UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________to____________

Commission file number: ~~000-55776~~001-40814

MODIV INC.

(Exact name of registrant as specified in its charter)


Maryland			47-4156046
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

120 Newport Center Drive, Newport Beach, CA			92660
(Address of principal executive offices)			(Zip Code)

(888) 686-6348

(Registrant’s telephone number, including area code)


Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

~~None~~Class C Common Stock, $0.001 par value per share

MDV

New York Stock Exchange

7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share

~~None~~MDV.PA

~~None~~New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

~~Table of Contents~~


Large accelerated filer ☐			Accelerated filer ☐

Non-accelerated filer ☒			Smaller reporting company ☒

			Emerging growth company ☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, ~~2021,~~2022, there were ~~7,465,919~~7,456,830 shares of Class C ~~common stock outstanding and 63,404 shares of Class S~~ common stock outstanding.

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Modiv Inc.

FORM 10-Q

INDEX


PART I -	FINANCIAL INFORMATION		4

	Item 1.	Financial Statements (Unaudited)	4

		Condensed Consolidated Balance Sheets – June 3 0 , ~~2021~~2022 and December 31, ~~2020~~2021	4

		Condensed Consolidated Statements of Operations – Three and Si xSix Months Ended June 3 0 , ~~2021~~2022 and ~~2020~~2021	5

		Condensed Consolidated Statements of Equity – Three Months Ended June 3 0 , ~~2021~~2022 and ~~2020~~2021	6

		Condensed Consolidated Statements of Equity – Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	7

		Condensed Consolidated Statements of Cash Flows – Six Months Ended June 3 0 ~~, 2021~~ 30, 2022 and ~~2020~~2021	8

		Notes to Condensed Consolidated Financial Statements	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

	Item 4.	Controls and Procedures	61

PART II -	OTHER INFORMATION		6261

	Item 1.	Legal Proceedings	6261

	Item 1A.	Risk Factors	6261

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

	Item 6.	Exhibits	6462

SIGNATURES			6664

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbor provisions created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to identify forward-looking statements. Such statements include, but are not limited to, any statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods.

The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time-to-time with the Securities and Exchange Commission (the “SEC”). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.

Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time-to-time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements. The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from our forward-looking statements:

•We have only a limited operating history, and the prior performance of our real estate investments or real estate programs sponsored by us or our affiliates may not be indicative of our future results.

•We are subject to disruptions in the financial markets and uncertain economic conditions that could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders.

•The ~~magnitude and duration of the novel coronavirus (“COVID-19”)~~current COVID-19 pandemic, including the ~~recent spread~~emergence of any future variants of COVID-19, and any future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

•The continuing developments in the ~~Delta variant~~Russian war against Ukraine and ~~its impact on our tenants, operations~~sanctions which have been announced by the United States and ~~liquidity is uncertain as of the filing date of this Quarterly Report on Form 10-Q~~other countries against Russia have caused and may continue to ~~have~~cause significant uncertainty in the market, adding to continuing concerns about supply chain disruptions, inflation and increases in interest rates in the market in which we operate.

•Volatility in stock and bond markets, particularly the rapid rise in yields on U.S. Treasury securities, may negatively impact our operating results.

•Listing on the New York Stock Exchange (the “NYSE”) does not guarantee an ~~adverse impact on~~active and liquid market for our ~~business~~Class C common stock, and ~~results~~the market price and trading volume of ~~operations.~~our Class C common stock may fluctuate significantly.

•Our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), is senior to our Class C common stock, and the interests of our common stockholders could be diluted by the issuance of additional preferred stock and by other transactions in the future.

•We may fail to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, which could adversely affect our operations and our ability to make distributions.

•We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.

•If we fail to diversify our investment portfolio, downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a diversified investment portfolio.

•We are subject to risks ~~associated with~~related to tenant ~~geographic~~concentration, and ~~industry concentrations~~an adverse development with respect to ~~our properties.~~a large tenant could materially and adversely affect us.

•Our properties ~~intangible assets and other assets~~ may be subject to further impairment charges.

•We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties, and we may be unable to acquire or dispose of, or lease, our properties on advantageous terms.

•We could be subject to risks associated with bankruptcies or insolvencies of tenants, or from tenant defaults generally.

•We have substantial indebtedness, and may incur additional secured or unsecured debt, which may affect our ability to pay distributions, expose us to interest rate fluctuation risk, impose limitations on how we operate and expose us to the risk of default under our debt obligations.

•We may not be able to extend or refinance existing indebtedness before it becomes due.

•Cost inflation may adversely affect our financial condition and results of operations.

•Restrictions on share ownership contained in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.

•We may not be able to attain or maintain ~~profitability.~~

•The only sources of cash for distributions to investors will be cash flow from our operations (including sales of properties) or any net proceeds that result from financing or refinancing our properties.

•Weprofitability and we may not generate cash flows sufficient to pay ~~our~~ distributions to stockholders or meet our debt service obligations.

•We may be affected by risks resulting from losses in excess of insured limits.

•~~We may fail to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.~~

•Risks of security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems, could adversely affect our business and results of operations.

Our forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in light of the risk factors identified above and the additional risks and uncertainties described in Item 1A1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Modiv Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Real estate investments:	Real estate investments:					Real estate investments:
Land	Land	$	65,510,507	$	65,358,321	Land	$	107,569,641	$	61,005,402
Buildings and improvements	Buildings and improvements	278,389,463		272,397,472		Buildings and improvements	327,472,940		251,246,290
Equipment						Equipment	4,429,000		—
Tenant origination and absorption costs	Tenant origination and absorption costs	23,570,335		23,792,057		Tenant origination and absorption costs	21,384,224		21,504,210
Total investments in real estate property	Total investments in real estate property	367,470,305		361,547,850		Total investments in real estate property	460,855,805		333,755,902
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(38,377,298)		(32,091,211)		Accumulated depreciation and amortization	(43,728,520)		(37,611,133)
Total investments in real estate property, net	Total investments in real estate property, net	329,093,007		329,456,639		Total investments in real estate property, net	417,127,285		296,144,769
Investment in unconsolidated entity		9,987,703		10,002,368
Unconsolidated investment in a real estate property						Unconsolidated investment in a real estate property	9,956,517		9,941,338
Total real estate investments, net	Total real estate investments, net	339,080,710		339,459,007		Total real estate investments, net	427,083,802		306,086,107
Real estate investments held for sale, net	Real estate investments held for sale, net	5,375,746		24,585,739		Real estate investments held for sale, net	—		31,510,762
Total real estate investments	Total real estate investments	344,456,456		364,044,746		Total real estate investments	427,083,802		337,596,869
Cash and cash equivalents	Cash and cash equivalents	7,865,974		8,248,412		Cash and cash equivalents	11,705,449		55,965,550
Restricted cash	Restricted cash	2,508,471		129,118		Restricted cash	—		2,441,970
Receivable from sale of real estate property		0		1,824,383
Receivable from early termination of lease						Receivable from early termination of lease	1,446,767		1,836,767
Tenant receivables	Tenant receivables	7,155,823		6,665,790		Tenant receivables	8,059,635		5,996,919
Above-market lease intangibles, net	Above-market lease intangibles, net	755,929		820,842		Above-market lease intangibles, net	626,107		691,019
Prepaid expenses and other assets	Prepaid expenses and other assets	4,506,724		2,171,717		Prepaid expenses and other assets	6,766,867		5,856,255
Other assets related to real estate investments held for sale		671,265		1,079,361
Interest rate swap derivative						Interest rate swap derivative	589,997		—
Assets related to real estate investments held for sale						Assets related to real estate investments held for sale	—		788,296
Goodwill, net	Goodwill, net	17,320,857		17,320,857		Goodwill, net	—		17,320,857
Intangible assets, net		4,313,799		5,127,788
Total assets	Total assets	$	389,555,298	$	407,433,014	Total assets	$	456,278,624	$	428,494,502
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Mortgage notes payable, net	Mortgage notes payable, net	$	181,576,606	$	175,925,918	Mortgage notes payable, net	$	44,608,815	$	152,223,579
Mortgage notes payable related to real estate investments held for sale, net	Mortgage notes payable related to real estate investments held for sale, net	4,381,426		9,088,438		Mortgage notes payable related to real estate investments held for sale, net	—		21,699,912
Total mortgage notes payable, net	Total mortgage notes payable, net	185,958,032		185,014,356		Total mortgage notes payable, net	44,608,815		173,923,491
Credit facility, net		2,889,303		5,978,276
Economic relief note payable		0		517,000
Credit facility revolver						Credit facility revolver	6,775,000		8,022,000
Credit facility term loan, net						Credit facility term loan, net	148,850,050		—
Accounts payable, accrued and other liabilities	Accounts payable, accrued and other liabilities	7,953,386		7,579,624		Accounts payable, accrued and other liabilities	8,733,757		11,844,881
Share repurchases payable		1,001,243		2,980,559
Below-market lease intangibles, net	Below-market lease intangibles, net	11,830,587		12,565,737		Below-market lease intangibles, net	10,175,284		11,102,940
Interest rate swap derivatives	Interest rate swap derivatives	1,240,336		1,743,889		Interest rate swap derivatives	—		788,016
Other liabilities related to real estate investments held for sale		227,433		801,337
Liabilities related to real estate investments held for sale						Liabilities related to real estate investments held for sale	—		383,282
Total liabilities	Total liabilities	211,100,320		217,180,778		Total liabilities	219,142,906		206,064,610

Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)	0		0

Redeemable common stock		10,413,691		7,365,568

Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding		0		0
Class C common stock $0.001 par value, 300,000,000 shares authorized, 7,490,414 and 7,874,541 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		7,490		7,874
Class S common stock $0.001 par value, 100,000,000 shares authorized, 63,331 and 62,860 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		63		63
7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021, respectively						7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	2,000		2,000
Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,643,992 shares issued and 7,456,562 shares outstanding as of June 30, 2022 and 7,426,636 shares issued and outstanding as of December 31, 2021						Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,643,992 shares issued and 7,456,562 shares outstanding as of June 30, 2022 and 7,426,636 shares issued and outstanding as of December 31, 2021	7,644		7,427
Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares and 63,768 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively						Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares and 63,768 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	—		64
Additional paid-in-capital	Additional paid-in-capital	215,317,098		224,288,417		Additional paid-in-capital	275,922,227		273,441,831
Treasury stock, at cost, 187,430 shares and no shares held as of June 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost, 187,430 shares and no shares held as of June 30, 2022 and December 31, 2021, respectively	(3,253,902)		—
Cumulative distributions and net losses	Cumulative distributions and net losses	(97,886,364)		(92,012,686)		Cumulative distributions and net losses	(116,491,382)		(101,624,430)
Total Modiv Inc. equity	Total Modiv Inc. equity	117,438,287		132,283,668		Total Modiv Inc. equity	156,186,587		171,826,892
Noncontrolling interests in the Operating Partnership	Noncontrolling interests in the Operating Partnership	50,603,000		50,603,000		Noncontrolling interests in the Operating Partnership	80,949,131		50,603,000
Total equity	Total equity	168,041,287		182,886,668		Total equity	237,135,718		222,429,892
Total liabilities and equity	Total liabilities and equity	$	389,555,298	$	407,433,014	Total liabilities and equity	$	456,278,624	$	428,494,502

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Modiv Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021

Rental income	Rental income	$	9,173,000	$	9,277,020	$	18,213,863	$	20,331,429	Rental income	$	10,394,118	$	9,107,008	$	20,042,767	$	18,081,878

Expenses:	Expenses:									Expenses:
General and administrative	General and administrative	2,875,869		2,369,358		6,158,753		4,924,363		General and administrative	1,615,182		1,932,635		3,721,365		4,618,621
Stock compensation expense										Stock compensation expense	679,747		767,087		1,191,612		1,371,732
Depreciation and amortization	Depreciation and amortization	3,978,323		4,480,262		8,003,026		9,115,786		Depreciation and amortization	3,682,681		3,978,323		6,983,173		8,003,026
Interest expense	Interest expense	2,098,649		2,558,877		3,879,785		6,463,533		Interest expense	1,197,154		2,098,649		2,765,329		3,879,785
Property expenses	Property expenses	1,697,886		1,854,637		3,452,833		3,803,356		Property expenses	1,965,885		1,874,033		4,730,477		3,621,233
Impairment of real estate investment properties		(400,999)		349,457		(400,999)		9,506,525
Impairment of goodwill and intangible assets		0		0		0		34,572,403
Reserve for loan guarantee		0		(4,253)		0		3,125,037
Reversal of impairment of real estate investment property										Reversal of impairment of real estate investment property	—		(400,999)		—		(400,999)
Impairment of goodwill										Impairment of goodwill	—		—		17,320,857		—
Total expenses	Total expenses	10,249,728		11,608,338		21,093,398		71,511,003		Total expenses	9,140,649		10,249,728		36,712,813		21,093,398

Other operating income:
Other operating loss:										Other operating loss:
Gain on sale of real estate investments	Gain on sale of real estate investments	0		0		289,642		0		Gain on sale of real estate investments	1,002,101		—		8,402,878		289,642
Real estate operating loss		(1,076,728)		(2,331,318)		(2,589,893)		(51,179,574)
Operating income (loss)										Operating income (loss)	2,255,570		(1,142,720)		(8,267,168)		(2,721,878)

Other income:
Other income (expense):										Other income (expense):
Interest income	Interest income	51		605		100		4,822		Interest income	1,763		51		15,198		100
Income from investment in unconsolidated entity		74,834		125,658		147,302		146,411
Income from unconsolidated investment in a real estate property										Income from unconsolidated investment in a real estate property	66,868		74,834		162,332		147,302
Gain on forgiveness of economic relief note payable	Gain on forgiveness of economic relief note payable	0		0		517,000		0		Gain on forgiveness of economic relief note payable	—		—		—		517,000
Loss on early extinguishment of debt										Loss on early extinguishment of debt	—		—		(1,725,318)		—
Other	Other	0		(4,855)		20,000		(4,855)		Other	66,143		65,992		132,136		151,985
Total other income		74,885		121,408		684,402		146,378
Net loss		$	(1,001,843)	$	(2,209,910)	$	(1,905,491)	$	(51,033,196)
Other income (expense), net										Other income (expense), net	134,774		140,877		(1,415,652)		816,387

Net loss per share, basic and diluted (Note 2)		$	(0.13)	$	(0.28)	$	(0.25)	$	(6.39)
Net income (loss)										Net income (loss)	2,390,344		(1,001,843)		(9,682,820)		(1,905,491)
Less: net income (loss) attributable to noncontrolling interest in Operating Partnership										Less: net income (loss) attributable to noncontrolling interest in Operating Partnership	219,214		—		(1,708,815)		—
Net income (loss) attributable to Modiv Inc.										Net income (loss) attributable to Modiv Inc.	2,171,130		(1,001,843)		(7,974,005)		(1,905,491)
Preferred stock dividends										Preferred stock dividends	(921,875)		—		(1,843,750)		—
Net income (loss) attributable to common stockholders										Net income (loss) attributable to common stockholders	$	1,249,255	$	(1,001,843)	$	(9,817,755)	$	(1,905,491)

Weighted-average number of common shares outstanding, basic and diluted		7,614,196		8,032,467		7,630,401		7,992,108
Net income (loss) per share attributable to common stockholders										Net income (loss) per share attributable to common stockholders
Basic										Basic	$	0.17	$	(0.13)	$	(1.31)	$	(0.25)
Diluted										Diluted	$	0.14	$	(0.13)	$	(1.31)	$	(0.25)
Weighted-average number of common shares outstanding										Weighted-average number of common shares outstanding
Basic										Basic	7,478,973		7,614,196		7,505,673		7,630,401
Diluted										Diluted	10,221,490		7,614,196		7,505,673		7,630,401

Distributions declared per common share	Distributions declared per common share	$	0.2625	$	0.4080	$	0.5250	$	0.9330	Distributions declared per common share	$	0.2875	$	0.2625	$	0.6750	$	0.5250

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Modiv Inc.

Condensed Consolidated Statements of Equity

Three Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

(Unaudited)

Common Stock Additional
Paid-in
Capital Cumulative
Distributions
and Net
Losses Total
Stockholders'
Equity Noncontrolling Interests in the Operating Partnership Total
Equity
Class C Class S
Shares Amounts Shares Amounts
Balance, March 31, 2021 7,524,210 $ 7,524 63,101 $ 63 $ 216,444,117 $ (94,908,010) $ 121,543,694 $ 50,603,000 $ 172,146,694
Issuance of common stock 75,600 76 230 — 1,804,469 — 1,804,545 — 1,804,545
Stock compensation expense 4,470 4 — — 109,996 — 110,000 — 110,000
Class OP Units compensation expense — — — — 657,087 — 657,087 — 657,087
Offering costs — — — — (400,788) — (400,788) — (400,788)
Reclassification to redeemable common stock — — — — (626,133) — (626,133) — (626,133)
Repurchase of common stock (113,866) (114) — — (2,671,650) — (2,671,764) — (2,671,764)
Distributions declared — — — — — (1,976,511) (1,976,511) — (1,976,511)
Net loss — — — — — (1,001,843) (1,001,843) — (1,001,843)
Balance, June 30, 2021 7,490,414 $ 7,490 63,331 $ 63 $ 215,317,098 $ (97,886,364) $ 117,438,287 $ 50,603,000 $ 168,041,287


	Preferred Stock			Class C			Additional Paid-in Capital					Cumulative Distributions and Net (Losses) Income		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
				Common Stock					Treasury Stock
	Shares	Amounts		Shares	Amounts				Shares	Amounts
Balance, March 31, 2022	2,000,000	$	2,000	7,601,081	$	7,601	$	275,371,078	(50,863)	$	(852,721)	$	(115,598,562)	$	158,929,396	$	81,107,213	$	240,036,609
Issuance of common stock - distribution reinvestments	—	—		42,911	43		711,180		—	—		—		711,223		—		711,223
OP Units compensation expense	—	—		—	—		597,247		—	—		—		597,247		—		597,247
Offering costs	—	—		—	—		(757,278)		—	—		—		(757,278)		—		(757,278)
Repurchase of common stock	—	—		—	—		—		(136,567)	(2,401,181)		—		(2,401,181)		—		(2,401,181)
Dividends declared, preferred stock	—	—		—	—		—		—	—		(921,875)		(921,875)		—		(921,875)
Distributions declared, common stock	—	—		—	—		—		—	—		(2,142,075)		(2,142,075)		—		(2,142,075)
Distributions declared, Class C OP Units	—	—		—	—		—		—	—		—		—		(377,296)		(377,296)
Net income	—	—		—	—		—		—	—		2,171,130		2,171,130		219,214		2,390,344
Balance, June 30, 2022	2,000,000	$	2,000	7,643,992	$	7,644	$	275,922,227	(187,430)	$	(3,253,902)	$	(116,491,382)	$	156,186,587	$	80,949,131	$	237,135,718


		Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders' Equity		Noncontrolling Interests in the Operating Partnership		Total Equity			Preferred Stock					Common Stock									Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
		Class C			Class S																		Class C					Class S
		Shares	Amounts		Shares	Amounts														Shares			Amounts		Shares			Amounts		Shares													Amounts
Balance, March 31, 2020		7,886,899	$	7,887	62,547	$	63	$	224,865,187	$	(84,181,336)	$	140,691,801	$	50,603,000	$	191,294,801
Balance, March 31, 2021																		Balance, March 31, 2021	—		$	—		7,524,210		$	7,524		63,101		$	63	$	216,444,117	$	(94,908,010)	$	121,543,694	$	50,603,000	$	172,146,694
Issuance of common stock	Issuance of common stock	185,182	185		648	1		4,850,857		—		4,851,043		—		4,851,043		Issuance of common stock	—		—			75,600		76			230		—		1,804,469		—		1,804,545		—		1,804,545
Stock compensation expense	Stock compensation expense	2,272	2		—	—		69,998		—		70,000		—		70,000		Stock compensation expense	—		—			4,470		4			—		—		109,996		—		110,000		—		110,000
Class OP Units compensation expense		—	—		—	—		88,784		—		88,784		—		88,784
OP Units compensation expense																		OP Units compensation expense	—		—			—		—			—		—		657,087		—		657,087		—		657,087
Offering costs	Offering costs	—	—		—	—		(265,270)		—		(265,270)		—		(265,270)		Offering costs	—		—			—		—			—		—		(400,788)		—		(400,788)		—		(400,788)
Reclassification of common stock																		Reclassification of common stock	—		—			—		—			—		—		(626,133)		—		(626,133)		—		(626,133)
Repurchase of common stock	Repurchase of common stock	(28,641)	(29)		(645)	(1)		(896,598)		—		(896,628)		—		(896,628)		Repurchase of common stock	—		—			(113,866)		(114)			—		—		(2,671,650)		—		(2,671,764)		—		(2,671,764)
Distributions declared		—	—		—	—		—		(3,270,291)		(3,270,291)		—		(3,270,291)
Distributions declared, common stock																		Distributions declared, common stock	—		—			—		—			—		—		—		(1,976,511)		(1,976,511)		—		(1,976,511)
Net loss	Net loss	—	—		—	—		—		(2,209,910)		(2,209,910)		—		(2,209,910)		Net loss	—		—			—		—			—		—		—		(1,001,843)		(1,001,843)		—		(1,001,843)
Balance, June 30, 2020		8,045,711	$	8,045	62,550	$	63	$	228,712,958	$	(89,661,537)	$	139,059,529	$	50,603,000	$	189,662,529
Balance, June 30, 2021																		Balance, June 30, 2021	—		$	—		7,490,414		$	7,490		63,331		$	63	$	215,317,098	$	(97,886,364)	$	117,438,287	$	50,603,000	$	168,041,287

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Modiv Inc.

Condensed Consolidated Statements of Equity

Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

(Unaudited)

Common Stock Additional
Paid-in
Capital Cumulative
Distributions
and Net
Losses Total
Stockholders'
Equity Noncontrolling Interests in the Operating Partnership Total
Equity
Class C Class S
Shares Amounts Shares Amounts
Balance, December 31, 2020 7,874,541 $ 7,874 62,860 $ 63 $ 224,288,417 $ (92,012,686) $ 132,283,668 $ 50,603,000 $ 182,886,668
Issuance of common stock 203,157 203 471 — 4,561,408 — 4,561,611 — 4,561,611
Stock compensation expense 8,521 9 — — 201,241 — 201,250 — 201,250
Class OP Units compensation expense — — — — 1,191,732 — 1,191,732 — 1,191,732
Offering costs — — — — (810,632) — (810,632) — (810,632)
Reclassification to redeemable common stock — — — — (1,068,807) — (1,068,807) — (1,068,807)
Repurchase of common stock (595,805) (596) — — (13,046,261) — (13,046,857) — (13,046,857)
Distributions declared — — — — — (3,968,187) (3,968,187) — (3,968,187)
Net loss — — — — — (1,905,491) (1,905,491) — (1,905,491)
Balance, June 30, 2021 7,490,414 $ 7,490 63,331 $ 63 $ 215,317,098 $ (97,886,364) $ 117,438,287 $ 50,603,000 $ 168,041,287


	Preferred Stock			Common Stock			Additional Paid-in Capital					Cumulative Distributions and Net Losses		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
				Class C and Class S					Treasury Stock
	Shares	Amounts		Shares	Amounts				Shares	Amounts
Balance, December 31, 2021	2,000,000	$	2,000	7,490,404	$	7,491	$	273,441,831	—	$	—	$	(101,624,430)	$	171,826,892	$	50,603,000	$	222,429,892
Issuance of common stock -distribution reinvestments	—	—		108,989	109		2,203,518		—	—		—		2,203,627		—		2,203,627
Listed offering of common stock, net	—	—		40,000	40		114,460		—	—		—		114,500		—		114,500
Issuance of Class C OP Units for property acquisition	—	—		—	—		—		—	—		—		—		32,809,551		32,809,551
Stock compensation expense	—	—		4,599	4		82,496		—	—		—		82,500		—		82,500
OP Units compensation expense	—	—		—	—		1,026,612		—	—		—		1,026,612		—		1,026,612
Offering costs	—	—		—	—		(946,690)		—	—		—		(946,690)		—		(946,690)
Repurchase of common stock	—	—		—	—		—		(187,430)	(3,253,902)		—		(3,253,902)		—		(3,253,902)
Dividends declared, preferred stock	—	—		—	—		—		—	—		(1,843,750)		(1,843,750)		—		(1,843,750)
Distributions declared, common stock	—	—		—	—		—		—	—		(5,049,197)		(5,049,197)		—		(5,049,197)
Distributions declared, Class C OP Units	—	—		—	—		—		—	—		—		—		(754,605)		(754,605)
Net loss	—	—		—	—		—		—	—		(7,974,005)		(7,974,005)		(1,708,815)		(9,682,820)
Balance, June 30, 2022	2,000,000	$	2,000	7,643,992	$	7,644	$	275,922,227	(187,430)	$	(3,253,902)	$	(116,491,382)	$	156,186,587	$	80,949,131	$	237,135,718


		Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders' Equity		Noncontrolling Interests in the Operating Partnership		Total Equity			Preferred Stock					Common Stock									Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
		Class C			Class S																		Class C					Class S
		Shares	Amounts		Shares	Amounts														Shares			Amounts		Shares			Amounts		Shares													Amounts
Balance, December 31, 2019		7,882,489	$	7,882	62,202	$	62	$	220,730,566	$	(31,168,948)	$	189,569,562	$	50,603,000	$	240,172,562
Balance, December 31, 2020																		Balance, December 31, 2020	—		$	—		7,874,541		$	7,874		62,860		$	63	$	224,288,417	$	(92,012,686)	$	132,283,668	$	50,603,000	$	182,886,668
Issuance of common stock	Issuance of common stock	486,043	486		993	1		14,091,752		—		14,092,239		—		14,092,239		Issuance of common stock	—		—			203,157		203			471		—		4,561,408		—		4,561,611		—		4,561,611
Stock compensation expense	Stock compensation expense	4,227	4		—	—		129,579		—		129,583		—		129,583		Stock compensation expense	—		—			8,521		9			—		—		201,241		—		201,250		—		201,250
Class OP Units compensation expense		—	—		—	—		177,567		—		177,567		—		177,567
OP Units compensation expense																		OP Units compensation expense	—		—			—		—			—		—		1,191,732		—		1,191,732		—		1,191,732
Offering costs	Offering costs	—	—		—	—		(822,921)		—		(822,921)		—		(822,921)		Offering costs	—		—			—		—			—		—		(810,632)		—		(810,632)		—		(810,632)
Reclassification to redeemable common stock		—	—		—	—		4,393,863		—		4,393,863		—		4,393,863
Reclassification of common stock																		Reclassification of common stock	—		—			—		—			—		—		(1,068,807)		—		(1,068,807)		—		(1,068,807)
Repurchase of common stock	Repurchase of common stock	(327,047)	(327)		(645)	0		(9,987,448)		—		(9,987,775)		—		(9,987,775)		Repurchase of common stock	—		—			(595,805)		(596)			—		—		(13,046,261)		—		(13,046,857)		—		(13,046,857)
Distributions declared		—	—		—	—		—		(7,459,393)		(7,459,393)		—		(7,459,393)
Distributions declared, common stock																		Distributions declared, common stock	—		—			—		—			—		—		—		(3,968,187)		(3,968,187)		—		(3,968,187)
Net loss	Net loss	—	—		—	—		—		(51,033,196)		(51,033,196)		—		(51,033,196)		Net loss	—		—			—		—			—		—		—		(1,905,491)		(1,905,491)		—		(1,905,491)
Balance, June 30, 2020		8,045,711	$	8,045	62,550	$	63	$	228,712,958	$	(89,661,537)	$	139,059,529	$	50,603,000	$	189,662,529
Balance, June 30, 2021																		Balance, June 30, 2021	—		$	—		7,490,414		$	7,490		63,331		$	63	$	215,317,098	$	(97,886,364)	$	117,438,287	$	50,603,000	$	168,041,287

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Modiv Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended					Six Months Ended June 30,
		June 30, 2021		June 30, 2020			2022		2021
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net loss	Net loss	$	(1,905,491)	$	(51,033,196)	Net loss	$	(9,682,820)	$	(1,905,491)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	8,003,026		9,115,786		Depreciation and amortization	6,983,173		8,003,026
Stock compensation expense	Stock compensation expense	1,371,732		350,900		Stock compensation expense	1,191,612		1,371,732
Deferred rents		(702,978)		(631,054)
Amortization of deferred rents						Amortization of deferred rents	(809,558)		(702,978)
Amortization of deferred lease incentives	Amortization of deferred lease incentives	105,541		30,602		Amortization of deferred lease incentives	147,049		105,541
Amortization of deferred financing costs and premium/discount		199,693		298,283
Write-offs and amortization of deferred financing costs and premium/discount						Write-offs and amortization of deferred financing costs and premium/discount	1,368,507		199,693
Amortization of above-market lease intangibles	Amortization of above-market lease intangibles	64,913		98,966		Amortization of above-market lease intangibles	64,912		64,913
Amortization of below-market lease intangibles	Amortization of below-market lease intangibles	(735,150)		(774,589)		Amortization of below-market lease intangibles	(712,885)		(735,150)
Impairment of real estate investment properties		(400,999)		9,506,525
Impairment of goodwill and intangible assets		0		34,572,403
Reserve for loan guarantee		0		3,125,037
Reversal of impairment of real estate investment property						Reversal of impairment of real estate investment property	—		(400,999)
Impairment of goodwill						Impairment of goodwill	17,320,857		—
Gain on forgiveness of economic relief note payable	Gain on forgiveness of economic relief note payable	(517,000)		0		Gain on forgiveness of economic relief note payable	—		(517,000)
Gain on sale of real estate investments	Gain on sale of real estate investments	(289,642)		0		Gain on sale of real estate investments	(8,402,878)		(289,642)
Unrealized (gain) loss on interest rate swap valuation		(517,719)		1,292,752
Income from investment in unconsolidated entity		(147,302)		(146,411)
Distributions from investment in unconsolidated entity		161,967		334,189
Unrealized gain on interest rate swap valuation						Unrealized gain on interest rate swap valuation	(589,997)		(517,719)
Write-off of unrealized gain on interest rate swaps						Write-off of unrealized gain on interest rate swaps	(788,016)		—
Income from unconsolidated investment in a real estate property						Income from unconsolidated investment in a real estate property	(162,332)		(147,302)
Distributions from unconsolidated investment in a real estate property						Distributions from unconsolidated investment in a real estate property	147,153		161,967
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Decrease (increase) in tenant receivables		569,375		(16,688)
Increase in prepaid and other assets		(229,695)		(606,696)
(Increase) decrease in tenant receivables						(Increase) decrease in tenant receivables	(549,248)		569,375
Decrease (increase) in prepaid and other assets						Decrease (increase) in prepaid and other assets	572,422		(229,695)
Decrease in accounts payable, accrued and other liabilities	Decrease in accounts payable, accrued and other liabilities	(1,946,918)		(1,515,624)		Decrease in accounts payable, accrued and other liabilities	(1,021,479)		(1,946,918)
Decrease in due to affiliate		0		(631,702)
Operating lease right-of-use asset/operating lease liability, net		0		13,399
Net cash provided by operating activities	Net cash provided by operating activities	3,083,353		3,382,882		Net cash provided by operating activities	5,076,472		3,083,353

Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:
Acquisitions of real estate investments						Acquisitions of real estate investments	(99,691,164)		—
Additions to existing real estate investments	Additions to existing real estate investments	(309,717)		(2,170,913)		Additions to existing real estate investments	(1,546,131)		(309,717)
Additions to intangible assets	Additions to intangible assets	(111,750)		(533,041)		Additions to intangible assets	—		(111,750)
Collection of note receivable						Collection of note receivable	390,000		—
Collection of receivable from sale of real estate property	Collection of receivable from sale of real estate property	1,824,383		0		Collection of receivable from sale of real estate property	—		1,824,383
Net proceeds from sale of real estate investments	Net proceeds from sale of real estate investments	13,221,509		0		Net proceeds from sale of real estate investments	45,257,181		13,221,509
Lease incentives		0		(990,000)
Net cash provided by (used in) investing activities		14,624,425		(3,693,954)
Refundable purchase deposit						Refundable purchase deposit	(730,780)		—
Payment of lease incentives						Payment of lease incentives	(2,100,000)		—
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(58,420,894)		14,624,425

Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Borrowings from credit facilities		6,000,000		4,260,000
Repayments of credit facilities		(9,000,000)		0
Borrowings from credit facility term loan						Borrowings from credit facility term loan	150,000,000		—
Borrowings from credit facility revolver, net						Borrowings from credit facility revolver, net	6,775,000		—
Repayments of prior year credit facility revolver, net						Repayments of prior year credit facility revolver, net	(8,022,000)		(3,000,000)
Proceeds from mortgage notes payable	Proceeds from mortgage notes payable	25,436,000		4,000,000		Proceeds from mortgage notes payable	—		25,436,000
Principal payments on mortgage notes payable	Principal payments on mortgage notes payable	(24,399,915)		(2,003,558)		Principal payments on mortgage notes payable	(130,361,583)		(24,399,915)
Proceeds from economic relief notes payable		0		527,000
Principal payments on short-term notes payable		0		(4,800,000)
Refundable loan deposits	Refundable loan deposits	(81,196)		0		Refundable loan deposits	—		(81,196)
Payments of deferred financing costs to third parties		(381,076)		(56,997)
Proceeds from issuance of common stock and investor deposits		2,299,380		9,427,526
Payments of deferred financing costs						Payments of deferred financing costs	(2,186,468)		(381,076)
Proceeds from listed offering of common stock, net						Proceeds from listed offering of common stock, net	114,500		2,299,380
Payments of offering costs	Payments of offering costs	(810,632)		(822,921)		Payments of offering costs	(946,690)		(810,632)
Repurchases of common stock	Repurchases of common stock	(13,046,857)		(9,987,775)		Repurchases of common stock	(3,253,902)		(13,046,857)
Dividends paid to preferred stockholders						Dividends paid to preferred stockholders	(1,987,153)		—
Distributions paid to common stockholders	Distributions paid to common stockholders	(1,726,567)		(3,090,265)		Distributions paid to common stockholders	(2,860,513)		(1,726,567)
Net cash used in financing activities		(15,710,863)		(2,546,990)
Net increase (decrease) in cash, cash equivalents and restricted cash		1,996,915		(2,858,062)
Distributions paid to Class C OP Units holder						Distributions paid to Class C OP Units holder	(628,840)		—
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	6,642,351		(15,710,863)
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(46,702,071)		1,996,915
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	8,377,530		6,936,930		Cash, cash equivalents and restricted cash, beginning of period	58,407,520		8,377,530
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	10,374,445	$	4,078,868	Cash, cash equivalents and restricted cash, end of period	$	11,705,449	$	10,374,445

Modiv Inc.	Modiv Inc.					Modiv Inc.
Condensed Consolidated Statements of Cash Flows (continued)	Condensed Consolidated Statements of Cash Flows (continued)					Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)	(Unaudited)					(Unaudited)

		Six Months Ended					Six Months Ended June 30,
		June 30, 2021		June 30, 2020			2022		2021
Supplemental Disclosure of Cash Flow Information:	Supplemental Disclosure of Cash Flow Information:					Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	4,147,114	$	4,678,783
Cash paid for interest for the six months ended June 30, 2022 and 2021						Cash paid for interest for the six months ended June 30, 2022 and 2021	$	2,874,272	$	4,147,114

Supplemental Schedule of Noncash Investing and Financing Activities:	Supplemental Schedule of Noncash Investing and Financing Activities:					Supplemental Schedule of Noncash Investing and Financing Activities:
Reclassification (to) from redeemable common stock		$	(1,068,807)	$	4,393,863
Issuance of Class C OP Units in the acquisition of a real estate investment						Issuance of Class C OP Units in the acquisition of a real estate investment	$	32,809,551	$	—
Reclassification from redeemable common stock						Reclassification from redeemable common stock	$	—	$	(1,068,807)
Reinvested distributions from common stockholders	Reinvested distributions from common stockholders	$	2,262,231	$	4,664,713	Reinvested distributions from common stockholders	$	2,203,627	$	2,262,231
(Decrease) increase in share repurchases payable		$	(1,979,316)	$	750,684
Unpaid real estate improvements						Unpaid real estate improvements	$	522,845	$	—
Reclassification of tenant improvements from other assets to real estate investments						Reclassification of tenant improvements from other assets to real estate investments	$	73,323	$	—
Decrease in share repurchase payable						Decrease in share repurchase payable	$	—	$	(1,979,316)
Deferred lease incentive	Deferred lease incentive	$	(2,128,538)	$	0	Deferred lease incentive	$	—	$	(2,128,538)
Accrued distributions	Accrued distributions	$	23,256	$	295,585	Accrued distributions	$	(32,581)	$	23,256
Supplemental disclosure related to real estate investment held for sale, net:	Supplemental disclosure related to real estate investment held for sale, net:					Supplemental disclosure related to real estate investment held for sale, net:
Real estate investments held for sale, net	Real estate investments held for sale, net	$	19,209,993	$	17,926,407	Real estate investments held for sale, net	$	31,510,762	$	19,209,993
Other assets related to real estate investments held for sale	Other assets related to real estate investments held for sale	$	408,096	$	725,990	Other assets related to real estate investments held for sale	$	788,296	$	408,096
Increase in above-market lease intangibles, net		$	(50,549)	$	(198,517)
Decrease in above-market lease intangibles, net						Decrease in above-market lease intangibles, net	$	—	$	(50,549)
Mortgage notes payable related to real estate investments held for sale, net	Mortgage notes payable related to real estate investments held for sale, net	$	(4,707,012)	$	(9,549,467)	Mortgage notes payable related to real estate investments held for sale, net	$	(21,699,912)	$	(4,707,012)
Other liabilities related to real estate investments held for sale	Other liabilities related to real estate investments held for sale	$	(573,904)	$	(196,938)	Other liabilities related to real estate investments held for sale	$	(383,282)	$	(573,904)
Increase in below-market lease intangibles, net	Increase in below-market lease intangibles, net	$	324,734	$	73,505	Increase in below-market lease intangibles, net	$	—	$	324,734
Increase in interest swap derivatives	Increase in interest swap derivatives	$	14,166	$	0	Increase in interest swap derivatives	$	—	$	14,166

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Modiv Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1. BUSINESS AND ORGANIZATION

Modiv Inc. (the “Company”) was incorporated on May 15, 2015 as a Maryland corporation. The Company has the authority to issue 450,000,000 shares of stock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, of which 2,000,000 shares are designated as 7.375% Series A cumulative redeemable perpetual preferred stock (“Series A Preferred Stock”), 300,000,000 shares of Class C common stock, $0.001 par value per share, and 100,000,000 shares of Class S common stock, $0.001 par value per share. ~~Effective February 1, 2021,~~The Company's five-year emerging growth company registration with the ~~authorization~~Securities and Exchange Commission (the “SEC”) ended on December 31, 2021 and the Company continues to report with the SEC as a smaller reporting company under Rule 12b-2 of the ~~board~~Securities Exchange Act of ~~directors,~~1934, as amended. The Company's Series A Preferred Stock is listed on the ~~Company filed Articles of Amendment to~~New York Stock Exchange (the “NYSE”) under the ~~Company’s charter in the State of Maryland in order to effect a 1:3 reverse stock split of the Company’s~~symbol MDV.PA and has been trading since September 17, 2021. The Company's Class C common stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to that date, there was no public trading market for the Company's Class C common stock. In connection with and upon listing on the NYSE, each share of the Company's Class S common stock ~~and, following the implementation of the reverse stock split, to decrease the par value of each post-split share of the Company’s~~converted into Class C common stock ~~and Class S common stock from $0.003 per share to $0.001 per share.~~(see details of the initial listed offering (the “Listed Offering”) below).

