Modiv Inc. (NYSE:MDV) Q2 2023 Earnings Call Transcript August 14, 2023 12:00 PM ET Company Participants Margaret Boyce - IR Aaron Halfacre - CEO Ray Pacini - CFO Conference Call Participants Bryan Maher - B. Riley FBR Rob Stevenson - Janney Barry Oxford - Colliers Operator Good day and welcome to Modiv Industrial Second Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions]. On today's call, management will provide prepared remarks and then ...

PART I - FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents Modiv Industrial, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2023 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, Modiv Industrial, Inc. reported total assets of $549.4 million, an increase from $454.4 million at December 31, 2022. This growth was primarily driven by an increase in net real estate investments. Total liabilities rose to $309.3 million from $213.4 million, mainly due to increased borrowings on the credit facility term loan. Total equity slightly decreased to $240.1 million from $241.0 million Condensed Consolidated Balance Sheet Summary | Balance Sheet Item | June 30, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | **Total real estate investments, net** | $515,295,451 | $425,963,908 | | **Total assets** | **$549,409,970** | **$454,429,919** | | Credit facility term loan, net | $248,263,340 | $148,018,164 | | **Total liabilities** | **$309,316,713** | **$213,395,959** | | **Total equity** | **$240,093,257** | **$241,033,960** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2023, the company reported net income attributable to common stockholders of $3.1 million ($0.41 basic EPS), a significant improvement from $1.2 million ($0.17 basic EPS) in the same period of 2022. For the six-month period, the company recorded a net loss of $1.6 million (-$0.22 basic EPS), compared to a net loss of $9.8 million (-$1.31 basic EPS) in the prior year. The improvement was driven by higher rental income and the absence of the large goodwill impairment charge recorded in 2022 Key Operational Metrics (Attributable to Common Stockholders) | Metric | Q2 2023 ($) | Q2 2022 ($) | H1 2023 ($) | H1 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Rental Income | $11,836,563 | $10,144,478 | $22,147,745 | $19,714,091 | | Net Income (Loss) | $3,058,435 | $1,249,255 | ($1,626,162) | ($9,817,755) | | Basic EPS | $0.41 | $0.17 | ($0.22) | ($1.31) | | Diluted EPS | $0.35 | $0.14 | ($0.22) | ($1.31) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash provided by operating activities was $7.3 million, up from $5.1 million in the prior-year period. Net cash used in investing activities increased to $95.9 million, primarily for real estate acquisitions. Net cash provided by financing activities was $89.9 million, driven by $100 million in borrowings from the credit facility term loan, which funded the acquisitions Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,289,108 | $5,076,472 | | Net cash used in investing activities | ($95,877,378) | ($58,420,894) | | Net cash provided by financing activities | $89,891,731 | $6,642,351 | | Net increase (decrease) in cash | $1,303,461 | ($46,702,071) | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details the company's accounting policies, strategic portfolio shift, debt structure, equity, and significant subsequent events - As of June 30, 2023, the company's portfolio consisted of **56 properties**, with industrial properties representing **68% of annual base rent**, reflecting a strategic shift. **14 properties (11 retail, 3 office)** were classified as held for sale[36](index=36&type=chunk) - During H1 2023, the company acquired **10 industrial properties** for a total price of **$98.9 million**[86](index=86&type=chunk) - The company expanded its **credit facility to $400 million** **($150M Revolver, $250M Term Loan)** and entered into interest rate swaps to fix the rate on its term loan debt[129](index=129&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk) - Subsequent to quarter-end, on August 10, 2023, the company **sold 13 retail and office properties** **for $42 million** **($30M cash, $12M preferred stock)** and **acquired two industrial properties** **for $28.9 million** in July 2023[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's strategic pivot to industrial properties, financial performance, liquidity, and capital resources, including FFO and AFFO [Overview and Recent Developments](index=44&type=section&id=Overview%20and%20Recent%20Developments) The company is an internally-managed REIT focusing on acquiring critical industrial manufacturing properties. A significant strategic shift has occurred, with industrial properties growing to represent 76% of the portfolio's pro forma