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, 20222023
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 INDUSTRIAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
| Maryland | 47-4156046 |
(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
120 Newport Center Drive, Newport Beach, CA200 S. Virginia Street, Suite 800, Reno, NV | 9266089501 |
| (Address of principal executive offices) | (Zip Code) |
(888) 686-6348
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Class C Common Stock, $0.001 par value per share | | MDV | | New York Stock Exchange |
| 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share | | MDV.PA | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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 the 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, 2022,2023, there were 7,485,8667,590,138 shares of Class C common stock outstanding.
Modiv Inc.MODIV INDUSTRIAL, INC.
FORM 10-Q
INDEX
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 COVID-19 pandemic has caused significant disruption to our tenants' business operations which may impact our results of operations and cash flows in ways that remain unpredictable, and any future outbreak of other 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 continuing developments in the Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia have caused and may continue to cause 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 active and liquid market for our Class C common stock, and the market price and trading volume of 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 related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
•Our properties 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 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 and we may not generate cash flows sufficient to pay distributions to stockholders or meet our debt service obligations.
•We may be affected by risks resulting from losses in excess of insured limits.
•Risks of security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems, could adversely affect our business and results of operations.
Our forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in light of the risk factors identified above and the additional risks and uncertainties described in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 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.
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Modiv Inc.MODIV INDUSTRIAL, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | September 30,
2022 | | December 31, 2021 | | September 30,
2023 | | December 31, 2022 |
| Assets | Assets | | | | Assets | | | |
| Real estate investments: | Real estate investments: | | Real estate investments: | |
| Land | Land | $ | 107,564,295 | | | $ | 61,005,402 | | Land | $ | 106,263,557 | | | $ | 103,657,237 | |
| Buildings and improvements | Buildings and improvements | 337,335,727 | | | 251,246,290 | | Buildings and improvements | 402,036,084 | | | 329,867,099 | |
| Equipment | Equipment | 4,429,000 | | | — | | Equipment | 4,429,000 | | | 4,429,000 | |
| Tenant origination and absorption costs | Tenant origination and absorption costs | 20,074,123 | | | 21,504,210 | | Tenant origination and absorption costs | 15,929,385 | | | 19,499,749 | |
| Total investments in real estate property | Total investments in real estate property | 469,403,145 | | | 333,755,902 | | Total investments in real estate property | 528,658,026 | | | 457,453,085 | |
| Accumulated depreciation and amortization | Accumulated depreciation and amortization | (44,025,915) | | | (37,611,133) | | Accumulated depreciation and amortization | (47,587,670) | | | (46,752,322) | |
| Total investments in real estate property, net | 425,377,230 | | | 296,144,769 | | |
| Total real estate investments, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net | | Total real estate investments, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net | 481,070,356 | | | 410,700,763 | |
| Unconsolidated investment in a real estate property | Unconsolidated investment in a real estate property | 9,988,498 | | | 9,941,338 | | Unconsolidated investment in a real estate property | 10,035,805 | | | 10,007,420 | |
| Total real estate investments, net | 435,365,728 | | | 306,086,107 | | |
| Total real estate investments, net, excluding real estate investments held for sale, net | | Total real estate investments, net, excluding real estate investments held for sale, net | 491,106,161 | | | 420,708,183 | |
| Real estate investments held for sale, net | Real estate investments held for sale, net | — | | | 31,510,762 | | Real estate investments held for sale, net | 8,628,186 | | | 5,255,725 | |
| Total real estate investments, net | Total real estate investments, net | 435,365,728 | | | 337,596,869 | | Total real estate investments, net | 499,734,347 | | | 425,963,908 | |
| Cash and cash equivalents | Cash and cash equivalents | 5,726,888 | | | 55,965,550 | | Cash and cash equivalents | 5,641,610 | | | 8,608,649 | |
| Restricted cash | — | | | 2,441,970 | | |
| Receivable from early termination of lease | — | | | 1,836,767 | | |
| Tenant receivables | Tenant receivables | 8,433,895 | | | 5,996,919 | | Tenant receivables | 11,211,058 | | | 7,263,202 | |
| Above-market lease intangibles, net | Above-market lease intangibles, net | 1,939,305 | | | 691,019 | | Above-market lease intangibles, net | 1,332,458 | | | 1,850,756 | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | 6,387,245 | | | 5,856,255 | | Prepaid expenses and other assets | 4,881,383 | | | 6,100,937 | |
| Interest rate swap derivative | 4,786,903 | | | — | | |
| Assets related to real estate investments held for sale | — | | | 788,296 | | |
| Goodwill, net | — | | | 17,320,857 | | |
| Investment in preferred stock | | Investment in preferred stock | 10,060,000 | | | — | |
| Interest rate swap derivatives | | Interest rate swap derivatives | 6,156,179 | | | 4,629,702 | |
| Other assets related to real estate investments held for sale | | Other assets related to real estate investments held for sale | 46,158 | | | 12,765 | |
| Total assets | Total assets | $ | 462,639,964 | | | $ | 428,494,502 | | Total assets | $ | 539,063,193 | | | $ | 454,429,919 | |
| Liabilities and Equity | Liabilities and Equity | | | | Liabilities and Equity | | | |
| Mortgage notes payable, net | Mortgage notes payable, net | $ | 44,530,130 | | | $ | 152,223,579 | | Mortgage notes payable, net | $ | 34,118,748 | | | $ | 44,435,556 | |
| Mortgage notes payable related to real estate investments held for sale, net | — | | | 21,699,912 | | |
| Total mortgage notes payable, net | 44,530,130 | | | 173,923,491 | | |
| Credit facility revolver | Credit facility revolver | 6,775,000 | | | 8,022,000 | | Credit facility revolver | — | | | 3,000,000 | |
| Credit facility term loan, net | Credit facility term loan, net | 148,913,350 | | | — | | Credit facility term loan, net | 248,385,927 | | | 148,018,164 | |
| Accounts payable, accrued and other liabilities | Accounts payable, accrued and other liabilities | 9,658,378 | | | 11,844,881 | | Accounts payable, accrued and other liabilities | 8,893,630 | | | 7,649,806 | |
| Below-market lease intangibles, net | Below-market lease intangibles, net | 9,910,280 | | | 11,102,940 | | Below-market lease intangibles, net | 9,098,703 | | | 9,675,686 | |
| Interest rate swap derivatives | Interest rate swap derivatives | — | | | 788,016 | | Interest rate swap derivatives | — | | | 498,866 | |
| Liabilities related to real estate investments held for sale | Liabilities related to real estate investments held for sale | — | | | 383,282 | | Liabilities related to real estate investments held for sale | 162,349 | | | 117,881 | |
| Total liabilities | Total liabilities | 219,787,138 | | | 206,064,610 | | Total liabilities | 300,659,357 | | | 213,395,959 | |
| | Commitments and contingencies (Note 11) | | |
Commitments and contingencies (Note 11) | | Commitments and contingencies (Note 11) | |
| | 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, respectively | 2,000 | | | 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, 2021 | 7,698 | | | 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, respectively | — | | | 64 | | |
| 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, 2023 and December 31, 2022 | | 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, 2023 and December 31, 2022 | 2,000 | | | 2,000 | |
| Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,920,926 shares issued and 7,577,416 shares outstanding as of September 30, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022 | | Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,920,926 shares issued and 7,577,416 shares outstanding as of September 30, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022 | 7,921 | | | 7,762 | |
| Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022 | | Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022 | — | | | — | |
| Additional paid-in-capital | Additional paid-in-capital | 277,079,074 | | | 273,441,831 | | Additional paid-in-capital | 289,837,352 | | | 278,339,020 | |
| Treasury stock, at cost, 233,145 shares and no shares held as of September 30, 2022 and December 31, 2021, respectively | (3,957,752) | | | — | | |
| Treasury stock, at cost, 343,510 shares and 250,153 shares held as of September 30, 2023 and December 31, 2022, respectively | | Treasury stock, at cost, 343,510 shares and 250,153 shares held as of September 30, 2023 and December 31, 2022, respectively | (5,290,780) | | | (4,161,618) | |
| Cumulative distributions and net losses | Cumulative distributions and net losses | (115,634,474) | | | (101,624,430) | | Cumulative distributions and net losses | (132,524,459) | | | (117,938,876) | |
| Accumulated other comprehensive income | Accumulated other comprehensive income | 3,618,477 | | | — | | Accumulated other comprehensive income | 2,871,866 | | | 3,502,616 | |
| Total Modiv Inc. equity | 161,115,023 | | | 171,826,892 | | |
| Total Modiv Industrial, Inc. equity | | Total Modiv Industrial, Inc. equity | 154,903,900 | | | 159,750,904 | |
| Noncontrolling interests in the Operating Partnership | Noncontrolling interests in the Operating Partnership | 81,737,803 | | | 50,603,000 | | Noncontrolling interests in the Operating Partnership | 83,499,936 | | | 81,283,056 | |
| Total equity | Total equity | 242,852,826 | | | 222,429,892 | | Total equity | 238,403,836 | | | 241,033,960 | |
| Total liabilities and equity | Total liabilities and equity | $ | 462,639,964 | | | $ | 428,494,502 | | Total liabilities and equity | $ | 539,063,193 | | | $ | 454,429,919 | |
See accompanying notes to condensed consolidated financial statements.
MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Rental income | | $ | 12,500,338 | | | $ | 10,303,402 | | | $ | 34,648,083 | | | $ | 30,017,493 | |
| | | | | | | | |
| Operating expenses: | | | | | | | | |
| General and administrative | | 1,735,104 | | | 1,838,388 | | | 5,240,935 | | | 5,559,753 | |
| Stock compensation expense | | 8,469,867 | | | 549,240 | | | 9,790,206 | | | 1,740,852 | |
| Depreciation and amortization | | 4,175,209 | | | 3,598,592 | | | 11,403,603 | | | 10,581,765 | |
| Property expenses | | 1,195,224 | | | 1,415,621 | | | 4,429,936 | | | 5,009,701 | |
| Impairment of real estate investment property | | — | | | — | | | 3,499,438 | | | — | |
| Impairment of goodwill | | — | | | — | | | — | | | 17,320,857 | |
| Total operating expenses | | 15,575,404 | | | 7,401,841 | | | 34,364,118 | | | 40,212,928 | |
| | | | | | | | |
| (Loss) gain on sale of real estate investments | | (1,708,801) | | | 3,932,028 | | | (1,708,801) | | | 11,527,185 | |
| Operating (loss) income | | (4,783,867) | | | 6,833,589 | | | (1,424,836) | | | 1,331,750 | |
| | | | | | | | |
| Other income (expense): | | | | | | | | |
| Interest income | | 26,386 | | | 1,665 | | | 296,921 | | | 16,863 | |
| Dividend income | | 190,000 | | | — | | | 190,000 | | | — | |
| Income from unconsolidated investment in a real estate property | | 79,164 | | | 64,358 | | | 207,506 | | | 226,690 | |
| Interest expense, net of derivative settlements and unrealized gain on interest rate swaps | | (2,922,918) | | | (2,514,838) | | | (6,761,779) | | | (5,280,167) | |
| Increase in fair value of investment in preferred stock | | 440,000 | | | — | | | 440,000 | | | — | |
| Loss on early extinguishment of debt | | — | | | — | | | — | | | (1,725,318) | |
| Other | | 65,993 | | | 65,993 | | | 197,978 | | | 198,129 | |
| Other expense, net | | (2,121,375) | | | (2,382,822) | | | (5,429,374) | | | (6,563,803) | |
| | | | | | | | |
| Net (loss) income | | (6,905,242) | | | 4,450,767 | | | (6,854,210) | | | (5,232,053) | |
| Less: net loss (income) attributable to noncontrolling interest in Operating Partnership | | 1,368,896 | | | (528,540) | | | 1,535,452 | | | 1,180,275 | |
| Net (loss) income attributable to Modiv Industrial, Inc. | | (5,536,346) | | | 3,922,227 | | | (5,318,758) | | | (4,051,778) | |
| Preferred stock dividends | | (921,875) | | | (921,875) | | | (2,765,625) | | | (2,765,625) | |
| Net (loss) income attributable to common stockholders | | $ | (6,458,221) | | | $ | 3,000,352 | | | $ | (8,084,383) | | | $ | (6,817,403) | |
| | | | | | | | |
| Net (loss) income per share attributable to common stockholders: | | | | | | | | |
| Basic | | $ | (0.86) | | | $ | 0.40 | | | $ | (1.07) | | | $ | (0.91) | |
| Diluted | | $ | (0.86) | | | $ | 0.35 | | | $ | (1.07) | | | $ | (0.91) | |
| Weighted-average number of common shares outstanding: | | | | | | | | |
| Basic | | 7,548,052 | | | 7,449,968 | | | 7,537,505 | | | 7,486,945 | |
| Diluted | | 7,548,052 | | | 10,180,543 | | | 7,537,505 | | | 7,486,945 | |
| | | | | | | | |
| Distributions declared per common share | | $ | 0.2875 | | | $ | 0.2875 | | | $ | 0.8625 | | | $ | 0.9625 | |
See accompanying notes to condensed consolidated financial statements.
Modiv Inc.MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of OperationsComprehensive (Loss) Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Rental income | | $ | 10,212,418 | | | $ | 10,241,690 | | | $ | 30,255,185 | | | $ | 28,323,568 | |
| | | | | | | | |
| Expenses: | | | | | | | | |
| General and administrative | | 1,838,388 | | | 2,907,956 | | | 5,559,753 | | | 7,526,577 | |
| Stock compensation expense | | 549,240 | | | 743,609 | | | 1,740,852 | | | 2,115,341 | |
| Depreciation and amortization | | 3,598,592 | | | 3,814,503 | | | 10,581,765 | | | 11,817,529 | |
| Interest expense | | 2,514,838 | | | 1,831,545 | | | 5,280,167 | | | 5,711,330 | |
| Property expenses | | 2,063,892 | | | 1,681,059 | | | 6,794,369 | | | 5,302,292 | |
| Reversal of impairment of real estate investment property | | — | | | — | | | — | | | (400,999) | |
| Impairment of goodwill | | — | | | — | | | 17,320,857 | | | — | |
| Total expenses | | 10,564,950 | | | 10,978,672 | | | 47,277,763 | | | 32,072,070 | |
| | | | | | | | |
| Operating income (loss): | | | | | | | | |
| Gain on sale of real estate investments | | 4,671,284 | | | 4,242,771 | | | 13,074,162 | | | 4,532,413 | |
| Operating income (loss) | | 4,318,752 | | | 3,505,789 | | | (3,948,416) | | | 783,911 | |
| | | | | | | | |
| Other income (expense): | | | | | | | | |
| Interest income | | 1,665 | | | 1,270 | | | 16,863 | | | 1,370 | |
| Income from unconsolidated investment in a real estate property | | 64,358 | | | 75,403 | | | 226,690 | | | 222,705 | |
| Gain on forgiveness of economic relief note payable | | — | | | — | | | — | | | 517,000 | |
| Loss on early extinguishment of debt | | — | | | — | | | (1,725,318) | | | — | |
| Other | | 65,992 | | | 65,993 | | | 198,128 | | | 217,978 | |
| Other income (expense), net | | 132,015 | | | 142,666 | | | (1,283,637) | | | 959,053 | |
| | | | | | | | |
| 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 Partnership | | 528,540 | | | — | | | (1,180,275) | | | — | |
| Net income (loss) attributable to Modiv Inc. | | 3,922,227 | | | 3,648,455 | | | (4,051,778) | | | 1,742,964 | |
| 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 | |
| | | | | | | | |
| Net income (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 | |
| Weighted-average number of common shares outstanding: | | | | | | | | |
| Basic | | 7,449,968 | | | 7,531,559 | | | 7,486,945 | | | 7,575,013 | |
| Diluted | | 10,180,543 | | | 8,750,875 | | | 7,486,945 | | | 8,763,112 | |
| | | | | | | | |
| Distributions declared per common share | | $ | 0.2875 | | | $ | 0.2625 | | | $ | 0.9625 | | | $ | 0.7875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Net (loss) income | | $ | (6,905,242) | | | $ | 4,450,767 | | | $ | (6,854,210) | | | $ | (5,232,053) | |
| Other comprehensive loss: cash flow hedge adjustments | | | | | | | | |
| Add: Amortization of unrealized holding gain on interest rate swap | | 253,092 | | | — | | | 756,496 | | | — | |
| Unrealized holding gain on interest rate swap designated as a cash flow hedge | | — | | | 4,255,906 | | | — | | | 4,255,906 | |
| Comprehensive (loss) income | | (6,652,150) | | | 8,706,673 | | | (6,097,714) | | | (976,147) | |
| | | | | | | | |
| Net loss (income) attributable to noncontrolling interest in Operating Partnership | | 1,368,896 | | | (528,540) | | | 1,535,452 | | | 1,180,275 | |
| Other comprehensive loss attributable to noncontrolling interest in Operating Partnership: cash flow hedge adjustments | | | | | | | | |
| Add: Amortization of unrealized holding gain on interest rate swap | | 44,264 | | | — | | | 125,746 | | | — | |
| Unrealized holding gain on interest rate swap designated as a cash flow hedge | | — | | | (637,429) | | | — | | | (637,429) | |
| Comprehensive loss (income) attributable to noncontrolling interest in Operating Partnership | | 1,413,160 | | | (1,165,969) | | | 1,661,198 | | | 542,846 | |
| | | | | | | | |
| Comprehensive (loss) income attributable to Modiv Industrial, Inc. | | $ | (5,238,990) | | | $ | 7,540,704 | | | $ | (4,436,516) | | | $ | (433,301) | |
See accompanying notes to condensed consolidated financial statements.
Modiv Inc.MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)Equity
Three Months Ended September 30, 2023 and 2022
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| 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 hedge | | 4,255,906 | | | — | | | 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 Partnership | | 528,540 | | | — | | | (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 hedge | | 637,429 | | | — | | | 637,429 | | | — | |
| Comprehensive income (loss) attributable to noncontrolling interest in Operating Partnership | | 1,165,969 | | | — | | | (542,846) | | | — | |
| Comprehensive income (loss) attributable to Modiv Inc. | | $ | 7,540,704 | | | $ | 3,648,455 | | | $ | (433,301) | | | $ | 1,742,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Class C | | Additional
Paid-in
Capital | | | | | | Cumulative Distributions and Net Losses | | Accumulated Other Comprehensive Income (Loss) | | Total
Modiv Industrial, Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Common Stock | | | Treasury Stock | |
| Shares | | Amounts | | Shares | | Amounts | | | Shares | | Amounts | |
| Balance, June 30, 2023 | 2,000,000 | | | $ | 2,000 | | | 7,874,502 | | | $ | 7,875 | | | $ | 280,815,445 | | | (343,510) | | | $ | (5,290,780) | | | $ | (123,895,028) | | | $ | 3,080,694 | | | $ | 154,720,206 | | | $ | 85,373,051 | | | $ | 240,093,257 | |
| Issuance of common stock - distribution reinvestments | — | | | — | | | 42,230 | | | 42 | | | 552,044 | | | — | | | — | | | — | | | — | | | 552,086 | | | — | | | 552,086 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock compensation expense | — | | | — | | | 4,194 | | | 4 | | | 69,996 | | | — | | | — | | | — | | | — | | | 70,000 | | | — | | | 70,000 | |
| OP Units compensation expense | — | | | — | | | — | | | — | | | 8,399,867 | | | — | | | — | | | — | | | — | | | 8,399,867 | | | — | | | 8,399,867 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Dividends declared, preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (921,875) | | | — | | | (921,875) | | | — | | | (921,875) | |
| Distributions declared, common stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,171,210) | | | — | | | (2,171,210) | | | — | | | (2,171,210) | |
| Distributions declared, Class C OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (459,955) | | | (459,955) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,536,346) | | | — | | | (5,536,346) | | | (1,368,896) | | | (6,905,242) | |
| Amortization of unrealized holding gain on interest rate swap | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (208,828) | | | (208,828) | | | (44,264) | | | (253,092) | |
| Balance, September 30, 2023 | 2,000,000 | | | $ | 2,000 | | | 7,920,926 | | | $ | 7,921 | | | $ | 289,837,352 | | | (343,510) | | | $ | (5,290,780) | | | $ | (132,524,459) | | | $ | 2,871,866 | | | $ | 154,903,900 | | | $ | 83,499,936 | | | $ | 238,403,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Class C | | Additional
Paid-in
Capital | | | | | | Cumulative
Distributions
and Net (Losses) Income | | Accumulated Other Comprehensive Income | | Total
Modiv Industrial, Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Common Stock | | | Treasury Stock | |
| Shares | | Amounts | | Shares | | Amounts | | | Shares | | Amounts | |
| Balance, June 30, 2022 | 2,000,000 | | | $ | 2,000 | | | 7,643,992 | | | $ | 7,644 | | | $ | 275,922,227 | | | (187,430) | | | $ | (3,253,902) | | | $ | (116,491,382) | | | $ | — | | | $ | 156,186,587 | | | $ | 80,949,131 | | | $ | 237,135,718 | |
| 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, 2022 | 2,000,000 | | | $ | 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 | |
See accompanying notes to condensed consolidated financial statements.