~~Since December 31, 2019, the~~The Company has been internally managed ~~following~~since its December 31, 2019 acquisition of the business of BrixInvest, LLC, a Delaware limited liability company and the Company’s former sponsor (“BrixInvest”), and the Company’s merger with Rich Uncles Real Estate Investment Trust I (“REIT I”) on December 31, 2019 pursuant to an Agreement and Plan of Merger dated September 19, 2019 whereby REIT I merged with and into Katana Merger Sub, LP (“Merger Sub”), a Delaware limited partnership and wholly-owned subsidiary of the Company, with Merger Sub surviving as a direct, wholly-owned subsidiary of the Company (the “Merger”). Through the Merger and acquisitions, the Company has created one of the largest non-listed real estate investment funds to be raised via crowdfunding technology and the first real estate crowdfunding platform to be completely investor-owned. The Company plans to expand beyond its traditional single-tenant portfolio of triple-net leased properties to provide individual investors access to a diversified portfolio of real estate and real estate-related investments designed to provide both income and long-term growth. The Company will continue to seek opportunities to be an aggregator within the non-listed real estate product industry, utilizing the combination of its deep understanding of both the crowdfunding and real estate markets and the strength of its stockholder-owned, self-managed business model.2019.

The Company holds its investments in real property primarily through special purpose limited liability companies which are wholly-owned subsidiaries of Modiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owned an approximately 72% and 83% partnership interest in, the Operating Partnership onas of June 30, ~~2021.~~2022 and December 31, 2021, respectively. The Operating ~~Partnership~~Partnership's limited partners include holders of several classes of ~~ownership~~units with various vesting and enhancement terms as further described in Note 1112.

As of June 30, ~~2021,~~2022, the Company's portfolio of approximately ~~2.3~~2.9 million square feet of aggregate leasable space consisted of investments in 3843 real estate properties, comprised of: ~~12 retail properties, 14 office properties and 12~~20 industrial properties, including ~~1 industrial property which is classified as held for sale as of June 30, 2021 and~~ an approximate 72.7% tenant-in-common interest in a Santa Clara, California ~~industrial~~ property (the “TIC Interest”)~~. The Company's investments in 38 real estate properties includes 14~~, which represent approximately 48% of the ~~original 20 operating~~portfolio, 13 retail properties, which ~~were acquired from REIT I through the Merger on December 31, 2019 (see~~ ~~Note 3~~ ~~for additional discussion).~~

~~Self-Management Transaction and Merger on December 31, 2019~~

The Company was externally managed through December 31, 2019 by its former external advisor, Rich Uncles NNN REIT Operator, LLC, a Delaware limited liability company. On December 31, 2019, the Company merged with REIT 1 and a self-management transaction was completed, whereby the Company effectuated a contribution agreement dated September 19, 2019 (the “Contribution Agreement”) pursuant to which the Company acquired substantially allrepresent approximately 19% of the ~~assets~~portfolio, and assumed certain liabilities of its former external advisor and former sponsor in exchange for units of limited partnership interest in the Operating Partnership (the “Self-Management Transaction”). As a result10 office properties, which represent approximately 33% of the ~~completion~~portfolio (expressed as a percentage of the Self-Management Transaction, the Company became self-managed and eliminated all fees for acquisitions, dispositions and management of its properties, except for third-party property management fees. Following completion of the Self-Management Transaction and the issuance of various other tranches of limited partnership interests, the Company owned an approximately 83% partnership interest in the Operating Partnershipannual base rent (“ABR”) as of June 30, ~~2021.~~2022).

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~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

Common Stock Offerings

~~On July 15, 2015,~~Since the Company’s initial registered offering of common stock was declared effective by the SEC in 2016, the Company ~~filed a registration statement on Form S-11 (File No. 333-205684)~~has raised an aggregate of $210,800,151 pursuant to non-listed offerings of common stock registered with the SEC ~~to register an initial public offering of a maximum of 30,000,000 (adjusted for~~(collectively, the ~~1:3 reverse stock split) of its shares~~“Registered Offering”), offerings of common stock ~~for sale~~exempt from registration pursuant to Regulation S under the ~~public~~Securities Act of 1933, as amended (the ~~“Primary Offering”~~“Securities Act”)~~. The Company also~~, distribution reinvestment plan (“DRP”) offerings of common stock registered with the SEC, a ~~maximum of 3,333,333 (adjusted for the 1:3 reverse stock split) of its shares~~private offering of common stock pursuant to Regulation D under the Company's distribution reinvestment plan (the “DRP”) (the “Initial DRP Offering” and together with the Primary Offering, the “Initial Registered Offering”). During 2016, the SEC declared the Company's registration statement effective and the Company beganSecurities Act, a qualified offering ~~shares~~ of common stock pursuant to the public. Pursuant to the Initial Registered Offering, the Company sold shares of Class C common stock directly to investors, with a minimum investment in shares of $500. Commencing in August 2017, the Company began selling shares of its Class C common stock only to U.S. persons as defined under Rule 903 promulgatedRegulation A under the Securities Act and ~~began selling shares~~an offering of ~~its Class S~~ common stock ~~as a result of~~listed on the ~~commencement of the Class S Offering (as defined below) to non-U.S. Persons.~~

In August 2017, the Company began offering up to 33,333,333 shares (adjusted for the 1:3 reverse stock split) of Class S common stock exclusively to non-U.S. Persons as defined under Rule 903 promulgated under the Securities Act, pursuant to an exemption from the registration requirements of the Securities Act and in accordance with Regulation S of the Securities Act (the “Class S Offering” and, together with the Registered Offerings (as defined below) and the Private Offering (as defined below, the “Offerings”). The Class S common stock has similar features and rights as the Class C common stock, including with respect to voting and liquidation, except that the Class S common stock offered in the Class S Offering may be sold only to non-U.S. Persons and may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.

On December 23, 2019, the Company commenced a follow-on offering pursuant to a new registration statement on Form S-11 (File No. 333-231724) (the “Follow-on Offering” and, together with the Initial Registered Offering and the 2021 DRP Offering (as defined below), the “Registered Offerings”), which registered the offer and sale of up to $800,000,000 in share value of Class C common stock, including $725,000,000 in share value of Class C common stock pursuant to the primary portion of the Follow-on Offering and $75,000,000 in share value of Class C common stock pursuant to the Company's DRP. The Company ceased offering shares pursuant to the Initial Registered Offering concurrently with the commencement of the Follow-on Offering.

In response to the significant economic impacts of the COVID-19 pandemic, effective as of the close of business on May 7, 2020, the Company's board of directors temporarily suspended the primary portion of the Company's Follow-on Offering and Class S Offering until such time as the board of directors approved and established an updated estimated net asset value (“NAV”) per share of the Company’s common stock and determined to resume such primary offerings. On May 20, 2020, the Company's board of directors approved and established an updated estimated NAV per share of the Company's common stock of $21.01 (unaudited and adjusted for the 1:3 reverse stock split) to reflect the valuation of the Company's real estate assets, debt and other assets and liabilities as of April 30, 2020.

Commencing on June 1, 2020, the Company's board of directors resumed the primary portions of the Follow-on Offering and the Class S Offering. The purchase price per share in the primary portion of the Follow-on Offering was decreased from $30.81 (unaudited and adjusted for the 1:3 reverse stock split) to $21.01 (unaudited and adjusted for the 1:3 reverse stock split), and the purchase price per share in the primary portion of the Class S Offering was decreased to $21.01 (unaudited and adjusted for the 1:3 reverse stock split) plus the amount of any applicable upfront commissions and fees. The NAV per share used for purposes of future repurchases pursuant to the share repurchase programs was also decreased from $30.81 (unaudited and adjusted for the 1:3 reverse stock split) to $21.01 (unaudited and adjusted for the 1:3 reverse stock split).

On January 22, 2021, with the authorization of the board of directors, the Company amended and restated its DRP with respect to the Company's shares of Class C common stock in order to reflect its corporate name change and to remove the ability of the Company's stockholders to elect to reinvest only a portion of their cash distributions in shares through the DRP so that investors who elect to participate in the DRP must reinvest all cash distributions in shares. In addition, the amended and restated DRP provides for determinations of the NAV per share by the board of directors more frequently than annually. The amended and restated DRP was effective with respect to distributions that were paid in February 2021.NYSE.

On January 22, 2021, the Company filed a ~~registration statement~~Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 in share value of Class C common stock to be issued pursuant to ~~the amended and restated~~its DRP (the ~~“2021 DRP Offering” and, collectively with the Initial DRP Offering, the~~ “Registered DRP Offering”). The Company commenced offering shares of Class C common stock pursuant to the ~~2021~~Registered DRP Offering upon termination of the ~~Follow-on~~Registered Offering.

On December 8, 2021, the Company filed with the SEC a Registration Statement on Form S-11 (File No. 333-261529), and, on February 9, 2022, the Company filed with the SEC Amendment No. 1 to the Registration Statement on Form S-11, in connection with the Listed Offering of the Company’s Class C common stock, which became effective on February 10, 2022. In connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into a share of Class C common stock. The Listed Offering of the Company's Class C common stock closed on February 15, 2022. In connection with the Listed Offering, the Company sold 40,000 shares of its Class C common stock at $25.00 per share to a major stockholder who was formerly a related party (see Note 9 for additional information).

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Effective January~~On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company's at-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on June 6, 2022. As of June 30, 2022, no shares were issued in connection with the Company's ATM Offering.

Preferred Stock Offering

On September 17, 2021, the Company and the Operating Partnership completed the issuance and sale of 2,000,000 shares of the Company’s Series A Preferred Stock in an underwritten public offering (the “Preferred Offering”) at a price per share of $25.00 (see Note 9 for additional information).

Distribution Reinvestment Plan

On February 15, 2022, the Company's board of directors ~~terminated~~amended and restated the ~~Company’s Follow-on Offering. In connection~~DRP (the “Second Amended and Restated DRP”) with respect to the ~~termination of~~Class C common stock to change the ~~Follow-on Offering,~~purchase price at which the ~~Company stopped accepting investor subscriptions on January 22, 2021. As of January 27, 2021, the Company had $600,547,672 in share value of unsold shares~~Class C common stock is issued to stockholders who elect to participate in the ~~Follow-on Offering, which were deregistered with~~DRP. The purpose of this change was to reflect the ~~SEC. On February 1, 2021,~~fact that the ~~Company commenced a private offering of~~Company's Class C common stock is now listed on the NYSE and no longer priced based on net asset value (“NAV”) per share. As more fully described in the Second Amended and Restated DRP, the purchase price for the Class C common stock under ~~Regulation D promulgated under~~ the ~~Securities Act (the “Private Offering”) and accepted investor subscriptions from only accredited investors until~~DRP depends on whether the Company ~~terminated the Private Offering on August 12, 2021.~~

~~On February 1, 2021, with the authorization of the board of directors,~~issues new shares to DRP participants or the Company ~~amended and restated its~~or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions. The purchase price for the Class C common stock ~~share repurchase program (the “Class C SRP”)~~issued directly by the Company is 97% (or such other discount as may then be in ~~order to (i) revise~~effect) of the ~~minimum holding period before a stockholder may participate~~Market Price (as defined in the Class C SRP from three months to six months, (ii) revise the limitations on the share repurchase price so that shares held for less than two years will be repurchased at 98% of the most recently published NAV per shareSecond Amended and shares held for at least two years will be repurchased at 100% of the most recently published NAV per share (as opposed to a repurchase price of 97% of the most recently published NAV per share for shares held less than one year, 98% of the most recently published NAV per share for shares held for more than one year but less than two years, 99% of the most recently published NAV per share for shares held for more than two years but less than three years, and 100% of the most recently published NAV per share for shares held for at least three years), (iii) increase the minimum share value (based on the most recently published NAV per share) at which the Company has the right to repurchase all of a stockholder’s shares, if as a result of a repurchase request a stockholder holds less than the minimum share value, from $500 to $1,000, and (iv) include language that provides that the Class C SRP will automatically terminate if the Company’s shares of common stock are listed on any national securities exchange. On July 28, 2021, the board of directors approved a further amendment and restatementRestated DRP) of the Class C ~~SRP~~common stock. This discount is subject to ~~eliminate~~change from time to time, in the ~~holding period~~Company’s sole discretion, but will be between 0% to 5% of the Market Price. The purchase price for the Class C common stock that the Company or any third-party administrator purchases from parties other than the Company, either in the open market or in privately negotiated transactions, will be 100% of the “average price per share” (as described in the Second Amended and Restated DRP) actually paid for such shares of Class C common stock, excluding any processing fees. The Second Amended and Restated DRP also reflects the $0.05 per share processing fee that will be paid to the Company's transfer agent by DRP participants for each share of Class C common stock purchased ~~prior to~~through the DRP. The Second Amended and Restated DRP was effective beginning with distributions paid in February ~~1, 2021, which is no longer applicable.~~2022.

~~With~~Share Repurchase Program

On February 15, 2022, the ~~authorization of the~~Company's board of directors authorized up to $20,000,000 in repurchases of the Company also amended and restated its Class S common stock share repurchase program (“Class S SRP”) on February 1, 2021 in order to (i) allow the Company to waive the minimum one year holding period before a holder of shares of Class S common stock may participate in the Class S SRP in the event of extraordinary circumstances which would place undue hardship on a stockholder, (ii) increase the minimum Class S share value (based on the most recently published NAV per Class S share) at which the Company has the right to repurchase all of a stockholder’s shares, if as a result of a repurchase request a stockholder holds less than the minimum Class S share value, from $500 to $1,000, and (iii) include language that provides that the Class S SRP will automatically terminate if the Company’sCompany's outstanding shares of common stock ~~are listed on any national securities exchange.~~

~~Since~~through December 31, ~~2020,~~2022. Repurchases made pursuant to the ~~Company’s board of directors has approved and established an updated estimated NAV per share of the Company’s Class C common stock and Class S common stock as follows:~~

~~Valuation Date~~

~~Effective Date~~

~~NAV Per Share~~

~~December 31, 2020~~

~~January 27, 2021~~

~~$23.03 (unaudited and adjusted for the 1:3 reverse stock split on February 1, 2021)~~

~~March 31, 2021~~

~~May 5, 2021~~

~~$24.61 (unaudited)~~

~~June 30, 2021~~

~~August 4, 2021~~

~~$26.05 (unaudited)~~

~~Additional information on the determination of the Company's most recent estimated NAV per share, including the process used to determine its estimated NAV per share, can~~program will be ~~found~~made from time-to-time in the ~~Company's Current Report on Form 8-K filed with the SEC on August 4, 2021. Effective August 4, 2021, the purchase~~open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements. The timing, manner, price per share of the Company’s Class C common stock in the Private Offering was increased from $24.61 (unaudited) to $26.05 (unaudited). Also, commencing August 4, 2021, the purchase price per share in the primary portion of the Class S Offering was increased to $26.05 (unaudited) plus theand amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable ~~upfront commissions~~legal requirements and ~~fees,~~other factors. The program may be suspended or discontinued at any time.

From February 15, 2022 through June 30, 2022, the Company repurchased a total of 187,430 shares of its common stock for a total of $3,253,902 and ~~the NAV~~an average cost of $17.36 per share ~~used for purposes of the~~under this share repurchase programs was increased to $26.05 (unaudited) for repurchase requests made starting on August 1, 2021. Beginning with distributions scheduled to be paid to stockholders on August 25, 2021, the purchase price per share of the Company’s common stock in the Class Cprogram and ~~the Class S DRPs was increased from $24.61 (unaudited) to $26.05 (unaudited).~~

The Company filed with the SEC a Regulation A Offering Statement on Form 1-A, including its preliminary offering circular, for a $75,000,000 offering of its Class C common stock on June 29, 2021 and plans to file an amended Form 1-A promptly after filing its Quarterly Report on Form 10-Q for the period ended June 30, 2021. Once the SEC qualifies the Regulation A Offering Statement on Form 1-A that was initially filed with the SEC on June 29, 2021, the Regulation A offering will allow the Company to once again accept investor subscriptions from investors whothese shares are ~~not accredited and provide access to commercial real estate investments to a much larger audience.~~held as treasury stock.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Special Purpose Acquisition Company~~

To further the Company’s mission of being the leading provider of alternative real estate-related products, and to capitalize on opportunities in the public marketplace, the Company is sponsoring Modiv Acquisition Corp. (“MACS”), a special purpose acquisition company (“SPAC”). MACS was formed for the purpose of entering into a business combination with one or more businesses or entities focusing on fintech and proptech targets located in North America whose core purpose is related to the real estate industry.

MACS publicly filed its registration statement on Form S-1 with the SEC on March 24, 2021 for a proposed initial public offering (“IPO”) that would raise $100,000,000, or $115,000,000 if the over-allotment option is exercised. In connection with the public filing of the Form S-1, the Company deposited $4,500,000 of risk capital to be invested in MACS in escrow with the attorneys for MACS in March 2021. However, there has been significant disruption in the IPO market for SPACs during the second quarter of 2021 and there can be no assurance that MACS can complete an IPO. The Company is continuing to evaluate how to respond to the changes in the market and may decide to either modify MACS’s IPO or not proceed with the IPO. Since the timing of an IPO, if any, by MACS is uncertain, the $4,500,000 deposit was released from escrow and returned to the Company in June 2021.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Such unaudited condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, which is responsible for their integrity and objectivity. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, ~~2020~~2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~31, 2021.~~23, 2022.

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are normal and recurring, necessary to fairly state the Company's financial position, results of operations and cash flows. All significant intercompany balances and transactions are eliminated in consolidation. The unaudited condensed consolidated balance sheet as of December 31, ~~2020~~2021 included herein was derived from the audited financial statements.

~~Reverse Stock Split~~Variable Interest Entities

~~On February 1, 2021,~~The FASB provides guidance for determining whether an entity is a variable interest entity (a “VIE”). VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance; and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.

As of June 30, 2022, the Company ~~effected~~holds an interest in a ~~1:3 reverse stock split of its Class C common stock and Class S common stock and, following~~VIE, which was incorporated under a qualified exchange accommodation arrangement to temporarily hold replacement real estate properties, for which the ~~implementation of~~Company was determined to be the ~~reverse stock split, decreased~~primary beneficiary. As a result, the ~~par value of each share of the Company’s Class C common stock and Class S common stock from $0.003 per share to $0.001 per share. The~~ Company has ~~reflected~~consolidated this entity. The Company's investment related to this VIE aggregated $31,406,864, or 7.4% of total assets, and no liabilities which relate to 4 real estate properties the ~~effect~~VIE holds as of June 30, 2022 and represents the ~~reverse stock split in the accompanying unaudited condensed consolidated financial statements and related notes as if it had occurred at the beginning of the earliest period presented.~~Company's maximum exposure to loss.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. These estimates are based on historical experience and, in some cases, assumptions based on current and future market ~~experience, including considerations related to the COVID-19 pandemic (see~~ ~~Notes 3~~ ~~and~~ 5 ~~for the prior year's impairment charges related primarily to COVID-19).~~experience. Actual results may differ from those estimates.

~~Table of Contents~~

~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

Noncontrolling Interests in the Operating Partnership

The Company accounts for the noncontrolling interests in its Operating Partnership in accordance with the related accounting guidance. Due to the Company's control of the Operating Partnership through its general partnership interest therein and the limited rights of the limited partners, the Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company, and the limited partner interests not held by the Company are reflected as noncontrolling interests in the accompanying unaudited condensed consolidated balance sheets and statements of equity. ~~The~~Other than the noncontrolling interests ~~were issued on December 31, 2019 and~~related to an “UPREIT” transaction as discussed in Note 12, all other noncontrolling interests currently represent non-voting, ~~non-dividend~~non-distribution accruing interests with no allocation of profits or ~~losses. As described~~losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 12.

Table of Contents~~, the interests were not able~~

MODIV INC.

Notes to be converted or exchanged prior to (i) December 31, 2020, the one-year anniversary of the closing of the Self-Management Transaction (in the case of the units of Class M limited partnership interest (“Class M OP Units”) in the Operating Partnership), or (ii) the expiration of the Lockup Period (as defined in ~~Note 11) (in the case of the units of Class P limited partnership interest (“Class P OP Units”) in the Operating Partnership). As of June 30, 2021, no interests have been converted or exchanged.~~Condensed Consolidated Financial Statements (continued)

(Unaudited)

Business Combinations

The Company accounts for business combinations in accordance with ~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)~~FASB ASC 805, Business Combinations (“ASC 805”), and applicable Accounting Standards Updates (each, an “ASU”), whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to any non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.

ASC 805 defines a business as an integrated set of activities and assets (collectively, a “set”) that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. To be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. ASC 805 provides a practical screen to determine when a set would not be considered a business. If the screen is not met and further assessment determines that the set is not a business, then the set is an asset acquisition. The primary difference between a business combination and an asset acquisition is that an asset acquisition requires cost accumulation and allocation at relative fair ~~value.~~value whereas in a business combination the total consideration transferred is allocated among the fair value of the identifiable tangible and intangible assets and liabilities assumed. Acquisition costs are capitalized for an asset acquisition and expensed for a business combination.

Revenue Recognition

The Company ~~adopted~~accounts for revenue in accordance with FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), ~~effective January 1, 2018. The Company’s revenue impacted by ASU No. 2014-09 included~~which includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. Such revenues are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements, consisting of amounts due from tenants for common area maintenance, property taxes and other recoverable costs, are recognized in rental income subsequent to the adoption of Topic 842, as discussed below, in the period the recoverable costs are incurred. Tenant reimbursements, for which the Company pays the associated costs directly to third-party vendors and is reimbursed by the tenants, are recognized and recorded on a gross basis.

The Company ~~adopted~~accounts for leases in accordance with FASB ASU No. 2016-02, Leases ~~(Topic 842)~~(“Topic 842”), and the related FASB ASU Nos. 2018-10, 2018-11, 2018-20 and 2019-01, ~~effective January 1, 2019,~~ which provide practical expedients, technical corrections and improvements for certain aspects of ASU No. 2016-02 ~~on a modified retrospective basis~~ (collectively “Topic 842”). Topic 842 ~~establishes~~established a single comprehensive model for entities to use in accounting for leases. Topic 842 applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. Topic 842 impacts the Company's accounting for leases primarily as a lessor. ~~However,~~ Topic 842 also impacts the Company's accounting as a ~~lessee but~~lessee; however, such impact is considered not material.

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~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

As a lessor, the Company's leases with tenants generally provide for the lease of real estate properties, as well as common area maintenance, property taxes and other recoverable costs. To reflect recognition as one lease component, rental income and tenant reimbursements and other lease related property income that meet the requirements of the practical expedient provided by ASU No. 2018-11 have been combined under rental income in the Company's unaudited condensed consolidated statements of operations. For the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, tenant reimbursements included in rental income amounted to ~~$1,703,974~~$1,400,428 and ~~$1,538,586,~~$1,540,380, respectively, and for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, tenant reimbursements included in rental income amounted to ~~$3,395,361~~$3,450,799 and ~~$3,899,505,~~$3,068,172, respectively.

The Company recognizes rental income from tenants under operating leases on a straight-line basis over the noncancelable term of the lease when collectability of such amounts is reasonably assured. Recognition of rental income on a straight-line basis includes the effects of rental abatements, lease incentives and fixed and determinable increases in lease payments over the lease term. If the lease provides for tenant improvements, management of the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:

•whether the lease stipulates how a tenant improvement allowance may be spent;

•whether the amount of a tenant improvement allowance is in excess of market rates;

•whether the tenant or landlord retains legal title to the improvements at the end of the lease term;

•whether the tenant improvements are unique to the tenant or general-purpose in nature; and

•whether the tenant improvements are expected to have any residual value at the end of the lease.

Tenant reimbursements of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the expenses are incurred and presented gross if the Company is the primary obligor and, with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk. In instances where the operating lease agreement has an early termination option, the termination penalty is based on a predetermined termination fee or based on the unamortized tenant improvements and leasing commissions.

The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, credit rating, the asset type, and current economic conditions. If the Company’s evaluation of these factors indicates it may not recover the full value of the receivable, it provides an allowance against the portion of the receivable that it estimates may not be recovered. This analysis requires the Company to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected.

~~Gain or Loss on Sale of Real Estate Property~~

The Company recognizes gain or loss on sale of real estate property when the Company has executed a contract for sale of the property, transferred controlling financial interest in the property to the buyer and determined that it is probable that the Company will collect substantially all of the consideration for the property. The Company's real estate property sale transactions for the six months ended June 30, 2021 met these criteria at closing. There were no sales transactions for the three months ended June 30, 2021. When properties are sold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in gain or loss on sale of real estate investments in the Company’s accompanying unaudited condensed consolidated statements of operations.

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~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

Bad Debts and Allowances for Tenant and Deferred Rent Receivables

The Company's determination of the adequacy of its allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection, the Company also may record an allowance under other authoritative GAAP depending upon the Company's evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company's unaudited condensed consolidated statements of operations.

With respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt allowance for the tenant’s receivable balance and generally will not recognize subsequent rental income until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

~~Leasing Costs~~Gain or Loss on Sale of Real Estate Investments

~~Internal leasing costs~~The Company recognizes gain or loss on sale of real estate property when the Company has executed a contract for sale of the property, transferred controlling financial interest in the property to the buyer and ~~third-party legal fees~~determined that it is probable that the Company will collect substantially all of the consideration for the property. The Company's real estate property sale transactions during the three and ~~leasing commissions~~six months ended June 30, 2022 and 2021 met these criteria at closing. When properties are ~~charged to expense as incurred. These expenses are~~sold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in ~~legal leasing costs under property expenses~~gain or loss on sale of real estate investments in the ~~Company's~~Company’s accompanying unaudited condensed consolidated statements of operations.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Impairment of Investment in Real Estate Properties

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate assets may not be recoverable, management assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows expected from the use of and eventual disposition of the property. If, based on the analysis, the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the asset. ~~As more fully discussed in~~ ~~Note 3~~, the Company recorded impairment charges of $349,457 and $9,506,525 related to 1 and 4 of its real estate properties, respectively, during the three and six months ended June 30, 2020, respectively. The Company did not incur any impairment charges for its real estate properties during the three and six months ended June 30, 2021. However, the Company recognized a reversal of a previously recognized impairment charge of $400,999 in June 2021 related to a real estate property that is no longer classified as held for sale (see ~~Note 3~~ ~~for more details).~~

Other Comprehensive ~~Loss~~Income (Loss)

For all periods presented, other comprehensive ~~loss~~income (loss) is the same as net ~~loss.~~income (loss).

Treasury Stock

~~Table~~Effective on the date of ~~Contents~~

~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

the Listed Offering, the Company accounts for repurchased shares of its Class C common stock as treasury stock. Treasury shares are recorded at cost and are included as a component of equity in the Company's unaudited condensed consolidated balance sheet as of June 30, 2022.

Per Share Data

The Company reports a dual presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS uses the treasury stock method or the if-converted method, where applicable, to compute for the potential dilution that would occur if dilutive securities or commitments to issue common stock were exercised. ~~Diluted EPS is the same as Basic EPS for~~For the three and six months ended June 30, ~~2021~~2022 and ~~2020 as~~2021, the Company ~~had a~~presented both Basic EPS and Diluted EPS reflecting its reported net loss for all reported periods. As of June 30, 2021, there were 657,949.5 Class M OP Units, 56,029 Class P OP Units and 358,670 units of Class R limited partnership interest (“Class R OP Units”), net of forfeiture of 1,330 units (adjusted for the 1:3 reverse stock split) that are convertibleincome (loss) attributable to ~~Class C OP Units at a conversion ratio of 1.6667 Class C OP Units~~common stockholders for each ~~one Class M OP Unit or Class P OP Unit,~~period.

As discussed in Note 1, in connection with and ~~at a conversion ratio of 1:1 of Class C OP Unit for~~upon listing on the NYSE, each ~~Class R OP Unit, as applicable, after a specified period of time (see~~ ~~Note 11). The holders of Class C OP Units may exchange such Class C OP Units for shares~~share of the Company's Class CS common stock onconverted into a ~~1-for-1 basis or, at the Company’s sole and absolute discretion, for cash. The Class M OP Units, Class P OP Units and Class R OP Units, and the shares~~share of Class C common stock. Prior to the conversion of the Company's Class S common stock into ~~which they may ultimately be converted, were excluded from the computation of Diluted EPS because their effect would not be dilutive. There were no other outstanding securities or commitments to issue~~Class C common stock, ~~that would have a dilutive effect for the periods then ended.~~

The Company has presented the basic and diluted net loss per share amounts on the accompanying unaudited condensed consolidated statements of operations for Class C and Class S share classes as a combined common share class. Applicationapplication of the two-class method for allocating net loss attributable to common stockholders in accordance with the provisions of ASC 260, Earnings per Share, would have resulted in abasic and diluted net loss of ~~$(0.13) and $(0.28)~~$0.13 per share of Class C common stock for the three months ended June 30, 2021 and ~~2020, respectively,~~basic and adiluted net loss of ~~$(0.13) and $(0.28)~~$0.13 per share of Class S common stock for the three months ended June 30, ~~2021 and 2020, respectively.~~2021. The two-class method would have resulted in a basic and diluted net loss of $0.25 per share ~~of $(0.25) and $(6.39)~~ of Class C common stock for the six months ended June 30, 2021 and ~~2020, respectively,~~basic and ~~$(0.25) and $(6.39)~~diluted net loss of $0.25 per share of Class S common stock for the six months ended June 30, 2021 and 2020, respectively. Any difference in net loss per share if allocated under this method primarily reflects the lower effective distributions per share for Class S stockholders as a result of the payment of the deferred commission to the Class S distributor of these shares, and also reflects the impact of the timing of the declaration of the distributions relative to the time the shares were outstanding.2021.

Fair Value Disclosures

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an existing price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:

Level 1: quoted prices in active markets for identical assets or liabilities;

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:

Cash and cash equivalents, restricted cash, ~~deposit for investment in special purpose acquisition company,~~ receivable from ~~sale~~early termination of ~~real estate property,~~lease, tenant receivables, prepaid expenses and other assets and accounts payable, accrued and other liabilities: These balances approximate their fair values due to ~~the~~their short ~~maturities of these items.~~maturities.

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~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

Derivative Instruments: The Company’s derivative instruments are presented at fair value in the accompanying unaudited condensed consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

~~Goodwill and Intangible Assets:~~Goodwill: The fair value ~~measurements~~measurement of goodwill ~~and intangible assets are~~is considered a Level 3 nonrecurring fair value ~~measurements.~~measurement. For goodwill, fair value measurement involves the determination of fair value of a reporting unit. The Company uses a Monte Carlo simulation model to estimate future performance, generating the fair value of the reporting unit's business. For intangible assets, fair value measurements include assumptions with inherent uncertainty, including projected offerings volumes and related projected revenues and long-term growth rates, among others. The carrying value of intangible assets is at risk of impairment if future projected offerings proceeds, revenues or long-term growth rates are lower than those currently projected.

Credit ~~facilities and economic relief note payable:~~facilities: The fair values of the Company’s credit facilities ~~and economic relief note payable~~ approximate ~~the~~their carrying values ~~of the credit facility and economic relief note payable~~ as their interest rates and other terms are comparable to those available in the ~~market place~~marketplace for a similar credit ~~facility and short-term note, respectively.~~facilities.

Mortgage notes payable: The fair ~~value~~values of the Company’s mortgage notes payable isare estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

Related party transactions: The Company has concluded that it is not practical to determine the estimated fair value of related party transactions. Disclosure rules for fair value measurements require that for financial instruments for which it is not practicable to estimate fair value, information pertinent to those instruments be disclosed. Further information as to these financial transactions with related parties is included in Note 10.

Restricted Cash

Restricted cash is comprised of funds which are restricted for use as required by certain lenders in conjunction with an acquisition or debt financing or modification and for on-site and tenant improvements or property taxes. Restricted cash as of ~~June 30, 2021 and~~ December 31, ~~2020~~2021 amounted to ~~$2,508,471 and $129,118, respectively,~~$2,441,970 for the mortgages related to properties discussed below and other lender reserves. There were no restricted cash balances as of June 30, 2022.

Under the terms of the Company’s June 2021 refinancing of mortgages on its properties leased to Northrop Grumman and L3Harris Technologies, Inc. (“L3Harris”) with Banc of California as described in Note 7, the Company established restricted cash accounts at Banc of California with $1,400,000 and $1,000,000 held for the Northrop Grumman and L3Harris properties, respectively, to fund building improvements, tenant improvements and leasing commissions.

Subsequent to the origination of the loans, $128,538 was released to fund a leasing commission, resulting in $2,271,462 remaining as aggregate restricted cash as of December 31, 2021. Pursuant to ~~lease agreements,~~ the ~~Company had an obligation to pay for tenant improvements~~refinancing of the Northrop Grumman and L3Harris mortgages on January 18, 2022 as further discussed in Note 7, these funds became unrestricted. Additional restricted cash balances of $170,508 as of ~~June 30, 2021 and~~ December 31, ~~2020~~2021 were also released during the first three months of ~~$189,136 and $60,598, respectively for tenant improvements~~2022 due to be incurred by tenants for which funds restricted by the lender were available. As of June 30, 2021 and December 31, 2020, the Company's restricted cash held to fund other improvements and leasing commissions totaled $2,210,864 and $32,086, respectively.refinancing.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Real Estate Investments Held for Sale

The Company generally considers a real estate investment to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate ~~investment~~investments held for sale, net” and “assets related to real estate investment held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Mortgage notes payable and other liabilities related to real estate investments held for sale are classified as “mortgage notes payable related to real estate investments held for sale, net” and “liabilities related to real estate investments held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Real estate investments classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or their estimated fair value less estimated costs to sell. Operating results of properties that were classified as held for sale in the ordinary course of business are included in continuing operations in the Company’s accompanying unaudited condensed consolidated statements of operations.

Goodwill ~~and Other Intangible Assets~~

The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. The Company evaluates goodwill and other intangible assets for possible impairment in accordance with ASC 350, Intangibles–Goodwill and Other, on an annual basis, or more frequently when events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit has declined below its carrying value. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized.

In assessing goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macro-economic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of such reporting unit is less than its carrying amount, then a quantitative analysis is unnecessary.

However, if the Company concludes otherwise, or if it elects to bypass the qualitative analysis, then it is required to perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit.

Intangible assets consist of purchased customer-related intangible assets, marketing-related intangible assets, developed or acquired technology and other intangible assets. Intangible assets are amortized over their estimated useful lives using the straight-line method ranging from three years to five years. No significant residual value is estimated for intangible assets. An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate. The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.

Restricted Stock and Restricted Stock Unit Awards

The fair values of the Operating Partnership's units or restricted stock unit awards issued or granted by the Company are based on an estimated ~~value~~NAV per share of the Company’s common stock on the date of issuance or grant, adjusted for an illiquidity discount due to the illiquid nature of the underlying ~~equity.~~equity prior to the listing of the Company's Class C common stock on the NYSE. The fair value of future grants of the Operating Partnership's units or restricted stock unit awards will be determined based on the NYSE's market closing price of the Company's Class C common stock on the date of grant. Operating Partnership units issued as purchase consideration in connection with the Self-Management Transaction and UPREIT Transaction defined and discussed in Note 1112 are recorded in equity under noncontrolling interests in the Operating Partnership in the Company's unaudited condensed consolidated balance sheets ~~as of June 30, 2021~~ and ~~December 31, 2020 and unaudited condensed consolidated~~ statements of ~~equity for the three and six months ended June 30, 2021 and 2020.~~equity. For units granted to employees of the Company that are not included in the purchase consideration, the fair value of the award is amortized using the straight-line method over the requisite service period of the award, which is generally the vesting ~~period. We have~~period (see Note 12). The Company has elected to record forfeitures as they occur.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Company determines the accounting classification of equity instruments (e.g. restricted stock units) that are issued as purchase consideration or part of the purchase consideration in a business combination, as either liability or equity, by first assessing whether the equity instruments meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”), and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, equity instruments are classified as liabilities if the equity instruments are mandatorily redeemable, obligate the issuer to settle the equity instruments or the underlying shares by paying cash or other assets, or must or may require an unconditional obligation that must be settled by issuing a variable number of shares.

If equity instruments do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the equity instruments do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the equity instruments are indexed to its common stock and whether the equity instruments are classified as equity under ASC 815-40 or other applicable GAAP guidance. After all relevant assessments are made, the Company concludes whether the equity instruments are classified as liability or equity. Liability classified equity instruments are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified equity instruments are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.

Reclassifications

Certain prior year balance sheet, statement of operations and statement of cash flows accounts have been reclassified to conform with the current year presentation. The reclassification did not affect ~~the balances~~net loss in the prior year unaudited condensed consolidated statement of operations.

Recent Accounting Pronouncements

New Accounting Standards Recently Issued and ~~Not Yet~~ Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 eases the potential burden in accounting for recognizing the effects of reference rate reform on financial reporting. Such challenges include the accounting and operational implications for contract modifications and hedge accounting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to loan and lease agreements, contracts, hedging relationships, and other transactions affected by reference rate reform. These provisions apply to contract modifications that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discounted because of reference rate reform.

Qualifying modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate, and the modification would be considered “minor” so that any existing unamortized deferred loan origination fees and costs would carry forward and continue to be amortized. Qualifying modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for hedge accounting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022, with adoption permitted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments must be applied prospectively for all eligible contract modifications. The Company ~~is currently evaluating the effect that~~implemented ASU 2020-04 ~~will have on~~effective January 1, 2022 and the impact of such implementation was not material to the Company’s consolidated financial statements. On January 18, 2022, the Company repaid the 4 remaining loans existing as of December 31, 2021 which had LIBOR reference rates.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 3. REAL ESTATE INVESTMENTS, NET

As of June 30, ~~2021,~~2022, the Company’s real estate investment portfolio consisted of 3843 operating properties located in 1416 states comprised of: ~~12 retail properties, 14 office properties and 12~~20 industrial properties ~~including 1 industrial property classified as held for sale and an approximate 72.7% undivided~~(including the TIC Interest in an industrial property ~~in Santa Clara, California,~~ not reflected in the table below but discussed in Note 44)., 13 retail properties and 10 office properties, and 1 parcel of land, which currently serves as an easement to 1 of the Company’s office properties.