Annual Base Rent (ABR) as of June 30, 2023, up from 41% at the end of 2021. This was achieved through targeted acquisitions and the disposition of non-core retail and office assets, including a major sale of 13 properties on August 10, 2023 - The company is executing a strategic plan to focus on industrial manufacturing properties, reducing its retail and office exposure[212](index=212&type=chunk) - Post-quarter end, the portfolio consists of **45 properties**, with **40 being industrial**, representing **76% of pro forma ABR**. The portfolio has a **weighted average remaining lease term (WALT) of 14.3 years**[218](index=218&type=chunk) - On August 10, 2023, the company **sold 13 retail and office properties** to Generation Income Properties, Inc. (GIPR) **for $42 million**[217](index=217&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are its $400 million credit facility, property sales, and internally generated funds. The credit facility consists of a $150 million revolver and a $250 million term loan. The company has used interest rate swaps to fix the rates on its term loan debt. During H1 2023, the company drew down the remaining $100 million on its term loan to fund acquisitions. A share repurchase program is active, with $1.1 million in shares repurchased in H1 2023 - The company increased its **credit facility to $400 million**, **comprised of a $150 million revolver and a $250 million term loan**[228](index=228&type=chunk) - **Interest rates on the $250 million term loan are fixed through swap agreements**, with the **original $150M at 4.058%** and the **additional $100M at 5.240%** (based on a 47% leverage ratio)[230](index=230&type=chunk)[231](index=231&type=chunk) - Under the 2023 Share Repurchase Program, the company **repurchased 93,357 shares** of Class C common stock **for $1.1 million** at an **average price of $12.10 per share** during the six months ended June 30, 2023[239](index=239&type=chunk) [Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)](index=50&type=section&id=Funds%20from%20Operations%20%28FFO%29%20and%20Adjusted%20Funds%20from%20Operations%20%28AFFO%29) For Q2 2023, FFO per fully diluted share was $0.75 and AFFO was $0.31. For H1 2023, FFO per fully diluted share was $0.90 and AFFO was $0.61. The results are broken down by property type, showing that the 'Industrial Core' segment is the primary driver of FFO and AFFO, contributing $0.37 and $0.28 per fully diluted share, respectively, in Q2 2023 FFO and AFFO Per Fully Diluted Share | Metric | Q2 2023 ($) | Q2 2022 ($) | H1 2023 ($) | H1 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | FFO | $0.75 | $0.46 | $0.90 | ($1.55) | | AFFO | $0.31 | $0.35 | $0.61 | $0.64 | Q2 2023 AFFO Breakdown by Segment (per fully diluted share) | Segment | AFFO per Share ($) | | :--- | :--- | | Industrial Core | $0.28 | | Tactical Non-Core | $0.08 | | Other Non-Core | $0.03 | | Non-Property & Other | ($0.08) | | **Consolidated Total** | **$0.31** | [Results of Operations](index=58&type=section&id=Results%20of%20Operations) Comparing Q2 2023 to Q2 2022, rental income increased 17% to $11.8 million due to acquisitions. For H1 2023 vs H1 2022, rental income grew 12% to $22.1 million. A significant factor in the improved H1 2023 net results was the absence of the $17.3 million goodwill impairment charge recorded in H1 2022. Interest expense decreased in Q2 2023 due to large unrealized gains on interest rate swaps, but increased for the six-month period due to higher debt balances and rates - Q2 2023 **rental income rose 17% YoY to $11.8 million**, driven by **acquisitions of 16 industrial properties** since June 30, 2022[264](index=264&type=chunk) - H1 2023 results were **positively impacted by the absence of a $17.3 million goodwill impairment charge** that was recorded in H1 2022[282](index=282&type=chunk) - In H1 2023, the company **recorded a $3.5 million impairment charge** on its Nashville, TN property (leased to Cummins) due to a plan to sell it[281](index=281&type=chunk) - Interest expense in Q2 2023 was **significantly reduced by $3.5 million in unrealized gains on interest rate swaps**, as the **swaps were deemed ineffective for hedge accounting and marked to market through the P&L**[271](index=271&type=chunk)[272](index=272&type=chunk) [Properties and Investment Activities](index=64&type=section&id=Properties%20and%20Investment%20Activities) As of June 30, 2023, the portfolio comprised 56 properties totaling 4.3 million square feet. During the first six months of 2023, the company acquired 10 industrial properties for $98.4 million at a blended initial cap rate of 7.8%. No properties were sold in H1 2023, contrasting with five sales in H1 2022. The company has been active in leasing, executing