Modiv Inc.MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of Equity
ThreeNine Months Ended September 30, 20222023 and 20212022
(Unaudited)
| | | Preferred Stock | | Class C | | Additional
Paid-in
Capital | | | Cumulative
Distributions
and Net
(Losses) Income | | Accumulated Other Comprehensive Income | | Total
Modiv Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity | | Preferred Stock | | Class C | | Additional
Paid-in
Capital | | | Cumulative Distributions and Net Losses | | Accumulated Other Comprehensive Income (Loss) | | Total
Modiv Industrial, Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Common Stock | | Treasury Stock | | | Common Stock | | Treasury Stock | |
| | Shares | | Amounts | | Shares | | Amounts | | Shares | | Amounts | | | Shares | | Amounts | | Shares | | Amounts | | Shares | | Amounts | |
| Balance, June 30, 2022 | 2,000,000 | | | $ | 2,000 | | | 7,643,992 | | | $ | 7,644 | | | $ | 275,922,227 | | | (187,430) | | | $ | (3,253,902) | | | $ | (116,491,382) | | | $ | — | | | $ | 156,186,587 | | | $ | 80,949,131 | | | $ | 237,135,718 | | |
| Balance, December 31, 2022 | | Balance, December 31, 2022 | 2,000,000 | | | $ | 2,000 | | | 7,762,506 | | | $ | 7,762 | | | $ | 278,339,020 | | | (250,153) | | | $ | (4,161,618) | | | $ | (117,938,876) | | | $ | 3,502,616 | | | $ | 159,750,904 | | | $ | 81,283,056 | | | $ | 241,033,960 | |
| Issuance of common stock - distribution reinvestments | Issuance of common stock - distribution reinvestments | — | | | — | | | 43,617 | | | 44 | | | 663,175 | | | — | | | — | | | — | | | — | | | 663,219 | | | — | | | 663,219 | | Issuance of common stock - distribution reinvestments | — | | | — | | | 140,965 | | | 141 | | | 1,708,144 | | | — | | | — | | | — | | | — | | | 1,708,285 | | | — | | | 1,708,285 | |
| Issuance of Class C OP Units | | Issuance of Class C OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,175,285 | | | 5,175,285 | |
| Stock compensation expense | Stock compensation expense | — | | | — | | | 10,317 | | | 10 | | | 164,990 | | | — | | | — | | | — | | | — | | | 165,000 | | | — | | | 165,000 | | Stock compensation expense | — | | | — | | | 17,455 | | | 18 | | | 234,982 | | | — | | | — | | | — | | | — | | | 235,000 | | | — | | | 235,000 | |
| OP Units compensation expense | OP Units compensation expense | — | | | — | | | — | | | — | | | 466,740 | | | — | | | — | | | — | | | — | | | 466,740 | | | — | | | 466,740 | | OP Units compensation expense | — | | | — | | | — | | | — | | | 9,555,206 | | | — | | | — | | | — | | | — | | | 9,555,206 | | | — | | | 9,555,206 | |
| Offering costs | — | | | — | | | — | | | — | | | (138,058) | | | — | | | — | | | — | | | — | | | (138,058) | | | — | | | (138,058) | | |
| Repurchase of common stock | Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (45,715) | | | (703,850) | | | — | | | — | | | (703,850) | | | — | | | (703,850) | | Repurchase of common stock | — | | | — | | | — | | | — | | | — | | | (93,357) | | | (1,129,162) | | | — | | | — | | | (1,129,162) | | | — | | | (1,129,162) | |
| Dividends declared, preferred stock | Dividends declared, preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (921,875) | | | — | | | (921,875) | | | — | | | (921,875) | | Dividends declared, preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,765,625) | | | — | | | (2,765,625) | | | — | | | (2,765,625) | |
| Distributions declared, common stock | Distributions declared, common stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,143,444) | | | — | | | (2,143,444) | | | — | | | (2,143,444) | | Distributions declared, common stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,501,200) | | | — | | | (6,501,200) | | | — | | | (6,501,200) | |
| Distributions declared, Class C OP Units | Distributions declared, Class C OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (377,297) | | | (377,297) | | Distributions declared, Class C OP Units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,297,207) | | | (1,297,207) | |
| 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, 2022 | 2,000,000 | | | $ | 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 | | |
| Net loss | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,318,758) | | | — | | | (5,318,758) | | | (1,535,452) | | | (6,854,210) | |
| Amortization of unrealized holding gain on interest rate swap | | Amortization of unrealized holding gain on interest rate swap | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (630,750) | | | (630,750) | | | (125,746) | | | (756,496) | |
| Balance, September 30, 2023 | | Balance, September 30, 2023 | 2,000,000 | | | $ | 2,000 | | | 7,920,926 | | | $ | 7,921 | | | $ | 289,837,352 | | | (343,510) | | | $ | (5,290,780) | | | $ | (132,524,459) | | | $ | 2,871,866 | | | $ | 154,903,900 | | | $ | 83,499,936 | | | $ | 238,403,836 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional
Paid-in
Capital | | Cumulative
Distributions
and Net
(Losses) Income | | Total
Modiv Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Class C | | Class S |
| Shares | | Amounts | | Shares | | Amounts | | Shares | | Amounts |
| 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, net | 2,000,000 | | | 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, 2021 | 2,000,000 | | | $ | 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 Stock | | Class C | | Additional
Paid-in
Capital | | | | | | Cumulative
Distributions
and Net
Losses | | Accumulated Other Comprehensive Income | | Total
Modiv Industrial, Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Common Stock | | | Treasury Stock | |
| Shares | | Amounts | | Shares | | Amounts | | | Shares | | Amounts | |
| Balance, December 31, 2021 | 2,000,000 | | | $ | 2,000 | | | 7,490,404 | | | $ | 7,491 | | | $ | 273,441,831 | | | — | | | $ | — | | | $ | (101,624,430) | | | $ | — | | | $ | 171,826,892 | | | $ | 50,603,000 | | | $ | 222,429,892 | |
| Issuance of common stock -distribution reinvestments | — | | | — | | | 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 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 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) | | | (1,131,903) | |
| 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, 2022 | 2,000,000 | | | $ | 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 | |
See accompanying notes to condensed consolidated financial statements.
Modiv Inc.MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of Equity
Nine Months Ended September 30, 2022 and 2021Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional
Paid-in
Capital | | | | | | Cumulative
Distributions
and Net
Losses | | Accumulated Other Comprehensive Income | | Total
Modiv Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Class C and Class S | | | Treasury Stock | |
| Shares | | Amounts | | Shares | | Amounts | | | Shares | | Amounts | |
| Balance, December 31, 2021 | 2,000,000 | | | $ | 2,000 | | | 7,490,404 | | | $ | 7,491 | | | $ | 273,441,831 | | | — | | | $ | — | | | $ | (101,624,430) | | | $ | — | | | $ | 171,826,892 | | | $ | 50,603,000 | | | $ | 222,429,892 | |
| Issuance of common stock -distribution reinvestments | — | | | — | | | 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, 2022 | 2,000,000 | | | $ | 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 Stock | | Common Stock | | Additional
Paid-in
Capital | | Cumulative
Distributions
and Net
(Losses) Income | | Total
Modiv Inc.
Equity | | Noncontrolling Interests in the Operating Partnership | | Total
Equity |
| | Class C | | Class S |
| Shares | | Amounts | | Shares | | Amounts | | Shares | | Amounts |
| Balance, December 31, 2020 | — | | | $ | — | | | 7,874,541 | | | $ | 7,874 | | | 62,860 | | | $ | 63 | | | $ | 224,288,417 | | | $ | (92,012,686) | | | $ | 132,283,668 | | | $ | 50,603,000 | | | $ | 182,886,668 | |
| Issuance of common stock | — | | | — | | | 271,061 | | | 271 | | | 688 | | | 1 | | | 6,311,203 | | | — | | | 6,311,475 | | | — | | | 6,311,475 | |
| Issuance of preferred stock, net | 2,000,000 | | | 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, 2021 | 2,000,000 | | | $ | 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 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Cash Flows from Operating Activities: | | | |
| Net loss | $ | (6,854,210) | | | $ | (5,232,053) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Depreciation and amortization | 11,403,603 | | | 10,581,765 | |
| Stock compensation expense | 9,790,206 | | | 1,740,852 | |
| Amortization of deferred rents | (4,528,120) | | | (2,593,698) | |
| Amortization of deferred lease incentives | 217,537 | | | 323,347 | |
| Write-offs and amortization of deferred financing costs and premium/discount | 556,134 | | | 1,470,289 | |
| Amortization of (below) above market lease intangibles, net | (596,194) | | | (862,861) | |
| Impairment of real estate investment property | 3,499,438 | | | — | |
| Increase in fair value of investment in preferred stock | (440,000) | | | — | |
| Impairment of goodwill | — | | | 17,320,857 | |
| Write-off of purchase deposit | — | | | 375,000 | |
| Loss (gain) on sale of real estate investments | 1,708,801 | | | (11,527,185) | |
| Unrealized gain on interest rate swap valuation | (2,781,838) | | | (530,997) | |
| Write-off of unrealized gain on interest rate swaps | — | | | (788,016) | |
| Income from unconsolidated investment in a real estate property | (207,506) | | | (226,690) | |
| Distributions from unconsolidated investment in a real estate property | 179,121 | | | 179,531 | |
| Change in operating assets and liabilities: | | | |
| Decrease in tenant receivables | 242,711 | | | 90,743 | |
| (Increase) decrease in prepaid and other assets | (104,469) | | | 284,145 | |
| Decrease in accounts payable, accrued and other liabilities | (875,048) | | | (1,278,266) | |
| Net cash provided by operating activities | 11,210,166 | | | 9,326,763 | |
| | | |
| Cash Flows from Investing Activities: | | | |
| Acquisitions of real estate investments | (122,778,215) | | | (127,144,029) | |
| Additions to existing real estate investments | (1,744,462) | | | (3,855,719) | |
| Collection of note receivable from early termination of lease | — | | | 1,836,767 | |
| Net proceeds from sale of real estate investments | 34,737,474 | | | 66,489,004 | |
| Purchase deposits, net | (1,259,452) | | | (195,614) | |
| Refund (payment) of lease incentives | 48,731 | | | (2,100,000) | |
| Net cash used in investing activities | (90,995,924) | | | (64,969,591) | |
| | | |
| Cash Flows from Financing Activities: | | | |
| Borrowings from credit facility term loan | 100,000,000 | | | 150,000,000 | |
| Repayments of credit facility revolver, net | (3,000,000) | | | (1,247,000) | |
| Principal payments on mortgage notes payable | (10,230,160) | | | (130,421,220) | |
| Payments of deferred financing costs | — | | | (2,186,468) | |
| Proceeds from listed offering of common stock, net | — | | | 114,500 | |
| Payments of offering costs | — | | | (1,084,748) | |
| Repurchases of common stock | (1,129,162) | | | (3,957,752) | |
| Dividends paid to preferred stockholders | (2,765,625) | | | (2,909,028) | |
| Distributions paid to common stockholders | (4,786,681) | | | (4,339,952) | |
| Distributions paid to Class C OP Units holders | (1,269,653) | | | (1,006,136) | |
| Net cash provided by financing activities | 76,818,719 | | | 2,962,196 | |
| Net decrease in cash and cash equivalents | (2,967,039) | | | (52,680,632) | |
| Cash and cash equivalents, beginning of period | 8,608,649 | | | 58,407,520 | |
| Cash and cash equivalents, end of period | $ | 5,641,610 | | | $ | 5,726,888 | |
| | | |
| MODIV INDUSTRIAL, INC. |
| Condensed Consolidated Statements of Cash Flows (continued) |
| (Unaudited) |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Supplemental Disclosure of Cash Flow Information: | | | |
| Cash paid for interest | $ | 8,675,670 | | | $ | 5,152,425 | |
| | | |
| Supplemental Schedule of Noncash Investing and Financing Activities: | | | |
| Investment in preferred stock | $ | 9,620,000 | | | $ | — | |
| Accrued real estate improvements | $ | 2,350,000 | | | $ | 512,908 | |
| Reclassification of tenant improvements from other assets to real estate investments | $ | — | | | $ | 522,844 | |
| Issuance of Class C OP Units in the acquisition of a real estate investment | $ | 5,175,284 | | | $ | 32,809,551 | |
| Reinvested distributions from common stockholders | $ | 1,716,399 | | | $ | 2,866,846 | |
| Accrued distributions and dividends | $ | 33,787 | | | $ | (31,794) | |
| Supplemental disclosure related to changes in real estate investments held for sale, net: | | | |
| Real estate investments held for sale, net | $ | 3,372,461 | | | $ | 31,510,762 | |
| Other assets related to real estate investments held for sale | $ | 33,393 | | | $ | 788,296 | |
| Mortgage notes payable related to real estate investments held for sale, net | $ | — | | | $ | (21,699,912) | |
| Other liabilities related to real estate investments held for sale | $ | 44,468 | | | $ | (383,282) | |
See accompanying notes to condensed consolidated financial statements.
Modiv Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| 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 amortization | 10,581,765 | | | 11,817,529 | |
| Stock compensation expense | 1,740,852 | | | 2,115,341 | |
| Amortization of deferred rents | (1,046,721) | | | (950,694) | |
| Amortization of deferred lease incentives | 323,347 | | | 192,235 | |
| Write-offs and amortization of deferred financing costs and premium/discount | 1,470,289 | | | 207,086 | |
| Amortization of above-market lease intangibles | 108,675 | | | 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 goodwill | 17,320,857 | | | — | |
| Write-off of purchase deposit | 375,000 | | | — | |
| 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 property | 179,531 | | | 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 assets | 284,145 | | | (667,634) | |
| Decrease in accounts payable, accrued and other liabilities | (501,178) | | | (363,007) | |
| Net cash provided by operating activities | 9,326,763 | | | 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 lease | 1,836,767 | | | — | |
| Collection of receivable from sale of real estate property | — | | | 1,824,383 | |
| Net proceeds from sale of real estate investments | 66,489,004 | | | 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 loan | 150,000,000 | | | — | |
| Borrowings from credit facility revolver, net | 6,775,000 | | | — | |
| 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, net | 114,500 | | | 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 activities | 2,962,196 | | | 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 period | 58,407,520 | | | 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, |
| 2022 | | 2021 |
| 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.
Modiv Inc.MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
Modiv Industrial, Inc. (the “Company”) was incorporated on May 15, 2015 as a Maryland corporation. The Company changed its name from Modiv Inc. to Modiv Industrial, Inc., effective August 11, 2023. 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 Securities and Exchange Commission (the “SEC”) ended on December 31, 2021 and the Company continues to report with the SEC as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Company's Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol MDV.PA and has been trading since September 17, 2021. 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 converted into Class C common stock (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.
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 approximatelyapproximate 68% and 73% and 83% partnership interest in, the Operating Partnership as of September 30, 20222023 and December 31, 2021,2022, respectively. The Operating Partnership'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, 2022,2023, the Company's portfolio of approximately 3.24.6 million square feet of aggregate leasable space consisted of investments in 4744 real estate properties, comprised of: 2639 industrial properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California property (the “TIC Interest”), which represent approximately 54% of the portfolio, 13 retail properties, which represent approximately 19% of the portfolio, and eight office properties, which represent approximately 27%76% of the portfolio (expressed as a percentage of annual base rent (“ABR”) as of September 30, 2022).
Common Stock Offerings
Since the Company’s initial registered offering of common stock was declared effective by the SEC in 2016, the Company has raised an aggregate of $211,463,370 pursuant to non-listed offerings of common stock registered with the SEC (collectively, the “Registered Offering”)2023), offerings of common stock exempt from registration pursuant to Regulation 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 an offering of common stock listed on the NYSE.
On January 22, 2021, the Company filed a Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 in share value of Class C common stock to be issued pursuant to its DRP (the “Registered DRP Offering”). The Company commenced offering shares of Class C common stock pursuant to the Registered DRP Offering upon terminationone retail property, which represents approximately 10% of the Registered Offering.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
On December 8, 2021, the Company filed with the SECportfolio, and four office properties (including one classified as a Registration Statement on Form S-11 (File No. 333-261529)held for sale property), and, on February 9, 2022, the Company filed with the SEC Amendment No. 1 to the Registration Statement on Form S-11, in connection with the Listed Offeringwhich represent approximately 14% of the Company’s Class C common stock, which became effective on February 10, 2022. In connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into a share of Class C common stock. The Listed Offering of the Company's Class C common stock closed on February 15, 2022. In connection with the Listed Offering, the Company sold 40,000 shares of its Class C common stock at $25.00 per share to a major stockholder who was formerly a related party (see Note 9 for additional information).
On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company's at-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on June 6, 2022. As of September 30, 2022, no shares have been issued in connection with the Company's ATM Offering.
Preferred Stock Offering
On September 17, 2021, the Company and the Operating Partnership completed the issuance and sale of 2,000,000 shares of the Company’s Series A Preferred Stock in an underwritten public offering (the “Preferred Offering”) at a price per share of $25.00 (see Note 9 for additional information).portfolio.
Distribution Reinvestment Plan
On February 15, 2022, the Company's board of directors amended and restated the DRPCompany's distribution reinvestment plan (the “Second Amended and Restated DRP”) with respect to the Class C common stock to change the purchase price at which the Class C common stock is issued to stockholders who elect to participate in the DRP.Company's distribution reinvestment plan (the “DRP”). 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 C 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 effective beginning with distributions paid in February 2022. From February 2022 through September 30, 2022,2023, the Company issued 152,606351,276 shares of Class C common stock under the DRP.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Share Repurchase Program
On February 15, 2022, the Company's board of directors authorized up to $20,000,000 in repurchases of the Company's outstanding shares of common stock through December 31, 2022.2022 (“2022 SRP”). On December 21, 2022, the Company's board of directors authorized up to $15,000,000 in repurchases of the Company's outstanding shares of common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2023 (“2023 SRP”). Repurchases made pursuant to the program2023 SRP 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 legal requirements and other factors. The program may be suspended or discontinued at any time.
From February 15,Under the 2022 through September 30, 2022,SRP, the Company repurchased a totalan aggregate of 233,145250,153 shares of its Class C common stock for a totalan aggregate value of $3,957,752 and$4,161,618 at an average cost of $16.98$16.64 per share under this share repurchase program and these shares are held as treasury stock. Our last share repurchasesshare. Under the 2023 SRP, during the quarternine months ended September 30, 2022 were made on August 24, 2022.
2023, the Company repurchased an aggregate of 93,357 shares of its Class C common stock for an aggregate value of $1,129,162 at an average cost of $12.10 per share. The Company did not repurchase any of its Class C common stock during the three months ended September 30, 2023.
MODIV INC.
Notes to 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.Securities and Exchange Commission (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, 20212022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2022.13, 2023.
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, 20212022 included herein was derived from the audited financial statements.
Variable Interest EntitiesNoncontrolling Interests in the Operating Partnership
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 riskCompany accounts for the entitynoncontrolling interests in its Operating Partnership in accordance with the related accounting guidance. Due 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) hasCompany's exclusive responsibility and discretion in the power tomanagement and 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 toOperating Partnership through its general partnership interest therein, the VIE.
As of June 30, 2022,Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company, held an interest in a VIE, which was incorporated under a qualified exchange accommodation arrangement to temporarily hold replacement real estate properties, for whichand the Company was determined to be the primary beneficiary. As a result, the Company has consolidated this entity. As of June 30, 2022, the Company's investment related to this VIE aggregated $31,406,864, or 7.3% of total assets, and no 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 propertieslimited partner interests not held by the VIECompany are reflected as noncontrolling interests in the accompanying unaudited condensed consolidated balance sheets and statements of June 30,equity. As discussed in Note 12, other than the noncontrolling interests related to “UPREIT” transactions completed in January 2022 and the entity is now a wholly-owned subsidiaryApril 2023, all noncontrolling interests currently represent non-voting, non-distribution accruing interests with no allocation of the Company.profits or losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses.
Use of Estimates
The preparation of the accompanying 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. Actual results may differ from those estimates.