The following table provides summary information regarding the Company’s operating properties as of June 30, ~~2021:~~2022:

Property Location Acquisition Date Property Type Land, Buildings and Improvements Tenant Origination and Absorption Costs Accumulated Depreciation and Amortization Total Investment in Real Estate Property, Net
Accredo Health Orlando, FL 6/15/2016 Office $ 9,855,847 $ 1,269,350 $ (2,444,918) $ 8,680,279
Dollar General Litchfield, ME 11/4/2016 Retail 1,281,812 116,302 (186,127) 1,211,987
Dollar General Wilton, ME 11/4/2016 Retail 1,543,776 140,653 (238,203) 1,446,226
Dollar General Thompsontown, PA 11/4/2016 Retail 1,199,860 106,730 (178,835) 1,127,755
Dollar General Mt. Gilead, OH 11/4/2016 Retail 1,174,188 111,847 (171,462) 1,114,573
Dollar General Lakeside, OH 11/4/2016 Retail 1,112,872 100,857 (175,973) 1,037,756
Dollar General Castalia, OH 11/4/2016 Retail 1,102,086 86,408 (170,976) 1,017,518
Northrop Grumman Melbourne, FL 3/7/2017 Office 12,382,991 1,469,737 (3,363,521) 10,489,207
exp US Services Maitland, FL 3/27/2017 Office 6,056,668 388,248 (945,261) 5,499,655
Harley (1) Bedford, TX 4/13/2017 Retail 12,947,054 0 (1,196,054) 11,751,000
Wyndham Summerlin, NV 6/22/2017 Office 10,406,483 669,232 (1,347,468) 9,728,247
Williams Sonoma Summerlin, NV 6/22/2017 Office 8,079,612 550,486 (1,214,232) 7,415,866
Omnicare Richmond, VA 7/20/2017 Industrial 7,262,747 281,442 (954,774) 6,589,415
EMCOR Cincinnati, OH 8/29/2017 Office 5,960,610 463,488 (693,863) 5,730,235
Husqvarna Charlotte, NC 11/30/2017 Industrial 11,840,200 1,013,948 (1,292,198) 11,561,950
AvAir Chandler, AZ 12/28/2017 Industrial 27,357,899 0 (2,458,171) 24,899,728
3M DeKalb, IL 3/29/2018 Industrial 14,762,819 2,356,361 (4,099,258) 13,019,922
Cummins Nashville, TN 4/4/2018 Office 14,465,491 1,536,998 (2,549,219) 13,453,270
Northrop Grumman Parcel Melbourne, FL 6/21/2018 Land 329,410 0 0 329,410
Texas Health Dallas, TX 9/13/2018 Office 6,976,703 713,221 (829,997) 6,859,927
Bon Secours Richmond, VA 10/31/2018 Office 10,388,751 800,356 (1,204,744) 9,984,363
Costco Issaquah, WA 12/20/2018 Office 27,330,797 2,765,136 (3,305,667) 26,790,266
Taylor Fresh Foods Yuma, AZ 10/24/2019 Industrial 34,194,369 2,894,017 (2,257,859) 34,830,527
Levins Sacramento, CA 12/31/2019 Industrial 4,429,390 221,927 (330,913) 4,320,404
Dollar General Bakersfield, CA 12/31/2019 Retail 4,899,714 261,630 (220,698) 4,940,646
Labcorp San Carlos, CA 12/31/2019 Industrial 9,672,174 408,225 (306,481) 9,773,918
GSA (MSHA) Vacaville, CA 12/31/2019 Office 3,112,076 243,307 (207,772) 3,147,611
PreK Education San Antonio, TX 12/31/2019 Retail 12,447,287 555,767 (899,142) 12,103,912
Dollar Tree Morrow, GA 12/31/2019 Retail 1,320,367 73,298 (106,366) 1,287,299
Solar Turbines San Diego, CA 12/31/2019 Office 7,133,241 284,026 (507,486) 6,909,781
Wood Group San Diego, CA 12/31/2019 Industrial 9,731,220 539,633 (742,040) 9,528,813
ITW Rippey El Dorado, CA 12/31/2019 Industrial 7,071,143 304,387 (456,010) 6,919,520
Dollar General Big Spring, TX 12/31/2019 Retail 1,281,683 76,351 (76,453) 1,281,581
Gap Rocklin, CA 12/31/2019 Office 8,378,276 360,377 (718,960) 8,019,693
L3Harris San Diego, CA 12/31/2019 Industrial 11,631,857 454,035 (706,233) 11,379,659
Sutter Health Rancho Cordova, CA 12/31/2019 Office 29,555,055 1,616,610 (1,620,523) 29,551,142
Walgreens Santa Maria, CA 12/31/2019 Retail 5,223,442 335,945 (199,441) 5,359,946
$ 343,899,970 $ 23,570,335 $ (38,377,298) $ 329,093,007

(1) Reclassified to real estate investment held for investment and use during the second quarter of 2021 from real estate held for sale beginning September 30, 2020 (see detailed discussion below).


Property	Location	Acquisition Date	Property Type	Land, Buildings and Improvements		Equipment		Tenant Origination and Absorption Costs		Accumulated Depreciation and Amortization		Total Investment in Real Estate Property, Net
Dollar General	Litchfield, ME	11/4/2016	Retail	$	1,281,812	$	—	$	116,302	$	(226,371)	$	1,171,743
Dollar General	Wilton, ME	11/4/2016	Retail	1,543,776		—		140,653		(289,706)		1,394,723
Dollar General	Thompsontown, PA	11/4/2016	Retail	1,199,860		—		106,730		(217,502)		1,089,088
Dollar General	Mt. Gilead, OH	11/4/2016	Retail	1,174,188		—		111,847		(208,535)		1,077,500
Dollar General	Lakeside, OH	11/4/2016	Retail	1,112,872		—		100,857		(214,022)		999,707
Dollar General	Castalia, OH	11/4/2016	Retail	1,102,086		—		86,408		(207,944)		980,550
Dollar General	Bakersfield, CA	12/31/2019	Retail	4,899,714		—		261,630		(367,831)		4,793,513
Dollar General	Big Spring, TX	12/31/2019	Retail	1,281,683		—		76,351		(127,422)		1,230,612
Dollar Tree	Morrow, GA	12/31/2019	Retail	1,320,367		—		73,298		(177,276)		1,216,389
Northrop Grumman	Melbourne, FL	3/7/2017	Office	13,571,660		—		1,469,737		(3,777,982)		11,263,415
Northrop Grumman Parcel	Melbourne, FL	6/21/2018	Land	329,410		—		—		—		329,410
exp US Services	Maitland, FL	3/27/2017	Office	6,069,180		—		388,248		(1,169,541)		5,287,887
Wyndham	Summerlin, NV	6/22/2017	Office	10,406,483		—		669,232		(1,701,960)		9,373,755
Williams Sonoma	Summerlin, NV	6/22/2017	Office	8,137,571		—		640,868		(1,524,998)		7,253,441
Husqvarna	Charlotte, NC	11/30/2017	Industrial	11,840,200		—		1,013,948		(1,649,292)		11,204,856
AvAir	Chandler, AZ	12/28/2017	Industrial	27,357,899		—		—		(3,152,243)		24,205,656
3M	DeKalb, IL	3/29/2018	Industrial	14,762,819		—		3,037,057		(5,330,050)		12,469,826
Cummins	Nashville, TN	4/4/2018	Office	14,538,528		—		1,566,997		(3,358,591)		12,746,934
Costco	Issaquah, WA	12/20/2018	Office	27,346,695		—		2,765,136		(4,611,675)		25,500,156
Taylor Fresh Foods	Yuma, AZ	10/24/2019	Industrial	34,194,369		—		2,894,017		(3,579,532)		33,508,854
Levins	Sacramento, CA	12/31/2019	Industrial	4,429,390		—		221,927		(551,521)		4,099,796
Labcorp	San Carlos, CA	12/31/2019	Industrial	9,672,174		—		408,225		(510,802)		9,569,597
GSA (MSHA)	Vacaville, CA	12/31/2019	Office	3,112,076		—		243,307		(346,287)		3,009,096
PreK Education	San Antonio, TX	12/31/2019	Retail	12,447,287		—		555,767		(1,251,024)		11,752,030
Solar Turbines	San Diego, CA	12/31/2019	Office	7,133,241		—		284,026		(680,451)		6,736,816
Wood Group	San Diego, CA	12/31/2019	Industrial	9,869,520		—		539,633		(1,004,879)		9,404,274
ITW Rippey	El Dorado, CA	12/31/2019	Industrial	7,071,143		—		304,387		(761,590)		6,613,940
Gap	Rocklin, CA	12/31/2019	Office	8,433,744		—		360,377		(1,209,435)		7,584,686
L3Harris	San Diego, CA	12/31/2019	Industrial	11,690,952		—		662,101		(1,148,834)		11,204,219
Sutter Health	Rancho Cordova, CA	12/31/2019	Office	29,587,023		—		1,616,610		(2,705,794)		28,497,839
Walgreens	Santa Maria, CA	12/31/2019	Retail	5,223,442		—		335,945		(332,402)		5,226,985
Raising Cane's	San Antonio, TX	7/26/2021	Retail	3,430,224		—		213,997		(111,417)		3,532,804
Arrow-TruLine	Archbold, OH	12/3/2021	Industrial	11,518,084		—		—		(224,513)		11,293,571
KIA	Carson, CA	1/18/2022	Retail	69,286,444		—		118,606		(486,687)		68,918,363
Kalera	Saint Paul, MN	1/31/2022	Industrial	3,690,009		4,429,000		—		(155,804)		7,963,205
Lindsay	Colorado Springs 1, CO	4/19/2022	Industrial	2,311,934		—		—		(12,150)		2,299,784
Lindsay	Colorado Springs 2, CO	4/19/2022	Industrial	3,314,406		—		—		(7,231)		3,307,175
Lindsay	Dacano, CO	4/19/2022	Industrial	5,558,622		—		—		(17,529)		5,541,093
Lindsay	Alachua, FL	4/19/2022	Industrial	8,518,123		—		—		(75,544)		8,442,579
Lindsay	Franklinton, NC	4/19/2022	Industrial	7,181,113		—		—		(33,306)		7,147,807
Lindsay	Canal Fulton 1, OH	4/19/2022	Industrial	11,345,533		—		—		(71,634)		11,273,899
Lindsay	Canal Fulton 2, OH	4/19/2022	Industrial	10,190,942		—		—		(102,162)		10,088,780
Lindsay	Rock Hill, SC	4/19/2022	Industrial	6,555,983		—		—		(35,051)		6,520,932
				$	435,042,581	$	4,429,000	$	21,384,224	$	(43,728,520)	$	417,127,285

2018

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Impairment Charges~~Acquisitions

During late March 2020, the Company learned that there would be a substantial impact on the commercial real estate market and specifically on fitness centers such as the Company's property leased at that time to 24 Hour Fitness USA, Inc. (“24 Hour Fitness”) due to the COVID-19 pandemic and the requirement of an indefinite and potentially extended period of store closures.

On March 31, 2020, the Company received written notice from 24 Hour Fitness that due to circumstances beyond its control, including the response to the COVID-19 pandemic and directives and mandates of various governmental authorities affecting the Las Vegas, Nevada 24 Hour Fitness store leased from the Company, it would not make the April 2020 rent payment. Despite negotiations with the tenant, no further rent payments were received and onSix Months Ended June 15, 2020, the Company received written notice that the lease was formally rejected in connection with 24 Hour Fitness' Chapter 11 bankruptcy proceeding and the premises were surrendered to the Company's subsidiary. The lender on the property agreed to temporarily reduce its $32,000 monthly mortgage payment by $8,000 from May through August 2020 and the Company's special purpose subsidiary determined that if it was unable to secure a replacement tenant, then it would consider allowing the lender to foreclose on, and take possession of, the property. As such, the Company concluded that it was necessary to record an impairment charge to reduce the net book value of the property to its estimated fair value.

In addition, the Company determined that the effects of the COVID-19 pandemic on the overall economy and commercial real estate market would also have negative impacts on the Company's ability to re-lease 2 vacant properties, the property formerly leased to Dinan Cars located in Morgan Hill, CA through January 31, 2020 and the property leased to Dana, but unoccupied, located in Cedar Park, Texas.

Based on an evaluation of the value of these properties, the Company determined that impairment charges were required during the three months ended March 31, 2020 to reflect the reduction in value due to the uncertainty regarding leasing or sale prospects.30, 2022

During the three months ended March 31, 2020, the Company recorded impairment charges aggregating $9,157,068, based on the estimated fair values of the aforementioned real estate properties. During the three months ended June 30, 2020, the Company recorded an additional impairment charge of $349,457 related to its property located in Lake Elsinore, CA and leased to Rite Aid through February 29, 2028. The Company determined that the impairment charge was required, representing the excess of the property's carrying value over the property's estimated sale price less estimated selling costs for the subsequent sale.

The aggregate impairment charges of $9,157,068 represented approximately 2.2% of the Company’s total investments in real estate property before impairments as of March 31, 2020 and the impairment charge of $349,457 represented approximately 0.1% of the Company’s total investments in real estate property before impairments as of June 30, 2020. The properties formerly leased by Rite Aid, Dinan Cars, 24 Hour Fitness and Dana were sold in August, October and December 2020 and July 2021, respectively.

~~There were no impairment charges recorded during the three and~~ six months ended June 30, ~~2021. The details of~~2022, the ~~Company's~~Company acquired the following real estate ~~impairment charges for the three and six months ended~~properties:


Property and Location	Acquisition Date	Land		Buildings and Improvements		Equipment		Tenant Origination and Absorption Costs		Acquisition Price
KIA, Carson, CA	1/18/2022	$	32,741,781	$	36,544,663	$	—	$	118,606	$	69,405,050
Kalera, St. Paul, MN	1/31/2022	562,356		3,127,653		4,429,000		—		8,119,009
Lindsay, Colorado Springs 1, CO	4/19/2022	1,195,178		1,116,756		—		—		2,311,934
Lindsay, Colorado Springs 2, CO	4/19/2022	2,239,465		1,074,941		—		—		3,314,406
Lindsay, Dacono, CO (1)	4/19/2022	2,263,982		3,294,640		—		—		5,558,622
Lindsay, Alachua, FL	4/19/2022	966,192		7,551,931		—		—		8,518,123
Lindsay, Franklinton, NC	4/19/2022	2,843,811		4,337,302		—		—		7,181,113
Lindsay, Fulton 1, OH	4/19/2022	726,877		10,618,656		—		—		11,345,533
Lindsay, Fulton 2, OH	4/19/2022	635,865		9,555,077		—		—		10,190,942
Lindsay, Rock Hill, SC	4/19/2022	2,816,322		3,739,661		—		—		6,555,983
		$	46,991,829	$	80,961,280	$	4,429,000	$	118,606	$	132,500,715

(1) As of June 30, ~~2020 were as follows:~~2022, buildings and improvements exclude a non-refundable deposit of $1,330,780 for funding ongoing building construction at the Lindsay property in Dacono, CO. This deposit is included in prepaid expenses and other assets in the accompanying unaudited condensed consolidated balance sheets.

Property Location Three Months Ended
June 30, 2020 Six Months Ended
June 30, 2020
Rite Aid Lake Elsinore, CA $ 349,457 $ 349,457
Dana Cedar Park, TX 0 2,184,395
24 Hour Fitness Las Vegas, NV 0 5,664,517
Dinan Cars Morgan Hill, CA 0 1,308,156
Total $ 349,457 $ 9,506,525

~~Acquisitions~~

The Company ~~did 0t acquire any real estate~~recognized $2,706,422 and $4,105,592 of total revenue related to the above-acquired properties during the three and six months ended June 30, ~~2021 or~~2022, respectively.

The noncancellable lease terms of the properties acquired during the ~~three and~~ six months ended June 30, ~~2020. See~~ ~~Note 12~~ ~~for~~2022 are as follows:


Property						Lease Expiration
KIA of Carson						1/17/2047
Kalera						2/28/2042
Lindsay, all 8 properties acquired						4/30/2047

Six Months Ended June 30, 2021

The Company did not acquire any real estate property during the ~~description of a property leased to Raising Cane’s which~~six months ended June 30, 2021.

Dispositions

The dispositions during the ~~Company acquired in July 2021.~~six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended June 30, 2022


Property	Location	Disposition Date	Property Type	Rentable Square Feet	Contract Sale Price		Gain on Sale
Bon Secours	Richmond, VA	2/11/2022	Office	72,890	$	10,200,000	$	179,404
Omnicare	Richmond, VA	2/11/2022	Flex	51,800	8,760,000		2,062,890
Texas Health	Dallas, TX	2/11/2022	Office	38,794	7,040,000		160,377
Accredo	Orlando, FL	2/24/2022	Office	63,000	14,000,000		4,998,106
EMCOR	Cincinnati, OH	6/29/2022	Office	39,385	6,525,000		1,002,101
				265,869	$	46,525,000	$	8,402,878

2119

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Dispositions~~On February 11, 2022, the Company completed the sale of 2 medical office properties in Dallas, Texas and Richmond, Virginia leased to Texas Health and Bon Secours, respectively, and 1 flex property in Richmond, Virginia leased to Omnicare for an aggregate sales price of $26,000,000, which generated net proceeds of $11,883,639 after payment of commissions, closing costs and existing mortgages.

~~There were 0 disposals~~On February 24, 2022, the Company completed the sale of ~~properties during~~a medical office property in Orlando, Florida leased to Accredo for a sales price of $14,000,000, which generated net proceeds of $5,000,941 after payment of commissions, closing costs and repayment of the ~~three months ended~~existing mortgage.

On June 29, 2022, the Company completed the sale of an office property in Cincinnati, Ohio leased to EMCOR for a sales price of $6,525,000, which generated net proceeds of $6,345,642 after payment of commissions and closing costs.

Six Months Ended June 30, 2021 ~~nor during the three and six months ended June 30, 2020. The Company sold the following properties during the first quarter of 2021:~~


Property	Location	Disposition Date	Property Type	Rentable Square Feet	Contract Sale Price		Gain on Sale
Chevron Gas Station	Roseville, CA	1/7/2021	Retail	3,300	$	4,050,000	$	228,769
EcoThrift	Sacramento, CA	1/29/2021	Retail	38,536	5,375,300		51,415
Chevron Gas Station	San Jose, CA	2/12/2021	Retail	1,060	4,288,888		9,458
Total				42,896	$	13,714,188	$	289,642

On January 7, 2021, the Company completed the sale of its Roseville, California retail property, which was leased to the operator of a Chevron gas station, for $4,050,000, which generated net proceeds of $3,914,909 after payment of commissions and closing costs.

On January 29, 2021, the Company completed the sale of its Sacramento, California retail property, which was leased to EcoThrift, for $5,375,300, which generated net proceeds of $2,684,225 after repayment of the existing mortgage, commissions and closing costs.

On February 12, 2021, the Company completed the sale of its San Jose, California retail property, which was leased to the operator of a Chevron gas station, for $4,288,888, which generated net proceeds of $4,054,327 after payment of commissions and closing costs.

Asset Concentration

As of June 30, 2022, the Company’s real estate portfolio asset concentration (greater than 10% of total assets) was as follows:


	June 30, 2022
Property and Location	Net Carrying Value		Percentage of Total Assets
KIA, Carson, CA	$	68,918,363	15.1	%
Lindsay, 8 properties acquired in Colorado (3), Ohio (2), North Carolina, South Carolina and Florida	54,622,049		12.0	%
Total	$	123,540,412	27.1	%

The Company held no real estate property with a net book value that iswas greater than 10% of its total assets as of December 31, 2021.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Rental Income Concentration

During the three and six months ended June 30, ~~2021 or December 31, 2020.~~2022, the Company’s rental income concentration (greater than 10% of rental income) was as follows:

~~Revenue Concentration~~


	Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
Property and Location	Rental Income		Percentage of Total Rental Income		Rental Income		Percentage of Total Rental Income
KIA, Carson, CA	$	1,459,745	14.0	%	$	2,725,006	13.6	%
Lindsay, 8 properties acquired in Colorado (3), Ohio (2), North Carolina, South Carolina and Florida	$	1,058,443	10.2	%	(1)		(1)

(1) Lindsay represented the source of greater than 10% of total rental income during the three months ended June 30, 2022 but not the six months ended June 30, 2022 since the Lindsay properties were acquired on April 19, 2022.

No tenant represented the source of 10% of total ~~revenues~~rental income during the three and six months ended June 30, ~~2021 or during the three and six months ended June 30, 2020.~~2021.

Operating Leases

The Company’s real estate properties are primarily leased to tenants under net leases for which terms and expirations vary. The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies or lease guarantors) that are rated by nationally recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring news reports and press releases regarding the tenants (or their parent companies or lease guarantors), and their underlying business and industry; and (4) monitoring the timeliness of rent collections.

During the first four months of 2020, the Company paid an aggregate of $990,000 in lease incentives to cancel certain termination options related to 2 leases with Walgreens for its Santa Maria, California and Stockbridge, Georgia properties, resulting in extension of the leases for approximately 10 years each. The Stockbridge property was sold on August 27, 2020. These costs were capitalized and are amortized over the period of the extension for the Santa Maria property and were charged to cost of sale for the Stockbridge property in August 2020.

~~During the three~~six months ended June 30, ~~2021,~~2022, the ~~tenant~~Company executed lease extensions for 3 properties, including the properties leased to Cummins in ~~the Company's PreK Education retail property~~Nashville, Tennessee for an additional one year through February 28, 2024, ITW Rippey in ~~San Antonio, Texas exercised its option to extend its lease term~~El Dorado, California for ~~eight~~an additional seven years ~~from the original termination of July 31, 2021 to~~through July 31, 2029 ~~with~~and Williams Sonoma in Summerlin, Nevada for an additional three years through October 31, 2025. These 3 lease extensions resulted in an average increase in ~~monthly rent. The terms~~lease term of ~~the original lease required~~3.7 years and an average annual increase in rents of 1.9%.

As discussed above, the Company also acquired 10 properties and sold 5 properties during the six months ended June 30, 2022.

As of June 30, 2022, the future minimum contractual rent payments due to ~~pay a $2,000,000 term completion incentive upon exercise of~~ the ~~option and~~Company under the ~~tenant agreed to defer~~Company’s non-cancellable operating leases, including lease amendments executed though the ~~timing~~date of this ~~payment~~report, if any, are as follows:


July through December 2022	$	16,377,113
2023	33,059,460
2024	31,759,477
2025	30,260,027
2026	24,057,552
2027	21,901,312
Thereafter	267,177,203
	$	424,592,144

Table of Contents

MODIV INC.

Notes to ~~no later than January~~Condensed Consolidated Financial Statements (continued)

(Unaudited)

Real Estate Intangible Assets, Net

As of June 30, 2022 and December 31, ~~2022.~~ 2021, the Company’s real estate intangible assets were as follows:


	June 30, 2022						December 31, 2021
	Tenant Origination and Absorption Costs		Above-Market Lease Intangibles		Below-Market Lease Intangibles		Tenant Origination and Absorption Costs		Above-Market Lease Intangibles		Below-Market Lease Intangibles
Cost	$	21,384,224	$	1,128,549	$	(14,811,570)	$	21,504,210	$	1,128,549	$	(15,097,132)
Accumulated amortization	(12,312,635)		(502,442)		4,636,286		(11,009,997)		(437,530)		3,994,192
Net	$	9,071,589	$	626,107	$	(10,175,284)	$	10,494,213	$	691,019	$	(11,102,940)

The ~~deferred lease incentive is presented under prepaid and other~~intangible assets ~~and~~acquired in connection with the ~~obligation is included in accounts payable, accrued and other liabilities in the Company's balance sheet~~acquisitions have a weighted average amortization period of approximately 9.5 years as of June 30, ~~2021.~~2022. As of June 30, 2022, the amortization of intangible assets for the remaining six months ending December 31, 2022 and for each of the next five years and thereafter is expected to be as follows:


	Tenant Origination and Absorption Costs		Above-Market Lease Intangibles		Below-Market Lease Intangibles
July through December 2022	$	1,062,439	$	64,911	$	(496,178)
2023	1,682,755		127,174		(906,522)
2024	1,545,468		122,543		(903,104)
2025	1,218,652		115,996		(903,104)
2026	620,229		78,557		(897,701)
2027	343,917		22,272		(887,789)
Thereafter	2,598,129		94,654		(5,180,886)
	$	9,071,589	$	626,107	$	(10,175,284)

Weighted-average remaining amortization period	7.7 years		6.0 years		11.3 years

Real Estate Investments Held For Sale

As of June 30, 2022, the Company did not classify any properties as held for sale. As of December 31, 2021, the Company classified 4 healthcare related properties as held for sale and presented the properties in the Company’s unaudited condensed consolidated balance sheet as real estate investments held for sale. These properties were all sold in February 2022, as discussed above. These 4 healthcare related properties consisted of 3 office properties (the property leased to Accredo Health through December 31, 2024 located in Orlando, Florida; the property leased to Bon Secours Health through August 31, 2026 located in Richmond, Virginia; and the property leased to Texas Health through December 31, 2025 located in Dallas, Texas) and 1 flex property leased to Omnicare through May 31, 2026 located in Richmond, Virginia.

Table of Contents

MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

As of June 30, ~~2021,~~2022, no assets were classified as real estate investments held for sale. The following table summarizes the ~~future minimum contractual rent payments due~~major components of assets and liabilities related to the ~~Company under the Company’s non-cancellable operating leases, including lease amendments executed though the date of this report and excluding rents due related to the~~4 real estate investments held for sale ~~are~~ as ~~follows:~~of December 31, 2021:

July through December 2021 $ 13,219,545
2022 25,533,893
2023 22,070,671
2024 21,588,111
2025 18,369,437
2026 11,524,427
Thereafter 42,329,568
$ 154,635,652


	December 31, 2021
Assets related to real estate investments held for sale:
Land, buildings and improvements	$	34,507,485
Tenant origination and absorption costs	3,064,371
Accumulated depreciation and amortization	(6,061,094)
Real estate investments held for sale, net	31,510,762
Other assets, net	788,296
Total assets related to real estate investments held for sale:	$	32,299,058

Liabilities related to real estate investments held for sale:
Mortgage notes payable, net	$	21,699,912
Other liabilities, net	383,282
Total liabilities related to real estate investments held for sale:	$	22,083,194

~~Lease Intangible Assets, Net~~

AsThe following table summarizes the major components of rental income and expenses related to 1 real estate investment held for sale as of June 30, 2021 which was leased to Dana located in Cedar Park, Texas, and was included in continuing operations for the ~~Company’s lease intangible assets were as follows:~~

Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles
Cost $ 23,570,335 $ 1,128,549 $ (15,097,132)
Accumulated amortization (11,210,646) (372,620) 3,266,545
Net amount $ 12,359,689 $ 755,929 $ (11,830,587)

~~The intangible assets acquired in connection with the acquisitions have a weighted average amortization period of approximately 9.4 years as of~~three and six months ended June 30, ~~2021. As of June 30, 2021, the amortization of intangible assets for the nine months ending December 31, 2021 and for each year of the next five years and thereafter is expected to be as follows:~~2021:

Tenant Origination and Absorption Costs Above-Market Lease Intangibles Below-Market Lease Intangibles
July through December 2021 $ 1,609,387 $ 64,909 $ (727,614)
2022 2,682,533 129,823 (1,217,029)
2023 1,805,532 127,174 (921,169)
2024 1,689,428 122,543 (917,750)
2025 1,311,545 115,996 (917,750)
2026 601,734 78,557 (912,347)
Thereafter 2,659,530 116,927 (6,216,928)
$ 12,359,689 $ 755,929 $ (11,830,587)
Weighted-average remaining amortization period 7.1 years 6.8 years 11.9 years


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Total revenues	$	342,198	$	716,160
Expenses:
Interest expense	63,207		138,629
Depreciation and amortization	49,108		122,769
Other expenses	78,857		145,797
Total expenses	191,172		407,195
Net income	$	151,026	$	308,965

Table of Contents

MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Real Estate Investments Held For Sale~~

~~As a result of the COVID-19 pandemic discussed in~~ ~~Note 1~~, starting during the second quarter of 2020, the Company deemed it necessary to sell certain of its real estate investment properties to generate funds for share repurchases and certain debt obligations. During 2020, the Company identified 9 real estate properties (8 retail properties and 1 industrial property) as held for sale. During the second half of 2020, 5 of the 9 properties (4 retail properties and 1 industrial property) were sold. Of the 4 remaining retail properties held for sale as of December 31, 2020, the Company sold 3 retail properties during the first quarter of 2021: the EcoThrift property and the 2 Chevron properties (see ~~Dispositions~~ above for more details). The Harley Davidson retail property, which was the only property held for sale as of March 31, 2021, was reclassified as held for investment and use during the second quarter of 2021 (see discussion in ~~Change in Plan of Salebelow for more details).~~

During the second quarter of 2021, the Company identified and reclassified the industrial property located in Cedar Park, Texas leased to Dana Incorporated as real estate investment held for sale. This unoccupied property was subsequently sold on July 7, 2021 (see ~~Note 12~~ ~~for more details).~~

The following table summarizes the major components of assets and liabilities related to real estate investments held for sale as of June 30, 2021 (Dana property) and December 31, 2020 (Harley Davidson, EcoThrift and 2 Chevron properties):

June 30,
2021 December 31,
2020
Assets related to real estate investments held for sale:
Land, buildings and improvements $ 6,802,876 $ 25,675,459
Tenant origination and absorption costs 531,439 554,788
Accumulated depreciation and amortization (1,958,569) (1,644,508)
Real estate investments held for sale, net 5,375,746 24,585,739
Other assets, net 671,265 1,079,361
Total assets related to real estate investments held for sale: $ 6,047,011 $ 25,665,100
Liabilities related to real estate investments held for sale:
Mortgage notes payable, net $ 4,381,426 $ 9,088,438
Other liabilities, net 227,433 801,337
Total liabilities related to real estate investments held for sale: $ 4,608,859 $ 9,889,775

The following table summarizes the major components of rental income, expenses and impairment related to real estate investments held for sale as of June 30, 2021 (the property leased to Dana) and 2020 (the property leased to Island Pacific Supermarket located in Elk Grove, CA, the property leased to Rite Aid located in Lake Elsinore, CA, the property leased to Walgreens located in Stockbridge, GA and the property previously leased to Dinan Cars located in Morgan Hill, CA), which were included in continuing operations for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Total revenues $ 342,198 $ 312,060 $ 716,160 $ 1,480,909
Expenses:
Interest expense 63,207 83,658 138,629 221,022
Depreciation and amortization 49,108 185,658 122,769 375,575
Other expenses 78,857 101,131 145,797 221,811
Impairment 0 349,457 0 1,657,613
Total expenses 191,172 719,904 407,195 2,476,021
Net income (loss) $ 151,026 $ (407,844) $ 308,965 $ (995,112)

~~Table of Contents~~

~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

~~Change in Plan of Sale~~

On September 30, 2020, the Company reclassified the Harley Davidson property’s net book value (“NBV”) of $12,010,919 to real estate held for sale and suspended recording depreciation for the property as of that date. On December 31, 2020, the Company recorded an impairment loss of $632,233 based on the expected net proceeds of sale of the property of $12,117,500 compared to the property's NBV combined with the outstanding straight-line rent receivable balance. Following unsuccessful efforts to sell the property at a price which would be acceptable to the Company, the Company decided to withdraw its decision to sell the property during June 2021 and reclassified the Harley Davidson property to real estate investment held for investment and use.

At the time of the decision to reclassify the property to real estate investment held for investment and use in June 2021, the carrying value of the property would have been $11,779,687 if continuously depreciated since September 30, 2020. The fair value of the property as of the June 2021 determination was $11,860,000, based on management’s value for the property in the June 30, 2021 NAV analysis (the most recent valuation).

As provided by ASC 360-10, since the adjusted carrying value of the property of $11,779,687 was lower than its fair value of $11,860,000, the Company adjusted the net book value of the property to its adjusted carrying value of $11,779,687. The recording of the property at its adjusted carrying value resulted in an adjustment to reduce the impairment loss recorded as of December 31, 2020 by $400,999 during the three months ended June 30, 2021.

NOTE 4. UNCONSOLIDATED INVESTMENT IN ~~UNCONSOLIDATED ENTITY~~REAL ESTATE PROPERTY

The Company’s investment in unconsolidated entity as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is as follows:

June 30,
2021 December 31,
2020
The TIC Interest $ 9,987,703 $ 10,002,368


	June 30, 2022		December 31, 2021
The TIC Interest	$	9,956,517	$	9,941,338

The Company’s income from investment in unconsolidated entity for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021 is as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
The TIC Interest $ 74,834 $ 125,658 $ 147,302 $ 146,411


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
The TIC Interest	$	66,868	$	74,834	$	162,332	$	147,302

TIC Interest

During 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an approximate 72.7% interest in ana 91,740 square foot industrial property in Santa Clara, California. The remaining approximate 27.3% of undivided interest in the Santa Clara property is held by Hagg Lane II, LLC (an approximate 23.4% interest) and Hagg Lane III, LLC (an approximate 3.9% interest). The manager of both Hagg Lane II, LLC and Hagg Lane III, LLC ~~became~~was a member of the Company's board of directors infrom December ~~2019.~~2019 to December 2021. The Santa Clara property does not qualify as a variable interest entity and consolidation is not required as the Company’s TIC Interest does not control the property. Therefore, the Company accounts for the TIC Interest using the equity method. The Company receives approximately 72.7% of the cash flow distributions and recognizes approximately 72.7% of the results of operations.

During the three months ended June 30, 2022 and 2021, the Company received $51,786 and $82,588 in cash distributions, respectively, and $147,153 and $161,967 during the six months ended June 30, 2022 and 2021, respectively.

The following is summarized financial information for the Santa Clara property as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021:


	June 30, 2022		December 31, 2021
Assets:
Real estate investments, net	$	28,883,609	$	29,403,232
Cash and cash equivalents	805,057		690,470
Other assets	29,975		134,049
Total assets	$	29,718,641	$	30,227,751
Liabilities:
Mortgage note payable, net	$	13,078,689	$	13,218,883
Below-market lease, net	2,587,393		2,660,586
Other liabilities	52,609		369,209
Total liabilities	15,718,691		16,248,678
Total equity	13,999,950		13,979,073
Total liabilities and equity	$	29,718,641	$	30,227,751

Table of Contents

MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

During the three months ended June 30, 2021 and 2020, the Company received $82,588 and $169,158 in cash distributions, respectively, and $161,967 and $334,189 during the six months ended June 30, 2021 and 2020, respectively.