a new 11.5-year lease for its Rocklin, CA property and extending leases for its Solar Turbines and Levins properties with significant rent increases H1 2023 Acquisitions Summary | Metric | Value ($) | | :--- | :--- | | Properties Acquired | 10 (all industrial) | | Total Square Feet | 1,151,967 | | Total Acquisition Price | $98,408,574 | | Blended Initial Cap Rate | 7.8% | - Executed a **new 11.5-year lease** with EMC Shop for the Rocklin, CA property previously leased to Gap, Inc[303](index=303&type=chunk) - Extended the lease with Solar Turbines for **two years with a 14.0% rent increase**, and the Levins property lease with a **69.0% rent increase**[301](index=301&type=chunk)[302](index=302&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has omitted this section, as it is not required for a smaller reporting company - **Disclosure is not applicable as the company qualifies as a smaller reporting company**[315](index=315&type=chunk) [Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, despite a previously identified material weakness. This weakness, related to the accounting for non-recurring transactions and new pronouncements, stemmed from two immaterial error corrections from prior periods. A remediation plan is underway, involving enhanced use of consultants and a review of accounting policy documentation. Management asserts that despite the weakness, the financial statements are fairly stated - A **material weakness in internal control over financial reporting was identified as of December 31, 2022**. It relates to the company's ability to **properly identify and evaluate accounting standards for non-recurring transactions and new pronouncements**[319](index=319&type=chunk) - A **remediation plan has been initiated**, which includes **refining policies to utilize qualified consultants and reorganizing accounting policy documentation**[321](index=321&type=chunk) - Despite the material weakness, management concluded that the consolidated financial statements in this 10-Q are **fairly stated in all material respects**[318](index=318&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the information on legal matters disclosed in Note 10 of the financial statements. The key legal issues mentioned are related to the Kalera bankruptcy and a foreclosure action by a general contractor on the property leased to Kalera - The company refers to Note 10 for details on legal proceedings, which **primarily concern the Kalera bankruptcy and related mechanic's liens**[323](index=323&type=chunk)[175](index=175&type=chunk) [Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been **no material changes to the risk factors from the company's 2022 Annual Report on Form 10-K**[324](index=324&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2023, the company issued 5,500 shares of Class C common stock to non-employee board members for their services. Additionally, under its 2023 share repurchase program, the company repurchased 88,892 shares of its Class C common stock for a total of $1.1 million at an average price of $12.14 per share during the quarter - **Issued 5,500 shares of Class C common stock** to non-employee directors in Q2 2023, **exempt from registration under Section 4(a)(2) of the Securities Act**[325](index=325&type=chunk) Share Repurchases for Q2 2023 | Period | Shares Repurchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | April 2023 | 32,805 | $10.68 | | May 2023 | 53,268 | $12.92 | | June 2023 | 2,819 | $14.48 | | **Total Q2 2023** | **88,892** | **$12.14** | [Other Information](index=69&type=section&id=Item%205.%20Other%20Information) This section reports two key events. On August 8, 2023, board member Asma Ishaq resigned, and the board size was reduced from seven to six members. Effective August 11, 2023, the company changed its name from 'Modiv Inc.' to 'Modiv Industrial, Inc.' to better reflect its strategic focus - **Board member Asma Ishaq resigned effective August 8, 2023**. The **board size was subsequently reduced to six members**[329](index=329&type=chunk) - The **company changed its name to 'Modiv Industrial, Inc.' effective August 11, 2023**[330](index=330&type=chunk) [Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q. Key exhibits include articles of amendment for the name change and officer certifications - The report includes an **exhibit index listing all filed documents, including certifications and articles of amendment for the name change**[333](index=333&type=chunk)[334](index=334&type=chunk)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________to____________ Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission file number: 001-40814 MODIV INC. (Exact name of registrant as specified in its charter) Maryland 47-41 ...