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. Other than the noncontrolling interests related to an “UPREIT” transaction as discussed in Note 12, all other noncontrolling interests currently represent non-voting, non-distribution accruing interests with no allocation of profits or losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 12.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Business CombinationsReal Estate Acquisitions
The Company accounts for business combinations inIn accordance with FASB ASC 805, Business Combinations(“ASC 805”),and applicable Accounting Standards Updates (each, the Company evaluates each real estate acquisition to determine whether to account for the acquisition as 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 asasset acquisition or a business combination. When it concludes that substantially all of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquiredgross asset is concentrated in a business combination.
ASC 805 defines a business assingle identifiable asset rather than an integrated set of activities and assets, (collectively,the Company recognizes the acquisition of 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 anreal estate asset acquisition. The primary difference betweenrather than a business combination, and an assetallocates the acquisition is that an asset acquisition requires cost accumulation and allocation at relative fair value whereas in a business combination the total consideration transferred is allocated among the fair value of the identifiableto tangible and intangible assets based on their relative fair values. All of the Company's real estate acquisitions for the nine months ended September 30, 2023 and liabilities assumed. Acquisition costs are capitalizedthe year ended December 31, 2022 have been accounted for anas asset acquisition and expensed for a business combination.acquisitions.
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 ASUAccounting Standards Update (“ASU”) No. 2016-02, Leases (“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 (collectively “Topic 842”). Topic 842 established a single comprehensive model for entities to use in accounting for leases. Topic 842 applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. Topic 842 impacts the Company's accounting for leases primarily as a lessor. Topic 842 also impacts the Company's accounting as a lessee; however, such impact is considered not material.
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, rentalRental 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 accompanying unaudited condensed consolidated statements of operations. For the three months ended September 30, 2022 and 2021, tenant reimbursements included in rental income amounted to $1,620,758 and $1,477,240, respectively, and for the nine months ended September 30, 2022 and 2021, tenant reimbursements included in rental income amounted to $5,071,557 and $4,545,412, respectively.
MODIV INC.
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, the 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
The Company records tenant reimbursements on various factorsa gross basis in instances when its tenants reimburse the Company for lessor costs, 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 ifwhich the Company isincurs. Conversely, 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 basedCompany records lessor costs on a predetermined termination fee or basednet basis when these costs are paid directly by the Company's tenants to suppliers and service providers, including taxing authorities, on the unamortizedCompany's behalf. To the extent any tenant improvements and leasing commissions.responsible for these obligations under the applicable lease defaults on such lease, or if it is deemed probable that the tenant will fail to pay for these obligations, the Company records a liability for such obligations.
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.
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 accompanying unaudited condensed consolidated statements of operations.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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.
MODIV 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 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 both the three and nine months ended September 30, 20222023 and 20212022 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.
Impairment of Investment in Real Estate Properties
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of investments in real estate assetsproperties may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of investments in real estate assetsproperties may not be recoverable, management assesses whether the carrying value of the assetsinvestments in real estate properties 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,investments in real estate properties, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the asset.investments in real estate properties.
Treasury Stock
Effective on the date of the Listed Offering, theThe Company accounts for repurchased shares of its Class C common stock as treasury stock. Treasury shares are recorded at cost and are included as a component of equity in the Company's accompanying unaudited condensed consolidated balance sheetsheets as of September 30, 2022.
Per Share Data
The Company reports a dual presentation of basic earnings per share (“Basic EPS”)2023 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. For the three and nine months ended September 30, 2022 and 2021, the Company presented both Basic EPS and Diluted EPS reflecting its reported net income (loss) attributable to common stockholders for each period (see Note 13 for additional information).
As discussed in Note 1, in connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into a share of Class C common stock. Prior to the conversion of the Company's Class S common stock into Class C common stock, application 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 attributable to common stockholders of $0.47 per share for both Class C common stock and Class S common stock for the three months ended September 30, 2021, and diluted net income attributable to common stockholders of $0.40 per share of Class C common stock and $0.47 per share of Class S common stock for the three months ended September 30, 2021.
The two-class method would have resulted in basic net income attributable to common stockholders of $0.21 per share of Class C common stock and $0.20 per share of Class S common stock for the nine months ended September 30, 2021, and diluted net income attributable to common stockholders of $0.18 per share of Class C common stock and $0.20 per share of Class S common stock for the nine months ended September 30, 2021.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
December 31, 2022.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.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:
Cash and cash equivalents, restricted cash, receivable from early termination of 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.
Investment in preferred stock: The Company’s investment in preferred stock is presented at fair value in the accompanying unaudited condensed consolidated balance sheet using Level 3 inputs. The preferred stock investment has been recorded at fair value by incorporating both the Monte Carlo simulation model and a dividend discount model. These models incorporate risk-free rates, stock prices, yield and volatility. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of an independent third-party valuation specialist.
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 toon the contracts, are incorporated in the fair values to account for potential nonperformance risk.
Goodwill: Thefair value measurement of goodwill is considered a Level 3 nonrecurring fair value measurement. For goodwill, fair value measurement involves the determination of fair value of a reporting unit.
Credit facilities:facility: The fair values of the Company’s credit facilitiesfacility approximate theirthe carrying valuesvalue as their interest ratesrate and other terms are comparable to those available in the marketplace for similar credit facilities.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Mortgage notes payable: The fair values of the Company’s mortgage notes payable are 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 as of December 31, 2021 amountedMODIV INDUSTRIAL, INC.
Notes to $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.Condensed Consolidated Financial Statements (continued)
Under the terms of the Company’s June 2021 refinancing of mortgages on its properties leased to Northrop Grumman and L3Harris Technologies, Inc. (“L3Harris”) with Banc of California as described in Note 7, the Company established restricted cash accounts at Banc of California with $1,400,000 and $1,000,000 held for the Northrop Grumman and L3Harris properties, respectively, to fund building improvements, tenant improvements and leasing commissions. Subsequent to the origination of the loans, $128,538 was released to fund a leasing commission, resulting in $2,271,462 remaining as aggregate restricted cash as of December 31, 2021. Pursuant to the refinancing of the Northrop Grumman and L3Harris mortgages on January 18, 2022 as further discussed in Note 7, these funds became unrestricted. Additional restricted cash balances of $170,508 as of December 31, 2021 were also released during the first three months of 2022 due to refinancing.(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:met as of the balance sheet date: (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 investments held for sale, net” and “assets“other assets related to real estate investments held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Mortgage notes payable and otherOther 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,sale” 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
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.
MODIV INC.
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.
Derivative Instruments and Hedging Activities
The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates on its variable rate debt. The Company does not enter into derivatives for speculative purposes. The Company records these derivative instruments at fair value on theits accompanying unaudited condensed consolidated balance sheets. The changeDerivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. If the Company elects to designate a derivative in a hedging relationship and the hedging relationship satisfies the criteria necessary to apply hedge accounting, the derivative instrument related to the Company's $150,000,000 Term Loan (defined in Note 7) as of September 30, 2022 wasis designated as a cash flow hedge effective July 1, 2022 for financial accounting purposes and was recorded asthe unrealized holding gain or loss on the interest rate swap designated as a cash flow hedgeis presented in comprehensive (loss) income and accumulated other comprehensive income in the Company's accompanying unaudited condensed consolidated statements of comprehensive (loss) income (loss). The Company’sand condensed consolidated balance sheets, respectively. If the derivative instruments related to mortgage notes payable as of December 31, 2021 didinstrument does not meet the hedge accounting criteria, and therefore the changeschange in the fair value wereof the derivative is recorded as gainsa gain or lossesloss on the interest rate swap and included in interest expense, net of derivative instrumentssettlements and unrealized gain on interest rate swaps in the Company's accompanying unaudited condensed consolidated statements of operations under interest expense.operations.
The Company entershas entered into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable.term loan. 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. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Restricted Stock and Restricted StockOperating Partnership Unit Awards
TheHistorically, the fair values of the restricted Operating Partnership's units or restricted stockPartnership unit awards issued or granted by the Company arewere based on an estimated NAV per share (unaudited) 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 prior to the listing of the Company's Class C common stock on the NYSE. The fair value of future grants of therestricted Operating Partnership's units or restricted stockPartnership 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 TransactionTransactions (each as defined and discussed in Note 12) are recorded in equity under noncontrolling interests in the Operating Partnership in the Company's accompanying unaudited condensed consolidated balance sheets and statements of 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 (see Note 12). The Company has elected to record forfeitures as they occur.
The Company determines Compensation cost is recorded for units to be issued subject to a performance condition when it is probable that 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 mustperformance condition will be settled by issuing a variable number of shares.met.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
If equity instruments do not meet liability classification under ASC 480-10,Immaterial Error Corrections
During the first quarter of 2023, management determined that its prior treatment of property taxes in those instances where the Company assesses the requirements under ASC 815-40, which stateswas responsible for paying property taxes and subsequently seeking tenant reimbursement should be treated differently than those instances where property taxes were paid directly by tenants to taxing authorities. Management determined that contracts that require or may require the issuerproperty taxes paid directly by tenants 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 dotaxing authorities should 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 datehave been recorded in the Company’s accompanying unaudited condensed consolidated 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 periods in accordance with ASU 2018-20 “Leases (Topic 842) - Narrow-Scope Improvements for Lessors.” Accordingly, the Company’s accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 reflect an adjustment to reduce rental income and a corresponding reduction in property expenses of $648,271 and $1,784,668, respectively, for such property taxes and the Company's consolidated balance sheet statementas of operationsDecember 31, 2022 reflects a reduction in tenant receivables with a corresponding reduction in accounts payable, accrued and statementother liabilities of cash flows accounts have been reclassified to conform with the current year presentation.$1,596,127. The reclassificationscorrections did not affect net lossincome (loss) or net income (loss) per share for the three and nine months ended September 30, 2022 in the prior yearaccompanying unaudited condensed consolidated statementstatements of operations.
During the fourth quarter of 2022, management determined that straight-line rents receivable write-offs associated with real estate investments previously sold should be reclassified as a component of the related gain on sale of the real estate investments rather than as an offset to rental income as previously presented in the Company's statements of operations. Accordingly, the Company’s accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 reflect an increase in rental income and a corresponding reduction in the gain on sale of real estate investments of $739,255 and $1,546,976, respectively. The reclassification did not affect net income (loss) or net income (loss) per share for the three and nine months ended September 30, 2022 in the accompanying unaudited condensed consolidated statements of operations.
Recent Accounting Pronouncements
New Accounting Standards Recently Issued and Not Yet Adopted
In March 2020,August 2023, the FASB issued ASU No. 2020-04,2023-05, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial ReportingBusiness Combinations – Joint Venture Formations (Subtopic 805-60) (“ASU 2020-04”2023-05”). ASU 2020-04 eases, which addresses the potential burden in accounting for recognizingcontributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. At present, GAAP does not provide specific authoritative guidance on how a joint venture, upon formation, should recognize and initially measure assets contributed and liabilities assumed. ASU 2023-05 will require that a joint venture apply a new basis of accounting upon formation. By applying the effectsnew basis of reference rate reform on financial reporting. Such challenges includeaccounting, a joint venture, upon formation, will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the accounting and operational implications for contract modifications and hedge accounting.business combinations guidance). The amendments in 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 the2023-05 are 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.joint ventures formed on or after January 1, 2025. Joint ventures formed prior to January 1, 2025 may elect to apply the amendments retrospectively and early adoption is permitted. The Company implementeddoes not currently anticipate any material impact from the implementation of ASU 2020-04 effective January 1, 2022 and the impact of such implementation was not material to the Company’s consolidated financial statements. On January 18, 2022, the Company repaid the four remaining loans existing as of December 31, 2021 which had LIBOR reference rates.2023-05.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 3. REAL ESTATE INVESTMENTS, NET
As of September 30, 2022,2023, the Company’s real estate investment portfolio consisted of 4744 operating properties located in 1716 states comprised of: 2639 industrial properties (including the Company's approximate 72.7% TIC Interest in ana Santa Clara, California industrial property which is not reflected in the table below but discussed in Note 4), 13one retail propertiesproperty and eightfour office properties and(including the one parcel of land, which currently serves as an easement to one ofheld for sale property not reflected in the Company’s office properties.table below).
The following table provides summary information regarding the Company’s 42 operating properties held for investment and use as of September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | Acquisition Date | | Property Type | | Land, Buildings and Improvements | | Equipment | | Tenant Origination and Absorption Costs | | Accumulated Depreciation and Amortization | | Total Investment in Real Estate Property, Net |
| Dollar General | | Litchfield, ME | | 11/4/2016 | | Retail | | $ | 1,281,812 | | | $ | — | | | $ | 116,302 | | | $ | (236,432) | | | $ | 1,161,682 | |
| Dollar General | | Wilton, ME | | 11/4/2016 | | Retail | | 1,543,776 | | | — | | | 140,653 | | | (302,582) | | | 1,381,847 | |
| Dollar General | | Thompsontown, PA | | 11/4/2016 | | Retail | | 1,199,860 | | | — | | | 106,730 | | | (227,169) | | | 1,079,421 | |
| Dollar General | | Mt. Gilead, OH | | 11/4/2016 | | Retail | | 1,174,188 | | | — | | | 111,847 | | | (217,803) | | | 1,068,232 | |
| Dollar General | | Lakeside, OH | | 11/4/2016 | | Retail | | 1,112,872 | | | — | | | 100,856 | | | (223,534) | | | 990,194 | |
| Dollar General | | Castalia, OH | | 11/4/2016 | | Retail | | 1,102,086 | | | — | | | 86,408 | | | (217,186) | | | 971,308 | |
| Dollar General | | Bakersfield, CA | | 12/31/2019 | | Retail | | 4,899,714 | | | — | | | 261,630 | | | (404,614) | | | 4,756,730 | |
| Dollar General | | Big Spring, TX | | 12/31/2019 | | Retail | | 1,281,683 | | | — | | | 76,351 | | | (140,164) | | | 1,217,870 | |
| Dollar Tree | | Morrow, GA | | 12/31/2019 | | Retail | | 1,320,367 | | | — | | | 73,298 | | | (195,004) | | | 1,198,661 | |
| Northrop Grumman | | Melbourne, FL | | 3/7/2017 | | Office | | 13,608,084 | | | — | | | 1,469,737 | | | (3,895,365) | | | 11,182,456 | |
| Northrop Grumman Parcel | | Melbourne, FL | | 6/21/2018 | | Land | | 329,410 | | | — | | | — | | | — | | | 329,410 | |
| exp US Services | | Maitland, FL | | 3/27/2017 | | Office | | 6,114,695 | | | — | | | 388,248 | | | (1,225,741) | | | 5,277,202 | |
| Husqvarna | | Charlotte, NC | | 11/30/2017 | | Industrial | | 11,840,200 | | | — | | | 1,013,948 | | | (1,738,565) | | | 11,115,583 | |
