we'll keep growing with FedEx.

Okay, thanks for the color. That's all from me.

Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, I was hoping you guys can provide some color on the remaining leases that are expiring in 2021. I think you have four left, and I think you're still in discussions with them. How are those discussions going right now, and what's the expectation there?

Sure. So as you said, we've got four left, we've talked to them all, and we feel pretty confident we're going to have 100% retention, and on a spread basis, it’s going to be in the bandwidth of our last five years. So nothing out of the ordinary on spreads and real good tenant retention for the year.

Okay, so what's taking them? I guess how long does that typically take to sign a lease? Is it odd we're in the beginning of the year, and they still haven't made a decision yet or they have made a decision; they just have to sign the contract?

Yes, it's not odd. We know they're staying, and it's just a matter of working things out. And I’ll point out all these FedEx expansions if you blend the FedEx expansions that are going to be consummated this year with the six renewals that Rich has achieved. The 8.5% GAAP spread becomes a 24.3% GAAP spread, and the 2% cash spread becomes a 12.8% cash spread. So, these expansions are incredibly lucrative, and we wouldn't be reporting that we weren't shooting for 100% if we had any concern about tenants not renewing.

Okay, great. And then I guess last one, Mike, can you talk a little bit about the preferred that's redeemable at the end of December? Is it safe to assume this current market conditions mean you'll just redeem that entire preferred series and either issue new preferreds or debt or equity? There's no reason to have it outstanding, right if the current conditions hold?

It’s a big tranche, and it's redeemable on or after September 15 of this year. I don't know if we'll take out all of it at once. And I don't see a need to take it all out at once. So we may if it's opportunistic; if opportunity presents itself, great. Otherwise, we'll take it out in tranches. There's tremendous opportunity to generate savings. But we're not there yet; it's not redeemable yet; and I don't want to rule anything in or out on how we're going to redeem it.

Okay. Are you still committed to having preferreds? Is that still warranting the capital stack, given where debt rates are? I mean, is it safe to assume that you would want to still issue a decent size preferred to redeem those?

Yes, we'll always have preferred in our capital stack. You could generate short-term gains by going floating rate short-term debt. As I mentioned, the 10-year Treasury yield has gone up 40% in three months, so a year ago, it was close to 2%. So the interest rates move all over the place. And if you have perpetual capital that's locked in permanently, and there was a time when people thought 8% perpetual capital was very advantageous. Today, 6% is considered too high. So we could lock in a perpetual instrument 100 basis points inside our 6.125%, I think that would be very advantageous for a non-rated issuer. And yes, in the short term, you could do better, but you sleep well at night funding long-term assets to investment-grade tenants with long-term capital instead of playing the short-term gain, which unfortunately, the market is fixated on these days. But we've always had a lot of skin in the game. We've always looked way out on the horizon. And we've always planned to do what's right for the shareholders' long-term interest.

Okay, great, thank you.

Our next question comes from Craig Kucera with B. Riley Financial. Please go ahead.

Yes, thanks. Hey guys, I'd like to talk about your recent leasing. Really since COVID, I think you generally been getting renewals in the three to four-year range. And you go back to ’17, ’18, ‘19, typically, you're getting closer to seven years. Do you get the sense that this is a new normal? Are you seeing any signs that as we get further along with vaccine distribution, that tenants may be willing to commit longer?

Yes, for the short term, it does seem to be the new normal. Listening to the other industrial REITs, the weighted average lease terms on renewals has been curtailed across the board. But I do think it's a short-term thing. And it's hard to look way out in the horizon in a pandemic-stricken economy. But offsetting the 3.8 year WAULT that Rich got on the renewals are the expansions, and some of these expansions are mostly they're toggling out 10 additional years, but some are toggling out 15 additional years. So that's why our weighted average lease term, quarter-to-quarter, went from seven years to 7.5 years. And it's been over seven years for seven consecutive years. So that's the stability. It's not volatile for over seven consecutive years; it's been over seven years of WAULT, and it will continue to be. But you're absolutely right; the six renewals had great spreads, but the WAULT is a little light relative to what we're used to.

Got it. And I know you've mentioned a few times about potentially taking out the Series C preferred with some lower-cost capital. But Kevin, I'd be curious, when you're getting lenders giving you 2.6% mortgage quotes, you've got a couple of mortgages at least that have five handles, is there a point where the math pencils out, and it makes sense to start refinancing some of that debt in advance or are there prepayment penalties that are maybe two owners?

Yes, there are prepayment penalties associated with this self-amortizing debt. Although many of the older loans with higher interest rates have been amortizing down, resulting in lower loan balances that reduce the impact, we are indeed evaluating the situation. There may be some loans with high interest rates that would be worthwhile to prepay. In fact, right after the quarter, we prepaid a loan that was in the 5% range, specifically at 5.18%, in January.