~~The following is summarized financial information for the Santa Clara property as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and 2020:~~

June 30,
2021 December 31,
2020
Assets:
Real estate investments, net $ 29,406,115 $ 29,906,146
Cash and cash equivalents 786,775 380,774
Other assets 50,041 164,684
Total assets $ 30,242,931 $ 30,451,604
Liabilities:
Mortgage note payable, net $ 13,354,714 $ 13,489,126
Below-market lease, net 2,733,780 2,806,973
Other liabilities 111,598 92,777
Total liabilities 16,200,092 16,388,876
Total equity 14,042,839 14,062,728
Total liabilities and equity $ 30,242,931 $ 30,451,604


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Total revenues	Total revenues	$	676,936	$	751,653	$	1,350,912	$	1,349,573	Total revenues	$	676,780	$	676,936	$	1,391,758	$	1,350,912
Expenses:	Expenses:									Expenses:
Interest expense	Interest expense	138,036		140,906		275,642		282,609		Interest expense	134,968		138,036		269,262		275,642
Depreciation and amortization	Depreciation and amortization	250,015		250,680		500,030		499,898		Depreciation and amortization	261,956		250,015		523,912		500,030
Other expenses	Other expenses	185,964		187,246		372,652		365,703		Other expenses	187,890		185,964		375,324		372,652
Total expenses	Total expenses	574,015		578,832		1,148,324		1,148,210		Total expenses	584,814		574,015		1,168,498		1,148,324
Net income	Net income	$	102,921	$	172,821	$	202,588	$	201,363	Net income	$	91,966	$	102,921	$	223,260	$	202,588

NOTE 5. GOODWILL, ~~AND INTANGIBLE ASSETS,~~ NET

~~Goodwill, Net~~

The ~~changes in~~ carrying ~~value~~values of goodwill as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

June 30,
2021 December 31,
2020
Beginning balance $ 17,320,857 $ 50,588,000
Impairment of goodwill for the three and the 12 months period ended, respectively 0 (33,267,143)
Ending balance $ 17,320,857 $ 17,320,857


	June 30, 2022		December 31, 2021
Carrying value, beginning	$	17,320,857	$	17,320,857
Impairment of goodwill	(17,320,857)		—
Carrying value, ending	$	—	$	17,320,857

~~Table of Contents~~

~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

The current COVID-19 pandemic in the United States and globally, and the magnitude and uncertain duration of the economic impacts, have resulted in challenges in attracting investor equity during this period of economic weakness and volatility. The disruption in the Company's Offerings had a protracted impact on capital raising, and the recessionary pressures on the economy resulted in real estate market uncertainty and an approximate 14% decrease in the estimated fair value of the Company’s real estate properties as of April 30, 2020 as compared with the estimated fair value of the Company’s real estate properties as of December 31, 2019. Given these circumstances, the Company revised its capital raise projections, its projections of new investment and other factors contributing to the Company's analysis of estimated fair value of its consolidated business operations as of June 30, 2020. Since the Company is a single reporting unit, the Company performed a quantitative analysis to compare the estimated fair value of the Company’s net tangible and intangible assets to the carrying value of its net tangible and intangible assets as of June 30, 2020. Since the estimated fair value of the Company’s net tangible and intangible assets was less than the carrying amount of its net tangible and intangible assets, the Company recorded a goodwill impairment charge of $33,267,143, which was reflected in the Company’s net loss for the six months ended June 30, 2020. The Company conducted its annual impairment analysis as of December 31, ~~2020~~2021 using qualitative factors and concluded that no ~~additional~~ impairment to goodwill was necessary. For the quarter ended March 31, 2022, management considered the decline of the recent trading price of the Company’s Class C common stock following its listing on the NYSE in February 2022, causing the Company's market capitalization to be below the book value of the Company’s equity as of March 31, 2022, to be a triggering event. Management ~~did not identify any triggering events for the six months ended June 30, 2021~~performed a quantitative impairment assessment considering expected future cash flows, market conditions and ~~therefore a qualitative assessment~~expectations of increases in interest rates and concluded that there was an impairment of goodwill that was not ~~required.~~

~~Intangible Assets, Net~~

~~The following table sets forth~~expected to be temporary as of March 31, 2022. Events subsequent to March 31, 2022 and prior to the Company's ~~intangible assets, net as~~filing of ~~June 30, 2021 and December 31, 2020 and their related useful lives:~~

Intangible Assets Weighted-Average Useful Life June 30,
2021 December 31,
2020
Investor list, net 5.0 years $ 3,494,740 $ 3,494,740
Web services technology, domains and licenses 3.0 years 3,577,852 3,466,102
7,072,592 6,960,842
Accumulated amortization (2,758,793) (1,833,054)
Net $ 4,313,799 $ 5,127,788

~~Amortization expense~~its Quarterly Report on Form 10-Q for the three months ended ~~June 30, 2021~~March 31, 2022, including rising inflation and ~~2020 amounted to $465,595~~interest rates, and ~~$438,770, respectively, and for the six months ended June 30, 2021 and 2020 amounted to $925,739 and $925,989, respectively.~~

~~As discussed above, the COVID-19 pandemic caused significant disruptions in the economy and uncertainties in the investment markets.~~declining office occupancy rates affecting owners of real estate properties, further supported such conclusion. Based on the ~~impacts on~~quantitative analysis, the ~~Company's investors and the economy, the Company evaluated the fair~~ value of ~~intangibles to determine if they exceeded the respective carrying values and determined that~~goodwill was written off, resulting in a ~~portion~~non-cash expense of ~~the investor list would no longer be viable and, therefore, the Company recorded an impairment charge of $1,305,260, which was reflected in the Company’s net loss~~$17,320,857 for the ~~six~~three months ended ~~June 30, 2020.~~

~~The estimated amortization expense for the succeeding fiscal years is as follows: July 2021 to December 2021, $938,913; 2022, $1,877,826; 2023, $787,228; and 2024, $709,832~~.March 31, 2022.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 6. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS DETAILS

Tenant Receivables, Net

~~Tenant~~As of June 30, 2022 and December 31, 2021, tenant receivables consisted of the following:


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Straight-line rent	Straight-line rent	$	5,163,964	$	4,344,388	Straight-line rent	$	5,753,512	$	4,417,065
Tenant rent		384,661		204,775
Tenant reimbursements		1,607,198		2,116,627
Tenant rent and billed reimbursements						Tenant rent and billed reimbursements	541,561		81,079
Unbilled tenant reimbursements						Unbilled tenant reimbursements	1,764,562		1,498,775
Total	Total	$	7,155,823	$	6,665,790	Total	$	8,059,635	$	5,996,919

Prepaid Expenses and Other Assets

As of June 30, 2022 and December 31, 2021, prepaid expenses and other assets were comprised of the following:


	June 30, 2022		December 31, 2021
Deferred tenant allowance	$	2,353,762	$	2,400,811
Miscellaneous receivables	59,888		681,369
Prepaid expenses	1,387,121		1,253,751
Deposits	2,151,099		1,420,244
Deferred financing costs on credit facility revolver	814,997		100,080
Total	$	6,766,867	$	5,856,255

Accounts Payable, Accrued and Other Liabilities

~~Accounts~~As of June 30, 2022 and December 31, 2021, accounts payable, accrued and other liabilities were comprised of the following:


		June 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Accounts payable	Accounts payable	$	398,793	$	1,136,954	Accounts payable	$	1,194,736	$	1,767,657
Accrued expenses	Accrued expenses	2,505,713		3,068,714		Accrued expenses	2,883,690		3,864,222
Accrued distributions	Accrued distributions	649,812		706,106		Accrued distributions	1,762,722		1,795,303
Accrued interest payable	Accrued interest payable	580,882		629,628		Accrued interest payable	706,920		548,564
Unearned rent	Unearned rent	1,684,491		2,033,065		Unearned rent	2,051,994		1,735,440
Lease incentive obligation	Lease incentive obligation	2,133,695		5,157		Lease incentive obligation	133,695		2,133,695
Total	Total	$	7,953,386	$	7,579,624	Total	$	8,733,757	$	11,844,881

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 7. DEBT

Mortgage Notes Payable, Net

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s mortgage notes payable consisted of the following:

Collateral 2021 Principal
Amount 2020 Principal
Amount Contractual Interest
Rate (1) Effective
Interest Rate (1) Loan
Maturity
Accredo property $ 8,538,000 $ 8,538,000 3.80% 3.80% 8/1/2025
Six Dollar General properties 3,711,118 3,747,520 4.69% 4.69% 4/1/2022
Dana property 0 4,466,865 4.56% 4.56% 4/1/2023
Northrop Grumman property (8) 7,000,000 5,518,589 3.35% 3.35% 5/21/2031
exp US Services property 3,288,786 3,321,931 (4) 4.25% 11/17/2024
Harley Davidson property (2) 6,558,170 0 4.25% 4.25% 9/1/2024
Wyndham property (3) 5,551,200 5,607,000 One-month LIBOR + 2.05% 4.34% 6/5/2027
Williams Sonoma property (3) 4,392,000 4,438,200 One-month LIBOR + 2.05% 4.34% 6/5/2022
Omnicare property 4,151,386 4,193,171 4.36% 4.36% 5/1/2026
EMCOR property 2,784,868 2,811,539 4.35% 4.35% 12/1/2024
Husqvarna property 6,379,182 6,379,182 (5) 4.60% 2/20/2028
AvAir property 19,950,000 19,950,000 3.80% 3.80% 8/1/2025
3M property 8,091,800 8,166,000 One-month LIBOR + 2.25% 5.09% 3/29/2023
Cummins property 8,256,600 8,332,200 One-month LIBOR + 2.25% 5.16% 4/4/2023
Texas Health property 4,324,160 4,363,203 4.00% 4.00% 12/5/2024
Bon Secours property 5,142,425 5,180,552 5.41% 5.41% 9/15/2026
Costco property 18,850,000 18,850,000 4.85% 4.85% 1/1/2030
Taylor Fresh Foods 12,350,000 12,350,000 3.85% 3.85% 11/1/2029
Levins property (6) 2,687,293 2,032,332 3.75% 3.75% 2/16/2026
Dollar General Bakersfield property (6) 2,263,573 2,268,922 3.65% 3.65% 2/16/2028
Labcorp property (6) 5,374,587 4,020,418 3.75% 3.75% 2/16/2026
GSA (MSHA) property (6) 1,743,349 1,752,092 3.65% 3.65% 2/16/2026
PreK San Antonio property (7) 4,984,311 5,037,846 4.25% 4.25% 12/1/2021
Solar Turbines, Amec Foster, ITW Rippey properties (7) 9,101,005 9,214,700 3.35% 3.35% 11/1/2026
Dollar General Big Spring property (7) 593,851 599,756 4.50% 4.50% 4/1/2022
Gap property (7) 3,531,585 3,569,990 4.15% 4.15% 8/1/2023
L3Harris property (8) 6,300,000 5,185,929 3.35% 3.35% 5/21/2031
Sutter Health property (7) 13,739,153 13,879,655 4.50% 4.50% 3/9/2024
Walgreens property (7) 3,120,360 3,172,846 4.25% 4.25% 7/16/2030
Total mortgage notes payable 182,758,762 176,948,438
Plus unamortized mortgage premium, net (9) 390,426 447,471
Less unamortized deferred financing costs (1,572,582) (1,469,991)
Mortgage notes payable, net $ 181,576,606 $ 175,925,918


Collateral	2022 Principal Amount		2021 Principal Amount		Contractual Interest Rate (1)	Effective Interest Rate (2)	Loan Maturity
Costco property	$	18,850,000	$	18,850,000	4.85%	4.85%	01/01/30
Taylor Fresh Foods	12,350,000		12,350,000		3.85%	3.85%	11/01/29
Sutter Health property	13,450,173		13,597,120		4.50%	4.50%	03/09/24
Six Dollar General properties	—		3,674,327		—%	4.69%	(3)
Dollar General, Bakersfield property	—		2,224,418		—%	3.65%	(3)
Dollar General, Big Spring property	—		587,961		—%	4.69%	(3)
Northrop Grumman property	—		6,925,915		—%	3.35%	(3)
exp US Services property	—		3,255,313		—%	4.25%	(3)
Wyndham property	—		5,493,000		—%	4.34%	(3)
Williams Sonoma property	—		4,344,000		—%	4.05%	(3)
EMCOR property	—		2,757,943		—%	4.36%	(3)
Husqvarna property	—		6,379,182		—%	4.60%	(3)
AvAir property	—		19,950,000		—%	3.80%	(3)
3M property	—		8,025,200		—%	5.09%	(3)
Cummins property	—		8,188,800		—%	5.16%	(3)
Levins property	—		2,654,405		—%	3.75%	(3)
Labcorp property	—		5,308,810		—%	3.75%	(3)
GSA (MSHA) property	—		1,713,196		—%	3.65%	(3)
PreK Education property	—		4,930,217		—%	4.25%	(3)
Solar Turbines, Amec Foster, ITW Rippey properties	—		8,986,222		—%	3.35%	(3)
Gap property	—		3,492,775		—%	4.15%	(3)
L3Harris property	—		6,219,524		—%	3.35%	(3)
Walgreens property	—		3,067,109		—%	4.25%	(3)
Total mortgage notes payable	44,650,173		152,975,437
Plus unamortized mortgage premium, net (4)	171,810		204,281
Less unamortized deferred financing costs	(213,168)		(956,139)
Mortgage notes payable, net	$	44,608,815	$	152,223,579

(1)Contractual interest rate represents the interest rate in effect under the mortgage note payable as of June 30, ~~2021.~~ 2022 for the three mortgages that were not refinanced through a drawdown from the Credit Facility (defined and discussed below) with KeyBank National Association (“KeyBank”) given their prepayment penalties.

(2)Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2022 consisting of the contractual interest rate, and as of December 31, 2021, consisting of the contractual interest rate and the effect of the interest rate swap, if applicable (see Note 8 for further information regarding the Company’s derivative ~~instruments)~~.

~~(2)Reclassified to mortgage note payable at June 30, 2021 from mortgage note payable related to real estate investments held for sale~~instruments as of December 31, ~~2020 due to a subsequent decision not to sell the real estate investment property securing the loan which was reclassified back to assets held and used from assets held for sale (see~~ 2021)~~Note 3 for details~~).

(3)The ~~loans~~loan was fully repaid on ~~each of~~January 18, 2022 through a drawdown from the ~~Williams Sonoma and Wyndham properties (collectively,~~Credit Facility.

(4)Represents unamortized net mortgage premium acquired through the ~~“Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The loans are collateralized by a deed of trust and a security agreement~~merger with assignment of rents and fixture filing. In addition, the individual loans are subject to a cross collateralization and cross default agreement whereby any default under, or failure to comply with the terms of any one or both of the loans, is an event of default under the terms of both loans. The value of the Property must be in an amount sufficient to maintain a loan to value ratio of no more than 60%. If the loan to value ratio is ever more than 60%, theREIT I.

2927

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~borrower shall, upon the Bank’s written demand, reduce the principal balance of the loans so that the loan to value ratio is no more than 60%.~~

~~(4)The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate becomes the U.S. Treasury Bill index rate plus 3.25%.~~

~~(5)The initial contractual interest rate is 4.60% through February 20, 2023 and then the greater of 4.60% or five-year Treasury Constant Maturity (“TCM”) plus 2.45% through February 20, 2028.~~

~~(6)The mortgage note as of June 30, 2021 was refinanced on March 5, 2021 with a new lender and terms. The mortgage note as of December 31, 2020 was acquired through the Merger on December 31, 2019.~~

~~(7)The loan was acquired through the Merger on December 31, 2019.~~

~~(8)~~The loans on the Northrop Grumman and L3Harris properties were refinanced during the three months ended June 30, 2021. The initial contractual interest rate is 3.35% through June 1, 2026 and then the Prime Rate in effect as of June 1, 2026 plus 0.25% through May 21, 2031; provided that the second fixed interest rate will not be lower than 3.35% per annum.

~~(9)Represents unamortized net mortgage premium acquired through the Merger.~~

The following summarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable (Level 3 measurement) as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

June 30, 2021 December 31, 2020
Face Value Carrying
Value Fair Value Face value Carrying
Value Fair Value
Mortgage notes payable $ 182,758,762 $ 181,576,606 $ 184,187,667 $ 176,948,438 $ 175,925,918 $ 177,573,106


	June 30, 2022						December 31, 2021
	Face Value		Carrying Value		Fair Value		Face value		Carrying Value		Fair Value
Mortgage notes payable	$	44,650,173	$	44,608,815	$	41,493,296	$	152,975,437	$	152,223,579	$	159,241,815
Less: full repayments of mortgages on January 18, 2022							(108,178,317)		(107,429,721)		*
							$	44,797,120	$	44,793,858	$	46,296,445

* The payoff values of the loans refinanced on January 18, 2022 approximate their face values as of December 31, 2021.

Disclosures of the fair values of financial instruments are based on pertinent information available to the Company as of the period end and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of fair value.

Mortgage Notes Payable Related to Real Estate Investments Held For Sale, Net

As discussed in detail in Note 3, the Company classified ~~1 and 2~~4 properties as real estate held for sale as of ~~June 30, 2021 and~~ December 31, ~~2020, respectively,~~2021, which were collateral for mortgage notes payable. No property was classified as held for sale as of June 30, 2022. The following table summarizes the Company's mortgage notes payable related to real estate investments held for sale as of ~~June 30, 2021 and~~ December 31, ~~2020:~~2021:

Collateral June 30,
2021 December 31,
2020
Dana Property $ 4,422,616 $ 0
Harley Davidson property 0 6,623,346
EcoThrift property 0 2,573,509
Total 4,422,616 9,196,855
Plus unamortized mortgage premium 0 1,550
Less deferred financing costs (41,190) (109,967)
Mortgage notes payable, net $ 4,381,426 $ 9,088,438


Collateral	December 31, 2021
Accredo property	$	8,538,000
Omnicare property	4,109,167
Texas Health property	4,284,335
Bon Secours property	5,104,817
Total	22,036,319
Less deferred financing costs	(336,407)
Mortgage notes payable, net	$	21,699,912

Credit Facility ~~Net~~

On January 18, 2022, the Company's Operating Partnership entered into a $250,000,000 credit agreement (‘‘Credit Agreement’’) providing for a $100,000,000 four-year revolving line of credit, which may be extended by up to 12 months subject to certain conditions (the ‘‘Revolver’’), and a $150,000,000 five-year term loan (the ‘‘Term Loan’’ and together with the ‘‘Revolver,’’ the ‘‘Credit Facility’’) with KeyBank and the other lending institutions party thereto (collectively, the ‘‘Lenders’’), including KeyBank as Agent for the Lenders (in such capacity, the ‘‘Agent’’), BMO Capital Markets, Truist Bank and The ~~details~~Huntington National Bank as Co-Syndication Agents (the “Co-Syndication Agents”) and KeyBanc Capital Markets Inc., BMO Capital Markets, Inc., Truist Securities, Inc. and The Huntington National Bank as Joint-Lead Arrangers (the “Lead Arrangers”). The Credit Facility is available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness and capital expenditures.

The Credit Facility is priced on a leverage-based grid that fluctuates based on the Company’s actual leverage ratio at the end of the prior quarter. With the Company's ~~credit facilities~~leverage ratio at 34% as of March 31, 2022 and 38% as of June 30, ~~2021~~2022, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’), including a 10 basis point credit adjustment, is 165 basis points and ~~December~~the interest rate on the Revolver was 3.150% as of June 30, 2022. Following the Federal Reserve Bank’s July 27, 2022 increase in the target range for federal funds by 75 basis points, the interest rate on the Revolver is approximately 3.96%. The Company also pays an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and paid total unused fees of $50,047 and $72,280 for the three and six months ended June 30, 2022, respectively. The Company entered into a swap agreement to fix the interest rate on the Term Loan at 3.858% effective May 31, ~~2020 follow:~~

June 30,
2021 December 31,
2020
Credit facility $ 3,000,000 $ 6,000,000
Less unamortized deferred financing costs (110,697) (21,724)
Credit facility, net $ 2,889,303 $ 5,978,276
2022 as described in Note 8.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Credit Facility includes customary covenants, including minimum fixed charge coverage of 1.50x, minimum tangible net worth of $208,629,727 plus 85% of net offering proceeds and maximum leverage of 60% of the Company's borrowing base. The Company was in compliance with these covenants as of June 30, 2022. The Credit Facility is secured by a pledge of all of the Operating Partnership’s equity interests in certain of the single-purpose, property-owning entities (the ‘‘Subsidiary Guarantors’’) that are indirectly owned by the Company, and various cash collateral owned by the Operating Partnership and the Subsidiary Guarantors. In connection with the Credit Facility, the Company and each of the Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which the Company and each of the Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.

While the Credit Facility allows for borrowings up to 60% of the Company's borrowing base and the Company's board of directors has approved a maximum leverage ratio of 55% of the aggregate fair value of the Company's real estate properties plus its cash and cash equivalents, the Company is targeting leverage of 40% or lower over the long-term once it achieves scale; however, the Company will consider higher leverage in the near-term if it identifies attractive acquisition opportunities in advance of completing dispositions or raising additional equity. The Company also has the right to increase the Credit Facility to a maximum of $500,000,000, subject to customary conditions, including the receipt of new commitments from the Lenders.

Credit Facility Drawdown

On January 18, 2022, the Company borrowed $155,775,000 from its Credit Facility consisting of $100,000,000 under the Term Loan and $55,775,000 under the Revolver. The Company used a portion of the proceeds from the Credit Facility to pay total commitment and arrangement fees of $2,020,000 to the Agent, the Lenders, the Lead Arrangers and Co-Syndication Agents.

The Company used a portion of the proceeds from the Credit Facility to repay 20 property mortgages, and related interest aggregating $153,428,764, including the $36,465,449 mortgage on the KIA auto dealership property which was acquired on January 18, 2022, as discussed above, and the Company's prior line of credit outstanding balance of $8,022,000. The 20 mortgages that were paid off were for the following 27 properties: 8 Dollar Generals, Northrop Grumman, exp Maitland, Wyndham, Williams Sonoma, EMCOR, Husqvarna, AvAir, 3M, Cummins, Levins, Labcorp, GSA (MHSA), PreK Education, ITW Rippey, Solar Turbines, Wood Group, Gap, L3Harris and Walgreens. After the 20 property mortgages were paid-off, 7 property mortgages as of December 31, 2021 remained outstanding, including 4 property mortgages related to assets held for sale. Those 4 mortgages were paid-off pursuant to sales of the properties in February 2022 as discussed above.

On March 8, 2022, the Company prepaid $35,000,000 of the outstanding balance on the Revolver with cash on hand in order to reduce interest expense and on April 25, 2022, the Company drew the remaining $50,000,000 on the Term Loan for a repayment of the Revolver. The Company also repaid $8,000,000 on the Revolver on June 22, 2022. As of June 30, 2022, the Company had availability under the Credit Facility of approximately $60,000,000 which can be drawn for general corporate purposes, including pending and future acquisitions (see Note 14 for transactions subsequent to the second quarter of 2022).

The details of the Company's Term Loan as of June 30, 2022 follow:


	June 30, 2022
Term loan	$	150,000,000
Less unamortized deferred financing costs	(1,149,950)
Net term loan	$	148,850,050

Prior Credit Facility

On March 29, 2021, the Company entered into a ~~new~~ credit facility with Banc of California (the ~~“Credit~~“Prior Credit Facility”) for an aggregate line of credit of $22,000,000 with a maturity date of March 30, 2023 which replaced the prior credit facility provided by Pacific Mercantile Bank (“PMB”) with a balance outstanding of $6,000,000 as of December 31, 2020. The Company borrowed $6,000,000 under the Credit Facility and repaid the $6,000,000 that was owed to PMB on March 31, 2021. The Credit Facility provides the Company with a $17,000,000 revolving line of credit for real estate acquisitions (including the $6,000,000 borrowed to repay PMB) and an additional $5,000,000 revolving line of credit for working capital.2023. Under the terms of the Prior Credit Facility, the Company ~~will pay~~paid a variable rate of interest on outstanding amounts equal to 1 percentage point over the prime rate published in The Wall Street Journal, provided that the interest rate in effect on any one day ~~shall~~was not be less than 4.75% per annum. The Company paid Banc of California origination fees of $77,000 in connection with the Prior Credit Facility in March 2021 and ~~will pay~~paid an unused commitment fee of 0.15% per annum of the unused portion of the Prior Credit Facility, charged quarterly in arrears based on the average unused commitment available under the Prior Credit Facility.

The Credit Facility is secured by substantially all of the Company’s tangible and intangible assets, including intellectual property. The Credit Facility requires the Company to maintain a minimum debt service coverage ratio of 1.25 to 1.00 and minimum tangible NAV (as defined in the loan agreement) of $120,000,000, measured quarterly. Mr. Wirta, the Company’s Chairman, has guaranteed the $6,000,000 initial borrowing, which guarantee will expire upon repayment of the $6,000,000 which is due by September 30, 2021. Mr. Wirta has also guaranteed the $5,000,000 revolving line of credit for working capital. On March 29, 2021, the Company entered into an updated indemnification agreement with Mr. Wirta and the Wirta Trust with respect to their guarantees of borrowings under the Credit Facility pursuant to which the Company agreed to indemnify Mr. Wirta and the Wirta Trust if they are required to make payments to Banc of California pursuant to such guarantees. On July 9, 2021, the Company repaid $1,500,000 of the $3,000,000 which was outstanding under its Credit Facility as of June 30, 2021.

The Credit Facility contains customary representations, warranties and covenants, which are substantially similar to those in the Company's prior credit facility provided by PMB. The Company’s ability to borrow under the Credit Facility will be subject to its ongoing compliance with various affirmative and negative covenants, including with respect to indebtedness, guaranties, mergers and asset sales, liens, tangible net worth, corporate existence and financial reporting obligations. The Credit Facility also contains customary events of default, including, without limitation, nonpayment of principal, interest, fees or other amounts when due, violation of covenants, breaches of representations or warranties and change of ownership. Upon the occurrence of an event of default, Banc of California may accelerate the repayment of amounts outstanding under the Credit Facility, take possession of any collateral securing the Credit Facility and exercise other remedies subject, in certain instances, to the expiration of an applicable cure period.

~~Short-term Notes Payable~~

In connection with the Self-Management Transaction, the Company assumed from BrixInvest its unsecured short-term notes payable (formerly known as “Convertible Promissory Notes”) of $4,800,000 on December 31, 2019. All of these notes were repaid by April 6, 2020.

~~Economic Relief Notes Payable~~

On April 20, 2020, a subsidiary of the Company entered into a loan agreement and promissory note evidencing an unsecured loan in the aggregate amount of $517,000 made to this subsidiary under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. In December 2020, the subsidiary of the Company submitted its application for forgiveness of the total amount of the loan to PMB. After PMB’s review, the Company updated its forgiveness application on February 10, 2021, PMB submitted the application to the SBA on February 10, 2021, and on February 16, 2021, the subsidiary of the Company was notified by PMB that the Company's application for forgiveness of the PPP loan had been approved by the SBA in the full amount of $517,000. Accordingly, the forgiveness of the PPP loan was recorded as other income in the first quarter of 2021.

~~Compliance with All Debt Agreements~~

The Company's maximum leverage, as defined and approved by the board of directors, including all of the independent directors, is 55% of the aggregate value of the Company’s tangible assets. The Company uses available leverage based on the relative cost of debt and equity capital, and to address strategic borrowing advantages potentially available to the Company.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Revolver's and Prior Credit Facility's unamortized deferred financing costs of $814,997 and $100,079 as of June 30, 2022 and December 31, 2021, respectively, are presented under prepaid and other assets in the Company's unaudited condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.

Compliance with All Debt Agreements

Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the Credit Facility, the Company and/or the subsidiary borrowers are subject to certain financial loan covenants. The Company and/or the subsidiary borrowers were in compliance with such financial loan covenants as of June 30, ~~2021.~~2022.

The following summarizes the future principal repayments of the Company’s mortgage notes payable ~~unsecured credit facility~~ and ~~short-term notes payable~~Credit Facility as of June 30, ~~2021:~~2022:


		Mortgage Notes Payable		Credit Facility		Total			Mortgage Notes		Credit Facility
July through December 2021		$	6,196,648	$	3,000,000	$	9,196,648
2022		11,171,882		0		11,171,882
									Payable		Revolver		Term Loan		Total
July through December 2022								July through December 2022	$	141,575	$	—	$	—	$	141,575
2023	2023	22,203,304		0		22,203,304		2023	317,575		—		—		317,575
2024	2024	31,562,644		0		31,562,644		2024	12,991,023		—		—		12,991,023
2025	2025	28,970,205		0		28,970,205		2025	—		—		—		—
2026	2026	26,484,106		0		26,484,106		2026	—		6,775,000		—		6,775,000
2027								2027	—		—		150,000,000		150,000,000
Thereafter	Thereafter	56,169,973		0		56,169,973		Thereafter	31,200,000		—		—		31,200,000
Total principal	Total principal	182,758,762		3,000,000		185,758,762		Total principal	44,650,173		6,775,000		150,000,000		201,425,173
Plus unamortized mortgage premium, net of unamortized discount	Plus unamortized mortgage premium, net of unamortized discount	390,426		0		390,426		Plus unamortized mortgage premium, net of unamortized discount	171,810		—		—		171,810
Less deferred financing costs	Less deferred financing costs	(1,572,582)		(110,697)		(1,683,279)		Less deferred financing costs	(213,168)		—		(1,149,950)		(1,363,118)
Net principal	Net principal	$	181,576,606	$	2,889,303	$	184,465,909	Net principal	$	44,608,815	$	6,775,000	$	148,850,050	$	200,233,865

Interest Expense

The following is a reconciliation of the components of interest expense for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Mortgage notes payable:	Mortgage notes payable:									Mortgage notes payable:
Interest expense	Interest expense	$	1,992,812	$	2,129,678	$	3,826,636	$	4,300,183	Interest expense	$	460,886	$	1,992,812	$	1,273,605	$	3,826,636
Amortization of deferred financing costs	Amortization of deferred financing costs	103,383		139,600		214,426		258,631		Amortization of deferred financing costs	7,235		103,383		14,459		214,426
Prepayment penalties		0		0		23,900		47,000
(Gain) loss on interest rate swaps (1)		(92,200)		70,985		(420,243)		1,395,697
Credit facilities:
Swap termination costs										Swap termination costs	—		—		—		23,900
Unrealized gain on interest rate swap valuation (1)										Unrealized gain on interest rate swap valuation (1)	—		(92,200)		—		(420,243)
Credit facility:										Credit facility:
Interest expense	Interest expense	63,333		166,834		142,085		321,458		Interest expense	1,098,435		63,333		1,688,665		142,085
Amortization of deferred financing costs	Amortization of deferred financing costs	22,139		42,876		43,863		75,336		Amortization of deferred financing costs	120,830		22,139		221,520		43,863
Unrealized gain on interest rate swap valuation (2)										Unrealized gain on interest rate swap valuation (2)	(589,997)		—		(589,997)		—
Other	Other	9,182		8,904		49,118		65,228		Other	99,765		9,182		157,077		49,118
Total interest expense	Total interest expense	$	2,098,649	$	2,558,877	$	3,879,785	$	6,463,533	Total interest expense	$	1,197,154	$	2,098,649	$	2,765,329	$	3,879,785

(1) Includes unrealized ~~(gain) loss~~gain on interest rate swaps of ~~$(90,600)~~$90,600 and ~~$7,785~~$517,719 for the three ~~months ended June 30, 2021~~ and ~~2020, respectively, and $(517,719) and $1,292,752 for the~~ six months ended June 30, 2021 ~~and 2020, respectively~~ (see Note 8)for more details). Accrued interest ~~payable~~receivable of ~~$55,180 and $45,636~~$56,114 as of ~~June 30, 2021 and~~ December 31, ~~2020, respectively, represents~~2021 represented the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through the ~~respective~~ balance sheet ~~dates.~~date.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

(2) The Company entered into a swap transaction for its Credit Facility Term Loan effective May 31, 2022 which is further described in Note 8.

NOTE 8. INTEREST RATE SWAP DERIVATIVES

The Company, through its Operating Partnership, entered into a five-year swap agreement to fix SOFR at 2.258% related to its variable interest rate Term Loan effective May 31, 2022. The Company designated the pay-fixed, receive-floating interest rate swap with the terms described in the table below. The swap agreement matures on January 15, 2027 and the financial institution counterparty has a one-time option to cancel the swap on December 31, 2024.

In prior years, the Company, through its limited liability company subsidiaries, entered into interest rate swap agreements with amortizing notional amounts relating to 4 of its mortgage notes payable. ~~NaN additional~~These swap agreements, ~~assumed in conjunction with the Merger~~ which were in place as of December 31, ~~2020~~2021, were terminated ~~in due course or were terminated~~during the three months ended March 31, 2022 in connection with ~~asset sales and~~ refinancings ~~during the six months ended June 30, 2021.~~discussed in Note 7. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks. During the three months ended March 31, 2022, the Company terminated the swap agreements related to mortgages on the 3M, Cummins, Wyndham and Williams Sonoma properties at aggregate costs of $733,000 and during the three months ended March 31, 2021, the Company terminated the swap agreements related to mortgages on the GSA and Eco-Thrift properties at aggregate costs of $23,900.

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of June 30, ~~2021~~2022 and December 31, ~~2020, respectively:~~2021:

June 30, 2021

December 31, 2020

June 30, 2022

December 31, 2021

Derivative
Instruments

Number of Instruments

Notional
Amount (i)

Reference
Rate (ii)

Weighted Average Fixed Pay Rate

Weighted
Average
Remaining
Term

Number
of
Instruments

Notional
Amount (i)

Reference
Rate (iii)

Weighted Average Fixed Pay Rate

Weighted
Average
Remaining
Term

Derivative
Instruments

Number of Instruments

Notional
Amount (i)

Reference
Rate (ii)

Fixed Pay Rate (iii)

Remaining Non-Cancellable Term

Number of Instruments

Notional
Amount (i)

Reference
Rate (iv)

Weighted Average Fixed Pay Rate

Weighted
Average
Remaining Term

Interest Rate Swap Derivatives (iv)

26,291,600

One-month LIBOR + applicable spread/Fixed at 4.05%-5.16%

4.55

2.6 years

36,617,164

One-month LIBOR + applicable spread/Fixed at 3.13%-5.16%

3.35

2.2 years

Interest Rate Swap Derivatives

150,000,000

Indexed to USD - SOFR - COMPOUND

3.858

2.5 years

26,051,000

One-month LIBOR + applicable spread/Fixed at 4.05%-5.16%

4.51

2.0 years

(i)The notional amount of the Company’s swaps ~~decreases~~decreased each month to correspond to the outstanding principal balance on the related mortgage. The minimum notional amounts (outstanding principal balance at the maturity date) as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$24,935,999~~$150,000,000 and ~~$34,989,063,~~$24,935,999, respectively.

(ii)The reference rate was as of June 30, ~~2021.~~2022.

(iii)Based on the terms of the Credit Facility, the fixed pay rate increases if the Company's leverage ratio increases.

(iv)The reference rate was as of December 31, ~~2020.~~

~~(iv)~~The Company terminated swap agreements related to the GSA and Eco-Thrift properties during the six months ended June 30, 2021 and terminated the swap agreement related to the Dinan Cars property mortgage loan during the six months ended June 30, 2020 at aggregate costs of $23,900 and $47,000, respectively (see ~~Note 7~~).2021.

The following table sets forth the fair value of the Company’s derivative instruments (Level 2 measurement), as well as their classification in the unaudited condensed consolidated balance ~~sheets:~~sheets as of June 30, 2022 and December 31, 2021:


			June 30, 2021			December 31, 2020					June 30, 2022			December 31, 2021
Derivative Instrument	Derivative Instrument	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value		Derivative Instrument	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value
Interest Rate Swaps	Interest Rate Swaps	Asset - Interest rate swap derivatives, at fair value	0	$	0	0	$	0	Interest Rate Swaps	Asset - Interest rate swap derivatives, at fair value	1	$	589,997	—	$	—
Interest Rate Swaps	Interest Rate Swaps	Liability - Interest rate swap derivatives, at fair value	4	$	(1,240,336)	8	$	(1,743,889)	Interest Rate Swaps	Liability - Interest rate swap derivatives, at fair value	—	$	—	4	$	(788,016)

The ~~change~~changes in fair value of athese derivative ~~instrument~~instruments that iswere not designated as a cash flow hedge for financial accounting purposes iswere recorded as interest expense in the unaudited condensed consolidated statements of operations. None of the Company’s derivatives ~~at June 30, 2021 or~~as of December 31, ~~2020~~2021 were designated as hedging instruments; therefore, the net gains recognized were recorded as reductions in the loss on early extinguishment of debt for the three months ended March 31, 2022 and the net unrealized ~~(gain) loss~~gain recognized on interest rate swaps of ~~$(90,600)~~$90,600 and ~~$7,785 was~~$517,719 were recorded as ~~a (decrease) increase~~decreases in interest expense for the three ~~months ended June 30, 2021~~ and ~~2020, respectively, and $(517,719) and $1,292,752 was recorded as an increase in interest expense for the~~ six months ended June 30, 2021, respectively. The loss on early extinguishment of debt for the three months ended March 31, 2022 includes the actual cost of terminating the interest rate swap derivatives in January 2022 for $733,000, which was offset by a corresponding reversal of the liability of $788,016 for interest rate swap derivatives as of December 31, 2021.

Table of Contents

MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 9. PREFERRED STOCK AND COMMON STOCK

Preferred Stock

The Company is authorized to issue up to 50,000,000 shares of preferred stock. In connection with an underwritten public offering in September 2021 (discussed below in detail), the Company classified and ~~2020, respectively.~~designated 2,000,000 shares of its authorized preferred stock as authorized shares of Series A Preferred Stock. As of June 30, 2022 and December 31, 2021, 2,000,000 shares of authorized Series A Preferred Stock were issued and outstanding.

Underwritten Offering - Series A Preferred Stock

On September 14, 2021, the Company and the Operating Partnership entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley Securities, Inc., as representative of the underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell 1,800,000 shares of the Company’s Series A Preferred Stock, with a liquidation preference of $25.00 per share, in the Preferred Offering at a price per share of $25.00. In addition, the Company granted the Underwriters a 30-day option to purchase up to an additional 200,000 shares of the Series A Preferred Stock, which the Underwriters exercised in full on September 16, 2021.

In the Underwriting Agreement, the Company and the Operating Partnership made certain customary representations, warranties and covenants and agreed to indemnify the Underwriters against certain liabilities. The issuance and sale of the shares of Series A Preferred Stock, including the issuance and sale of 200,000 shares pursuant to the Underwriters’ full exercise of their option to purchase additional shares, closed and the Series A Preferred Stock began trading on the NYSE on September 17, 2021.

The gross proceeds from the Preferred Offering were $50,000,000 and the net proceeds were $47,607,309, after deducting the underwriting discount of $1,575,000 and other offering costs of $817,691.

The Company contributed $48,425,000 of the net proceeds from the Preferred Offering prior to other offering costs to the Operating Partnership in exchange for a new class of 7.375% Series A Cumulative Redeemable Perpetual Preferred Units of the Operating Partnership (the “Series A Preferred Units”), which have economic interests that are substantially similar to the designations, preferences and other rights of Series A Preferred Stock. The Company, acting through the Operating Partnership, used the net proceeds from such contribution for general corporate purposes, including purchases of additional properties and other real estate and real estate-related assets.

Series A Preferred Stock - Terms

Holders of Series A Preferred Stock are entitled to cumulative dividends in the amount of $1.84375 per share each year, which is equivalent to the rate of 7.375% of the $25.00 liquidation preference per share per annum. The Series A Preferred Stock has no stated maturity and will remain outstanding indefinitely unless redeemed, converted or otherwise repurchased. Except in limited circumstances relating to the Company's qualification as a REIT for U.S. federal income tax purposes, and as described in the articles supplementary governing the terms of the Series A Preferred Stock (the “Articles Supplementary”), the Series A Preferred Stock is not redeemable prior to September 17, 2026.

On and after September 17, 2026, at any time and from time to time, the Series A Preferred Stock will be redeemable in whole or in part, at the Company's option, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the Articles Supplementary), the Company may, subject to certain conditions, at its option, redeem the Series A Preferred Stock, in whole or in part, (i) after the first date on which the Delisting Event occurred or (ii) on, or within 120 days after, the first date on which the Change of Control occurred, as applicable, by paying the liquidation preference of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Upon the occurrence of a Change of Control during a continuing Delisting Event, unless the Company has elected to exercise its redemption right, holders of the Series A Preferred Stock will have certain rights to convert the Series A Preferred Stock into shares of the Company’s Class C common stock. In addition, upon the occurrence of a Delisting Event, the dividend rate will be increased on the day after the occurrence of the Delisting Event by 2.00% per annum to the rate of 9.375% of the $25.00 liquidation preference per share per annum (equivalent to $2.34375 per share each year) from and after the date of the Delisting Event. Following the cure of such Delisting Event, the dividend rate will revert to the rate of 7.375% of the $25.00 liquidation preference per share per annum. The necessary conditions to convert the Series A Preferred Stock into the Company's Class C common stock have not been met as of June 30, 2022.

The Series A Preferred Stock ranks senior to the Company's Class C common stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up.

Voting rights for holders of Series A Preferred Stock exist primarily with respect to the ability to elect 2 additional directors to the board of directors if six or more quarterly dividends (whether or not authorized or declared or consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to the Company’s charter (which includes the Articles Supplementary) that materially and adversely affect the rights of the Series A Preferred Stock or create additional classes or series of shares of the Company’s capital stock that are senior to the Series A Preferred Stock. Other than the limited circumstances described above and in the Articles Supplementary, holders of Series A Preferred Stock do not have any voting rights.

Series A Preferred Stock Dividend

Dividends on the Company's Series A Preferred Stock accrue in an amount equal to $1.84375 per share each year ($0.460938 per share per quarter) to holders of Series A Preferred Stock, which is equivalent to 7.375% of the $25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. Any accrued and unpaid dividends payable with respect to the Series A Preferred Stock become part of the liquidation preference thereof.

On November 11, 2021, the Company’s board of directors declared Series A Preferred Stock distributions payable of $1,065,278 for the fourth quarter of 2021, including the $143,403 of accrued dividends as of September 30, 2021, all of which were paid on January 18, 2022. On March 18, 2022, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the first quarter of 2022, which was paid on April 15, 2022. On June 15, 2022, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the second quarter of 2022. This amount was accrued as of June 30, 2022 and paid on July 15, 2022 (see Note 14).

Common Stock Listed Offering

On February 10, 2022, the Company and the Operating Partnership entered into an underwriting agreement (the “Class C Common Stock Underwriting Agreement”) with B. Riley Securities, Inc., as the underwriter listed on Schedule I thereto, pursuant to which the Company agreed to issue and sell 40,000 shares of the Company’s Class C common stock in an underwritten Listed Offering at a price per share of $25.00. On February 15, 2022, the Company completed the Listed Offering of its Class C common stock, and in connection with the Listed Offering, the Company sold to Mr. Wirta, the Company’s former Chairman, all 40,000 shares of its Class C common stock at $25.00 per share for aggregate net proceeds of $114,500, after deducting the underwriting discount of $70,000, and other offering costs of $815,500. The primary purpose of the Listed Offering was to provide liquidity to the Company’s existing stockholders. The shares of Class C common stock began trading on the NYSE on February 11, 2022. In connection with the Listed Offering and upon the listing on the NYSE, each share of the Company's Class S common stock was converted into a share of Class C common stock.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 9.10. RELATED PARTY TRANSACTIONS

The Company pays the members of its board of directors who are not executive officers for services rendered through cash payments orand by issuing shares of Class C common stock to them. ~~The total~~Total fees incurred and paid or accrued for board services ~~and paid~~ by the Company for the three and six months ended June 30, 2022 and 2021, ~~and 2020, is~~are as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
Board of Directors Compensation	Board of Directors Compensation	2021		2020		2021		2020		Board of Directors Compensation	2022		2021		2022		2021
Cash paid for services rendered		$	60,000	$	0	$	60,000	$	31,250
Payments for services rendered										Payments for services rendered	$	67,500	$	60,000	$	135,000	$	60,000
Value of shares issued for services rendered	Value of shares issued for services rendered	110,000		70,000		180,000		72,083		Value of shares issued for services rendered	82,500		110,000		165,000		180,000
Total	Total	$	170,000	$	70,000	$	240,000	$	103,333	Total	$	150,000	$	170,000	$	300,000	$	240,000

Number of shares issued for services rendered (*)		4,470		2,272		7,510		2,355
Number of shares issued for services rendered										Number of shares issued for services rendered	4,666		4,470		9,265		7,510

* AdjustedFees incurred for board services for the ~~1:3 reverse stock split for the~~ three ~~and six~~ months ended June 30, ~~2020.~~

~~As of June 30, 2020, $101,250 was accrued for the second quarter of 2020 services. This amount was~~2022 were paid in cash and shares were issued on July ~~2020 by paying cash~~7, 2022 based on the closing price of ~~$31,250 and issuing 4,821 shares of~~the Company’s Class C common stock ~~(adjusted for~~on June 30, 2022.

