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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 September 30, 20212022
OR
☐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: 001-40814
MODIV INC.
(Exact name of registrant as specified in its charter)
Maryland47-4156046
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
120 Newport Center Drive, Newport Beach, CA92660
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class C Common Stock, $0.001 par value per shareMDVNew York Stock Exchange
7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per shareMDVAMDV.PANew 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.
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 October 31, 2021,2022, there were 7,394,2567,485,866 shares of Class C common stock outstanding and 63,618 shares of Class S common stock outstanding.

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Modiv Inc.
FORM 10-Q
INDEX
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67
78
89
910
4243
6265
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6366
6366
6366
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6567
6769
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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 are focused on future acquisitions of industrial manufacturing properties while reducing the number of office properties in our portfolio, and therefore the prior performance of our real estate investments 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.
•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.
•The magnitudeCOVID-19 pandemic has caused significant disruption to our tenants' business operations which may impact our results of operations and durationcash flows in ways that remain unpredictable, and any future outbreak of the novel coronavirus (“COVID-19”) pandemicother highly infectious or contagious diseases (e.g., monkeypox) could materially and adversely impact or disrupt our business operations, financial condition, results of operations, cash flows and performance.
•The markets in which we operate continue to experience significant inflation, supply chain disruptions and increases in interest rates due to a number of factors including the recent spread ofcontinuing developments in the Delta variantRussian war against Ukraine and its impact on our tenants, operationssanctions which have been implemented by the United States and liquidity is uncertain as of the filing date of this Quarterly Report on Form 10-Qother countries against Russia have caused and may continue to havecause significant uncertainty in the markets 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 onactive and liquid market for our businessClass C common stock, and resultsthe 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.
•Downturns relating to certain geographic regions, industries or business sectors may have a 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 withrelated to tenant geographicconcentration, and industry concentrationsan 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.
•The trading price of our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), may fluctuate significantly.
•Adverse macroeconomic conditions, including inflation, may affect (i) existing or prospective lessees' businesses and their demand for space, and (ii) conditions in the real estate and mortgage markets, and could result in declines in our income and asset values.
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.
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PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Modiv Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30,
2021		December 31, 2020September 30,
2022		December 31, 2021
AssetsAssetsAssets
Real estate investments:Real estate investments:Real estate investments:
LandLand$67,340,810 $65,358,321 Land$107,564,295 $61,005,402 
Buildings and improvementsBuildings and improvements280,284,086 272,397,472 Buildings and improvements337,335,727 251,246,290 
EquipmentEquipment4,429,000 — 
Tenant origination and absorption costsTenant origination and absorption costs23,784,332 23,792,057 Tenant origination and absorption costs20,074,123 21,504,210 
Total investments in real estate propertyTotal investments in real estate property371,409,228 361,547,850 Total investments in real estate property469,403,145 333,755,902 
Accumulated depreciation and amortizationAccumulated depreciation and amortization(41,720,011)(32,091,211)Accumulated depreciation and amortization(44,025,915)(37,611,133)
Total investments in real estate property, netTotal investments in real estate property, net329,689,217 329,456,639 Total investments in real estate property, net425,377,230 296,144,769 
Investment in unconsolidated entity9,977,144 10,002,368 
Unconsolidated investment in a real estate propertyUnconsolidated investment in a real estate property9,988,498 9,941,338 
Total real estate investments, netTotal real estate investments, net339,666,361 339,459,007 Total real estate investments, net435,365,728 306,086,107 
Real estate investments held for sale, netReal estate investments held for sale, net— 24,585,739 Real estate investments held for sale, net— 31,510,762 
Total real estate investments339,666,361 364,044,746 
Total real estate investments, netTotal real estate investments, net435,365,728 337,596,869 
Cash and cash equivalentsCash and cash equivalents52,299,936 8,248,412 Cash and cash equivalents5,726,888 55,965,550 
Restricted cashRestricted cash2,410,951 129,118 Restricted cash— 2,441,970 
Receivable from early termination of lease and sale of real estate property, respectively1,966,767 1,824,383 
Receivable from early termination of leaseReceivable from early termination of lease— 1,836,767 
Tenant receivablesTenant receivables7,346,948 6,665,790 Tenant receivables8,433,895 5,996,919 
Above-market lease intangibles, netAbove-market lease intangibles, net723,475 820,842 Above-market lease intangibles, net1,939,305 691,019 
Prepaid expenses and other assetsPrepaid expenses and other assets4,779,024 2,171,717 Prepaid expenses and other assets6,387,245 5,856,255 
Other assets related to real estate investments held for sale— 1,079,361 
Interest rate swap derivativeInterest rate swap derivative4,786,903 — 
Assets related to real estate investments held for saleAssets related to real estate investments held for sale— 788,296 
Goodwill, netGoodwill, net17,320,857 17,320,857 Goodwill, net— 17,320,857 
Intangible assets, net3,926,009 5,127,788 
Total assetsTotal assets$430,440,328 $407,433,014 Total assets$462,639,964 $428,494,502 
Liabilities and EquityLiabilities and EquityLiabilities and Equity
Mortgage notes payable, netMortgage notes payable, net$180,914,339 $175,925,918 Mortgage notes payable, net$44,530,130 $152,223,579 
Mortgage notes payable related to real estate investments held for sale, netMortgage notes payable related to real estate investments held for sale, net— 9,088,438 Mortgage notes payable related to real estate investments held for sale, net— 21,699,912 
Total mortgage notes payable, netTotal mortgage notes payable, net180,914,339 185,014,356 Total mortgage notes payable, net44,530,130 173,923,491 
Credit facility, net— 5,978,276 
Economic relief note payable— 517,000 
Credit facility revolverCredit facility revolver6,775,000 8,022,000 
Credit facility term loan, netCredit facility term loan, net148,913,350 — 
Accounts payable, accrued and other liabilitiesAccounts payable, accrued and other liabilities9,913,473 7,579,624 Accounts payable, accrued and other liabilities9,658,378 11,844,881 
Share repurchases payable1,348,911 2,980,559 
Below-market lease intangibles, netBelow-market lease intangibles, net11,466,014 12,565,737 Below-market lease intangibles, net9,910,280 11,102,940 
Interest rate swap derivativesInterest rate swap derivatives1,073,998 1,743,889 Interest rate swap derivatives— 788,016 
Other liabilities related to real estate investments held for sale— 801,337 
Liabilities related to real estate investments held for saleLiabilities related to real estate investments held for sale— 383,282 
Total liabilitiesTotal liabilities204,716,735 217,180,778 Total liabilities219,787,138 206,064,610 
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)00Commitments and contingencies (Note 11)
Redeemable common stock750,000 7,365,568 
7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 and no shares authorized, 2,000,000 and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively (Note 9)2,000 — 
Class C common stock $0.001 par value, 300,000,000 shares authorized, 7,409,929 and 7,874,541 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively7,410 7,874 
Class S common stock $0.001 par value, 100,000,000 shares authorized, 63,548 and 62,860 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively64 63 
7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of September 30, 2022 and December 31, 2021, respectively7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of September 30, 2022 and December 31, 2021, respectively2,000 2,000 
Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,697,926 shares issued and 7,464,781 shares outstanding as of September 30, 2022 and 7,426,636 shares issued and outstanding as of December 31, 2021Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,697,926 shares issued and 7,464,781 shares outstanding as of September 30, 2022 and 7,426,636 shares issued and outstanding as of December 31, 20217,698 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 September 30, 2022 and December 31, 2021, respectivelyClass S common stock, $0.001 par value, 100,000,000 shares authorized; no shares and 63,768 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively— 64 
Additional paid-in-capitalAdditional paid-in-capital270,724,156 224,288,417 Additional paid-in-capital277,079,074 273,441,831 
Treasury stock, at cost, 233,145 shares and no shares held as of September 30, 2022 and December 31, 2021, respectivelyTreasury stock, at cost, 233,145 shares and no shares held as of September 30, 2022 and December 31, 2021, respectively(3,957,752)— 
Cumulative distributions and net lossesCumulative distributions and net losses(96,363,037)(92,012,686)Cumulative distributions and net losses(115,634,474)(101,624,430)
Accumulated other comprehensive incomeAccumulated other comprehensive income3,618,477 — 
Total Modiv Inc. equityTotal Modiv Inc. equity174,370,593 132,283,668 Total Modiv Inc. equity161,115,023 171,826,892 
Noncontrolling interests in the Operating PartnershipNoncontrolling interests in the Operating Partnership50,603,000 50,603,000 Noncontrolling interests in the Operating Partnership81,737,803 50,603,000 
Total equityTotal equity224,973,593 182,886,668 Total equity242,852,826 222,429,892 
Total liabilities and equityTotal liabilities and equity$430,440,328 $407,433,014 Total liabilities and equity$462,639,964 $428,494,502 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Rental incomeRental income$10,307,683 $9,557,191 $28,521,546 $29,888,620 Rental income$10,212,418 $10,241,690 $30,255,185 $28,323,568 
Expenses:Expenses:Expenses:
General and administrativeGeneral and administrative3,674,187 2,522,719 9,832,940 7,447,082 General and administrative1,838,388 2,907,956 5,559,753 7,526,577 
Stock compensation expenseStock compensation expense549,240 743,609 1,740,852 2,115,341 
Depreciation and amortizationDepreciation and amortization3,814,503 4,304,470 11,817,529 13,420,256 Depreciation and amortization3,598,592 3,814,503 10,581,765 11,817,529 
Interest expenseInterest expense1,831,545 2,732,528 5,711,330 9,196,061 Interest expense2,514,838 1,831,545 5,280,167 5,711,330 
Property expensesProperty expenses1,658,437 1,677,055 5,111,270 5,480,411 Property expenses2,063,892 1,681,059 6,794,369 5,302,292 
Impairment of real estate investment properties— — (400,999)9,506,525 
Impairment of goodwill and intangible assets— — — 34,572,403 
Reserve for loan guarantee— (4,359)— 3,120,678 
Reversal of impairment of real estate investment propertyReversal of impairment of real estate investment property— — — (400,999)
Impairment of goodwillImpairment of goodwill— — 17,320,857 — 
Total expensesTotal expenses10,978,672 11,232,413 32,072,070 82,743,416 Total expenses10,564,950 10,978,672 47,277,763 32,072,070 
Other operating income:
Operating income (loss):Operating income (loss):
Gain on sale of real estate investmentsGain on sale of real estate investments4,242,771 1,693,642 4,532,413 1,693,642 Gain on sale of real estate investments4,671,284 4,242,771 13,074,162 4,532,413 
Real estate operating income (loss)3,571,782 18,420 981,889 (51,161,154)
Operating income (loss)Operating income (loss)4,318,752 3,505,789 (3,948,416)783,911 
Other income (loss):
Lease termination expense— (1,175,192)— (1,175,192)
Other income (expense):Other income (expense):
Interest incomeInterest income1,270 51 1,370 4,873 Interest income1,665 1,270 16,863 1,370 
Income from investment in unconsolidated entity75,403 92,617 222,705 239,028 
Income from unconsolidated investment in a real estate propertyIncome from unconsolidated investment in a real estate property64,358 75,403 226,690 222,705 
Gain on forgiveness of economic relief note payableGain on forgiveness of economic relief note payable— — 517,000 — Gain on forgiveness of economic relief note payable— — — 517,000 
Loss on early extinguishment of debtLoss on early extinguishment of debt— — (1,725,318)— 
OtherOther— — 20,000 (4,855)Other65,992 65,993 198,128 217,978 
Total other income (loss)76,673 (1,082,524)761,075 (936,146)
Other income (expense), netOther income (expense), net132,015 142,666 (1,283,637)959,053 
Net income (loss)Net income (loss)3,648,455 (1,064,104)1,742,964 (52,097,300)Net income (loss)4,450,767 3,648,455 (5,232,053)1,742,964 
Less: net income (loss) attributable to noncontrolling interest in Operating PartnershipLess: net income (loss) attributable to noncontrolling interest in Operating Partnership528,540 — (1,180,275)— 
Net income (loss) attributable to Modiv Inc.Net income (loss) attributable to Modiv Inc.3,922,227 3,648,455 (4,051,778)1,742,964 
Preferred stock dividendsPreferred stock dividends(143,403)— (143,403)— Preferred stock dividends(921,875)(143,403)(2,765,625)(143,403)
Net income (loss) attributable to common stockholdersNet income (loss) attributable to common stockholders$3,505,052 $(1,064,104)$1,599,561 $(52,097,300)Net income (loss) attributable to common stockholders$3,000,352 $3,505,052 $(6,817,403)$1,599,561 
Net income (loss) per share attributable to common stockholders (Note 2)
Net income (loss) per share attributable to common stockholders:Net income (loss) per share attributable to common stockholders:
BasicBasic$0.47 $(0.13)$0.21 $(6.50)Basic$0.40 $0.47 $(0.91)$0.21 
DilutedDiluted$0.40 $(0.13)$0.18 $(6.50)Diluted$0.35 $0.40 $(0.91)$0.18 
Weighted-average number of common shares outstanding
Weighted-average number of common shares outstanding:Weighted-average number of common shares outstanding:
BasicBasic7,531,559 8,075,070 7,575,013 8,019,742 Basic7,449,968 7,531,559 7,486,945 7,575,013 
DilutedDiluted8,750,875 8,075,070 8,763,112 8,019,742 Diluted10,180,543 8,750,875 7,486,945 8,763,112 
Distributions declared per common shareDistributions declared per common share$0.2625 $0.4080 $0.7875 $0.9330 Distributions declared per common share$0.2875 $0.2625 $0.9625 $0.7875 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Condensed Consolidated Statements of Equity
Three Months Ended September 30, 2021 and 2020Comprehensive Income (Loss)
(Unaudited)
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
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 
Issuance of common stock— — 67,904 68 217 1 1,749,795 — 1,749,864 — 1,749,864 
Issuance of preferred stock, net2,000,000 2,000 — — — — 47,568,374 — 47,570,374 — 47,570,374 
Stock compensation expense— — 3,647 4 — — 94,996 — 95,000 — 95,000 
Class OP Units compensation expense— — — — — — 648,609 — 648,609 — 648,609 
Offering costs— — — — — — (136,282)— (136,282)— (136,282)
Reclassification to redeemable common stock— — — — — — 9,316,023 — 9,316,023 — 9,316,023 
Repurchase of common stock— — (152,036)(152)— — (3,834,457)— (3,834,609)— (3,834,609)
Distributions declared, common stock— — — — — — — (1,981,725)(1,981,725)— (1,981,725)
Net income attributable to common stockholders— — — — — — — 3,505,052 3,505,052 — 3,505,052 
Balance, September 30, 20212,000,000 $2,000 7,409,929 $7,410 63,548 $64 $270,724,156 $(96,363,037)$174,370,593 $50,603,000 $224,973,593 
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
Balance, June 30, 2020— $— 8,045,711 $8,046 62,550 $63 $228,712,957 $(89,661,537)$139,059,529 $50,603,000 $189,662,529 
Issuance of common stock— — 99,810 100 259 — 2,101,588 — 2,101,688 — 2,101,688 
Stock compensation expense— — 8,750 9 — — 183,741 — 183,750 — 183,750 
Class OP Units compensation expense— — — — — — 88,784 — 88,784 — 88,784 
Offering costs— — — — — — (158,826)— (158,826)— (158,826)
Repurchase of common stock— — (151,567)(152)— — (3,166,197)— (3,166,349)— (3,166,349)
Distributions declared, common stock— — — — — — — (2,135,815)(2,135,815)— (2,135,815)
Net loss attributable to common stockholders— — — — — — — (1,064,104)(1,064,104)— (1,064,104)
Balance, September 30, 2020— $— 8,002,705 $8,003 62,808 $63 $227,762,047 $(92,861,456)$134,908,657 $50,603,000 $185,511,657 
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net income (loss)$4,450,767 $3,648,455 $(5,232,053)$1,742,964 
Other comprehensive income:
Unrealized holding gain on interest rate swap designated as a cash flow hedge4,255,906 — 4,255,906 — 
Comprehensive income (loss)8,706,673 3,648,455 (976,147)1,742,964 
Net income (loss) attributable to noncontrolling interest in Operating Partnership528,540 — (1,180,275)— 
Other comprehensive income attributable to noncontrolling interest in Operating Partnership:
Unrealized holding gain on interest rate swap designated as a cash flow hedge637,429 — 637,429 — 
Comprehensive income (loss) attributable to noncontrolling interest in Operating Partnership1,165,969 — (542,846)— 
Comprehensive income (loss) attributable to Modiv Inc.$7,540,704 $3,648,455 $(433,301)$1,742,964 
See accompanying notes to condensed consolidated financial statements.
6
Table of Contents
Modiv Inc.
Condensed Consolidated Statements of Equity
NineThree Months Ended September 30, 20212022 and 20202021
(Unaudited)
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
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— — 271,061 271 688 1 6,311,203 — 6,311,475 — 6,311,475 
Issuance of preferred stock, net2,000,000 2,000 — — — — 47,568,374 — 47,570,374 — 47,570,374 
Stock compensation expense— — 12,168 13 — — 296,237 — 296,250 — 296,250 
Class OP Units compensation expense— — — — — — 1,840,341 — 1,840,341 — 1,840,341 
Offering costs— — — — — — (946,914)— (946,914)— (946,914)
Reclassification to redeemable common stock— — — — — — 8,247,216 — 8,247,216 — 8,247,216 
Repurchase of common stock— — (747,841)(748)— — (16,880,718)— (16,881,466)— (16,881,466)
Distributions declared, common stock— — — — — — — (5,949,912)(5,949,912)— (5,949,912)
Net income attributable to common stockholders— — — — — — — 1,599,561 1,599,561 — 1,599,561 
Balance, September 30, 20212,000,000 $2,000 7,409,929 $7,410 63,548 $64 $270,724,156 $(96,363,037)$174,370,593 $50,603,000 $224,973,593 
Preferred StockClass CAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
(Losses) Income		Accumulated Other Comprehensive IncomeTotal
Modiv Inc.
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Common StockTreasury Stock
SharesAmountsSharesAmountsSharesAmounts
Balance, June 30, 20222,000,000 $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 
Issuance of common stock - distribution reinvestments— — 43,617 44 663,175 — — — — 663,219 — 663,219 
Stock compensation expense— — 10,317 10 164,990 — — — — 165,000 — 165,000 
OP Units compensation expense— — — — 466,740 — — — — 466,740 — 466,740 
Offering costs— — — — (138,058)— — — — (138,058)— (138,058)
Repurchase of common stock— — — — — (45,715)(703,850)— — (703,850)— (703,850)
Dividends declared, preferred stock— — — — — — — (921,875)— (921,875)— (921,875)
Distributions declared, common stock— — — — — — — (2,143,444)— (2,143,444)— (2,143,444)
Distributions declared, Class C OP Units— — — — — — — — — — (377,297)(377,297)
Net income— — — — — — — 3,922,227 — 3,922,227 528,540 4,450,767 
Other comprehensive income— — — — — — — — 3,618,477 3,618,477 637,429 4,255,906 
Balance, September 30, 20222,000,000 $2,000 7,697,926 $7,698 $277,079,074 (233,145)$(3,957,752)$(115,634,474)$3,618,477 $161,115,023 $81,737,803 $242,852,826 
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Total
Stockholders'
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
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 
Issuance of common stock— — 585,853 586 1,252 1 16,193,340 — 16,193,927 — 16,193,927 
Stock compensation expense— — 12,977 13 — — 313,321 — 313,334 — 313,334 
Class OP Units compensation expense— — — — — — 266,350 — 266,350 — 266,350 
Offering costs— — — — — — (981,748)— (981,748)— (981,748)
Reclassification to redeemable common stock— — — — — — 4,393,863 — 4,393,863 — 4,393,863 
Repurchase of common stock— — (478,614)(478)(645)— (13,153,645)— (13,154,123)— (13,154,123)
Distributions declared, common stock— — — — — — — (9,595,208)(9,595,208)— (9,595,208)
Net loss attributable to common stockholders— — — — — — — (52,097,300)(52,097,300)— (52,097,300)
Balance, September 30, 2020— $— 8,002,705 $8,003 62,808 $63 $227,762,047 $(92,861,456)$134,908,657 $50,603,000 $185,511,657 

Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
(Losses) Income		Total
Modiv Inc.
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
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 
Issuance of common stock— — 67,904 68 217 1 1,749,795 — 1,749,864 — 1,749,864 
Issuance of preferred stock, net2,000,000 2,000 — — — — 47,568,374 — 47,570,374 — 47,570,374 
Stock compensation expense— — 3,647 4 — — 94,996 — 95,000 — 95,000 
OP Units compensation expense— — — — — — 648,609 — 648,609 — 648,609 
Offering costs— — — — — — (136,282)— (136,282)— (136,282)
Reclassification of common stock— — — — — — 9,316,023 — 9,316,023 — 9,316,023 
Repurchase of common stock— — (152,036)(152)— — (3,834,457)— (3,834,609)— (3,834,609)
Distributions declared, common stock— — — — — — — (1,981,725)(1,981,725)— (1,981,725)
Net income— — — — — — — 3,505,052 3,505,052 — 3,505,052 
Balance, September 30, 20212,000,000 $2,000 7,409,929 $7,410 63,548 $64 $270,724,156 $(96,363,037)$174,370,593 $50,603,000 $224,973,593 
See accompanying notes to condensed consolidated financial statements.
7
Table of Contents
Modiv Inc.
Condensed Consolidated Statements of Cash FlowsEquity
Nine Months Ended September 30, 2022 and 2021
(Unaudited)
Nine Months Ended
September 30,
20212020
Cash Flows from Operating Activities:
Net income (loss)$1,742,964 $(52,097,300)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization11,817,529 13,420,256 
Stock compensation expense2,115,341 522,183 
Amortization of deferred rents(950,694)(1,027,863)
Amortization of deferred lease incentives192,235 45,903 
Amortization of deferred financing costs and premium/discount207,086 796,810 
Amortization of above-market lease intangibles97,367 134,412 
Amortization of below-market lease intangibles(1,099,723)(1,157,951)
Impairment of real estate investment properties(400,999)9,506,525 
Impairment of goodwill and intangible assets— 34,572,403 
Gain on forgiveness of economic relief note payable(517,000)— 
Gain on sale of real estate investments(4,532,413)(1,693,642)
Unrealized (gain) loss on interest rate swap valuation(684,057)1,019,840 
Income from investment in unconsolidated entity(222,705)(239,028)
Distributions from investment in unconsolidated entity247,929 542,140 
Change in operating assets and liabilities:
Decrease (increase) in tenant receivables613,626 (563,259)
Increase in note receivable(1,283,162)— 
Increase in prepaid and other assets(667,634)(513,161)
(Decrease) increase in accounts payable, accrued and other liabilities(363,007)1,173,784 
Decrease in due to affiliate— (628,488)
Net cash provided by operating activities6,312,683 3,813,564 
Cash Flows from Investing Activities:
Acquisition of real estate investment(3,644,221)— 
Additions to existing real estate investments(531,382)(600,291)
Additions to intangible assets(195,750)(566,102)
Collection of receivable from sale of real estate property1,824,383 — 
Net proceeds from sale of real estate investments22,840,026 15,364,073 
Lease incentives— (990,000)
Net cash provided by investing activities20,293,056 13,207,680 
Cash Flows from Financing Activities:
Borrowings from credit facilities6,000,000 4,260,000 
Repayments of credit facilities(12,000,000)(6,000,000)
Proceeds from mortgage notes payable25,436,000 35,705,500 
Principal payments on mortgage notes payable(29,434,396)(36,421,500)
Proceeds from economic relief notes payable— 527,000 
Principal payments on short-term notes payable— (4,800,000)
Refundable loan deposits18,804 — 
Payments of deferred financing costs to third parties(381,076)(389,662)
Proceeds from issuance of preferred stock, net47,570,374 — 
Proceeds from issuance of common stock2,911,744 10,378,762 
Payments of offering costs(946,914)(981,748)
Repurchases of common stock(16,881,466)(13,154,123)
Distributions paid to common stockholders(2,565,452)(4,071,697)
Net cash provided by (used in) financing activities19,727,618 (14,947,468)
Net increase in cash, cash equivalents and restricted cash46,333,357 2,073,776 
Cash, cash equivalents and restricted cash, beginning of period8,377,530 6,936,930 
Cash, cash equivalents and restricted cash, end of period$54,710,887 $9,010,706 
Modiv Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
Nine Months Ended
September 30,
20212020
Supplemental Disclosure of Cash Flow Information:
 Cash paid for interest for the nine months ended September 30, 2021 and 2020 (as revised)$6,116,202 $6,930,329 
Supplemental Schedule of Noncash Investing and Financing Activities:
Reclassification from redeemable common stock$8,247,216 $4,393,863 
Reinvested distributions from common stockholders$3,399,731 $5,815,165 
Decrease in share repurchases payable$(1,631,648)$(1,393,275)
Deferred rents$683,605 $— 
Deferred lease incentive$(2,128,538)$— 
Accrued distributions$123,521 $291,654 
Supplemental disclosure related to real estate investment held for sale, net:
Real estate investments held for sale, net$24,585,739 $23,033,118 
Other assets related to real estate investments held for sale$1,079,361 $864,008 
(Increase) decrease in above-market lease intangibles, net$(50,549)$198,517 
Mortgage notes payable related to real estate investments held for sale, net$(9,088,438)$(14,671,370)
Other liabilities related to real estate investments held for sale$(801,337)$(3,934,795)
Increase in below-market lease intangibles, net$325,734 $73,505 
Increase in interest swap derivatives$14,166 $— 
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
Losses		Accumulated Other Comprehensive IncomeTotal
Modiv Inc.
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class C and Class STreasury Stock
SharesAmountsSharesAmountsSharesAmounts
Balance, December 31, 20212,000,000 $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— — 152,606 153 2,866,693 — — — — 2,866,846 — 2,866,846 
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— — 14,916 14 247,486 — — — — 247,500 — 247,500 
OP Units compensation expense— — — — 1,493,352 — — — — 1,493,352 — 1,493,352 
Offering costs— — — — (1,084,748)— — — — (1,084,748)— (1,084,748)
Repurchase of common stock— — — — — (233,145)(3,957,752)— — (3,957,752)— (3,957,752)
Dividends declared, preferred stock— — — — — — — (2,765,625)— (2,765,625)— (2,765,625)
Distributions declared, common stock— — — — — — — (7,192,641)— (7,192,641)— (7,192,641)
Distributions declared, Class C OP Units— — — — — — — — — — (1,131,902)(1,131,902)
Net loss— — — — — — — (4,051,778)— (4,051,778)(1,180,275)(5,232,053)
Other comprehensive income— — — — — — — — 3,618,477 3,618,477 637,429 4,255,906 
Balance, September 30, 20222,000,000 $2,000 7,697,926 $7,698 $277,079,074 (233,145)$(3,957,752)$(115,634,474)$3,618,477 $161,115,023 $81,737,803 $242,852,826 


Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions
and Net
(Losses) Income		Total
Modiv Inc.
Equity		Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
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— — 271,061 271 688 1 6,311,203 — 6,311,475 — 6,311,475 
Issuance of preferred stock, net2,000,000 2,000 — — — — 47,568,374 — 47,570,374 — 47,570,374 
Stock compensation expense— — 12,168 13 — — 296,237 — 296,250 — 296,250 
OP Units compensation expense— — — — — — 1,840,341 — 1,840,341 — 1,840,341 
Offering costs— — — — — — (946,914)— (946,914)— (946,914)
Reclassification of common stock— — — — — — 8,247,216 — 8,247,216 — 8,247,216 
Repurchase of common stock— — (747,841)(748)— — (16,880,718)— (16,881,466)— (16,881,466)
Distributions declared, common stock— — — — — — — (5,949,912)(5,949,912)— (5,949,912)
Net income— — — — — — — 1,599,561 1,599,561 — 1,599,561 
Balance, September 30, 20212,000,000 $2,000 7,409,929 $7,410 63,548 $64 $270,724,156 $(96,363,037)$174,370,593 $50,603,000 $224,973,593 
See accompanying notes to condensed consolidated financial statements.
8
Table of Contents
Modiv Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
20222021
Cash Flows from Operating Activities:
Net (loss) income$(5,232,053)$1,742,964 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization10,581,765 11,817,529 
Stock compensation expense1,740,852 2,115,341 
Amortization of deferred rents(1,046,721)(950,694)
Amortization of deferred lease incentives323,347 192,235 
Write-offs and amortization of deferred financing costs and premium/discount1,470,289 207,086 
Amortization of above-market lease intangibles108,675 97,367 
Amortization of below-market lease intangibles(971,536)(1,099,723)
Reversal of impairment of real estate investment property— (400,999)
Impairment of goodwill17,320,857 — 
Write-off of purchase deposit375,000 — 
Gain on forgiveness of economic relief note payable— (517,000)
Gain on sale of real estate investments(13,074,162)(4,532,413)
Unrealized gain on interest rate swap valuation(530,997)(684,057)
Write-off of unrealized gain on interest rate swaps(788,016)— 
Income from unconsolidated investment in a real estate property(226,690)(222,705)
Distributions from unconsolidated investment in a real estate property179,531 247,929 
Change in operating assets and liabilities:
(Increase) decrease in tenant receivables(686,345)613,626 
Increase in note receivable— (1,283,162)
Decrease (increase) in prepaid and other assets284,145 (667,634)
Decrease in accounts payable, accrued and other liabilities(501,178)(363,007)
Net cash provided by operating activities9,326,763 6,312,683 
Cash Flows from Investing Activities:
Acquisitions of real estate investments(127,144,029)(3,644,221)
Additions to existing real estate investments(3,855,719)(531,382)
Additions to intangible assets— (195,750)
Collection of note receivable from early termination of lease1,836,767 — 
Collection of receivable from sale of real estate property— 1,824,383 
Net proceeds from sale of real estate investments66,489,004 22,840,026 
Purchase deposits, net(195,614)— 
Payment of lease incentives(2,100,000)— 
Net cash (used in) provided by investing activities(64,969,591)20,293,056 
Cash Flows from Financing Activities:
Borrowings from credit facility term loan150,000,000 — 
Borrowings from credit facility revolver, net6,775,000 — 
Repayments of prior year credit facility revolver, net(8,022,000)(6,000,000)
Proceeds from mortgage notes payable— 25,436,000 
Principal payments on mortgage notes payable(130,421,220)(29,434,396)
Refundable loan deposits— 18,804 
Payments of deferred financing costs(2,186,468)(381,076)
Proceeds from issuance of preferred stock, net— 47,570,374 
Proceeds from listed offering of common stock, net114,500 2,911,744 
Payments of offering costs(1,084,748)(946,914)
Repurchases of common stock(3,957,752)(16,881,466)
Dividends paid to preferred stockholders(2,909,028)— 
Distributions paid to common stockholders(4,339,952)(2,565,452)
Distributions paid to Class C OP Units holder(1,006,136)— 
Net cash provided by financing activities2,962,196 19,727,618 
Net (decrease) increase in cash, cash equivalents and restricted cash(52,680,632)46,333,357 
Cash, cash equivalents and restricted cash, beginning of period58,407,520 8,377,530 
Cash, cash equivalents and restricted cash, end of period$5,726,888 $54,710,887 
Modiv Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
Nine Months Ended September 30,
20222021
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest$5,152,425 $6,116,202 
Supplemental Schedule of Noncash Investing and Financing Activities:
Reclassification of tenant improvements from other assets to real estate investments$522,844 $— 
Unpaid real estate improvements$512,908 $— 
Deferred rents$— $683,605 
Deferred lease incentive$— $(2,128,538)
Issuance of Class C OP Units in the acquisition of a real estate investment$32,809,551 $— 
Reinvested distributions from common stockholders$2,866,846 $3,399,731 
Accrued distributions and dividends$(31,794)$123,521 
Reclassification from redeemable common stock$— $8,247,216 
Decrease in share repurchase payable$— $(1,631,648)
Supplemental disclosure related to real estate investments held for sale, net:
Real estate investments held for sale, net$31,510,762 $24,585,739 
Other assets related to real estate investments held for sale$788,296 $1,079,361 
Decrease in above-market lease intangibles, net$— $(50,549)
Mortgage notes payable related to real estate investments held for sale, net$(21,699,912)$(9,088,438)
Other liabilities related to real estate investments held for sale$(383,282)$(801,337)
Increase in below-market lease intangibles, net$— $325,734 
Increase in interest swap derivatives$— $14,166 
See accompanying notes to condensed consolidated financial statements.
9
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. The Company's five-year emerging growth company registration with the SEC will endSecurities and Exchange Commission (the “SEC”) ended on December 30,31, 2021 butand the Company will continuecontinues to report with the SEC as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act. Effective February 1, 2021, withAct of 1934, as amended. The Company's Series A Preferred Stock is listed on the authorization ofNew York Stock Exchange (the “NYSE”) under the board of directors, the Company filed Articles of Amendment to the Company’s charter in the State of Maryland in order to effect a 1:3 reverse stock split of the Company’ssymbol 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’sconverted 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).
The Company has been internally managed 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 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.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 86%approximately 73% and 83% partnership interest in, the Operating Partnership onas of September 30, 2021.2022 and December 31, 2021, respectively. The Operating PartnershipPartnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12.
As of September 30, 2021,2022, the Company's portfolio of approximately 2.23.2 million square feet of aggregate leasable space consisted of investments in 3847 real estate properties, comprised of: 13 retail properties, 14 office properties and 1126 industrial properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California industrial property (the “TIC Interest”).
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 I 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 54% of the assets 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 resultportfolio, 13 retail properties, which represent approximately 19% of the completionportfolio, and eight office properties, which represent approximately 27% of the Self-Management Transaction, the Company became self-managed and eliminated all fees for acquisitions, dispositions and managementportfolio (expressed as a percentage of its properties, which were previously paid to its former external advisor. Following completion of the Self-Management Transaction and the issuance of various other tranches of general and limited partnership interests, the Company owned an approximately 86% partnership interest in the Operating Partnershipannual base rent (“ABR”) as of September 30, 2021.2022).
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 $211,463,370 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 saleexempt from registration pursuant to Regulation S under the publicSecurities Act of 1933, as amended (the “Initial 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 sharesprivate 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 Initial 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
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 sharesan offering of its Class S common stock as a result oflisted 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”). 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”), 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.
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 estimated net asset value (“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 statementRegistration 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 restatedits 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 2021Registered DRP Offering upon termination of the Follow-onRegistered Offering.
Effective January 27, 2021, the board of directors terminated the Company’s Follow-on Offering. In connection with the termination of the Follow-on Offering, 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 in the Follow-on Offering, which were deregistered with the SEC. On February 1, 2021, the Company commenced a private offering of Class C common stock under Regulation D promulgated under the Securities Act (the “Private Offering” and, collectively with the Registered Offerings (as defined below), the “Offerings”) and accepted investor subscriptions from only accredited investors until the Company terminated the Private Offering on August 12, 2021.
On June 29, 2021, the Company filed with the SEC a Regulation A Offering Statement on Form 1-A (the “Reg A Offering” and, collectively with the Follow-on Offering and the Registered DRP Offering, the “Registered Offerings”), including its preliminary offering circular, for a $75,000,000 offering of its Class C common stock and filed an amended Form 1-A on August 13, 2021. The SEC qualified the amended Regulation A Offering Statement on Form 1-A on August 16, 2021. The Reg A Offering allowed the Company to once again accept subscriptions from investors who are not accredited.
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 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”) in an underwritten public offering (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. 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 for additional information).
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Estimated NAV Per Share (Unaudited)
SinceOn December 31, 2020,8, 2021, the Company’s board of directors has approvedCompany filed with the SEC a Registration Statement on Form S-11 (File No. 333-261529), and, established an updated quarterly estimated NAV per shareon 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 as follows:
Valuation DateEffective DateNAV Per Share
December 31, 2020January 27, 2021$23.03 (unaudited and adjusted for the 1:3 reverse stock split on February 1, 2021)
March 31, 2021May 5, 2021$24.61 (unaudited)
June 30, 2021August 4, 2021$26.05 (unaudited)
September 30, 2021November 5, 2021$27.29 (unaudited)
Additional information on the determinationconverted into a share of Class C common stock. The Listed Offering of the Company's most recent estimated NAVClass 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 includingto a major stockholder who was formerly a related party (see Note 9 for additional information).
On March 30, 2022, the process usedCompany filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to determine its estimated NAV per share, can be found inthe 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 Current Reportat-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on Form 8-K filedJune 6, 2022. As of September 30, 2022, no shares have been issued in connection with the SEC on November 5, 2021. Effective November 5,Company's ATM Offering.
Preferred Stock Offering
On September 17, 2021, the purchaseCompany 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’sCompany's board of directors amended and restated the DRP (the “Second Amended and Restated DRP”) with respect to the Class C common stock in the Reg A Offering was increased from $26.05 (unaudited) to $27.29 (unaudited). Also, commencing November 5, 2021,change the purchase price per shareat which the Class C common stock is issued to stockholders who elect to participate in the primary portionDRP. The purpose of this change was to reflect the fact that the 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 the DRP depends on whether the Company issues new shares to DRP participants or the Company 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 issued directly by the Company is 97%, reflecting a 3% discount (or such other discount as may then be in effect) of the Market Price (as defined in the Second Amended and Restated DRP) of the Class S OfferingC common stock. This discount is subject to change from time to time, in the 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 through the DRP. The Second Amended and Restated DRP was increasedeffective beginning with distributions paid in February 2022. From February 2022 through September 30, 2022, the Company issued 152,606 shares of Class C common stock under the DRP.
Share Repurchase Program
On February 15, 2022, the Company's board of directors authorized up to $27.29 (unaudited) plus$20,000,000 in repurchases of the Company's outstanding shares of common stock through December 31, 2022. Repurchases 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 the Company in its discretion and will be subject to economic and market conditions, stock price, applicable upfront commissionslegal requirements and fees,other factors. The program may be suspended or discontinued at any time.
From February 15, 2022 through September 30, 2022, the Company repurchased a total of 233,145 shares of its common stock for a total of $3,957,752 and the NAVan average cost of $16.98 per share used for purposes of theunder this share repurchase programs was increasedprogram and these shares are held as treasury stock. Our last share repurchases during the quarter ended September 30, 2022 were made on August 24, 2022.
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Notes to $27.29 (unaudited) for repurchase requests made starting on November 1, 2021. Beginning with distributions scheduled to be paid to stockholders on November 25, 2021, the purchase price per share of the Company’s common stock in the Class C and the Class S DRPs was increased from $26.05 (unaudited) to $27.29 (unaudited).Condensed Consolidated Financial Statements (continued)
(Unaudited)
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, 20202021 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, 20202021 included herein was derived from the audited financial statements.
Reverse Stock SplitVariable 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 effectedheld an interest in a 1:3 reverse stock splitVIE, which was incorporated under a qualified exchange accommodation arrangement to temporarily hold replacement real estate properties, for which the Company was determined to be the primary beneficiary. As a result, the Company has consolidated this entity. As of its Class C common stockJune 30, 2022, the Company's investment related to this VIE aggregated $31,406,864, or 7.3% of total assets, and Class S common stockno liabilities which related to four real estate properties the VIE held as of that date. As of September 30, 2022, the Company has completed the exchange transaction related to the four real estate properties held by the VIE as of June 30, 2022, and following the implementationentity is now a wholly-owned subsidiary of the reverse stock split, decreased 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 the effect of 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.
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 impairment charges related primarily to COVID-19).experience. Actual results may differ from those estimates.
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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. TheOther than the noncontrolling interests were issued on December 31, 2019 andrelated to an “UPREIT” transaction as discussed in Note 12, all other noncontrolling interests currently represent non-voting, non-dividendnon-distribution accruing interests with no allocation of profits or losses. As describedlosses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 12.
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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 12) (in the case of the units of Class P limited partnership interest (“Class P OP Units”) in the Operating Partnership). As of September 30, 2021, no interests have been converted or exchanged.Condensed Consolidated Financial Statements (continued)
On January 25, 2021, the board of directors approved the grant of units of Class R limited partnership interest (“Class R OP Units”) to all employees of the Company. As described in detail in Note 12, all units granted vest on January 25, 2024 and are then mandatorily convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) no later than March 31, 2024.(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 accounts for revenue in accordance with FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), 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 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, 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 establishesestablished 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 butlessee; however, such impact is considered not material.
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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 September 30, 20212022 and 2020,2021, tenant reimbursements included in rental income amounted to $1,640,835$1,620,758 and $1,622,218,$1,477,240, respectively, and for the nine months ended September 30, 20212022 and 2020,2021, tenant reimbursements included in rental income amounted to $5,036,196$5,071,557 and $5,521,723,$4,545,412, respectively.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
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 during the three and nine months ended September 30, 2021 and 2020 met these criteria at closing. 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
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Initial direct costs such as legal fees and commissions are capitalized and amortized overMODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Gain or Loss on Sale of Real Estate Investments
The Company recognizes gain or loss on sale of real estate property when the termCompany has executed a contract for sale of the lease. Internal leasing costsproperty, 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 during the three and nine months ended September 30, 2022 and 2021 met these criteria at closing. When properties are charged to expense as incurred. These expenses aresold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in property expensesgain or loss on sale of real estate investments in the Company'sCompany’s accompanying unaudited condensed consolidated statements of operations.
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,
Treasury Stock
Effective on the date of the Listed Offering, the Company recorded impairment charges of $9,506,525 related to 4accounts for repurchased shares of its real estate properties duringClass C common stock as treasury stock. Treasury shares are recorded at cost and are included as a component of equity in the nine months endedCompany's unaudited condensed consolidated balance sheet as of September 30, 2020. The Company did not incur any impairment charges for its real estate properties during the three months September 30, 2021 and 2020 and the nine months ended September 30, 2021. However, the Company recognized a reversal of a prior year 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
For all periods presented, other comprehensive loss is the same as net loss.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 forFor the three and nine months ended September 30, 2020 as2022 and 2021, the Company had apresented both Basic EPS and Diluted EPS reflecting its reported net lossincome (loss) attributable to common stockholders for both reported periods.each period (see Note 13 for additional information).
As of September 30, 2021, there were 657,949.5 Class M OP Units, 56,029 Class P OP Unitsdiscussed in Note 1, in connection with and 353,003 Class R OP Units, net of forfeiture of 6,997 units (adjusted forupon listing on the 1:3 reverse stock split) that are convertible into Class C OP Units (see Note 12 for more details). The holders of Class C OP Units may exchange such Class C OP Units for sharesNYSE, each 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.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Class M OP Units, Class P OP Units and Class R OP Units, and the sharesshare 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 for the three and nine months ended September 30, 2020 because their effect would not be dilutive. The weighted average dilutive effect of such units for the three and nine months ended September 30, 2021 was an increase of 1,219,316 and 1,188,099 shares, respectively, included in the computation of Diluted EPS. There were no other outstanding securities or commitments to issueClass 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 basic net income (loss) attributable to common stockholders of $0.47 and $(0.12) per share offor both Class C common stock and Class S common stock for the three months ended September 30, 2021, and 2020, respectively,diluted net income (loss) attributable to common stockholders of $0.47$0.40 per share of Class C common stock and $(0.12)$0.47 per share of Class S common stock for the three months ended September 30, 2021 and 2020, respectively,2021.
The two-class method would have resulted in basic net income (loss) attributable to common stockholders of $0.21 and $(6.51) per share of Class C common stock for the nine months ended September 30, 2021 and 2020, respectively, and net income (loss) attributable to common stockholders of $0.20 and $(6.51) per share of Class S common stock for the nine months ended September 30, 2021, and 2020, respectively.
The two-class method would have resulted in diluted net income (loss) attributable to common stockholders of $0.40 and $(0.12)$0.18 per share of Class C common stock for the three months ended September 30, 2021 and 2020, respectively, diluted net income (loss) attributable to common stockholders of $0.47 and $(0.12) per share of Class S common stock for the three months ended September 30, 2021 and 2020, respectively, diluted net income (loss) attributable to common stockholders of $0.18 and $(6.51) per share of Class C common stock for the nine months ended September 30, 2021 and 2020, respectively, and diluted net income (loss) attributable to common stockholders of $0.20 and $(6.51) per share of Class S common stock for the nine months ended September 30, 2021 and 2020, respectively.2021.
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
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Notes 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.Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
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:
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Cash and cash equivalents, restricted cash, receivable from saleearly 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 their short maturities.
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 measurementsmeasurement of goodwill and intangible assets areis 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 has used 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 the Company's intangible assets is at risk of impairment if the Company experiences an adverse change in its business climate or has a current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
Credit facilities and economic relief note payable:facilities: The fair values of the Company’s credit facilities and economic relief note payable approximate thetheir 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 placemarketplace for a similar credit facility and short-term note, respectively.facilities.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Mortgage notes payable: The fair valuevalues 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 September 30, 2021 and December 31, 20202021 amounted to $2,410,951 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 September 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 $1,271,462$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. DuringSubsequent to the three months ended September 30, 2021,origination of the amount ofloans, $128,538 was released to fund a leasing commission.
commission, resulting in $2,271,462 remaining as aggregate restricted cash as of December 31, 2021. Pursuant to amended lease agreements, the Company had an obligation to pay for tenant improvementsrefinancing 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 September 30, 2021 and December 31, 20202021 were also released during the first three months of $189,136 and $60,598, respectively, for tenant improvements2022 due to be incurred by tenants for which funds restricted by the lender were available. As of September 30, 2021 and December 31, 2020, the Company's restricted cash held to fund other improvements and leasing commissions totaled $2,271,462 and $32,086, respectively.
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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 all of 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 investmentinvestments held for sale, net” and “assets related to real estate investmentinvestments 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.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 investor-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 yearsDerivative Instruments
The Company enters into derivative instruments for risk management purposes to five years. No significant residual value is estimated for intangible assets. An asset is considered impaired ifhedge its carrying amount exceeds the future netexposure to cash flow the asset is expected to generate or if the Company has a current expectation that, more likely than not, an asset will be sold or otherwise disposed of significantly before the end ofvariability caused by changing interest rates on its previously estimated useful life.variable rate debt. The Company evaluates long-lived assets (including intangible assets)does not enter into derivatives for impairment whenever events orspeculative purposes. The Company records these derivative instruments at fair value on the accompanying unaudited condensed consolidated balance sheets. The change in fair value of the derivative instrument related to the Company's $150,000,000 Term Loan (defined in Note 7) as of September 30, 2022 was designated as a cash flow hedge effective July 1, 2022 for financial accounting purposes and was recorded as unrealized holding gain on interest rate swap designated as a cash flow hedge in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). The Company’s derivative instruments related to mortgage notes payable as of December 31, 2021 did not meet the hedge accounting criteria and therefore the changes in circumstances indicate that the carrying amountfair value were recorded as gains or losses on derivative instruments in the accompanying unaudited condensed consolidated statements of operations under interest expense.
The Company enters into interest rate swaps as a long-lived asset may not be recoverable.fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.
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 valueNAV 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 (each as defined and discussed in Note 12) are recorded in equity under noncontrolling interests in the Operating Partnership in the Company's unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 and unaudited condensed consolidated statements of equity for the three and nine months ended September 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 haveperiod (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.
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 reclassificationreclassifications did not affect net incomeloss 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 thatimplemented ASU 2020-04 will have oneffective 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 four 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 September 30, 2021,2022, the Company’s real estate investment portfolio consisted of 3847 operating properties located in 1417 states comprised of: 13 retail properties, 14 office properties and 1126 industrial properties including(including the TIC Interest in an industrial property not reflected in the table below but discussed in Note 44)., 13 retail properties and eight office properties, and one parcel of land, which currently serves as an easement to one of the Company’s office properties.
The following table provides summary information regarding the Company’s operating properties as of September 30, 2021:2022:
PropertyLocationAcquisition DateProperty TypeLand, Buildings and ImprovementsTenant Origination and Absorption CostsAccumulated Depreciation and AmortizationTotal Investment in Real Estate Property, Net
Accredo HealthOrlando, FL6/15/2016Office$9,855,847 $1,269,350 $(2,506,329)$8,618,868 
Dollar GeneralLitchfield, ME11/4/2016Retail1,281,812 116,302 (196,188)1,201,926 
Dollar GeneralWilton, ME11/4/2016Retail1,543,776 140,653 (251,079)1,433,350 
Dollar GeneralThompsontown, PA11/4/2016Retail1,199,860 106,730 (188,502)1,118,088 
Dollar GeneralMt. Gilead, OH11/4/2016Retail1,174,188 111,847 (180,730)1,105,305 
Dollar GeneralLakeside, OH11/4/2016Retail1,112,872 100,857 (185,485)1,028,244 
Dollar GeneralCastalia, OH11/4/2016Retail1,102,086 86,408 (180,218)1,008,276 
Northrop GrummanMelbourne, FL3/7/2017Office12,382,991 1,469,737 (3,466,555)10,386,173 
exp US ServicesMaitland, FL3/27/2017Office6,056,668 388,248 (1,001,253)5,443,663 
Harley (1)Bedford, TX4/13/2017Retail12,947,054 — (1,281,445)11,665,609 
WyndhamSummerlin, NV6/22/2017Office10,406,483 669,232 (1,436,091)9,639,624 
Williams SonomaSummerlin, NV6/22/2017Office8,079,612 550,486 (1,292,121)7,337,977 
OmnicareRichmond, VA7/20/2017Industrial7,275,115 281,442 (1,016,164)6,540,393 
EMCORCincinnati, OH8/29/2017Office5,960,610 463,488 (738,712)5,685,386 
HusqvarnaCharlotte, NC11/30/2017Industrial11,840,200 1,013,948 (1,381,471)11,472,677 
AvAirChandler, AZ12/28/2017Industrial27,357,899 — (2,631,689)24,726,210 
3MDeKalb, IL3/29/2018Industrial14,762,819 2,356,361 (4,410,594)12,708,586 
CumminsNashville, TN4/4/2018Office14,538,528 1,536,998 (2,759,017)13,316,509 
Northrop Grumman ParcelMelbourne, FL6/21/2018Land329,410 — — 329,410 
Texas HealthDallas, TX9/13/2018Office6,976,703 713,221 (904,326)6,785,598 
Bon SecoursRichmond, VA10/31/2018Office10,399,820 800,356 (1,318,163)9,882,013 
CostcoIssaquah, WA12/20/2018Office27,330,797 2,765,136 (3,631,336)26,464,597 
Taylor Fresh FoodsYuma, AZ10/24/2019Industrial34,194,369 2,894,017 (2,588,277)34,500,109 
Raising Cane'sSan Antonio, TX7/26/2021Retail3,430,224 213,997 (24,221)3,620,000 
LevinsSacramento, CA12/31/2019Industrial4,429,390 221,927 (386,065)4,265,252 
Dollar GeneralBakersfield, CA12/31/2019Retail4,899,714 261,630 (257,482)4,903,862 
LabcorpSan Carlos, CA12/31/2019Industrial9,672,174 408,225 (357,562)9,722,837 
GSA (MSHA)Vacaville, CA12/31/2019Office3,112,076 243,307 (242,401)3,112,982 
PreK EducationSan Antonio, TX12/31/2019Retail12,447,287 555,767 (1,006,332)11,996,722 
Dollar TreeMorrow, GA12/31/2019Retail1,320,367 73,298 (124,094)1,269,571 
Solar TurbinesSan Diego, CA12/31/2019Office7,133,241 284,026 (561,523)6,855,744 
Wood GroupSan Diego, CA12/31/2019Industrial9,869,520 539,633 (806,309)9,602,844 
ITW RippeyEl Dorado, CA12/31/2019Industrial7,071,143 304,387 (532,405)6,843,125 
Dollar GeneralBig Spring, TX12/31/2019Retail1,281,683 76,351 (89,195)1,268,839 
GapRocklin, CA12/31/2019Office8,407,236 360,377 (839,188)7,928,425 
L3HarrisSan Diego, CA12/31/2019Industrial11,631,857 454,035 (823,940)11,261,952 
Sutter HealthRancho Cordova, CA12/31/2019Office29,586,023 1,616,610 (1,890,868)29,311,765 
WalgreensSanta Maria, CA12/31/2019Retail5,223,442 335,945 (232,681)5,326,706 
$347,624,896 $23,784,332 $(41,720,011)$329,689,217 
(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).
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Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Impairment Charges
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 on 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, California 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.
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, California 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 months ended September 30, 2021 and 2020 and the nine months ended September 30, 2021. The details of the Company's real estate impairment charges for the nine months ended September 30, 2020 were as follows:
PropertyLocationNine Months Ended
September 30, 2020
Rite AidLake Elsinore, CA$349,457 
DanaCedar Park, TX2,184,395 
24 Hour FitnessLas Vegas, NV5,664,517 
Dinan CarsMorgan Hill, CA1,308,156 
Total$9,506,525 
PropertyLocationAcquisition DateProperty TypeLand, Buildings and ImprovementsEquipmentTenant Origination and Absorption CostsAccumulated Depreciation and AmortizationTotal Investment in Real Estate Property, Net
Dollar GeneralLitchfield, ME11/4/2016Retail$1,281,812 $— $116,302 $(236,432)$1,161,682 
Dollar GeneralWilton, ME11/4/2016Retail1,543,776 — 140,653 (302,582)1,381,847 
Dollar GeneralThompsontown, PA11/4/2016Retail1,199,860 — 106,730 (227,169)1,079,421 
Dollar GeneralMt. Gilead, OH11/4/2016Retail1,174,188 — 111,847 (217,803)1,068,232 
Dollar GeneralLakeside, OH11/4/2016Retail1,112,872 — 100,856 (223,534)990,194 
Dollar GeneralCastalia, OH11/4/2016Retail1,102,086 — 86,408 (217,186)971,308 
Dollar GeneralBakersfield, CA12/31/2019Retail4,899,714 — 261,630 (404,614)4,756,730 
Dollar GeneralBig Spring, TX12/31/2019Retail1,281,683 — 76,351 (140,164)1,217,870 
Dollar TreeMorrow, GA12/31/2019Retail1,320,367 — 73,298 (195,004)1,198,661 
Northrop GrummanMelbourne, FL3/7/2017Office13,608,084 — 1,469,737 (3,895,365)11,182,456 
Northrop Grumman ParcelMelbourne, FL6/21/2018Land329,410 — — — 329,410 
exp US ServicesMaitland, FL3/27/2017Office6,114,695 — 388,248 (1,225,741)5,277,202 
HusqvarnaCharlotte, NC11/30/2017Industrial11,840,200 — 1,013,948 (1,738,565)11,115,583 
AvAirChandler, AZ12/28/2017Industrial27,357,899 — — (3,325,761)24,032,138 
3MDeKalb, IL3/29/2018Industrial14,762,819 — 3,037,057 (5,481,404)12,318,472 
CumminsNashville, TN4/4/2018Office14,538,528 — 1,566,997 (3,558,448)12,547,077 
CostcoIssaquah, WA12/20/2018Office27,548,522 — 2,765,136 (4,938,715)25,374,943 
Taylor Fresh FoodsYuma, AZ10/24/2019Industrial34,194,369 — 2,894,017 (3,909,950)33,178,436 
LevinsSacramento, CA12/31/2019Industrial4,429,390 — 221,927 (606,673)4,044,644 
LabcorpSan Carlos, CA12/31/2019Industrial9,672,174 — 408,225 (561,882)9,518,517 
GSA (MSHA)Vacaville, CA12/31/2019Office3,112,076 — 243,307 (380,916)2,974,467 
PreK EducationSan Antonio, TX12/31/2019Retail12,477,027 — 555,767 (1,334,763)11,698,031 
Solar TurbinesSan Diego, CA12/31/2019Office7,145,941 — 284,026 (720,093)6,709,874 
Wood GroupSan Diego, CA12/31/2019Industrial9,869,520 — 539,633 (1,071,070)9,338,083 
ITW RippeyEl Dorado, CA12/31/2019Industrial7,071,143 — 304,387 (817,923)6,557,607 
GapRocklin, CA12/31/2019Office8,433,744 — 360,377 (1,333,067)7,461,054 
L3HarrisSan Diego, CA12/31/2019Industrial11,690,952 — 662,101 (1,227,393)11,125,660 
Sutter HealthRancho Cordova, CA12/31/2019Office29,587,023 — 1,616,610 (2,977,488)28,226,145 
WalgreensSanta Maria, CA12/31/2019Retail5,223,442 — 335,945 (365,642)5,193,745 
Raising Cane'sSan Antonio, TX7/26/2021Retail3,430,224 — 213,997 (140,482)3,503,739 
Arrow-TruLineArchbold, OH12/3/2021Industrial11,518,084 — — (328,134)11,189,950 
KIACarson, CA1/18/2022Retail69,286,444 — 118,606 (752,153)68,652,897 
KaleraSaint Paul, MN1/31/2022Industrial3,690,009 4,429,000 — (240,788)7,878,221 
20
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Acquisition
(Operating properties table continued)
PropertyLocationAcquisition DateProperty TypeLand, Buildings and ImprovementsEquipmentTenant Origination and Absorption CostsAccumulated Depreciation and AmortizationTotal Investment in Real Estate Property, Net
LindsayColorado Springs 1, CO4/19/2022Industrial$2,311,934 $— $— $(26,731)$2,285,203 
LindsayColorado Springs 2, CO4/19/2022Industrial3,314,406 — — (15,908)3,298,498 
LindsayDacano, CO4/19/2022Industrial6,068,788 — — (38,565)6,030,223 
LindsayAlachua, FL4/19/2022Industrial8,518,123 — — (166,197)8,351,926 
LindsayFranklinton, NC4/19/2022Industrial7,181,113 — — (73,273)7,107,840 
LindsayCanal Fulton 1, OH4/19/2022Industrial11,345,533 — — (157,596)11,187,937 
LindsayCanal Fulton 2, OH4/19/2022Industrial10,190,942 — — (224,757)9,966,185 
LindsayRock Hill, SC4/19/2022Industrial6,555,983 — — (77,112)6,478,871 
ProductoEndicott, NY7/15/2022Industrial2,362,310 — — (16,281)2,346,029 
ProductoJamestown, NY7/15/2022Industrial3,073,686 — — (19,932)3,053,754 
ValtirCenterville, UT7/26/2022Industrial4,685,354 — — (24,398)4,660,956 
ValtirOrangeburg, SC7/26/2022Industrial4,243,309 — — (29,029)4,214,280 
ValtirFort Worth, TX7/26/2022Industrial3,278,521 — — (13,013)3,265,508 
ValtirLima, OH8/4/2022Industrial9,921,943 — — (46,219)9,875,724 
$444,900,022 $4,429,000 $20,074,123 $(44,025,915)$425,377,230 
Acquisitions
Nine Months Ended September 30, 2022
During the nine months ended September 30, 2022, the Company acquired the following real estate properties:
Property and LocationAcquisition DateLandBuildings and
Improvements		EquipmentTenant
Origination
and
Absorption
Costs		Above-
Market
Lease Intangibles		Acquisition Price
KIA, Carson, CA1/18/2022$32,741,781 $36,544,663 $— $118,606 $— $69,405,050 
Kalera, St. Paul, MN1/31/2022562,356 3,127,653 4,429,000 — — 8,119,009 
Lindsay, Colorado Springs 1, CO4/19/20221,195,178 1,116,756 — — — 2,311,934 
Lindsay, Colorado Springs 2, CO4/19/20222,239,465 1,074,941 — — — 3,314,406 
Lindsay, Dacono, CO (1)4/19/20222,263,982 3,804,806 — — — 6,068,788 
Lindsay, Alachua, FL4/19/2022966,192 7,551,931 — — — 8,518,123 
Lindsay, Franklinton, NC4/19/20222,843,811 4,337,302 — — — 7,181,113 
Lindsay, Fulton 1, OH4/19/2022726,877 10,618,656 — — — 11,345,533 
Lindsay, Fulton 2, OH4/19/2022635,865 9,555,077 — — — 10,190,942 
Lindsay, Rock Hill, SC4/19/20222,816,322 3,739,661 — — — 6,555,983 
Producto, Endicott, NY7/15/2022327,964 2,034,346 — — — 2,362,310 
Producto, Jamestown, NY7/15/2022919,332 2,154,354 — — — 3,073,686 
Valtir, Centerville, UT7/26/20222,467,565 2,217,789 — — — 4,685,354 
Valtir, Orangeburg, SC7/26/20221,678,818 2,564,491 — — 1,356,961 5,600,270 
Valtir, Fort Worth, TX7/26/20221,785,240 1,493,281 — — — 3,278,521 
Valtir, Lima, OH8/4/2022747,746 9,174,197 — — — 9,921,943 
$54,918,494 $101,109,904 $4,429,000 $118,606 $1,356,961 $161,932,965 
(1)    As of September 30, 2022, buildings and improvements exclude a non-refundable deposit of $820,614 for funding ongoing building construction at the Lindsay property in Dacono, Colorado. This deposit is included in prepaid expenses and other assets in the accompanying unaudited condensed consolidated balance sheets.
During the three and nine months ended September 30, 2022, the Company recognized $3,432,150 and $7,537,742, respectively, of total revenue related to the above-acquired properties.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The noncancellable lease terms of the properties acquired during the nine months ended September 30, 2022 are as follows:
PropertyLease Expiration
KIA of Carson1/17/2047
Kalera2/28/2042
Lindsay, for all eight properties acquired4/30/2047
Producto, for two properties acquired7/31/2042
Valtir, UT and TX7/31/2037
Valtir, SC and OH8/31/2047
Nine Months Ended September 30, 2021
During the nine months ended September 30, 2021, the Company acquired the following real estate property:
PropertyAcquisition DateLandBuildings and
Improvements		Tenant
Origination
and Absorption
Costs		Total
Raising Cane's7/26/2021$1,902,069 $1,528,155 $213,997 $3,644,221 
Property and LocationAcquisition DateLandBuildings and
Improvements		EquipmentTenant
Origination
and
Absorption
Costs		Acquisition Price
Raising Cane's, San Antonio, TX07/26/2021$1,902,069 $1,528,155 $— $213,997 $3,644,221 
During the three and nine months ended September 30, 2021, the Company recognized $47,004 of total revenue related to the above-acquired property.
The noncancellable lease term of the property acquired during the nine months ended September 30, 2021 is as follows:
PropertyLease Expiration
Raising Cane's2/20/2028
The Company did not acquire any real estate properties during the nine months ended September 30, 2020.
Dispositions
The dispositions during the nine months ended September 30, 20212022 and 20202021 were as follows:
Nine Months Ended September 30, 2022
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sale PriceGain on Sale
Bon SecoursRichmond, VA2/11/2022Office72,890 $10,200,000 $179,404 
OmnicareRichmond, VA2/11/2022Flex51,800 8,760,000 2,062,890 
Texas HealthDallas, TX2/11/2022Office38,794 7,040,000 160,377 
AccredoOrlando, FL2/24/2022Office63,000 14,000,000 4,998,106 
EMCORCincinnati, OH6/29/2022Office39,385 6,525,000 1,002,101 
Williams SonomaSummerlin, NV8/26/2022Office35,867 9,300,000 1,703,616 
WyndhamSummerlin, NV9/16/2022Office41,390 12,900,000 2,967,668 
343,126 $68,725,000 $13,074,162 
On February 11, 2022, the Company completed the sale of two medical office properties in Dallas, Texas and Richmond, Virginia leased to Texas Health and Bon Secours, respectively, and one flex property in Richmond, Virginia leased to Omnicare for an aggregate sales price of $26,000,000, which generated net proceeds of $11,892,305 after payment of commissions, closing costs and existing mortgages.
22
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
On February 24, 2022, the Company completed the sale of a medical office property in Orlando, Florida leased to Accredo for a sales price of $14,000,000, which generated net proceeds of $5,012,724 after payment of commissions, closing costs and repayment of the 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.
On August 26, 2022, the Company completed the sale of an office property in Summerlin, Nevada leased to Williams Sonoma for a sales price of $9,300,000, which generated net proceeds of $8,964,252 after payment of commissions and closing costs.
On September 16, 2022, the Company completed the sale of an office property in Summerlin, Nevada leased to Wyndham for a sales price of $12,900,000, which generated net proceeds of $12,267,571 after payment of commissions and closing costs.
Nine Months Ended September 30, 2021
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sale PriceGain on Sale
Chevron Gas StationRoseville, CA1/7/2021Retail3,300 $4,050,000 $228,769 
EcoThriftSacramento, CA1/29/2021Retail38,536 5,375,300 51,415 
Chevron Gas StationSan Jose, CA2/12/2021Retail1,060 4,288,888 9,458 
DanaCedar Park, TX7/7/2021Industrial45,465 10,000,000 4,127,638 
88,361 $23,714,188 4,417,280 
24 Hour Fitness Adjustment115,133 
Total$4,532,413 
On January 7, 2021, the Company completed the sale of itsa retail property in 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 itsa retail property in 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 itsa retail property in 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.
On July 7, 2021, the Company completed the sale of itsan industrial property in Cedar Park, Texas, industrial property which 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. Upon the sale of the property, Dana Incorporated executed a promissory note payable to the Company for its obligation to continue to pay rent of $65,000 per month through July 2022 and pay its early termination fee of $1,381,767 no later than July 31, 2022. The unpaid amount of the Company's note receivable of $1,966,767$1,836,767 as of December 31, 2021 is presented as receivable from early termination of the lease in the Company's unaudited condensed consolidated balance sheet as of December 31, 2021. The note receivable monthly payments were received with full collection during the three months ended September 30, 2022.
On September 24, 2021, the Company received a notice of refund amounting to $115,133 related to the sale of a retail property in Las Vegas, Nevada on December 16, 2020, which was formerly leased to 24 Hour Fitness. The refund was recognized as an adjustment to the estimate of the amount which was expected to be received related to subsequent operations and improvements to the property and was included in gain on sale of real estate investments in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
OnAsset Concentration
As of September 24, 2021,30, 2022, the Company received a notice of refund amounting to $115,133 related to the sale of its Las Vegas, Nevada retail property on December 16, 2020, which was formerly leased to 24 Hour Fitness. The refund relates to a portion of a holdback from sales proceeds to cover expenses by the buyer to prepare the property for lease, including the payment of accrued interest, common area maintenance, taxes, insurance and other related expenses and building permits to begin construction of improvements on the property. The refund was recognized as an adjustment to the estimate of the amount which was expected to be received and was included in gain on sale ofCompany’s real estate investments in the accompanying unaudited condensed consolidated statementsportfolio asset concentration (greater than 10% of operations.total assets) was as follows:
Nine Months Ended September 30, 2020
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sale Price(Loss) Gain on Sale
Rite AidLake Elsinore, CA8/3/2020Retail70,960 $7,250,000 $(422)
WalgreensStockbridge, GA8/27/2020Retail15,120 5,538,462 1,306,768 
Island PacificElk Grove, CA9/16/2020Retail27,296 3,155,000 387,296 
Total113,376 $15,943,462 $1,693,642 
On August 3, 2020, the Company completed the sale of its Lake Elsinore, California retail property, which was leased to Rite Aid, for $7,250,000, which generated net proceeds of $3,299,016 after repayment of the existing mortgage, commissions and closing costs.
On August 27, 2020, the Company completed the sale of its Stockbridge, Georgia retail property, which was leased to Walgreens, for $5,538,462, which generated net proceeds of $5,296,356 after payment of commissions and closing costs.
On September 16, 2020, the Company completed the sale of its Elk Grove, California retail property, which was leased to Island Pacific, for $3,155,000, which generated net proceeds of $1,124,016 after repayment of the existing mortgage, commissions and closing costs.
Asset Concentration
September 30, 2022
Property and LocationNet Carrying ValuePercentage of
Total Assets
KIA, Carson, CA$68,652,897 14.9 %
Lindsay, eight properties acquired in Colorado (three), Ohio (two), North Carolina, South Carolina and Florida54,706,683 11.8 %
Total$123,359,580 26.7 %
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.
Rental Income Concentration
During the three and nine months ended September 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
September 30, 2022		Nine Months Ended
September 30, 2022
Property and LocationRental IncomePercentage of
Total Rental Income		Rental IncomePercentage of
Total Rental Income
KIA, Carson, CA$1,507,833 14.8 %$4,232,839 14.0 %
Lindsay, eight properties acquired in Colorado (three), Ohio (two), North Carolina, South Carolina and Florida$1,324,907 13.0 %(1)(1)
(1)    The Lindsay properties represented the source of greater than 10% of total rental income during the three months ended September 30, 2022 but not the nine months ended September 30, 2022 since the Lindsay properties were acquired on April 19, 2022.
No tenant represented the source of 10% of total revenuesrental income during the three and nine months ended September 30, 2021 nor during the three and nine months ended September 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 fournine months of 2020,ended September 30, 2022, the Company paidexecuted lease extensions for three properties, including the properties leased to (i) Cummins in Nashville, Tennessee for an aggregate of $990,000additional one year through February 28, 2024, (ii) ITW Rippey in lease incentives to cancel certain termination options related to 2 leases with WalgreensEl Dorado, California for its Santa Maria, Californiaan additional seven years through July 31, 2029 and Stockbridge, Georgia properties, resulting(iii) Williams Sonoma in extension of the leasesSummerlin, Nevada for approximately 10an additional three years each. The Stockbridge propertythrough October 31, 2025, which was sold on August 27, 2020.26, 2022. These costs were capitalizedthree lease extensions resulted in an average increase in lease term of 3.7 years and are amortized overan average annual increase in rents of 1.9% as of March 31, 2022, the periodend of the extension forquarter during which they were all executed.
As discussed above, the Santa Maria propertyCompany also acquired 16 properties and were charged to cost of sale forsold seven properties during the Stockbridge property in August 2020.nine months ended September 30, 2022.
2224
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
During the second quarter of 2021, the tenant in the Company's PreK Education retail property in San Antonio, Texas exercised its option to extend its lease term for eight years from the original termination of July 31, 2021 to July 31, 2029 with an increase in monthly rent. The terms of the original lease required the Company to pay a $2,000,000 term completion incentive upon exercise of the option and the tenant agreed to defer the timing of this payment to no later than January 31, 2022. The deferred lease incentive is presented under prepaid and other assets and the obligation is included in accounts payable, accrued and other liabilities in the Company's balance sheet as of September 30, 2021.
As of September 30, 2021,2022, the future minimum contractual rent payments due to the Company under the Company’s non-cancellable operating leases, including lease amendments executed though the date of this report, if any, are as follows:
October through December 2021$6,687,205 
202226,946,631 
October through December 2022October through December 2022$8,345,845 
2023202325,024,065 202333,033,061 
2024202424,593,849 202431,723,561 
2025202521,424,993 202530,350,230 
2026202614,552,340 202624,823,591 
2027202723,134,874 
ThereafterThereafter60,307,335 Thereafter312,446,877 
$179,536,418 $463,858,039 
Lease Intangible Assets, Net Related to the Company's Real Estate
As of September 30, 2022 and December 31, 2021, the Company’s lease intangible assets, net related to the Company's real estate were as follows:
September 30, 2022December 31, 2021
Tenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease IntangiblesTenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease IntangiblesTenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease Intangibles
CostCost$23,784,332 $1,128,549 $(15,097,132)Cost$20,074,123 $2,485,509 $(14,876,008)$21,504,210 $1,128,549 $(15,097,132)
Accumulated amortizationAccumulated amortization(12,041,766)(405,074)3,631,118 Accumulated amortization(11,849,139)(546,204)4,965,728 (11,009,997)(437,530)3,994,192 
Net amount$11,742,566 $723,475 $(11,466,014)
NetNet$8,224,984 $1,939,305 $(9,910,280)$10,494,213 $691,019 $(11,102,940)
The intangible assets acquired in connection with the acquisitions have a weighted average amortization period of approximately 9.310.6 years as of September 30, 2021.2022. As of September 30, 2021,2022, the amortization of intangible assets for the remaining three months ending December 31, 20212022 and for each of the next five years and thereafter is expected to be as follows:
Tenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease IntangiblesTenant Origination and Absorption CostsAbove-Market Lease IntangiblesBelow-Market Lease Intangibles
October through December 2021$792,583 $32,455 $(363,041)
20222,715,030 129,823 (1,217,029)
October through December 2022October through December 2022$478,035 $46,025 $(231,174)
202320231,838,120 127,174 (921,169)20231,565,477 181,452 (906,522)
202420241,726,446 122,543 (917,750)20241,428,190 176,822 (903,104)
202520251,344,132 115,996 (917,750)20251,181,158 170,274 (903,104)
20262026720,006 78,557 (912,347)2026620,589 132,836 (897,701)
20272027343,917 76,550 (887,789)
ThereafterThereafter2,606,249 116,927 (6,216,928)Thereafter2,607,618 1,155,346 (5,180,886)
$11,742,566 $723,475 $(11,466,014)$8,224,984 $1,939,305 $(9,910,280)
Weighted-average remaining amortization periodWeighted-average remaining amortization period7.1 years6.6 years11.8 yearsWeighted-average remaining amortization period8.0 years19.1 years11.1 years
2325
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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 investmentSeptember 30, 2022, there were no 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, but unoccupied, as real estate investment held for sale. This property was sold on July 7, 2021.
The Company had no real estate investments classified as held for sale by the Company. As of December 31, 2021, the Company classified four 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 four healthcare related properties consisted of September 30, 2021. three 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 one flex property leased to Omnicare through May 31, 2026 located in Richmond, Virginia.
The following table summarizes the major components of assets and liabilities related to the four real estate investments held for sale as of December 31, 2020 related to the Harley Davidson, EcoThrift and 2 Chevron properties:2021:
December 31,
20202021
Assets related to real estate investments held for sale:
Land, buildings and improvements$25,675,45934,507,485 
Tenant origination and absorption costs554,7883,064,371 
Accumulated depreciation and amortization(1,644,508)(6,061,094)
Real estate investments held for sale, net24,585,73931,510,762 
Other assets, net1,079,361788,296 
Total assets related to real estate investments held for sale:$25,665,10032,299,058 
Liabilities related to real estate investments held for sale:
Mortgage notes payable, net$9,088,43821,699,912 
Other liabilities, net801,337383,282 
Total liabilities related to real estate investments held for sale:$9,889,77522,083,194 
NOTE 4. UNCONSOLIDATED INVESTMENT IN REAL ESTATE PROPERTY
The following table summarizes the major components of rental income, expenses and impairment related to the 3 real estate investments held for saleCompany’s investment in unconsolidated entity as of September 30, 2020 (the property previously leased to Dinan Cars located2022 and December 31, 2021 is as follows:
September 30,
2022		December 31,
2021
The TIC Interest$9,988,498 $9,941,338 
The Company’s income from investment in Morgan Hill, California, the property leased to Harley Davidson located in Bedford, Texas and the property previously leased to 24 Hour Fitness located in Las Vegas, Nevada), which were included in continuing operationsunconsolidated entity for the three and nine months ended September 30, 2020:2022 and 2021 is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
20202020
Total revenues$366,673 $2,004,279 
Expenses:
Interest expense169,871 554,009 
Depreciation and amortization145,695 554,036 
Other expenses143,173 414,115 
Impairment— 10,097,710 
Total expenses458,739 11,619,870 
Net loss$(92,066)$(9,615,591)
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
The TIC Interest$64,358 $75,403 $226,690 $222,705 
2426
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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 at the time of the decision).
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 second quarter of 2021.
NOTE 4. INVESTMENT IN UNCONSOLIDATED ENTITY
The Company’s investment in unconsolidated entity as of September 30, 2021 and December 31, 2020 is as follows:
September 30,
2021		December 31,
2020
The TIC Interest$9,977,144 $10,002,368 
The Company’s income from investment in unconsolidated entity for the three and nine months ended September 30, 2021 and 2020 is as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
The TIC Interest$75,403 $92,617 $222,705 $239,028 
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 becamewas 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.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
operations for this property.
During the three months ended September 30, 20212022 and 2020,2021, the Company received $85,962$32,378 and $207,950$85,962 in cash distributions, respectively, and $247,929$179,531 and $542,140$247,929 during the nine months ended September 30, 2022 and 2021, and 2020, respectively.
The following is summarized financial information for the Santa Clara property as of September 30, 20212022 and December 31, 20202021 and for the three and nine months ended September 30, 20212022 and 2020:2021:
September 30,
2021		December 31,
2020		September 30,
2022		December 31,
2021
Assets:Assets:Assets:
Real estate investments, netReal estate investments, net$29,510,151 $29,906,146 Real estate investments, net$29,574,593 $29,403,232 
Cash and cash equivalentsCash and cash equivalents670,458 380,774 Cash and cash equivalents468,996 690,470 
Other assetsOther assets176,583 164,684 Other assets62,350 134,049 
Total assetsTotal assets$30,357,192 $30,451,604 Total assets$30,105,939 $30,227,751 
Liabilities:Liabilities:Liabilities:
Mortgage note payable, netMortgage note payable, net$13,287,876 $13,489,126 Mortgage note payable, net$13,008,884 $13,218,883 
Below-market lease, netBelow-market lease, net2,697,183 2,806,973 Below-market lease, net2,550,796 2,660,586 
Other liabilitiesOther liabilities343,815 92,777 Other liabilities502,326 369,209 
Total liabilitiesTotal liabilities16,328,874 16,388,876 Total liabilities16,062,006 16,248,678 
Total equityTotal equity14,028,318 14,062,728 Total equity14,043,933 13,979,073 
Total liabilities and equityTotal liabilities and equity$30,357,192 $30,451,604 Total liabilities and equity$30,105,939 $30,227,751 
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Total revenues$683,160 $697,851 $2,034,072 $2,047,424 
Expenses:
Interest expense138,616 141,935 414,258 424,544 
Depreciation and amortization250,754 250,015 750,784 749,913 
Other expenses190,086 178,522 562,738 544,225 
Total expenses579,456 570,472 1,727,780 1,718,682 
Net income$103,704 $127,379 $306,292 $328,742 
NOTE 5. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill, Net
The changes in carrying value of goodwill as of September 30, 2021 and December 31, 2020 are as follows:
September 30,
2021		December 31,
2020
Beginning balance$17,320,857 $50,588,000 
Impairment of goodwill for the nine and the 12 months period ended, respectively— (33,267,143)
Ending balance$17,320,857 $17,320,857 
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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 September 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 September 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 nine months ended September 30, 2020.
The Company conducted its annual impairment analysis as of December 31, 2020 using qualitative factors and concluded that no additional impairment to goodwill was necessary. Management did not identify any triggering events for the nine months ended September 30, 2021 and therefore a qualitative assessment was not required.
Intangible Assets, Net
The following table sets forth the Company's intangible assets, net as of September 30, 2021 and December 31, 2020 and their related useful lives:
Intangible AssetsUseful LifeSeptember 30,
2021		December 31,
2020
Investor list, net5.0 years$3,494,740 $3,494,740 
Web services technology, domains and licenses3.0 years3,661,852 3,466,102 
7,156,592 6,960,842 
Accumulated amortization(3,230,583)(1,833,054)
Net$3,926,009 $5,127,788 
Amortization expense for the three months ended September 30, 2021 and 2020 amounted to $471,790 and $446,921, respectively, and for the nine months ended September 30, 2021 and 2020 amounted to $1,397,529 and $1,372,910, respectively.
As discussed above, the COVID-19 pandemic caused significant disruptions in the economy and uncertainties in the investment markets. Based on the impacts on 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 a portion 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 for the nine months ended September 30, 2020.
The estimated amortization expense for the remainder of 2021 and the succeeding fiscal years is as follows: October 2021 to December 2021, $476,456; 2022, $1,905,826; 2023, $815,228; and 2024, $728,499.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Total revenues$679,500 $683,160 $2,071,258 $2,034,072 
Expenses:
Interest expense135,640 138,616 404,902 414,258 
Depreciation and amortization264,820 250,754 788,732 750,784 
Other expenses190,527 190,086 565,851 562,738 
Total expenses590,987 579,456 1,759,485 1,727,780 
Net income$88,513 $103,704 $311,773 $306,292 
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 5. GOODWILL, NET
The carrying values of goodwill as of September 30, 2022 and December 31, 2021 are as follows:
September 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 
The Company conducted its annual impairment analysis as of December 31, 2021 using qualitative factors and concluded that no impairment to goodwill was necessary. For the quarter ended March 31, 2022, management considered the decline of the 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 performed a quantitative impairment assessment considering expected future cash flows, market conditions and expectations of increases in interest rates and concluded that there was an impairment of goodwill that was not expected to be temporary as of March 31, 2022. Events subsequent to March 31, 2022 and prior to the Company's filing of its Quarterly Report on Form 10-Q for the three months ended March 31, 2022, including rising inflation and interest rates, and declining office occupancy rates affecting owners of real estate properties, further supported such conclusion. Based on the quantitative analysis, the value of goodwill was written off, resulting in a non-cash expense of $17,320,857 for the three months ended March 31, 2022.
NOTE 6. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS DETAILS
Tenant Receivables, Net
TenantAs of September 30, 2022 and December 31, 2021, tenant receivables consisted of the following:
September 30,
2021		December 31,
2020		September 30,
2022		December 31,
2021
Straight-line rentStraight-line rent$5,399,340 $4,344,388 Straight-line rent$5,990,676 $4,417,065 
Tenant rent98,363 204,775 
Tenant reimbursements1,849,245 2,116,627 
Tenant rent and billed reimbursementsTenant rent and billed reimbursements269,309 81,079 
Unbilled tenant reimbursementsUnbilled tenant reimbursements2,173,910 1,498,775 
TotalTotal$7,346,948 $6,665,790 Total$8,433,895 $5,996,919 
Accounts Payable, AccruedPrepaid Expenses and Other LiabilitiesAssets
Accounts payable, accruedAs of September 30, 2022 and December 31, 2021, prepaid expenses and other liabilitiesassets were comprised of the following:
September 30,
2021		December 31,
2020
Accounts payable$1,214,828 $1,136,954 
Accrued expenses3,575,331 3,068,714 
Accrued distributions786,120 706,106 
Accrued interest payable611,507 629,628 
Unearned rent1,591,992 2,033,065 
Lease incentive obligation2,133,695 5,157 
Total$9,913,473 $7,579,624 
September 30,
2022		December 31,
2021
Deferred tenant allowance$2,653,557 $2,400,811 
Miscellaneous receivables150,441 681,369 
Prepaid expenses1,487,251 1,253,751 
Deposits1,338,528 1,420,244 
Deferred financing costs on credit facility revolver757,468 100,080 
Total$6,387,245 $5,856,255 
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Accounts Payable, Accrued and Other Liabilities
As of September 30, 2022 and December 31, 2021, accounts payable, accrued and other liabilities were comprised of the following:
September 30,
2022		December 31,
2021
Accounts payable$797,012 $1,767,657 
Accrued expenses3,770,912 3,864,222 
Accrued distributions1,763,509 1,795,303 
Accrued interest payable727,721 548,564 
Unearned rent1,989,436 1,735,440 
Lease incentive obligation609,788 2,133,695 
Total$9,658,378 $11,844,881 
NOTE 7. DEBT
Mortgage Notes Payable, Net
As of September 30, 20212022 and December 31, 2020,2021, the Company’s mortgage notes payable consisted of the following:
Collateral2021 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 properties3,693,074 3,747,520 4.69%4.69%4/1/2022
Dana property— 4,466,865 4.56%4.56%4/1/2023
Northrop Grumman property (8)6,971,012 5,518,589 3.35%3.35%5/21/2031
exp US Services property3,272,333 3,321,931 (4)4.25%11/17/2024
Harley Davidson property (2)6,525,824 — 4.25%4.25%9/1/2024
Wyndham property (3)5,522,100 5,607,000 One-month LIBOR + 2.05%4.34%6/5/2027
Williams Sonoma property (3)4,368,000 4,438,200 One-month LIBOR + 2.05%4.34%6/5/2022
Omnicare property4,130,640 4,193,171 4.36%4.36%5/1/2026
EMCOR property2,771,646 2,811,539 4.35%4.35%12/1/2024
Husqvarna property6,379,182 6,379,182 (5)4.60%2/20/2028
AvAir property19,950,000 19,950,000 3.80%3.80%8/1/2025
3M property8,058,500 8,166,000 One-month LIBOR + 2.25%5.09%3/29/2023
Cummins property8,222,700 8,332,200 One-month LIBOR + 2.25%5.16%4/4/2023
Texas Health property4,304,825 4,363,203 4.00%4.00%12/5/2024
Bon Secours property5,124,127 5,180,552 5.41%5.41%9/15/2026
Costco property18,850,000 18,850,000 4.85%4.85%1/1/2030
Taylor Fresh Foods12,350,000 12,350,000 3.85%3.85%11/1/2029
Levins property (6)2,671,067 2,032,332 3.75%3.75%2/16/2026
Dollar General Bakersfield property (6)2,244,201 2,268,922 3.65%3.65%2/16/2028
Labcorp property (6)5,342,133 4,020,418 3.75%3.75%2/16/2026
GSA (MSHA) property (6)1,728,428 1,752,092 3.65%3.65%2/16/2026
PreK Education property (7)4,957,705 5,037,846 4.25%4.25%12/1/2021
Solar Turbines, Amec Foster, ITW Rippey properties (7)9,044,276 9,214,700 3.35%3.35%11/1/2026
Dollar General Big Spring property (7)590,962 599,756 4.50%4.50%4/1/2022
Gap property (7)3,512,484 3,569,990 4.15%4.15%8/1/2023
L3Harris property (8)6,260,223 5,185,929 3.35%3.35%5/21/2031
Sutter Health property (7)13,669,395 13,879,655 4.50%4.50%3/9/2024
Walgreens property (7)3,094,060 3,172,846 4.25%4.25%7/16/2030