| AvAir | | Chandler, AZ | | 12/28/2017 | | Industrial | | 27,357,899 | | | — | | | — | | | (3,325,761) | | | 24,032,138 | |
| 3M | | DeKalb, IL | | 3/29/2018 | | Industrial | | 14,762,819 | | | — | | | 3,037,057 | | | (5,481,404) | | | 12,318,472 | |
| Cummins | | Nashville, TN | | 4/4/2018 | | Office | | 14,538,528 | | | — | | | 1,566,997 | | | (3,558,448) | | | 12,547,077 | |
| Costco | | Issaquah, WA | | 12/20/2018 | | Office | | 27,548,522 | | | — | | | 2,765,136 | | | (4,938,715) | | | 25,374,943 | |
| Taylor Fresh Foods | | Yuma, AZ | | 10/24/2019 | | Industrial | | 34,194,369 | | | — | | | 2,894,017 | | | (3,909,950) | | | 33,178,436 | |
| Levins | | Sacramento, CA | | 12/31/2019 | | Industrial | | 4,429,390 | | | — | | | 221,927 | | | (606,673) | | | 4,044,644 | |
| Labcorp | | San Carlos, CA | | 12/31/2019 | | Industrial | | 9,672,174 | | | — | | | 408,225 | | | (561,882) | | | 9,518,517 | |
| GSA (MSHA) | | Vacaville, CA | | 12/31/2019 | | Office | | 3,112,076 | | | — | | | 243,307 | | | (380,916) | | | 2,974,467 | |
| PreK Education | | San Antonio, TX | | 12/31/2019 | | Retail | | 12,477,027 | | | — | | | 555,767 | | | (1,334,763) | | | 11,698,031 | |
| Solar Turbines | | San Diego, CA | | 12/31/2019 | | Office | | 7,145,941 | | | — | | | 284,026 | | | (720,093) | | | 6,709,874 | |
| Wood Group | | San Diego, CA | | 12/31/2019 | | Industrial | | 9,869,520 | | | — | | | 539,633 | | | (1,071,070) | | | 9,338,083 | |
| ITW Rippey | | El Dorado, CA | | 12/31/2019 | | Industrial | | 7,071,143 | | | — | | | 304,387 | | | (817,923) | | | 6,557,607 | |
| Gap | | Rocklin, CA | | 12/31/2019 | | Office | | 8,433,744 | | | — | | | 360,377 | | | (1,333,067) | | | 7,461,054 | |
| L3Harris | | San Diego, CA | | 12/31/2019 | | Industrial | | 11,690,952 | | | — | | | 662,101 | | | (1,227,393) | | | 11,125,660 | |
| Sutter Health | | Rancho Cordova, CA | | 12/31/2019 | | Office | | 29,587,023 | | | — | | | 1,616,610 | | | (2,977,488) | | | 28,226,145 | |
| Walgreens | | Santa Maria, CA | | 12/31/2019 | | Retail | | 5,223,442 | | | — | | | 335,945 | | | (365,642) | | | 5,193,745 | |
| Raising Cane's | | San Antonio, TX | | 7/26/2021 | | Retail | | 3,430,224 | | | — | | | 213,997 | | | (140,482) | | | 3,503,739 | |
| Arrow-TruLine | | Archbold, OH | | 12/3/2021 | | Industrial | | 11,518,084 | | | — | | | — | | | (328,134) | | | 11,189,950 | |
| KIA | | Carson, CA | | 1/18/2022 | | Retail | | 69,286,444 | | | — | | | 118,606 | | | (752,153) | | | 68,652,897 | |
| Kalera | | Saint Paul, MN | | 1/31/2022 | | Industrial | | 3,690,009 | | | 4,429,000 | | | — | | | (240,788) | | | 7,878,221 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property Tenant | | Location | | Acquisition Date | | Property Type | | Land, Buildings and Improvements | | Equipment | | Tenant Origination and Absorption Costs | | Accumulated Depreciation and Amortization | | Total Investment in Real Estate Property, Net |
| Northrop Grumman | | Melbourne, FL | | 3/7/2017 | | Industrial | | $ | 13,608,084 | | | $ | — | | | $ | 1,469,737 | | | $ | (4,361,816) | | | $ | 10,716,005 | |
| Northrop Grumman | | Melbourne, FL | | 6/21/2018 | | Land | | 329,410 | | | — | | | — | | | — | | | 329,410 | |
| Husqvarna | | Charlotte, NC | | 11/30/2017 | | Industrial | | 11,840,200 | | | — | | | 1,013,948 | | | (2,095,659) | | | 10,758,489 | |
| AvAir | | Chandler, AZ | | 12/28/2017 | | Industrial | | 27,357,899 | | | — | | | — | | | (4,019,833) | | | 23,338,066 | |
| 3M | | DeKalb, IL | | 3/29/2018 | | Industrial | | 14,762,819 | | | — | | | 3,037,057 | | | (5,983,018) | | | 11,816,858 | |
| Taylor Fresh Foods | | Yuma, AZ | | 10/24/2019 | | Industrial | | 34,194,369 | | | — | | | 2,894,017 | | | (5,231,624) | | | 31,856,762 | |
| Levins | | Sacramento, CA | | 12/31/2019 | | Industrial | | 4,429,390 | | | — | | | 221,927 | | | (820,330) | | | 3,830,987 | |
| Labcorp | | San Carlos, CA | | 12/31/2019 | | Industrial | | 9,672,174 | | | — | | | 408,225 | | | (766,203) | | | 9,314,196 | |
| WSP USA | | San Diego, CA | | 12/31/2019 | | Industrial | | 9,896,800 | | | — | | | 539,633 | | | (1,335,830) | | | 9,100,603 | |
| ITW Rippey | | El Dorado, CA | | 12/31/2019 | | Industrial | | 7,337,873 | | | — | | | 304,387 | | | (1,005,487) | | | 6,636,773 | |
| L3Harris | | San Diego, CA | | 12/31/2019 | | Industrial | | 11,690,952 | | | — | | | 662,101 | | | (1,541,628) | | | 10,811,425 | |
| Arrow-TruLine | | Archbold, OH | | 12/3/2021 | | Industrial | | 11,518,084 | | | — | | | — | | | (742,619) | | | 10,775,465 | |
| Kalera | | Saint Paul, MN | | 1/31/2022 | | Industrial | | 6,412,509 | | | 4,429,000 | | | — | | | (580,724) | | | 10,260,785 | |
| Lindsay | | Colorado Springs 1, CO | | 4/19/2022 | | Industrial | | 2,311,934 | | | — | | | — | | | (85,054) | | | 2,226,880 | |
| Lindsay | | Colorado Springs 2, CO | | 4/19/2022 | | Industrial | | 3,314,406 | | | — | | | — | | | (50,615) | | | 3,263,791 | |
| Lindsay | | Dacano, CO | | 4/19/2022 | | Industrial | | 6,889,402 | | | — | | | — | | | (122,707) | | | 6,766,695 | |
| Lindsay | | Alachua, FL | | 4/19/2022 | | Industrial | | 8,518,123 | | | — | | | — | | | (528,808) | | | 7,989,315 | |
| Lindsay | | Franklinton, NC | | 4/19/2022 | | Industrial | | 7,181,113 | | | — | | | — | | | (233,143) | | | 6,947,970 | |
| Lindsay | | Canal Fulton 1, OH | | 4/19/2022 | | Industrial | | 11,345,533 | | | — | | | — | | | (501,441) | | | 10,844,092 | |
| Lindsay | | Canal Fulton 2, OH | | 4/19/2022 | | Industrial | | 10,190,942 | | | — | | | — | | | (459,435) | | | 9,731,507 | |
| Lindsay | | Rock Hill, SC | | 4/19/2022 | | Industrial | | 6,555,983 | | | — | | | — | | | (245,356) | | | 6,310,627 | |
| Lindsay | | Gap, PA | | 4/13/2023 | | Industrial | | 16,580,044 | | | — | | | — | | | (341,909) | | | 16,238,135 | |
| Producto | | Endicott, NY | | 7/15/2022 | | Industrial | | 2,362,310 | | | — | | | — | | | (94,432) | | | 2,267,878 | |
| Producto | | Jamestown, NY | | 7/15/2022 | | Industrial | | 3,073,686 | | | — | | | — | | | (115,606) | | | 2,958,080 | |
| Valtir | | Centerville, UT | | 7/26/2022 | | Industrial | | 4,685,355 | | | — | | | — | | | (141,509) | | | 4,543,846 | |
| Valtir | | Orangeburg, SC | | 7/26/2022 | | Industrial | | 4,243,308 | | | — | | | — | | | (168,370) | | | 4,074,938 | |
| Valtir | | Fort Worth, TX | | 7/26/2022 | | Industrial | | 3,278,522 | | | — | | | — | | | (75,029) | | | 3,203,493 | |
| Valtir | | Lima, OH | | 8/4/2022 | | Industrial | | 9,921,943 | | | — | | | — | | | (415,965) | | | 9,505,978 | |
| Plastic Products | | Princeton, MN | | 1/26/2023 | | Industrial | | 6,118,411 | | | — | | | 553,780 | | | (413,432) | | | 6,258,759 | |
| Stealth Manufacturing | | Savage, MN | | 3/31/2023 | | Industrial | | 5,526,310 | | | — | | | — | | | (91,887) | | | 5,434,423 | |
| Summit Steel | | Reading, PA | | 4/13/2023 | | Industrial | | 11,397,091 | | | — | | | — | | | (182,790) | | | 11,214,301 | |
| PBC Linear | | Roscoe, IL | | 4/20/2023 | | Industrial | | 20,023,978 | | | — | | | — | | | (337,592) | | | 19,686,386 | |
| Cameron Tool | | Lansing, MI | | 5/3/2023 | | Industrial | | 5,776,590 | | | — | | | — | | | (85,644) | | | 5,690,946 | |
| S.J. Electro Systems | | Detroit Lakes, MN | | 5/5/2023 | | Industrial | | 6,314,057 | | | — | | | — | | | (69,079) | | | 6,244,978 | |
| S.J. Electro Systems | | Plymouth, MN | | 5/5/2023 | | Industrial | | 2,225,635 | | | — | | | — | | | (34,525) | | | 2,191,110 | |
| S.J. Electro Systems | | Ashland, OH | | 5/5/2023 | | Industrial | | 7,555,211 | | | — | | | — | | | (79,864) | | | 7,475,347 | |
| Titan | | Alleyton, TX | | 5/11/2023 | | Industrial | | 17,146,503 | | | — | | | — | | | (334,377) | | | 16,812,126 | |
| Vistech | | Piqua, OH | | 7/3/2023 | | Industrial | | 13,550,932 | | | — | | | — | | | (109,232) | | | 13,441,700 | |
| SixAxis | | Andrews, SC | | 7/11/2023 | | Industrial | | 15,470,096 | | | — | | | — | | | (154,425) | | | 15,315,671 | |
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Operating properties table continued) | | | | | | | | | | | | | | |
| Property | | Location | | Acquisition Date | | Property Type | | Land, Buildings and Improvements | | Equipment | | Tenant Origination and Absorption Costs | | Accumulated Depreciation and Amortization | | Total Investment in Real Estate Property, Net |
| Lindsay | | Colorado Springs 1, CO | | 4/19/2022 | | Industrial | | $ | 2,311,934 | | | $ | — | | | $ | — | | | $ | (26,731) | | | $ | 2,285,203 | |
| Lindsay | | Colorado Springs 2, CO | | 4/19/2022 | | Industrial | | 3,314,406 | | | — | | | — | | | (15,908) | | | 3,298,498 | |
| Lindsay | | Dacano, CO | | 4/19/2022 | | Industrial | | 6,068,788 | | | — | | | — | | | (38,565) | | | 6,030,223 | |
| Lindsay | | Alachua, FL | | 4/19/2022 | | Industrial | | 8,518,123 | | | — | | | — | | | (166,197) | | | 8,351,926 | |
| Lindsay | | Franklinton, NC | | 4/19/2022 | | Industrial | | 7,181,113 | | | — | | | — | | | (73,273) | | | 7,107,840 | |
| Lindsay | | Canal Fulton 1, OH | | 4/19/2022 | | Industrial | | 11,345,533 | | | — | | | — | | | (157,596) | | | 11,187,937 | |
| Lindsay | | Canal Fulton 2, OH | | 4/19/2022 | | Industrial | | 10,190,942 | | | — | | | — | | | (224,757) | | | 9,966,185 | |
| Lindsay | | Rock Hill, SC | | 4/19/2022 | | Industrial | | 6,555,983 | | | — | | | — | | | (77,112) | | | 6,478,871 | |
| Producto | | Endicott, NY | | 7/15/2022 | | Industrial | | 2,362,310 | | | — | | | — | | | (16,281) | | | 2,346,029 | |
| Producto | | Jamestown, NY | | 7/15/2022 | | Industrial | | 3,073,686 | | | — | | | — | | | (19,932) | | | 3,053,754 | |
| Valtir | | Centerville, UT | | 7/26/2022 | | Industrial | | 4,685,354 | | | — | | | — | | | (24,398) | | | 4,660,956 | |
| Valtir | | Orangeburg, SC | | 7/26/2022 | | Industrial | | 4,243,309 | | | — | | | — | | | (29,029) | | | 4,214,280 | |
| Valtir | | Fort Worth, TX | | 7/26/2022 | | Industrial | | 3,278,521 | | | — | | | — | | | (13,013) | | | 3,265,508 | |
| Valtir | | Lima, OH | | 8/4/2022 | | Industrial | | 9,921,943 | | | — | | | — | | | (46,219) | | | 9,875,724 | |
| | | | | | | | $ | 444,900,022 | | | $ | 4,429,000 | | | $ | 20,074,123 | | | $ | (44,025,915) | | | $ | 425,377,230 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Operating properties table continued) | | | | | | | | | | | | | | |
| Property Tenant | | Location | | Acquisition Date | | Property Type | | Land, Buildings and Improvements | | Equipment | | Tenant Origination and Absorption Costs | | Accumulated Depreciation and Amortization | | Total Investment in Real Estate Property, Net |
| KIA/Trophy of Carson | | Carson, CA | | 1/18/2022 | | Retail | | $ | 69,286,444 | | | $ | — | | | $ | 118,606 | | | $ | (1,814,016) | | | $ | 67,591,034 | |
| Costco | | Issaquah, WA | | 12/20/2018 | | Office | | 27,585,942 | | | — | | | 2,765,136 | | | (6,289,044) | | | 24,062,034 | |
| Solar Turbines | | San Diego, CA | | 12/31/2019 | | Office | | 7,186,694 | | | — | | | 324,221 | | | (881,175) | | | 6,629,740 | |
| OES (1) | | Rancho Cordova, CA | | 12/31/2019 | | Office | | 29,632,580 | | | — | | | 1,616,610 | | | (4,646,438) | | | 26,602,752 | |
| | | | | | | | $ | 508,299,641 | | | $ | 4,429,000 | | | $ | 15,929,385 | | | $ | (47,587,670) | | | $ | 481,070,356 | |
Acquisitions(1) Effective December 31, 2022, the Company and Sutter Health agreed to the early termination of the Sutter Health lease. The property was then leased to the State of California's Office of Emergency Services (“OES”) effective January 4, 2023 for 12 years through December 31, 2034. OES has a purchase option which OES can exercise any time from May 1, 2024 through December 31, 2026. OES also has an early termination option which OES can exercise any time on or after December 31, 2028 by giving written notice at least 120 days prior to the date of early termination.
Impairment Charge
In March 2023, the Company recorded an impairment charge of $3,499,438 related to its property located in Nashville, Tennessee, leased to Cummins Inc. (“Cummins”) through February 29, 2024. The Company determined that an impairment charge was triggered by expectations of a shortened holding period and estimated the property's fair value based upon current market comparables. This property is held for sale as described in Real Estate Investments Held for Sale below.
Acquisitions:
Nine Months Ended September 30, 2023
During the nine months ended September 30, 2023, the Company acquired 12 industrial manufacturing real estate properties as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property Tenant | | Location | | Acquisition Date | | Land | | Buildings and
Improvements | | Tenant
Origination
and
Absorption
Costs | | Below-
Market
Lease Intangibles | | Acquisition Price |
| Plastic Products | | Princeton, MN | | 1/26/2023 | | $ | 421,997 | | | $ | 5,696,414 | | | $ | 553,780 | | | $ | (285,139) | | | $ | 6,387,052 | |
| Stealth Manufacturing | | Savage, MN | | 3/31/2023 | | 770,752 | | | 4,755,558 | | | — | | | — | | | 5,526,310 | |
| Lindsay (1) | | Gap, PA | | 4/13/2023 | | 2,125,604 | | | 14,454,440 | | | — | | | — | | | 16,580,044 | |
| Summit Steel (2) | | Reading, PA | | 4/13/2023 | | 1,517,782 | | | 9,879,309 | | | — | | | — | | | 11,397,091 | |
| PBC Linear | | Roscoe, IL | | 4/20/2023 | | 699,198 | | | 19,324,780 | | | — | | | — | | | 20,023,978 | |
| Cameron Tool | | Lansing, MI | | 5/03/2023 | | 246,355 | | | 5,530,235 | | | — | | | — | | | 5,776,590 | |
| S.J. Electro Systems | | Detroit Lakes, MN | | 5/05/2023 | | 1,736,976 | | | 4,577,081 | | | — | | | — | | | 6,314,057 | |
| S.J. Electro Systems | | Plymouth, MN | | 5/05/2023 | | 627,903 | | | 1,597,732 | | | — | | | — | | | 2,225,635 | |
| S.J. Electro Systems | | Ashland, OH | | 5/05/2023 | | 251,233 | | | 7,303,978 | | | — | | | — | | | 7,555,211 | |
| Titan | | Alleyton, TX | | 5/11/2023 | | 2,056,161 | | | 15,090,342 | | | — | | | — | | | 17,146,503 | |
| Vistech | | Piqua, OH | | 7/03/2023 | | 922,310 | | | 12,628,622 | | | — | | | — | | | 13,550,932 | |
| SixAxis | | Andrews, SC | | 7/11/2023 | | 1,228,874 | | | 14,241,222 | | | — | | | — | | | 15,470,096 | |
| | | | | | $ | 12,605,145 | | | $ | 115,079,713 | | | $ | 553,780 | | | $ | (285,139) | | | $ | 127,953,499 | |
(1) In addition, the Company provided a $1,800,000 deposit to fund improvements to the previously acquired Lindsay property in Franklinton, North Carolina.
(2) The Company issued 287,516 Class C OP Units (as defined below) valued at $5,175,284 based on an agreed upon value of $18.00 per unit for a portion of the purchase price.
During the three and nine months ended September 30, 2023, the Company recognized $3,079,272 and $5,025,967, respectively, of total revenue related to the above-acquired properties.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Acquired Properties Lease Expirations:
The noncancellable lease terms of the properties acquired during the nine months ended September 30, 2023 are as follows:
| | | | | | | | |
| Property Tenant | | Lease Expiration |
| Plastic Products | | 10/31/2028 |
| Stealth Manufacturing | | 3/31/2043 |
| Lindsay | | 4/30/2047 |
| Summit Steel | | 4/30/2043 |
| PBC Linear | | 4/30/2043 |
| Cameron Tool | | 5/31/2043 |
| S.J. Electro Systems, for all three properties acquired | | 5/31/2040 |
| Titan | | 5/31/2043 |
| Vistech | | 7/31/2048 |
| SixAxis | | 7/31/2048 |
Nine Months Ended September 30, 2022
During the nine months ended September 30, 2022, the Company acquired the followingone retail and 15 industrial manufacturing real estate properties:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property and Location | | Acquisition Date | | Land | | Buildings and
Improvements | | Equipment | | Tenant
Origination
and
Absorption
Costs | | Above-
Market
Lease Intangibles | | Acquisition Price |
| KIA, Carson, CA | | 1/18/2022 | | $ | 32,741,781 | | | $ | 36,544,663 | | | $ | — | | | $ | 118,606 | | | $ | — | | | $ | 69,405,050 | |
| Kalera, St. Paul, MN | | 1/31/2022 | | 562,356 | | | 3,127,653 | | | 4,429,000 | | | — | | | — | | | 8,119,009 | |
| Lindsay, Colorado Springs 1, CO | | 4/19/2022 | | 1,195,178 | | | 1,116,756 | | | — | | | — | | | — | | | 2,311,934 | |
| Lindsay, Colorado Springs 2, CO | | 4/19/2022 | | 2,239,465 | | | 1,074,941 | | | — | | | — | | | — | | | 3,314,406 | |
| Lindsay, Dacono, CO (1) | | 4/19/2022 | | 2,263,982 | | | 3,804,806 | | | — | | | — | | | — | | | 6,068,788 | |
| Lindsay, Alachua, FL | | 4/19/2022 | | 966,192 | | | 7,551,931 | | | — | | | — | | | — | | | 8,518,123 | |
| Lindsay, Franklinton, NC | | 4/19/2022 | | 2,843,811 | | | 4,337,302 | | | — | | | — | | | — | | | 7,181,113 | |
| Lindsay, Fulton 1, OH | | 4/19/2022 | | 726,877 | | | 10,618,656 | | | — | | | — | | | — | | | 11,345,533 | |
| Lindsay, Fulton 2, OH | | 4/19/2022 | | 635,865 | | | 9,555,077 | | | — | | | — | | | — | | | 10,190,942 | |
| Lindsay, Rock Hill, SC | | 4/19/2022 | | 2,816,322 | | | 3,739,661 | | | — | | | — | | | — | | | 6,555,983 | |
| Producto, Endicott, NY | | 7/15/2022 | | 327,964 | | | 2,034,346 | | | — | | | — | | | — | | | 2,362,310 | |
| Producto, Jamestown, NY | | 7/15/2022 | | 919,332 | | | 2,154,354 | | | — | | | — | | | — | | | 3,073,686 | |
| Valtir, Centerville, UT | | 7/26/2022 | | 2,467,565 | | | 2,217,789 | | | — | | | — | | | — | | | 4,685,354 | |
| Valtir, Orangeburg, SC | | 7/26/2022 | | 1,678,818 | | | 2,564,491 | | | — | | | — | | | 1,356,961 | | | 5,600,270 | |
| Valtir, Fort Worth, TX | | 7/26/2022 | | 1,785,240 | | | 1,493,281 | | | — | | | — | | | — | | | 3,278,521 | |
| Valtir, Lima, OH | | 8/4/2022 | | 747,746 | | | 9,174,197 | | | — | | | — | | | — | | | 9,921,943 | |
| | | | $ | 54,918,494 | | | $ | 101,109,904 | | | $ | 4,429,000 | | | $ | 118,606 | | | $ | 1,356,961 | | | $ | 161,932,965 | |
(1) Asproperties for $162,313,032. These properties are located in 10 states and had a weighted average lease term 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.approximately 24 years.
During the three and nine months ended September 30, 2022, the Company recognized $3,432,150$3,071,407 and $7,537,742,$6,703,156, respectively, of total revenue related to the above-acquiredthese properties.
Dispositions:
Nine Months Ended September 30, 2023
During the nine months ended September 30, 2023, the Company sold 14 real estate properties as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property Tenant | | Location | | Disposition Date | | Property Type | | Rentable Square Feet | | Contract Sale Price | | (Loss) Gain on Sale | | Net Proceeds | |
| Dollar General | | Litchfield, ME | | 8/10/2023 | | Retail | | 9,026 | | | $ | 1,247,974 | | | $ | — | | (1) | $ | — | | (1) |
| Dollar General | | Wilton, ME | | 8/10/2023 | | Retail | | 9,100 | | | 1,452,188 | | | — | | (1) | — | | (1) |
| Dollar General | | Thompsontown, PA | | 8/10/2023 | | Retail | | 9,100 | | | 1,111,832 | | | — | | (1) | — | | (1) |
| Dollar General | | Mt. Gilead, OH | | 8/10/2023 | | Retail | | 9,026 | | | 1,066,451 | | | — | | (1) | — | | (1) |
| Dollar General | | Lakeside, OH | | 8/10/2023 | | Retail | | 9,026 | | | 1,134,522 | | | — | | (1) | — | | (1) |
| Dollar General | | Castalia, OH | | 8/10/2023 | | Retail | | 9,026 | | | 1,111,832 | | | — | | (1) | — | | (1) |
| Dollar General | | Bakersfield, CA | | 8/10/2023 | | Retail | | 18,827 | | | 4,855,751 | | | — | | (1) | — | | (1) |
| Dollar General | | Big Spring, TX | | 8/10/2023 | | Retail | | 9,026 | | | 1,270,665 | | | — | | (1) | — | | (1) |
| Dollar Tree | | Morrow, GA | | 8/10/2023 | | Retail | | 10,906 | | | 1,293,355 | | | — | | (1) | — | | (1) |
| PreK Education | | San Antonio, TX | | 8/10/2023 | | Retail | | 50,000 | | | 12,888,169 | | | — | | (1) | — | | (1) |
| Walgreens | | Santa Maria, CA | | 8/10/2023 | | Retail | | 14,490 | | | 6,081,037 | | | — | | (1) | — | | (1) |
| exp US Services | | Maitland, FL | | 8/10/2023 | | Office | | 33,118 | | | 5,899,514 | | | — | | (1) | — | | (1) |
| GSA (MSHA) | | Vacaville, CA | | 8/10/2023 | | Office | | 11,014 | | | 2,586,710 | | | (1,887,040) | | (1) | 39,014,581 | | (1) |
| EMC Shop | | Rocklin, CA | | 8/31/2023 | | Flex | | 40,110 | | | 5,466,960 | | | 178,239 | | | 5,459,211 | | |
| | | | | | | | 241,795 | | | $ | 47,466,960 | | | $ | (1,708,801) | | | $ | 44,473,792 | | |
(1) Represents the combined net loss on sale of $1,887,040 and net proceeds of $39,014,581 for the August 10, 2023 sale of 13 properties to Generation Income Properties, Inc. (NASDAQ: GIPR) (“GIPR”).