Transactions with Other Related Parties

As discussed in Note 3, on January 31, 2022, the ~~1:3 reverse stock split).~~

~~Effective February 3, 2020,~~Company acquired an industrial property in Saint Paul, Minnesota, which is leased to Kalera, Inc. The acquisition of the Kalera, Inc. property was introduced to the Company by Curtis B. McWilliams, one of the Company's ~~indirect subsidiary, modiv Advisors, LLC, became~~independent directors. Since Mr. McWilliams was serving as the ~~advisor to BRIX REIT,~~Interim Chief Executive Officer of Kalera, Inc.~~, a REIT originally sponsored by BrixInvest, LLC which also sponsored~~ at the ~~Company until~~time of the ~~Self-Management Transaction on December 31, 2019. During~~transaction, all of the ~~three and six months ended June 30, 2021 and 2020, no business transactions occurred between the Company and BRIX REIT, Inc. other than minor expenses advanced.~~

~~On March 2, 2020, the Company borrowed a total~~disinterested members of ~~$4,000,000, secured by mortgages on its 2 Chevron properties, from~~ the Company's ~~Chairman, Mr. Wirta. The Company's conflicts committee~~board of directors approved the terms of these mortgages which bore interest at an annual rate of 8% and were scheduled to mature on June 2, 2020. On June 1, 2020, the maturity date of these mortgages was extended to September 1, 2020 on the same terms, along with an option for a further extension to November 30, 2020 at the Company’s election prior to August 18, 2020, which the Company elected not to exercise. On July 31, 2020 and August 28, 2020, the mortgages secured by the Chevron San Jose, CA property and Chevron Roseville, CA property, each for $2,000,000, were repaid along with all related accrued interest.

~~Due to Affiliates~~

In connection with the Self-Management Transaction, the Company assumed 2 notes payable aggregating $630,820 on December 31, 2019 owed to Mr. Wirta, the Company's Chairman. The notes payable had identical terms including a fixed interest rate of 10% paid semi-monthly and a maturity date of April 23, 2020. The remaining principal amount of $218,931 due for each note, aggregating $437,862, was paid on the maturity date. The repayments are reflected in the change in due to affiliates in the accompanying unaudited statement of cash flows for the six months ended June 30, 2020.this transaction.

Related Party Transactions with Unconsolidated ~~Entities~~Investment in a Real Estate Property

The Company's taxable REIT subsidiary serves as the asset manager of the TIC Interest property and earned asset management fees of $65,993, including the Company's share which was $47,984 for both of the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $131,986, including the Company's share which was $95,967 for both of the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

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~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

NOTE ~~10.~~11. COMMITMENTS AND CONTINGENCIES

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.

Tenant Improvements

Pursuant to lease agreements, as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had obligations to pay ~~$189,136~~$609,788 and ~~$60,598,~~$189,136, respectively, for on-site and tenant improvements to be incurred by tenants. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$2,400,000~~no restricted cash and ~~$92,684~~$2,271,462 of restricted cash, respectively, held to fund other building improvements ~~tenant improvements~~ and leasing commissions.

~~Redemption of Common Stock~~

~~The Company has a share repurchase program that enables qualifying stockholders to sell their stock~~ Pursuant to the ~~Company in limited circumstances. The maximum amount of common stock that may be repurchased per month is limited to no more than 2%~~refinancing of the ~~Company’s most recently determined aggregate NAV. Repurchases for any calendar quarter are limited to no more than 5%~~related mortgage notes payable on January 18, 2022 as discussed in Note 7, the restricted cash as of its most recently determined aggregate NAV. The foregoing repurchase limitations are based on “net repurchases” during a quarter or month, as applicable. Thus, for any given calendar quarter or month, the maximum amount of repurchases during that quarter or month will be equal to (1) 5% or 2% (as applicable) of the Company’s most recently determined aggregate NAV, plus (2) proceeds from sales of new shares in the Registered Offerings and Class S Offering (including purchases pursuant to its Registered DRP Offering) since the beginning of a current calendar quarterDecember 31, 2021 was released. ~~or month, less (3) repurchase proceeds paid since the beginning of the current calendar quarter or month.~~

The Company has the discretion to repurchase fewer shares than have been requested to be repurchased in a particular month or quarter, or to repurchase no shares at all, in the event that it lacks readily available funds to do so due to market conditions beyond the Company’s control, it needs to maintain liquidity for its operations, or because the Company determines that investing in real property or other investments is a better use of its capital than repurchasing its shares. In the event that the Company repurchases some but not all of the shares submitted for repurchase in a given period, shares submitted for repurchase during such period will be repurchased on a pro-rata basis, subject to any Extraordinary Circumstance Repurchase (defined below).

The Company has the discretion, but not the obligation, under extraordinary market or economic circumstances, to make a special repurchase in equal, nominal quantities of shares from all stockholders who have submitted share repurchase requests during the period (“Extraordinary Circumstance Repurchase”). Extraordinary Circumstance Repurchases will precede any pro rata share repurchases that may be made during the period.

In addition, the Company’s board of directors may amend, suspend or terminate the share repurchase program without stockholder approval upon 10 days’ notice if its directors believe such action is in the Company and its stockholders’ best interests. The Company’s board of directors may also amend, suspend or terminate the share repurchase program due to changes in law or regulation, or if the board of directors becomes aware of undisclosed material information that the Company believes should be publicly disclosed before shares are repurchased.

Legal Matters

From time-to-time, the Company may become party to legal proceedings that arise in the ordinary course of its business. ~~Other than as described below, the~~The Company, including its subsidiaries, is not a party to any legal proceeding, nor is the Company aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

On September 18, 2019, a lawsuit was filed in the Superior Court of the State of California, County of Los Angeles (the “State Court Action”), against the former advisor by “John Doe,” a fictitiously-named individual who was one of the former advisor's former employees. The former advisor understands that the plaintiff was its former Chief Digital Officer, who along with six other employees was subject to a reduction in force, communicated to all in advance, that was a result of financial constraints of the former advisor which necessitated the elimination of numerous job positions in May 2019. In the lawsuit, the former employee claims he was terminated in retaliation for his purported whistleblowing with respect to alleged misleading statements made by the former advisor and fraudulently induced arbitration requirements applicable to employees and investors. The complaint seeks to enjoin and rescind the enforcement of the arbitration agreement signed by the former employee and the arbitration requirements related to this complaint. In September 2020, the State Court Action was removed to the United States District Court, Central District of California (“U.S. District Court”). On February 11, 2021, the U.S. District Court ruled in favor of the former advisor’s motion to compel arbitration and to stay the claim before the U.S. District Court and denied plaintiff’s motions to enjoin the arbitration and file a third amended complaint. On March 19, 2021, plaintiff filed a motion for leave to file a third amended complaint and lift the stay, in which he sought to dismiss his first two causes of action, and also sought to lift the stay imposed by the U.S. District Court's February 11, 2021 order. On April 15, 2021, the U.S. District Court granted plaintiff’s motion allowing the third amended complaint to be filed and on May 12, 2021, the U.S. District Court granted plaintiff’s motion to lift the stay. The Company is not a party to the lawsuit. The former advisor has denied all the accusations and allegations in the complaint and the former advisor intends to vigorously defend against the claims made by the plaintiff.

NOTE ~~11.~~12. OPERATING PARTNERSHIP UNITS

Class M OP Units

On September 19, 2019, the Company, the Operating Partnership, BrixInvest and Daisho OP Holdings, LLC, a formerly wholly owned subsidiary of BrixInvest (“Daisho”) which was spun off from BrixInvest on December 31, 2019, entered into the Contribution Agreement pursuant to which the Company agreed to acquire substantially all of the net assets of BrixInvest in exchange for 657,949.5 units of Class M ~~OP Units~~limited partnership interest in the Operating Partnership (“Class M OP Units”) and assumed certain ~~liabilities.~~liabilities (the “Self-Management Transaction”). As a result of the Self-Management Transaction, the Company became self-managed and eliminated all fees for acquisitions, dispositions and management of its properties, which were previously paid to its former external advisor. The consideration transferred as of December 31, 2019 was determined to have a fair value of $50,603,000 based on a probability weighted analysis of achieving the requisite assets under management (“AUM”) and adjusted funds from operations (“AFFO”) hurdles.

The Class M OP Units were issued to Daisho on December 31, 2019 in connection with the Self-Management Transaction and are non-voting, non-dividend accruing, and were not able to be converted or exchanged prior to the one-year anniversary of the Self-Management Transaction. Investors holding units in BrixInvest received Daisho units in a ratio of 1:1 for an aggregate of 657,949.5 Daisho units. During 2020, Daisho distributed the Class M OP Units to its ~~members and the~~members. The Class M OP Units are convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a conversion ratio of 1.6667 Class C OP Units for each one Class M OP Unit, ~~(adjusted for the 1:3 reverse stock split on February 1, 2021),~~ subject to a reduction in the conversion ratio (which reduction will vary depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of the completion of the Self-Management Transaction.

In the event that the Class M OP Units are converted into Class C OP Units prior to December 31, 2023, such Class M OP Units shall be exchanged at the rate indicated below:


Date of Exchange						Early Conversion Rate
From December 31, 2020 to December 30, 2021						50% of the Class M conversion ratio
From December 31, 2021 to December 30, 2022						60% of the Class M conversion ratio
From December 31, 2022 to December 30, 2023						70% of the Class M conversion ratio

~~Table~~As of ~~Contents~~

~~MODIV INC.~~

~~Notes~~June 30, 2022, no Class M OP Units had been converted to ~~Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

Class C OP Units.

The Class M OP Units are eligible for an increase in the conversion ratio (conversion ratio enhancement) if the Company achieves both of the targets for AUM and AFFO in a given year as set forth ~~below~~below:


	Hurdles
	AUM		AFFO		Class M
	($ in billions)		Per Share ($)		Conversion Ratio
Initial Conversion Ratio					1:1.6667
Fiscal Year 2021	$	0.860	$	1.77	1:1.9167
Fiscal Year 2022	$	1.175	$	1.95	1:2.5000
Fiscal Year 2023	$	1.551	$	2.10	1:3.0000

The AUM and ~~as adjusted~~AFFO per share hurdles for the ~~1:3 reverse stock split:~~

Hurdles
AUM AFFO Class M
($ in billions) Per Share ($) Conversion Ratio
Initial Conversion Ratio 1:1.6667
Fiscal Year 2021 $ 0.860 $ 1.77 1:1.9167
Fiscal Year 2022 $ 1.175 $ 1.95 1:2.5000
Fiscal Year 2023 $ 1.551 $ 2.10 1:3.0000
Class M OP Units were not met for fiscal year 2021.

Based on the current conversion ratio of 1.6667 Class C OP Units ~~(adjusted for the 1:3 reverse stock split)~~ for each one Class M OP Unit, if a Class M OP Unit is converted on or after December 31, 2023, and based on the ~~NAV per~~NYSE closing share price of ~~$26.05 (unaudited)~~$17.68 as of June 30, ~~2021,~~2022, a Class M OP Unit would be valued at ~~$43.42 (unaudited).~~$29.47. This ~~NAV~~value does not reflect the early conversion rate or the future conversion enhancement ratio of the Class M OP Units, as discussed above, and the units of Class P limited partnership interest in the Operating Partnership (“Class P OP ~~Units,~~Units”), as discussed ~~above.~~below.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Class P OP Units

The Company ~~also~~ issued ~~a portion of~~ the Class P OP Units described below in connection with the Self-Management Transaction. The Class P OP Units are intended to be treated as “profits interests” in the Operating Partnership, which are non-voting, non-dividend accruing, and are not able to be transferred or exchanged prior to the earlier of (1) March 31, 2024, (2) a change of control (as defined in the Third Amended and Restated ~~Agreement of~~ Limited Partnership Agreement of the Operating Partnership ~~(the “Amended OP~~(as amended, the “Operating Partnership Agreement”)), or (3) the date of the recipient's involuntary termination (as defined in the relevant award agreement for the Class P OP Units) (collectively, the “Lockup Period”). Following the expiration of the Lockup Period, the Class P OP Units are convertible into Class C OP Units at a conversion ratio of 1.6667 Class C OP Units ~~(adjusted for the 1:3 reverse stock split)~~ for each one Class P OP Unit; provided, however, that the foregoing conversion ratio shall be subject to increase on generally the same terms and conditions as the Class M OP Units, as set forth above.

The AUM and AFFO per share hurdles for the Class P OP Units were not met for fiscal year 2021. The Company will adjust stock compensation expense prospectively if the future conversion enhancement ratio is achieved during fiscal 2022 or 2023.

The Company issued a total of 56,029 Class P OP Units to ~~Messrs.~~Aaron S. Halfacre, the Company’s Chief Executive Officer and President, and Raymond J. Pacini, the Company’s Chief Financial Officer, including 26,318 Class P OP Units issued in exchange for Messrs. Halfacre's and Pacini's agreements to forfeit a similar number of restricted units in BrixInvest in connection with the Self-Management Transaction. The remaining 29,711 Class P OP Units were issued to these executives as signing bonuses and as a portion of their incentive compensation for 2020 in connection with their entry into restrictive covenant agreements. The 29,711 Class P OP Units were valued based on the estimated NAV per share of $30.48 ~~(unaudited and adjusted for the 1:3 reverse stock split)~~(unaudited) when issued on December 31, 2019 and the expected minimum conversion ratio of 1.6667 Class C OP Units ~~(adjusted for the 1:3 reverse stock split)~~ for each one Class P OP Unit, which resulted in a valuation of $1,509,319. This amount is amortized on a straight-line basis over 51 months through March 31, 2024, the expected vesting date of the units, as a periodic charge to stock compensation expense. The Company concluded that as of each quarter end, including June 30, 2022, achieving the performance target for the Class P OP Units is not deemed probable and will adjust compensation expense prospectively if achieving the enhancement is deemed probable through the remainder of the vesting period.

During the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company amortized and charged $88,784 and $88,783, ~~and $88,784,~~ respectively, to stock compensation expense and during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company amortized and charged $177,567 and $177,567, respectively, to stock compensation expense. The unamortized value of these units was ~~$976,618~~$621,483 as of June 30, ~~2021.~~2022.

Under the ~~Amended OP~~Operating Partnership Agreement, once the Class M OP Units or Class P OP Units are converted into Class C OP Units, they will be exchangeable for the Company’s shares of Class C common stock on a 1-for-1 basis, or for cash at the sole and absolute discretion of the Company. The Company recorded the ownership interests of the Class M OP Units and Class P OP Units as noncontrolling interests in the Operating Partnership, representing a combined total of approximately 13% of the equity in the Operating Partnership on December 31, 2019.

~~Table~~ As of ~~Contents~~

~~MODIV INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(Unaudited)~~

June 30, 2022, these interests represent a combined total of approximately 11.6% of the equity in the Operating Partnership.

Class R OP Units

On January 25, 2021, the compensation committee of the Company's board of directors recommended, and the board of directors approved, the grant of ~~120,000~~ 40,000 units of Class R limited partnership interest in the Operating Partnership (“Class R OP ~~Units~~Units”) to Mr. Halfacre in recognition of his voluntary reduction in his 2020 compensation plus ~~512,000~~170,667 Class R OP Units to Mr. Halfacre as equity incentive compensation for the next three years, and the grant of ~~100,000~~33,333 Class R OP Units to Mr. Pacini as equity incentive compensation for the next three years. An additional ~~348,000~~116,000 Class R OP Units were granted to the ~~rest~~remainder of the employees of the ~~Company.~~Company for a total of 360,000 Class R OP Units granted. All Class R OP Units granted vest ~~on January 25, 2024~~ and are ~~then~~ mandatorily convertible into Class C OP Units on March 31, 2024 at a conversion ratio of 1:1, which conversion ratio can increase to 1:2.5 Class C OP Units if the Company generates funds from operations of $1.05, or more, per weighted average fully-diluted share outstanding for the year ending December 31, 2023. The Company ~~initially~~ concluded that as of ~~March 31, 2021 and again on~~each quarter end, including June 30, ~~2021,~~2022, achieving the performance target to trigger the increased conversion ratio for the Class R OP Units is not deemed ~~probable and~~probable. The Company will adjust compensation expense prospectively if achieving the enhancement is deemed probable inthrough the ~~future.~~

~~As a result~~remainder of the ~~Company’s 1:3 reverse stock split on February 1, 2021, Mr. Halfacre’s, Mr. Pacini’s and the remaining employees’ Class R OP Units were adjusted~~vesting period.

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MODIV INC.

Notes to 210,667 Class R OP Units, 33,333 Class R OP Units and 116,000 Class R OP Units, respectively, for a total of 360,000 Class R OP Units outstanding after adjustment for the 1:3 reverse stock split on February 1, 2021. Condensed Consolidated Financial Statements (continued)

(Unaudited)

Stock compensation expense related to the ~~360,000~~ Class R OP Units is based on the estimated value per share, including a discount for the illiquid nature of the underlying equity, and ~~will be~~is being recognized over the ~~three-year~~ vesting period. Of the 360,000 Class R OP Units granted, due to the departure of employees, 26,657 units were forfeited as of December 31, 2021 and an additional 4,333 units were forfeited during the three and six months ended June 30, 2022. The cumulative number of units forfeited through June 30, 2022 aggregated 30,990 units.

During the three months ended June 30, 2022 and 2021, the Company amortized and charged to stock compensation expense $508,463 and $568,304, respectively, and during the six months ended June 30, 2022 and 2021, the Company amortized and charged to stock compensation expense $849,045 and $1,014,165, respectively, for the Class R OP Units. The unamortized value of the remaining 329,010 units was $3,559,243 as of June 30, 2022.

Class C OP Units

On January 18, 2022, the Company completed the acquisition of a KIA auto dealership property in an “UPREIT” transaction pursuant to a contribution agreement whereby the seller received 1,312,382 Class C OP Units based on the terms of the Operating Partnership Agreement and an agreed upon value of $25.00 per unit, representing approximately 47% of the property’s value (the “UPREIT Transaction”). Following expiration of the lock-up period ending on August 11, 2022, the holder of the Class C OP Units may require the redemption of all or a portion of these units and the Company has the option to redeem the units for cash or shares of Class C common stock. The Class C OP Units received $377,301 and $628,840 in distributions during the three and six months ended June 30, 2022, respectively, and were allocated $219,214 and $(1,708,815) of the net income (loss) for the three and six months ended June 30, 2022, respectively.

NOTE 13. EARNINGS (LOSS) PER SHARE

The following table presents the computation of the Company's basic and diluted net income (loss) per share attributable to common stockholders for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator - Basic:
Net income (loss)	$	2,390,344	$	(1,001,843)	$	(9,682,820)	$	(1,905,491)
Net (income) loss attributable to noncontrolling interest in Operating Partnership	(219,214)		—		1,708,815		—
Preferred stock dividends	(921,875)		—		(1,843,750)		—
Net income (loss) attributable to common stockholders	$	1,249,255	$	(1,001,843)	$	(9,817,755)	$	(1,905,491)

Numerator - Diluted:
Net income (loss)	$	2,390,344	$	(1,001,843)	$	(9,682,820)	$	(1,905,491)
Preferred stock dividends	(921,875)		—		(1,843,750)		—
Net income (loss) attributable to common stockholders	$	1,468,469	$	(1,001,843)	$	(11,526,570)	$	(1,905,491)

Denominator:
Weighted average shares outstanding - basic	7,478,973		7,614,196		7,505,673		7,630,401
Operating Partnership Units - Class C	1,312,382		—		—		—
Operating Partnership Units - Classes M, P and R	1,430,135		—		—		—
Weighted average shares outstanding - diluted	10,221,490		7,614,196		7,505,673		7,630,401

Earnings (loss) per share attributable to common stockholders:
Basic	$	0.17	$	(0.13)	$	(1.31)	$	(0.25)
Diluted	$	0.14	$	(0.13)	$	(1.31)	$	(0.25)

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

During the three months ended June 30, 2021, ~~1,330 Class R OP Units were forfeited due to~~ the ~~departure~~weighted average dilutive effect of ~~an employee. During~~1,219,789 shares and during the ~~three and~~ six months ended June 30, 2022 and 2021, the ~~Company amortized~~weighted average dilutive effect of 2,735,350 shares and ~~charged $568,304~~ 1,249,964 shares, respectively, related to units of limited partnership interest in the Operating Partnership as discussed in Notes 12 and ~~$1,014,165, respectively,~~13 were excluded from the computation of Diluted EPS because their effect would be anti-dilutive. There were no other outstanding securities or commitments to issue common stock ~~compensation expense~~that would have a dilutive effect for the ~~Class R OP Units since the grant date, adjusted for the reversal of the previous amortization of the forfeited units. The unamortized value of these units was $6,006,979 as of June 30, 2021.~~periods then ended.

NOTE ~~12.~~14. SUBSEQUENT EVENTS

The Company evaluates subsequent events until the date the unaudited condensed consolidated financial statements are issued. Significant subsequent events are described below:

~~Distributions~~Preferred Dividends

~~The~~On July 15, 2022, the Company paid its Series A Preferred Stock dividends of $921,875 for the second quarter of 2022, which were declared by the Company’s board of directors on June ~~2021 distribution~~15, 2022.

Common Stock and Class C OP Unit Distributions

On March 18, 2022, the Company's board of ~~$650,167~~directors authorized monthly distributions payable to common stockholders and the Class C OP Unit holder of record as of June 30, 2022, which were paid on July ~~26, 2021, based on the daily~~25, 2022. The current monthly distribution ~~rate~~amount of ~~$0.00287670~~$0.09583 per share ~~per day of Class C and Class S common stock, which reflects~~represents an annualized distribution rate of ~~$1.05 per share or 4.3% per share based on the Company's estimated NAV~~$1.15 per share of ~~$24.61 (unaudited) during~~common stock.

On June ~~2021. The Company generally pays~~15, 2022, the Company’s board of directors authorized monthly distributions of $0.09583 per share payable to common stockholders and the Class C OP Unit holder of record as of July 29, 2022, August 31, 2022 and September 30, 2022, which will be paid on ~~the 25th day following the end of each month,~~ or ~~the next business day if the 25th day falls on a weekend or holiday.~~about August 25, 2022, September 26, 2022 and October 25, 2022, respectively.

~~Redeemable Common Stock~~Share Repurchase Program

~~Subsequent to June 30, 2021,~~Between July 1, 2022 and August 9, 2022, the Company ~~redeemed 83,834~~repurchased an additional 32,713 shares of its Class C common stock for ~~$2,059,527~~a total of $503,885 under its share repurchase program and 0these shares ~~of Class S common~~are held as treasury stock.

~~Updated Estimated NAV Per Share~~

~~On August 4, 2021, the Company’s board of directors approved and established an updated estimated NAV per share~~ Since inception of the Company’s ~~Class C common stock~~share repurchase program in February 2022 through August 9, 2022, the Company has repurchased a total of 220,143 shares for a total of $3,757,744, for an average cost of $17.07 per share.

Real Estate Investment Acquisitions

On July 15, 2022, the Company acquired 2 industrial properties leased to New Vision Industries, LLC and ~~Class S common stock~~Juniper Ring Acquisitions, LLC in a sale and leaseback transaction (the “Producto Acquisition”), with newly executed 20-year leases and 2.00% annual rent increases. The leases are guaranteed by the parent company of ~~$26.05 (unaudited) as~~the lessees, Producto Holdings, LLC. These companies specialize in manufacturing, machining and engineering of ~~June 30, 2021. Additional information~~precision tools for very diverse product sectors including medical, semiconductor, aerospace, ammunition and defense markets. These properties are located in upstate New York and the aggregate purchase price was $5,343,862, which reflects an initial capitalization rate of 7.21%. The initial capitalization rate is calculated by dividing the initial annual cash rent by the purchase price. The Company funded the purchase and related closing costs with a $5,000,000 draw on the ~~determination~~Company’s Credit Facility and available cash on hand.

On July 26, 2022 and August 4, 2022, the Company acquired an aggregate of 4 industrial properties leased to Valtir, LLC (formerly known as Trinity Highway Products, LLC) in a sale and leaseback transaction, with a newly executed 25-year master lease for 2 of the ~~Company's updated estimated NAV per share, including~~properties, a newly executed 15-year master lease for the ~~process~~other 2 properties and 2.25% annual rent increases (the “Valtir Acquisition”). Valtir, LLC is an industry-leading manufacturer of commercial highway products with a 49-year operating history. These properties are used ~~to determine its updated estimated NAV per share, can be found~~ in manufacturing and distribution, and are located in South Carolina, Ohio, Texas and Utah. The aggregate purchase price was $23,375,000, which reflects an initial capitalization rate of 7.70%. The Company funded the ~~Company's Current Report~~purchase and related closing costs with a $23,000,000 draw on ~~Form 8-K filed with~~ the ~~SEC~~Company’s Credit Facility and available cash on ~~August 4, 2021.~~hand.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

~~Sale of~~Pending Real Estate ~~Investment~~Disposition

On July ~~7, 2021,~~12, 2022, the Company ~~completed~~entered into a purchase and sale agreement to sell its property in Las Vegas, Nevada that is leased to Williams Sonoma for $9,300,000. The buyer submitted a non-refundable deposit of $500,000 into escrow on July 15, 2022 and the sale ~~of its Cedar Park, Texas retail property~~is scheduled to close by August 26, 2022, although there can be no assurances that ~~was leased to Dana Incorporated, but unoccupied, for $10,000,000, which generated net proceeds of $4,975,334 after repayment of the existing mortgage, commissions and closing costs.~~this transaction will be completed on schedule or at all.

~~Repayment of Borrowings Under~~ Credit Facility

On July ~~9, 2021,~~14, 2022, the Company ~~repaid $1,500,000~~drew $5,000,000 on its Revolver in connection with the Producto Acquisition and on July 23, 2022, the Company drew $23,000,000 on its Revolver in connection with the Valtir Acquisition, resulting in a balance of $34,775,000 on the ~~$3,000,000 that was outstanding under its Credit Facility~~Revolver as of ~~June 30, 2021.~~July 31, 2022. As a result of ~~this repayment,~~ the ~~Company has availability~~addition of these properties to ~~draw up~~the borrowing base and the July 2022 draws on the Revolver, approximately $52,000,000 is available to ~~$15,500,000 under its Credit Facility to fund potential real estate acquisitions, along with additional availability of up to $5,000,000 for working capital.~~

~~Real Estate Acquisition~~

~~On July 26, 2021,~~be drawn on the ~~Company, through a wholly-owned subsidiary~~Revolver based on the value of the ~~Operating Partnership, completed~~Company’s properties included in the ~~acquisition~~borrowing base as of ~~an approximately 3,800-square-foot restaurant property leased to Raising Cane’s located in San Antonio, Texas.~~the filing date of this Quarterly Report on Form 10-Q. The ~~restaurant property, which also features a drive-thru, is~~Revolver can be drawn for general corporate purposes, including pending and future acquisitions, subject to ~~a triple-net lease whereby the tenant is responsible for all property expenses including taxes, insurance and maintenance. The lease expires on February 28, 2028,~~compliance with 5, 5-year lease renewal options which allows Raising Cane’s to extend the term of its lease for up to 25 additional years. The property is expected to generate $1,600,672 in total rental revenue over the course of its remaining lease term. The contract purchase price for the property is $3,607,424 which was funded with the Company’s available cash on hand. The seller of the property was not affiliated with the Company or its affiliates.covenants.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition, results of operations and cash flows together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, ~~2020~~2021 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~31, 2021.~~23, 2022. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Forward-Looking Statements” above.

Management’s discussion and analysis of financial condition and results of operations are based upon our accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Overview

We are an internally-managed real estate investment trust (“REIT”) with publicly traded shares of Class C common stock (defined below) and Series A Preferred Stock (defined below). We acquire, own and manage a diversified portfolio of predominantly single-tenant net-lease industrial, retail and office properties throughout the United States, with a focus on strategically important and mission critical properties. We were formed on May 15, 2015 as a Maryland corporation ~~that~~and elected to be taxed as a ~~real estate investment trust (“REIT”)~~REIT for federal income tax purposes beginning with our taxable year ended December 31, ~~2016 and we~~2016. We intend to continue to operate so as to remain qualified as a REIT for federal income tax ~~purposes thereafter.~~purposes.

We have been internally managed since our December 31, 2019 acquisition of the business of BrixInvest, LLC, a Delaware limited liability company and our former sponsor (“BrixInvest”), and our merger with Rich Uncles Real Estate Investment Trust I (“REIT I”) on December 31, 2019. Through the ~~Merger (defined below)~~merger with REIT I and acquisitions, we ~~have~~ created one of the largest non-listed real estate investment funds to be raised via crowdfunding technology and the first real estate crowdfunding platform to be completely investor-owned. ~~We plan~~

Our Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MDV.PA” and has been trading since September 17, 2021. Our Class C common stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to ~~expand beyond~~that date, there was no public trading market for our ~~traditional single-tenant portfolio of triple-net leased properties to provide individual investors access to a diversified portfolio of real estate~~Class C common stock. In connection with and to a lesser extent, real estate-related investments, to include real estate securities and real estate technology-enabled investments, through wholly-owned or majority controlled subsidiaries. Such investments could arise from single asset transactions and/or portfolio mergers and acquisitions. We will continue to seek opportunities to be an aggregator withinupon listing on the ~~non-listed real estate product industry, utilizing the combination~~NYSE, each share of our ~~deep understanding~~Class S common stock (defined below) converted into one share of ~~both~~Class C common stock (see details of the ~~crowdfunding and real estate markets and the strength of our stockholder-owned, self-managed business model.~~Listed Offering as defined below).

We have the authority to issue 450,000,000 shares of stock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, 300,000,000 shares of Class C common stock, $0.001 par value per share (“Class C common stock”), and 100,000,000 shares of Class S common stock, $0.001 par value per share. Effective January 27, 2021, our Company, with the approval of the board of directors, terminated our public offering of up to $800,000,000 of our shares which was being conducted pursuant to a registered offering. In connection with the termination of the registered offering, we stopped accepting investor subscriptions on January 22, 2021. As of January 27, 2021, we had $600,547,672 of unsold shares in the registered offering, which were deregistered with the SEC. On February 1, 2021, we commenced a private offering of Class C common stock under Regulation D promulgated under the Securities Act and accepted investor subscriptions from only accredited investors until we terminated the Private Offering (as defined below) on August 12, 2021.

Effective February 1, 2021, with the authorization of our board of directors, we filed Articles of Amendment to our charter in the State of Maryland in order to effect a 1:3 reverse stock split of our Class C common stock and share (“Class S common ~~stock~~stock”). Our five-year emerging growth company registration with the SEC ended on December 31, 2021 and ~~following~~we continue to report with the ~~implementation~~SEC as a smaller reporting company under Rule 12b-2 of the ~~reverse stock split, to decrease the par value~~Securities Exchange Act of ~~each post-split share of our Class C common stock and Class S common stock from $0.003 per share to $0.001 per share.~~

We consider our Company to be a perpetual-life investment vehicle because we have no finite date for liquidation and no current intention to list our shares of common stock for trading on a national securities exchange or over-the-counter trading market. While our charter does not require us to list the shares of our common stock for trading on a national securities exchange or other over-the-counter trading market, we may consider such a listing in the future if we determine it is in the best interest of our stockholders. This perpetual-life structure is aligned with our overall objective of investing in real estate assets with a long-term view towards making regular cash distributions and generating capital appreciation.

We are publicly registered and non-listed and since December 31, 2019, we have been internally managed following our acquisition of the business of BrixInvest, LLC, a Delaware limited liability company and our former sponsor (“BrixInvest”), and our merger with Rich Uncles Real Estate Investment Trust I (“REIT I”)1934, as further described below. As of June 30, 2021, we have a portfolio of approximately 2.3 million square feet of aggregate leasable space including 38 commercial real estate properties in 14 states, comprised of 12 retail properties, 14 office properties and 12 industrial properties, including one industrial property

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~~classified as held for sale and an approximate 72.7% tenant-in-common interest~~amended (the ~~“TIC Interest”~~“Exchange Act”) ~~in a Santa Clara, California property.~~.

Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interests in entities that own and operate real estate. We will make substantially all acquisitions of our real estate investments directly through Modiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership arrangements with other owners of properties, some of which may be affiliated with us or our executive officers or directors. The Operating Partnership was formed on January 28, 2016. We are the sole general partner of, and owned an ~~83%~~approximate 72% partnership interest in the Operating Partnership on June 30, ~~2021.~~2022. The Operating Partnership limited partners include holders of several classes of ~~ownership~~units with various vesting and enhancement terms as further described in Note 1112 to our accompanying unaudited condensed consolidated financial statements.

~~Self-Management Transaction and Merger on December 31, 2019~~

We were externally managed through December 31, 2019 by our former external advisor, Rich Uncles NNN REIT Operator, LLC, a Delaware limited liability company. On December 31, 2019, we merged with REIT I and a self-management transaction was completed, whereby we effectuated a contribution agreement dated September 19, 2019 (the “Contribution Agreement”) pursuant to which we acquired substantially all of the assets and assumed certain liabilities of our former external advisor and our former sponsor in exchange for units of limited partnership interest in the Operating Partnership (the “Self-Management Transaction”). As a result of the completion of the Self-Management Transaction, we became self-managed and eliminated all fees for acquisitions, dispositions and management of our properties, except for third-party property management fees. Following completion of the Self-Management Transaction and the issuance of various other tranches of limited partnership interests, we held an approximately 83% limited partnership interest in the Operating Partnership as of June 30, 2021.

On December 31, 2019, pursuant to an Agreement and Plan of Merger dated September 19, 2019, REIT I merged with and into Katana Merger Sub, LP (“Merger Sub”), a Delaware limited partnership and wholly-owned subsidiary of our Company, with Merger Sub surviving as a direct, wholly-owned subsidiary of our Company (the “Merger”). At such time, the separate existence of REIT I ceased. As a result, we issued 2,680,740.5 shares (adjusted for the 1:3 reverse stock split) of our Class C common stock to former shareholders of REIT I. On December 31, 2020, Merger Sub was merged into the Operating Partnership and ceased to exist as of December 31, 2020.

~~Offerings~~

On July 15, 2015, we filed a registration statement on Form S-11 (File No. 333-205684) with the SEC to register an initial public offering of a maximum of 30,000,000 (adjusted for the 1:3 reverse stock split) of our shares of common stock for sale to the public (the “Primary Offering”). We also registered a maximum of 3,333,333 (adjusted for the 1:3 reverse stock split) of our shares of common stock pursuant to our distribution reinvestment plan (the “DRP”) (the “Initial DRP Offering” and together with the Primary Offering, the “Initial Registered Offering”). During 2016, the SEC declared our registration statement effective and we began offering shares of common stock to the public. Pursuant to the Initial Registered Offering, we sold shares of Class C common stock directly to investors, with a minimum investment in shares of $500. Commencing in August 2017, we began selling shares of our Class C common stock only to U.S. persons as defined under Rule 903 promulgated under the Securities Act, and began selling shares of our Class S common stock as a result of the commencement of the Class S Offering (as defined below) to non-U.S. Persons.

In August 2017, we began offering up to 33,333,333 shares (adjusted for the 1:3 reverse stock split) of Class S common stock exclusively to non-U.S. Persons as defined under Rule 903 promulgated under the Securities Act, pursuant to an exemption from the registration requirements of the Securities Act and in accordance with Regulation S of the Securities Act (the “Class S Offering” and, together with the Registered Offerings (as defined below) and the Private Offering (as defined below), the “Offerings”). The Class S common stock has similar features and rights as the Class C common stock, including with respect to voting and liquidation, except that the Class S common stock offered in the Class S Offering may be sold only to non-U.S. Persons and may be sold through brokers or other persons who may be paid upfront and deferred selling commissions and fees.

On December 23, 2019, we commenced a follow-on offering pursuant to a new registration statement on Form S-11 (File No. 333-231724) (the “Follow-on Offering” and, together with the Initial Registered Offering and the 2021 DRP Offering (as defined below), the “Registered Offerings”), which registered the offer and sale of up to $800,000,000 in share value of Class C common stock, including $725,000,000 in share value of Class C common stock pursuant to the primary portion of the Follow-on Offering and $75,000,000 in share value of Class C common stock pursuant to our DRP. We ceased offering shares pursuant to the Initial Registered Offering concurrently with the commencement of the Follow-on Offering.

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~~In response to the significant economic impacts~~Common Stock Offerings

Since our initial registered offering of the novel coronavirus ("COVID-19") pandemic, effective as of the close of business on May 7, 2020, our board of directors temporarily suspended the primary portion of our Follow-on Offering and Class S Offering until such time as our board of directors approved and established an updated estimated net asset value (“NAV”) per share of our common stock ~~and determined~~was declared effective by the SEC in 2016, we have raised an aggregate of $210,800,151 pursuant to ~~resume such primary offerings. On May 20, 2020, our board~~non-listed offerings of ~~directors approved and established an updated estimated NAV per share of our~~ common stock registered with the SEC (collectively, the “Registered Offering”), offerings of ~~$21.01 (unaudited and adjusted for the 1:3 reverse~~common stock ~~split) to reflect our Company's valuation of our real estate assets, debt and other assets and liabilities as of April 30, 2020.~~

Commencing on June 1, 2020, our board of directors resumed the primary portions of the Follow-on Offering and the Class S Offering. The purchase price per share in the primary portion of the Follow-on Offering was decreasedexempt from $30.81 (unaudited and adjusted for the 1:3 reverse stock split) to $21.01 (unaudited and adjusted for the 1:3 reverse stock split), and the purchase price per share in the primary portion of the Class S Offering was decreased to $21.01 (unaudited and adjusted for the 1:3 reverse stock split) plus the amount of any applicable upfront commissions and fees. The NAV per share used for purposes of future repurchasesregistration pursuant to Regulation S under the ~~share repurchase programs was also decreased from $30.81 (unaudited and adjusted for the 1:3 reverse~~Securities Act of 1933, as amended (the “Securities Act”), distribution reinvestment plan (“DRP”) offerings of common stock ~~split) to $21.01 (unaudited and adjusted for the 1:3 reverse stock split).~~

~~On January 22, 2021,~~registered with the ~~authorization~~SEC, a private offering of ~~our board of directors, we amended and restated our DRP with respect to our shares of Class C~~ common stock ~~in order~~pursuant to ~~reflect our corporate name change~~Regulation D under the Securities Act, a qualified offering of common stock pursuant to Regulation A under the Securities Act and ~~to remove~~an offering of common stock listed on the ability of our stockholders to elect to reinvest only a portion of their cash distributions in shares through the DRP so that investors who elect to participate in the DRP must reinvest all cash distributions in shares. In addition, the amended and restated DRP provides for determinations by our board of directors of the NAV per share more frequently than annually. The amended and restated DRP was effective with respect to distributions that were paid in February 2021.NYSE.

On January 22, 2021, we filed a ~~registration statement~~Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 ~~of additional shares~~in share value of Class C common stock to be issued pursuant to the ~~amended and restated~~ DRP (the ~~“2021 DRP Offering” and, collectively with the Initial DRP Offering, the~~ “Registered DRP Offering”). We commenced offering shares of Class C common stock pursuant to the ~~2021~~Registered DRP Offering upon termination of the ~~Follow-on~~Registered Offering.