Total mortgage notes payable182,146,897 176,948,438 
Plus unamortized mortgage premium, net (9)239,979 447,471 
Less unamortized deferred financing costs(1,472,537)(1,469,991)
Mortgage notes payable, net$180,914,339 $175,925,918 
Collateral2022 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 Foods12,350,000 12,350,000 3.85%3.85%11/01/29
Sutter Health property13,390,536 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 payable44,590,536 152,975,437 
Plus unamortized mortgage premium, net (4)145,527 204,281 
Less unamortized deferred financing costs(205,933)(956,139)
Mortgage notes payable, net$44,530,130 $152,223,579 
(1)Contractual interest rate represents the interest rate in effect under the mortgage note payable as of September 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.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(2)Effective interest rate is calculated as the actual interest rate in effect as of September 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 saleinstruments 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 additional information).
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(3)The loansloan was fully repaid on each ofJanuary 18, 2022 through a drawdown from the Williams Sonoma and Wyndham properties (collectively, 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 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%, the 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%Credit Facility.
(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 September 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 second quarter of 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.merger with REIT I.
The following summarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable (Level 3 measurement) as of September 30, 20212022 and December 31, 2020:2021:
September 30, 2021December 31, 2020
Face ValueCarrying
Value		Fair ValueFace valueCarrying
Value		Fair Value
Mortgage notes payable$182,146,897 $180,914,339 $183,304,467 $176,948,438 $175,925,918 $177,573,106 
September 30, 2022December 31, 2021
Face ValueCarrying
Value		Fair ValueFace valueCarrying
Value		Fair Value
Mortgage notes payable$44,590,536 $44,530,130 $39,876,470 $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 2four properties as real estate held for sale as of December 31, 2020,2021, which were collateral for mortgage notes payable. No properties wereproperty was classified as held for sale as of September 30, 2021.2022. The following table summarizes the Company's mortgage notes payable related to real estate investments held for sale as of December 31, 2020:2021:
CollateralDecember 31,
20202021
Harley DavidsonAccredo property$6,623,3468,538,000 
EcoThriftOmnicare property2,573,5094,109,167 
Texas Health property4,284,335 
Bon Secours property5,104,817 
Total9,196,855 
Plus unamortized mortgage premium1,55022,036,319 
Less deferred financing costs(109,967)(336,407)
Mortgage notes payable, net$9,088,43821,699,912 
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 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. On October 21, 2022, the Company exercised the accordion feature of its Credit Agreement and increased the Credit Facility from $250,000,000 to $400,000,000 as further described in Note 14.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Credit Facility Netis 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 leverage ratio at 38% as of June 30, 2022, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’), including a 10-basis point credit adjustment, is 165 basis points and the interest rate on the Revolver was 4.65% as of September 30, 2022. Following the Federal Reserve Bank’s November 2, 2022 increase in the target range for federal funds by 75 basis points, the interest rate on the Revolver is approximately 5.46%. 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 $47,543 and $119,823 for the three and nine months ended September 30, 2022, respectively. On May 10, 2022, the Company entered into a swap agreement, effective May 31, 2022, to fix SOFR at 2.258% with respect to its original $150,000,000 Term Loan as described in Note 8, which resulted in a fixed interest rate on the Term Loan of 3.858% based on the Company's leverage ratio as of September 30, 2022. On October 26, 2022, the Company entered into a swap agreement, effective November 30, 2022, to fix SOFR at 3.44% with respect to its expanded Term Loan as described in Note 14, which would result in a fixed interest rate of 5.04% on the next $100,000,000 to be borrowed under the Term Loan based on the Company's leverage ratio as of September 30, 2022.
The Credit Facility includes customary representations, warranties and covenants, including covenants regarding 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 September 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 of up to 60% of the Company's borrowing base, 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 amendment to the Credit Agreement on October 21, 2022 described in Note 14, provided the Company the right to increase the Credit Facility to a maximum of $750,000,000, subject to customary conditions, including the receipt of new commitments from the Lenders.
Credit Facility Drawdown and Repayments
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: 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 the 20 property mortgages were paid-off, seven property mortgages as of December 31, 2021 remained outstanding, including four property mortgages related to 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, 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 19, 2022, the Company drew $44,000,000 on the Revolver to fund the acquisition of the Lindsay properties. On April 25, 2022, the Company drew the remaining $50,000,000 on the Term Loan for a partial repayment of the Revolver and the Company also repaid $8,000,000 on the Revolver on June 22, 2022. The Company borrowed and repaid $28,000,000 during the three months ended September 30, 2022 in connection with acquisitions completed in July and August 2022 and dispositions completed in August and September 2022. As of October 31, 2022, the Company had availability under the Credit Facility of approximately $98,000,000 which can be drawn for general corporate purposes, including future acquisitions.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The details of the Company's credit facilitiesTerm Loan as of September 30, 2021 and December 31, 20202022 follow:
September 30,
2021		December 31,
20202022
Credit facilityTerm loan$— $6,000,000150,000,000 
Less unamortized deferred financing costs— (21,724)(1,086,650)
Credit facility, netNet term loan$— $5,978,276148,913,350 
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 paypaid a variable rate of interest on outstanding amounts equal to 1one percentage point over the prime rate published in The Wall Street Journal, provided that the interest rate in effect on any one day shallwas 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 paypaid 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 Revolver's and Prior Credit Facility's unamortized deferred financing costs of $97,092$757,468 and $110,697 as of September 30, 2022 and December 31, 2021, were reclassified andrespectively, are presented underas a component of prepaid and other assets in the Company's unaudited condensed consolidated balance sheetsheets as of September 30, 2021. Effective2022 and December 31, 2021, the Company will present the Credit Facility's unamortized deferred financing costs for the comparative periods under prepaid and other assets in the consolidated balance sheets and will disclose the unamortized values in the consolidated notes to the financial statements.
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, and the Wirta Family Trust guaranteed the $6,000,000 initial borrowing, which guarantee expired upon the full repayment of the $6,000,000 in August 2021. Mr. Wirta and the Wirta Family Trust have 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 Family 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 Family Trust if they are required to make payments to Banc of California pursuant to such guarantees.
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.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.respectively.
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.
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 September 30, 2021.2022.
The following summarizes the future principal repayments of the Company’s mortgage notes payable and credit facilityCredit Facility as of September 30, 2021:2022:
Mortgage Notes
Payable		Credit FacilityTotalMortgage NotesCredit Facility
October through December 2021$5,578,530 $— $5,578,530 
202211,173,350 — 11,173,350 
PayableRevolverTerm LoanTotal
October through December 2022October through December 2022$81,938 $— $— $81,938 
2023202322,204,003 — 22,204,003 2023317,575 — — 317,575 
2024202431,565,888 — 31,565,888 202412,991,023 — — 12,991,023 
2025202528,970,170 — 28,970,170 2025— — — — 
2026202626,484,067 — 26,484,067 2026— 6,775,000 — 6,775,000 
20272027— — 150,000,000 150,000,000 
ThereafterThereafter56,170,889 — 56,170,889 Thereafter31,200,000 — — 31,200,000 
Total principalTotal principal182,146,897 — 182,146,897 Total principal44,590,536 6,775,000 150,000,000 201,365,536 
Plus unamortized mortgage premium, net of unamortized discountPlus unamortized mortgage premium, net of unamortized discount239,979 — 239,979 Plus unamortized mortgage premium, net of unamortized discount145,527 — — 145,527 
Less deferred financing costsLess deferred financing costs(1,472,537)— (1,472,537)Less deferred financing costs(205,933)— (1,086,650)(1,292,583)
Net principalNet principal$180,914,339 $— $180,914,339 Net principal$44,530,130 $6,775,000 $148,913,350 $200,218,480 
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Interest Expense
The following is a reconciliation of the components of interest expense for the three and nine months ended September 30, 20212022 and 2020:2021:
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
20212020202120202022202120222021
Mortgage notes payable:Mortgage notes payable:Mortgage notes payable:
Interest expenseInterest expense$1,812,254 $2,154,363 $5,638,890 $6,454,546 Interest expense$488,773 $1,812,254 $1,762,378 $5,736,165 
Amortization of deferred financing costs and mortgage premium, net141,235 435,179 355,661 693,810 
Prepayment penalties— 190,574 23,900 237,574 
(Gain) loss on interest rate swaps (1)(166,539)(231,207)(586,782)1,164,490 
Credit facilities:
Amortization of deferred financing costsAmortization of deferred financing costs7,235 141,235 21,694 355,661 
Swap termination costsSwap termination costs— — — 23,900 
Unrealized gain on interest rate swap valuation (1)Unrealized gain on interest rate swap valuation (1)— (166,539)— (684,057)
Credit facility:Credit facility:
Interest expenseInterest expense27,486 128,333 169,571 449,791 Interest expense1,783,899 27,486 3,472,564 169,571 
Amortization of deferred financing costsAmortization of deferred financing costs16,605 42,288 60,468 117,624 Amortization of deferred financing costs120,829 16,605 342,349 60,468 
Amortization of interest rate swap valuation assetAmortization of interest rate swap valuation asset59,000 — 59,000 — 
Unrealized gain on interest rate swap valuation (2)Unrealized gain on interest rate swap valuation (2)— — (589,997)— 
OtherOther504 12,998 49,622 78,226 Other55,102 504 212,179 49,622 
Total interest expenseTotal interest expense$1,831,545 $2,732,528 $5,711,330 $9,196,061 Total interest expense$2,514,838 $1,831,545 $5,280,167 $5,711,330 
(1)    Includes unrealized (gain) lossgain on interest rate swaps of $(166,338)$166,338 and $(272,912)$684,057 for the three months ended September 30, 2021 and 2020, respectively, and $(684,057) and $1,019,840 for the nine months ended September 30, 2021 and 2020, respectively (see Note 8 for more details). Accrued interest payablereceivable of $54,980 and $45,636 as of September 30, 2021 and December 31, 2020, respectively, represents2021 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.
(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 as of July 1, 2022. 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 4four of its mortgage notes payable. NaN additionalThese swap agreements, assumed in conjunction with the Merger which were in place as of December 31, 20202021, were terminated in due course or were terminatedduring the three months ended March 31, 2022 in connection with asset sales and refinancings during the nine months ended September 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.
The following table summarizes During the notional amount and other informationthree months ended March 31, 2022, the Company terminated the swap agreements related to the Company’s interest rate swaps as of September 30, 2021 and December 31, 2020, respectively:
September 30, 2021December 31, 2020
Derivative
Instruments		Number of InstrumentsNotional
Amount (i)		Reference
Rate (ii)		Weighted Average Fixed Pay RateWeighted
Average
Remaining
Term		Number
of
Instruments		Notional
Amount (i)		Reference
Rate (iii)		Weighted Average Fixed Pay RateWeighted
Average
Remaining
Term
Interest Rate Swap Derivatives (iv)4$26,171,300 One-month LIBOR + applicable spread/Fixed at 4.05%-5.16%4.53 %2.3 years8$36,617,164 One-month LIBOR + applicable spread/Fixed at 3.13%-5.16%3.35 %2.2 years
(i)The notional amount of the Company’s swaps decreases each month to correspond to the outstanding principal balancemortgages 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 mortgage. The minimum notional amounts (outstanding principal balanceto mortgages on the GSA and Eco-Thrift properties at the maturity date) asaggregate costs of September 30, 2021 and December 31, 2020 were $24,935,999 and $34,989,063, respectively.
(ii)The reference rate was as of September 30, 2021.
(iii)The reference rate was as of December 31, 2020.$23,900.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(iv)DuringThe following table summarizes the three months ended September 30, 2020, the Company terminated the swap agreementsnotional amount and other information related to the Rite Aid and Island Pacific properties at aggregate costsCompany’s interest rate swaps as of $52,200. No termination of swap agreements were made during the three months ended September 30, 2021. During2022 and December 31, 2021:
September 30, 2022December 31, 2021
Derivative
Instruments		Number of InstrumentsNotional
Amount (i)		Reference
Rate (ii)		Fixed Pay Rate (iii)Remaining Non-Cancellable TermNumber of InstrumentsNotional
Amount (i)		Reference
Rate (iv)		Weighted Average Fixed Pay RateWeighted
Average
Remaining Term
Interest Rate Swap Derivatives1$150,000,000 Indexed to USD - SOFR - COMPOUND3.858 %2.3 years4$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 nine months endedCompany’s swaps decreased each month to correspond to the outstanding principal balance on the related debt. The minimum notional amounts (outstanding principal balance at the maturity date) as of September 30, 2022 and December 31, 2021 were $150,000,000 and 2020,$24,935,999, respectively.
(ii)The reference rate was as of September 30, 2022.
(iii)Based on the Company terminated swap agreements related toterms of the GSA and Eco-Thrift properties at aggregate costsCredit Facility, the fixed pay rate increases if the Company's leverage ratio increases above 40%.
(iv)The reference rate was as of $23,900 and terminated the swap agreements related to the Dinan, Rite Aid and Island Pacific properties at aggregate costs of $99,200, respectively.December 31, 2021.
The following table sets forth the fair value of the Company’s derivative instruments (Level 2 measurement), as well as their classification in the unaudited condensed consolidated balance sheets:sheets as of September 30, 2022 and December 31, 2021:
September 30, 2021December 31, 2020September 30, 2022December 31, 2021
Derivative InstrumentDerivative InstrumentBalance Sheet LocationNumber of
Instruments		Fair ValueNumber of
Instruments		Fair ValueDerivative InstrumentBalance Sheet LocationNumber of
Instruments		Fair Value (1)Number of
Instruments		Fair Value
Interest Rate SwapsInterest Rate SwapsAsset - Interest rate swap derivatives, at fair value—$— —$— Interest Rate SwapsAsset - Interest rate swap derivatives, at fair value1$4,845,903 —$— 
Interest Rate SwapsInterest Rate SwapsLiability - Interest rate swap derivatives, at fair value4$(1,073,998)8$(1,743,889)Interest Rate SwapsLiability - Interest rate swap derivatives, at fair value—$— 4$(788,016)
(1)    The unaudited condensed consolidated balance sheet reflects the fair value of the derivative, net of accumulated amortization of the unrealized gain on interest rate swap valuation as of June 30, 2022 discussed below.
The interest rate swap derivative was designated as a cash flow hedge for financial accounting purposes beginning July 1, 2022 and therefore the change in fair value of $4,255,906 for the three months ended September 30, 2022 was recorded as unrealized holding gain on interest rate swap designated as a cash flow hedge in the Company's unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2022.
The change in fair value of athe derivative instrument of $589,997 for the period from May 31, 2022 to June 30, 2022 that iswas not designated as a cash flow hedge for financial accounting purposes iswas recorded as an unrealized gain on interest rate swap valuation as of June 30, 2022 and a reduction to interest expense in the unaudited condensed consolidated statement of operations. Beginning July 1, 2022 through December 31, 2024, the related interest rate swap derivative asset will be amortized to interest expense. The amortization of interest rate swap derivative asset for the three months ended September 30, 2022 was $59,000.
The changes in fair value of the derivative instruments as of December 31, 2021 that were not designated as cash flow hedges for financial accounting purposes were recorded as interest expense in the unaudited condensed consolidated statementsstatement of operations. None of the Company’s derivatives at September 30, 2021 oras of December 31, 20202021 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) lossgain recognized on interest rate swaps of $(166,338)$166,338 and $(272,912) was$684,057 were recorded as a decreasedecreases in interest expense for the three months ended September 30, 2021 and 2020, respectively, and $(684,057) and $1,019,840 was recorded as a (decrease) increase in interest expense for the nine months ended September 30, 2021, and 2020, 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 of $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.
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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 designated 2,000,000 shares of its authorized preferred stock as authorized shares of Series A Preferred Stock. As of September 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 Underwriting Agreement withunderwriters listed on Schedule I thereto (collectively, the Underwriters,“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 $47,570,374,$47,607,309, after deducting the underwriting discount of $1,575,000 and other offering costs of $854,626.$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, intends to useused the net proceeds from such contribution for general corporate purposes, which is expected to includeincluding purchases of additional properties and other real estate and real estate-related assets (see Note 13 for pending real estate investment acquisitions).
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 September 30, 2021. Therefore, the Series A Preferred Stock did not impact the Company’s earnings per share calculations for the three and nine months ended September 30, 2021.2022.
The Series A Preferred Stock ranks senior to the Company's Class C common stock and Class S common stock, with respect to dividend rights and rights upon the Company’s or 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 two 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. The first quarterly dividend for the Series A Preferred Stock sold in the Preferred Offering will be paid on January 15, 2022 and will represent an accrual for more than a full quarter, covering the period from September 17, 2021 to, and including, December 31, 2021. As of September 30, 2021, the Company has accrued dividends of $143,403. 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 are payablewere paid on January 18, 2022. On March 18, 2022 and June 15,2022, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for each of the first and second quarters of 2022, which were paid on April 15, 2022 and July 15, 2022, respectively. On September 15, 2022, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the third quarter of 2022. This amount was accrued as of September 30, 2022 and paid on October 17, 2022 (see Note 1314).
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 of the board of directors, 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 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 totalTotal fees incurred and paid or accrued for board services and paid by the Company for the three and nine months ended September 30, 2022 and 2021, and 2020, isare as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,		Three Months Ended
September 30,		Nine Months Ended
September 30,
Board of Directors CompensationBoard of Directors Compensation2021202020212020Board of Directors Compensation2022202120222021
Cash paid for services rendered$25,000 $18,750 $85,000 $50,000 
Payments for services renderedPayments for services rendered$67,500 $25,000 $202,500 $85,000 
Value of shares issued for services renderedValue of shares issued for services rendered95,000 82,500 275,000 255,833 Value of shares issued for services rendered82,500 95,000 247,500 275,000 
TotalTotal$120,000 $101,250 $360,000 $305,833 Total$150,000 $120,000 $450,000 $360,000 
Number of shares issued for services rendered (*)3,647 3,929 12,168 11,022 
Number of shares issued for services renderedNumber of shares issued for services rendered5,651 3,647 14,916 12,168 
*    AdjustedFees incurred for board services for the 1:3 reverse stock split for the three and nine months ended September 30, 2020.
As of2022 were paid in cash and shares were issued on September 30, 2020, $101,250 was accrued for2022 based on the closing price of the Company’s Class C common stock on September 30, 2022. For the second quarter of 2020 services. This amount was2022, fees incurred for board services were paid in cash and shares were issued on July 2020 by paying cash7, 2022 based on the closing price of $31,250 and issuing 4,821 shares ofthe Company’s Class C common stock (adjusted foron June 30, 2022.
Transactions with Other Related Parties
As discussed in Note 3, on January 31, 2022, the 1:3 reverse stock split).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 independent directors. Since Mr. McWilliams was serving as the Interim Chief Executive Officer of Kalera, Inc. at the time of the transaction, all of the disinterested members of the Company's board of directors approved this transaction.
Related Party Transactions with Unconsolidated EntitiesInvestment 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 $47,984$65,992 and $65,993 for both the three months ended September 30, 2022 and 2021, and 2020, respectively, and $95,967including the Company's share which was $47,983 for both the nine months ended September 30, 2021quarters, and 2020, respectively.
Transactions with Other Related Parties
Effective February 3, 2020, the Company's indirect subsidiary, Modiv Advisors, LLC, became the advisor to BRIX REIT, Inc., a REIT originally sponsored by BrixInvest, which also sponsored the Company until the Self-Management Transaction on December 31, 2019. During the three$197,978 and nine months ended September 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 of $4,000,000, secured by mortgages on its 2 Chevron properties, from the Company's Chairman, Mr. Wirta. The Company's conflicts committee 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, California property and Chevron Roseville, California 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$197,979 for the nine months ended September 30, 2020.
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2022 and 2021, respectively, including the Company's share which was $143,950 for both nine month periods.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 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 September 30, 20212022 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 September 30, 20212022 and December 31, 2020,2021, the Company had $2,271,462no 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 Class C common stock or Class S common 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% of its most recently determined aggregate NAV. The foregoing repurchase limitations are basedrelated mortgage notes payable on “net repurchases” during a quarter or month,January 18, 2022 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 quarter 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.
As further discussed in Note 13, on November 4,7, the restricted cash as of December 31, 2021 the Company’s board of directors approved management’s recommendation to terminate the Company's Class C and Class S share repurchase programs and the Company does not plan to make any further share repurchases.was released.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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, theThe 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.
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 Clay Kramer, one of the former advisor's former employees. Kramer was previously the former advisor's 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, Kramer claims he was terminated in retaliation for his purported whistleblowing with respect to alleged attempts to plagiarize materials and for alleged misleading statements made by the former advisor. In September 2020, the State Court Action was removed to the United States District Court, Central District of California (“U.S. District Court”). On June 14, 2021, the U.S. District Court scheduled a jury trial commencing April 11, 2022 and depositions and discovery are in process. 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 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 Unitslimited 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 $50,603,000 based on a probability weighted analysis of achieving the requisite assets under management (“AUM”) and adjusted funds from operations (“AFFO”) hurdles.
The Class M OP Units were issued to Daisho on December 31, 2019 in connection with the Self-Management Transaction and are non-voting, non-dividend accruing, and were not able to be converted or exchanged prior to the one-year anniversary of the Self-Management Transaction. Investors holding units in BrixInvest received Daisho units in a ratio of 1:1 for an aggregate of 657,949.5 Daisho units. During 2020, Daisho distributed the Class M OP Units to its members. The Class M OP Units are convertible into units of Class C limited partnership interest in the Operating Partnership (“Class C OP UnitsUnits”) at a conversion ratio of 1.6667 Class C OP Units for each one Class M OP Unit, (adjusted for the 1:3 reverse stock split on February 1, 2021), subject to a reduction in the conversion ratio (which reduction will vary depending upon the amount of time held) if the exchange occurs prior to the four-year anniversary of the completion of the Self-Management Transaction.
In the event that the Class M OP Units are converted into Class C OP Units prior to December 31, 2023, such Class M OP Units shall be exchanged at the rate indicated below:
Date of ExchangeEarly Conversion Rate
From December 31, 2020 to December 30, 202150% of the Class M conversion ratio
From December 31, 2021 to December 30, 202260% of the Class M conversion ratio
From December 31, 2022 to December 30, 202370% of the Class M conversion ratio
As of September 30, 2022, no Class M OP Units had been converted to Class C OP Units.
The Class M OP Units are eligible for an increase in the conversion ratio (conversion ratio enhancement) if the Company achieves both of the targets for AUM and AFFO in a given year as set forth belowbelow:
Hurdles
AUMAFFOClass M
($ in billions)Per Share ($)Conversion Ratio
Initial Conversion Ratio1:1.6667
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 $2.10 1:3.0000
The AUM and as adjustedAFFO per share hurdles for the 1:3 reverse stock split:
Hurdles
AUMAFFOClass M
($ in billions)Per Share ($)Conversion Ratio
Initial Conversion Ratio1:1.6667
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.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 perNYSE closing share price of $27.29 (unaudited)$14.60 as of September 30, 2021,2022, a Class M OP Unit would be valued at $45.48 (unaudited).$24.33. This NAVvalue 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.
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 as(as amended, (the “Amended OPthe “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 September 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 September 30, 20212022 and 2020,2021, the Company amortized and charged $88,783 and $88,784, respectively,for both quarters to stock compensation expense and during the nine months ended September 30, 20212022 and 2020,2021, the Company amortized and charged $266,350 and $266,350, respectively,for both periods to stock compensation expense. The unamortized value of these units was $887,835$532,700 as of September 30, 2021.2022.
Under the Amended OPOperating 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. As of September 30, 2022, these interests represent a combined total of approximately 11.6% of the equity in the Operating Partnership.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 UnitsUnits”) to Mr. Halfacre in recognition of his voluntary reduction in his 2020 compensation plus 512,000170,667 Class R OP Units to Mr. Halfacre as equity incentive compensation for the next three years, and the grant of 100,00033,333 Class R OP Units to Mr. Pacini as equity incentive compensation for the next three years. An additional 348,000116,000 Class R OP Units were granted to the restremainder 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 has initially concluded that as of each quarter end, including September 30, 2021,2022, achieving the performance target to trigger the increased conversion ratio for the Class R OP Units is not deemed probable andprobable. The Company will adjust compensation expense prospectively if achieving the enhancement is deemed probable inthrough the future.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
As a resultremainder 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 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. vesting period.
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 beis being recognized over the three-year vesting period. DuringOf 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 12,667 units and 17,000 units were forfeited during the three and nine months ended September 30, 2022, respectively. The units, at the discretion of the board of directors, may be reallocated to existing or new employees. The cumulative number of units forfeited and not yet reallocated through September 30, 2022 aggregated 43,657 units.
During the three months ended September 30, 2022 and 2021, 5,663the Company amortized and 6,997charged to stock compensation expense $377,957 and $559,827, respectively, and during the nine months ended September 30, 2022 and 2021, the Company amortized and charged to stock compensation expense $1,227,002 and $1,573,991, respectively, for the Class R OP Units. The unamortized value of the remaining 316,343 units was $2,933,324 as of September 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 respectively were forfeited duebased 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 departureunits for cash or shares of employees.
DuringClass C common stock. The Class C OP Units received $377,298 and $1,006,136 in distributions during the three and nine months ended September 30, 2021,2022, respectively, and were allocated $528,540 and $(1,180,275) of the Company amortized and charged $559,827 and $1,573,991, respectively, to stock compensation expensenet income (loss) for the Class R OP Units sincethree and nine months ended September 30, 2022, respectively.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 13. EARNINGS (LOSS) PER SHARE
The following table presents the grant date, adjustedcomputation of the Company's basic and diluted net income (loss) per share attributable to common stockholders for the reversal of the previous amortization of the forfeited units. The unamortized value of these units was $5,421,040 as ofthree and nine months ended September 30, 2021.2022 and 2021:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Numerator - Basic:
Net income (loss)$4,450,767 $3,648,455 $(5,232,053)$1,742,964 
Net (income) loss attributable to noncontrolling interest in Operating Partnership(528,540)— 1,180,275 — 
Preferred stock dividends(921,875)(143,403)(2,765,625)(143,403)
Net income (loss) attributable to common stockholders$3,000,352 $3,505,052 $(6,817,403)$1,599,561 
Numerator - Diluted:
Net income (loss)$4,450,767 $3,648,455 $(5,232,053)$1,742,964 
Preferred stock dividends(921,875)(143,403)(2,765,625)(143,403)
Net income (loss) attributable to common stockholders$3,528,892 $3,505,052 $(7,997,678)$1,599,561 
Denominator:
Weighted average shares outstanding - basic7,449,968 7,531,559 7,486,945 7,575,013 
Operating Partnership Units - Class C1,312,382 — — — 
Operating Partnership Units - Classes M, P and R1,418,193 1,219,316 — 1,188,099 
Weighted average shares outstanding - diluted10,180,543 8,750,875 7,486,945 8,763,112 
Earnings (loss) per share attributable to common stockholders:
Basic$0.40 $0.47 $(0.91)$0.21 
Diluted$0.35 $0.40 $(0.91)$0.18 
During the nine months ended September 30, 2022, the weighted average dilutive effect of 2,730,416 shares related to units of limited partnership interest in the Operating Partnership as discussed in Notes 12 and 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 that would have a dilutive effect for the periods then ended.
NOTE 13.14. SUBSEQUENT EVENTS
The Company evaluates subsequent events until the date the unaudited condensed consolidated financial statements are issued. Significant subsequent events are described below:
Common Stock Distributions
The Company paid the September 2021 distributions of $643,025 on October 25, 2021, based on the daily distribution rate of $0.00287670 per share per day of Class C and Class S common stock, which reflects an annualized distribution rate of $1.05 per share or 4.03% per share based on the Company's estimated NAV per share of $26.05 (unaudited) during September 2021. The Company plans to pay its October distributions on November 24, 2021 based on the daily distribution rate of $0.00315070 per share per day of Class C and Class S common stock, which reflects an annualized distribution rate of $1.15 per share or 4.21% per share based on the Company's estimated NAV per share of $27.29 (unaudited) as of September 30, 2021.
Preferred Dividends
On October 17, 2022, the Company paid its Series A Preferred Stock dividends of $921,875 for the third quarter of 2022, which were declared by the Company’s board of directors on August 18, 2022.
On November 11, 2021,7, 2022, the Company’s board of directors declared Series A Preferred Stock distributionsdividends payable of $1,065,278$921,875 for the fourth quarter of 2021, including the $143,403 accrued dividends2022, which will be paid on January 17, 2023 to Series A Preferred Stockholders of record as of SeptemberDecember 30, 2021, which are payable on January 15, 2022.
Redeemable Common Stock
Subsequent to September 30, 2021, the Company redeemed 80,614 shares of Class C common stock for $2,098,452 and no shares of Class S common stock.
Updated Estimated NAV Per Share
On November 4, 2021, the Company’s board of directors approved and established an updated estimated NAV per share of the Company’s Class C common stock and Class S common stock of $27.29 (unaudited) as of September 30, 2021. Additional information on the determination of the Company's updated estimated NAV per share, including the process used to determine its updated estimated NAV per share, can be found in the Company's Current Report on Form 8-K filed with the SEC on November 5, 2021.
Extension of Leases
Effective October 27, 2021, the Company extended the lease terms of its property located in Carlsbad, California leased to L3Harris from April 30, 2022 to April 30, 2029 for minimum annual rents increasing annually in exchange for two months of free rent, which amounted to $139,258. The Company will pay a leasing commission of $208,087 in connection with this extension.
Effective October 29, 2021, the Company also extended the lease term of its property located in Dekalb, Illinois leased to 3M Company from July 31, 2022 to July 31, 2034 for minimum annual rents increasing annually. The Company will provide a tenant improvement allowance of $1,026,000 as agreed to in the lease amendment in the form of reimbursements to the tenant following receipt of supporting documents and will pay a leasing commission of $640,696 in connection with this extension.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Pending Real Estate Investment Acquisitions
On October 29, 2021, the Company entered into a non-binding letter of intent for a saleCommon Stock and leaseback transaction to acquire an industrial property which is used in the manufacturing of garage door parts and located in Archbold, Ohio for $11,460,000. The Company expects to complete this purchase in early December 2021, subject to satisfaction of customary due diligence and other conditions, and therefore no assurances can be made that the purchase will be completed within that timeframe or at all. The Company intends to use a portion of the proceeds from the Preferred Offering (see Note 9)to fund this potential acquisition.
On November 3, 2021, the Company entered into a purchase and sale agreement to acquire a portfolio of 10 retail properties leased to Walgreens and located in Iowa, Indiana, Wisconsin, Kansas and Louisiana, subject to customary due diligence conditions. The purchase price is $63,100,000 and the Company will assume existing collateralized mortgage indebtedness of $35,048,994 (“CMBS”) upon approval of the CMBS servicer and completing the acquisition. The Company will use a portion of the proceeds from its September 2021 offering of Series A Preferred Stock (see Note 9) to fund the estimated $28,651,000 balance of the purchase price and related commissions and closing costs. The Company expects to complete this purchase prior to December 31, 2021, subject to satisfaction of customary due diligence conditions and obtaining approval of the CMBS servicer.
Pending Real Estate Investment SalesClass C OP Unit Distributions
On November 5, 2021, the Company entered into an agreement to sell its property in Bedford, Texas and leased to a Harley Davidson dealer for $15,300,000 to an unrelated third party subject to customary due diligence conditions. The potential buyer has 30 days to complete its due diligence and an additional 10 days thereafter to complete the potential purchase. There can be no assurances that the buyer will complete this transaction.
On November 11, 2021, the Company entered into an agreement to sell 3 of its office properties, which have leases scheduled to expire in less than five years, for a total of $27,240,000 to an unrelated third party, subject to customary due diligence conditions. The 3 properties include a property in Dallas, Texas, which is leased to Texas Health, and 2 properties in Richmond, Virginia, which are leased to Bon Secours and Omnicare. The potential buyer has 30 days to complete its due diligence and up to an additional 60 days thereafter to complete the potential purchase. There can be no assurances that the buyer will complete this transaction.
Termination of Reg A Offering and Share Repurchase Programs
On November 2, 2021,June 15, 2022, the Company's board of directors reviewedauthorized monthly distributions payable to common stockholders and approved management’s recommendation to terminate the Company's Reg A Offering effective upon the close of business on November 24, 2021 and to seek a listing of the Company's Class C common stockOP Unit holders of record as of September 30, 2022, which were paid on a national securities exchange in early 2022; however, there can be no assurances that such a listing can be completed in that time frame or at all. As a result, the Company expects to recordOctober 25, 2022. The current monthly distribution amount of $0.09583 per share represents an impairment charge related to its intangible assetsannualized distribution rate of approximately $3,700,000 during the fourth quarter$1.15 per share of 2021 for its intangible assets related to investor lists, website services technology, domains and licenses. These assets have been used by the Company in its crowdfunding capital-raising activities, and prior to the board of directors’ approval to seek a listing of the Company's Class C common stock on a national securities exchange, these assets were the primary mechanism through which the Company sold shares of its Class C common stock.
TheOn August 18, 2022, the Company’s board of directors also approved management’s recommendationauthorized monthly distributions of $0.09583 per share payable to terminatecommon stockholders and the Company's Class C OP Unit holders of record as of October 31, 2022, November 30, 2022 and Class SDecember 30, 2022, which will be paid on or about November 23, 2022, December 23, 2022 and January 25, 2022, respectively.
On November 7, 2022, the Company’s board of directors authorized monthly distributions of $0.09583 per share repurchase programspayable to common stockholders and the Company does not plan to make any further share repurchases.Class C OP Unit holders of record as of January 31, 2023, February 28, 2023 and March 31, 2023, which will be paid on or about February 24, 2023, March 24, 2023 and April 25, 2023, respectively.
New Credit Facility
On November 12, 2021,October 21, 2022, the Company successfully exercised the accordion feature of its Credit Facility. The Credit Facility was increased to $400,000,000 and KeyBank National Association (“KeyBank”) agreed onis now comprised of a non-binding term sheet$150,000,000 Revolver and a $250,000,000 Term Loan. The Credit Facility includes an updated accordion option that allows the Company to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000. The maturities for the Company’s Revolver and Term Loan remain unchanged with the Revolver’s maturity in January 2026 with options to extend for a new $225,000,000 credit facility (the “Facility”) to be syndicated by KeyBank as Administrative Agent and Lead Arranger. The term sheet provides for a four-year revolving linetotal of credit, which may be extended by up to 12 months, subject to certain conditions, and a five-year term loan.the Term Loan’s maturity in January 2027. The Company paid lender fees of $1,378,125 in connection with this expansion of its Credit Facility.
The Credit Facility is expected to be available for general corporate purposes including but not limited to acquisitions, repayment of existing indebtedness and capital expenditures. The Facility will be priced on a leverage-based pricing grid that fluctuates based on the Company’s actual leverage ratio. Closingratio at the end of the prior quarter. Based on the Company’s leverage ratio of 38% as of the quarter ended September 30, 2022, the interest rate for the Revolver is SOFR plus 155 basis points plus a 10-basis point SOFR index adjustment and the interest rate on the Revolver was 4.7125% on October 31, 2022.
Interest Rate Swap
On October 26, 2022, the Company purchased a five-year swap to fix SOFR at 3.44% on an additional $100,000,000 of its Term Loan that will result in a fixed interest rate of 5.04% on additional draws under the expanded Term Loan when the Company’s leverage ratio is less than or equal to 40%. As part of this transaction, the Company sold a one-time option to terminate the swap on December 31, 2024, which reduced the swap rate. Under the Credit Facility, the interest rate will be subjectcontinue to customary closing conditions; however, there can be no assurances thatvary based on the Facility will close.Company’s leverage ratio.
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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, 20202021 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 aan internally-managed real estate investment trust (“REIT"REIT”) with public, non-listed shares of common stock and publicly traded shares of Class C common stock (defined below) and Series A preferred stock that acquires, ownsPreferred Stock (defined below). We acquire, own and managesmanage 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 thatand elected to be taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2016 and we2016. 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 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. Driven by innovation, an investor-first focus
Our Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MDV.PA” and an experienced management team, Modiv leveraged its crowdfunding platformhas 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 create a $400 million real estate fund comprising 2.2 million square feet of income-producing real estate.
On November 4, 2021, our board of directors (the “Board”) reviewed and approved management’s recommendation to seek a listing ofthat date, there was no public trading market for our Class C common stock on a national securities exchange in early 2022, subject to market conditions. There can be no assurances that a listing will be completed in the time frame outlined, or at all, given various factors including general economic conditionsstock. In connection with and sentiment within the broader equity capital markets. In preparation for seeking aupon listing on a national securities exchange,the NYSE, each share of our Board also approved management’s recommendation to terminate our offeringClass S common stock (defined below) converted into one share of shares of our Class C common stock pursuant to Regulation A under the Securities Act of 1933, as amended (the “Securities Act”) (the “Reg A Offering”), effective upon the close of business on November 24, 2021 and to terminate our share repurchase programs (“SRPs”). We do not plan to make any further share repurchases. Following these changes, we intend to maintain our monthly distributions and the ability for investors to reinvest their distributions via our distribution reinvestment plan (“DRP”). Our five-year emerging growth company registration with the SEC will end on December 30, 2021 but we will continue to report with the SEC as a smaller reporting company under Rule 12b-2(see details of the Exchange Act.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 February 1, 2021, with the authorization of the Board, 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 stockstock”). Our five-year emerging growth company registration with the SEC ended on December 31, 2021 and followingwe continue to report with the implementationSEC as a smaller reporting company under Rule 12b-2 of the reverse stock split, to decrease the par valueSecurities 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.
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 September 30, 2021, we have a portfolio of approximately 2.2 million square feet of aggregate leasable space including 38 commercial real estate properties in 14 states, comprised of 13 retail properties, 14 office properties and 11 industrial properties, including an approximate 72.7% tenant-in-common interestamended (the “TIC Interest”“Exchange Act”) in a 91,740 square foot Santa Clara, California industrial property as discussed in Note 4 to our accompanying unaudited condensed consolidated financial statements.
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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 86%approximate 73% partnership interest in the Operating Partnership on September 30, 2021.2022. The Operating Partnership limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12 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, which were previously paid to our former external advisor.
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 our direct, wholly-owned subsidiary (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 “Initial 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 DRP (the “Initial DRP Offering” and together with the Initial 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”). 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”), 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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On January 22, 2021,Common Stock Offerings
Since our initial registered offering of common stock was declared effective by the SEC in 2016, we have raised an aggregate of $211,463,370 pursuant to non-listed offerings of common stock registered with the authorizationSEC (collectively, the “Registered Offering”), offerings of the Board, we amended and restated our DRP with respect to our shares of Class C common stock in orderexempt from registration pursuant to reflect our corporate name changeRegulation S under the Securities Act of 1933, as amended (the “Securities Act”), distribution reinvestment plan (“DRP”) offerings of common stock registered with the SEC, a private offering of common stock pursuant to Regulation D under the Securities Act, a qualified offering of common stock pursuant to Regulation A under the Securities Act and to removean 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 the Board of the estimated net asset value (“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 statementRegistration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 of additional sharesin 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”; the Registered DRP Offering collectively with the Follow-on Offering and the Reg A Offering, the “Registered Offerings”). We commenced offering shares of Class C common stock pursuant to the 2021Registered DRP Offering upon termination of the Follow-onRegistered Offering.
Effective January 27, 2021, our Company, with the approval of the Board, terminated the Follow-on Offering. 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 in share value 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, collectively with the Registered Offerings, the “Offerings”) and accepted investor subscriptions from only accredited investors until we terminated the Private Offering on August 12, 2021.
On June 29,December 8, 2021, we filed with the SEC a Regulation A OfferingRegistration Statement on Form 1-A, including our preliminary offering circular, for a $75,000,000 offeringS-11 (File No. 333-261529), and, on February 9, 2022, we filed with the SEC Amendment No. 1 to the Registration Statement on Form S-11, in connection with the 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 Class C common stock. The Listed Offering of our Class C common stock closed on February 15, 2022. In connection with the Listed Offering, we sold 40,000 shares of our Class C common stock at $25.00 per share to a major stockholder who was formerly a related party.
On March 30, 2022, we filed an amended Form 1-A on August 13, 2021. The SEC qualified the amended Regulation A Offeringa Registration Statement on Form 1-AS-3 (File No. 333-263985), and on August 16, 2021.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 September 30, 2022, no shares were issued in connection with our ATM Offering.
Preferred Stock Offering
On September 14, 2021, we and the Operating Partnership entered into an underwriting agreement (the “Underwriting“Preferred Stock Underwriting Agreement”) with B. Riley Securities, Inc., as representative of the underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to which we agreed to issue and sell 1,800,000 shares of our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share with a liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in 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 issuance and sale of an additional 200,000 shares pursuant to the Underwriters’ full exercise of their option to purchase additional shares, closed on September 17, 2021 (see Note 9 to our accompanying unaudited condensed consolidated financial statements for additional information).
Updated Estimated Net Asset Value Per Share
On January 27, 2021, May 5, 2021, August 4, 2021 and November 4, 2021, the Board approved and established an updated estimated NAV per share of our Class C common stock and Class S common stock of $23.03 (adjusted for the 1:3 reverse stock split), $24.61, $26.05 and $27.29, respectively (all unaudited).
On November 4, 2021, the Board approved and established an updated estimated NAV per share of our Class C common stock and Class S common stock of $27.29 (unaudited) as of September 30, 2021. Effective November 5, 2021, the purchase price per share of our Class C common stock was increased from $26.05 to $27.29. Also, commencing November 5, 2021, the purchase price per share in the primary portion of the Class S Offering was increased to $27.29 plus the amount of any applicable upfront commissions and fees.
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 in our Current Report on Form 8-K filed with the SEC on November 5, 2021. Beginning with distributions scheduled to be paid to stockholders on November 24, 2021, the purchase price per share of our common stock in the Class C and the Class S DRPs was increased from $26.05 to $27.29.
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The Company
We believe we are qualifiedcontinue 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 and office real estate properties throughout the United States leased to creditworthy tenants on long-term 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 September 30, 2021,2022, our real estate investment portfolio consisted of 3847 properties located in 14 states consisting of 13 retail properties, 14 office properties and 11 industrial properties, including the TIC Interest.as further described below. The net book value of our real estate investments as of September 30, 20212022 was $339,666,361.$435,365,728.
With respect toDetails of our diversified portfolio of 3847 operating properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California property (the “TIC Interest”), as of September 30, 2022 are as follows:
•26 industrial properties, including the TIC Interest, aswhich represent approximately 54% of September 30, 2021:
•the portfolio, 13 properties are retail properties which represent approximately 13%19% of the portfolio 14 properties areand eight office properties which represent approximately 48% of the portfolio, and 11 properties, including the TIC Interest, are industrial properties which represent approximately 39%27% of the portfolio (expressed as a percentage of annualized net operating income)base rent (“ABR”) as of September 30, 2022);
•Occupancy rate of 100.0%100%;
•Located in 17 states;
•Leased to 3130 different commercial tenants doing business in 1317 separate industries;
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•Approximately 2.23.2 million square feet of aggregate leasable space, including the TIC Interest;
•An average leasable space per property of approximately 59,00068,000 square feet; approximately 100,00094,000 square feet per industrial property; approximately 23,00018,000 square feet per retail property and approximately 61,00064,000 square feet per office property,property; and
•Outstanding mortgage notenotes payable balance of $182,146,897.$44,590,536 for three properties, a credit facility term loan balance of $150,000,000 and credit facility revolver balance of $6,775,000.
As of September 30, 2021,2022, all 3847 operating properties in our portfolio are single-tenant net-lease properties and all 3847 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 years, which increased to 6.0 years as of October 31, 2021 with the lease extensions signed by L3Harris and 3M Company during October 2021.11.3 years.
As of September 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 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 awas an independent member of the Board inour board of directors (“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 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 against pools of individual properties, and pledging such properties as security for that debt to obtain funds to acquire additional properties. We cannot assure youare 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. We expect the trend of onshoring manufacturing to accelerate and plan to focus future acquisitions on industrial manufacturing properties while reducing the number 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.
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Investment Strategy
Commercial Real Estate
In pursuit of our primary investment objectives, we plan to grow our current single-tenant portfolio of triple-net leased properties and seek to acquire a diversified portfolio of income-generating commercial real estate investments in industrial manufacturing properties throughout the United States diversified by corporate credit, physical geography, product type,industry and lease duration. AlthoughWhile we have no current intention to do so,are primarily focused on acquiring industrial manufacturing properties, we may also invest a portion of the net proceeds from our offerings in commercial real estate properties outside the United States.
acquire other assets, including, without limitation, other industrial properties. 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 which may include investment grade credit quality, and typically subject to long-term leases with defined rental rate increases.
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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. WeAlthough our current focus is industrial manufacturing, 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 allocation to the industrial sector and decreasing our allocation to the office sector.
Other Non-Listed REITs and Real Estate Products or Managers
We believe there will be opportunities to acquire other non-listed REITs andAlthough not currently intended, we may also invest in real estate products or managers given thedebt and equity securities and other real estate-related investments to provide current fragmented natureincome, portfolio diversification and a source of the industry. There are many smaller non-listed REITs that have not been ableliquidity for distributions to raise sufficient capital to grow their investment portfoliostockholders, cash management 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.purposes.
We cannot assure youour stockholders that any of the properties we acquire or real estate-related investments we make will result in the benefits discussed above.
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 tenant improvement 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 payments of obligations with respect to our outstanding indebtedness; capital expenditures related to our real estate investments; reserves required by financings of our real estate investments; and for general corporate purposes.
Generally, our cash requirements for property acquisitions, debt payments, capital expenditures and other investments will be funded by the salebank 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 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 have also been used to fund repurchases of common stock; however, we are terminating our SRPs as discussed above. 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 a $22,000,000 line of credit including a $17,000,000 revolving line of credit for real estate acquisitions and an additional $5,000,000 revolving line of credit for working capital. After our initial draw of $6,000,000 to fund the repayment of our prior credit facility provided by Pacific Mercantile Bank (“PMB”), on March 31, 2021, and subsequent repayments of $3,000,000 in June 2021 and $1,500,000 each in July and August 2021, we have $17,000,000 available to finance real estate acquisitions and $5,000,000 available for working capital purposes as of September 30, 2021.
Subsequent to the third quarter of 2021, on November 12, 2021, we and KeyBank National Association (“KeyBank”Agreement’’) agreed on a non-binding term sheetproviding for a new $225,000,000 credit facility (the "Facility") to be syndicated by KeyBank as Administrative Agent and Lead Arranger. The term sheet provides 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.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 expected to be available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness and capital expenditures.
On October 21, 2022, we successfully exercised the accordion feature of our Credit Facility. Our Credit Facility was increased to $400,000,000 and is now comprised of a $150,000,000 Revolver and a $250,000,000 Term Loan. Our Credit Facility includes an updated accordion option that allows us to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000. The maturities for our Revolver and Term Loan remain unchanged with the Revolver’s maturity in January 2026 with options to extend for a total of 12 months, and the Term Loan’s maturity in January 2027. We paid lender fees of $1,378,125 in connection with this expansion of our Credit Facility. KeyBanc Capital Markets Inc., Truist Securities, Inc., and The Huntington National Bank acted as Joint Lead Arrangers for the expanded Credit Facility. KeyBank National Association acted as Administrative Agent.
The Credit Facility will beis priced on a leverage-based pricing grid that fluctuates based on the Company’sour actual leverage ratio. Closingratio at the end of the prior quarter. With our leverage ratio at 38% as of September 30, 2022, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’), including a 10-basis point credit adjustment, is 165 basis points and the interest rate on the Revolver was 4.7125% on October 31, 2022. Following the Federal Reserve Bank’s November 2, 2022 increase in the target range for federal funds by 75 basis points, the interest rate on the Revolver is approximately 5.46%. 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 $47,543 and $119,823 for the three and nine months ended September 30, 2022, respectively. On May 10, 2022, 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. On October 26, 2022, we entered into a swap agreement effective November 30, 2022 to fix SOFR on an additional $100,000,000 of our Term Loan at 3.44%, resulting in an interest rate of 5.04% on additional draws under the expanded Term Loan when our leverage ratio is less than or equal to 40% as described in detail in Note 14 to our accompanying unaudited condensed consolidated financial statements. The Credit Facility will be subject toincludes customary closing conditions; however, there can be no assurances that the Facility will close.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 September 30, 2022.
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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.
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, including all of the independent directors, is 55% of the aggregate fair value of our 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. OurWhile the Credit Facility allows for borrowings on one or more individual properties may exceed 55%up to 60% of their individual cost, so long as our overallborrowing base and our Board has approved a maximum leverage does not exceedratio of 55% of the aggregate fair value of our real estate properties plus our cash and cash equivalents. There is no limitationequivalents, 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 equity.
Credit Facility Drawdowns and Repayments
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 amountKIA 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 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 the 20 property mortgages were paid-off, seven property mortgages as of December 31, 2021 remained outstanding, including four property mortgages related to 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 19, 2022, we drew $44,000,000 on the Revolver to fund the acquisition of the Lindsay properties. On April 25, 2022, we drew the remaining $50,000,000 on the Term Loan for a partial repayment of the Revolver and we also repaid $8,000,000 on the Revolver on June 22, 2022. We borrowed and repaid $28,000,000 during the three months ended September 30, 2022 in connection with acquisitions completed in July and August 2022 and dispositions completed in August and September 2022. As of October 31, 2022, we had availability under the Credit Facility of approximately $98,000,000 which can be drawn for general corporate purposes, including pending and future acquisitions.
While we intend for the Credit Facility to be our primary source of financing, we may borrow for the purchase of any single asset. As of September 30, 2021, our leverage ratio was 40%.
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 favorablecontinue to us than comparable loans between unaffiliated parties under the circumstances.
Debtuse mortgage debt financing for acquisitionscertain real estate investments and investmentsacquisitions. 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 BancSee 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. We paid Banc of California origination fees of $77,000 in connection with the Credit Facility. Under the terms of the Credit Facility, we 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 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, and the Wirta Family Trust guaranteed the $6,000,000 initial borrowing, which was due by September 30, 2021. This guarantee expired upon the full repayment of the $6,000,000 in August 2021. Mr. Wirta and the Wirta Family Trust 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 Family Trust with respect to their guarantees of borrowings under the Credit Facility.2022.
As of September 30, 2021,2022, the outstanding principal balance of our mortgage notes payable on our operating properties and our revolving credit facilityCredit Facility were $182,146,897$44,590,536 and zero,$156,775,000, respectively. As of September 30, 2021,2022, our approximately 72.7% pro-rata share of the TIC Interest’s mortgage note payable was $9,764,171,$9,544,130, which is not included in our accompanying unaudited condensed consolidated balance sheets.
Refinancing Transactions
47

