Modiv(US:MDV)2022-08-14 01:25Financial 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]