Modiv(MDV) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) Modiv Inc.'s unaudited financial statements for June 2021 reflect decreased total assets and a significantly improved net loss compared to the prior year Condensed Consolidated Balance Sheets The balance sheet shows total assets decreased by June 2021, primarily due to reduced real estate investments, with corresponding shifts in liabilities and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total real estate investments | $344,456 | $364,045 | | Cash and cash equivalents | $7,866 | $8,248 | | Total assets | $389,555 | $407,433 | | Total mortgage notes payable, net | $185,958 | $185,014 | | Total liabilities | $211,100 | $217,181 | | Total equity | $168,041 | $182,887 | Condensed Consolidated Statements of Operations The statement of operations shows a significant reduction in net loss for H1 2021, primarily due to the absence of prior-year impairment charges, despite a decrease in rental income Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Rental income | $9,173 | $9,277 | $18,214 | $20,331 | | Total expenses | $10,250 | $11,608 | $21,093 | $71,511 | | Impairment of goodwill and intangible assets | $0 | $0 | $0 | $34,572 | | Net loss | ($1,002) | ($2,210) | ($1,905) | ($51,033) | | Net loss per share | ($0.13) | ($0.28) | ($0.25) | ($6.39) | Condensed Consolidated Statements of Cash Flows Cash flow from operations remained stable, while investing activities significantly shifted to a cash source due to property sales, and financing activities primarily funded share repurchases and debt repayments Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,083 | $3,383 | | Net cash provided by (used in) investing activities | $14,624 | ($3,694) | | Net cash used in financing activities | ($15,711) | ($2,547) | | Net increase (decrease) in cash | $1,997 | ($2,858) | Notes to Condensed Consolidated Financial Statements Notes detail business organization, accounting policies, and financial activities, including a 1:3 reverse stock split, property sales, PPP loan forgiveness, and subsequent portfolio changes - The company effected a 1:3 reverse stock split of its Class C and Class S common stock on February 1, 2021[33][57] - The company terminated its public Follow-on Offering on January 27, 2021, and commenced a private offering for accredited investors on February 1, 2021, which was subsequently terminated on August 12, 2021[47] - As of June 30, 2021, the portfolio comprised 38 properties (12 retail, 14 office, 12 industrial) totaling approximately 2.3 million square feet[36] - In Q1 2021, the company sold three retail properties for total proceeds of $13.7 million, resulting in a gain of $289,642[116] - A $517,000 Paycheck Protection Program (PPP) loan was forgiven in February 2021 and recorded as other income[163] - Subsequent to quarter-end, the company sold its Cedar Park, Texas property for $10 million and acquired a restaurant property in San Antonio, Texas for $3.6 million[207][209] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance, noting decreased rental income but a significantly narrowed net loss due to the absence of prior-year impairment charges, while focusing on liquidity through property sales and debt management Liquidity and Capital Resources Liquidity is driven by property sales, debt, and equity offerings, with H1 2021 seeing increased share repurchases, a new credit facility, and a leverage ratio of 49% - The company's leverage ratio was 49% as of June 30, 2021, against a maximum policy of 55% of tangible assets[253] - A new $22 million credit facility was established with Banc of California on March 29, 2021, replacing a prior facility[256] - During H1 2021, the company sold three retail properties for net proceeds of $10.7 million and refinanced six mortgage notes[259][260] - Share repurchases increased to approximately $13.0 million in H1 2021 from $10.0 million in H1 2020, while capital raised from offerings decreased by 67% to $4.6 million[263] Funds from Operations and Adjusted Funds from Operations FFO significantly recovered to $5.4 million in H1 2021 from a prior-year loss, while AFFO was $5.2 million, reflecting improved operational performance FFO and AFFO (in thousands, except per share data) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net loss | ($1,905) | ($51,033) | | FFO | $5,351 | ($42,449) | | AFFO | $5,234 | $6,408 | | FFO Per Share, Fully Diluted | $0.60 | ($4.62) | | AFFO Per Share, Basic | $0.69 | $0.80 | Results of Operations Operational results show a 10% decrease in rental income due to property sales, a 25% increase in G&A expenses, and a 40% decrease in interest expense, alongside impairment reversals and gains from property sales and PPP loan forgiveness Key Operational Changes - H1 2021 vs H1 2020 (in thousands) | Item | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $18,214 | $20,331 | (10%) | | General & Administrative | $6,159 | $4,924 | 25% | | Interest Expense | $3,880 | $6,464 | (40%) | | Impairment of Real Estate | ($401) | $9,507 | N/A | | Impairment of Goodwill/Intangibles | $0 | $34,572 | (100%) | Distributions Total distributions of $4.0 million were declared in H1 2021, fully funded by net rental income, with the daily distribution rate increased effective October 1, 2021 Distributions Declared (in thousands) | Period | Total Distributions Declared | Cash Paid | Reinvested | | :--- | :--- | :--- | :--- | | Q1 2021 | $1,992 | $891 | $1,131 | | Q2 2021 | $1,977 | $835 | $1,131 | - All distributions declared in 2021 and 2020 were funded from net rental income received, with no use of offering proceeds[310] - The daily distribution rate was increased to $0.00315070 effective October 1, 2021[310] 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 not required to provide this disclosure[333] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021[335] - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2021[336] PART II - OTHER INFORMATION Legal Proceedings Legal proceedings information is incorporated by reference, detailing a lawsuit against the company's former advisor, to which the company is not a party, now compelled to arbitration - A lawsuit was filed against the company's former advisor by a former employee; the company is not a party, and the matter has been compelled to arbitration[190][337] Risk Factors A new material risk factor concerns the transition away from LIBOR, which could adversely affect financial instruments and increase hedging difficulty - A key risk is the uncertainty surrounding the replacement of LIBOR, which is scheduled to be discontinued, potentially affecting financial obligations and creating operational and hedging risks[338][339] Unregistered Sales of Equity Securities and Use of Proceeds Q2 2021 saw unregistered sales of Class C and S common stock, including 28,724 shares for $671,673 via a private offering, alongside the repurchase of 115,552 shares for approximately $2.8 million - In Q2 2021, the company sold 28,724 shares of Class C common stock for $671,673 through its private offering to accredited investors[344] Share Repurchases - Q2 2021 | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2021 | 39,079 | $22.96 | | May 2021 | 35,533 | $24.56 | | June 2021 | 40,940 | $24.56 | | Total | 115,552 | | Exhibits This section indexes all exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q, including corporate governance documents and officer certifications - The report includes various exhibits, such as Articles of Amendment, Amended and Restated Bylaws, Distribution Reinvestment Plans, Share Repurchase Programs, and Sarbanes-Oxley Act certifications[357]