Acquisitions and SaleDispositions of Real Estate Investments
During the nine months ended September 30, 2021,2022, we refinancedacquired the following mortgage notes:nine industrial and one retail (KIA) real estate investments:
December 31, 2020NewPriorNewOriginalNew
PropertiesPrincipal AmountPrincipal Amount Interest RateInterest RateMaturity DateMaturity Date
Levins$2,032,332 $2,700,000 3.74 %3.75 %3/5/20212/16/2026
Dollar General Bakersfield$2,268,922 $2,280,000 3.38 %3.65 %3/5/20212/16/2028
Labcorp$4,020,418 $5,400,000 3.38 %3.75 %3/5/20212/16/2026
GSA (MSHA)$1,752,092 $1,756,000 3.13 %3.65 %8/5/20212/16/2026
L3Harris$5,185,929 $6,300,000 4.69 %3.35 %4/1/20225/21/2031
Northrop Grumman$5,518,589 $7,000,000 4.40 %3.35 %7/2/20225/21/2031
Property and LocationAcquisition DateLandBuildings and
Improvements		EquipmentTenant
Origination
and Absorption
Costs		Above-
Market
Lease Intangibles		Acquisition Price
KIA, Carson, CA1/18/2022$32,741,781 $36,544,663 $— $118,606 $— $69,405,050 
Kalera, St. Paul, MN1/31/2022562,356 3,127,653 4,429,000 — — 8,119,009 
Lindsay, Colorado Springs 1, CO4/19/20221,195,178 1,116,756 — — — 2,311,934 
Lindsay, Colorado Springs 2, CO4/19/20222,239,465 1,074,941 — — — 3,314,406 
Lindsay, Dacono, CO (1)4/19/20222,263,982 3,804,806 — — — 6,068,788 
Lindsay, Alachua, FL4/19/2022966,192 7,551,931 — — — 8,518,123 
Lindsay, Franklinton, NC4/19/20222,843,811 4,337,302 — — — 7,181,113 
Lindsay, Fulton 1, OH4/19/2022726,877 10,618,656 — — — 11,345,533 
Lindsay, Fulton 2, OH4/19/2022635,865 9,555,077 — — — 10,190,942 
Lindsay, Rock Hill, SC4/19/20222,816,322 3,739,661 — — — 6,555,983 
Producto, Endicott, NY7/15/2022327,964 2,034,346 — — — 2,362,310 
Producto, Yorktown, NY7/15/2022919,332 2,154,354 — — — 3,073,686 
Valtir, Centerville, UT7/26/20222,467,565 2,217,789 — — — 4,685,354 
Valtir, Orangeburg, SC7/26/20221,678,818 2,564,491 — — 1,356,961 5,600,270 
Valtir, Fort Worth, TX7/26/20221,785,240 1,493,281 — — — 3,278,521 
Valtir, Lima, OH8/4/2022747,746 9,174,197 — — — 9,921,943 
$54,918,494 $101,109,904 $4,429,000 $118,606 $1,356,961 $161,932,965 
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(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 $820,614 as of September 30, 2022 which is not included in the acquisition price above.
During the nine months ended September 30, 2021,2022, we sold the following retailsix office and one flex (Omnicare) real estate investments:
PropertyLocationDisposition DateRentable Square FeetContract Sale PriceNet ProceedsGain on Sale
Chevron Gas StationRoseville, CA1/7/20213,300 $4,050,000 $3,914,909 $228,769 
EcoThriftSacramento, CA1/29/202138,536 5,375,300 2,684,225 51,415 
Chevron Gas StationSan Jose, CA2/12/20211,060 4,288,888 4,054,327 9,458 
DanaCedar Park, TX7/7/202145,465 10,000,000 4,975,334 4,127,638 
Total88,361 $23,714,188 $15,628,795 $4,417,280 
PropertyLocationDisposition DateRentable Square FeetContract Sale PriceNet ProceedsGain on Sale
Bon Secours (1)Richmond, VA2/11/202272,890 $10,200,000 $— $179,404 
Omnicare (1)Richmond, VA2/11/202251,800 8,760,000 — 2,062,890 
Texas Health (1)Dallas, TX2/11/202238,794 7,040,000 11,892,305 160,377 
AccredoOrlando, FL2/24/202263,000 14,000,000 5,012,724 4,998,106 
EmcorCincinnati, OH6/29/202239,385 6,525,000 6,345,642 1,002,101 
Williams SonomaSummerlin, NV8/26/202235,867 9,300,000 8,964,252 1,703,616 
WyndhamSummerlin, NV9/16/202241,390 12,900,000 12,267,571 2,967,668 
Total343,126 $68,725,000 $44,482,494 $13,074,162 
(1)    Combined net proceeds for the February 11, 2022 disposition, net of commissions, closing costs paid and repayment of the outstanding mortgages.
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Listed Offering - Class C Common Stock
On September 24,November 2, 2021, we received a notice of refund amounting to $115,133 related to the sale of our Las Vegas, Nevada retail property on December 16, 2020, which was formerly leased to 24 Hour Fitness. The refund relates to a portion of a holdback from sales proceeds to cover expenses by the buyer to prepare the property for lease, including the payment of accrued interest, common area maintenance, taxes, insurance and other related expenses and building permits to begin construction of improvements on the property. The refund is an adjustment to the estimate of the amount which was expected to be received.
Sales Pursuant to Our Private Offering and Our Regulation A Offering
We commenced the Private Offering to accredited investors only under Regulation D promulgated under the Securities Act on February 1, 2021, and during the period from February 1, 2021 to August 11, 2021, we sold 36,207 sharesBoard terminated our offering of Class C common stock pursuant to the Private Offering for aggregate proceeds of $851,273. We terminated the Private Offering on August 12, 2021.
On June 29, 2021, we filed with the SEC a Regulation A Offering Statement on Form 1-A including our preliminary offering circular, for a $75,000,000 offering of our Class C common stock and filed an amended Form 1-A on August 13, 2021. The SEC qualified the amended Regulation(the “Reg A Offering Statement on Form 1-A on August 16, 2021. The Reg A Offering allowed us to once again accept subscriptions from investors who are not accredited. During the period from August 16, 2021 to October 31, 2021, we sold 42,113 shares of Class C common stock pursuant to the Reg A Offering for aggregate proceeds of $1,097,029. On November 2, 2021, the Board reviewed and approved management’s recommendation to terminate the Reg A OfferingOffering”) effective upon the close of business on November 24, 2021.
Underwritten Offering - Series A Preferred Stock2021 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 September 14,December 8, 2021, we filed with the SEC a Registration Statement on Form S-11 (File No. 333-261529), and, on February 9, 2022, we filed with the Operating Partnership enteredSEC Amendment No. 1 to the Registration Statement on Form S-11, in connection with the Listed Offering of our Class C common stock, which became effective on February 10, 2022. In connection with and upon listing on the 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 15, 2022. In connection with the Underwriting Agreement with B. Riley Securities, Inc., as the Underwriters, pursuant to whichListed Offering, we agreed to issue and sell 1,800,000sold 40,000 shares of the Series A Preferred Stock in the Preferred Offeringour Class C common stock at a price$25.00 per share of $25.00. In addition, we granted the Underwritersto 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 issuance and sale of an additional 200,000 shares pursuant to the Underwriters’ full exercise of their option to purchase additional shares, closed on September 17, 2021. The gross proceeds from the Preferred Offering were $50,000,000 and the net proceeds were $47,570,374, after deducting the underwriting discount of $1,575,000 and other offering expenses of $854,626, which included the structuring fee of $250,000major stockholder who was formerly a related party (see Note 9 to our accompanying unaudited condensed consolidated financial 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 September 30, 2022, no shares were issued in connection with our ATM Offering.
Share Repurchases
ForOn 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 three monthsprogram 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 September 30, 2022, we have repurchased 233,145 shares for a total of $3,957,752, for an average repurchase price of $16.98 per share. Our last share repurchases during the quarter ended September 30, 2021,2022 were made on August 24, 2022.
Class C OP Units
On January 18, 2022, we received share repurchase requests and repurchased shares as follows:
Value of Share Repurchase Requests ReceivedRepurchase DateValue of Shares Repurchased (1)
July 2021$4,481,177 August 4, 2021$1,058,285 
August 2021$5,928,373 September 3, 2021$1,775,082 
September 2021$6,560,652 October 5, 2021$1,348,912 
(1)    Including Extraordinary Circumstance Repurchases (as defined below) and after applicable administrative fees for shares held less than two years for shares repurchased thereafter.
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Impactcompleted the acquisition of a KIA auto dealership property in an “UPREIT” transaction pursuant to a contribution agreement whereby an affiliate of the COVID-19 Pandemicseller received 1,312,382 units of Class C limited partnership interest in the Operating Partnership (the “Class C OP Units”) based on Our Capital Resources
Uncertainties over the future utilizationan agreed upon value of office and retail properties which have arisen as a result$25.00 per unit, representing approximately 47% of the COVID-19 pandemic,property’s value. Following expiration of the resulting decreaselock-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 $377,298 and $1,006,136 in our NAV per share as of April 30, 2020 and the reduction in our distribution rate in May 2020 have severely impacted our ability to raise capital through our common stock offerings. From January 1, 2021 through September 30, 2021, we raised approximately $6,300,000 through our common stock offerings, including our distribution reinvestment plans, a 61% decrease compared with approximately $16,200,000 raiseddistributions during the first nine months of 2020. In addition, share repurchases increased from approximately $13,200,000 during the first nine months of 2020 to approximately $16,900,000 in the first nine months of 2021,three and we decided not to repurchase an additional $5,210,652 in repurchase requests received during September 2021 in order to preserve liquidity.
In April 2020, one of our subsidiaries was successful in obtaining a $517,000 loan through the Small Business Administration’s Paycheck Protection Program (“PPP”), 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 application on February 10, 2021. PMB submitted the application to the SBA on February 10, 2021, and on February 16, 2021, our subsidiary 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 nine months ended September 30, 2021 in our accompanying unaudited condensed consolidated financial statements.2022, respectively (also see the “Distributions” section below).
49