~~Effective January 27,~~On December 8, 2021, ~~our Company,~~we filed with the ~~approval of our board of directors, terminated our public offering of up to $800,000,000 of our shares which was being conducted pursuant~~SEC a Registration Statement on Form S-11 (File No. 333-261529), and, on February 9, 2022, we filed with the SEC Amendment No. 1 to the ~~Follow-on Offering. In~~Registration Statement on Form S-11, in connection with the termination of the Follow-on Offering, we stopped accepting investor subscriptions on January 22, 2021. As of January 27, 2021, we had $600,547,672 of unsold shares in the Follow-on Offering, which were deregistered with the SEC. On February 1, 2021, we commenced a private offering of Class C common stock under Regulation D promulgated under the Securities Act (the “Private Offering”) and accepted investor subscriptions from only accredited investors until we terminated the Private Offering on August 12, 2021.

On February 1, 2021, with the authorization of our board of directors, we amended and restated our Class C common stock share repurchase program (the “Class C SRP”) in order to (i) revise the minimum holding period before a stockholder may participate in the Class C SRP from three months to six months, (ii) revise the limitations on the share repurchase price so that shares held for less than two years will be repurchased at 98% of the most recently published NAV per share and shares held for at least two years will be repurchased at 100% of the most recently published NAV per share (as opposed to a repurchase price of 97% of the most recently published NAV per share for shares held less than one year, 98% of the most recently published NAV per share for shares held for more than one year but less than two years, 99% of the most recently published NAV per share for shares held for more than two years but less than three years, and 100% of the most recently published NAV per share for shares held for at least three years), (iii) increase the minimum share value (based on the most recently published NAV per share) at which we have the right to repurchase all of a stockholder’s shares, if as a result of a repurchase request a stockholder holds less than the minimum share value, from $500 to $1,000, and (iv) include language that provides that the Class C SRP will automatically terminate if our shares of common stock are listed on any national securities exchange. The minimum holding period before a stockholder may participate in the Class C SRP for shares purchased prior to February 1, 2021 will remain at 90 days. On July 28, 2021, our board of directors approved a further amendment and restatement of the Class C SRP to eliminate the holding period for shares of Class C common stock purchased prior to February 1, 2021, which is no longer applicable.

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With the authorization of our board of directors, we also amended and restated our Class S common stock share repurchase program (“Class S SRP”) on February 1, 2021 in order to (i) allow our Company to waive the minimum one year holding period before a holder of shares of Class S common stock may participate in the Class S SRP in the event of extraordinary circumstances which would place undue hardship on a stockholder, (ii) increase the minimum Class S share value (based on the most recently published NAV per Class S share) at which we have the right to repurchase all of a stockholder’s shares, if as a result of a repurchase request a stockholder holds less than the minimum Class S share value, from $500 to $1,000, and (iii) include language that provides that the Class S SRP will automatically terminate if our shares of common stock are listed on any national securities exchange.

~~On January 27, 2021, May 5, 2021 and August 4, 2021, our board of directors approved and established an updated estimated NAV per share~~listing of our Class C common stock, which became effective on February 10, 2022 (the “Listed Offering”). In connection with and upon listing on the NYSE, each share of our Class S common stock converted into one share of ~~$23.03 (adjusted for the 1:3 reverse stock split), $24.61 and $26.05, respectively (all unaudited).~~

~~Updated Estimated Net Asset Value Per Share~~

~~On August 4, 2021, our board of directors approved and established an updated estimated NAV per share~~Class C common stock. The Listed Offering of our Class C common stock ~~and Class S common stock of $26.05 (unaudited) as of June 30, 2021. Effective August 4, 2021,~~closed on February 15, 2022. In connection with the ~~purchase price per share~~Listed Offering, we sold 40,000 shares of our Class C common stock ~~was increased from $24.61 to $26.05. Also, commencing August 4, 2021, the purchase price~~at $25.00 per share to a major stockholder who was formerly a related party.

On March 30, 2022, we filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, we filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our at-the-market offering of up to $50,000,000 of our Class C common stock (the “ATM Offering”) on June 6, 2022. As of June 30, 2022, no shares were issued in connection with our ATM Offering.

Preferred Stock Offering

On September 14, 2021, we and the ~~primary portion~~Operating Partnership entered into an underwriting agreement (the “Preferred Stock Underwriting Agreement”) with B. Riley Securities, Inc., as representative of the ~~Class S Offering was increased~~underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to ~~$26.05 plus the amount~~which we agreed to issue and sell 1,800,000 shares of ~~any applicable upfront commissions and fees, and the NAV~~our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share ~~used for purposes of the share repurchase programs was increased to $26.05 for repurchase requests submitted after August 1, 2021.~~

~~Additional information on the determination of our most recent estimated NAV per share, including the process used to determine our estimated NAV per share, can be found~~(the “Series A Preferred Stock”) in ~~our Current Report on Form 8-K filed with the SEC on August 4, 2021. Beginning with distributions scheduled to be paid to stockholders on August 25, 2021, the purchase~~an underwritten public offering (the “Preferred Offering”) at a price per share of $25.00. In addition, we granted the Underwriters a 30-day option to purchase up to an additional 200,000 shares of the Series A Preferred Stock, which the Underwriters exercised in full on September 16, 2021. The issuance and sale of the shares of Series A Preferred Stock, including the Underwriters’ full exercise of their option to purchase additional shares, closed on September 17, 2021 (see Note 9 to our ~~common stock in the Class C and the Class S DRPs was increased from $24.61 to $26.05.~~accompanying unaudited condensed consolidated financial statements for additional information).

The Company

We ~~are a publicly registered, non-exchange traded company. We~~ believe we ~~are qualified~~continue to qualify and operate as a REIT, which requires us to annually distribute at least 90% of our taxable income (excluding net capital gains) in the form of distributions to our stockholders.

Our primary business consists of acquiring, financing and owning predominantly single-tenant net-lease industrial, retail ~~office~~ and ~~industrial~~office real estate properties throughout the United States leased to creditworthy tenants on long-term ~~leases.~~leases, with a focus on strategically important and mission critical properties. We primarily generate revenues by leasing properties to tenants pursuant to net leases. As of June 30, ~~2021,~~2022, our real estate investment portfolio consisted of 3843 properties located in 14 states consisting of 12 retail properties, 14 office properties and 12 industrial properties including one retail property held for sale and an approximate 72.7% undivided interest TIC Interest in an industrial property in Santa Clara, California as ~~discussed in~~ ~~Note 4~~ ~~to our accompanying unaudited condensed consolidated financial statements.~~further described below. The net book value of our real estate investments as of June 30, ~~2021~~2022 was ~~$344,456,456.~~$427,083,802.

~~With respect to~~Details of our diversified portfolio of 3843 operating properties, including ~~one~~an approximate 72.7% tenant-in-common interest in a Santa Clara, California property ~~held for sale and the TIC Interest~~(the “TIC Interest”), as of June 30, ~~2021:~~2022 are as follows:

•1220 industrial properties, ~~are~~including the TIC Interest, which represent approximately 48% of the portfolio, 13 retail properties which represent ~~an approximate 11%~~approximately 19% of the portfolio ~~14 properties are~~and 10 office properties which represent ~~an approximate 49% of the portfolio, and 12 properties, including one property held for sale and the TIC Interest, are industrial properties which represent an approximate 40%~~approximately 33% of the portfolio (expressed as a percentage of annualized ~~net operating income)~~base rent (“ABR”) as of June 30, 2022);

•Occupancy rate of ~~100.0%, excluding the Dana industrial property which was held for sale and sold~~100%;

•Located in ~~July 2021;~~16 states;

•Leased to 3129 different commercial tenants doing business in 1315 separate industries;

•Approximately ~~2.3~~2.9 million square feet of aggregate leasable space, including ~~one property held for sale and~~ the TIC Interest;

•An average leasable space per property of approximately ~~60,000~~67,000 square feet; approximately ~~24,000~~103,000 square feet per industrial property; approximately 18,000 square feet per retail property and approximately ~~61,000~~59,000 square feet per office ~~property, and approximately 95,000 square feet per industrial~~ property; and

•Outstanding mortgage ~~note~~notes payable balance of ~~$182,758,762, excluding the~~$44,650,173 for three properties, a credit facility term loan balance ~~related to the property held for sale.~~of $150,000,000 and credit facility revolver balance of $6,775,000.

As of June 30, ~~2021,~~2022, all 3843 operating properties in our portfolio are single-tenant net-lease properties and all 3843 properties were leased, with a weighted average remaining lease term (“WALT”), excluding rights to extend a lease at the option of the tenant, of approximately ~~5.6~~10.5 years.

Following the July 2022 acquisitions of two industrial properties leased to New Vision Industries, LLC and Juniper Ring Acquisitions, LLC (the “Producto Acquisition”) and the July 2022 and August 2022 acquisitions of an aggregate of four industrial properties leased to Valtir, LLC (the “Valtir Acquisition”), along with the pending disposition of an office property that is scheduled to close by August 26, 2022, as described in Note 14 to our accompanying unaudited condensed consolidated financial statements, we would own 48 operating properties located in 19 states. On a pro forma basis, after giving effect to the Producto Acquisition and Valtir Acquisition and the disposition of the office property as if they were completed on June 30, 2022, our real estate portfolio is comprised of 26 industrial properties, including the TIC Interest, which represent approximately 52% of the portfolio, 13 retail properties which represent approximately 18% of the portfolio, and 9 office properties which represent approximately 30% of the portfolio (expressed as a percentage of ABR as of June 30, 2022), and has a pro forma WALT of 11.6 years.

As of June 30, ~~2021,~~2022, we held an approximate 72.7% TIC Interest in a 91,740 square foot industrial property located in Santa Clara, California. The remaining ~~approximate~~approximately 27.3% of undivided interest in the Santa Clara property is held by Hagg Lane II, LLC (an approximate 23.4% interest) and Hagg Lane III, LLC (an approximate 3.9% interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC ~~became a~~was an independent member of our board of directors in(“Board”) from December ~~2019.~~2019 to December 2021.

Primary Investment Objectives

Our primary investment objectives are:

•to provide attractive growth in adjusted funds from operations (“AFFO”) and sustainable cash distributions;

•to ~~preserve and return capital contributions;~~

•to realize ~~value~~ appreciation from proactive investment selection and asset management;

•to provide future opportunities for growth and value creation; and

•to provide an investment alternative for ~~individual~~ stockholders seeking to allocate a portion of their long-term investment portfolios to commercial real estate.

While future purchases of properties will be partially funded with cash on hand and funds received from the future sale of shares of Class C common stock, we anticipate incurring mortgage or borrowing base debt (not to exceed 55% of the total value of all of our properties) against pools of individual properties, and pledging such properties as security for that debt to obtain funds to acquire additional properties. We ~~cannot assure you~~are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we will consider incurring higher leverage in the near-term if we identify attractive acquisition opportunities in advance of completing dispositions or raising additional equity. Our maximum leverage as defined and approved by our Board is 55% of the aggregate fair value of our real estate properties, plus our cash and cash equivalents. We are striving to improve the composition of our portfolio by acquiring industrial manufacturing properties and disposing of office properties, subject to market conditions and prices that we consider attractive. We can provide no assurance that we will achieve our investment objectives. See the Part I, Item 1A. Risk Factors section of our Annual Report on Form 10-K filed with the SEC on March 23, 2022 and the Part II, Item 1A. Risk Factors of the Quarterly Report on Form 10-Q included herein.

Investment Strategy

Commercial Real Estate

In pursuit of our primary investment objectives, we maintain the ability to expand beyond our traditional single-tenant portfolio of ~~triple-net~~predominantly net leased properties, and seek to acquire a diversified portfolio of income-generating commercial real estate investments throughout the United States diversified by corporate credit, physical geography, product type and lease duration. ~~These~~We are primarily focused on acquiring industrial manufacturing properties, but we may ~~include multifamily, retail, office, hotel and industrial~~also acquire other assets, ~~as well as others,~~ including, without limitation, ~~healthcare, student housing, senior living,~~other industrial properties, retail properties, data centers ~~manufactured housing~~ and storage properties. ~~Although we have no current intention to do so, we~~We may also invest ~~a portion of the net proceeds from our offerings~~ in commercial real estate properties outside the United States.

We intend to acquire assets consistent with our acquisition philosophy by focusing primarily on properties located in primary, secondary and certain select tertiary markets and leased to tenants, at the time we acquire them, with strong financial statements ~~including investment grade credit quality,~~ and typically subject to long-term leases with defined rental rate increases.

We may also acquire assets with short-term leases or that require some amount of capital investment in order to be renovated or repositioned. We generally will limit investment in new developments on a standalone basis, but may consider development that is ancillary to an overall investment. We do not designate specific geography or sector allocations for the portfolio; rather we intend to invest in regions or asset classes where we see the best opportunities that support our investment objectives. We are in the process of increasing our asset allocations to the industrial sector and decreasing our allocations to the office sector.

To a lesser extent, we may also invest in real estate debt and equity securities and other real estate-related investments to provide current income, portfolio diversification and a source of liquidity for distributions to stockholders, ~~our share repurchase programs,~~ cash management and other purposes.

~~Other Non-Listed REITs and Real Estate Products or Managers~~

We believe there will be opportunities to acquire other non-listed REITs and real estate products or managers given the current fragmented nature of the industry. There are many smaller non-listed REITs that have not been able to raise sufficient capital to grow their investment portfolio and provide liquidity to their stockholders. Given their limited alternatives, some of these non-listed REITs may be receptive to potential acquisitions by us. There are also other non-listed real estate products and managers that face similar challenges and may also be receptive to potential acquisitions by us.

~~Technology-enabled Real Estate Investments~~

We will also seek to make real estate-related investments in fintech and proptech sectors that enhance real estate capital markets. Within the fintech and proptech sectors, which have garnered significant investment interest in today’s marketplace, we intend to focus on those companies whose core purpose is related to the commercial real estate industry, particularly companies using technology driven platforms and solutions to disrupt or revolutionize the commercial real estate capital markets as well as investment management firms or companies tied to transactional marketplace processes of the industry.

Further, we expect crowdfunding platforms and direct-to-retail real estate management businesses to be natural, potential areas of focus given our management team’s experience, expertise and operational skills in those industries. We define the crowdfunding sector as those U.S.-based companies which use an online platform to raise pools of equity or debt capital directly from investors to acquire or lend against a certain asset or company, whether the asset or company be real estate-related or another alternative asset class. We define the direct-to-retail real estate investment management sector primarily as individual investor-focused platforms offering real estate investment products typically under a variety of regulatory frameworks to include Regulation A, Regulation D and the Investment Company Act of 1940.

We cannot assure ~~you~~our stockholders that any of the properties we acquire ~~or real estate-related investments we make~~ will result in the benefits discussed above.

~~Special Purpose Acquisition Company~~

To further our mission of being the leading provider of alternative real estate-related products, and to capitalize on opportunities in the public marketplace, we are sponsoring MACS, a SPAC as described in ~~Note 1~~ to our accompanying unaudited condensed consolidated financial statements. However, there has been significant disruption in the IPO market for SPACs during the second quarter of 2021 and there can be no assurance that MACS can complete an IPO. We are continuing to evaluate how to respond to the changes in the market and may decide to either modify MACS’s IPO or not proceed with the IPO.

Liquidity and Capital Resources

Proceeds from the sale of our shares of common stock have been, and will continue to be, primarily used to invest in real estate and real estate-related investments or to re-lease and reposition our properties in accordance with our investment strategy and policies, including commissions and costs associated with such investments. We also expect to use a portion of the proceeds from the sale of our shares of common stock for payment of principal on our outstanding indebtedness; capital expenditures, tenant improvement costs and leasing costs related to our real estate investments; reserves required by financings of our real estate investments; to provide liquidity to our stockholders pursuant to our share repurchase programs; and for general corporate purposes.

Generally, our cash requirements for property acquisitions, debt payments, capital expenditures and other investments will be funded by ~~the sale~~bank borrowings from financial institutions, mortgage indebtedness on our properties, asset sales, internally generated funds or offerings of shares of our common ~~stock and bank borrowings from financial institutions and mortgage indebtedness on our properties, and to a lesser extent, by loans from affiliates and internally generated funds.~~stock. Our cash requirements for operating and interest expenses, dividends on our Series A Preferred Stock and distributions on our common stock will ~~generally~~ be funded by internally generated funds. ~~Proceeds from the sale of~~

On January 18, 2022, our common stock and debt financings may also be used to fund repurchases of common stock. When available, sources of capital include proceeds from the sale of properties, proceeds from the sale of shares of our common stock and secured or unsecured borrowings from banks or other lenders, as well as undistributed funds from operations.

~~Our~~ Operating Partnership entered into a $250,000,000 credit agreement (‘‘Credit ~~Facility (as defined below) provides~~Agreement’’) providing for a ~~$22,000,000 line of credit including a $17,000,000~~$100,000,000 four-year revolving line of credit, which may be extended by up to 12 months subject to certain conditions (the ‘‘Revolver’’), and a $150,000,000 five-year term loan (the ‘‘Term Loan’’ and together with the ‘‘Revolver,’’ the ‘‘Credit Facility’’) with KeyBank National Association (‘‘KeyBank’’) and the other lending institutions party thereto (collectively, the ‘‘Lenders’’), including KeyBank as Agent for the Lenders (in such capacity, the ‘‘Agent’’), BMO Capital Markets, Truist Bank and The Huntington National Bank as Co-Syndication Agents (the “Co-Syndication Agents”) and KeyBanc Capital Markets Inc., BMO Capital Markets, Inc., Truist Securities, Inc. and The Huntington National Bank as Joint-Lead Arrangers (the “Lead Arrangers”). The Credit Facility is available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness and capital expenditures.

The Credit Facility is priced on a leverage-based grid that fluctuates based on our actual leverage ratio at the end of the prior quarter. With our leverage ratio at 34% as of March 31, 2022 and 38% as of June 30, 2022, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’), including a 10 basis points credit adjustment, is 165 basis points and the interest rate on the Revolver was 3.150% as of June 30, 2022. Following the Federal Reserve Bank’s July 27, 2022 increase in the target range for federal funds by 75 basis points, the interest rate on the Revolver is approximately 3.96%. We also pay an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and paid total unused fees of $50,047 and $72,280 for the three and six months ended June 30, 2022, respectively. We entered into a swap agreement to fix the interest rate on our Term Loan at 3.858% effective May 31, 2022 as described in detail in Note 8 to our accompanying unaudited condensed consolidated financial statements. The Credit Facility includes customary covenants, including minimum fixed charge coverage of 1.50x, minimum tangible net worth of $208,629,727 plus 85% of net offering proceeds and maximum leverage of 60% of our borrowing base. We were in compliance with these covenants as of June 30, 2022.

The Credit Facility is secured by a pledge of all of the Operating Partnership’s equity interests in certain of the single-purpose, property-owning entities (the ‘‘Subsidiary Guarantors’’) that we indirectly own, and various cash collateral owned by the Operating Partnership and the Subsidiary Guarantors. In connection with the Credit Facility, we and each of the Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which we and each of the Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.

The Credit Facility allows for borrowings up to 60% of our borrowing base and our Board has approved a maximum leverage ratio of 55% of the aggregate fair value of our real estate ~~acquisitions~~properties plus our cash and ancash equivalents. We are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we will consider incurring higher leverage in the near-term if we identify attractive acquisition opportunities in advance of completing dispositions or raising additional ~~$5,000,000 revolving~~equity. We also have the right to increase the Credit Facility to a maximum of $500,000,000, subject to customary conditions, including the receipt of new commitments from the Lenders.

Credit Facility Drawdown

On January 18, 2022, we borrowed $155,775,000 from our Credit Facility consisting of $100,000,000 under the Term Loan and $55,775,000 under the Revolver. We used a portion of the proceeds from the Credit Facility to pay total commitment and arrangement fees of $2,020,000 to the Agent, the Lenders, the Lead Arrangers and Co-Syndication Agents.

We used a portion of the additional proceeds from the Credit Facility to repay 20 property mortgages, and related interest aggregating $153,428,764, including the $36,465,449 mortgage on the KIA auto dealership property which was acquired on January 18, 2022, as discussed in Note 3 to our accompanying unaudited condensed consolidated financial statements, and to repay our prior line of credit outstanding balance of $8,022,000. The 20 mortgages that were paid off were for ~~working capital.~~the following 27 properties: eight Dollar Generals, Northrop Grumman, exp Maitland, Wyndham, Williams Sonoma, EMCOR, Husqvarna, AvAir, 3M, Cummins, Levins, Labcorp, GSA (MHSA), PreK Education, ITW Rippey, Solar Turbines, Wood Group, Gap, L3Harris and Walgreens. After ~~our initial draw~~the 20 property mortgages were paid-off, seven property mortgages as of ~~$6,000,000~~December 31, 2021 remained outstanding, including four property mortgages related to ~~fund~~assets held for sale. Those four mortgages were paid-off pursuant to sales of the properties in February 2022 as discussed above.

On March 8, 2022, we prepaid $35,000,000 of the outstanding balance on the Revolver with cash on hand in order to reduce interest expense and on April 25, 2022, we drew the remaining $50,000,000 on the Term Loan for a repayment of the Revolver. We also repaid $8,000,000 on the Revolver on June 22, 2022. As of June 30, 2022, we had availability under the Credit Facility of approximately $60,000,000 which can be drawn for general corporate purposes, including pending and future acquisitions.

On July 14, 2022, we drew $5,000,000 on our ~~prior credit facility provided by Pacific Mercantile Bank (“PMB”),~~Revolver in connection with the Producto Acquisition and on ~~March~~July 23, 2022, we drew $23,000,000 on our Revolver in connection with the Valtir Acquisition resulting in a balance of $34,775,000 on the Revolver as of July 31, ~~2021,~~2022. As a result of the addition of these properties to the borrowing base and ~~subsequent repayments of $3,000,000 in June 2021 and $1,500,000 in~~the July ~~2021, we have $15,500,000~~2022 draws on the Revolver, approximately $52,000,000 is available to ~~finance real estate acquisitions and $5,000,000 available for working capital purposes.~~be drawn on the Revolver based on the value of our properties included in the borrowing base as of the filing date of this Quarterly Report on Form 10-Q.

Our aggregate borrowings, secured and unsecured, must be reasonable in relation to our tangible assets. Our maximum leverage as defined and approved by ~~the board of directors, including all of the independent directors,~~our Board is 55% of the aggregate fair value of our ~~tangible assets.~~real estate properties, plus our cash and cash equivalents. We use available leverage based on the relative cost of debt and equity capital, and to address strategic borrowing advantages potentially available to us. Our borrowings on one or more individual properties may exceed 55% of their individual cost, so long as our overall leverage does not exceed 55% of the aggregate fair value of our ~~tangible assets. When calculating~~real estate properties, plus our ~~use of leverage, we will not include borrowings relating to the initial acquisition of properties~~cash and ~~that are outstanding under a revolving credit facility (or similar agreement).~~cash equivalents. There is no limitation on the amount we may borrow for the purchase of any single asset. As of June 30, ~~2021,~~2022, our leverage ratio was ~~49%~~38%.

We may borrow amounts from our affiliates including directors and executive officers if such loan is approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as being fair, competitive, commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties under the circumstances. Any such loan will be included in determining whether we have complied with the borrowing limit in our charter.

4544

~~Debt~~While we intend for the Credit Facility to be our primary source of financing, we may continue to use mortgage debt financing for ~~acquisitions~~certain real estate investments and ~~investments~~acquisitions. This financing may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate. In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs.

~~On March 29, 2021, we entered into a new credit facility with Banc~~See Note 7 to our accompanying unaudited condensed consolidated financial statements for loan maturities of California (the “Credit Facility”) for an aggregate line of credit of $22,000,000 with a maturity date of March 30, 2023 which replaced the prior $12,000,000 credit facility provided by PMB which had a balance outstanding of $6,000,000our three remaining mortgage notes payable as of December 31, 2020, which was repaid on March 31, 2021. Under the terms of the Credit Facility, we will pay a variable rate of interest on outstanding amounts equal to one percentage point over the prime rate published in The Wall Street Journal, provided that the interest rate in effect on any one day shall not be less than 4.75% per annum. We paid Banc of California origination fees of $77,000 in connection with the Credit Facility and will pay an unused commitment fee of 0.15% per annum of the unused portion of the Credit Facility, charged quarterly in arrears based on the average unused commitment available under the Credit Facility.

The Credit Facility is secured by substantially all of our tangible and intangible assets, including intellectual property. The Credit Facility requires us to maintain a minimum debt service coverage ratio of 1.25 to 1.00 and minimum tangible NAV (as defined in the loan agreement) of $120,000,000, measured quarterly. Mr. Wirta, our Chairman, has guaranteed the $6,000,000 initial borrowing, which guarantee will expire upon repayment of the $6,000,000 which is due by SeptemberJune 30, 2021. Mr. Wirta has also guaranteed the $5,000,000 revolving line of credit for working capital. On March 29, 2021, we entered into an updated indemnification agreement with Mr. Wirta and the Wirta Trust with respect to their guarantees of borrowings under the Credit Facility.2022.

As of June 30, ~~2021,~~2022, the outstanding principal balance of our mortgage notes payable on our operating properties ~~including mortgage notes payable related to real estate investments held for sale,~~ and our ~~revolving credit facility~~Credit Facility were ~~$187,181,378~~$44,650,173 and ~~$3,000,000,~~$156,775,000, respectively. As of June 30, ~~2021,~~2022, our approximately 72.7% pro-rata share of the TIC Interest’s mortgage note payable was ~~$9,817,066,~~$9,599,182, which is not included in our accompanying unaudited condensed consolidated balance sheets. ~~On July 9, 2021, we repaid $1,500,000 of the $3,000,000 which was outstanding under our Credit Facility as of June 30, 2021.~~

~~Refinancing Transactions~~Acquisitions and ~~Sale~~Dispositions of Real Estate Investments

During the six months ended June 30, ~~2021,~~2022, we ~~refinanced~~acquired the following ~~mortgage notes:~~nine industrial and one retail (KIA) real estate investments:

December 31, 2020 New Prior New Original New
Properties Principal Amount Principal Amount Interest Rate Interest Rate Maturity Date Maturity Date
Levins $ 2,032,332 $ 2,700,000 3.74 % 3.75 % 3/5/2021 2/16/2026
Dollar General Bakersfield $ 2,268,922 $ 2,280,000 3.38 % 3.65 % 3/5/2021 2/16/2028
Labcorp $ 4,020,418 $ 5,400,000 3.38 % 3.75 % 3/5/2021 2/16/2026
GSA (MSHA) $ 1,752,092 $ 1,756,000 3.13 % 3.65 % 8/5/2021 2/16/2026
L3Harris $ 5,185,929 $ 6,300,000 4.69 % 3.35 % 4/1/2022 5/21/2031
Northrop Grumman $ 5,518,589 $ 7,000,000 4.40 % 3.35 % 7/2/2022 5/21/2031


Property and Location	Acquisition Date	Land		Buildings and Improvements		Equipment		Tenant Origination and Absorption Costs		Acquisition Price
KIA, Carson, CA	1/18/2022	$	32,741,781	$	36,544,663	$	—	$	118,606	$	69,405,050
Kalera, St. Paul, MN	1/31/2022	562,356		3,127,653		4,429,000		—		8,119,009
Lindsay, Colorado Springs 1, CO	4/19/2022	1,195,178		1,116,756		—		—		2,311,934
Lindsay, Colorado Springs 2, CO	4/19/2022	2,239,465		1,074,941		—		—		3,314,406
Lindsay, Dacono, CO (1)	4/19/2022	2,263,982		3,294,640		—		—		5,558,622
Lindsay, Alachua, FL	4/19/2022	966,192		7,551,931		—		—		8,518,123
Lindsay, Franklinton, NC	4/19/2022	2,843,811		4,337,302		—		—		7,181,113
Lindsay, Fulton 1, OH	4/19/2022	726,877		10,618,656		—		—		11,345,533
Lindsay, Fulton 2, OH	4/19/2022	635,865		9,555,077		—		—		10,190,942
Lindsay, Rock Hill, SC	4/19/2022	2,816,322		3,739,661		—		—		6,555,983
		$	46,991,829	$	80,961,280	$	4,429,000	$	118,606	$	132,500,715

(1) In connection with the April 2022 Lindsay acquisition, we advanced a non-refundable deposit of $2,800,000 for funding ongoing building construction at the Lindsay property in Dacono, CO. The remaining balance of this deposit was $1,330,780 as of June 30, 2022 which is not included in the acquisition price above.

During the six months ended June 30, ~~2021,~~2022, we sold the following ~~retail~~three office and one flex (Omnicare) real estate investments:

Property Location Disposition Date Rentable Square Feet Contract Sale Price Net Proceeds Gain on Sale
Chevron Gas Station Roseville, CA 1/7/2021 3,300 $ 4,050,000 $ 3,914,909 $ 228,769
EcoThrift Sacramento, CA 1/29/2021 38,536 5,375,300 2,684,225 51,415
Chevron Gas Station San Jose, CA 2/12/2021 1,060 4,288,888 4,054,327 9,458
Total 42,896 $ 13,714,188 $ 10,653,461 $ 289,642


Property	Location	Disposition Date	Rentable Square Feet	Contract Sale Price		Net Proceeds		Gain on Sale
Bon Secours (1)	Richmond, VA	2/11/2022	72,890	$	10,200,000	$	—	$	179,404
Omnicare (1)	Richmond, VA	2/11/2022	51,800	8,760,000		—		2,062,890
Texas Health (1)	Dallas, TX	2/11/2022	38,794	7,040,000		11,883,639		160,377
Accredo	Orlando, FL	2/24/2022	63,000	14,000,000		5,000,941		4,998,106
Emcor	Cincinnati, OH	6/29/2022	39,385	6,525,000		6,345,642		1,002,101
Total			265,869	$	46,525,000	$	23,230,222	$	8,402,878

~~In addition, on July 7, 2021, we completed the sale of our Dana industrial property for $10,000,000 which generated~~(1) Combined net proceeds for the February 11, 2022 disposition, net of ~~$4,975,334 after~~commissions, closing costs paid and repayment of the ~~existing mortgage, commissions and closing costs.~~outstanding mortgages.

4645

~~Sales Pursuant to Our Private~~Listed Offering - Class C Common Stock

~~We commenced the Private Offering to accredited investors only under Regulation D promulgated under the Securities Act on February 1,~~On November 2, 2021, ~~and during the period from February 1, 2021 to June 30, 2021, we sold 32,737 shares~~our Board terminated our offering of Class C common stock pursuant to ~~the Private Offering for aggregate proceeds of $764,078. We terminated the Private Offering on August 12, 2021. Once the SEC qualifies our~~a Regulation A Offering Statement on Form 1-A ~~that was initially~~(the “Reg A Offering”) effective upon the close of business on November 24, 2021 and directed management to seek the listing of our Class C common stock on a national securities exchange in early 2022. Our Board also terminated our Class C and Class S share repurchase programs.

On December 8, 2021, we filed with the SEC a Registration Statement on ~~June 29, 2021,~~Form S-11 (File No. 333-261529), and, on February 9, 2022, we filed with the ~~Regulation A offering will allow us~~SEC Amendment No. 1 to ~~once again accept investor subscriptions from investors who are not accredited and provide access to commercial real estate investments to a much larger audience.~~

~~Share Repurchases~~

~~For~~ the ~~three months ended June 30, 2021, we received share repurchase requests and repurchased shares as follows:~~

Value of Share Repurchase Requests Received Repurchase Date Value of Shares Repurchased (1)
April 2021 $ 3,492,889 May 5, 2021 $ 897,217
May 2021 $ 4,470,888 June 1, 2021 $ 872,613
June 2021 $ 4,255,605 July 6, 2021 $ 1,005,465

~~(1) Including Extraordinary Circumstance Repurchases (as defined below) and after applicable administrative fees for shares held less than two years for shares repurchased thereafter.~~

~~Impact of~~Registration Statement on Form S-11, in connection with the ~~COVID-19 Pandemic on Our Capital Resources~~

Uncertainties over the future utilization of office and retail properties which have arisen as a result of the COVID-19 pandemic have severely impacted our ability to raise capital through our offerings. From January 1, 2021 through June 30, 2021, we raised approximately $4,600,000 through our offerings, including our distribution reinvestment plans, a 67% decrease compared with approximately $14,100,000 raised during the first six months of 2020. In addition, share repurchases increased from approximately $10,000,000 during the first six months of 2020 to approximately $13,000,000 in the first six months of 2021, and we decided not to repurchase an additional $3,421,256 in repurchase requests received during July 2021 in order to preserve liquidity.

~~In April 2020, one~~Listed Offering of our ~~subsidiaries was successful in obtaining a $517,000 loan through the Small Business Administration’s Paycheck Protection Program (“PPP”),~~Class C common stock, which was funded by PMB on April 20, 2020. In December 2020, our subsidiary submitted its application for forgiveness of the total amount of the loan to PMB. After PMB’s review, our subsidiary updated its forgiveness applicationbecame effective on February 10, ~~2021. PMB submitted~~2022. In connection with and upon listing on the ~~application to the SBA~~NYSE, each share of our Class S common stock converted into one share of Class C common stock. The Listed Offering of our Class C common stock closed on February ~~10, 2021, and on February 16, 2021,~~15, 2022. In connection with the Listed Offering, we sold 40,000 shares of our ~~subsidiary~~Class C common stock at $25.00 per share to a major stockholder who was notified by PMB that its application for forgiveness of the PPP loan had been approved by the SBA in the full amount of $517,000. Accordingly, the forgiveness of the PPP loan is reflected in other income for the six months ended June 30, 2021 informerly a related party (see Note 9 to our accompanying unaudited condensed consolidated financial ~~statements.~~statements for additional information), for aggregate net proceeds to us of $114,500, after deducting the underwriting discount of $70,000 and other offering costs of $815,500.

On March 30, 2022, we filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, we filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our $50,000,000 ATM Offering on June 6, 2022. As of June 30, 2022, no shares were issued in connection with our ATM Offering.

Share Repurchases

On February 15, 2022, our Board authorized up to $20,000,000 in repurchases of our outstanding shares of common stock through December 31, 2022. Purchases made pursuant to the program will be made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. Since the inception of the program in February 2022 through August 9, 2022, we have repurchased 220,143 shares for a total of $3,757,744, for an average repurchase price of $17.07 per share.

Class C OP Units

On January 18, 2022, we completed the acquisition of a KIA auto dealership property in an “UPREIT” transaction pursuant to a contribution agreement whereby an affiliate of the seller received 1,312,382 units of Class C limited partnership interest in the Operating Partnership (the “Class C OP Units”) based on an agreed upon value of $25.00 per unit, representing approximately 47% of the property’s value. Following expiration of the lock-up period ending on August 11, 2022, the holder of the Class C OP Units may require the redemption of all or a portion of these units and we have the option to redeem the units for cash or shares of Class C common stock. The Class C OP Units received $377,301 and $628,840 in distributions during the three and six months ended June 30, 2022, respectively (also see the “Distributions” section below).

Cash Flow Summary

The following table summarizes our cash flow activity for the six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Six Months Ended June 30,
2021 2020
Net cash provided by operating activities $ 3,083,353 $ 3,382,882
Net cash provided by (used in) investing activities $ 14,624,425 $ (3,693,954)
Net cash used in financing activities $ (15,710,863) $ (2,546,990)


	Six Months Ended June 30,
	2022		2021
Net cash provided by operating activities	$	5,076,472	$	3,083,353
Net cash (used in) provided by investing activities	$	(58,420,894)	$	14,624,425
Net cash provided by (used in) financing activities	$	6,642,351	$	(15,710,863)

Cash Flows from Operating Activities

~~For~~The cash provided by operating activities of $5,076,472 during the six months ended June 30, ~~2021~~2022 primarily reflects adjustments to our net loss of $9,682,820 to exclude net non-cash losses of $15,610,444 related to depreciation and ~~2020, net cash~~amortization, impairment of goodwill, stock compensation expense, amortization of deferred financing costs and premium, amortization of deferred lease incentives and amortization of above market lease intangibles, which were partially offset by a gain on sale of real estate investment, write-off and recognition of unrealized gain on interest rate swaps, amortization of below-market lease intangibles, amortization of deferred rents and undistributed income from our unconsolidated investment in a real estate property. Cash provided by operating activities ~~was $3,083,353~~also included cash used for changes in operating assets and ~~$3,382,882, respectively.~~liabilities of $998,305 during the six months ended June 30, 2022 due to increases in tenant receivables and prepaid and other assets, along with a decrease in accounts payable, accrued and other liabilities. These cash uses were partially offset by distributions received from our unconsolidated investment in a real estate property of $147,153.

The cash provided by operating activities of $3,083,353 during the six months ended June 30, 2021 primarily reflects adjustments to our net loss of $1,905,491 ~~distributions from investment in unconsolidated entity of $161,967 and~~to exclude net ~~other~~ non-cash charges of $6,434,115 related to depreciation and amortization, stock compensation expense, amortization of deferred financing costs, amortization of deferred lease incentives and amortization of above market ~~lease intangibles,~~leases, which were partially offset by amortization of below-market lease intangibles, gain on forgiveness of economic relief note payable, unrealized gain on interest rate swap valuation, gain on sale of real estate investments, reversal of impairment of real estate property, amortization of deferred rents and undistributed income from our unconsolidated investment in ~~an unconsolidated entity. In addition,~~a real estate property. Cash used in operations also included net use of cash ~~used by~~for changes in operating assets and liabilities ~~was~~of $1,607,238 during the six months ended June 30, 2021, ~~primarily~~ due to an increase in prepaid and other assets and a decrease in accounts payable, accrued and other liabilities, partially offset by a decrease in tenant receivables.

~~The~~ These cash provided by operating activities during the six months ended June 30, 2020 primarily reflects adjustments to our net loss of $51,033,196, distributions from investment in unconsolidated entities of $334,189 and net non-cash charges of $56,839,200 primarily related to impairment of goodwill and intangible assets, depreciation and amortization, impairment of real estate investment property, unrealized loss on interest rate swap valuation, amortization of deferred financing costs, reserve for loan guarantee and stock compensation expense, whichuses were partially offset by ~~amortization of deferred rents, amortization of below-market lease intangibles and income~~distributions from our unconsolidated investment in ~~unconsolidated entity. In addition, the net non-cash charges were partially offset by a net use~~real estate property of cash due to changes in operating assets and liabilities of $2,757,311 during the six months ended June 30, 2020 primarily due to increases in tenant receivables, prepaid and other assets and decreases in accounts payable, accrued and other liabilities and due to affiliates.$161,967.

We ~~continue to~~ expect ~~that~~ our cash flows ~~from operating activities~~ will continue to be positive in the next twelve ~~months;~~months due to an increase in our investments in operating assets as a result of our recent acquisitions; however, there can be no assurance that this expectation will be realized.

Cash Flows from Investing Activities

Net cash used in investing activities was $58,420,894 for the six months ended June 30, 2022 and consisted primarily of the following:

•$99,691,164 for acquisition of the Kia, Kalera and Lindsay portfolio real estate investments;

•$1,546,131 of additions to existing real estate investments;

•$2,100,000 payment of a lease incentive for the PreK Education property; and

•$730,780 of net payments of purchase deposits for pending acquisitions.

These uses were partially offset by:

•$45,257,181 in proceeds from sale of five real estate investments; and

•$390,000 collection of note receivable.

Net cash provided by investing activities was $14,624,425 for the six months ended June 30, 2021 and consisted primarily of the following:

•$13,221,509 ~~for~~in net proceeds from sale of three real estate investments; and

•$1,824,383 ~~for~~in collection of a note receivable from sale of real estate ~~property;~~property.

These proceeds were partially offset byby:

•$309,717 of additions to existing real estate investments; and

•$111,750 of additions to intangibles assets.