Nine Months Ended September 30, 2022
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The noncancellable lease terms of the properties acquired duringDuring the nine months ended September 30, 2022, are as follows:
| | | | | | | | |
Property | | Lease Expiration |
KIA of Carson | | 1/17/2047 |
Kalera | | 2/28/2042 |
Lindsay, for all eight properties acquired | | 4/30/2047 |
Producto, for two properties acquired | | 7/31/2042 |
Valtir, UT and TX | | 7/31/2037 |
Valtir, SC and OH | | 8/31/2047 |
Nine Months Ended September 30, 2021
During the nine months ended September 30, 2021, the Company acquired the followingsold seven real estate property:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property and Location | | Acquisition Date | | Land | | Buildings and
Improvements | | Equipment | | Tenant
Origination
and
Absorption
Costs | | Acquisition Price |
| Raising Cane's, San Antonio, TX | | 07/26/2021 | | $ | 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:
| | | | | | | | |
Property | | Lease Expiration |
Raising Cane's | | 2/20/2028 |
Dispositions
The dispositions during the nine months ended September 30, 2022 and 2021 were as follows:
Nine Months Ended September 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | Disposition Date | | Property Type | | Rentable Square Feet | | Contract Sale Price | | Gain on Sale |
| Bon Secours | | Richmond, VA | | 2/11/2022 | | Office | | 72,890 | | | $ | 10,200,000 | | | $ | 179,404 | |
| Omnicare | | Richmond, VA | | 2/11/2022 | | Flex | | 51,800 | | | 8,760,000 | | | 2,062,890 | |
| Texas Health | | Dallas, TX | | 2/11/2022 | | Office | | 38,794 | | | 7,040,000 | | | 160,377 | |
| Accredo | | Orlando, FL | | 2/24/2022 | | Office | | 63,000 | | | 14,000,000 | | | 4,998,106 | |
| EMCOR | | Cincinnati, OH | | 6/29/2022 | | Office | | 39,385 | | | 6,525,000 | | | 1,002,101 | |
| Williams Sonoma | | Summerlin, NV | | 8/26/2022 | | Office | | 35,867 | | | 9,300,000 | | | 1,703,616 | |
| Wyndham | | Summerlin, NV | | 9/16/2022 | | Office | | 41,390 | | | 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 medicalproperties (six 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 Omnicareproperty) comprising 343,126 square feet for an aggregate contract sales priceprices of $26,000,000, which generated$68,725,000, aggregate gains on sale of $11,527,185 and aggregate net proceeds of $11,892,305 after payment of commissions, closing costs and existing mortgages.
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$44,482,494, 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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | Disposition Date | | Property Type | | Rentable Square Feet | | Contract Sale Price | | Gain on Sale |
| Chevron Gas Station | | Roseville, CA | | 1/7/2021 | | Retail | | 3,300 | | | $ | 4,050,000 | | | $ | 228,769 | |
| EcoThrift | | Sacramento, CA | | 1/29/2021 | | Retail | | 38,536 | | | 5,375,300 | | | 51,415 | |
| Chevron Gas Station | | San Jose, CA | | 2/12/2021 | | Retail | | 1,060 | | | 4,288,888 | | | 9,458 | |
| Dana | | Cedar Park, TX | | 7/7/2021 | | Industrial | | 45,465 | | | 10,000,000 | | | 4,127,638 | |
| | | | | | | | 88,361 | | | $ | 23,714,188 | | | 4,417,280 | |
| 24 Hour Fitness Adjustment | | | | | | | | | | 115,133 | |
| Total | | | | | | | | | | | | $ | 4,532,413 | |
On January 7, 2021, the Company completed the sale of a retail property in Roseville, California, 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 a retail property in Sacramento, California, 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 a retail property in San Jose, California, 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 an industrial property in Cedar Park, Texas, 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 $1,836,767 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.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
outstanding mortgages.Asset ConcentrationConcentration:
As of September 30, 2023 and December 31, 2022, the Company’s real estate portfolio asset concentration (greater than 10% of total assets) was as follows:
| | | | | | | | | | | | | | |
| | September 30, 2022 |
| Property and Location | | Net Carrying Value | | Percentage 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 Florida | | 54,706,683 | | | 11.8 | % |
| Total | | $ | 123,359,580 | | | 26.7 | % |
The Company held no real estate property with a net book value that was greater than 10% of its total assets as of December 31, 2021. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Property Tenant and Location | | Net Carrying Value | | Percentage of
Total Assets | | Net Carrying Value | | Percentage of
Total Assets |
| KIA, Carson, CA | | $ | 67,591,034 | | | 12.5 | % | | $ | 68,387,431 | | | 15.0 | % |
Rental Income ConcentrationConcentration:
During the three and nine months ended September 30, 2023 and 2022, the Company’s rental income concentration (greater than 10% of rental income) was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2022 | | Nine Months Ended
September 30, 2022 |
| Property and Location | | Rental Income | | Percentage of
Total Rental Income | | Rental Income | | Percentage 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) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2023 | | 2022 |
| Property Tenant and Location | | Rental Income | | Percentage of
Total Rental Income | | Rental Income | | Percentage of
Total Rental Income |
| Lindsay, nine properties acquired in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida | | $ | 1,652,422 | | | 13.2 | % | | $ | 1,204,970 | | | 11.7 | % |
| KIA, Carson, CA | | $ | 1,289,545 | | | 10.3 | % | | $ | 1,306,851 | | | 12.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
| Property Tenant and Location | | Rental Income | | Percentage of
Total Rental Income | | Rental Income | | Percentage of
Total Rental Income |
| Lindsay, nine properties acquired in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida | | $ | 4,474,870 | | | 12.9 | % | | (1) | | (1) |
| KIA, Carson, CA | | $ | 3,879,601 | | | 11.2 | % | | $ | 3,666,632 | | | 12.2 | % |
(1) The Lindsay properties represented thea source of greater than 10% of total rental income during the threenine months ended September 30, 20222023 but not the nine months ended September 30, 2022 since eight of the Lindsay properties were acquired on April 19, 2022.
No tenant represented the source of 10% of total rental income during the three2022 and nine months ended September 30, 2021.one was acquired on April 13, 2023.
Operating LeasesLeases:
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 nine months ended September 30, 2022, the Company executed lease extensions for three properties, including the properties leased to (i) Cummins in Nashville, Tennessee for an additional one year through February 28, 2024, (ii) ITW Rippey in El Dorado, California for an additional seven years through July 31, 2029 and (iii) Williams Sonoma in Summerlin, Nevada for an additional three years through October 31, 2025, which was sold on August 26, 2022. These three lease extensions resulted in an average increase in lease term of 3.7 years and an average annual increase in rents of 1.9% as of March 31, 2022, the end of the quarter during which they were all executed.
As discussed above, the Company also acquired 16 properties and sold seven properties during the nine months ended September 30, 2022.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
On January 23, 2023, the Company executed a lease extension for the property leased to Solar Turbines for an additional two years through July 31, 2025 with a 14.0% increase in rent effective August 1, 2023 and a 3.0% increase in rent effective August 1, 2024. This is the third lease extension executed by Solar Turbines, which has occupied the Company's property located in San Diego, California since 2008.
Effective April 18, 2023, the Company extended the lease term of its Levins property located in Sacramento, California from September 1, 2023 to December 31, 2024 with a 69% increase in annual rent from $4.14 per square foot to $7.00 per square foot commencing September 1, 2023.
On June 29, 2023, the Company leased its property in Rocklin, California (the “Rocklin Property”), which was previously leased to Gap, Inc., to EMC for an initial base annual rent of $441,210, and a lease term of 11.5 years through December 31, 2034. The lease included a purchase option which EMC exercised in August 2023 and EMC completed its purchase of the property on August 31, 2023, which terminated the lease (see Dispositions above).
The Company is continuing to explore potential lease extensions for certain of its other properties.
As of September 30, 2022,2023, 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 2022 | | $ | 8,345,845 | | |
| 2023 | | 33,033,061 | | |
| October through December 2023 | | October through December 2023 | | $ | 9,727,190 | |
| 2024 | 2024 | | 31,723,561 | | 2024 | | 39,028,622 | |
| 2025 | 2025 | | 30,350,230 | | 2025 | | 38,080,113 | |
| 2026 | 2026 | | 24,823,591 | | 2026 | | 34,952,446 | |
| 2027 | 2027 | | 23,134,874 | | 2027 | | 34,600,851 | |
| Thereafter | Thereafter | | 312,446,877 | | Thereafter | | 559,280,654 | |
| | $ | 463,858,039 | | | $ | 715,669,876 | |
Intangible Assets, Net Related to the Company's Real Estate
As of September 30, 20222023 and December 31, 2021,2022, intangible assets, net related to the Company's real estate were as follows:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
| | Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles | | Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles | | Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles | | Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles |
| Cost | Cost | $ | 20,074,123 | | | $ | 2,485,509 | | | $ | (14,876,008) | | | $ | 21,504,210 | | | $ | 1,128,549 | | | $ | (15,097,132) | | Cost | $ | 15,929,385 | | | $ | 2,485,510 | | | $ | (14,364,650) | | | $ | 19,499,749 | | | $ | 2,485,510 | | | $ | (14,378,808) | |
| Accumulated amortization | Accumulated amortization | (11,849,139) | | | (546,204) | | | 4,965,728 | | | (11,009,997) | | | (437,530) | | | 3,994,192 | | Accumulated amortization | (10,684,573) | | | (1,153,052) | | | 5,265,947 | | | (12,722,558) | | | (634,754) | | | 4,703,122 | |
| Net | Net | $ | 8,224,984 | | | $ | 1,939,305 | | | $ | (9,910,280) | | | $ | 10,494,213 | | | $ | 691,019 | | | $ | (11,102,940) | | Net | $ | 5,244,812 | | | $ | 1,332,458 | | | $ | (9,098,703) | | | $ | 6,777,191 | | | $ | 1,850,756 | | | $ | (9,675,686) | |
The intangible assets acquired in connection with the acquisitions have a weighted average amortization period of approximately 10.6 years as of September 30, 2022. 2023.
As of September 30, 2022,2023, the amortization of intangible assets for the remaining three months of the current year ending December 31, 20222023 and for each of the next fivefour years and thereafter is expected to be as follows:
| | | | | | | | | | | | | | | | | |
| Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles |
| October through December 2022 | $ | 478,035 | | | $ | 46,025 | | | $ | (231,174) | |
| 2023 | 1,565,477 | | | 181,452 | | | (906,522) | |
| 2024 | 1,428,190 | | | 176,822 | | | (903,104) | |
| 2025 | 1,181,158 | | | 170,274 | | | (903,104) | |
| 2026 | 620,589 | | | 132,836 | | | (897,701) | |
| 2027 | 343,917 | | | 76,550 | | | (887,789) | |
| Thereafter | 2,607,618 | | | 1,155,346 | | | (5,180,886) | |
| $ | 8,224,984 | | | $ | 1,939,305 | | | $ | (9,910,280) | |
| | | | | |
| Weighted-average remaining amortization period | 8.0 years | | 19.1 years | | 11.1 years |
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| Tenant Origination and Absorption Costs | | Above-Market Lease Intangibles | | Below-Market Lease Intangibles |
| October through December 2023 | $ | 253,294 | | | $ | 18,499 | | | $ | (230,099) | |
| 2024 | 1,013,175 | | | 73,999 | | | (920,395) | |
| 2025 | 815,130 | | | 70,712 | | | (920,395) | |
| 2026 | 466,644 | | | 54,278 | | | (920,395) | |
| 2027 | 449,972 | | | 54,278 | | | (920,395) | |
| Thereafter | 2,246,597 | | | 1,060,692 | | | (5,187,024) | |
| $ | 5,244,812 | | | $ | 1,332,458 | | | $ | (9,098,703) | |
| | | | | |
| Weighted-average remaining amortization period | 8.6 years | | 23.2 years | | 10.1 years |
Real Estate Investments Held For Sale
As of September 30, 2022, there were no properties2023, the Company classified its office property located in Nashville, Tennessee that is leased to Cummins as held for sale.
The Company’s Rocklin Property formerly leased to Gap, Inc. through February 28, 2023 was the only property held for sale by the Company. Asas of December 31, 2021, the Company classified four healthcare related properties as held for sale2022, and presented the properties in the Company’s unaudited condensed consolidated balance sheet as real estate investments held for sale. These properties were allit was sold in February 2022, as discussed above. These four healthcare related properties consisted of three office properties (the property leased to Accredo Health through December 31, 2024 located in Orlando, Florida; the property leased to Bon Secours Health throughon August 31, 2026 located2023 as described 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.Dispositions above.
The following table summarizes the major components of assets and liabilities related to the four real estate investments held for sale as of September 30, 2023 and December 31, 2021:2022:
| | | | | | | | |
| | December 31,
2021 |
Assets related to real estate investments held for sale: | | |
Land, buildings and improvements | | $ | 34,507,485 | |
Tenant origination and absorption costs | | 3,064,371 | |
Accumulated depreciation and amortization | | (6,061,094) | |
Real estate investments held for sale, net | | 31,510,762 | |
Other assets, net | | 788,296 | |
Total assets related to real estate investments held for sale: | | $ | 32,299,058 | |
| | |
Liabilities related to real estate investments held for sale: | | |
Mortgage notes payable, net | | $ | 21,699,912 | |
Other liabilities, net | | 383,282 | |
Total liabilities related to real estate investments held for sale: | | $ | 22,083,194 | |
| | | | | | | | | | | | | | |
| | September 30,
2023 | | December 31,
2022 |
| Assets related to real estate investments held for sale: | | | | |
| Land, buildings and improvements | | $ | 11,047,348 | | | $ | 6,357,172 | |
| Tenant origination and absorption costs | | 1,558,739 | | | 355,252 | |
| Accumulated depreciation and amortization | | (3,977,901) | | | (1,456,699) | |
| Real estate investments held for sale, net | | 8,628,186 | | | 5,255,725 | |
| Other assets, net | | 46,158 | | | 12,765 | |
| Total assets related to real estate investments held for sale: | | $ | 8,674,344 | | | $ | 5,268,490 | |
| | | | |
| Liabilities related to real estate investments held for sale: | | | | |
| Other liabilities, net | | $ | 162,349 | | | $ | 117,881 | |
| Total liabilities related to real estate investments held for sale: | | $ | 162,349 | | | $ | 117,881 | |
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 4. UNCONSOLIDATED INVESTMENT IN REAL ESTATE PROPERTY
The Company’s investment in unconsolidated entityproperty as of September 30, 20222023 and December 31, 20212022 is as follows:
| | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| The TIC Interest | | $ | 9,988,498 | | | $ | 9,941,338 | |
| | | | | | | | | | | | | | |
| | September 30,
2023 | | December 31,
2022 |
| The TIC Interest | | $ | 10,035,805 | | | $ | 10,007,420 | |
The Company’s income from investment in unconsolidated entityproperty for the three and nine months ended September 30, 20222023 and 20212022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| The TIC Interest | | $ | 64,358 | | | $ | 75,403 | | | $ | 226,690 | | | $ | 222,705 | |
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| The TIC Interest | | $ | 79,164 | | | $ | 64,358 | | | $ | 207,506 | | | $ | 226,690 | |
TIC Interest
During 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an approximate 72.7% interest in a 91,740 square foot industrial property in Santa Clara, California.California in a tenants-in-common ownership structure which requires a unanimous vote for significant decisions about the property. 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 was a member of the Company's board of directors from December 2019 to December 2021. The interest in the Santa Clara property over which the Company has the ability to exercise significant influence, but for which the Company does not qualify as a variable interest entity and consolidationhave financial or operating control is not required as the Company’s TIC Interest does not control the property. Therefore, the Company accountsaccounted for the TIC Interest using the equity method.method of accounting. The Company receives approximately 72.7% of the cash flow distributions and recognizes approximately 72.7% of the results of operations for this property.
During the three months ended September 30, 20222023 and 2021,2022, the Company received $32,378$54,706 and $85,962$32,378 in cash distributions, respectively, and $179,531received cash distributions of $179,121 and $247,929$179,531 during the nine months ended September 30, 20222023 and 2021,2022, respectively.
The following is summarized financial information for the Santa Clara property as of September 30, 20222023 and December 31, 20212022 and for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| Assets: | | | | |
| Real estate investments, net | | $ | 29,574,593 | | | $ | 29,403,232 | |
| Cash and cash equivalents | | 468,996 | | | 690,470 | |
| Other assets | | 62,350 | | | 134,049 | |
| Total assets | | $ | 30,105,939 | | | $ | 30,227,751 | |
| Liabilities: | | | | |
| Mortgage note payable, net | | $ | 13,008,884 | | | $ | 13,218,883 | |
| Below-market lease, net | | 2,550,796 | | | 2,660,586 | |
| Other liabilities | | 502,326 | | | 369,209 | |
| Total liabilities | | 16,062,006 | | | 16,248,678 | |
| Total equity | | 14,043,933 | | | 13,979,073 | |
| Total liabilities and equity | | $ | 30,105,939 | | | $ | 30,227,751 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Total revenues | | $ | 679,500 | | | $ | 683,160 | | | $ | 2,071,258 | | | $ | 2,034,072 | |
| Expenses: | | | | | | | | |
| Interest expense | | 135,640 | | | 138,616 | | | 404,902 | | | 414,258 | |
| Depreciation and amortization | | 264,820 | | | 250,754 | | | 788,732 | | | 750,784 | |
| Other expenses | | 190,527 | | | 190,086 | | | 565,851 | | | 562,738 | |
| Total expenses | | 590,987 | | | 579,456 | | | 1,759,485 | | | 1,727,780 | |
| Net income | | $ | 88,513 | | | $ | 103,704 | | | $ | 311,773 | | | $ | 306,292 | |
| | | | | | | | | | | | | | |
| | September 30,
2023 | | December 31,
2022 |
| Assets: | | | | |
| Real estate investments, net | | $ | 28,823,530 | | | $ | 29,294,081 | |
| Cash and cash equivalents | | 532,634 | | | 300,405 | |
| Other assets | | 77,366 | | | 43,159 | |
| Total assets | | $ | 29,433,530 | | | $ | 29,637,645 | |
| Liabilities: | | | | |
| Mortgage note payable, net | | $ | 12,717,835 | | | $ | 12,936,929 | |
| Below-market lease, net | | 2,404,409 | | | 2,514,199 | |
| Other liabilities | | 508,776 | | | 424,662 | |
| Total liabilities | | 15,631,020 | | | 15,875,790 | |
| Total equity | | 13,802,510 | | | 13,761,855 | |
| Total liabilities and equity | | $ | 29,433,530 | | | $ | 29,637,645 | |
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Total revenues | | $ | 693,170 | | | $ | 679,500 | | | $ | 2,036,365 | | | $ | 2,071,258 | |
| Operating expenses: | | | | | | | | |
| Depreciation and amortization | | 257,844 | | | 264,820 | | | 780,802 | | | 788,732 | |
| Other expenses | | 193,902 | | | 190,527 | | | 572,749 | | | 565,851 | |
| Total operating expenses | | 451,746 | | | 455,347 | | | 1,353,551 | | | 1,354,583 | |
| Operating income | | 241,424 | | | 224,153 | | | 682,814 | | | 716,675 | |
| Interest expense | | 132,547 | | | 135,640 | | | 395,810 | | | 404,902 | |
| Net income | | $ | 108,877 | | | $ | 88,513 | | | $ | 287,004 | | | $ | 311,773 | |
NOTE 5. INVESTMENT IN PREFERRED STOCK
The Company’s investment in preferred stock as of September 30, 2023 is as follows:
| | | | | |
| September 30,
2023 |
| Liquidation value of GIPR preferred stock | $ | 12,000,000 | |
| Adjustment to reduce liquidation value to fair value | (2,380,000) | |
| Fair value of GIPR preferred stock as of August 10, 2023 | 9,620,000 | |
| Increase in fair value of preferred stock for the period ended September 30, 2023 | 440,000 | |
| Fair value of GIPR preferred stock as of September 30, 2023 | $ | 10,060,000 | |
As discussed in Note 3, on August 10, 2023, the Company disposed of 13 properties consisting of 11 retail properties and two office properties in a sale to GIPR. These 13 properties were sold for $42,000,000 with $30,000,000 paid in cash and the remaining $12,000,000 paid in 2,400,000 shares of GIPR's newly-created Series A Redeemable Preferred Stock (the “GIPR preferred stock”) with a liquidation preference of $5.00 per share and an annual dividend yield of 9.5% from August 10, 2023 to August 9, 2024, and an annual dividend rate of 12.0% thereafter.
The Company has elected to record its investment in preferred stock at fair value. The fair value at the date of acquisition was accounted for as an adjustment to the net proceeds from sale. The increase in fair value as of September 30, 2023 is reflected in other income (expense).
Subject to the terms and conditions of the GIPR preferred stock, GIPR may redeem the GIPR preferred stock (a) for cash, at any time, at a redemption price equal to $5.00 per share plus an amount equal to all dividends accrued and unpaid or (b) from the original issuance date until March 15, 2024, for a number of shares of GIPR common stock equal to $5.00 per share plus an amount equal to all dividends accrued and unpaid divided by the product of (i) the volume weighted average price (“VWAP”) per share of GIPR common stock for the 60 days of trading prior to GIPR’s redemption notice and (ii) 110%. Although no assurances can be made regarding the timing of the redemption of the GIPR preferred stock, the Company expects that GIPR will redeem the GIPR preferred stock for GIPR common stock as early as January 2024 at which point the Company expects it will make an immediate in-kind distribution of GIPR common stock to the Company’s stockholders. Under the terms and conditions of the GIPR preferred stock, the Company would receive between 2,200,000 and 3,000,000 shares of GIPR common stock upon redemption of the GIPR preferred stock.