Cash Flow Summary
The following table summarizes our cash flow activity for the nine months ended September 30, 20212022 and 2020:2021:
Nine Months Ended September 30,
20212020
Net cash provided by operating activities$6,312,683 $3,813,564 
Net cash provided by investing activities$20,293,056 $13,207,680 
Net cash provided by (used in) financing activities$19,727,618 $(14,947,468)
Nine Months Ended September 30,
20222021
Net cash provided by operating activities$9,326,763 $6,312,683 
Net cash (used in) provided by investing activities$(64,969,591)$20,293,056 
Net cash provided by financing activities$2,962,196 $19,727,618 
Cash Flows from Operating Activities
ForThe cash provided by operating activities of $9,326,763 during the nine months ended September 30, 20212022 primarily reflects adjustments to our net loss of $5,232,053 to exclude net non-cash charges of $15,282,663 related to depreciation and 2020, net cashamortization, impairment of goodwill, stock compensation expense, amortization of deferred financing costs and premium, write-off of purchase deposit, amortization of deferred lease incentives and amortization of above market lease intangibles, which were partially offset by gain on sale of real estate investments, 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 operations also included distributions from our unconsolidated investment in a real estate property of $179,531. Cash provided by operating activities was $6,312,683offset in part by cash used to fund changes in operating assets and $3,813,564, respectively.liabilities of $903,378 during the nine months ended September 30, 2022 due to an increase in tenant receivables along with a decrease in accounts payable, accrued and other liabilities, partially offset by a decrease in prepaid and other assets.
The cash provided by operating activities of $6,312,683 during the nine months ended September 30, 2021 primarily reflects adjustments to our net income of $1,742,964 for distributions from our investment in an unconsolidated entity of $247,929 andto exclude net other non-cash charges of $6,021,967 related to depreciation and amortization, stock compensation expense, amortization of deferred financing costs, amortization of deferred lease incentives and amortization of above marketabove-market lease intangibles, which were partially offset by the gain on sale of real estate investments, amortization of below-market lease intangibles, amortization of deferred rents, unrealized gain on interest rate swap valuation, gain on forgiveness of economic relief note payable, reversal of impairment of real estate property and undistributed income from our investment in an unconsolidated investment entity. Cash provided by operations also included distributions from our unconsolidated investment in real estate property of $247,929. The cash provided by operations was also offset in part by cash used due to fund changes in operating assets and liabilities of $1,700,177 during the nine months ended September 30, 2021 primarily due to increases in notes receivable and prepaid and other assets and a decrease in accounts payable, accrued and other liabilities, partially offset by a decrease in tenant receivables.
The cash provided by operating activities during the nine months ended September 30, 2020 primarily reflects adjustments to our net loss of $52,097,300 for distributions from our investment in an unconsolidated entity of $542,140 and net non-cash charges of $55,899,848 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 and stock compensation expense, which were partially offset by gain on sale of real estate investments, amortization of deferred rents, amortization of below-market lease intangibles and income from our investment in an unconsolidated entity. In addition, the net non-cash charges were partially offset by a net use of cash due to changes in operating assets and liabilities of $531,124 during the nine months ended September 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.
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.
49

