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MNR Monmouth Real Estate Investment Corp. - Initiation Note

Monmouth Real Estate Investment Corporation

NEUTRAL (MNR, $9.75)

Overly Concentrated Tenant Roster and Longest Weighted Average Lease Term Expsoe Company to Adverse Rate Movement. Initiating With A NEUTRAL Rating and $10.00 Price Target

July 27, 2015

John R. Benda

212.471.8127

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Investment Conclusion. We are initiating coverage of Monmouth Real Estate Investment Corporation with a Neutral rating and $10.00 price target. Having 43% of your portfolio leased to a single tenant, a $47bln market cap company facing constant pressure from shareholders to improve profitability and whose fortunes are tied to commodity pricing and the American consumer, leaves much to be desired relative to peers. Though such a tenant all but ensures recurring revenue and a certain level of occupancy, it also constricts the ability of the operator to ratchet rents and drive FFO. As such, despite one of the lowest betas in the space and a consistent history of paying dividends, a dividend that has not been raised since 2006 we note, we feel a cautious Neutral rating is warranted given the dearth of prospects related to FFO growth and subsequently MNR’s ability to increase their dividend per share. Our $10.00 price target is derived from an average of our net-asset-value (“NAV”), price to funds from operations (“P/FFO”), and dividend discount model (“DDM”) valuations. Our $10.00 price target implies an annual total return, including the current 6.15% dividend yield, of 8.7% at MNR’s $9.75 7/24/15 closing price.

MNRSource: Capital IQ, Company reports, National Securities Corporation Estimates

Portfolio Highly Levered to One Tenant with MAJOR Bargaining Power – FDX: At 3/31/15, MNR’s portfolio consisted of 89 properties comprising some 12,952,617 square feet, 43% of which is leased to FedEx and its subsidiaries, a sum of 46 leases covering 5,611,000 square feet, which is up from 42 leases covering 4,450,000 square feet in the comparable year ago period. Though MNR’s main tenant, FDX, is an investment grade rated credit, FDX received a Baa1 rating from Moody’s on 4/7/15. Though it can be argued that this concentration with an investment grade rated tenant can help mitigate the risk of default risk and non-receipt of rent, the offset is that when the leases MNR...


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