Financial Data and Key Metrics Changes - The net loss attributable to common stockholders improved by $6.4 million, resulting in a loss of $4.7 million or $0.62 per share, compared to a loss of $11.1 million or $1.47 per share in the prior year [5][21] - Adjusted funds from operations (AFFO) for the first quarter was $3.1 million or $0.03 per diluted share, compared to $3 million or $0.29 per diluted share in the previous year [21] - Revenue increased by 7.7% to $10.3 million from $9.6 million in the prior year [21] Business Line Data and Key Metrics Changes - The portfolio now consists of 56 properties located in 18 states, with 37 industrial core properties representing 67% of the portfolio [24] - The weighted average lease term for the portfolio is 13.3 years, with approximately 38% of tenants having an investment-grade credit rating [27] - The company acquired $100.6 million across 10 industrial manufacturing properties at a blended initial cap rate of 7.7% [9][24] Market Data and Key Metrics Changes - The weighted average interest rate on the $294.4 million of total debt outstanding as of May 12, 2023, was 4.4% [28] - The company has seen a shift in the buyer pool, with fewer institutional buyers and a more selective market for acquisitions [63][72] Company Strategy and Development Direction - The company is focusing on acquiring industrial manufacturing assets and has successfully increased its industrial exposure to a supermajority allocation from 39% as of September 30, 2021 [25] - Management is actively working on selling 16 legacy retail and office assets to recycle capital [10][33] - The goal is to become the first pure play industrial manufacturing REIT and to lead in this sector [51] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, emphasizing the importance of the management team's grit and ability to adapt to market conditions [14][30] - The company is cautious about the credit market and is focused on maintaining a disciplined approach to acquisitions and dispositions [39][56] - Management acknowledged the challenges in the office market but believes there are unique opportunities within their office portfolio [64][84] Other Important Information - The company declared a cash dividend of approximately $0.95 for the months of April, May, and June 2023, representing an annualized dividend rate of $1.15 per share [29] - The company has drawn the remaining $80 million available on its term loan to fund equity property acquisitions [28] Q&A Session Summary Question: What is the size and timing of dispositions besides the Gap property? - Management indicated that while they aim to sell properties in a timely manner, the current credit market conditions may affect the timing of sales [36][52] Question: How should we think about acquisitions moving forward? - Management stated that they are likely to match acquisitions with disposition proceeds and are being disciplined in their approach to leverage [54][56] Question: Can you provide insights on cap rate trends during the acquisition window? - Management noted that cap rates for industrial manufacturing properties ranged from mid-sevens to just under eight, reflecting a selective acquisition strategy [88] Question: What is the impact of the Kalera bankruptcy on the company's lease? - Management confirmed that the rent is current and they are awaiting the outcome of the bankruptcy process, with optimism about the tenant's future [91][92] Question: How does the company view the office market? - Management expressed a cautious outlook on the office market, noting that while there are challenges, their unique office assets may still hold value [64][84]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________ FORM 10-K ________________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-4 ...

Modiv Inc. (NYSE:MDV) Q4 2022 Earnings Conference Call February 23, 2023 11:00 AM ET Company Participants Margaret Boyce - Investor Relations Aaron Halfacre - Chief Executive Officer Ray Pacini - Chief Financial Officer Conference Call Participants Gaurav Mehta - EF Hutton John Massocca - Ladenburg Thalmann Bryan Maher - B. Riley Securities Operator Good day and welcome to Modiv???s Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Opera ...

Modiv, Inc. (NYSE:MDV) Q3 2022 Earnings Conference Call November 14, 2022 12:00 PM ET Company Participants Margaret Boyce - IR Aaron Halfacre - CEO Ray Pacini - CFO Conference Call Participants Gaurav Mehta - EF Hutton Rob Stevenson - Janney James Allen Villard - Ladenburg Thalmann Operator Good day, and welcome to Modiv's Third Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions]. On today's call, management will provide prepared remarks ...

MODIVII' Confidential EARNINGS PRESENTATION Q2 2022 DISCLOSURE Certain statements contained in this presentation and the accompanying oral presentation, other than historical facts, may be considered forward-looking statements within the meaning of the Securities Act of 1933, as amended, Section 21E of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our beliefs, assumptions and expectations of the fu ...

