Modiv(MDV) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of RW Holdings NNN REIT, Inc. for Q1 2019 and 2018, encompassing balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets As of March 31, 2019, total assets were $249.4 million, a slight decrease from $252.4 million at year-end 2018, primarily driven by reductions in mortgage notes payable and the unsecured credit facility, while total stockholders' equity increased to $113.3 million due to common stock issuance Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total real estate investments, net | $236,373 | $238,924 | ($2,551) | | Cash and cash equivalents | $4,415 | $5,253 | ($838) | | Total Assets | $249,411 | $252,426 | ($3,015) | | Mortgage notes payable, net | $115,189 | $122,709 | ($7,520) | | Unsecured credit facility, net | $4,069 | $8,998 | ($4,929) | | Total Liabilities | $130,719 | $143,332 | ($12,613) | | Total Stockholders' Equity | $113,288 | $103,093 | $10,195 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2019, the company reported a net loss of $913,158, a significant increase from the $35,325 net loss in the same period of 2018, driven by higher operating expenses, particularly depreciation and interest, which outpaced the 70% growth in rental income from 2018 property acquisitions Three Months Ended March 31, (in thousands) | Metric | 2019 | 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Rental income | $5,885 | $3,458 | +70.2% | | Total expenses | $6,966 | $3,911 | +78.1% | | Net expenses | $6,878 | $3,552 | +93.6% | | Net Loss | ($913) | ($35) | +2508.6% | | Net loss per share | ($0.07) | ($0.00) | N/A | Condensed Consolidated Statements of Stockholders' Equity During the first quarter of 2019, total stockholders' equity increased by $10.2 million to $113.3 million, primarily due to $16.2 million from common stock issuance, partially offset by $2.4 million in distributions, $2.2 million in stock repurchases, and a $0.9 million net loss Changes in Stockholders' Equity (Q1 2019, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2018) | $103,093 | | Issuance of common stock | $16,157 | | Repurchase of common stock | ($2,226) | | Distributions declared | ($2,389) | | Net loss | ($913) | | Other (Stock comp, offering costs) | ($435) | | Ending Balance (Mar 31, 2019) | $113,288 | Condensed Consolidated Statements of Cash Flows For the first quarter of 2019, net cash provided by operating activities was $0.8 million, with no cash used in investing activities, while net cash used in financing activities was $1.6 million, resulting in a net decrease in cash of $0.8 million for the quarter Cash Flow Summary (Three Months Ended March 31, in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $774 | $38 | | Net cash used in investing activities | $0 | ($16,323) | | Net cash (used in) provided by financing activities | ($1,591) | $23,978 | | Net (decrease) increase in cash | ($817) | $7,693 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, covering the company's business model, adoption of the new lease accounting standard, real estate portfolio composition, debt facilities, related-party transactions, and an ongoing SEC investigation - The company's business focuses on investing in single-tenant, income-producing properties in the U.S. under long-term net leases[28] - As of March 31, 2019, the company's portfolio consisted of 24 operating properties (nine retail, 10 office, five industrial), one parcel of land, a 72.7% TIC interest in an office property, and a 4.8% interest in affiliated REIT I[36] - A special committee of the board is evaluating a potential acquisition of affiliated REIT I or its portfolio[37] - Effective January 1, 2019, the company adopted the new lease accounting standard, Topic 842, which did not have a material impact on the timing or pattern of revenue recognition[64][67] - The SEC is conducting a non-public investigation related to the company's advertising, sale of securities, and compliance with broker-dealer regulations; the company is cooperating with the investigation[143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's business strategy, portfolio, and financial performance for the first quarter of 2019, highlighting significant year-over-year growth in rental income due to 2018 property acquisitions, increased expenses, liquidity, capital resources, debt, distribution policies, and the exploration of a potential acquisition of affiliated REIT I - The company's primary business is acquiring, financing, and owning single-tenant retail, office, and industrial real estate leased to creditworthy tenants on long-term leases[167] - As of March 31, 2019, the portfolio of 24 operating properties was 100% leased with a weighted average remaining lease term of approximately 7.1 years[168] - A special committee of independent directors is evaluating a potential acquisition of affiliated REIT I or its portfolio[163] - The company's primary source of liquidity is proceeds from its stock offerings, which are used for property acquisitions, capital expenditures, and debt payments[174] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has omitted this section, as it is not required for a Smaller Reporting Company - Disclosure about market risk is not required as the company qualifies as a Smaller Reporting Company[226] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[227] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[228] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference information from Note 9 of the financial statements regarding legal matters, specifically an ongoing, non-public SEC investigation related to the company's advertising, sale of securities, and compliance with broker-dealer regulations - The company is subject to an ongoing, non-public SEC investigation concerning its securities offering, advertising, and broker-dealer compliance; the company is cooperating with the inquiry[143][231] Item 1A. Risk Factors 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, 2018 - There have been no material changes to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of unregistered equity securities and the use of proceeds from its registered offering, including the issuance of 4,921 Class C shares and 114,929 Class S shares during the quarter, and the use of $150.8 million in net proceeds primarily for real estate investments through March 31, 2019 - During Q1 2019, the company issued 4,921 unregistered Class C shares to directors and 114,929 unregistered Class S shares in its Class S Offering[233][234] Use of Proceeds from Registered Offering (through March 31, 2019) | Item | Amount | | :--- | :--- | | Gross Offering Proceeds | $155,496,984 | | Reimbursable Org. & Offering Expenses | ($4,705,238) | | Net Offering Proceeds | $150,832,074 | | Investments in Real Estate Properties | ~$255,034,000 (funded by proceeds and debt) | | Acquisition Fees to Advisor | $6,293,558 | | Financing Coordination Fees to Advisor | $588,650 | - The company repurchased a total of 283,818 shares of Class C common stock for approximately $2.8 million during the first quarter of 2019 under its share repurchase program[241] Item 6. Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including required certifications by the Principal Executive Officer and Principal Financial Officer - The report includes required certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[246]