MODIV INDUSTRIAL, 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 CONSOLIDATEDOTHER BALANCE SHEETSSHEET DETAILS
Tenant Receivables, Net
As of September 30, 20222023 and December 31, 2021,2022, tenant receivables consisted of the following:
| | | September 30,
2022 | | December 31,
2021 | | September 30,
2023 | | December 31,
2022 |
| Straight-line rent | Straight-line rent | | $ | 5,990,676 | | | $ | 4,417,065 | | Straight-line rent | | $ | 10,793,380 | | | $ | 6,607,220 | |
| Tenant rent and billed reimbursements | Tenant rent and billed reimbursements | | 269,309 | | | 81,079 | | Tenant rent and billed reimbursements | | 58,444 | | | 196,477 | |
| Unbilled tenant reimbursements | | 2,173,910 | | | 1,498,775 | | |
| Accrued tenant reimbursements | | Accrued tenant reimbursements | | 359,234 | | | 459,505 | |
| Total | Total | | $ | 8,433,895 | | | $ | 5,996,919 | | Total | | $ | 11,211,058 | | | $ | 7,263,202 | |
Prepaid Expenses and Other Assets
As of September 30, 20222023 and December 31, 2021,2022, prepaid expenses and other assets were comprised of the following:
| | | September 30,
2022 | | December 31,
2021 | | September 30,
2023 | | December 31,
2022 |
Deferred tenant allowance | Deferred tenant allowance | | $ | 2,653,557 | | | $ | 2,400,811 | | Deferred tenant allowance | | $ | 267,334 | | | $ | 2,564,806 | |
| Miscellaneous receivables | | 150,441 | | | 681,369 | | |
| Prepaid expenses | | 1,487,251 | | | 1,253,751 | | |
| Deposits | | 1,338,528 | | | 1,420,244 | | |
| Prepaid expenses and other assets (2) | | Prepaid expenses and other assets (2) | | 3,773,714 | | | 2,420,777 | |
| Deferred financing costs on credit facility revolver | Deferred financing costs on credit facility revolver | | 757,468 | | | 100,080 | | Deferred financing costs on credit facility revolver | | 840,335 | | | 1,115,354 | |
| Total | Total | | $ | 6,387,245 | | | $ | 5,856,255 | | Total | | $ | 4,881,383 | | | $ | 6,100,937 | |
(1) Deferred tenant balances for the Pre-K Education and Walgreens leases were disposed in the August 10, 2023 sale transaction.
(2) The balance as of September 30, 2023 includes deposits of $1,800,000 for improvements to be made to the Lindsay property in Franklinton, North Carolina. The balance as of December 31, 2022 includes a deposit of $440,548 for completion of ongoing improvements to the Lindsay property in Dacono, Colorado.
Accounts Payable, Accrued and Other Liabilities
As of September 30, 2023 and December 31, 2022, accounts payable, accrued and other liabilities were comprised of the following:
| | | | | | | | | | | | | | |
| | September 30,
2023 | | December 31,
2022 |
| Accounts payable | | $ | 557,643 | | | $ | 1,001,411 | |
| Accrued expenses (1) | | 4,076,883 | | | 2,163,821 | |
| Accrued distributions and dividends | | 1,801,856 | | | 1,768,068 | |
| Accrued interest payable | | 321,278 | | | 285,392 | |
| Unearned rent | | 1,792,912 | | | 1,870,057 | |
| Lease incentive obligation | | 343,058 | | | 561,057 | |
| Total | | $ | 8,893,630 | | | $ | 7,649,806 | |
(1) The balance as of September 30, 2023 includes an accrued liability of $2,350,000 for construction in progress for improvements at the Kalera property to which the Company obtained the rights upon the rejection of Kalera's lease in its bankruptcy proceedings effective October 31, 2023 (see Note 11 for additional information).
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Accounts Payable, Accrued and Other LiabilitiesNOTE 7. DEBT
AsThe breakdown of debt as of September 30, 20222023 and December 31, 2021, accounts payable, accrued and other liabilities were comprised of the following:2022 is as follows:
| | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| Accounts payable | | $ | 797,012 | | | $ | 1,767,657 | |
| Accrued expenses | | 3,770,912 | | | 3,864,222 | |
| Accrued distributions | | 1,763,509 | | | 1,795,303 | |
| Accrued interest payable | | 727,721 | | | 548,564 | |
| Unearned rent | | 1,989,436 | | | 1,735,440 | |
| Lease incentive obligation | | 609,788 | | | 2,133,695 | |
| Total | | $ | 9,658,378 | | | $ | 11,844,881 | |
NOTE 7. DEBT | | | | | | | | | | | | | | |
| | September 30,
2023 | | December 31,
2022 |
| Mortgage notes payable, net | | $ | 34,118,748 | | | $ | 44,435,556 | |
| Credit facility: | | | | |
| Revolver | | — | | | 3,000,000 | |
| Term loan, net | | 248,385,927 | | | 148,018,164 | |
| Total | | $ | 282,504,675 | | | $ | 195,453,720 | |
Mortgage Notes Payable, Net
As of September 30, 20222023 and December 31, 2021,2022, the Company’s mortgage notes payable consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral | | 2022 Principal
Amount | | 2021 Principal
Amount | | Contractual Interest
Rate (1) | | Effective
Interest Rate (2) | | Loan
Maturity |
| Costco property | | $ | 18,850,000 | | | $ | 18,850,000 | | | 4.85% | | 4.85% | | 01/01/30 |
| Taylor Fresh Foods | | 12,350,000 | | | 12,350,000 | | | 3.85% | | 3.85% | | 11/01/29 |
| Sutter Health property | | 13,390,536 | | | 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 payable | | 44,590,536 | | | 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 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral | | 2023 Principal
Amount | | 2022 Principal
Amount | | Interest Rate (1) | | Loan
Maturity |
| Costco property | | $ | 18,850,000 | | | $ | 18,850,000 | | | 4.85% | | 1/01/2030 |
| Taylor Fresh Foods property | | 12,350,000 | | | 12,350,000 | | | 3.85% | | 11/01/2029 |
| OES property (2) | | 3,084,849 | | | 13,315,009 | | | 4.50% | | 3/09/2024 |
| Total mortgage notes payable | | 34,284,849 | | | 44,515,009 | | | | | |
| Plus unamortized mortgage premium, net (3) | | 10,893 | | | 119,245 | | | | | |
| Less unamortized deferred financing costs | | (176,994) | | | (198,698) | | | | | |
| Mortgage notes payable, net | | $ | 34,118,748 | | | $ | 44,435,556 | | | | | |
(1)Contractual interest rate representsRepresents the contractual interest rate in effect under the mortgage note payable as of September 30, 20222023 for the three mortgages that were not refinanced through a drawdown from the Credit Facility (defined and discussed below) with KeyBank National Association (“KeyBank”) in January 2022 given their prepayment penalties.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(2)Effective interest rate is calculated asDuring August and September 2023, the actual interest rate in effect asCompany prepaid an aggregate of September 30, 2022 consisting$10,000,000 principal amount of the contractual interest rate, and as of December 31, 2021, consisting ofmortgage on the contractual interest rate andOES property following the effect ofdispositions completed in August 2023. The Company intends to pay the interest rate swap, if applicable (see Note 8 for further information regardingremainder on or before the Company’s derivative instruments as of December 31, 2021).loan maturity date.
(3)The loan was fully repaid on January 18, 2022 through a drawdown from the Credit Facility.
(4)Represents unamortized net mortgage premium acquired through the merger with REIT I.Rich Uncles Real Estate Investment Trust I on December 31, 2019.
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, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Face Value | | Carrying
Value | | Fair Value | | Face value | | Carrying
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| | Face Value | | Carrying
Value | | Fair Value | | Face value | | Carrying
Value | | Fair Value |
| Mortgage notes payable | | $ | 34,284,849 | | | $ | 34,118,748 | | | $ | 30,736,613 | | | $ | 44,515,009 | | | $ | 44,435,556 | | | $ | 41,293,644 | |
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 four properties as real estate held for sale as of December 31, 2021, which were collateral for mortgage notes payable. No property was classified as held for sale as of September 30, 2022. The following table summarizes the Company's mortgage notes payable related to real estate investments held for sale as of December 31, 2021:Contents
| | | | | | | | |
Collateral | | December 31,
2021 |
Accredo property | | $ | 8,538,000 | |
Omnicare property | | 4,109,167 | |
Texas Health property | | 4,284,335 | |
Bon Secours property | | 5,104,817 | |
Total | | 22,036,319 | |
Less deferred financing costs | | (336,407) | |
Mortgage notes payable, net | | $ | 21,699,912 | |
MODIV INDUSTRIAL, INC.Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 AgreementFacility and increased the Credit Facility from $250,000,000 to $400,000,000, as further describedcomprised of a $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 subject to customary conditions, including the receipt of new commitments from the Lenders. On December 20, 2022, the Credit Agreement was amended to allow the Company to draw on the additional $100,000,000 Term Loan commitment up to five times between December 20, 2022 and April 19, 2023 in Note 14.exchange for a quarterly unused fee, which amounted to zero and $92,569 during the three and nine months ended September 30, 2023, respectively. The Company drew $20,000,000 and the remaining $80,000,000 of the delayed draw Term Loan during the first and second quarters of 2023, respectively. 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 total of 12 months, and the Term Loan’s maturity in January 2027.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Credit Facility is priced on a leverage-based grid that fluctuates based on the Company’sCompany's actual leverage ratio at the end of the prior quarter. With the Company's leverage ratio at 38%47% as of June 30, 2022,2023, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’), including a 10-basis point credit adjustment, is 165185 basis points for the Revolver and the interest rate on the Revolver was 4.65% as of7.1625% on 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 rate2023; however, there was no outstanding balance on the Revolver is approximately 5.46%.Revolver. 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 paidincurred total unused fees of $94,525 and $47,543 for the three months ended September 30, 2023 and 2022, respectively, and $384,164 and $119,823 for the three and nine months ended September 30, 2023 and 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 resultedresults in a fixed interest rate of 4.058% on the Term Loan of 3.858% based on the Company's leverage ratio of 48% as of September 30, 2022. 2023.
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 14,8, which would resultresults in a fixed interest rate of 5.04%5.240% on the nextadditional $100,000,000 to be borrowed under the Term Loan based on the Company's leverage ratio of 48% as of September 30, 2022.2023.
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 after January 18, 2022, and maximum consolidated 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 considercurrently has, and may continue to have, 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.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The detailsCredit Facility Repayments and Drawdowns
On January 5, 2023, the Company repaid $3,000,000 of the Company'soutstanding balance on its Revolver with available cash on hand to reduce interest expense.
On January 25, 2023, the Company borrowed $10,000,000 under its additional $100,000,000 Term Loan ascommitment in advance of September 30, 2022 follow:
| | | | | | | | |
| | September 30,
2022 |
Term loan | | $ | 150,000,000 | |
Less unamortized deferred financing costs | | (1,086,650) | |
Net term loan | | $ | 148,913,350 | |
Prior Credit Facility
acquiring a property located in Princeton, Minnesota leased to Plastic Products Company, Inc. On March 29, 2021,2023, the Company entered intoagain borrowed $10,000,000 under its Term Loan commitment in advance of acquiring a credit facility with Banc of California (the “Prior Credit Facility”) for an aggregate line of credit of $22,000,000 with a maturity date of March 30, 2023. Underproperty located in Savage, Minnesota leased to Stealth Manufacturing. In April 2023, additional draws aggregating $80,000,000 were made on the terms of the Prior Credit Facility,additional Term Loan.
In July 2023, the Company paidborrowed $21,000,000 under its Revolver commitment in advance of acquiring a variable rate of interestproperty in Piqua, Ohio leased to NVH Acquisition Holdings, LLC (dba Vistech) and a property in Andrews, South Carolina leased to SixAxis, LLC. In August 2023, the Company repaid the $21,000,000 outstanding balance on outstanding amounts equal to one percentage point overits Revolver with proceeds from the prime rate publishedGIPR disposition described in The Wall Street Journal, provided that the interest rate in effect on any one day was not 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 paid an unused commitment fee of 0.15% per annum of the unused portion of the Prior Credit Facility, charged quarterly in arrears based on the average unused commitment available under the Prior Credit Facility.
The Revolver's and Prior Credit Facility's unamortized deferred financing costs of $757,468 and $110,697 as of September 30, 2022 and December 31, 2021, respectively, are presented as a component of prepaid and other assets in the Company's unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.Note 3.
Compliance with All Debt Agreements
Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the Credit Facility, the Company and/or the subsidiary borrowers are subject to certain financial loan covenants. The Company and/or the subsidiary borrowers were in compliance with such financial loan covenants as of September 30, 2022.2023.
Future Principal Payments
The following summarizes the future principal repayments of the Company’s mortgage notes payable and Credit Facility as of September 30, 2022:2023:
| | | Mortgage Notes | | Credit Facility | | | Mortgage Notes | | Credit Facility | |
| | Payable | | Revolver | | Term Loan | | Total | | Payable | | Revolver | | Term Loan | | Total |
| October through December 2022 | | $ | 81,938 | | | $ | — | | | $ | — | | | $ | 81,938 | | |
| 2023 | | 317,575 | | | — | | | — | | | 317,575 | | |
| October through December 2023 | | October through December 2023 | | $ | 179,918 | | | $ | — | | | $ | — | | | $ | 179,918 | |
| 2024 | 2024 | | 12,991,023 | | | — | | | — | | | 12,991,023 | | 2024 | | 3,174,547 | | | — | | | — | | | 3,174,547 | |
| 2025 | 2025 | | — | | | — | | | — | | | — | | 2025 | | 543,886 | | | — | | | — | | | 543,886 | |
| 2026 | 2026 | | — | | | 6,775,000 | | | — | | | 6,775,000 | | 2026 | | 568,369 | | | — | | | — | | | 568,369 | |
| 2027 | 2027 | | — | | | — | | | 150,000,000 | | | 150,000,000 | | 2027 | | 593,972 | | | — | | | 250,000,000 | | | 250,593,972 | |
| Thereafter | Thereafter | | 31,200,000 | | | — | | | — | | | 31,200,000 | | Thereafter | | 29,224,157 | | | — | | | — | | | 29,224,157 | |
| Total principal | Total principal | | 44,590,536 | | | 6,775,000 | | | 150,000,000 | | | 201,365,536 | | Total principal | | 34,284,849 | | | — | | | 250,000,000 | | | 284,284,849 | |
| Plus unamortized mortgage premium, net of unamortized discount | | 145,527 | | | — | | | — | | | 145,527 | | |
| Plus unamortized mortgage premium, net | | Plus unamortized mortgage premium, net | | 10,893 | | | — | | | — | | | 10,893 | |
| Less deferred financing costs | Less deferred financing costs | | (205,933) | | | — | | | (1,086,650) | | | (1,292,583) | | Less deferred financing costs | | (176,994) | | | — | | | (1,614,073) | | | (1,791,067) | |
| Net principal | Net principal | | $ | 44,530,130 | | | $ | 6,775,000 | | | $ | 148,913,350 | | | $ | 200,218,480 | | Net principal | | $ | 34,118,748 | | | $ | — | | | $ | 248,385,927 | | | $ | 282,504,675 | |
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Interest Expense, Net of Derivative Settlements and Unrealized Gain on Interest Rate Swaps
The following is a reconciliation of the components of interest expense, net of derivative settlements and unrealized gain on interest rate swaps for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Mortgage notes payable: | Mortgage notes payable: | | | | | | | | | Mortgage notes payable: | | | | | | | | |
| Interest expense | Interest expense | | $ | 488,773 | | | $ | 1,812,254 | | | $ | 1,762,378 | | | $ | 5,736,165 | | Interest expense | | $ | 411,610 | | | $ | 488,773 | | | $ | 1,354,642 | | | $ | 1,762,378 | |
| Amortization of deferred financing costs | Amortization of deferred financing costs | | 7,235 | | | 141,235 | | | 21,694 | | | 355,661 | | Amortization of deferred financing costs | | 7,235 | | | 7,235 | | | 21,705 | | | 21,694 | |
| Swap termination costs | | — | | | — | | | — | | | 23,900 | | |
| Unrealized gain on interest rate swap valuation (1) | | — | | | (166,539) | | | — | | | (684,057) | | |
| Credit facility: | Credit facility: | | Credit facility: | |
| Interest expense | Interest expense | | 1,783,899 | | | 27,486 | | | 3,472,564 | | | 169,571 | | Interest expense | | 4,509,026 | | | 1,636,414 | | | 10,895,933 | | | 3,083,299 | |
| Unused commitment fees | | Unused commitment fees | | 94,525 | | | 47,543 | | | 384,164 | | | 119,823 | |
| Amortization of deferred financing costs | Amortization of deferred financing costs | | 120,829 | | | 16,605 | | | 342,349 | | | 60,468 | | Amortization of deferred financing costs | | 214,261 | | | 120,829 | | | 642,783 | | | 342,349 | |
| Amortization of interest rate swap valuation asset | | 59,000 | | | — | | | 59,000 | | | — | | |
| Unrealized gain on interest rate swap valuation (2) | | — | | | — | | | (589,997) | | | — | | |
| Swap derivatives: | | Swap derivatives: | |
| Derivative cash settlements (1) | | Derivative cash settlements (1) | | (1,586,641) | | | 99,942 | | | (4,062,442) | | | 269,442 | |
| Unrealized loss (gain) on interest rate swap valuation for first swap (2) | | Unrealized loss (gain) on interest rate swap valuation for first swap (2) | | 167,926 | | | — | | | (327,824) | | | (589,997) | |
| Amortization of interest rate swap valuation (2) | | Amortization of interest rate swap valuation (2) | | (253,092) | | | 59,000 | | | (756,495) | | | 59,000 | |
| Unrealized gain on interest rate swap valuation for second swap (3) | | Unrealized gain on interest rate swap valuation for second swap (3) | | (710,258) | | | — | | | (1,697,519) | | | — | |
| Other | Other | | 55,102 | | | 504 | | | 212,179 | | | 49,622 | | Other | | 68,326 | | | 55,102 | | | 306,832 | | | 212,179 | |
| Total interest expense | | $ | 2,514,838 | | | $ | 1,831,545 | | | $ | 5,280,167 | | | $ | 5,711,330 | | |
| Interest expense, net | | Interest expense, net | | $ | 2,922,918 | | | $ | 2,514,838 | | | $ | 6,761,779 | | | $ | 5,280,167 | |
(1) Includes unrealized gain on interest rate swaps of $166,338The Company entered into two swap transaction instruments for (i) its original $150,000,000 Credit Facility Term Loan (first swap) effective May 31, 2022 and $684,057(ii) its additional $100,000,000 Term Loan commitment (second swap) effective November 30, 2022, as described in detail in Note 8.
(2) Due to the Company's $150,000,000 derivative instrument's failure to qualify as a cash flow hedge because it was deemed ineffective for the three and nine months ended September 30, 20212023 as described in Note 8, the $167,926 loss and $327,824 gain in the swap valuation for the three and nine months ended September 30, 2023, respectively, are recognized as an increase and a decrease in interest expense, respectively, and the unrealized gain on interest rate swap derivative previously recorded in accumulated other comprehensive income and noncontrolling interest in operating partnership is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the loan agreement (see Note 8 for more details). Accrued interest receivable
(3) The Company's $100,000,000 derivative instrument was not designated as a cash flow hedge and, therefore, the $710,258 and $1,697,519 gains in the valuation of $54,980 as of December 31, 2021 represented the unsettled portion of the interest rate swapsthis swap for the period from origination of thethree and nine months ended September 30, 2023, respectively, are reflected as reductions in interest rate swap through the balance sheet date.
(2) The Company entered into a swap transaction for its Credit Facility Term Loan effective May 31, 2022 which is further described inexpense (see Note 8 for more details).
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 8. INTEREST RATE SWAP DERIVATIVES
The Company, through its Operating Partnership, entered into a five-year swap agreement on May 10, 2022 to fix SOFR at 2.258% effective May 31, 2022 related to itsthe variable interest rate on its original $150,000,000 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.Loan. 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. The Company granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The Company designated the pay-fixed, receive-floating interest rate swap with the terms described in the table below as of July 1, 2022 as a cash flow hedge which was effective through December 31, 2022. The derivative instrument failed to qualify as a cash flow hedge during the three and nine months ended September 30, 2023 as described below.