Cash Flows from Investing Activities
Net cash used in investing activities was $64,969,591 for the nine months ended September 30, 2022 and consisted primarily of the following:
•$127,144,029 for the acquisition of 16 real estate properties;
•$3,855,719 of additions to existing real estate investments;
•$2,100,000 payment of a lease incentive primarily for the PreK Education property; and
•$195,614 of purchase deposits, net.
These uses were partially offset by:
•$66,489,004 in proceeds from the sale of seven real estate investments; and
•$1,836,767 collection of a note receivable.
Net cash provided by investing activities was $20,293,056 for the nine months ended September 30, 2021 and consisted primarily of the following:
•$22,840,026 in net proceeds from the sale of three real estate investments; and
•$1,824,383 fromin collection of a note receivable from the sale of real estate property;property.
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These proceeds were partially offset byby:
•$3,644,221 for acquisition of a real estate investment;
•$531,382 of additions to existing real estate investments; and
•$195,750 of additions to intangibleintangibles assets.
Cash Flows from Financing Activities
Net cash provided by investingfinancing activities was $13,207,680$2,962,196 for the nine months ended September 30, 20202022 and consisted primarily of the following:
•$15,364,073150,000,000 in proceeds from sale of real estate investments, partially offset byborrowings on our Credit Facility Term Loan;
•$600,2916,775,000 in net proceeds from our Credit Facility Revolver, more than offset by repayment of additions to existing real estate investments;
•$566,102$8,022,000 on the prior credit facility with Banc of additions to intangible assets;California (the “Prior Credit Facility”); and
•$990,000114,500 in net proceeds from issuance of common stock in the Listed Offering.
These uses were partially offset by:
•$130,421,220 of mortgage note principal payments upon entering the Credit Facility and sale of four properties;
•$2,186,468 of deferred financing cost payments;
•$4,339,952 of cash distributions paid to common stockholders;
•$1,006,136 of cash distributions paid to the Class C OP Unit holder;
•$2,909,028 of cash dividends paid to preferred stockholders;
•$3,957,752 used for lease incentives.repurchases of common stock; and
Cash Flows from Financing Activities•$1,084,748 for payments of offering costs.
Net cash provided by financing activities was $19,727,618 for the nine months ended September 30, 2021 and consisted primarily of the following:
•$47,570,374 in net proceeds from issuance of preferred stock;
•$2,911,744 in proceeds from issuance of common stock, partially offset by payments for offering costs and commissions of $946,914;stock;
•$25,436,000 in proceeds from mortgage notes payable;
•$6,000,000 in proceeds from borrowings on our credit facility; and
•$18,804 of refundable loan deposits.
These proceedsuses were partially offset by:
•$29,434,396 of mortgage notes principal payments and deferred financing cost payments of $381,076 to third parties;payments;
•$12,000,0006,000,000 of net repayments on our credit facilities;the Prior Credit Facility revolver;
•$16,881,466 used for repurchases of shares under the SRPs; andcommon stock;
•$2,565,452 of cash distributions paid to common stockholders.
Net cash used in financing activities was $14,947,468 for the nine months ended September 30, 2020 and consisted primarily of the following:
•$36,421,500 of mortgage notes principal payments and deferred financing cost payments of $389,662 to third parties;stockholders;
•$6,000,000946,914 for payments of repayments on our credit facility;
•$4,800,000 of full principal repayments on our short-term notes;
•$13,154,123 used for repurchases of shares under the SRPs;offering costs; and
•$4,071,697381,076 of cash distributions paid to common stockholders.deferred financing cost payments.
These uses were partially offset by:
•$10,378,762 of proceeds from issuance of common stock, partially offset by payments for offering costs and commissions of $981,748;
•$35,705,500 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.
50