~~Net cash used in investing activities was $3,693,954 for the six months ended June 30, 2020 and consisted primarily of the following:~~

•~~$2,170,913 of additions to existing real estate investments;~~

•~~$533,041 of additions to intangible assets; and~~

•~~$990,000 for lease incentives.~~

4847

Cash Flows from Financing Activities

Net cash provided by financing activities was $6,642,351 for the six months ended June 30, 2022 and consisted of the following:

•$130,361,583 of mortgage note principal payments upon entering the Credit Facility and sale of four properties;

•$2,186,468 of deferred financing cost payments to third parties;

•$2,860,513 of cash distributions paid to common stockholders;

•$628,840 of cash distributions paid to the Class C OP Unit holder;

•$1,987,153 of cash dividends paid to preferred stockholders;

•$3,253,902 used for repurchases of common stock; and

•$946,690 for payments of offering costs.

These uses were partially offset by:

•$150,000,000 in proceeds from borrowings on our Credit Facility Term Loan;

•$6,775,000 in net proceeds from our Credit Facility Revolver, partially offset by repayment of $8,022,000 on the prior credit facility with Banc of California (the “Prior Credit Facility”); and

•$114,500 in net proceeds from issuance of common stock in the Listed Offering.

Net cash used in financing activities was $15,710,863 for the six months ended June 30, 2021 and consisted primarily of the following:

• ~~$24,399,915~~$24,399,915 of mortgage notes principal ~~payments and deferred financing cost payments of $381,076 to third parties;~~payments;

•$~~9,000,000~~3,000,000 of net repayments on ~~our credit facilities;~~the Prior Credit Facility revolver;

•$13,046,857 used for repurchases of ~~shares under the share repurchase plan;~~common stock;

•$1,726,567 of cash distributions paid to common stockholders;

•$810,632 for payments of offering costs;

•$381,076 of deferred financing cost payments to third parties; and

•$81,196 of refundable loan deposits.

These uses were partially offset by:

•$~~2,299,380 of proceeds from issuance of common stock, partially offset by payments for offering costs and commissions of $810,632;~~

•$25,436,000 ofin proceeds from mortgage notes payable; and

•$~~6,000,000 of proceeds from borrowings on our credit facility.~~

~~Net cash used~~2,299,380 in ~~financing activities was $2,546,990 for the six months ended June 30, 2020 and consisted primarily of the following:~~

•~~$2,003,558 of mortgage notes principal payments and deferred financing cost payments of $56,997 to third parties;~~

•~~$4,800,000 of full principal repayments on our short-term notes;~~

• ~~$9,987,775 used for repurchases of shares under the share repurchase plan; and~~

•~~$3,090,265 of cash distributions paid to common stockholders.~~

~~These uses were partially offset by:~~

•~~$9,427,526 of~~ proceeds from issuance of common ~~stock, partially offset by payments for offering costs and commissions of $822,921;~~stock.

•~~$4,000,000 of proceeds from mortgage notes payable;~~

•~~$527,000 of proceeds from economic relief notes payable; and~~

•~~$4,260,000 of proceeds from borrowings on our prior credit facility.~~

Funds from Operations and Adjusted Funds from Operations

In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“Nareit”) promulgated a measure known as Funds from Operations (“FFO”). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures, preferred dividends and ~~preferred distributions.~~real estate impairments. Because FFO calculations adjust for such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or may interpret the current Nareit definition differently than we do, making comparisons less meaningful.

Additionally, we use AFFO as a non-GAAP financial measure to evaluate our operating performance. AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of stock-based compensation, deferred rent, amortization of in-place lease valuation intangibles, acquisition-related costs, deferred financing fees, ~~asset impairment write-downs,~~ gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, ~~write-off~~write-offs of transaction costs and other one-time transactions.

We also believe that AFFO is a recognized measure of sustainable operating performance byof the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.

Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.

For all of these reasons, we believe the non-GAAP measures of FFO and AFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and AFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO. AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods. However, FFO and AFFO are not useful measures in evaluating ~~NAV~~net asset value (“NAV”) because impairments are taken into account in determining NAV but not in determining FFO and AFFO. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income (loss) from operations, net income (loss) or cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

Neither the SEC, Nareit, nor any other applicable regulatory body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate AFFO and its use as a non-GAAP performance measure. In the future, the SEC or Nareit may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure. Furthermore, as described in Note 1112 to our accompanying unaudited condensed consolidated financial statements, the conversion ratios for units of Class M limited partnership interest in the Operating Partnership (“Class M OP Units”), units of Class P limited partnership interest in the Operating Partnership (“Class P OP Units”) and units of Class R limited partnership interest in the Operating Partnership (“Class R OP Units”) ~~in the Operating Partnership~~ can increase if the specified performance hurdles are ~~achieved.~~achieved, which would increase the fully-diluted weighted average shares outstanding.

5049

The following are the calculations of FFO and AFFO for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Six Months Ended June 30,
2021 2020
Net loss $ (1,905,491) $ (51,033,196)
FFO adjustments:
Add: Depreciation and amortization 7,077,287 8,189,797
Amortization of lease incentives 105,541 30,602
Depreciation and amortization for investment in TIC Interest 363,572 363,476
Less: Gain on sale of real estate investments, net (289,642) —
FFO 5,351,267 (42,449,321)
AFFO adjustments:
Add: Impairment of real estate investments (400,999) 9,506,525
Impairment of goodwill and intangible assets — 34,572,403
Gain on forgiveness of economic relief note payable (517,000) —
Amortization of corporate intangibles 925,739 925,989
Stock compensation 1,371,732 350,900
Amortization of deferred financing costs 199,693 298,283
Amortization of above-market intangible leases 64,913 98,966
Unrealized (gains) losses on interest rate swaps (517,719) 1,292,752
Acquisition fees and due diligence expenses, including abandoned pursuit costs 238,496 135,454
Reserve for loan guarantee — 3,125,037
Less: Deferred rents (702,978) (631,054)
Amortization of below-market intangible leases (735,150) (774,589)
Other adjustments for unconsolidated entities (44,390) (43,550)
AFFO $ 5,233,604 $ 6,407,795
Weighted average shares outstanding - fully diluted 8,880,365 9,182,072
Weighted average shares outstanding - basic 7,630,401 7,992,108
FFO Per Share, Fully Diluted $ 0.60 $ (4.62)
AFFO Per Share, Basic $ 0.69 $ 0.80


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income (loss) (in accordance with GAAP)	$	2,390,344	$	(1,001,843)	$	(9,682,820)	$	(1,905,491)
Preferred stock dividends	(921,875)		—		(1,843,750)		—
Net income (loss) attributable to common stockholders and Class C OP Units	1,468,469		(1,001,843)		(11,526,570)		(1,905,491)
FFO adjustments:
Add: Depreciation and amortization	3,682,681		3,512,727		6,983,173		7,077,287
Amortization of lease incentives	75,655		40,240		147,049		105,541
Depreciation and amortization for unconsolidated investment in a real estate property	190,468		181,786		380,936		363,572
Less: Gain on sale of real estate investments, net	(1,002,101)		—		(8,402,878)		(289,642)
Reversal of impairment of real estate investments	—		(400,999)		—		(400,999)
FFO attributable to common stockholders and Class C OP Units	4,415,172		2,331,911		(12,418,290)		4,950,268
AFFO adjustments:
Add: Amortization of corporate intangibles	—		—		—		925,739
Impairment of goodwill	—		465,596		17,320,857		—
Stock compensation	679,747		767,087		1,191,612		1,371,732
Deferred financing costs	101,781		100,624		1,368,506		199,693
Non-recurring loan prepayment penalties	—		—		615,336		—
Swap termination costs	—		—		733,000		23,900
Amortization of above-market intangible leases	32,456		32,458		64,912		64,913
Acquisition fees and due diligence expenses, including abandoned pursuit costs	4,639		238,496		591,308		249,240
Less: Deferred rents	(699,053)		(428,155)		(809,558)		(702,978)
Unrealized gains on interest rate swaps	(589,997)		(90,600)		(1,378,013)		(517,719)
Amortization of below-market intangible leases	(349,810)		(367,575)		(712,884)		(735,150)
Gain on forgiveness of economic relief note payable	—		—		—		(517,000)
Other adjustments for unconsolidated investment in a real estate property	(188)		(12,196)		(376)		(44,390)
AFFO attributable to common stockholders and Class C OP Units	$	3,594,747	$	3,037,646	$	6,566,410	$	5,268,248

Weighted average shares outstanding:
Basic	7,478,973		7,614,196		7,505,673		7,630,401
Fully diluted (1)	10,221,490		8,833,985		10,241,023		8,880,365

FFO Per Share:
Basic	$	0.59	$	0.31	$	(1.65)	$	0.65
Fully Diluted	$	0.43	$	0.26	$	(1.65)	$	0.56

AFFO Per Share:
Basic	$	0.48	$	0.40	$	0.87	$	0.69
Fully Diluted	$	0.35	$	0.34	$	0.64	$	0.59

(1) Includes the Class C, Class M, Class P and Class R OP Units to compute the weighted average number of shares.

5150

Results of Operations

As of June 30, ~~2021,~~2022, we owned 3843 operating properties, including the TIC Interest. We acquired 10 properties (nine industrial and one ~~industrial property classified as held for sale and an approximate 72.7% TIC Interest in an industrial property. We did not acquire any operating properties~~retail) during the first ~~half~~six months of ~~2021 or 2020, but we did acquire a Raising Cane’s retail property in July 2021 as discussed in~~ ~~Note 12~~ ~~to our accompanying unaudited condensed consolidated financial statements.~~2022 compared with no real estate acquisitions during the first six months of 2021. We sold five properties (four office and one industrial) during the first six months of 2022 and three retail properties during the first ~~half~~six months of ~~2021, which~~2021. The operating results of the four properties that were ~~previously~~ classified as held for sale ~~as of~~at December 31, ~~2020 and one industrial property in July~~ 2021, including three properties that ~~was classified as held for sale as of June 30, 2021 as discussed in~~ ~~Note 12~~ ~~to our accompanying unaudited condensed consolidated financial statements. No operating properties~~ were sold during the ~~first half of 2020. The operating results of the properties that~~three months ended March 31, 2021, were ~~classified in the ordinary course of business as held for sale are~~ included in our continuing results of operations.

We expect that rental income, tenant reimbursements, depreciation and amortization expense and interest expense will ~~decrease during~~increase for the ~~second half~~full year of ~~2021~~2022 as compared with the ~~second half~~full year of ~~2020~~2021, as a result of the ~~nine dispositions discussed above (seven retail~~two property acquisitions in January 2022, the acquisition of an eight property industrial portfolio in April 2022, the acquisition of five industrial properties in July 2022, the acquisition of one industrial property in August 2022 and ~~two industrial properties),~~our plan to acquire additional properties during the remainder of 2022, partially offset by five dispositions in 2021 (three during the ~~results from~~first quarter and one each during the ~~Raising Cane's retail property acquired on July 26, 2021.~~third and fourth quarters), four dispositions in February 2022 and one disposition in June 2022. Our results of operations for the three and six months ended June 30, ~~2021~~2022 may not be indicative of those expected for the full year of 2022 or in future periods.

Due to the continuing COVID-19 pandemic, including the recent spread of ~~the Delta variant,~~its variants, in the United States and globally, many of our tenants and operating partners continue to be impacted. The continued impact of the COVID-19 pandemic and ~~the Delta variant~~its variants on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information regarding ~~mutation~~mutations of COVID-19, the success of actions taken to contain or treat COVID-19, the effectiveness of the current vaccines to contain the COVID-19 variants, ~~including the Delta variant,~~ and reactions by consumers, companies, governmental entities and capital markets. We, including our tenants, are also being impacted by increases in inflation and interest rates, along with disruptions in supply chains in the U.S. and globally. The effects of these challenging economic factors may be mitigated by the number of credit tenants in our portfolio and the diversity of our property locations and tenant industries.

Comparison of the Three Months Ended June 30, ~~2021~~2022 to the Three Months Ended June 30, ~~2020~~2021

Rental Income

Rental income, including tenant reimbursements, for the three months ended June 30, 2022 and 2021 was $10,394,118 and ~~2020 was $9,173,000 and $9,277,020,~~$9,107,008, respectively. The ~~decrease~~increase of ~~$104,020,~~$1,287,110, or 1%14%, ~~quarter-over-quarter~~as compared with the second quarter of 2021 primarily reflects the ~~reduction~~rental income contributions from our acquisition of the KIA auto dealership property in Carson, California on January 18, 2022, and our acquisition of eight industrial properties leased by Lindsay Precast which contributed approximately 14.0% and 10.2% of our total rental income during the second quarter of 2022, respectively (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details). These increases together with the rental income contributions of three other property acquisitions (one industrial property acquired in January 2022 and two properties (one industrial and one retail) acquired during the second half of 2021) were partially offset by the decrease in rental income from the ~~eight operating~~sale of six properties ~~(seven retail~~(four properties sold in February 2022 (one industrial and ~~one industrial property)~~three office) and two properties sold during the second half of ~~2020~~2021 (one industrial and ~~the first quarter of 2021.~~one retail)). Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. Rental income includes tenant reimbursements of $1,400,428 and $1,540,380 for the three months ended June 30, 2022 and 2021, respectively. The ~~annualized base rental income~~ABR of the operating properties owned as of June 30, ~~2021~~2022 was ~~$26,219,270, excluding~~$34,145,008 which increases to $35,649,730 with the ~~annualized base rental income~~July 2022 acquisitions of two properties in the Producto Acquisition, the July 2022 and August 2022 acquisitions of an aggregate of four properties in the Valtir Acquisition and the pending disposal of one ~~industrial~~office property ~~held for sale as of June 30, 2021 and sold on July 7, 2021.~~

~~General and Administrative~~

General and administrative expenses were $2,875,869 and $2,369,358 for the three months ended June 30, 2021 and 2020, respectively. The increase of $506,511, or 21%, quarter-over-quarter primarily reflects $568,304 of stock compensation expense related to the Class R OP Units granted in January 2021 (discussed in detailwhich are described in Note 1114 to our accompanying unaudited condensed consolidated financial ~~statements)~~statements.

General and Administrative

General and administrative expenses were $1,615,182 and $1,932,635 for the three months ended June 30, 2022 and 2021, respectively. The decrease of $317,453, or 16%, as compared with the second quarter of 2021 primarily reflects decreases in compensation to employees due to headcount reductions during the second half of 2021 and first quarter of 2022, as well as decreases in due diligence costs, which were partially offset by an increase in ~~part by reductions in costs related to office rent, technology~~professional services ~~and legal fees in~~during the ~~current year~~second quarter of 2022 compared to the ~~prior year quarter.~~second quarter of 2021.

Stock Compensation Expense

Stock compensation expense was $679,747 and $767,087 for the three months ended June 30, 2022 and 2021, respectively. The decrease of $87,340, or 11%, as compared with the second quarter of 2021 primarily reflects forfeitures related to employee terminations during the second half of 2021 through the second quarter of 2022.

Depreciation and Amortization

Depreciation and amortization expense was ~~$3,978,323~~$3,682,681 and ~~$4,480,262~~$3,978,323 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The purchase price of properties acquired is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives. The decrease of ~~$501,939,~~$295,642, or ~~11%~~7%, ~~quarter-over-quarter~~as compared with the second quarter of 2021 primarily reflects the ~~reduction~~absence of ~~depreciation and~~ amortization ~~expenses related to the eight operating properties (seven retail properties and one industrial property) sold~~of corporate intangibles, which were impaired during the ~~second half of 2020 and the first~~fourth quarter of ~~2021.~~

2021 in connection with our decision to exit the crowdfunding business.

Interest Expense

~~In addition, there was also a~~property mortgages. The $901,495, or 43%, decrease in ~~the average principal balance of our mortgage notes payable to approximately $180,626,000 during~~interest expense as compared with the second quarter of 2021 ~~from~~primarily reflects an approximately ~~$197,084,000 during~~$497,000 decrease in interest expense paid or payable to lenders and an approximately $498,000 increase in unrealized gains on the ~~second quarter~~valuation of ~~2020. Average credit facility borrowings were approximately $5,500,000 during the second quarter of 2021 compared to approximately $12,000,000 during the second quarter of 2020.~~interest rate swaps.

Property Expenses

Property expenses were ~~$1,697,886~~$1,965,885 and ~~$1,854,637~~$1,874,033 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses, the majority of which are reimbursed by tenants. The ~~decrease~~increase of ~~$156,751,~~$91,852, or 8%5%, ~~quarter-over-quarter primarily~~as compared with the second quarter of 2021 reflects ~~the reduction~~increases in ~~expenses related to the eight operating properties (seven retail properties~~repairs and ~~one industrial property) sold~~maintenance, property taxes and other taxes during the second ~~half of 2020 and the first~~ quarter of ~~2021.~~2022.

Reversal of Impairment of ~~Investments~~Investment in Real Estate ~~Properties~~Property

~~Impairment~~Reversal of ~~investments~~impairment of investment in real estate ~~properties was a credit~~property of $400,999 for the three months ended June 30, 2021 ~~and a charge of $349,457 for the three months ended June 30, 2020. The credit for the three months ended June 30, 2021 resulted from~~reflects an adjustment to reduce the impairment charge recorded in December 2020 for the property located in Bedford, Texas due to its reclassification from held for sale to held for investment and use in June ~~2021 (see~~ ~~Note 3~~ ~~to our accompanying unaudited condensed consolidated financial statements for a detailed discussion~~2021.

Gain on Sale of ~~the adjustment).~~ Real Estate Investment

The ~~impairment charge in the prior year quarter relates to the impairment of one property located in Lake Elsinore, California, due to the~~gain on sale of ~~this property and the negative impacts~~real estate investment of ~~the COVID-19 pandemic (see~~ ~~Note 4~~ ~~to our accompanying unaudited condensed consolidated financial statements for impairment details).~~

~~Reserve for Loan Guarantee~~

~~The credit to our reserve for our estimated liability under a loan guarantee amounted to $4,253~~$1,002,101 for the three months ended June 30, ~~2020. This represented~~2022 relates to the ~~change~~sale of one office property in the estimated liability for a loan guarantee related to our subsidiary's secured mortgage for the Las Vegas, Nevada property, as a result of the evaluation of the impact of the COVID-19 pandemic on the tenant's business and the risk that the lender could foreclose on the property. The Las Vegas, Nevada property was sold on December 15, 2020 and the reserve was reversed as a result of the buyer's assumption of the related note payable.June 2022.

Other (Expense) Income

Interest income was ~~$51~~$1,763 and ~~$605~~$51 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Income from ~~investments~~unconsolidated investment in ~~unconsolidated entities~~a real estate property was ~~$74,834~~$66,868 and ~~$125,658~~$74,834 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. This ~~represents~~reflects our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the second quarters of 2022 and 2021, respectively.

Other income of $66,143 and ~~2020, respectively.~~$65,992 for the three months ended June 30, 2022 and 2021, respectively, primarily reflects our monthly management fee from the entities that own the TIC Interest property which is equal to 0.1% of the total investment value of the property.

Comparison of the Six Months Ended June 30, ~~2021~~2022 to the Six Months Ended June 30, ~~2020~~2021

Rental Income

Rental income, including tenant reimbursements, for the six months ended June 30, 2022 and 2021 was $20,042,767 and ~~2020 was $18,213,863 and $20,331,429,~~$18,081,878, respectively. The ~~decrease~~increase of ~~$2,117,566,~~$1,960,889, or ~~10%~~11%, ~~period-over-period~~as compared with the first six months of 2021 primarily reflects the ~~reduction~~rental income contribution from our acquisition of the KIA auto dealership property in Carson, California on January 18, 2022, and our acquisition of eight industrial properties leased to Lindsay Precast on April 19, 2022, which contributed approximately 13.6% and 5.3% of our total rental income during the first six months of 2022, respectively (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details). These increases, together with the rental income contributions of three other property acquisitions (one industrial property acquired in January 2022 and two properties acquired during the second half of 2021 (one industrial and one retail)), were partially offset by the decrease in rental income from the ~~eight operating~~sale of six properties ~~(seven retail~~(four properties sold in February 2022 (one industrial and ~~one industrial property)~~three office) and two properties sold during the second half of ~~2020~~2021 (one industrial and ~~the first quarter of 2021.~~one retail)). Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. Rental income includes tenant reimbursements of $3,450,799 and $3,068,172 for the six months ended June 30, 2022 and 2021, respectively. The ~~annualized base rental income~~ABR of the operating properties owned as of June 30, ~~2021~~2022 was ~~$26,219,270, excluding~~$34,145,008 which increases to $35,649,730 with the ~~annualized base rental income~~July 2022 acquisitions of two properties in the Producto Acquisition, the July 2022 and August 2022 acquisitions of an aggregate of four properties in the Valtir Acquisition and the pending disposal of one ~~industrial~~office property ~~held for sale as of June 30, 2021 and sold in July 2021.~~

~~General and Administrative~~

General and administrative expenses were $6,158,753 and $4,924,363 for the six months ended June 30, 2021 and 2020, respectively. The increase of $1,234,390, or 25%, period-over-period primarily reflects $1,014,165 of stock compensation expense related to the Class R OP Units granted in January 2021 (discussedwhich are described in Note 1114 to our accompanying unaudited condensed consolidated financial ~~statements).~~statements.

General and Administrative

General and administrative expenses were $3,721,365 and $4,618,621 for the six months ended June 30, 2022 and 2021, respectively. The decrease of $897,256, or 19%, as compared with the first six months of 2021 reflects decreases in compensation to employees due to headcount reductions, professional and technology services, due diligence costs, business taxes and licenses during the first six months of 2022.

Stock Compensation Expense

Stock compensation expense was $1,191,612 and $1,371,732 for the six months ended June 30, 2022 and 2021, respectively. The decrease of $180,120, or 13%, as compared with the first six months of 2021 primarily reflects forfeitures related to employee terminations during the second half of 2021 through the first quarter of 2022.

Depreciation and Amortization

Depreciation and amortization expense was ~~$8,003,026~~$6,983,173 and ~~$9,115,786~~$8,003,026 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The purchase price of properties acquired is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives. The decrease of ~~$1,112,760,~~$1,019,853, or ~~12%~~13%, ~~period-over-period~~as compared with the first six months of 2021 primarily reflects the ~~reduction~~absence of ~~depreciation and~~ amortization ~~expenses related to the eight operating properties (seven retail properties and one industrial property) sold~~of corporate intangibles, which were impaired during the ~~second half of 2020 and the first~~fourth quarter of ~~2021.~~2021 in connection with our decision to exit the crowdfunding business.

Interest Expense

Interest expense includes amortization of deferred financing costs and unrealized gains and losses on swap valuations in addition to interest paid or payable to lenders. Total interest expense was ~~$3,879,785~~$2,765,329 and ~~$6,463,533~~$3,879,785 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively (see Note 7 to our accompanying unaudited condensed consolidated financial statements for ~~the detail~~details of the components of interest expense). On January 18, 2022, we used funds from our initial borrowing from our Credit Facility to pay off 20 existing property mortgages on 27 properties, the $36,465,449 mortgage on the KIA auto dealership property which we acquired on January 18, 2022 and repayment of our Prior Credit Facility and related interest, aggregating $153,428,764. In addition, four interest rate swap agreements related to four property mortgages were terminated in connection with the prepayment of the property mortgages. The decrease in interest expense of ~~$2,583,748,~~$1,114,456, or ~~40%~~29%, ~~period-over-period was~~as compared with the first six months of 2021 primarily ~~due~~reflects an approximately $1,006,000 decrease in interest expense paid or payable to ~~our gain~~lenders and approximately $170,000 increase in unrealized gains on the valuation of interest rate swaps of $420,243 during the six months ended June 30, 2021, compared to a loss on interest rate swaps of $1,395,697 during the six months ended June 30, 2020. In addition, there was also a decrease in the average principal balance of our mortgage notes payable from approximately $197,853,000 during the first half of 2020 to approximately $179,173,000 during the first half of 2021. Average credit facility borrowings were approximately $10,935,000 during the first half of 2020, compared to $5,750,000 during the first half of 2021.swaps.

Property Expenses

Property expenses were ~~$3,452,833~~$4,730,477 and ~~$3,803,356~~$3,621,233 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. These expenses primarily relate to property taxes and repairs and maintenance ~~expense,~~expenses, the majority of which are reimbursed by tenants. The ~~decrease~~increase of ~~$350,523,~~$1,109,244, or 9%31%, ~~period-over-period primarily~~as compared with the first six months of 2021 reflects increases in property and other taxes during the ~~reduction~~first six months of 2022 and approximately $587,000 in ~~expenses~~write-offs of costs related to our proposed acquisition of 10 properties leased to Walgreens which we abandoned due to inability to obtain the ~~eight operating properties (seven retail properties~~mortgage servicer’s approval prior to the February 18, 2022 contract termination date and ~~one industrial property) sold during the second half~~changes in market conditions. These write-offs included legal and due diligence costs and forfeiture of ~~2020 and the first quarter~~$375,000 of ~~2021.~~our $1,000,000 earnest money deposit.

Reversal of Impairment of ~~Investments~~Investment in Real Estate ~~Properties~~Property

~~Impairment~~Reversal of ~~investments~~impairment of investment in real estate ~~properties was a credit~~property of $400,999 for the six months ended June 30, 2021 ~~and a charge of $9,506,525 for the six months ended June 30, 2020. The current year period's credit resulted from~~reflects an adjustment to reduce the impairment charge recorded in December 2020 for the property located in Bedford, Texas due to its reclassification from held for sale to held for investment and use in June ~~2021 (see~~ ~~Note 3~~ ~~to our accompanying unaudited condensed consolidated financial statements for a detailed discussion~~2021.

Impairment of ~~the adjustment).~~ Goodwill

The impairment ~~charge recorded in~~of goodwill of $17,320,857 for the six months ended June 30, ~~2020 relates~~2022 reflects the significant decline in the market value of our common stock since it began trading on the NYSE in February 2022. For the quarter ended March 31, 2022, management considered the fact that the recent trading price of our common stock caused our market capitalization to be below the ~~impairments~~book value of ~~four properties formerly leased to Rite Aid, 24 Hour Fitness, Dinan Cars~~our equity as of March 31, 2022. Our stock price is materially below both our historical net asset value and ~~Dana due to~~the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession. We, therefore, reduced the COVID-19 pandemic and the forced closure of the 24 Hour Fitness in Las Vegas, Nevada, as well as uncertainty regarding our ability to re-lease the Dinan Cars and Dana vacant properties on the same or better terms, or at all (see ~~Note 4~~ to our accompanying unaudited condensed consolidated financial statements for impairment details). The properties formerly leased by Rite Aid, 24 Hour Fitness, Dinan Cars and Dana were sold in August, October, December 2020 and July 2021, respectively.

~~Impairment of Goodwill and Intangible Assets~~

~~Impairment charges of $34,572,403 recorded during the six months ended June 30, 2020 consisted~~carrying value of goodwill ~~impairment~~to zero as of $33,267,143 (approximated 66% of goodwill) and intangible assets impairment of $1,305,260 (approximated 16% of intangible assets) related to our investor list. These impairments reflected the negative impacts of the COVID-19 pandemic to the carrying values of goodwill and intangible assetsMarch 31, 2022 (see Note 5 to our accompanying unaudited condensed consolidated financial statements for ~~impairment~~additional details). ~~We did not incur any impairment charges for our goodwill and intangible assets during the six months ended June 30, 2021.~~

~~Reserve for Loan Guarantee~~

The credit to our reserve for estimated liability under a loan guarantee amounted to $3,125,037 for the six months ended June 30, 2020. This represented the estimated liability for a loan guarantee related to our subsidiary's secured mortgage for the Las Vegas, Nevada property, as a result of the evaluation of the impact of the COVID-19 pandemic on the tenant's business and the risk that the lender could foreclose on the property. The Las Vegas, Nevada property was sold on December 15, 2020 and the reserve was reversed as a result of the buyer's assumption of the related note payable.

Gain on Sale of Real Estate Investments

The gain on sale of investments of $8,402,878 and $289,642 for the six months ended June 30, 2022 and 2021, respectively, relates to the sale of five properties (four office and one industrial) during the first six months of 2022 and three retail properties during the ~~current year period~~first six months of 2021 (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details).

Other (Expense) Income

Interest income was ~~$100~~$15,198 and ~~$4,822~~$100 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Income from ~~investments~~unconsolidated investment in ~~unconsolidated entities~~a real estate property was ~~$147,302~~$162,332 and ~~$146,411~~$147,302 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. This ~~represents~~reflects our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the first ~~half~~six months of ~~2021~~2022 and ~~2020,~~2021, respectively.

~~Other income~~Gain on forgiveness of economic relief note payable of $517,000 for the six months ended June 30, 2021 ~~also includes~~reflects the Small Business Administration’s forgiveness in February 2021 of our economic relief note payable ~~of $517,000~~ obtained in April 2020 under the terms of the Paycheck Protection Program.

Loss on early extinguishment of debt of $1,725,318 for the six months ended June 30, 2022 reflects non-cash charges of $1,164,998 for deferred financing costs and prepayment penalties of $615,336 upon repayment of 20 mortgages on 27 properties, full repayment of our Prior Credit Facility and mortgage repayments related to four asset sales, as well as $733,000 of swap termination fees related to the four mortgage refinancings and the related recognition of termination gains of $788,016 (see Notes 7 and 8 to our accompanying unaudited condensed consolidated financial statements for more details).

Other income of $132,136 and $151,985 for the six months ended June 30, 2022 and 2021, respectively, primarily reflects our monthly management fee from the entities that own the TIC Interest property which is equal to 0.1% of the total investment value of the property.

Organizational and Offering Costs

Organizational and offering costs include all ~~expenses~~costs incurred in connection with the ~~Offerings,~~offerings prior to the Listed Offering, including investor ~~relations~~relations' payroll ~~expenses~~costs and ~~all~~ other ~~expenses~~costs incurred in connection with the offerings of our ~~formation,~~stock, including, but not limited to legal fees, federal and state filing fees and other ~~costs to incorporate. For~~costs. Through November 24, 2021, the six months ended June 30, 2021 and June 30, 2020, we incurred organizational and offering costs aggregating $810,632 and $822,881, respectively, which are recorded in our financial statements as an offset to equity. Astermination date of ~~June 30, 2021,~~the Reg A Offering, we had recorded cumulative organizational and offering costs of ~~$7,954,795,~~$8,298,499, including $5,429,105 paid to our former sponsor or ~~affiliates.~~affiliates through December 31, 2019.

~~Our~~In connection with our Listed Offering of Class C common stock, we incurred organizational and offering costs ~~were paid by our former sponsor on our behalf~~in the aggregate of $885,500 through ~~September~~June 30, 2019, after which we agreed to pay all future organization and offering costs pursuant to an amendment to the advisory agreement with our former external advisor in October 2019 and to no longer be reimbursed by our former sponsor for investor relations personnel costs after September 30, 2019, in exchange for our former sponsor's agreement to terminate its right to receive 3% of gross offering proceeds as reimbursement for organization and offering costs paid by our former sponsor. Prior to September 30, 2019, we were obligated to reimburse our former sponsor for2022. We also incurred additional organizational and offering costs of $757,278 and $946,690 during the three and six months ended June 30, 2022, respectively, related to our Registration Statement on Form S-3 (File No. 333-263985) that we filed on March 30, 2022, and Amendment No. 1 to the ~~Initial Registered Offering~~Registration Statement on Form S-3 that we filed on May 27, 2022, to issue and sell from time to time, together or separately, the ~~Class S Offering paid by it on our behalf, provided such reimbursement did~~following securities at an aggregate public offering price that will not exceed 3%$200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our $50,000,000 ATM Offering on June 6, 2022. As of ~~gross offering proceeds raised~~June 30, 2022, no shares were issued in connection with our ATM Offering.

Distributions

Preferred Dividends

On March 18, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for the ~~Initial Registered Offering and~~first quarter of 2022, which was paid on April 15, 2022. On June 15, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for the ~~Class S Offering~~second quarter of 2022. This amount was accrued as of ~~the date of the reimbursement. We recorded $5,429,105 of organizational~~June 30, 2022 and ~~offering costs~~was paid on July 15, 2022 (see Note 14 to our ~~former sponsor or affiliates through September 30, 2019.~~accompanying unaudited condensed consolidated financial statements for more details).

Common Stock Distributions

We intend to pay distributions on a monthly basis, and we paid our first distribution on ~~July 11,~~August 10, 2016. The distribution rate is determined by ~~our board of directors~~the Board based on our financial condition and such other factors as ~~our board of directors~~the Board deems relevant. ~~Our board of directors~~The Board has not pre-established a percentage range of return for distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.

Distributions declared, distributions paid ~~and~~out, cash flows ~~provided by operating activities~~from operations and our sources of distribution payments were as ~~follows:~~follows for the first half of 2022 and the four quarters of 2021:

Total Distributions Distributions Declared Distributions Paid Cash Flows Provided by (Used in) Operating
Period (1) Declared Per Share Cash Reinvested Activities
2021
First Quarter 2021 (2) $ 1,991,676 $ 0.258903 $ 891,202 $ 1,130,949 $ 102,091
Second Quarter 2021 (3) 1,976,511 0.261780 835,381 1,131,281 2,981,262
$ 3,968,187 $ 0.520683 $ 1,726,583 $ 2,262,230 $ 3,083,353
2020
First Quarter 2020 (4) $ 4,189,102 $ 0.523018 $ 1,379,751 $ 2,360,514 $ 1,947,505 *
Second Quarter 2020 (5) 3,270,291 0.407691 1,710,514 2,304,199 (774,533) *
Third Quarter 2020 (6) 2,135,815 0.264656 981,432 1,150,452 2,638,676
Fourth Quarter 2020 (7) 2,106,620 0.264656 947,519 1,143,369 1,765,192
2020 Totals $ 11,701,828 $ 1.460021 $ 5,019,216 $ 6,958,534 $ 5,576,840 *


Period (1)	Total Distributions Declared		Distributions Declared Per Share		Distributions Paid				Cash Flows (Used in) Provided by Operating Activities		Net Rental Income Received		Offering Proceeds		Quarter End Accrued Distribution
					Cash		Reinvested
2022 (2)
First Quarter	$	2,907,122	$	0.387499	$	1,418,783	$	1,492,404	$	(1,083,310)	$	2,907,122	$	—	$	854,599
Second Quarter	2,145,534		0.287500		2,070,570		711,223		6,159,782		2,145,534		—		844,183
2022 Totals	$	5,052,656	$	0.674999	$	3,489,353	$	2,203,627	$	5,076,472	$	5,052,656	$	—
2021
First Quarter	$	1,991,676	$	0.258903	$	891,202	$	1,130,949	$	102,091	$	1,991,676	$	—	$	675,221
Second Quarter	1,976,511		0.261780		835,381		1,131,281		2,981,262		1,976,511		—		650,167
Third Quarter	1,981,725		0.264656		838,868		1,137,501		3,299,330		1,981,725		—		643,025
Fourth Quarter	2,160,966		0.289864		907,927		1,200,880		3,346,002		2,160,966		—		730,445
2021 Totals	$	8,110,878	$	1.075203	$	3,473,378	$	4,600,611	$	9,728,685	$	8,110,878	$	—

* Includes non-recurring Merger costs of $201,920 during the year ended December 31, 2020 ($193,460 during the quarter ended March 31, 2020 and $8,460 during the quarter ended June 30, 2020).

(1)The ~~distributions~~distribution paid per share of Class S common stock iswas net of deferred selling commissions.

(2)~~The~~ Includes the 13th distribution ~~of $675,221~~ for ~~the month of March~~ 2021 ~~was~~ declared ~~in January 2021 and paid on April 26, 2021. The amount was recorded as a liability as of March 31, 2021.~~

~~(3)~~The distribution of $650,167 for the month of June 2021 was declared in March 2021 and paid on July 26, 2021. The amount was recorded as a liability as of June 30, 2021 in the accompanying unaudited condensed consolidated balance sheets.

~~(4)The distribution of $1,415,328 for the month of March 2020 was declared in January 2020 and paid on April 27, 2020. The amount was recorded as a liability as of March 31, 2020.~~

~~(5)The distribution of $691,443 for the month of June 2020 was declared in May 2020 and paid on July 27, 2020. The amount was recorded as a liability as of June 30, 2020.~~

~~(6)The distribution of $674,837 for the month of September 2020 was declared in May 2020 and paid on October 26, 2020. The amount was recorded as a liability as of September 30, 2020.~~

~~(7)The distribution of $699,997 for the month of December 2020 was declared in September 2020 and paid~~ on January ~~22, 2021. The amount was recorded as a liability as of December 31, 2020.~~5, 2022 for Class C common stock only and distributions to Class C OP Units.

5655

~~Our sources of~~Prior to 2022, distributions to stockholders were declared and paid based on daily record dates at rates per share per day. Beginning in 2022, distributions to stockholders are declared and paid based on monthly record dates. The distribution ~~payments were~~details are as follows:

Distribution Period

Net
Rental
Income
ReceivedRate Per Share Per Day (1)

Offering
ProceedsDeclaration Date

Payment Date

2021

~~First Quarter 2021~~January 1-31

~~1,991,676~~0.00287670

—

~~Second Quarter 2021~~December 9, 2020

~~1,976,511~~ February 25, 2021

—

~~2021 Totals~~February 1-28

~~3,968,187~~0.00287670

January 27, 2021

March 25, 2021

March 1-31

—0.00287670

January 27, 2021

April 26, 2021

~~2020~~April 1-30

0.00287670

March 25, 2021

May 25, 2021

May 1-31

0.00287670

March 25, 2021

June 25, 2021

June 1-30

0.00287670

March 25, 2021

July 26, 2021

July 1-31

0.00287670

June 16, 2021

August 25, 2021

August 1-31

0.00287670

June 16, 2021

September 27, 2021

September 1-30

0.00287670

June 16, 2021

October 25, 2021

October 1-31

0.00315070

August 12, 2021

November 24, 2021

November 1-30

0.00315070

August 12, 2021

December 21, 2021

December 1-31

0.00315070

August 12, 2021

January 5, 2022

13th Distribution (2)

0.00027397

January 5, 2022

January 18, 2022

~~First Quarter 2020~~Distribution Period

Rate Per Share Per Month

Declaration Date

Payment Date

2022

January 1-31

~~4,189,102~~0.09583300

—

~~Second Quarter 2020~~January 27, 2022

~~3,270,291~~ February 25, 2022

—

~~Third Quarter 2020~~

~~2,135,815~~

—

~~Fourth Quarter 2020~~

~~2,106,620~~

—

~~2020 Totals~~February 1-28

~~11,701,828~~0.09583300

February 17, 2022

March 25, 2022

March 1-31

—0.09583300

February 17, 2022

April 25, 2022

April 1-30

0.09583300

March 18, 2022

May 25, 2022

May 1-31

0.09583300

March 18, 2022

June 27, 2022

June 1-30

0.09583300

March 18, 2022

July 25, 2022

July 1-31

0.09583300

June 15, 2022

August 25, 2022 (3)

August 1-31

0.09583300

June 15, 2022

September 26, 2022 (3)

September 1-30

0.09583300

June 15, 2022

October 25, 2022 (3)

~~Distributions to stockholders were declared and paid based on daily record dates at rates per share per day. The distribution details are as follows:~~

Distribution Period Rate Per Share Per Day (1) Declaration Date Payment Date
2021
January 1-31 $ 0.00287670 December 9, 2020 February 25, 2021
February 1-28 $ 0.00287670 January 27, 2021 March 25, 2021
March 1-31 $ 0.00287670 January 27, 2021 April 26, 2021
April 1-30 $ 0.00287670 March 25, 2021 May 25, 2021
May 1-31 $ 0.00287670 March 25, 2021 June 25, 2021
June 1-30 $ 0.00287670 March 25, 2021 July 26, 2021
July 1-31 $ 0.00287670 June 16, 2021 (3)
August 1-31 $ 0.00287670 June 16, 2021 (3)
September 1-30 $ 0.00287670 June 16, 2021 (3)
October 1-31 $ 0.00315070 August 12, 2021 (3)
November 1-30 $ 0.00315070 August 12, 2021 (3)
December 1-31 $ 0.00315070 August 12, 2021 (3)
2020
January 1-31 $ 0.00576630 December 18, 2019 February 25, 2020
February 1-29 $ 0.00573771 January 24, 2020 March 25, 2020
March 1-31 $ 0.00573771 January 24, 2020 April 27, 2020
April 1-30 $ 0.00573771 January 24, 2020 May 26, 2020
May 1-31 $ 0.00481479 (2) May 20, 2020 June 25, 2020
June 1-30 $ 0.00287670 May 20, 2020 July 27, 2020
July 1-31 $ 0.00287670 May 20, 2020 August 26, 2020
August 1-31 $ 0.00287670 May 20, 2020 September 28, 2020
September 1-30 $ 0.00287670 May 20, 2020 October 26, 2020
October 1-31 $ 0.00287670 September 30, 2020 November 25, 2020
November 1-30 $ 0.00287670 September 30, 2020 December 28, 2020
December 1-31 $ 0.00287670 September 30, 2020 January 22, 2021

(1) Distributions paid per share of Class S common stock ~~are~~were net of deferred selling commissions.