Our next question comes from Merrill Ross with Compass Point Research and Trading. Please go ahead.

Good evening, I have two questions. First on the rent-to-building ratio, is there any restriction? Could you possibly work with the merchant building to build the property that's not for the existing tenant, but may be you sort of very different non-competitive tenant? for whom I find out interesting?

Yeah, well if you look at our presentation, you'll see a FedEx on I4 in Orlando, that’s on each side—it's surrounded by million square foot Walmart buildings. The merchant builder there was able to work with FedEx, and then Walmart wanted to be as close to FedEx as possible. So on each side of the FedEx Distribution Center, you see million square foot Walmart buildings. It’s actually a third one now; there's three buildings. Our presentation will show you the two; there's actually three now. But the answer to your question is when you have that much land; like our Home Depot asset is 130 acres, there is definitely room for additional buildings. There is tons of parking and a tremendous amount of land, but it's usually subsequent to the tenant taking occupancy and inhabiting the building for a period of time. Walmart came later on the FedEx asset and it usually comes after the fact, but your point is well taken. It's a tremendous amount of land, and while on the subject, I'll also bring up whenever we see the square footage of our FedEx assets, that's the square footage of the distribution center. In addition to that, there's usually a 5,000 square foot gateway security building that anybody coming or going must go through. It's like going into the airport and check for security. And there is also a vehicle maintenance garage that's another 5,000 square feet. So that's about 10,000 square feet per FedEx building in additional structures that are on the property, but are not part of the distribution center above and beyond.

Another question is assurance-related, but not really when you look at the $130 million having you acquired in the quarter. How much did the tenant put into those properties? Did they put in like another 20% or was it more significant in terms of their investment and their makes it more predictable that they will renew and what's their game?

Yeah, more than 20%. Much more. I've been to both properties; the Home Depot is a state-of-the-art omnichannel facility with tons of automation. They have electric forklifts with liquid hydrogen tanks, and it's a modern state-of-the-art building. Just IT investment alone, I'd say is 10%. So, then you have all the other automation. So around 40% goes into the infrastructure; it's not racks and forklifts. This is robotics—highly automated, and often the material handling infrastructure takes as long or longer than constructing the building itself, and there are instances where it cost more than constructing, like our all the cosmetics e-commerce fulfillment center in Indianapolis. So I'd say both the Home Depot and FedEx have substantial investments in the infrastructure, and that's indicative of all the modern omnichannel facilities today. And it's in our annual report, we talk about how they call everything industrial, but there are digital buildings and analog buildings, and they're worlds apart. If you're serving a home delivery part of the supply chain, it's got to be robotics, it's got to be automated, it's got to be a modern building with lots of land, big truck, and lots of employees. Peak season, these facilities have 550 employee vehicles and then another 1,000 truck parking lots.

And a lot of these robotics are like in the world and in the floor, they don’t move right?

That's right. We've pictures on our website, and in our annual report, and in our presentation we've pictures. So now it's a major investment by the tenant, and the companies that do this high-tech technology, it's plug-and-play, they're very backlogged, and you can have the building complete in another year before the infrastructure is built up.

So my point is even though this is Greenfield, they can't pick this stuff up and move across the street.

It's a good point. It’s a good point. As I mentioned, FedEx is still in the same building that we first invested in with FedEx in 1994 and are very sticky tenants. It's not the kind of situation when the lease is rolling where they could price things across the street and say they're going to pick up stakes because it is very cumbersome, expensive, and difficult to reset up the infrastructure.

Our next question comes from Barry Oxford with DA Davidson. Please go ahead.

Mike, a question when you're looking at acquisitions and I know it's relationship-driven and in light of the fact that you're going through strategic alternatives. Is that giving any of the potential sellers to you any pause, or look that's kind of a nonissue?

I'm sure it's somewhere in between. We are talking about deals, but I can't say it's a nonissue. We've been around 53 years, and so they've seen over the 53-year period our resilience, and so they're counting on our resilience remaining.

This concludes our question-and-answer session. I'd like to turn the conference back over to Becky Coleridge for any closing remarks.

Thank you, operator. I'd first like to point out that our recently published annual report is now available on our website. This report represents an excellent resource for understanding our company and our outlook. We encourage you to read it. Please contact our IR department if you would like to receive a hard copy. I'd like to thank everyone for joining us on this call and for their continued support and interest in Monmouth. As always, we're all available for any follow-up questions. We look forward to reporting back to you after our second quarter. Thank you.

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