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.
51

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-offwrite-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 NAVnet 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 12 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.
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The following are the calculations of FFO and AFFO for the three and nine months ended September 30, 20212022 and 2020:2021:
Nine Months Ended September 30,
20212020
Net income (loss) attributable to common stockholders (in accordance with GAAP)$1,599,561 $(52,097,300)
FFO adjustments:
Add: Depreciation and amortization10,420,000 11,587,202 
Amortization of lease incentives192,235 45,903 
Depreciation and amortization for investment in the TIC Interest545,896 545,262 
Less: Gain on sale of real estate investments, net(4,532,413)(1,693,642)
FFO8,225,279 (41,612,575)
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 intangibles1,397,529 1,833,054 
Stock compensation2,115,341 522,183 
Amortization of deferred financing costs207,086 794,488 
Amortization of above-market intangible leases97,367 134,412 
Unrealized (gains) losses on interest rate swaps(684,057)1,019,840 
Acquisition fees and due diligence expenses, including abandoned pursuit costs712,925 116,809 
Reserve for loan guarantee— 3,120,678 
Less: Deferred rents(950,694)(1,027,863)
Amortization of below-market intangible leases(1,099,723)(1,157,951)
Other adjustments for unconsolidated entities(56,585)(67,751)
AFFO$9,046,469 $7,754,252 
Weighted average shares outstanding - basic7,575,013 8,019,742 
Weighted average shares outstanding - fully diluted8,763,112 9,209,706 
FFO Per Share:
Basic$1.09 $(5.19)
Fully Diluted$0.94 $(4.52)
AFFO Per Share:
Basic$1.19 $0.97 
Fully Diluted$1.03 $0.84 
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
Net income (loss) (in accordance with GAAP)$4,450,767 $3,648,455 $(5,232,053)$1,742,964 
Preferred stock dividends(921,875)(143,403)(2,765,625)(143,403)
Net income (loss) attributable to common stockholders and Class C OP Units3,528,892 3,505,052 (7,997,678)1,599,561 
FFO adjustments:
Add: Depreciation and amortization3,598,592 3,342,713 10,581,765 10,420,000 
Amortization of lease incentives176,296 86,694 323,347 192,235 
Depreciation and amortization for unconsolidated investment in a real estate property192,551 182,324 573,487 545,896 
Less: Gain on sale of real estate investments, net(4,671,284)(4,242,771)(13,074,162)(4,532,413)
Reversal of impairment of real estate investments— — — (400,999)
FFO attributable to common stockholders and Class C OP Units2,825,047 2,874,012 (9,593,241)7,824,280 
AFFO adjustments:
Add: Amortization of corporate intangibles— 471,790 — 1,397,529 
Impairment of goodwill— — 17,320,857 — 
Stock compensation549,240 743,609 1,740,852 2,115,341 
Deferred financing costs101,783 7,393 1,470,289 207,086 
Non-recurring loan prepayment penalties— — 615,336 — 
Swap termination costs— — 733,000 23,900 
Amortization of above-market intangible leases43,763 32,454 108,675 97,367 
Due diligence expenses, including abandoned pursuit costs44,863 474,429 636,171 723,669 
Less: Deferred rents(237,164)(247,716)(1,046,721)(950,694)
Unrealized gains on interest rate swaps, net59,000 (166,338)(1,319,013)(684,057)
Amortization of below-market lease intangibles(258,652)(364,573)(971,536)(1,099,723)
Gain on forgiveness of economic relief note payable— — — (517,000)
Other adjustments for unconsolidated investment in a real estate property(188)(12,195)(564)(56,585)
AFFO attributable to common stockholders and Class C OP Units$3,127,692 $3,812,865 $9,694,105 $9,081,113 
Weighted average shares outstanding:
Basic7,449,968 7,531,559 7,486,945 7,575,013 
Fully diluted (1)10,180,543 8,750,875 10,217,361 8,763,112 
FFO Per Share:
Basic$0.38 $0.38 $(1.28)$1.03 
Fully Diluted$0.28 $0.33 $(1.28)$0.89 
AFFO Per Share:
Basic$0.42 $0.51 $1.29 $1.20 
Fully Diluted$0.31 $0.44 $0.95 $1.04 
(1)    Includes the Class C, Class M, Class P and Class R OP Units to compute the weighted average number of shares.
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Results of Operations
As of September 30, 2021,2022, we owned 3847 operating properties, including the TIC Interest. We acquired 16 properties (15 industrial and one retail) during the first nine months of 2022 compared with one real estate acquisition of a retail property during the first nine months of months 2021 compared to no real estate acquisitions during the first nine of months 2020. Four2021. We sold seven properties were sold(six office and one flex) during the first nine months of 2021 (three2022 and three retail properties and one industrial property during the first quarternine months of 2021, which2021. The operating results of the four properties that were classified as held for sale as ofat December 31, 2020, and one industrial property during the third quarter of 2021, which was classified as held for sale as of June 30, 2021). Three retailincluding three properties that were sold during the first ninethree months of 2020, whichended March 31, 2021, were classified as held for sale as of June 30, 2020. The operating results of such properties that were classified in the ordinary course of business as held for sale are included in our continuing results of operations.
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We expect that rental income, tenant reimbursements, depreciation and amortization expense and interest expense will decreaseincrease for the full year of 20212022 as compared with the full year of 20202021, as a result of our nine dispositions from the third quarter of 2020 through the third quarter of 2021 (seven retail properties16 property acquisitions in 2022 (two in January 2022, an eight-property portfolio in April 2022, five in July 2022 and two industrial properties)one in August 2022), partially offset by five dispositions in 2021 (three during the results from our Raising Cane's retail property acquired on July 26, 2021.first quarter and one each during the third and fourth quarters) and seven dispositions in 2022 (four in February 2022, and one each in June, August and September 2022). Our results of operations for the three and nine months ended September 30, 20212022 may not be indicative of those expected for the full year of 20212022 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.impacted, particularly by ongoing economic trends. The continued impact of the COVID-19 pandemic and the Delta variantits variants on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information regarding 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 September 30, 20212022 to the Three Months Ended September 30, 20202021
Rental Income
Rental income, including tenant reimbursements, for the three months ended September 30, 2022 and 2021 was $10,212,418 and 2020 was $10,307,683 and $9,557,191,$10,241,690, respectively. The increase of $750,492, or 8%, quarter-over-quarter primarily reflects $1,528,484 of revenue from the early termination of a lease on the industrial property sold during the third quarter of 2021, net of reversal of deferred rents. Excluding the revenue from early termination of this lease, the quarter-over-quarterrelatively flat rental income decreased by $777,992, or 8%, primarily reflecting the reduction of rental income related to the sale of three retail properties during the third quarter of 2020, as well as the effect of the subsequent sale of one retail and one industrial property during the fourth quarter of 2020 and three retail properties during the first quarter of 2021, compared to the sale of one industrial property during the third quarter of 2021, offset in part by the depreciation and amortization from the retail property acquired on July 26, 2021. Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. The annualized base rental income of the operating properties owned as of September 30, 2021 was $26,696,384.
General and Administrative
General and administrative expenses were $3,674,187 and $2,522,719 for the three months ended September 30, 2021 and 2020, respectively. The increase of $1,151,468, or 46%, quarter-over-quarter primarily reflects increases of $559,826 in stock compensation expense related to the Class R OP Units granted in January 2021 (discussed in detail in Note 12 to our accompanying unaudited condensed consolidated financial statements), legal and insurance expenses in the current year quarter compared to the prior year quarter.
Depreciation and Amortization
Depreciation and amortization expense was $3,814,503 and $4,304,470 for the three months ended September 30, 2021 and 2020, respectively. The purchase price of properties acquired is allocated to tangible assets, identifiable intangibles and assumed liabilities and depreciated or amortized over their estimated useful lives. The decrease of $489,967, or 11%, quarter-over-quarter primarily reflects the reductionearly termination fee revenue of depreciation and amortization expenses$1,528,484 in the prior year quarter related to the sale of four retail properties and one industrialCedar Park, Texas property during the second half of 2020, three retail properties during the first quarter of 2021 and one industrial property during the third quarter of 2021, offset in part by the depreciation and amortization from the retail property acquiredleased to Dana Incorporated, which was sold on July 26, 2021.
Interest Expense
Interest expense was $1,831,545 and $2,732,528 for the three months ended September 30,7, 2021 and 2020, respectively (see Note 73 to our accompanying unaudited condensed consolidated financial statements for the detaildetails of the components of interest expense)transaction). The decrease of $900,983,Excluding the early termination fee revenue in the prior year quarter, rental income increased by $1,499,212, or 33%17.2%, quarter-over-quarter was primarily due to reduced outstanding borrowings for bothrental income contributions from our mortgage notes payableacquisition of the KIA auto dealership property in Carson, California on January 18, 2022, and our credit facilitiesacquisition of eight industrial properties leased by Lindsay Precast, which contributed approximately 14.8% and reduced amortization of loan fees. The average principal balance13.0% of our mortgage notes payable was reduced to approximately $182,453,000total rental income during the third quarter of 2021 from approximately $196,378,000 during the third quarter of 2020. In addition, average credit facility borrowings were approximately $1,500,000 during the third quarter of 2021 compared to approximately $9,065,000 during the third quarter of 2020.
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Property Expenses
Property expenses were $1,658,437 and $1,677,055 for the three months ended September 30, 2021 and 2020, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses, the majority of which are reimbursed by tenants. The decrease of $18,618, or 1%, quarter-over-quarter primarily reflects the reduction in property expenses related to the sale of three retail properties during the third quarter of 2020, as well as the effect of the subsequent sale of one retail and one industrial property during the fourth quarter of 2020 and three retail properties during the first quarter of 2021, compared to the sale of one industrial property during the third quarter of 2021, offset in part by property expenses from the retail property acquired on July 26, 2021.
Reserve for Loan Guarantee
The credit to our reserve for our estimated liability under a loan guarantee amounted to $4,359 for the three months ended September 30, 2020. This represented the change 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 mortgage note payable.
Gain on Sale of Real Estate Investments
The gain on sale of investments of $4,242,771 and $1,693,642 for the nine months ended September 30, 2021 and 2020 relates primarily to the sale of one industrial property during the current year quarter and three retail properties during the prior year quarter,2022, respectively (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details).
Other Income (Loss)
The lease termination expense These increases together with the rental income contributions of $1,175,192 for the three months ended September 30, 2020 reflects the fee for early termination of our Costa Mesa office lease following the surrender of the leased premises to the lessornine other property acquisitions (one industrial property acquired in January 2022, five industrial properties acquired in July 2022, one industrial property acquired in August 2022 and two properties acquired during the second quarter of 2020.
Interest income was $1,270 and $51 for the three months ended September 30, 2021 and 2020, respectively.
Income from investment in unconsolidated entity was $75,403 and $92,617 for the three months ended September 30, 2021 and 2020, respectively. This represents our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the third quartershalf of 2021 (one industrial and 2020, respectively.
Comparison ofone retail)) were partially offset by the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020
Rental Income
Rentaldecrease in rental income including tenant reimbursements, for the nine months ended September 30, 2021 and 2020 was $28,521,546 and $29,888,620, respectively. Rental income during the current year period included $1,528,484 of revenue from the early terminationsale of lease related to12 properties over the industriallast 21 months including four properties sold in February 2022 (one flex and three office), one office property sold duringin June 2022, two office properties sold in the third quarter of 2021. The decrease of $1,367,074, or 5%, period-over-period primarily reflects the reduction of rental income from the nine properties (seven2022, three retail properties sold in the first quarter of 2021 and two industrial properties)properties sold during the second half of 20202021 (one industrial and the first and third quarters of 2021, offset in part by rental income from the retail property acquired on July 26, 2021. Excluding the effect of the revenue from early termination of the lease on the industrial property sold in July 2021, the period-over-period rental income decreased by $2,895,558, or 10%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 $1,620,758 and $1,477,240 for the three months ended September 30, 2022 and 2021, respectively. The annualized base rental incomeABR of the operating properties owned as of September 30, 2022 was $34,843,592.
General and Administrative
General and administrative expenses were $1,838,388 and $2,907,956 for the three months ended September 30, 2022 and 2021, was $26,696,384.respectively. The decrease of $1,069,568, or 37%, as compared with the third quarter of 2021 primarily reflects decreases in compensation to employees due to personnel reductions during the second half of 2021 and the first quarter of 2022, as well as decreases in due diligence costs and professional services during the third quarter of 2022 compared to the third quarter of 2021.
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GeneralStock Compensation Expense
Stock compensation expense was $549,240 and Administrative
General and administrative expenses were $9,832,940 and $7,447,082$743,609 for the ninethree months ended September 30, 2022 and 2021, respectively. The decrease of $194,369, or 26%, as compared with the third quarter of 2021 primarily reflects forfeitures related to employee terminations and resignations during the second half of 2021 and 2020, respectively. The increasethe first and third quarters of $2,385,858, or 32%, period-over-period primarily reflects $1,573,991 of stock compensation expense related to the Class R OP Units granted in January 2021 (discussed in Note 12 to our accompanying unaudited condensed consolidated financial statements) along with other compensation, legal and insurance expenses in the current year period compared to the prior year period.2022.
Depreciation and Amortization
Depreciation and amortization expense was $11,817,529$3,598,592 and $13,420,256$3,814,503 for the ninethree months ended September 30, 20212022 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 $1,602,727,$215,911, or 12%6%, period-over-periodas compared with the third quarter of 2021 primarily reflects the reductionabsence of depreciation and amortization expenses related to the nine properties (seven retail properties and two industrial properties) soldof corporate intangibles, which were impaired during the second half of 2020 and the first and third quartersfourth quarter of 2021 offset in part by depreciation and amortization fromconnection with our decision to exit the retail property acquired on July 26, 2021.crowdfunding business.
Interest Expense
Interest expense includes interest paid or payable to lenders on our property mortgages and Credit Facility and related amortization of deferred financing costs and unrealized gains and losses on swap valuations. Total interest expense was $5,711,330$2,514,838 and $9,196,061$1,831,545 for the ninethree months ended September 30, 20212022 and 2020,2021, respectively (see Note 7 to our accompanying unaudited condensed consolidated financial statements for the detaildetails of the components of interest expense). The decreaseOn 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 $3,484,731, or 38%, period-over-period was primarily due to our gain onPrior Credit Facility and related interest, aggregating $153,428,764. In addition, four interest rate swapsswap agreements related to four property mortgages were terminated in connection with the prepayment of $586,782 during the nine months ended September 30,property mortgages. The increase of $683,293, or 37%, in interest expense as compared with the third quarter of 2021 comparedprimarily reflects an increase in interest expense and amortization of deferred financing costs related to a lossthe new Credit Facility's usage as discussed above and the absence of an unrealized gain of $166,539 on swap valuation which was reflected in the prior year’s quarter, partially offset by lower interest rate swapsexpense and amortization of $1,164,490 during the nine months ended September 30, 2020. In addition, the decrease was due to reduced outstanding borrowings for bothdeferred financing costs on our mortgage notes payable due to the payoff of 20 properties discussed above and our credit facilities and reduced amortizationthe sale of loan fees. There was alsofour held for sale properties as of December 31, 2021 in February 2022. Following the purchase of a decrease insecond interest rate swap on October 26, 2022, the Company has hedged its $250 million Term Loan at a weighted average principal balanceinterest rate of our mortgage notes payable from4.33% when the Company’s leverage ratio is no more than 40%. The weighted average interest rate on the Company’s total debt outstanding of approximately $197,182,000 during$201.4 million as of October 31, 2022 is 4.08% based on the first nine monthsCompany’s leverage ratio of 2020 to approximately $180,266,000 during the first nine months38% as of 2021 and average credit facility borrowings were approximately $10,290,000 during the first nine months of 2020, compared to $4,000,000 during the first nine months of 2021.September 30, 2022.
Property Expenses
Property expenses were $5,111,270$2,063,892 and $5,480,411$1,681,059 for the ninethree months ended September 30, 20212022 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 decreaseincrease of $369,141,$382,833, or 7%23%, period-over-periodas compared with the third quarter of 2021, reflects increases in repairs and maintenance, property management fees and property taxes during the third quarter of 2022.
Gain on Sale of Real Estate Investments
The gain on sale of real estate investments of $4,671,284 and $4,242,771 for the three months ended September 30, 2022 and 2021, respectively, relates to the sale of two office properties during the third quarter of 2022 and one industrial property during the third quarter of 2021 (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details of the gain on sale of real estate investments).
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Other Income (Expense)
Interest income was $1,665 and $1,270 for the three months ended September 30, 2022 and 2021, respectively.
Income from unconsolidated investment in a real estate property was $64,358 and $75,403 for the three months ended September 30, 2022 and 2021, respectively. This reflects our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the third quarters of 2022 and 2021, respectively.
Other income of $65,992 and $65,993 for the three months ended September 30, 2022 and 2021, respectively, primarily reflects our monthly management fee from the reduction in expensesentities that own the TIC Interest property, which is equal to 0.1% of the total investment value of the property.
Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021
Rental Income
Rental income, including tenant reimbursements, for the nine months ended September 30, 2022 and 2021 was $30,255,185 and $28,323,568, respectively. The rental income for the nine months ended September 30, 2021 included early termination fee revenue of $1,528,484 related to the property in Cedar Park, Texas leased to Dana Incorporated which was sold on July 7, 2021 (see Note 3 to our accompanying unaudited condensed consolidated financial statements for details of the transaction). Excluding the early termination fee revenue in the prior year period, rental income increased by $3,460,101, or 12.9%, as compared with the first nine months of 2021 primarily reflecting the 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 (sevenleased to Lindsay Precast on April 19, 2022, which contributed approximately 14.0% and 7.9% of our total rental income during the first nine 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 nine other property acquisitions (one industrial property acquired in January 2022, five industrial properties acquired in July 2022, one industrial property acquired in August 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 sale of 12 properties over the last 21 months including four properties sold in February 2022 (one flex and three office), one office property sold in June 2022, two office properties sold in the third quarter of 2022, three retail properties sold in the first quarter of 2021 and two industrial properties)properties sold during the second half of 20202021 (one industrial and 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 $5,071,557 and $4,545,412 for the nine months ended September 30, 2022 and 2021, respectively. The ABR of the operating properties owned as of September 30, 2022 was $34,843,592.
General and Administrative
General and administrative expenses were $5,559,753 and $7,526,577 for the nine months ended September 30, 2022 and 2021, respectively. The decrease of $1,966,824, or 26%, as compared with the first nine months of 2022 reflects decreases in compensation to employees due to personnel reductions, reduced costs for technology services following our exit from the crowdfunding business in the first quarter of 2022 and reduced costs for professional services during the first nine months of 2022.
Stock Compensation Expense
Stock compensation expense was $1,740,852 and $2,115,341 for the nine months ended September 30, 2022 and 2021, respectively. The decrease of $374,489, or 18%, as compared with the first nine months of 2021 primarily reflects forfeitures related to employee terminations and resignations during the second half of 2021 and the first and third quarters of 2021.2022.
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Depreciation and Amortization
Depreciation and amortization expense was $10,581,765 and $11,817,529 for the nine months ended September 30, 2022 and 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 $1,235,764, or 10%, as compared with the first nine months of 2021 primarily reflects the absence of amortization of corporate intangibles, which were impaired during the fourth quarter of 2021 in connection with our decision to exit the crowdfunding business.
Interest Expense
Interest expense includes interest paid or payable to lenders on our property mortgages and Credit Facility and related amortization of deferred financing costs and unrealized gains and losses on swap valuations. Total interest expense was $5,280,167 and $5,711,330 for the nine months ended September 30, 2022 and 2021, respectively (see Note 7 to our accompanying unaudited condensed consolidated financial statements for 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 of $431,163, or 8%, as compared with the first nine months of 2021 primarily reflects an approximately $821,000 decrease in interest expense paid or payable to lenders, partially offset by the decrease in unrealized gain on interest rate swaps and additional amortization of deferred financing costs. Following the purchase of a second interest rate swap on October 26, 2022, the Company has hedged its $250 million Term Loan at a weighted average interest rate of 4.33% when the Company’s leverage ratio is no more than 40%. The weighted average interest rate on the Company’s total debt outstanding of approximately $201.4 million as of October 31, 2022 is 4.08% based on the Company’s leverage ratio of 38% as of September 30, 2022.
Property Expenses
Property expenses were $6,794,369 and $5,302,292 for the nine months ended September 30, 2022 and 2021, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses, the majority of which are reimbursed by tenants. The increase of $1,492,077, or 28%, as compared with the first nine months of 2021 reflects increases in repairs and maintenance, property management fees and property taxes during the first nine months of 2022 and approximately $587,000 in write-offs of costs related to our proposed acquisition of 10 properties leased to Walgreens which we abandoned due to inability to obtain the mortgage servicer’s approval prior to the February 18, 2022 contract termination date and changes in market conditions. These write-offs included legal and due diligence costs and forfeiture of $375,000 of our $1,000,000 earnest money deposit.
Reversal of Impairment of Investment in Real Estate Investment PropertiesProperty
ImpairmentReversal of impairment of investment in real estate investment properties was a creditproperty of $400,999 for the nine months ended September 30, 2021 and a charge of $9,506,525 for the nine months ended September 30, 2020. The current year period's credit resulted fromreflects 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 discussion2021.
Impairment of the adjustment). Goodwill
The impairment charge recorded inof goodwill of $17,320,857 for the nine months ended September 30, 2020 relates2022 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 trading price of our common stock caused our market capitalization to be below the impairmentsbook value of four properties formerly leased to Rite Aid, 24 Hour Fitness, Dinan Carsour equity as of March 31, 2022. Our stock price is materially below both our historical net asset value and Dana due tothe 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. These properties were specifically affected due to the forced closure of the 24 Hour Fitness in Las Vegas, Nevada, and the 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 3 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 and December 2020 and July 2021, respectively.
55

Impairment of Goodwill and Intangible Assets
Impairment charges of $34,572,403 recorded during the nine months ended September 30, 2020 consistedcarrying value of goodwill impairmentto 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 impairmentadditional details).
Reserve for Loan Guarantee
57
The reserve for estimated liability under a loan guarantee amounted to $3,120,678 for the nine months ended September 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 mortgage note payable.