In prior years, theThe Company, through its limited liability company subsidiaries,Operating Partnership, entered into another five-year swap agreement on October 26, 2022 to fix SOFR at 3.440% effective November 30, 2022 related to the variable interest rate on its additional $100,000,000 Term Loan commitment. The Company did not designate the pay-fixed, receive-floating interest rate swap agreements with amortizing notional amounts relating to four of its mortgage notes payable. These swap agreements, which werethe terms described in placethe table below as of November 30, 2022 as a cash flow hedge. The swap agreement matures on November 30, 2027 and the financial institution counterparty has a one-time option to cancel the swap on December 31, 2021, were terminated during the three months ended March 31, 2022 in connection with refinancings discussed in Note 7.2024. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks. During the three months ended March 31, 2022, the Company terminatedgranted this cancellation option because it reduced the swap agreements relatedrate by approximately 50 basis points. The Company has begun, and intends to mortgages onfurther explore in 2024, various alternatives available to extend or restructure the 3M, Cummins, Wyndham and Williams Sonoma properties at aggregate costs of $733,000 and during the three months ended March 31, 2021, the Company terminated the swap agreements related to mortgages on the GSA and Eco-Thrift properties at aggregate costs of $23,900.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
cancellation option.The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Derivative
Instruments | | Number of Instruments | | Notional
Amount (i) | | Reference
Rate (ii) | | Fixed Pay Rate (iii) | | Remaining Non-Cancellable Term | | Number of Instruments | | Notional
Amount (i) | | Reference
Rate (iv) | | Weighted Average Fixed Pay Rate | | Weighted
Average
Remaining Term |
| Interest Rate Swap Derivatives | | 1 | | $ | 150,000,000 | | | Indexed to USD - SOFR - COMPOUND | | 3.858 | % | | 2.3 years | | 4 | | $ | 26,051,000 | | | One-month LIBOR + applicable spread/Fixed at 4.05%-5.16% | | 4.51 | % | | 2.0 years |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
Interest Rate Derivative
Instruments | | Number of Instruments | | Notional
Amount (i) | | Reference
Rate | | Weighted Average Fixed Pay Rate (ii) | | Weighted
Average
Remaining Term | | Number of Instruments | | Notional
Amount (i) | | Reference Rate | | Fixed Pay Rate (ii) | |
Remaining Term |
| Designated | | — | | $ | — | | | — | | — | % | | 0 years | | 1 | | $ | 150,000,000 | | | USD - SOFR | | 4.06 | % | | 4.1 years |
| Non-designated | | 2 | | $ | 250,000,000 | | | USD - SOFR | | 4.43 | % | | 3.25 years | | 1 | | $ | 100,000,000 | | | USD - SOFR | | 5.24 | % | | 4.1 years |
(i)The notional amount of the Company’s swaps decreased each month to correspond to the outstanding principal balance on the related debt.Term Loan. The minimum notional amountsamount (outstanding principal balance at the maturity date) as of September 30, 20222023 and December 31, 2021 were $150,000,000 and $24,935,999, respectively.2022 was $250,000,000.
(ii)The reference rate was as of September 30, 2022.
(iii)Based on the terms of the Credit Facility, the fixed pay rate increases if the Company's leverage ratio increases above 40%50%.
(iv)The reference rate was as of 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 accompanying unaudited condensed consolidated balance sheets as of September 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 |
| Derivative Instrument | | Balance Sheet Location | | Number of
Instruments | | Fair Value (1) | | Number of
Instruments | | Fair Value |
| Interest Rate Swaps | | Asset - Interest rate swap derivatives, at fair value | | 1 | | $ | 4,845,903 | | | — | | $ | — | |
| Interest Rate Swaps | | Liability - 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2023 | | December 31, 2022 | | |
| Derivative Instrument | | Balance Sheet Location | | Number of
Instruments | | Fair Value | | Number of
Instruments | | Fair Value | | Change in Fair Value |
| Interest Rate Swaps | | Asset - Interest rate swap derivatives, at fair value | | 2 | | $ | 6,156,179 | | | 1 | | $ | 4,629,702 | | | $ | 1,526,477 | |
| Interest Rate Swaps | | Liability - Interest rate swap derivatives, at fair value | | — | | $ | — | | | 1 | | $ | (498,866) | | | $ | 498,866 | |
The interest rate swap derivative on the original $150,000,000 Term Loan was designated as a cash flow hedge for financial accounting purposes beginningfrom July 1, 2022 and thereforethrough December 31, 2022. Based on the changeCompany's prospective effectiveness testing of the derivative instrument during each of the quarters in fair value of $4,255,906 for the threenine months ended September 30, 2022 was recorded as unrealized holding gain on interest rate swap designated2023, the derivative instrument failed to qualify as a cash flow hedge because the swap was deemed ineffective due to the potential for a reduced term of the swap that could result from the cancellation option described above as compared with the maturity of the Term Loan. The Company has begun, and intends to further explore in 2024, various alternatives available to extend or restructure the Company's unaudited condensed consolidated statementscancellation option.
As a result, the net change in fair values of comprehensive incomethe first Term Loan swap of $167,926 loss and $327,824 gain for the three and nine months ended September 30, 2022.2023, respectively, were recorded as an unrealized loss and an unrealized gain, respectively, on interest rate swap valuation and reflected as an increase and a decrease, respectively, to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations. The unrealized gain reflects increases during the
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
second and third quarters of 2023 in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). Interest expense was also reduced by the $253,092 and $756,495 amortization of the unrealized gain on this swap for the three and nine months ended September 30, 2023, respectively, as further described below.
Due to the above $150,000,000 Term Loan derivative instrument's failure to qualify as a cash flow hedge for the quarterly periods ended September 30, 2023, the unrealized gain on interest rate swap derivative of $4,105,103 as of December 31, 2022 (recorded in the Company's financial statements as follows: (i) $3,502,616 of accumulated other comprehensive income and (ii) $602,487 of noncontrolling interest in operating partnership) is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the swap agreement. There is no income tax expense resulting from this amortization.
As of September 30, 2023, the Company's unamortized unrealized gain on interest rate swap derivative in accumulated other comprehensive income and noncontrolling interest in operating partnership amounted to $3,348,608. The Company estimates that $253,092 of the remaining unrealized gain on interest rate swap derivative will be reclassified from accumulated other comprehensive income and noncontrolling interest in operating partnership as a reduction to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations over the next three months.
The change in fair value ofsecond interest rate swap derivative on the derivative instrument of $589,997 for the period from May 31, 2022 to June 30, 2022 thatadditional $100,000,000 Term Loan commitment was not designated as a cash flow hedge for financial accounting purposes was recorded as an unrealized gain on interest rate swap valuation as of June 30, 2022 and a reduction to interest expensepurposes. The increase 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 inits 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 statement of operations. None of the Company’s derivatives as of December 31, 2021 were designated as hedging instruments; therefore, the net gains recognized were recorded as reductions in the loss on early extinguishment of debt for the three months ended March 31, 2022$710,258 and the net unrealized gain recognized on interest rate swaps of $166,338 and $684,057 were recorded as decreases in interest expense$1,697,519 for the three and nine months ended September 30, 2021, respectively. The loss2023, respectively, were recorded as unrealized gains on early extinguishment of debt for the three months ended March 31, 2022 includes the actual cost of terminating the interest rate swap derivativesvaluation and reflected as reductions to interest expense in January 2022the Company's accompanying unaudited condensed consolidated statements 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.
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, 20222023 and December 31, 2021,2022, 2,000,000 shares of authorized Series A Preferred Stock were issued and outstanding.
Underwritten Offering - Series A Preferred Stock
On September 14, 2021, the Company and the Operating Partnership entered into an underwriting agreement (the “Underwriting Agreement”) with B. Riley Securities, Inc., as representative of the underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell 1,800,000 shares of the Company’s Series A Preferred Stock, with a liquidation preference of $25.00 per share, in the Preferred Offering at a price per share of $25.00. In addition, the Company granted the Underwriters a 30-day option to purchase up to an additional 200,000 shares of the Series A Preferred Stock, which the Underwriters exercised in full on September 16, 2021.
In the Underwriting Agreement, the Company and the Operating Partnership made certain customary representations, warranties and covenants and agreed to indemnify the Underwriters against certain liabilities. The issuance and sale of the shares of Series A Preferred Stock, including the issuance and sale of 200,000 shares pursuant to the Underwriters’ full exercise of their option to purchase additional shares, closed and the Series A Preferred Stock began trading on the NYSE on September 17, 2021.
The gross proceeds from the Preferred Offering were $50,000,000 and the net proceeds were $47,607,309, after deducting the underwriting discount of $1,575,000 and other offering costs of $817,691.
The Company contributed $48,425,000 of the net proceeds from the Preferred Offering prior to other offering costs to the Operating Partnership in exchange for a new class of 7.375% Series A Cumulative Redeemable Perpetual Preferred Units of the Operating Partnership (the “Series A Preferred Units”), which have economic interests that are substantially similar to the designations, preferences and other rights of Series A Preferred Stock. The Company, acting through the Operating Partnership, used the net proceeds from such contribution for general corporate purposes, including purchases of additional properties and other real estate and real estate-related assets.
Series A Preferred Stock - Terms
Holders of Series A Preferred Stock are entitled to cumulative dividends in the amount of $1.84375 per share each year, which is equivalent to the rate of 7.375% of the $25.00 liquidation preference per share per annum. The Series A Preferred Stock has no stated maturity and will remain outstanding indefinitely unless redeemed, converted or otherwise repurchased. Except in limited circumstances relating to the Company's qualification as a REIT for U.S. federal income tax purposes, and as described in the articles supplementary governing the terms of the Series A Preferred Stock (the “Articles Supplementary”), the Series A Preferred Stock is not redeemable prior to September 17, 2026.
On and after September 17, 2026, at any time and from time to time, the Series A Preferred Stock will be redeemable in whole or in part, at the Company's option, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the Articles Supplementary), the Company may, subject to certain conditions, at its option, redeem the Series A Preferred Stock, in whole or in part, (i) after the first date on which the Delisting Event occurred or (ii) on, or within 120 days after, the first date on which the Change of Control occurred, as applicable, by paying the liquidation preference of $25.00 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date.
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, 2022.2023.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Series A Preferred Stock ranks senior to the Company's Class C common stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up.
Voting rights for holders of Series A Preferred Stock exist primarily with respect to the ability to elect 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 pereach quarter) to holders of Series A Preferred Stock, which is equivalent to 7.375% of the $25.00 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. Any accrued and unpaid dividends payable with respect to the Series A Preferred Stock become part of the liquidation preference thereof.
On November 11, 2021, the Company’s board of directors declared Series A Preferred Stock distributions payable of $1,065,278 for the fourth quarter of 2021, including the $143,403 of accrued dividends as of September 30, 2021, all of which were paid on January 18, 2022. On March 18, 2022, June 15, 2022, August 18, 2022 and June 15,2022,November 7, 2022 the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for each of the first and second quartersquarter of 2022, which were paid on April 15, 2022, and July 15, 2022, respectively.October 17, 2022 and January 17, 2023. On SeptemberMarch 9, 2023, June 15, 2022,2023 and August 7, 2023, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the first, second and third quarterquarters of 2022. This amount was2023. These amounts were accrued as of March 31, 2023, June 30, 2023 and September 30, 20222023, respectively, and paid on April 17, 2023, July 17, 2023 and October 17, 202216, 2023, respectively (see Note 14).
Common Stock Listed Offering
On February 10, 2022, the Company and the Operating Partnership entered into an underwriting agreement (the “Class C Common Stock Underwriting Agreement”) with B. Riley Securities, Inc., as the underwriter listed on Schedule I thereto, pursuant to which the Company agreed to issue and sell 40,000 shares of the Company’s Class C common stock in an underwritten Listed Offeringlisted offering (the “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 offered in the Listed Offering 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
On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company's at-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on June 6, 2022. As of September 30, 2023, no shares have been issued 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 aATM Offering.
Common Stock Distributions
Aggregate distributions declared per share of Class C common stock.stock were $0.29 for both the three months ended September 30, 2023 and 2022, respectively, and $0.86 and $0.96 for the nine months ended September 30, 2023 and 2022, respectively, which reflect an annualized distribution rate of $1.15 per share for both periods, along with a special 13th distribution for the year ended December 31, 2021, which was declared and paid in January 2022.
MODIV INDUSTRIAL, 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 and by issuing shares of Class C common stock to them. Total fees incurred and paid or accrued for board of directors' services byto the Company for the three and nine months ended September 30, 20222023 and 2021,2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| Board of Directors Compensation | | 2022 | | 2021 | | 2022 | | 2021 |
| Payments for services rendered | | $ | 67,500 | | | $ | 25,000 | | | $ | 202,500 | | | $ | 85,000 | |
| Value of shares issued for services rendered | | 82,500 | | | 95,000 | | | 247,500 | | | 275,000 | |
| Total | | $ | 150,000 | | | $ | 120,000 | | | $ | 450,000 | | | $ | 360,000 | |
| | | | | | | | |
| Number of shares issued for services rendered | | 5,651 | | | 3,647 | | | 14,916 | | | 12,168 | |
Fees incurred for board services for the three months ended September 30, 2022 were paid in cash and shares were issued on September 30, 2022 based on the closing price of the Company’s Class C common stock on September 30, 2022. For the second quarter of 2022, fees incurred for board services were paid in cash and shares were issued on July 7, 2022 based on the closing price of the Company’s Class C common stock on June 30, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| Board of Directors Compensation | | 2023 | | 2022 | | 2023 | | 2022 |
| Payments for services rendered | | $ | 57,500 | | | $ | 67,500 | | | $ | 192,500 | | | $ | 202,500 | |
| Value of shares issued for services rendered | | 70,000 | | | 82,500 | | | 235,000 | | | 247,500 | |
| Total | | $ | 127,500 | | | $ | 150,000 | | | $ | 427,500 | | | $ | 450,000 | |
| | | | | | | | |
| Number of shares issued for services rendered | | 4,194 | | | 5,651 | | | 17,455 | | | 14,916 | |
Transactions with Other Related Parties
As discussed in Note 3, onOn January 31, 2022, the Company acquired an industrial property and related equipment leased to Kalera Inc. (“Kalera”) in Saint Paul, Minnesota, which is leased tofor $8,079,000. Kalera Inc. The acquisition of the Kalera, Inc. property was introduced to the Company by Curtis B. McWilliams, one of the Company'sCompany’s independent directors. Since Mr. McWilliams was serving as the Interim Chief Executive Officeran executive of Kalera Inc. at the time of the transaction,acquisition, all of the disinterested members of the Company'sCompany’s board of directors approved this transaction.transaction in January 2022.
On April 4, 2023, Kalera filed a voluntary petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code. In April 2023, Mr. McWilliams was appointed as Kalera’s independent director as Kalera continues to operate its business while in bankruptcy. Mr. McWilliams has recused himself from any matters relating to the Company’s property in Saint Paul, Minnesota leased to Kalera. The status of the Kalera bankruptcy is discussed in Note 11.
Related Party Transactions with Unconsolidated Investment in a Real Estate Property
The Company's taxable REIT subsidiary serves as the asset manager of the TIC Interest property and earned asset management fees, of $65,992 and $65,993 for the three months ended September 30, 2022 and 2021, respectively, including the Company's share which was $47,983of the management fee, for both quarters,the three and $197,978 and $197,979 for the nine months ended September 30, 2023 and 2022 and 2021, respectively, including the Company's share which was $143,950 for both nine month periods.as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| TIC Interest management fee | | $ | 65,993 | | | $ | 65,993 | | | $ | 197,979 | | | $ | 197,979 | |
| Company's share in the management fee | | $ | 47,984 | | | $ | 47,984 | | | $ | 143,951 | | | $ | 143,951 | |
MODIV INDUSTRIAL, 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, 20222023 and December 31, 2021,2022, the Company had obligations to pay $609,788$2,595,468 and $189,136,$1,789,027, respectively, for on-site and tenant improvements to be incurred by tenants. As
Kalera Mechanic's Liens
Kalera filed a voluntary petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code on April 4, 2023. During June 2023, Kalera conducted an auction of all of its assets, and the sale of Kalera’s assets to the winning bidder, Kalera’s lender, was approved by the bankruptcy court on June 30, 2023. The sale of Kalera’s assets closed on September 29, 2023 and did not include its interest in the Company's lease for the Saint Paul, Minnesota property.
Between January 2023 and the filing date of this Quarterly Report on Form 10-Q, the Company received mechanic's lien statements from the general contractor and nine subcontractors who performed work on behalf of Kalera to complete various interior improvements at the Company's property located in Saint Paul, Minnesota. The mechanic's lien statements refer to construction materials that were delivered and related work that was performed to make this facility operational and amount to $3,548,003 in the aggregate, a portion of which has been settled with one contractor. The Company has been advised that the contractors who have filed such liens are stayed from foreclosing on the Company’s property in Saint Paul, Minnesota under the pending Chapter 11 bankruptcy proceeding.
On May 22, 2023, WPC IV, LLC d/b/a WPC (“WPC”), the general contractor hired by Kalera to construct interior improvements to the Company’s property in Saint Paul, Minnesota, filed a complaint in state district court to enforce a mechanic's lien and foreclose on the Company’s property. WPC’s complaint was also filed against all of the other contractors who had filed mechanic’s lien statements. The other defendants have filed counterclaims and crossclaims. The Company’s outside counsel filed a motion to dismiss or stay this litigation on July 10, 2023 and a hearing is scheduled for December 4, 2023.
On October 31, 2023, Kalera filed a motion with the bankruptcy court to reject the Company’s lease and abandon all of its property located at the premises effective as of October 31, 2023, subject to approval of the motion by the bankruptcy court. The Company is exploring its legal options and may make certain demands and objections relating to damages the Company has incurred in connection with the Kalera bankruptcy. Because the Company’s lease will be rejected once the bankruptcy court enters an order approving Kalera's motion, the Company will be responsible for the mechanic's liens with a face amount of $3,110,443 and will seek to find a new tenant or sell the property. The Company has engaged in preliminary discussions with prospective tenants in anticipation of the lease being rejected. The accompanying condensed consolidated balance sheet as of September 30, 20222023 includes the estimated amount of $2,350,000 to settle the pending mechanic's liens at less than face value, which was recorded as construction in progress for the improvements at the Company's Saint Paul, Minnesota property and December 31, 2021, the Company had no restricted cash and $2,271,462 of restricted cash, respectively, held to fund other building improvements and leasing commissions. Pursuant to the refinancing of the related mortgage notes payable on January 18, 2022 as discussed in a corresponding accrued liability.Note 7, the restricted cash as of December 31, 2021 was released.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Legal Matters
From time-to-time, the Company or its subsidiaries may become party to legal proceedings that arise in the ordinary course of its business. TheExcept for the Kalera bankruptcy proceeding and the WPC foreclosure action described above, the Company, including its subsidiaries, is not a party to any legal proceeding, nor is the Company aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 12. OPERATING PARTNERSHIP UNITS
Class M OP Units
On September 19, 2019, the Company, the Operating Partnership, BrixInvest, LLC, a Delaware limited liability company and the Company's former sponsor (“BrixInvest”), the Company’s former external advisor, 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 Agreementa 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 limited partnership interest in the Operating Partnership (“Class M OP Units”) and assumed certain 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 Units”) at a conversion ratio of 1.6667 Class C OP Units for each one Class M OP Unit, 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.
As of September 30, 2023, no Class M OP Units had been converted to Class C OP Units. 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 70% of the rate indicated below:
| | | | | | | | |
Date of Exchange | | Early Conversion Rate |
From December 31, 2020 to December 30, 2021 | | 50% ofClass M conversion ratio. After December 31, 2023, in the event that the Class M conversion ratio |
From December 31, 2021 to December 30, 2022 | | 60% of the Class M conversion ratio |
From December 31, 2022 to December 30, 2023 | | 70% of the Class M conversion ratio |
As of September 30, 2022, no Class M OP Units had beenare converted tointo Class C OP Units.Units, such Class M OP Units shall be exchanged at 100% of the Class M conversion ratio.
The Class M OP Units arewere eligible for an increase in the conversion ratio (conversion ratio enhancement) if the Company achievesachieved both of the targets for AUM and AFFO per share in a given year as set forth below:
| | | | | | | | | | | | | | | | | | | | |
| | Hurdles | | |
| | AUM | | AFFO | | Class M |
| | ($ in billions) | | Per Share ($) | | Conversion Ratio |
| Initial Conversion Ratio | | | | | | 1:1.6667 |
| Fiscal Year 2021 | | $ | 0.860 | | | $ | 1.77 | | | 1:1.9167 |
| Fiscal Year 2022 | | $ | 1.175 | | | $ | 1.95 | | | 1:2.5000 |
| Fiscal Year 2023 | | $ | 1.551 | | | $ | 2.10 | | | 1:3.0000 |
Theyear. However, the AUM and AFFO per share hurdles for the Class M OP Units were not met for fiscal years 2022 or 2021 and the Company does not expect to meet the hurdles for fiscal year 2021.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
2023.Based on the current conversion ratio of 1.6667 Class C OP Units 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 NYSE closing share price of $14.60$16.69 as of September 29, 2023, the last day of stock market trading for the three months ended September 30, 2022,2023, a Class M OP Unit would be valued at $24.33. This value does not reflect the early conversion rate or the future conversion enhancement ratio of the$27.82. All Class M OP Units as discussed above, andautomatically convert to Class C OP Units on March 31, 2024. The automatic conversion into Class C OP Units does not require any action by Class M OP Unit holders.