Financial Data and Key Metrics Changes - Adjusted funds from operations (AFFO) increased by 18% to $3.6 million in Q2 2022, compared to $3 million in Q2 2021 [22] - Total revenues grew by 14% to $10.4 million in Q2 2022, up from $9.1 million in the same quarter last year [23] - Year-to-date AFFO increased by 25% to $6.6 million, or $0.64 per diluted share, from $5.3 million, or $0.59 per diluted share, in the first half of 2021 [22] - General and administrative (G&A) costs decreased to $1.6 million in Q2 2022 from $1.9 million in Q2 2021 [24] Business Line Data and Key Metrics Changes - The company completed $162 million in acquisitions year-to-date at an 8.2% blended weighted average cap rate [11] - Disposed of four office properties for total proceeds of $47 million, excluding a pending disposition [11][27] - The portfolio now consists of 48 properties, with 26 industrial properties representing approximately 51% of the portfolio based on annual base rent [28] Market Data and Key Metrics Changes - The company noted a slowdown in the real estate transaction market due to volatility in interest rates and inflation, with a cautious approach to acquisitions [9] - Cap rates for deals have seen a significant increase, with many opportunities presenting cap rates in the 7% range [46] Company Strategy and Development Direction - The company is focused on exiting non-core office properties and shifting towards industrial and select retail assets [11] - Management emphasized the importance of patience and discipline in their investment strategy, particularly in the current volatile market [9][12] - The company aims to increase its portfolio's resilience by focusing on longer leases and sustainable industries [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term strategy despite current market volatility, anticipating a pickup in deal volume as market conditions stabilize [17] - The company reaffirmed its 2022 AFFO guidance in the range of $1.26 to $1.36 per diluted share, with expectations to exceed the $50 million acquisition target [33] Other Important Information - The company declared dividends for common shares of approximately $0.096 for July, August, and September, representing an annualized dividend yield of over 7.4% [32] - The leverage ratio as of June 30, 2022, was 38%, with a target of 40% or lower in the long term [30] Q&A Session Summary Question: Can you provide insights on the transaction market and cap rate movements? - Management noted that cap rates were in the mid to high fives in Q4 2021, moving to low sixes in Q1 2022, and observed a significant jump to the 7% range in Q2 2022 [42][46] Question: Why is the cap rate on the Valtir acquisition over 9%? - The higher cap rate was attributed to the properties being less critical and in a more tired condition, but located in areas with potential for development [50][51] Question: What premium can be expected for manufacturing industrial properties over big box warehouses? - Management indicated a significant premium for manufacturing properties, as they do not focus on distribution assets, which tend to have tighter cap rates [55][56] Question: What are the company's thoughts on retail acquisitions moving forward? - The company remains selective in retail acquisitions, having made significant purchases but not currently finding compelling opportunities in smaller retail assets [67]

PART I [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The company's total assets increased to **$456.3 million** as of June 30, 2022, from **$428.5 million** at year-end 2021, primarily driven by real estate acquisitions. For the six months ended June 30, 2022, the company reported a net loss of **$9.7 million**, largely due to a **$17.3 million** goodwill impairment, compared to a net loss of **$1.9 million** in the prior-year period. Despite the net loss, cash flow from operations increased to **$5.1 million** from **$3.1 million** year-over-year [Condensed Consolidated Financial Statements](index=6&type=section&id=Condensed%20Consolidated%20Financial%20Statements) Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2022 ($) | December 31, 2021 ($) | | :--- | :--- | :--- | | Total real estate investments | $427.1 million | $337.6 million | | Total assets | $456.3 million | $428.5 million | | Total mortgage notes payable, net | $44.6 million | $173.9 million | | Credit facility term loan, net | $148.9 million | $0 | | Total liabilities | $219.1 million | $206.1 million | | Total equity | $237.1 million | $222.4 million | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2022 ($) | Three Months Ended June 30, 2021 ($) | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | Rental income | $10.4 million | $9.1 million | $20.0 million | $18.1 million | | Impairment of goodwill | $0 | $0 | $17.3 million | $0 | | Net income (loss) | $2.4 million | $(1.0 million) | $(9.7 million) | $(1.9 million) | | Net income (loss) per share - Basic | $0.17 | $(0.13) | $(1.31) | $(0.25) | | Net income (loss) per share - Diluted | $0.14 | $(0.13) | $(1.31) | $(0.25) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5.1 million | $3.1 million | | Net cash (used in) provided by investing activities | $(58.4 million) | $14.6 million | | Net cash provided by (used in) financing activities | $6.6 million | $(15.7 million) | | Net (decrease) increase in cash | $(46.7 million) | $2.0 million | [Business and Organization](index=13&type=section&id=Note%201.%20Business%20and%20Organization) - Modiv is an internally-managed REIT that became self-managed on December 31, 2019. The company holds its investments primarily through the Modiv Operating Partnership, LP, in which it held an approximate **72% interest** as of June 30, 2022[31](index=31&type=chunk)[32](index=32&type=chunk) - As of June 30, 2022, the company's portfolio consisted of **43 real estate properties** totaling approximately **2.9 million square feet**. The portfolio is diversified by property type: **48% industrial**, **19% retail**, and **33% office**, based on annual base rent[33](index=33&type=chunk) - The company's Class C common stock began trading on the NYSE under the symbol "MDV" on February 11, 2022. In connection with the listing, all Class S common stock was converted into Class C common stock[30](index=30&type=chunk)[36](index=36&type=chunk) - On February 15, 2022, the board authorized a share repurchase program of up to **$20 million** through December 31, 2022. From February 15 to June 30, 2022, the company repurchased **187,430 shares** for a total of **$3.3 million**[41](index=41&type=chunk)[42](index=42&type=chunk) [Real Estate Investments](index=22&type=section&id=Note%203.%20Real%20Estate%20Investments) Real Estate Acquisitions (Six Months Ended June 30, 2022) | Property Type | Number of Properties | Total Acquisition Price ($) | | :--- | :--- | :--- | | Industrial | 9 | $63.1 million | | Retail | 1 | $69.4 million | | **Total** | **10** | **$132.5 million** | Real Estate Dispositions (Six Months Ended June 30, 2022) | Property Type | Number of Properties | Contract Sale Price ($) | Gain on Sale ($) | | :--- | :--- | :--- | :--- | | Office | 4 | $37.8 million | $6.3 million | | Flex | 1 | $8.8 million | $2.1 million | | **Total** | **5** | **$46.5 million** | **$8.4 million** | - As of June 30, 2022, the company had significant asset concentration in two tenants. The KIA property in Carson, CA represented **15.1% of total assets**, and the eight Lindsay properties represented **12.0% of total assets**[103](index=103&type=chunk) - The company executed lease extensions for three properties during the first six months of 2022 with tenants Cummins, ITW Rippey, and Williams Sonoma, resulting in an average lease term increase of **3.7 years** and an average annual rent increase of **1.9%**[107](index=107&type=chunk) [Goodwill](index=29&type=section&id=Note%205.%20Goodwill) - The company recorded a full impairment of goodwill, resulting in a non-cash charge of **$17.3 million** for the six months ended June 30, 2022. The carrying value of goodwill was reduced to zero[121](index=121&type=chunk) - The impairment was triggered by a decline in the company's stock price following its NYSE listing, which caused its market capitalization to fall below the book value of its equity as of March 31, 2022[121](index=121&type=chunk) [Debt](index=31&type=section&id=Note%207.%20Debt) - On January 18, 2022, the company entered into a new **$250 million credit facility**, consisting of a **$100 million four-year revolver** and a **$150 million five-year term loan**[135](index=135&type=chunk) - Proceeds from the new credit facility were used to repay **20 property mortgages** aggregating **$153.4 million**, significantly reducing the number of individual mortgage notes from **23** at year-end 2021 to **3** at June 30, 2022[141](index=141&type=chunk)[128](index=128&type=chunk) - As of June 30, 2022, the company was in compliance with all debt covenants, which include a minimum fixed charge coverage of **1.50x** and maximum leverage of **60% of the borrowing base**[138](index=138&type=chunk)[147](index=147&type=chunk) - The company entered into a five-year interest rate swap effective May 31, 2022, to fix the interest rate on the **$150 million Term Loan** at **3.858%**[136](index=136&type=chunk)[151](index=151&type=chunk) [Equity and Distributions](index=36&type=section&id=Note%209.