Modiv(MDV) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the six months ended June 30, 2020, detail the company's financial position, operations, equity, and cash flows Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2020, shows a decrease in total assets to $437.1 million, primarily driven by a significant impairment of goodwill Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total real estate investments | $396,564 | $413,924 | | Cash and cash equivalents | $3,820 | $6,824 | | Goodwill, net | $17,321 | $50,588 | | Total assets | $437,059 | $490,917 | | Total mortgage notes payable, net | $196,227 | $194,039 | | Total liabilities | $238,471 | $236,675 | | Total equity | $189,663 | $240,173 | - Goodwill decreased from $50.6 million to $17.3 million due to impairment charges recorded during the first quarter of 2020[16][81] - The company classified four properties with a net value of $17.9 million as 'Real estate investments held for sale' as of June 30, 2020[16][45] Condensed Consolidated Statements of Operations For the six months ended June 30, 2020, the company reported a net loss of $51.0 million, driven by non-cash impairment charges totaling $44.1 million Statement of Operations Highlights (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Rental income | $20,331 | $11,782 | | Impairment of real estate | $9,507 | $0 | | Impairment of goodwill & intangibles | $34,572 | $0 | | Net loss | ($51,033) | ($2,053) | | Net loss per share | ($2.13) | ($0.14) | - The significant increase in net loss was primarily due to impairment charges on real estate investment properties ($9.5M), goodwill and intangible assets ($34.6M), and a reserve for a loan guarantee ($3.1M)[20] - Rental income for the six months ended June 30, 2020, increased by 73% compared to the prior year period, mainly due to properties acquired in the Merger with REIT I[20][302][314] Condensed Consolidated Statements of Equity Total equity decreased from $240.2 million to $189.7 million as of June 30, 2020, primarily due to a net loss of $51.0 million Changes in Equity - Six Months Ended June 30, 2020 (in thousands) | Description | Amount | | :--- | :--- | | Beginning Equity (Dec 31, 2019) | $240,173 | | Issuance of common stock | $14,092 | | Repurchase of common stock | ($9,988) | | Distributions declared | ($7,459) | | Net loss | ($51,033) | | Other changes | $3,878 | | Ending Equity (June 30, 2020) | $189,663 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash from operations was $3.4 million, while financing activities used $2.5 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,383 | $2,886 | | Net cash used in investing activities | ($3,694) | ($3,488) | | Net cash (used in) provided by financing activities | ($2,547) | $2,637 | | Net (decrease) increase in cash | ($2,858) | $2,035 | Notes to Condensed Consolidated Financial Statements The notes detail the 2019 merger, significant impairment charges of $44.1 million in H1 2020, and other key disclosures on debt and subsequent events - On December 31, 2019, the company completed a merger with REIT I and a Self-Management Transaction, becoming self-managed and acquiring 20 properties[36][98][104] - Due to the COVID-19 pandemic, the company recorded significant impairment charges in H1 2020: $9.5 million on real estate properties, $33.3 million on goodwill, and $1.3 million on intangible assets[81][82][143] - In response to COVID-19's economic impact, the company's board suspended its primary offerings, updated its NAV per share from $10.27 to $7.00, and then resumed offerings at the lower price[43] - Subsequent to the quarter end, the company sold one property for $7.25 million and refinanced three mortgage notes, generating net proceeds of $6.9 million[243][246][247] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of the COVID-19 pandemic on operations, liquidity, and capital resources, resulting in a $51.0 million net loss - The COVID-19 pandemic has severely impacted the company, leading to tenant rent deferral requests, the bankruptcy of tenant 24 Hour Fitness, and a slowdown in capital raising[267][288] - In response to the pandemic's impact, the company updated its NAV per share from $10.27 to $7.00 and temporarily suspended its primary offerings[268][269] Comparison of Results - Six Months Ended June 30 | Metric (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Rental Income | $20.3 | $11.8 | | General & Administrative | $4.9 | $1.4 | | Impairment Charges (Total) | $44.1 | $0 | | Net Loss | ($51.0) | ($2.1) | - To improve liquidity, the company is selling properties, including one sold for $7.25 million, and has increased its maximum leverage limit to 55% of tangible assets[277][283] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - The company is a smaller reporting company and is therefore not required to provide this disclosure[359] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[361] - No material changes to internal control over financial reporting occurred during the quarter, despite the shift to remote work due to COVID-19[362] PART II - OTHER INFORMATION Legal Proceedings The company is not a party to a lawsuit filed against its Former Advisor by a former employee - A lawsuit was filed against the company's Former Advisor by a former employee in September 2019; the company is not a party to this litigation[239][363] Risk Factors The COVID-19 pandemic presents material and adverse risks to the business, including tenant financial instability and potential property value declines - The COVID-19 outbreak has adversely affected and may continue to affect the business, operations, and the financial condition of its tenants[365] - The pandemic could negatively impact the company's financial condition through tenant defaults, difficulty accessing capital, and potential debt covenant non-compliance[370] - The widespread adoption of remote work could negatively impact the long-term demand for office space, a significant portion of the company's portfolio[370] Unregistered Sales of Equity Securities and Use of Proceeds The company details unregistered stock issuances, use of proceeds, and significant unmet demand for its share repurchase program - In Q2 2020, the company issued 6,816 Class C shares to directors and 1,945 Class S shares via its DRP, both exempt from registration[373][374] - Through June 30, 2020, the company has raised aggregate gross proceeds of $193.8 million from its registered offerings of Class C common stock[376] - The company received share repurchase requests for over $26 million but only honored a fraction due to liquidity constraints and offering suspension[383] Exhibits This section provides an index of all exhibits filed, including agreements, corporate documents, and required Sarbanes-Oxley Act certifications - An amendment to the Loan Agreement with Pacific Mercantile Bank, dated August 13, 2020, is filed as Exhibit 10.1[393] - 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 of 2002[393]