Modiv(US:MDV)2020-11-13 20:34PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements show a significant nine-month net loss driven by major impairment charges Condensed Consolidated Balance Sheets Total assets and equity declined significantly as of September 30, 2020, due to goodwill impairment Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total real estate investments | $379,546 | $413,924 | ($34,378) | | Goodwill, net | $17,321 | $50,588 | ($33,267) | | Total assets | $422,516 | $490,917 | ($68,401) | | Total mortgage notes payable, net | $193,672 | $194,039 | ($367) | | Total liabilities | $228,722 | $236,675 | ($7,953) | | Total equity | $185,512 | $240,173 | ($54,661) | Condensed Consolidated Statements of Operations The nine-month net loss widened dramatically to $52.1 million due to significant impairment charges Key Operating Results (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $9,557 | $6,126 | $29,889 | $17,908 | | Impairment charges | $0 | $0 | $44,079 | $0 | | Total expenses | $11,232 | $7,226 | $82,743 | $21,438 | | Net loss | ($1,064) | ($921) | ($52,097) | ($2,974) | | Net loss per share | ($0.04) | ($0.06) | ($2.17) | ($0.20) | Condensed Consolidated Statements of Equity Total equity decreased by $54.7 million in the first nine months of 2020, driven by a net loss and distributions - For the nine months ended September 30, 2020, the company's total equity was significantly impacted by a net loss of $52.1 million and distributions declared of $9.6 million23 Condensed Consolidated Statements of Cash Flows Cash from operations decreased while investing activities provided cash due to proceeds from property sales Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,812 | $4,563 | | Net Cash from Investing Activities | $13,208 | ($6,481) | | Net Cash from Financing Activities | ($14,946) | $5,454 | | Net Increase in Cash | $2,074 | $3,537 | Notes to Condensed Consolidated Financial Statements Notes detail the financial impact of the REIT I merger, self-management, and COVID-19 impairments - In response to the COVID-19 pandemic, the company suspended its primary offerings, updated its NAV per share to $7.00, and resumed offerings at the lower price39 - The company recorded a goodwill impairment charge of $33.3 million and an intangible asset impairment of $1.3 million due to COVID-19 impacts124128 - The company recorded $9.5 million in impairment charges on four real estate properties due to tenant issues, including the bankruptcy of 24 Hour Fitness134139 - The company terminated its corporate office lease early, resulting in a lease termination expense of $1.175 million238 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of COVID-19, including tenant issues, NAV reduction, and impairment charges - The company became self-managed on December 31, 2019, following a merger with REIT I and the acquisition of its former sponsor261 - Due to the COVID-19 pandemic, rent collections were approximately 95% for Q3 2020, though key tenant 24 Hour Fitness filed for bankruptcy268 - The company's leverage ratio was 48% as of September 30, 2020, below the board-approved maximum of 55%280 Results of Operations Q3 2020 rental income grew 56% YoY, but the nine-month results show a $52.1 million net loss from impairments Comparison of Operating Results (Q3 2020 vs Q3 2019) | Metric | Q3 2020 | Q3 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $9.6M | $6.1M | +56% | | General & Administrative | $2.5M | $0.9M | +175% | | Depreciation & Amortization | $4.3M | $2.4M | +80% | | Interest Expense | $2.7M | $1.7M | +57% | | Net Loss | ($1.1M) | ($0.9M) | +22% | - For the nine months ended September 30, 2020, the company recorded significant non-cash charges including $9.5M for real estate impairment, $34.6M for goodwill and intangible asset impairment, and a $3.1M reserve for a loan guarantee324325326 Liquidity and Capital Resources The company enhanced liquidity in Q3 2020 through property sales and mortgage refinancing - During Q3 2020, the company sold three retail properties, generating total net proceeds of $9.7 million after debt repayment285 - In July and August 2020, the company refinanced three properties, generating total net proceeds of $6.9 million, which were used to repay other debt obligations289 Distributions The company declared $9.6 million in distributions for the first nine months of 2020 and reduced its daily distribution rate in May Distributions Summary (2020) | Period | Total Declared | Per Share | Source | | :--- | :--- | :--- | :--- | | Q1 2020 | $4,189,102 | $0.175875 | Net Rental Income | | Q2 2020 | $3,270,291 | $0.136000 | Net Rental Income | | Q3 2020 | $2,135,815 | $0.136000 | Net Rental Income | | 9M 2020 Total | $9,595,208 | $0.447875 | Net Rental Income | - The daily distribution rate was reduced in May 2020 to $0.00095890 per share, reflecting an annualized rate of 5.0% on the updated NAV of $7.00 per share249342 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this section is not applicable - As a smaller reporting company, the registrant is not required to provide the information under this item370 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020372 - There were no material changes to internal control over financial reporting during Q3 2020, and the shift to remote work has not had a material effect373 PART II - OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings, though its Former Advisor faces a lawsuit - A lawsuit was filed against the company's Former Advisor by a former employee for alleged retaliatory termination; the company is not a party to this lawsuit247374 Risk Factors The primary risk factors relate to the ongoing COVID-19 pandemic's impact on tenants and operations - The COVID-19 pandemic poses significant risks to the business, including tenants' ability to pay rent, potential for store closures, and operational disruptions376377 - The pandemic could negatively impact compliance with financial covenants, access to capital, and the value of intangible assets381 Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered shares, used offering proceeds for investments, and conducted share repurchases in Q3 2020 - Since inception, the company has raised $195.9 million in gross proceeds from its Registered Offerings, with $187.1 million in net proceeds used for real estate investments386388 - For Q3 2020, the company received repurchase requests totaling $23.1M but only repurchased shares valued at approximately $3.8M243391 Share Repurchase Activity (Q3 2020) | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2020 | 107,853 | $6.96 | | August 2020 | 142,857 | $6.97 | | September 2020 | 203,990 | $6.96 | | Total | 454,700 | | Exhibits This section provides an index of all exhibits filed with the Quarterly Report on Form 10-Q