Gain on Sale of Real Estate Investments
The gain on sale of investments of $4,532,413$13,074,162 and $1,693,642$4,532,413 for the nine months ended September 30, 20212022 and 2020,2021, respectively, relates primarily to the sale of fourseven properties (three retail(six office and one industrial)flex) during the current year periodfirst nine months of 2022 and three retail properties and one industrial property during the prior year period, respectivelyfirst nine months of 2021 (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details)details of the gain on sale of real estate investments).
Other (Expense) Income (Loss)
The lease termination expense of $1,175,192Interest income was $16,863 and $1,370 for the nine months ended September 30, 2020 reflects the fee for early termination of our Costa Mesa office lease following the surrender of the leased premises to the lessor during the second quarter of 2020.2022 and 2021, respectively.
Interest incomeIncome from unconsolidated investment in a real estate property was $1,370$226,690 and $4,873$222,705 for the nine months ended September 30, 20212022 and 2020, respectively.
Income from investment in unconsolidated entity was $222,705 and $239,028 for the nine months ended September 30, 2021, and 2020, respectively. This representsreflects our approximate 72.7% TIC Interest in the Santa Clara property's results of operations for the first nine months of 20212022 and 2020,2021, respectively.
Other incomeGain on forgiveness of economic relief note payable of $517,000 for the nine months ended September 30, 2021 also includesreflects the SBA’sSmall 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 PPP.Paycheck Protection Program.
Loss on early extinguishment of debt of $1,725,318 for the nine months ended September 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 $198,128 and $217,978 for the nine months ended September 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 expensescosts incurred in connection with the Offerings,offerings prior to the Listed Offering, including investor relations' payroll expensescosts and other expensescosts incurred in connection with the offerings of our Offerings,stock, including, but not limited to legal fees, federal and state filing fees and other costs. ForThrough November 24, 2021, the nine months ended September 30, 2021 and September 30, 2020, we incurred organizational and offering costs aggregating $946,914 and $981,748, respectively, which are recorded in our financial statements as an offset to equity. Astermination date of September 30, 2021,the Reg A Offering, we had recorded cumulative organizational and offering costs of $8,091,076,$8,298,499, including $5,429,105 paid to our former sponsor or affiliates.affiliates through December 31, 2019.
In connection with our Listed Offering of Class C common stock, we incurred organizational and offering costs in the aggregate of $885,500 through September 30, 2022. We also incurred additional organizational and offering costs of $138,058 and $1,084,748 during the three and nine months ended September 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 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 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 September 30, 2022, no shares were issued in connection with our ATM Offering.
5658

Distributions
Preferred Dividends
On March 18, 2022 and June 15, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for each of the first and second quarters of 2022, which were paid on April 15, 2022 and July 15, 2022, respectively. On August 18, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for the third quarter of 2022. This amount was accrued as of September 30, 2022 and was paid on October 17, 2022 (see Note 14 to our 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 the Board based on our financial condition and such other factors as the Board deems relevant. 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 andout, cash flows provided by operating activitiesfrom operations and our sources of distribution payments were as follows:follows for the first nine months of 2022 and the four quarters of 2021:
Total DistributionsDistributions DeclaredDistributions PaidCash Flows Provided by (Used in) Operating
Period (1)DeclaredPer ShareCashReinvestedActivities
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 
Third Quarter 2021 (4)198,172 0.264656 838,868 1,137,501 3,229,330 
$4,166,359 $0.785339 $2,565,451 $3,399,731 $6,312,683 
2020
First Quarter 2020 (5)$4,189,102 $0.523018 $1,379,751 $2,360,514 $1,947,505 *
Second Quarter 2020 (6)3,270,291 0.407691 1,710,514 2,304,199 (774,533)*
Third Quarter 2020 (7)2,135,815 0.264656 981,432 1,150,452 2,638,676 
Fourth Quarter 2020 (8)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 DeclaredDistributions Declared Per ShareDistributions PaidCash Flows (Used in) Provided by Operating ActivitiesNet Rental Income ReceivedOffering ProceedsQuarter End Accrued Distribution
CashReinvested
2022 (2)
First Quarter$2,907,122 $0.387499 $1,418,783 $1,492,404 $(1,083,310)$2,907,122 $— $854,599 
Second Quarter2,142,075 0.287500 2,070,570 711,223 6,159,782 2,142,075 — 844,183 
Third Quarter2,143,444 0.287500 1,856,735 663,219 4,250,291 2,143,444 — 841,510 
2022 Totals$7,192,641 $0.962499 $5,346,088 $2,866,846 $9,326,763 $7,192,641 $— 
2021
First Quarter$1,991,676 $0.258903 $891,202 $1,130,949 $102,091 $1,991,676 $— $675,221 
Second Quarter1,976,511 0.261780 835,381 1,131,281 2,981,262 1,976,511 — 650,167 
Third Quarter1,981,725 0.264656 838,868 1,137,501 3,299,330 1,981,725 — 643,025 
Fourth Quarter2,160,966 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 distributionsdistribution paid per share of Class S common stock arewas 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.
(4)The distribution of $643,025 for the month of September 2021 was declared in June 2021 and paid on October 25, 2021. The amount was recorded as a liability as of September 30, 2021 in the accompanying unaudited condensed consolidated balance sheets.
(5)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.
(6)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.
(7)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.
(8)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.
5759

Our sources ofPrior 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 weredetails are as follows:
Distribution PeriodNet
Rental
Income
ReceivedRate Per Share Per Day (1)		Offering
ProceedsDeclaration Date		Payment Date
2021
First Quarter 2021January 1-31$1,991,6760.00287670 $— 
Second Quarter 2021December 9, 20201,976,511 February 25, 2021— 
Third Quarter 2021198,172 — 
2021 TotalsFebruary 1-28$4,166,3590.00287670 January 27, 2021March 25, 2021
March 1-31$—0.00287670 January 27, 2021April 26, 2021
2020April 1-30$0.00287670 March 25, 2021May 25, 2021
May 1-31$0.00287670 March 25, 2021June 25, 2021
June 1-30$0.00287670 March 25, 2021July 26, 2021
July 1-31$0.00287670 June 16, 2021August 25, 2021
August 1-31$0.00287670 June 16, 2021September 27, 2021
September 1-30$0.00287670 June 16, 2021October 25, 2021
October 1-31$0.00315070 August 12, 2021November 24, 2021
November 1-30$0.00315070 August 12, 2021December 21, 2021
December 1-31$0.00315070 August 12, 2021January 5, 2022
13th Distribution (2)$0.00027397 January 5, 2022January 18, 2022
First Quarter 2020Distribution PeriodRate Per Share Per MonthDeclaration DatePayment Date
2022
January 1-31$4,189,1020.09583300 $— 
Second Quarter 2020January 27, 20223,270,291 February 25, 2022— 
Third Quarter 20202,135,815 — 
Fourth Quarter 20202,106,620 — 
2020 TotalsFebruary 1-28$11,701,8280.09583300 February 17, 2022March 25, 2022
March 1-31$—0.09583300 February 17, 2022April 25, 2022
April 1-30$0.09583300 March 18, 2022May 25, 2022
May 1-31$0.09583300 March 18, 2022June 27, 2022
June 1-30$0.09583300 March 18, 2022July 25, 2022
July 1-31$0.09583300 June 15, 2022August 25, 2022
August 1-31$0.09583300 June 15, 2022September 26, 2022
September 1-30$0.09583300 June 15, 2022October 25, 2022
October 1-31$0.09583300 August 18, 2022November 23, 2022 (3)
November 1-30$0.09583300 August 18, 2022December 23, 2022 (3)
December 1-31$0.09583300 August 18, 2022January 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 PeriodRate Per Share Per Day (1)Declaration DatePayment Date
2021
January 1-31$0.00287670 December 9, 2020February 25, 2021
February 1-28$0.00287670 January 27, 2021March 25, 2021
March 1-31$0.00287670 January 27, 2021April 26, 2021
April 1-30$0.00287670 March 25, 2021May 25, 2021
May 1-31$0.00287670 March 25, 2021June 25, 2021
June 1-30$0.00287670 March 25, 2021July 26, 2021
July 1-31$0.00287670 June 16, 2021August 25, 2021
August 1-31$0.00287670 June 16, 2021September 27, 2021
September 1-30$0.00287670 June 16, 2021October 25, 2021
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, 2019February 25, 2020
February 1-29$0.00573771 January 24, 2020March 25, 2020
March 1-31$0.00573771 January 24, 2020April 27, 2020
April 1-30$0.00573771 January 24, 2020May 26, 2020
May 1-31$0.00481479 (2)May 20, 2020June 25, 2020
June 1-30$0.00287670 May 20, 2020July 27, 2020
July 1-31$0.00287670 May 20, 2020August 26, 2020
August 1-31$0.00287670 May 20, 2020September 28, 2020
September 1-30$0.00287670 May 20, 2020October 26, 2020
October 1-31$0.00287670 September 30, 2020November 25, 2020
November 1-30$0.00287670 September 30, 2020December 28, 2020
December 1-31$0.00287670 September 30, 2020January 22, 2021
58

(1)    Distributions paid per share of Class S common stock arethrough January 2022 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 adjustmentOn 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 reverseyear 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)    DistributionReflects the expected payment date since the distribution has not been paid as of the filing date of this Quarterly Report on Form 10-Q.
Commencing January 2022, since we are terminating our Reg A Offering effective November 24, 2021, we expect the Board 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 the Board based on our financial condition, projected cash flows and such other factors as the Board 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.
60

Properties
Portfolio Information
Our wholly-owned investments in real estate properties as of September 30, 2021,2022, December 31, 20202021 and September 30, 2020, including four and three assets held for sale as of December 31, 2020 and September 30, 2020, respectively,2021, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:
As ofAs of
September 30,
2021		December 31, 2020September 30,
2020		September 30,
2022		December 31, 2021September 30,
2021
Number of properties:Number of properties:(1)(2)Number of properties:(1)(1)(2)
Industrial, including TIC InterestIndustrial, including TIC Interest26 12 12 
RetailRetail1315 16 Retail13 12 12 
OfficeOffice1414 14 Office8 14 14 
Industrial1112 13 
Total operating properties and properties held for saleTotal operating properties and properties held for sale3841 43 Total operating properties and properties held for sale47 38 38 
LandLand11 1 Land1 1 1 
Total propertiesTotal properties394244Total properties483939
Leasable square feet:Leasable square feet:Leasable square feet:
IndustrialIndustrial2,434,373 1,514,876 1,145,519 
RetailRetail295,366 220,553 362,764 Retail234,029 161,406 291,513 
OfficeOffice853,963 853,963 904,499 Office508,710 800,036 853,963 
Industrial1,100,054 1,145,519 1,185,279 
TotalTotal2,249,383 2,220,035 2,452,542 Total3,177,112 2,476,318 2,290,995 
(1)    Includes four retail properties (three office and one industrial) held for sale as of December 31, 2020, three of which were sold during the first quarter of 2021 and one retail property was put back into operating properties and reclassified as real estate investment held for investment and use during the second quarter of 2021.
(2)    Includes three propertiesone retail property held for sale as of September 30, 2020 (two retail properties and one industrial property), one retail and one industrial property of which were sold during the fourth quarter of 2020 and one retail property was reclassified as real estate investment held for investment and use during the second quarter of 2021.
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.
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We completed the sale of four and three propertiesfollowing acquisitions during the first nine months ofended September 30, 2022 and 2021 and 2020, respectively, as follows:
PropertyLocationProperty TypeDisposition DateContract Sales PriceNet Proceeds (1)
2021
Chevron Gas StationRoseville, CARetail1/7/2021$4,050,000 $3,914,909 
EcoThriftSacramento, CARetail1/29/20215,375,300 2,684,225 
Chevron Gas StationSan Jose, CARetail2/12/20214,288,888 4,054,327 
DanaCedar Park, TXIndustrial7/7/202110,000,000 4,975,334 
$23,714,188 $15,628,795 
2020
Rite AidLake Elsinore, CARetail8/3/2020$7,250,000 $3,299,016 
WalgreensStockbridge, GARetail8/27/20205,538,462 5,296,356 
Island PacificElk Grove, CARetail9/16/20203,155,000 1,124,016 
$15,943,462 $9,719,388 
Property and LocationAcquisition DateProperty TypeRentable Square FeetAcquisition Price
KIA, Carson, CA1/18/2022Retail72,623 $69,405,050 
Kalera, St. Paul, MN1/31/2022Industrial78,857 8,119,009 
Lindsay, Colorado Springs 1, CO4/19/2022Industrial23,452 2,311,934 
Lindsay, Colorado Springs 2, CO4/19/2022Industrial36,454 3,314,406 
Lindsay, Dacono, CO (1)4/19/2022Industrial39,088 6,068,788 
Lindsay, Alachua, FL4/19/2022Industrial96,792 8,518,123 
Lindsay, Franklinton, NC4/19/2022Industrial69,939 7,181,113 
Lindsay, Fulton 1, OH4/19/2022Industrial147,998 11,345,533 
Lindsay, Fulton 2, OH4/19/2022Industrial129,112 10,190,942 
Lindsay, Rock Hill, SC4/19/2022Industrial75,360 6,555,983 
Producto, Endicott, NY7/15/2022Industrial31,262 2,362,310 
Producto, Jamestown, NY7/15/2022Industrial41,111 3,073,686 
Valtir, Centerville, UT7/26/2022Industrial133,678 4,685,354 
Valtir, Orangeburg, SC7/26/2022Industrial54,549 5,600,270 
Valtir, Fort Worth, TX7/26/2022Industrial72,498 3,278,521 
Valtir, Lima, OH8/4/2022Industrial32,887 9,921,943 
1,135,660 $161,932,965 
2021
Raising Cane's, San Antonio, TX07/26/2021Retail3,853 $3,644,221 
(1)    NetAs of September 30, 2022, buildings and improvements exclude non-refundable deposit of $820,614 for funding of ongoing building construction. This deposit is included in prepaid expenses and other assets in our accompanying unaudited condensed consolidated balance sheet as of September 30, 2022.
We completed the following dispositions during the nine months ended September 30, 2022 and 2021 as follows:
PropertyLocationDisposition DateProperty TypeRentable Square FeetContract Sales PriceNet Proceeds
2022
Bon SecoursRichmond, VA2/11/2022Office72,890 $10,200,000 $— 
OmnicareRichmond, VA2/11/2022Flex51,800 8,760,000 — 
Texas HealthDallas, TX2/11/2022Office38,794 7,040,000 11,892,305 (1)
AccredoOrlando, FL2/24/2022Office63,000 14,000,000 5,012,724 
EMCORCincinnati, OH6/29/2022Office39,385 6,525,000 6,345,642 
Williams SonomaSummerlin, NV8/26/2022Office35,867 9,300,000 8,964,252 
WyndhamSummerlin, NV9/16/2022Office41,390 12,900,000 12,267,571 
343,126 $68,725,000 $44,482,494 
2021
Chevron Gas StationRoseville, CA1/7/2021Retail3,300 $4,050,000 $3,914,909 
EcoThriftSacramento, CA1/29/2021Retail38,536 5,375,300 2,684,225 
Chevron Gas StationSan Jose, CA2/12/2021Retail1,060 4,288,888 4,054,327 
DanaCedar Park, TX7/7/2021Industrial45,465 10,000,000 $4,975,334 
$88,361 $23,714,188 $15,628,795 
(1)    Combined net proceeds for the February 11, 2022 disposition are net of commissions, closing costs paid and repayment of the outstanding mortgages, except there were no outstanding mortgagesmortgages.
62

Extension of Leases
Effective January 12, 2022, we extended the lease term of our Cummins property 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 lease terms and 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. On July 15, 2022, we agreed to allow ITW Rippey to utilize their tenant improvements allowance for any sums due under the lease.
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 paid a leasing commission of $90,383 in connection with this extension. We sold this property on August 26, 2022 (see details of sale on the two Chevron properties and the Walgreens property at the timedisposition table above).
We are continuing to explore potential lease extensions for certain of sale.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 theour properties are adequately insured. We have two tenants with leases that providePursuant to lease agreements, as of September 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, the majority of which willimprovements to be funded from restricted cash on deposit at Banc of California. Additional funds included in restricted cash will fund building improvements.incurred by tenants. We expect that the related improvements will be completed withinduring the next 12 months.2022 calendar year and will be funded from cash on hand, operating cash flow or borrowings under our Revolver.
In addition, we have identified approximately $3,700,000$855,000 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 $1,500,000 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 $1,300,000$317,000 of these improvements are expected to be recoverable from the tenant through operating expense reimbursements. We will have toinitially 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 $900,000$538,000 are not recoverable from tenants. These improvements will be funded from cash on hand, operating cash flows, debt financingsborrowings under our Revolver or proceeds from the sale of shares of our common and preferred stock.
Recent Market Conditions
WeThe continuing significant uncertainties in the market related to supply chain disruptions, inflation and increases in interest rates have added to negative impacts caused by developments in the Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia. 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, although their impactimpacts of the COVID-19 pandemic on the economy appearsappear to have diminished and the general commercial real estate market appears to be recovering.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, or rent abatements for tenants severely impacted by the COVID-19 pandemic, may result in decreases in cash flows from investment properties. We have one office and one industrial leaseno leases scheduled to expire in the remainder of 2022, and fourthree leases (three(two office and one industrial) scheduled to expire in 2023, which comprise an aggregate of 303,743142,146 leasable square feet and represent approximately 13.0%2.8% of projected 2022 net operating incomeABR from properties.properties as of September 30, 2022. One of the office tenants has notified us of their intent not to renew their lease and we are negotiating potential extensions with the other two tenants. The other 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.
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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 fournine properties (two Dollar Generals in Ohio, Northrop Grumman in Melbourne, Floridaduring 2021 and PreK in San Antonio, Texas) over the last nine months,first quarter of 2022 and negotiated lease extensions for L3Harris in Carlsbad, California and 3M Company in Dekalb, Illinois during October of 2021. We are in the process of negotiating potential lease extensions with several other tenants.
The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, impacts of the COVID-19 pandemic, Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries. WhileIncreases in interest rates on our floating rate debt will reduce our net income and cash flows. In January 2022, we have had success during 2020 and the first nine months of 2021 with refinancing ninerefinanced all but four of our properties any(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 other three mortgages do not mature until after September 2027. All four 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 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. 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 to rely 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 as 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 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 expectcontinuously review our investment and debt financing strategies to manageoptimize our portfolio and the current mortgage lending environment by considering alternative lending sources, includingcost of our debt exposure. On May 10, 2022, we purchased a five-year swap to fix SOFR at 2.258% on our $150,000,000 Term Loan that results in a fixed interest rate loans, variableof 3.858% on the Term Loan when our leverage ratio is less than or equal to 40%. As part of this transaction, we agreed to a one-time option to terminate the swap on December 31, 2024, which reduced the swap rate. On October 26, 2022, we purchased a five-year swap to fix SOFR at 3.44% on an additional $100,000,000 of our Term Loan that will result in a fixed interest rate loans, securitized debt,of 5.04% on additional draws under the expanded Term Loan when our leverage ratio is less than or any combinationequal to 40%. As part of the foregoing.swap transaction, we sold a one-time option to terminate the swap on December 31, 2024, which reduced the swap rate. Under the Credit Facility, the interest rate will continue to vary based on our leverage ratio. As a result of the above transactions, the Company has hedged its $250 million Term Loan at a weighted average interest rate of 4.33% when the Company’s leverage ratio is no more than 40%. The weighted average interest rate on the Company’s total debt outstanding of approximately $201.4 million as of October 31, 2022 is 4.08% based on the Company’s leverage ratio of 38% as of September 30, 2022.
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 willintend 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 qualifymaintain our qualification as a REIT forin 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.
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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 nine months ended September 30, 2021.2022.
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Commitments and Contingencies
We may be subject to certain commitments and contingencies with regard to certain transactions (see Note 11 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 10 to our accompanying unaudited condensed consolidated financial statements for additional details of the various related-party transactions and agreements).agreements.
Subsequent Events
See Note 1314 to our accompanying unaudited condensed consolidated financial statements for events that occurred subsequent to September 30, 20212022 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 September 30, 2021.2022.
Item 3.  Quantitative and Qualitative Disclosure About Market Risk
Not applicable as we are a smaller reporting company.
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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 September 30, 20212022 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 September 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 September 30, 20212022 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.
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PART II – OTHER INFORMATION
Item 1.  Legal Proceedings
The information disclosed under Legal Matters in Note 11 to our accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.
Item 1A.  Risk Factors
Except as noted below, thereThere 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, 20202021 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
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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.”
The Company’s operations and performance depend significantly on national and regional economic conditions, and adverse economic conditions can materially adversely affect the Company’s business, results of operations and financial condition.
Adverse macroeconomic conditions, including inflation, may affect (i) existing or prospective lessees' businesses and their demand for space, and (ii) conditions in the real estate and mortgage markets, and could result in declines in our income and asset values.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended September 30, 2021,2022, we issued a totalan aggregate of 3,64710,317 shares of Class C common stock to five non-employee members of the Board for their service as Board members during the third quarter of 2021.2022 and an aggregate of 4,666 shares of Class C common stock, which were issued in July 2022 to non-employee members of the Board for their service as directors during the second quarter of 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 September 30, 2021, we also issued 217Our 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 $5,562. Such issuances werethrough December 31, 2022. Purchases made pursuant to the distribution reinvestment planprogram 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 July 1, 2022 through September 30, 2022, we repurchased a total of 45,715 shares of our Class S common stock in reliance onfor a total of $703,850 under this share repurchase program for an exemption from the registration requirementsaverage cost of the Securities Act under and in accordance with Regulation S$15.40 per share. Since inception of the Securities Act.
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Sales Pursuant to Our Private Offering and Our Reg A 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 were sold at a per share offering price equal to the most recently published NAV per share determined by the Board. We primarily used 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 used 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 provided liquidity to our stockholders pursuant to our share repurchase program. We terminated the Private Offering on August 12, 2021. During the period fromprogram in February 1, 2021 to August 11, 2021,2022 through September 30, 2022, we sold 36,207have repurchased a total of 233,145 shares of Class C common stock pursuant to the Private Offering for aggregate proceeds of $851,273.
On June 29, 2021, we filed with the SEC a Regulation A Offering Statement on Form 1-A, including our preliminary offering circular, for a $75,000,000 offeringtotal of our Class C common stock and filed$3,957,752, for an amended Form 1-A on August 13, 2021. The SEC qualified the amended Regulation A Offering Statement on Form 1-A on August 16, 2021. The Reg A Offering allowed us to once again accept subscriptions from investors who are not accredited. During the period from August 16, 2021 to October 31, 2021, we sold 42,113 sharesaverage cost of Class C common stock pursuant to the Reg A Offering for aggregate proceeds of $1,097,029.
Issuer Redemptions of Equity Securities
We have adopted a$16.98 per share. Our last 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 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 thatthe 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 (as defined below).
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 September 30, 2021, we received share repurchase requests that resulted in share repurchases as follows:
Value of Share Repurchase Requests ReceivedRepurchase DateValue of Shares Repurchased (1)
July 2021$4,481,177 August 4, 2021$1,058,285 
August 2021$5,928,373 September 3, 2021$1,775,082 
September 2021$6,560,652 October 5, 2021$1,348,912 
(1)    Including Extraordinary Circumstance Repurchases and after applicable administrative fees for shares held less than two years for shares repurchased thereafter.
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The Board 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 the Board believes such action is in our and such stockholders’ best interests, including because share repurchases place an undue burden2022 were made on our liquidity, adversely affect our operations, adversely affect stockholders whose shares are not repurchased, or if the Board determines that the funds otherwise available to fund our share repurchases are needed for other purposes. The Board 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 the Board becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased. On November 5, 2021, we announced that the Board reviewed and approved management’s recommendation to terminate our SRPs and we are no longer accepting share repurchase requests.August 24, 2022.
The following table summarizes our repurchase activity under our share repurchase program for our Class C common stock for the three months ended September 30, 2021. For the three months ended September 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 ShareTotal Number of Shares Purchased As Part of Publicly Announced Plan or ProgramDollar Value of
Shares Available
That May
Be Repurchased
Under the
Program
July 1-31, 202143,069 $24.57 43,069 (1)
August 1-31, 202168,202 $26.03 68,202 (1)
September 1-30, 202151,823 $26.03 51,823 (1)
Total163,094 163,094 
(1)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
July 1-31, 202219,425 $15.52 
August 1-31, 202226,290 $15.30 
September 1-30, 2022— $— 
Total45,715 $15.40 
Item 6.  Exhibits
The exhibits listed on the Exhibit Index below are included herewith or incorporated herein by reference.
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EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20212022 (and are numbered in accordance with Item 601 of Regulation S-K).
ExhibitDescription
3.1
3.2
3.3
4.1
4.2
4.3
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)001-40814) filed with the Securities and Exchange Commission on February 1, 2021)
10.1
10.2*
10.3
10.4
31.1*
31.2*
32.1**
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.
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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: November 12, 202114, 2022
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