(2) ~~Rate per share per day reflects $0.00573771 per day through May 21, 2020 and $0.0028767 per day thereafter, after adjustment~~On January 5, 2022, our Board declared a 13th distribution to our common stockholders since our AFFO exceeded 110% of distributions declared for the ~~1:3 reverse~~year ended December 31, 2021. The 13th distribution was based on the outstanding shares of common stock ~~split.~~held by stockholders on the record date of January 6, 2022 using the following formula: (i) the daily amount of the 13th distribution divided by 365 days (ii) multiplied by the number of days such shares of common stock were held by such stockholder from January 1, 2021 through December 31, 2021. Stockholders were only eligible for the 13th distribution if they held such shares as of the close of business on the record date.

(3) ~~Distribution~~Reflects the expected payment date since the distribution has not been paid as of the filing date of this Quarterly Report on Form 10-Q.

Going forward, we expect our board of directors to continue to declare cash distributions based on daily record dates and to pay these distributions on a monthly basis, and after the completion of our offerings to continue to declare distributions based on a single record date as of the end of the month, and to pay these distributions on a monthly basis. Cash distributions will be determined by our board of directors based on our financial condition, projected cash flows and such other factors as our board of directors deems relevant. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.

Properties

Portfolio Information

Our wholly-owned investments in real estate properties as of June 30, ~~2021,~~2022, December 31, ~~2020~~2021 and June 30, ~~2020, including one, four and four assets held for sale as of June 30,~~ 2021, ~~December 31, 2020 and June 30, 2020, respectively,~~ and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:


		As of				As of
		June 30, 2021	December 31, 2020	June 30, 2020		June 30, 2022	December 31, 2021	June 30, 2021
Number of properties:	Number of properties:	(1)	(2)	(3)	Number of properties:	(1)	(1)	(2)
Industrial, including TIC Interest					Industrial, including TIC Interest	20	12	12
Retail	Retail	12	15	19	Retail	13	12	12
Office	Office	14	14	14	Office	10	14	14
Industrial		12	12	13
Total operating properties and properties held for sale	Total operating properties and properties held for sale	38	41	46	Total operating properties and properties held for sale	43	38	38
Land	Land	1	1	1	Land	1	1	1
Total properties	Total properties	39	42	47	Total properties	44	39	39

Leasable square feet:	Leasable square feet:				Leasable square feet:
Industrial					Industrial	2,068,388	1,514,876	1,145,519
Retail	Retail	291,513	334,409	362,764	Retail	234,029	161,406	291,513
Office	Office	853,963	853,963	904,499	Office	585,967	800,036	853,963
Industrial		1,145,519	1,145,519	1,185,279
Total	Total	2,290,995	2,333,891	2,452,542	Total	2,888,384	2,476,318	2,290,995

(1) Includes four properties (three office and one industrial) held for sale as of December 31, 2021.

(2) Includes one retail property held for sale as of June 30, 2021.

~~(2) Includes four retail properties held for sale as of December 31, 2020, three of which were sold during the first quarter of 2021.~~

~~(3) Includes three retail properties and one industrial property held for sale as of June 30, 2020, all of which were sold during the second half of 2020.~~

We have a limited operating history. In evaluating the above properties as potential acquisitions, including the determination of an appropriate purchase price to be paid for the properties, we considered a variety of factors, including the condition and financial performance of the properties, the terms of the existing leases and the creditworthiness of the tenants, property location, visibility and access, age of the properties, physical condition and curb appeal, neighboring property uses, local market conditions, including vacancy rates, area demographics, including trade area population and average household income and neighborhood growth patterns and economic conditions.

~~Effective August 1, 2020, we executed an amendment~~We completed the following acquisitions during the six months ended June 30, 2022 as follows:


Property and Location	Acquisition Date	Property Type	Rentable Square Feet	Acquisition Price
KIA, Carson, CA	1/18/2022	Retail	72,623	$	69,405,050
Kalera, St. Paul, MN	1/31/2022	Industrial	78,857	8,119,009
Lindsay, Colorado Springs 1, CO	4/19/2022	Industrial	23,452	2,311,934
Lindsay, Colorado Springs 2, CO	4/19/2022	Industrial	36,454	3,314,406
Lindsay, Dacono, CO (1)	4/19/2022	Industrial	39,088	5,558,622
Lindsay, Alachua, FL	4/19/2022	Industrial	96,792	8,518,123
Lindsay, Franklinton, NC	4/19/2022	Industrial	69,939	7,181,113
Lindsay, Fulton 1, OH	4/19/2022	Industrial	147,998	11,345,533
Lindsay, Fulton 2, OH	4/19/2022	Industrial	129,112	10,190,942
Lindsay, Rock Hill, SC	4/19/2022	Industrial	75,360	6,555,983
			769,675	$	132,500,715

(1) As of June 30, 2022, buildings and improvements exclude non-refundable deposit of $1,330,780 for ~~the early termination~~funding of ~~the Dana lease from July 31, 2024 to July 31, 2022~~ongoing building construction. This deposit is included in ~~exchange for an early termination payment~~prepaid expenses and other assets in our accompanying unaudited condensed consolidated balance sheet as of ~~$1,381,767 due on July 31, 2022 and continued rent payments of $65,000 per month from August 1, 2020 through July 1,~~June 30, 2022. As provided in the amendment, although we sold the Dana property on July 7, 2021 (prior to July 31, 2022), Dana is obligated to continue paying rent of $65,000 per month through July 1, 2022 plus the early termination payment of $1,381,767 due on July 31, 2022, or they may elect to pay a cash lump sum payment to us equal to the net present value of the remaining rent payments.

5857

There were no acquisitions during the six months ended June 30, 2021.

We completed the ~~sale of three retail properties~~following dispositions during the ~~first~~ six months ~~of 2021.~~ended June 30, 2022 and 2021 as follows:


Property	Property	Location	Disposition Date	Contract Sales Price		Net Proceeds (1)		Property	Location	Disposition Date	Property Type	Rentable Square Feet	Contract Sales Price		Net Proceeds
2022								2022
Bon Secours								Bon Secours	Richmond, VA	2/11/2022	Office	72,890	$	10,200,000	$	—
Omnicare								Omnicare	Richmond, VA	2/11/2022	Flex	51,800	8,760,000		—
Texas Health								Texas Health	Dallas, TX	2/11/2022	Office	38,794	7,040,000		11,883,639		(1)
Accredo								Accredo	Orlando, FL	2/24/2022	Office	63,000	14,000,000		5,000,941
EMCOR								EMCOR	Cincinnati, OH	6/29/2022	Office	39,385	6,525,000		6,345,642
												265,869	$	46,525,000	$	23,230,222
2021								2021
Chevron Gas Station	Chevron Gas Station	Roseville, CA	1/7/2021	$	4,050,000	$	3,914,909	Chevron Gas Station	Roseville, CA	1/7/2021	Retail	3,300	$	4,050,000	$	3,914,909
EcoThrift	EcoThrift	Sacramento, CA	1/29/2021	5,375,300		2,684,225		EcoThrift	Sacramento, CA	1/29/2021	Retail	38,536	5,375,300		2,684,225
Chevron Gas Station	Chevron Gas Station	San Jose, CA	2/12/2021	4,288,888		4,054,327		Chevron Gas Station	San Jose, CA	2/12/2021	Retail	1,060	4,288,888		4,054,327
				$	13,714,188	$	10,653,461					42,896	$	13,714,188	$	10,653,461

(1) ~~Net~~Combined net proceeds for the February 11, 2022 disposition are net of commissions, closing costs ~~paid~~ and repayment of the outstanding ~~mortgage on~~mortgages.

Extension of Leases

Effective January 12, 2022, we extended the ~~EcoThrift property.~~

~~In addition, on July 7, 2021, we completed the sale~~lease term of our ~~Dana industrial~~Cummins property ~~for $10,000,000 which generated net proceeds of $4,975,334 after repayment~~located in Nashville, Tennessee from March 1, 2023 to February 28, 2024 with a 2% increase in annual rent commencing March 1, 2023. Cummins accepted the extension of the ~~existing mortgage, commissions~~lease terms and ~~closing costs.~~possession of the property on an “AS-IS” basis. We also granted to Cummins an option to extend the lease term for an additional five years commencing March 1, 2024 and paid a leasing commission of $30,000 in connection with this extension.

Effective January 26, 2022, we extended the lease term of our ITW Rippey property located in El Dorado Hills, California from August 1, 2022 to July 31, 2029 with a 6% increase in annual rent commencing August 1, 2022 and 3% annual escalations thereafter. We also agreed to provide a tenant improvements allowance of $481,250 in connection with this extension and granted ITW Rippey an option to extend the lease term for an additional five years commencing August 1, 2029.

Effective March 4, 2022, we extended the lease term of our Williams Sonoma property located in Summerlin, Nevada from October 31, 2022 to October 31, 2025 with a 4% increase in annual rent commencing November 1, 2022 and 2.7% annual escalations thereafter. We also agreed to provide the tenant with one month of free rent, an inducement payment of $100,000 and tenant improvements allowance of $166,450 and will pay a leasing commission of $90,383 in connection with this extension.

We are continuing to explore potential lease extensions for certain of our other properties.

Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop the properties. We believe that ~~the~~our properties are adequately insured. ~~We have two tenants with leases that provide~~Pursuant to lease agreements, as of June 30, 2022 and December 31, 2021, we had obligations to pay approximately $609,788 and $189,136, respectively, for on-site and tenant improvement ~~allowances which have a remaining aggregate balance of $189,136, all of which will~~to be ~~funded from restricted cash on deposit at Banc of California.~~incurred by tenants. We expect that the related improvements will be completed ~~within~~during the ~~next 12 months.~~2022 calendar year and will be funded from cash on hand, operating cash flow, borrowings under our Revolver or offering proceeds.

In addition, we have identified approximately ~~$2,400,000~~$1,070,000 of roof and HVAC replacement, exterior painting and sealing and parking lot repairs/restriping that are expected to be completed in the next 12 months, including approximately $1,565,000 of building improvements at the Northrop Grumman and Wood properties which we have agreed to complete in a timely manner. The improvements at the Northrup Grumman property will be funded from restricted cash on deposit at Banc of California of $1,271,462.months. Approximately ~~$700,000~~$462,000 of these improvements are expected to be recoverable from the tenant through operating expense reimbursements. We will ~~have to~~initially pay for the improvements, and the recoveries will be billed over an extended period of time according to the terms of the leases. The remaining costs of approximately ~~$1,700,000~~$608,000 are not recoverable from tenants. These improvements will be funded from cash on hand, operating cash flows, ~~debt financings~~borrowings under our Revolver or proceeds from the sale of shares of our common stock.

Recent Market Conditions

WeThe continuing developments in the Russian war against Ukraine and sanctions which have been announced by the United States and other countries against Russia have caused significant uncertainty in the market, adding to continuing concerns about supply chain disruptions, inflation and increases in interest rates. Volatility in stock and bond markets, particularly the rapid rise in yields on U.S. Treasury securities, may negatively impact our operating results.

In addition, we continue to face significant uncertainties due to the COVID-19 pandemic, including any future variants thereof, although the ~~Delta variant.~~impacts of the COVID-19 pandemic on the economy appear to have diminished and the general commercial real estate market appears to be recovering from such impacts. Both the investing and leasing environments are currently highly competitive. ~~Even before the COVID-19 pandemic, uncertainty regarding the economic and political environment had made businesses reluctant to make long-term commitments or changes in their business plans.~~ The COVID-19 pandemic has resulted in significant disruptions in utilization of office and retail properties and uncertainty over how tenants will respond when their leases are scheduled to expire.

Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, ormay result in decreases in cash flows from investment properties. Furthermore, rent abatements for tenants severely impacted by the COVID-19 pandemic, inflation or international business interests, particularly if affected by the Russian war against Ukraine, may also result in decreases in cash flows from investment properties. We have ~~nine~~no leases scheduled to expire in ~~either~~ 2022 orand three leases (two office and one industrial) scheduled to expire in 2023, which comprise an aggregate of ~~805,822~~142,146 leasable square feet and represent approximately ~~24.5%~~3.7% of projected ~~2021 net operating income~~2022 ABR from properties. The tenants of these properties could reevaluate their use of such properties in light of the impacts of the COVID-19 pandemic, including their ability to have workers succeed in working at home, and determine not to renew these leases or to seek rent or other concessions as a condition of renewing their leases.

Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations. However, we have successfully negotiated lease extensions for ~~four~~nine properties ~~(two Dollar Generals in Ohio, Northrop Grumman in Melbourne, Florida~~during 2021 and ~~PreK in San Antonio, Texas) over~~ the ~~last six months and~~first quarter of 2022. We are in the process of negotiating potential lease extensions with ~~several~~ other tenants.

~~While~~The debt market remains sensitive to the macro environment, such as inflation, impacts of the COVID-19 pandemic, Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries. Increases in interest rates on our floating rate debt will reduce our net income (loss) and cash flows. In January 2022, we ~~have had success during 2020~~refinanced all but four of our properties (including the TIC Interest) with proceeds from the $250,000,000 Credit Facility which includes floating rates based on SOFR and our leverage ratio as described above. The mortgage on our Sutter Health property does not mature until March 9, 2024 and the ~~first half~~other three mortgages do not mature until after September 2027. All four of ~~2021 with refinancing nine of~~these mortgages are at fixed rates. Our Revolver does not mature until January 18, 2026 and can be extended for an additional 12 months thereafter, while our ~~properties,~~Term Loan does not mature until January 18, 2027. Any future uncertainties in the capital markets may cause difficulty in refinancing debt obligations prior to maturity at terms as favorable as the terms of existing indebtedness. If we are not able to refinance our indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. We continuously review our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure. ~~We plan~~On May 10, 2022, we purchased a five-year swap at 2.258% on our $150,000,000 Term Loan that results in a fixed interest rate of 3.858% on the Term Loan when our leverage ratio is less than or equal to ~~rely~~40%. As part of this transaction, we agreed to a one-time option to terminate the swap on debt financing to finance our real estate properties and we may have difficulty refinancing some of our debt obligations prior to or at maturity, or we may not be able to refinance these obligations at terms as favorable asDecember 31, 2024, which reduced the ~~terms of our initial indebtedness and we also may be unable to obtain additional debt financing on attractive terms or at all. If we are not able to refinance our indebtedness on attractive terms at~~swap rate. Under the ~~various maturity dates, we may be forced to dispose of some of our assets.~~

The debt market remains sensitive to the macro environment, such as impacts of the COVID-19 pandemic, Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries. While we have been able to successfully refinance nine of our properties as described above, we may experience more stringent lending criteria in the future, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing,Credit Facility, the interest ~~rates and other terms~~rate will continue to vary based on such loans may be unacceptable. We expect to manage the current mortgage lending environment by considering alternative lending sources, including securitized debt, fixed rate loans, short-term variable rate loans, or any combination of the foregoing.our leverage ratio.

Election as a REIT

We elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as ~~amended, beginning with the taxable year ended December 31, 2016.~~amended. We ~~believe we will~~intend to continue to qualify as a REIT. To continue to qualify and maintain status as a REIT, we must meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally would not be subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the distributions paid deduction and excluding net capital gains).

If we fail to ~~qualify~~maintain our qualification as a REIT ~~for~~in any ~~reason in a~~ taxable year, ~~and applicable relief provisions do not apply,~~ we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification is lost, unless we are entitled to relief under specific statutory provisions. Such an event could materially adversely affect our net income (loss) and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to continue to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying unaudited condensed consolidated financial statements. We will be subject to certain state and local taxes related to the operations of properties in certain locations. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying unaudited condensed consolidated financial statements.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included under “Critical Accounting Policies” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K, filed with the SEC on March ~~31, 2021.~~23, 2022. There have been no significant changes to our policies during the six months ended June 30, ~~2021.~~2022.

Commitments and Contingencies

We may be subject to certain commitments and contingencies with regard to certain transactions (see Note 1011 to our accompanying unaudited condensed consolidated financial statements for discussion of commitment and contingencies).

Related-Party Transactions and Agreements

Through December 31, 2019, we had contracted for advisory services through an advisory agreement with our former advisor whereby we paid certain fees to, or reimbursed certain expenses of, our former advisor or affiliates, such as acquisition fees and expenses, organization and offering costs, asset management fees, and reimbursement of certain operating costs (seeSee Note 910 to our accompanying unaudited condensed consolidated financial statements for ~~additional~~ details of the various related-party transactions and ~~agreements).~~agreements.

Subsequent Events

See Note 1214 to our accompanying unaudited condensed consolidated financial statements for events that occurred subsequent to June 30, ~~2021~~2022 through the filing date of this report.

Recent Accounting Pronouncements

See Note 2 to our accompanying unaudited condensed consolidated financial statements for recent accounting pronouncements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that had or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, or capital resources as of June 30, ~~2021.~~2022.

Item 3. Quantitative and Qualitative Disclosure ~~about~~About Market Risk

Not applicable as we are a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of ~~December 31, 2020~~June 30, 2022 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of June 30, ~~2021,~~2022, were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the three months ended June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are continually monitoring and assessing the COVID-19 pandemic and the worsening inflation and the impact itboth may have on our operations, including our internal control.

~~Table of Contents~~

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information disclosed under Legal Matters in Note 1011 to our accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.

Item 1A. Risk Factors

~~Except as noted below, there~~There have been no material changes to the risk factors set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC on March ~~31, 2021.~~23, 2022.

~~Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which LIBOR is determined may adversely affect the value~~

Table of ~~the financial obligations to be held or issued by us that are linked to LIBOR.~~Contents

LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such “benchmarks” to perform differently than in the past, or have other consequences which cannot be predicted. As published by the Federal Reserve Bank of New York, it currently appears that, over time, United States dollar LIBOR may be replaced by the Secured Overnight Financing Rate (“SOFR”). In March 2021, the Financial Conduct Authority confirmed its intention to cease publishing one-week and two-month LIBOR after December 31, 2021 and all remaining LIBOR after June 30, 2023. At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, or to the same alternative reference rate, in each case increasing the difficulty of hedging. The process of transition involves operational risks. It is also possible that no transition will occur for many financial instruments. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the market for or value of any securities on which the interest or dividend is determined by reference to LIBOR, loans, derivatives and other financial obligations or on our overall financial condition or results of operations. More generally, any of the above changes or any other consequential changes to LIBOR or any other “benchmark” as a result of international, national or other proposals for reform or other initiatives, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of financial assets and liabilities based on or linked to a “benchmark.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

~~During~~No unregistered shares were issued during the three months ended June 30, ~~2021, we issued a total~~2022. An aggregate of ~~4,470~~4,666 shares of Class C common stock were issued in July 2022 to ~~five~~ non-employee members of ~~our board of directors~~the Board for their service as ~~board members~~directors during the second quarter of ~~2021.~~2022. Such issuances were made in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

~~During the three months ended June 30, 2021, we also issued 230~~Our Stock Repurchases

On February 15, 2022, our Board authorized up to $20,000,000 in repurchases of our outstanding shares of ~~Class S~~ common stock ~~in the Class S Offering for aggregate gross offering proceeds of $5,511. Such issuances were~~through December 31, 2022. Purchases made pursuant to the ~~distribution reinvestment plan~~program will be made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable tolegal requirements and other factors. The program may be suspended or discontinued at any time.

From April 1, 2022 through June 30, 2022, we repurchased a total of 136,567 shares of our ~~Class S~~ common stock ~~in reliance on~~for a total of $2,401,181 under this share repurchase program for an ~~exemption from the registration requirements~~average cost of ~~the Securities Act under and in accordance with Regulation S~~$17.58 per share. Since inception of ~~the Securities Act.~~

~~Table of Contents~~

~~Sales Pursuant to Our Private Offering~~

On February 1, 2021, we commenced the Private Offering of Class C common stock to accredited investors only under Regulation D promulgated under the Securities Act. Shares of Class C common stock are sold at a per share offering price equal to the most recently published NAV per share determined by our board of directors. We will primarily use the net proceeds from the Private Offering to invest in a diversified portfolio of real estate and real estate-related investments, or to re-lease and reposition our properties in accordance with our investment strategy and policies, including commissions and costs associated with such investments. We also expect to use a portion of the proceeds of the Private Offering for general corporate purposes, including capital expenditures, tenant improvement costs and leasing costs related to our real estate investments; reserves required by financings of our real estate investments; the repayment of debt; the funding of stockholder distributions; and to provide liquidity to our stockholders pursuant to our share repurchase ~~program.~~

~~During the three months ended June 30, 2021,~~program in February 2022 through August 9, 2022, we ~~sold 28,724~~have repurchased a total of 220,143 shares for a total of ~~Class C common stock pursuant to the Private Offering~~$3,757,744, for ~~aggregate proceeds~~an average cost of ~~$671,673.~~

We terminated the Private Offering on August 12, 2021. Once the SEC qualifies our Regulation A Offering Statement on Form 1-A that was initially filed with the SEC on June 29, 2021, the Regulation A offering will allow us to once again accept investor subscriptions from investors who are not accredited and provide access to commercial real estate investments to a much larger audience.

~~Issuer Redemptions of Equity Securities~~

~~We have adopted a share repurchase program that enables qualifying stockholders to sell their stock to us in limited circumstances. The maximum amount of common stock that may be repurchased~~$17.07 per month is limited to no more than 2% of our most recently determined aggregate NAV. Repurchases for any calendar quarter are limited to no more than 5% of our most recently determined aggregate NAV. The foregoing repurchase limitations are based on “net repurchases” during a quarter or month, as applicable. Thus, for any given calendar quarter or month, the maximum amount of repurchases during that quarter or month will be equal to (1) 5% or 2% (as applicable) of our most recently determined aggregate NAV, plus (2) proceeds from sales of new shares in the Registered Offerings and Class S Offering (including purchases pursuant to our Registered DRP Offering) since the beginning of a current calendar quarter or month, less (3) repurchase proceeds paid since the beginning of the current calendar quarter or month.

We have the discretion to repurchase fewer shares than have been requested to be repurchased in a particular month or quarter, or to repurchase no shares at all, in the event that we lack readily available funds to do so due to market conditions beyond our control, our need to maintain liquidity for our operations or because we determine that investing in real property or other illiquid investments is a better use of our capital than repurchasing our shares. In the event that we repurchase some but not all of the shares submitted for repurchase in a given period, shares submitted for repurchase during such period will be repurchased on a pro-rata basis, subject to any Extraordinary Circumstance Repurchase.

We have the discretion, but not the obligation, under extraordinary market or economic circumstances, to make a special repurchase in equal, nominal quantities of shares from all stockholders who have submitted share repurchase requests during the period (“Extraordinary Circumstance Repurchases”). These Extraordinary Circumstance Repurchases will precede any pro rata share repurchases that may be made during the period.

~~For the three months ended June 30, 2021, we received share repurchase requests that resulted in share repurchases as follows:~~

Value of Share Repurchase Requests Received Repurchase Date Value of Shares Repurchased (1)
April 2021 $ 3,492,889 May 5, 2021 $ 897,217
May 2021 $ 4,470,888 June 3, 2021 $ 872,613
June 2021 $ 4,255,605 July 6, 2021 $ 1,005,465

~~(1) Including Extraordinary Circumstance Repurchases and after applicable administrative fees for shares held less than two years for shares repurchased thereafter.~~

~~Table of Contents~~

Our board of directors may amend, suspend or terminate our Class C share repurchase program or Class S share repurchase program upon 10 days’ notice to Class C stockholders or Class S stockholders, respectively, if our board of directors believes such action is in our and such stockholders’ best interests, including because share repurchases place an undue burden on our liquidity, adversely affect our operations, adversely affect stockholders whose shares are not repurchased, or if our board of directors determines that the funds otherwise available to fund our share repurchases are needed for other purposes. Our board of directors may also amend, suspend or terminate our Class C share repurchase program or Class S share repurchase program due to changes in law or regulation, or if our board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased.share.

The following table summarizes our repurchase activity under our share repurchase program for our Class C common stock for the three months ended June 30, ~~2021. For the three months ended June 30, 2021, no shares of our Class S common stock were repurchased.~~2022.

Total Number of
Shares
Repurchased
During the
Quarter Average Price Paid Per Share (1) Total Number of Shares Purchased As Part of Publicly Announced Plan or Program Dollar Value of
Shares Available
That May
Be Repurchased
Under the
Program
April 1-30, 2021 39,079 $ 22.96 39,079 (2)
May 1-31, 2021 35,533 $ 24.56 35,533 (2)
June 1-30, 2021 40,940 $ 24.56 40,940 (2)
Total 115,552 115,552

~~(1)~~Following our calculation of our estimated NAV per share of $26.05 (unaudited), which our board of directors approved on August 4, 2021 and calculated as of June 30, 2021, any future share repurchases after August 4, 2021 will be based on the estimated NAV per share of $26.05 (unaudited).

~~(2)A description of the maximum number of shares that may be purchased under our share repurchase program is included in the narrative preceding this table.~~


	Total Number of Shares Repurchased During the Quarter	Average Price Paid Per Share
April 1-30, 2022	86,252	$	18.45
May 1-31, 2022	22,775	$	16.81
June 1-30, 2022	27,540	$	15.51
Total	136,567	$	17.58

Item 6. Exhibits

The exhibits listed on the Exhibit Index below are included herewith or incorporated herein by reference.

6462

Table of Contents

EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, ~~2021~~2022 (and are numbered in accordance with Item 601 of Regulation S-K).


Exhibit			Description
3.1			Articles of Amendment and Restatement of Modiv Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. ~~000-55776~~)000-55776) filed with the Securities and Exchange Commission on July 8,~~, 20~~21 ) 2021)
3.2			Amended and Restated Bylaws of Modiv Inc. (incorporated by reference to Exhibit 3 .1 ~~to our~~ ~~Current Report on Form 8-K~~ ~~(File No.~~ ~~000~~-~~55776) filed with the Securities and Exchange Commission on~~ ~~August~~ 2 ~~, 2021)~~
~~4.1~~			Amended and Restated Distribution Reinvestment Plan (Class C common stock) (incorporated by reference to Appendix A to the Company's Prospectus filed with its Registration Statement on Form S-3 (File No. 333-252321) filed with the Securities and Exchange Commission on January 22, 2021)
~~4.2~~			~~Amended and Restated Share Repurchase Program (Class C common stock) (incorporated by reference to Exhibit 4.1~~3.1 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on August 2, 2021)
~~4.3~~3.3			~~Distribution Reinvestment Plan (Class S common stock)~~Articles Supplementary designating 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (incorporated by reference to Exhibit ~~99.1~~3.1 to our Current Report on Form 8-K (File No. ~~000-55776)~~001-40814) filed with the Securities and Exchange Commission on ~~August~~September 17, ~~2017)~~
~~4.4~~			Amended and Restated Share Repurchase Program (Class S common stock) (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on February 1, 2021)
~~4.5~~4.1			~~Registration Rights Agreement by~~Second Amended and ~~among RW Holdings NNN REIT, Inc., Rich Uncles NNN REIT Operating Partnership, LP, and Daisho OP Holdings, LLC, dated December 31, 2019~~Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K (File No. ~~000-55776)~~001-40814) filed with the Securities and Exchange Commission on ~~December 31, 2019)~~February 15, 2022)
10.1			~~Form~~At Market Issuance Sales Agreement by and among Modiv Inc., Modiv Operating Partnership LP, B. Riley Securities, Inc., Robert W. Baird & Co. Incorporated, BMO Capital Markets Corp., Colliers Securities LLC, EF Hutton, division of ~~Director~~Benchmark Investments, LLC, Janney Montgomery Scott LLC, Ladenburg Thalmann & Co. Inc. and ~~Officer Indemnification Agreement~~Truist Securities, Inc., dated June 6, 2022 (incorporated by reference to Exhibit ~~10.1~~1.1 to our Current Report on Form 8-K (File No. ~~000-55776)~~001-40814) filed with the Securities and Exchange Commission on ~~August 2, 2021)~~June 6, 2022)
31.1*			Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**			Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*			INLINE XBRL INSTANCE DOCUMENT
101.SCH*			INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL*			INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*			INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*			INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE
101.PRE*			INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104*			COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101)
*			Filed herewith.
**			In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

6563

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


			Modiv Inc.
			(Registrant)

			By:			/s/ AARON S. HALFACRE
			Name:			Aaron S. Halfacre
			Title:			Chief Executive Officer (principal executive officer)

			By:			/s/ RAYMOND J. PACINI
			Name:			Raymond J. Pacini
			Title:			Chief Financial Officer (principal financial officer)

Date: August ~~13, 2021~~11, 2022

6664


Property	Location	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Rite Aid	Lake Elsinore, CA	$	349,457	$	349,457
Dana	Cedar Park, TX	0		2,184,395
24 Hour Fitness	Las Vegas, NV	0		5,664,517
Dinan Cars	Morgan Hill, CA	0		1,308,156
Total		$	349,457	$	9,506,525


July through December 2021	$	13,219,545
2022	25,533,893
2023	22,070,671
2024	21,588,111
2025	18,369,437
2026	11,524,427
Thereafter	42,329,568
	$	154,635,652


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Total revenues	$	342,198	$	312,060	$	716,160	$	1,480,909
Expenses:
Interest expense	63,207		83,658		138,629		221,022
Depreciation and amortization	49,108		185,658		122,769		375,575
Other expenses	78,857		101,131		145,797		221,811
Impairment	0		349,457		0		1,657,613
Total expenses	191,172		719,904		407,195		2,476,021
Net income (loss)	$	151,026	$	(407,844)	$	308,965	$	(995,112)


	June 30, 2021		December 31, 2020
Beginning balance	$	17,320,857	$	50,588,000
Impairment of goodwill for the three and the 12 months period ended, respectively	0		(33,267,143)
Ending balance	$	17,320,857	$	17,320,857


Intangible Assets	Weighted-Average Useful Life	June 30, 2021		December 31, 2020
Investor list, net	5.0 years	$	3,494,740	$	3,494,740
Web services technology, domains and licenses	3.0 years	3,577,852		3,466,102
		7,072,592		6,960,842
Accumulated amortization		(2,758,793)		(1,833,054)
Net		$	4,313,799	$	5,127,788


Collateral	2021 Principal Amount		2020 Principal Amount		Contractual Interest Rate (1)	Effective Interest Rate (1)	Loan Maturity
Accredo property	$	8,538,000	$	8,538,000	3.80%	3.80%	8/1/2025
Six Dollar General properties	3,711,118		3,747,520		4.69%	4.69%	4/1/2022
Dana property	0		4,466,865		4.56%	4.56%	4/1/2023
Northrop Grumman property (8)	7,000,000		5,518,589		3.35%	3.35%	5/21/2031
exp US Services property	3,288,786		3,321,931		(4)	4.25%	11/17/2024
Harley Davidson property (2)	6,558,170		0		4.25%	4.25%	9/1/2024
Wyndham property (3)	5,551,200		5,607,000		One-month LIBOR + 2.05%	4.34%	6/5/2027
Williams Sonoma property (3)	4,392,000		4,438,200		One-month LIBOR + 2.05%	4.34%	6/5/2022
Omnicare property	4,151,386		4,193,171		4.36%	4.36%	5/1/2026
EMCOR property	2,784,868		2,811,539		4.35%	4.35%	12/1/2024
Husqvarna property	6,379,182		6,379,182		(5)	4.60%	2/20/2028
AvAir property	19,950,000		19,950,000		3.80%	3.80%	8/1/2025
3M property	8,091,800		8,166,000		One-month LIBOR + 2.25%	5.09%	3/29/2023
Cummins property	8,256,600		8,332,200		One-month LIBOR + 2.25%	5.16%	4/4/2023
Texas Health property	4,324,160		4,363,203		4.00%	4.00%	12/5/2024
Bon Secours property	5,142,425		5,180,552		5.41%	5.41%	9/15/2026
Costco property	18,850,000		18,850,000		4.85%	4.85%	1/1/2030
Taylor Fresh Foods	12,350,000		12,350,000		3.85%	3.85%	11/1/2029
Levins property (6)	2,687,293		2,032,332		3.75%	3.75%	2/16/2026
Dollar General Bakersfield property (6)	2,263,573		2,268,922		3.65%	3.65%	2/16/2028
Labcorp property (6)	5,374,587		4,020,418		3.75%	3.75%	2/16/2026
GSA (MSHA) property (6)	1,743,349		1,752,092		3.65%	3.65%	2/16/2026
PreK San Antonio property (7)	4,984,311		5,037,846		4.25%	4.25%	12/1/2021
Solar Turbines, Amec Foster, ITW Rippey properties (7)	9,101,005		9,214,700		3.35%	3.35%	11/1/2026
Dollar General Big Spring property (7)	593,851		599,756		4.50%	4.50%	4/1/2022
Gap property (7)	3,531,585		3,569,990		4.15%	4.15%	8/1/2023
L3Harris property (8)	6,300,000		5,185,929		3.35%	3.35%	5/21/2031
Sutter Health property (7)	13,739,153		13,879,655		4.50%	4.50%	3/9/2024
Walgreens property (7)	3,120,360		3,172,846		4.25%	4.25%	7/16/2030
Total mortgage notes payable	182,758,762		176,948,438
Plus unamortized mortgage premium, net (9)	390,426		447,471
Less unamortized deferred financing costs	(1,572,582)		(1,469,991)
Mortgage notes payable, net	$	181,576,606	$	175,925,918


	December 31, 2020		New		Prior		New		Original	New
Properties	Principal Amount		Principal Amount		Interest Rate		Interest Rate		Maturity Date	Maturity Date
Levins	$	2,032,332	$	2,700,000	3.74	%	3.75	%	3/5/2021	2/16/2026
Dollar General Bakersfield	$	2,268,922	$	2,280,000	3.38	%	3.65	%	3/5/2021	2/16/2028
Labcorp	$	4,020,418	$	5,400,000	3.38	%	3.75	%	3/5/2021	2/16/2026
GSA (MSHA)	$	1,752,092	$	1,756,000	3.13	%	3.65	%	8/5/2021	2/16/2026
L3Harris	$	5,185,929	$	6,300,000	4.69	%	3.35	%	4/1/2022	5/21/2031
Northrop Grumman	$	5,518,589	$	7,000,000	4.40	%	3.35	%	7/2/2022	5/21/2031


	Value of Share Repurchase Requests Received		Repurchase Date	Value of Shares Repurchased (1)
April 2021	$	3,492,889	May 5, 2021	$	897,217
May 2021	$	4,470,888	June 1, 2021	$	872,613
June 2021	$	4,255,605	July 6, 2021	$	1,005,465


	Total Distributions		Distributions Declared		Distributions Paid				Cash Flows Provided by (Used in) Operating
Period (1)	Declared		Per Share		Cash		Reinvested		Activities
2021
First Quarter 2021 (2)	$	1,991,676	$	0.258903	$	891,202	$	1,130,949	$	102,091
Second Quarter 2021 (3)	1,976,511		0.261780		835,381		1,131,281		2,981,262
	$	3,968,187	$	0.520683	$	1,726,583	$	2,262,230	$	3,083,353
2020
First Quarter 2020 (4)	$	4,189,102	$	0.523018	$	1,379,751	$	2,360,514	$	1,947,505	*
Second Quarter 2020 (5)	3,270,291		0.407691		1,710,514		2,304,199		(774,533)		*
Third Quarter 2020 (6)	2,135,815		0.264656		981,432		1,150,452		2,638,676
Fourth Quarter 2020 (7)	2,106,620		0.264656		947,519		1,143,369		1,765,192
2020 Totals	$	11,701,828	$	1.460021	$	5,019,216	$	6,958,534	$	5,576,840	*


Distribution Period	Rate Per Share Per Day (1)			Declaration Date	Payment Date
2021
January 1-31	$	0.00287670		December 9, 2020	February 25, 2021
February 1-28	$	0.00287670		January 27, 2021	March 25, 2021
March 1-31	$	0.00287670		January 27, 2021	April 26, 2021
April 1-30	$	0.00287670		March 25, 2021	May 25, 2021
May 1-31	$	0.00287670		March 25, 2021	June 25, 2021
June 1-30	$	0.00287670		March 25, 2021	July 26, 2021
July 1-31	$	0.00287670		June 16, 2021	(3)
August 1-31	$	0.00287670		June 16, 2021	(3)
September 1-30	$	0.00287670		June 16, 2021	(3)
October 1-31	$	0.00315070		August 12, 2021	(3)
November 1-30	$	0.00315070		August 12, 2021	(3)
December 1-31	$	0.00315070		August 12, 2021	(3)
2020
January 1-31	$	0.00576630		December 18, 2019	February 25, 2020
February 1-29	$	0.00573771		January 24, 2020	March 25, 2020
March 1-31	$	0.00573771		January 24, 2020	April 27, 2020
April 1-30	$	0.00573771		January 24, 2020	May 26, 2020
May 1-31	$	0.00481479	(2)	May 20, 2020	June 25, 2020
June 1-30	$	0.00287670		May 20, 2020	July 27, 2020
July 1-31	$	0.00287670		May 20, 2020	August 26, 2020
August 1-31	$	0.00287670		May 20, 2020	September 28, 2020
September 1-30	$	0.00287670		May 20, 2020	October 26, 2020
October 1-31	$	0.00287670		September 30, 2020	November 25, 2020
November 1-30	$	0.00287670		September 30, 2020	December 28, 2020
December 1-31	$	0.00287670		September 30, 2020	January 22, 2021


	Total Number of Shares Repurchased During the Quarter	Average Price Paid Per Share (1)		Total Number of Shares Purchased As Part of Publicly Announced Plan or Program	Dollar Value of Shares Available That May Be Repurchased Under the Program
April 1-30, 2021	39,079	$	22.96	39,079	(2)
May 1-31, 2021	35,533	$	24.56	35,533	(2)
June 1-30, 2021	40,940	$	24.56	40,940	(2)
Total	115,552			115,552