%20Preferred%20Stock%20and%20Common%20Stock) - The company has **2,000,000 shares** of **7.375% Series A Cumulative Redeemable Perpetual Preferred Stock** outstanding, which pay a cumulative dividend of **$1.84375 per share annually**[156](index=156&type=chunk)[161](index=161&type=chunk) - In February 2022, the company completed a listed offering of **40,000 shares** of Class C common stock at **$25.00 per share**, with the primary purpose of providing liquidity to existing stockholders[169](index=169&type=chunk) - The board declared quarterly dividends of **$0.9 million** on its Series A Preferred Stock for both Q1 and Q2 2022[168](index=168&type=chunk) [Subsequent Events](index=42&type=section&id=Note%2014.%20Subsequent%20Events) - In July and August 2022, the company acquired **six industrial properties** in two separate sale-leaseback transactions for a total purchase price of approximately **$28.7 million**[201](index=201&type=chunk)[202](index=202&type=chunk) - On July 12, 2022, the company entered into an agreement to sell its Williams Sonoma-leased property in Las Vegas for **$9.3 million**, with the sale scheduled to close by August 26, 2022[204](index=204&type=chunk) - Between July 1 and August 9, 2022, the company repurchased an additional **32,713 shares** of its Class C common stock for **$0.5 million** under its share repurchase program[200](index=200&type=chunk) - The company drew a total of **$28 million** on its revolver in July 2022 to fund the Producto and Valtir acquisitions[205](index=205&type=chunk) [Management's Discussion and Analysis (MD&A)](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transition to a publicly-listed REIT and its strategy of focusing on industrial properties while divesting office assets. The new **$250 million credit facility** established in January 2022 provided significant liquidity and enabled a major debt refinancing. Results for the first half of 2022 were marked by strong rental income growth from acquisitions, offset by a significant non-cash goodwill impairment charge. Management highlights the growth in Adjusted Funds from Operations (AFFO) as a key performance indicator, which increased to **$0.64 per diluted share** for the first half of 2022 from **$0.59** in the prior year period [Overview and Strategy](index=44&type=section&id=MD%26A%20-%20Overview%20and%20Strategy) - The company's primary business is acquiring, financing, and owning single-tenant net-lease industrial, retail, and office properties, with a focus on strategically important and mission-critical assets[220](index=220&type=chunk) - The investment strategy is focused on acquiring a diversified portfolio of income-generating commercial real estate, with a current emphasis on increasing allocations to the industrial sector and decreasing allocations to the office sector[228](index=228&type=chunk)[229](index=229&type=chunk) - As of June 30, 2022, the portfolio consisted of **43 operating properties**, was **100% occupied**, and had a weighted average remaining lease term of approximately **10.5 years**[221](index=221&type=chunk)[222](index=222&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=MD%26A%20-%20Liquidity%20and%20Capital%20Resources) - The primary source of liquidity is the **$250 million credit facility** established in January 2022, which was used to repay approximately **$153.4 million** in existing mortgages and the prior line of credit[233](index=233&type=chunk)[238](index=238&type=chunk) - The company's leverage ratio was **38%** as of June 30, 2022. The board has approved a maximum leverage of **55% of asset value**, but the long-term target is **40% or lower**[241](index=241&type=chunk) - The company has an active share repurchase program, having repurchased **220,143 shares** for **$3.8 million** between its inception in February 2022 and August 9, 2022[250](index=250&type=chunk) - An "UPREIT" transaction was completed for the KIA property acquisition, where the seller received **1,312,382 Class C OP Units** valued at **$25.00 per unit**[251](index=251&type=chunk) [Results of Operations](index=55&type=section&id=MD%26A%20-%20Results%20of%20Operations) Comparison of Q2 2022 vs. Q2 2021 | Metric | Q2 2022 ($) | Q2 2021 ($) | Change ($) | Change % | | :--- | :--- | :--- | :--- | :--- | | Rental Income | $10.4 million | $9.1 million | +$1.3 million | +14% | | General & Admin | $1.6 million | $1.9 million | -$0.3 million | -16% | | Interest Expense | $1.2 million | $2.1 million | -$0.9 million | -43% | | Net Income (Loss) | $2.4 million | $(1.0 million) | +$3.4 million | N/A | Comparison of H1 2022 vs. H1 2021 | Metric | H1 2022 ($) | H1 2021 ($) | Change ($) | Change % | | :--- | :--- | :--- | :--- | :--- | | Rental Income | $20.0 million | $18.1 million | +$1.9 million | +11% | | Goodwill Impairment | $17.3 million | $0 | +$17.3 million | N/A | | Net Income (Loss) | $(9.7 million) | $(1.9 million) | -$7.8 million | N/A | | Gain on Sale | $8.4 million | $0.3 million | +$8.1 million | +2799% | - The increase in rental income was primarily driven by acquisitions made in late 2021 and H1 2022, partially offset by property dispositions[266](index=266&type=chunk)[277](index=277&type=chunk) - The net loss for H1 2022 was driven by the **$17.3 million non-cash goodwill impairment charge** recognized in Q1 2022[284](index=284&type=chunk) [Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)](index=52&type=section&id=MD%26A%20-%20FFO%20and%20AFFO) FFO and AFFO Per Share (Diluted) | Metric | Q2 2022 ($) | Q2 2021 ($) | H1 2022 ($) | H1 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | FFO per Share | $0.43 | $0.26 | $(1.65) | $0.56 | | AFFO per Share | $0.35 | $0.34 | $0.64 | $0.59 | - Management uses FFO and AFFO as supplemental non-GAAP measures to evaluate operating performance. AFFO is considered a beneficial indicator of ongoing portfolio performance and the ability to sustain distributions[258](index=258&type=chunk) - The significant negative FFO per share in H1 2022 is a direct result of the **$17.3 million goodwill impairment**, which is added back for the AFFO calculation[262](index=262&type=chunk) [Distributions](index=59&type=section&id=MD%26A%20-%20Distributions) - The company pays monthly distributions on its common stock. For 2022, the rate is **$0.095833 per share per month**, equivalent to an annualized rate of **$1.15 per share**[296](index=296&type=chunk)[198](index=198&type=chunk) - Quarterly dividends of **$0.9 million** were declared and paid on the Series A Preferred Stock[292](index=292&type=chunk) Distribution Sources (Six Months Ended June 30, 2022) | Metric | Amount ($) | | :--- | :--- | | Total Distributions Declared | $5.1 million | | Cash Flows from Operating Activities | $5.1 million | | Distributions Paid from Cash | $3.5 million | | Reinvested Distributions | $2.2 million | [Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2022. They concluded that these controls were effective at a reasonable assurance level. No material changes to the internal control over financial reporting were identified during the quarter - Based on an evaluation as of June 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[326](index=326&type=chunk) - There were no changes in internal control over financial reporting during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[327](index=327&type=chunk) PART II [Risk Factors and Legal Proceedings](index=66&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its 2021 Annual Report on Form 10-K. Additionally, the company is not a party to any legal proceedings that are expected to have a material adverse effect on its business or financial condition - There have been no material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2021[329](index=329&type=chunk) - The company is not a party to any legal proceeding, nor is it aware of any pending or threatened litigation that could have a material adverse effect on its business[176](index=176&type=chunk)[328](index=328&type=chunk) [Share Repurchases and Unregistered Sales](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company was active in its share repurchase program during the second quarter of 2022, buying back **136,567 shares** of its common stock for a total of **$2.4 million**. The average price paid per share was **$17.58**. No unregistered shares were issued during the quarter Share Repurchase Activity (Q2 2022) | Month | Shares Repurchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | April 2022 | 86,252 | $18.45 | | May 2022 | 22,775 | $16.81 | | June 2022 | 27,540 | $15.51 | | **Total** | **136,567** | **$17.58** | - The board authorized a **$20 million share repurchase program** on February 15, 2022, effective through December 31, 2022[332](index=332&type=chunk) - No unregistered shares were issued during the three months ended June 30, 2022[331](index=331&type=chunk)