Class P OP Units
The Company issued the units of Class P limited partnership interest in the Operating Partnership (“Class P OP Units”), as discussed below.
Class P OP Units
The Company issued 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 Limited Partnership Agreement of the Operating Partnership (as amended, the “Operating Partnership Agreement”)), or (3) the date of the recipient's involuntary termination (as defined in the relevant award agreement for the Class P OP Units) (collectively, the “Lockup Period”). Following the expiration of the Lockup Period, the Class P OP Units are convertible into Class C OP Units at a conversion ratio of 1.6667 Class C OP Units 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.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 2021. As of September 30, 2023, the Company does not expect to meet the hurdles for fiscal year 2023.
TheOn December 31, 2019, the Company issued a total of 56,029 Class P OP Units to 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 theseboth 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) when issued on December 31, 2019 and the expected minimum conversion ratio of 1.6667 Class C OP Units 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, 20222023 and 2021,2022, the Company amortized and charged $88,783 for both quarters to stock compensation expense for both quarters for Class P OP Units and during the nine months ended September 30, 20222023 and 2021,2022, the Company amortized and charged $266,350 to stock compensation expense for both periods to stock compensation expense.for Class P OP Units. The unamortized value of these units was $532,700$177,567 as of September 30, 2022.2023.
Under the Operating Partnership Agreement, once the Class M OP Units or Class P OP Units are converted into Class C OP Units, they will be exchangeable for the Company’s shares of Class C common stock on a 1-for-1 basis, or for cash at the sole and absolute discretion of the Company. Class P OP Units will automatically convert to Class C OP Units on March 31, 2024. 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, 2022,2023, these interests represent a combined total of approximately 11.6%10.7% of the equity in the Operating Partnership.
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 40,000 units of Class R limited partnership interest in the Operating Partnership (“Class R OP Units”) to Mr. Halfacre in recognition of his voluntary reduction in his 2020 compensation plus 170,667 Class R OP Units to Mr. Halfacre as equity incentive compensation for the next three years, and the grant of 33,333 Class R OP Units to Mr. Pacini as equity incentive compensation for the next three years. An additional 116,000 Class R OP Units were granted to the remainder of the employees of the Company for a total of 360,000 Class R OP Units granted. There are no other stock based incentive compensation programs in place for employees.
Stock compensation expense related to the Class R OP Units is based on the estimated fair value per share on the grant date, including a discount for the illiquid nature of the underlying equity, and is being recognized over the vesting period. Of the 360,000 Class R OP Units granted, due to the departure of employees, 43,657 units were forfeited through December 31, 2022. There were no forfeitures during the three and nine months ended September 30, 2023. During the first nine months of 2023, the Company recorded $1,466,659 of stock compensation expense ($488,887 per quarter) related to the 316,343 Class R OP Units outstanding.
All Class R OP Units granted vest and are 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 (“FFO”) of $1.05, or more, per weighted average fully-diluted share outstanding for the year ending December 31, 2023. The2023, excluding the units and related compensation expense of the units to be issued if the performance target is met. As of September 30, 2023, the Company concluded that as of each quarter end, including September 30, 2022, achieving the 2023 FFO performance target to trigger the increased conversion ratio for the Class R OP Units is not deemed probable. TheTherefore, the Company will adjustrecorded a one-time non-cash catch-up adjustment of $7,822,197 during the three months ended September 30, 2023 to reflect the cumulative compensation expense prospectively if achievingfor the enhancement is deemed probable through the remainder474,515 performance-based Class C OP Units expected to be issued upon conversion of the vesting period.
Stock compensation expense related to the Class R OP Units is based on the estimatedgrant date fair value of $19.58 per share including a discount forfrom the illiquid nature of the underlying equity, and is being recognized over the vesting period. Of the 360,000 Class R OP Units granted, due to the departure of employees, 26,657 units were forfeited as of December 31,initial grant date in January 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.2023. Compensation expense of $733,331 per quarter will be recorded for these additional units through the end of the vesting period on March 31, 2024, if achieving the FFO performance target of $1.05 per share is still deemed probable.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
During the three months ended September 30, 20222023 and 2021,2022, the Company amortized and charged $8,311,084 and $377,957 to stock compensation expense, $377,957 and $559,827, respectively, and during the nine months ended September 30, 20222023 and 2021,2022, the Company amortized and charged $9,288,856 and $1,227,002 to stock compensation expense, $1,227,002 and $1,573,991, respectively, for the Class R OP Units.Units for both time vesting and performance units. The remaining unamortized value of the remaining 316,343790,858 time vesting and performance units was $2,933,324aggregated $2,444,441 as of September 30, 2022.2023.
The total stock compensation expenses for the three and nine months ended September 30, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Class P OP Units | | $ | 88,783 | | | $ | 88,783 | | | $ | 266,350 | | | $ | 266,350 | |
| Class R OP Units - Time Vesting Units | | 488,887 | | | 377,957 | | | 1,466,659 | | | 1,227,002 | |
| Class R OP Units - Performance Units | | 7,822,197 | | | — | | | 7,822,197 | | | — | |
Class C common stock issued to the board of directors for services (see Note 10) | | 70,000 | | | 82,500 | | | 235,000 | | | 247,500 | |
| Total | | $ | 8,469,867 | | | $ | 549,240 | | | $ | 9,790,206 | | | $ | 1,740,852 | |
Class C OP Units
On January 18, 2022, the Company completed the acquisition of a KIA auto dealership property in an “UPREIT” transaction pursuant to a contribution agreement whereby the seller received 1,312,382 Class C OP Units based on the terms of the Operating Partnership Agreement and an agreed upon value of $25.00 per unit, representing approximately 47% of the property’s value (the “UPREIT Transaction”).value. Following expiration of the lock-up period ending on August 11, 2022, the holder of the Class C OP Units may require the redemption of all or a portion of these units and the Company has the option to redeem the units for cash or shares of Class C common stock.
On April 13, 2023, the Company acquired an industrial manufacturing property located in Reading, Pennsylvania leased to Summit Steel whereby the seller received 287,516 Class C OP Units based on the terms of the Operating Partnership Agreement and an agreed upon value of $18.00 per unit, representing approximately 46% of the property’s value. Under the terms of the contribution agreement, these Class C OP Units are redeemable for cash or, at the Company’s option, exchangeable for shares of the Company's Class C common stock. Summit Steel cannot require the Company to redeem any or all of the Class C OP Units until one year after the closing date of the agreement. The Company refers to this acquisition and the acquisition of the KIA auto dealership property discussed above collectively as the “UPREIT Transactions.”
The above Class C OP Units received $377,298the following distributions and $1,006,136 in distributionsallocations of net (loss) income during the three and nine months ended September 30, 2023 and 2022 respectively, and were allocated $528,540 and $(1,180,275)as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Class C OP Units distributions | | $ | 459,955 | | | $ | 377,298 | | | $ | 1,269,653 | | | $ | 1,006,136 | |
| Class C OP Units net (loss) income allocation | | $ | (1,368,896) | | | $ | 528,540 | | | $ | (1,535,452) | | | $ | (1,180,275) | |
Class C OP Units may be exchanged into Class C common stock or cash (at the sole discretion of the net income (loss)Company) in accordance with, and subject to the terms and conditions of, the Operating Partnership Agreement. Holders of Class C OP Units wishing to exchange their Class C OP Units must submit a Notice of Exchange (as defined in the Operating Partnership Agreement) to the Operating Partnership with a copy to the Company (the general partner of the Operating Partnership) in accordance with the Operating Partnership Agreement. If the Company chooses to exchange such Class C OP Units for cash, the three and nine months ended September 30, 2022, respectively.cash amount will be based on the average daily market price of the Class C common stock for 10 consecutive trading days immediately preceding the date of receipt by the Company of the Notice of Exchange.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 13. EARNINGS (LOSS) PER SHARE
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 (see Note 12 for additional information).
The following table presents the computation of the Company's basic and diluted net (loss) income (loss) per share attributable to common stockholders for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Numerator - Basic: | Numerator - Basic: | | | | | | | | | 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 | | | — | | |
| Net (loss) income | | Net (loss) income | | $ | (6,905,242) | | | $ | 4,450,767 | | | $ | (6,854,210) | | | $ | (5,232,053) | |
| Less: net loss (income) attributable to noncontrolling interest in Operating Partnership | | Less: net loss (income) attributable to noncontrolling interest in Operating Partnership | | 1,368,896 | | | (528,540) | | | 1,535,452 | | | 1,180,275 | |
| Preferred stock dividends | Preferred stock dividends | | (921,875) | | | (143,403) | | | (2,765,625) | | | (143,403) | | Preferred stock dividends | | (921,875) | | | (921,875) | | | (2,765,625) | | | (2,765,625) | |
| Net income (loss) attributable to common stockholders | | $ | 3,000,352 | | | $ | 3,505,052 | | | $ | (6,817,403) | | | $ | 1,599,561 | | |
| Net (loss) income attributable to common stockholders | | Net (loss) income attributable to common stockholders | | $ | (6,458,221) | | | $ | 3,000,352 | | | $ | (8,084,383) | | | $ | (6,817,403) | |
| | Numerator - Diluted: | | |
| Net income (loss) | | $ | 4,450,767 | | | $ | 3,648,455 | | | $ | (5,232,053) | | | $ | 1,742,964 | | |
| Numerator - Diluted | | Numerator - Diluted | |
| Net (loss) income | | Net (loss) income | | $ | (6,905,242) | | | $ | 4,450,767 | | | $ | (6,854,210) | | | $ | (5,232,053) | |
| Preferred stock dividends | Preferred stock dividends | | (921,875) | | | (143,403) | | | (2,765,625) | | | (143,403) | | Preferred stock dividends | | (921,875) | | | (921,875) | | | (2,765,625) | | | (2,765,625) | |
| Net income (loss) attributable to common stockholders | | $ | 3,528,892 | | | $ | 3,505,052 | | | $ | (7,997,678) | | | $ | 1,599,561 | | |
| Net (loss) income attributable to common stockholders | | Net (loss) income attributable to common stockholders | | $ | (7,827,117) | | | $ | 3,528,892 | | | $ | (9,619,835) | | | $ | (7,997,678) | |
| | Denominator: | Denominator: | | Denominator: | |
| Weighted average shares outstanding - basic | Weighted average shares outstanding - basic | | 7,449,968 | | | 7,531,559 | | | 7,486,945 | | | 7,575,013 | | Weighted average shares outstanding - basic | | 7,548,052 | | | 7,449,968 | | | 7,537,505 | | | 7,486,945 | |
| Operating Partnership Units - Class C | Operating Partnership Units - Class C | | 1,312,382 | | | — | | | — | | | — | | Operating Partnership Units - Class C | | — | | | 1,312,382 | | | — | | | — | |
| Operating Partnership Units - Classes M, P and R | Operating Partnership Units - Classes M, P and R | | 1,418,193 | | | 1,219,316 | | | — | | | 1,188,099 | | Operating Partnership Units - Classes M, P and R | | — | | | 1,418,193 | | | — | | | — | |
| Weighted average shares outstanding - diluted | Weighted average shares outstanding - diluted | | 10,180,543 | | | 8,750,875 | | | 7,486,945 | | | 8,763,112 | | Weighted average shares outstanding - diluted | | 7,548,052 | | | 10,180,543 | | | 7,537,505 | | | 7,486,945 | |
| | Earnings (loss) per share attributable to common stockholders: | | |
| Loss (earnings) per share attributable to common stockholders: | | Loss (earnings) per share attributable to common stockholders: | |
| Basic | Basic | | $ | 0.40 | | | $ | 0.47 | | | $ | (0.91) | | | $ | 0.21 | | Basic | | $ | (0.86) | | | $ | 0.40 | | | $ | (1.07) | | | $ | (0.91) | |
| Diluted | Diluted | | $ | 0.35 | | | $ | 0.40 | | | $ | (0.91) | | | $ | 0.18 | | Diluted | | $ | (0.86) | | | $ | 0.35 | | | $ | (1.07) | | | $ | (0.91) | |
During the three months ended September 30, 2023, the weighted average dilutive effect of 3,580,720 shares and during the nine months ended September 30, 2023 and 2022, the weighted average dilutive effect of 3,484,881 shares and 2,730,416 shares, respectively, related to units of limited partnership interest in the Operating Partnership as discussed in NotesNote 12and 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.
Diluted shares also exclude the 474,515 performance-based Class C OP Units expected to be issued upon conversion of the Class R OP Units on March 31, 2024 if the 2023 FFO performance target is achieved, which is described in Note 12, because their effect would be anti-dilutive. All Class R OP Units will automatically convert to Class C OP Units on March 31, 2024.
MODIV INDUSTRIAL, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 14. SUBSEQUENT EVENTS
The Company evaluates subsequent events until the date the accompanying unaudited condensed consolidated financial statements are issued. Significant subsequent events are described below:
Preferred Dividends
On October 17, 2022,16, 2023, the Company paid its Series A Preferred Stock dividends of $921,875 for the third quarter of 2022,2023, which were declared by the Company’s board of directors on August 18, 2022.7, 2023.
On November 7, 2022,6, 2023, the Company’s board of directors declared Series A Preferred Stock dividends payable of $921,875 for the fourth quarter of 2022,2023, which will be paid on January 17, 202316, 2024 to holders of Series A Preferred StockholdersStock of record as of December 30, 2022.
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
29, 2023.Common Stock and Class C OP Unit Distributions
On June 15, 2022,2023, the Company'sCompany’s board of directors authorized monthly distributions payable to common stockholders and the Class C OP Unit holders of record as of September 30, 2022,2023, which were paid on October 25, 2022.2023.
On October 10, 2023, the Company’s board of directors authorized monthly distributions payable to common stockholders and Class C OP Unit holders of record as of October 31, 2023, November 30, 2023 and December 29, 2023, which will be paid on or about November 27, 2023, December 26, 2023 and January 25, 2024, respectively. The current monthly distribution amount of $0.09583$0.095833 per share represents an annualized distribution rate of $1.15 per share of common stock.stock, which is consistent with the annual dividend rate paid since October 1, 2021.
On August 18, 2022,November 6, 2023, the Company’s board of directors authorized monthly distributions of $0.09583$0.095833 per share payable to common stockholders and the Class C OP Unit holders of record as of October 31, 2022, November 30, 2022 and December 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 payable to common stockholders and the Class C OP Unit holders of record as of January 31, 2023,2024, February 28, 202329, 2024 and March 31, 2023,29, 2024, which will be paid on or about February 24, 2023,26, 2024, March 24, 202325, 2024 and April 25, 2023,2024, respectively.
Credit FacilityKalera Mechanic's Liens
On October 21, 2022,31, 2023, Kalera filed a motion with the bankruptcy court to reject the Company’s lease and abandon all of its property located at the premises effective as of October 31, 2023, subject to approval of the motion by the bankruptcy court. The Company is exploring its legal options and may make certain demands and objections relating to damages the Company successfully exercised the accordion feature of its Credit Facility. The 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. 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 total of 12 months, and the Term Loan’s maturity in January 2027. The Company paid lender fees of $1,378,125has incurred in connection with this expansion of its Credit Facility.
The Credit Facility is priced on a leverage-based grid that fluctuates based onthe Kalera bankruptcy. Because the Company’s actual leverage ratiolease will be rejected once the bankruptcy court enters an order approving Kalera's motion, the Company will be responsible for the mechanic's liens with a face amount of $3,110,443 and will seek to find a new tenant or sell the property. The Company has engaged in preliminary discussions with prospective tenants in anticipation of the lease being rejected. The accompanying condensed consolidated balance sheet as of September 30, 2023 includes the estimated amount of $2,350,000 to settle the pending mechanic’s liens at less than face value, which was recorded as construction in progress for the improvements 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 plusSaint Paul, Minnesota property and 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 continue to vary based on the Company’s leverage ratio.corresponding accrued liability.
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 accompanying 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, 20212022 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”)SEC on March 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.13, 2023.
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.
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 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 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”) including the risks and uncertainties described in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2022. 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.
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 implementing our strategic plan to acquire industrial manufacturing properties while reducing the number of office and retail properties in our portfolio, and therefore the prior performance of our real estate investments may not be indicative of our future results.
•Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing when our debt matures, at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders.
•We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.
•Increases in mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distributions to our stockholders.
•Inflation and rising interest rates may adversely affect our financial condition and results of operations.
•Our listing on the New York Stock Exchange does not guarantee an active and liquid market for our Class C common stock, $0.001 par value per share (“Class C common stock”), and the market price and trading volume of the shares of our Class C common stock may fluctuate significantly.
•Our Class C common stock is subordinate to our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions.
•Our real estate investments may include special use single-tenant properties that may be difficult to sell or re-lease upon tenant defaults or early terminations.
•Downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a more diversified investment portfolio.
•We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
•Our real estate properties and related intangible assets may be subject to impairment charges.
•We face significant competition for real estate investment opportunities, which may limit our ability to acquire suitable investments and achieve our investment objectives or pay distributions.
•Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination.
•Our charter and bylaws contain provisions, including restrictions on the ownership and transfer of our stock, that may delay, defer or prevent an acquisition of our common stock or a change in control.
•We have experienced losses in the past and we may experience additional losses in the future.
•Uninsured losses relating to real property could reduce our cash flow from operations and reduce the value of stockholders’ investment in us.
•We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems.
•We may be subject to adverse legislative or regulatory tax changes.
•The eruption of war between Israel and Hamas militants and the threat of an expanded war in the Middle East, along with the ongoing war between Russia and Ukraine and the economic sanctions and other restrictive actions by the U.S. and other countries against Russia, is expected to exacerbate supply chain disruptions, increase oil prices in the world market, and may extend the inflationary period and increase interest rates in the markets in which we operate.
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.
Overview
We are an internally-manageda real estate investment trust (“REIT”) with publicly traded shares of Class C common stock (defined below) and Series A Preferred Stock (defined below).Stock. We acquire,currently own and manage a diversified portfolio of predominantly single-tenant net-lease industrial, retail and officereal estate properties throughout the United States, with a focus on strategically importantacquisitions of critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and mission critical properties. strengthen supply chains. Following our sale of 13 retail and office properties on August 10, 2023, as described below, since December 31, 2021, we have increased our industrial properties from 41% to 75% of our portfolio and reduced our office properties from 50% to 14% of our portfolio based on our pro forma ABR (as defined below) as of September 30, 2023.
We were formed on May 15, 2015 as a Maryland corporation and elected to be taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2016. We changed our name from Modiv Inc. to Modiv Industrial, Inc. effective August 11, 2023. We intend to continue to operate so as to remain qualified as a REIT for federal income tax 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 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.
Our Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MDV.PA” and has been trading since September 17, 2021. Our Class C common stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to that date, there was no public trading market for our Class C common stock. In connection with and upon listing on the NYSE, each share of our Class S common stock (defined below) converted into one share of Class C common stock (see details of the 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 (“Class S common stock”). Our five-year emerging growth company registration with the SEC ended on December 31, 2021 and we continue to report with the SEC as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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 approximate 73% partnership interest in the Operating Partnership on September 30, 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.
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 SEC (collectively, the “Registered Offering”), offerings of common stock exempt from registration pursuant to Regulation 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 an offering of common stock listed on the NYSE.
On January 22, 2021, we filed a Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 in share value of Class C common stock to be issued pursuant to the DRP (the “Registered DRP Offering”). We commenced offering shares of Class C common stock pursuant to the Registered DRP Offering upon termination of the Registered Offering.
On 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 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 a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, we filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our at-the-market offering of up to $50,000,000 of our Class C common stock (the “ATM Offering”) on June 6, 2022. As of 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 “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 (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 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).
The Company
We believe we continue to qualify and operate as a REIT,purposes, 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.
The Company
We primarily generate revenues by leasing properties to tenants pursuant to net leases. As of September 30, 2022,2023, our real estate investment portfolio consisted of 4744 properties as further described below. The net book value of our real estate investments as of September 30, 20222023 was $435,365,728.$499,734,347.
Details of our diversified portfolio of 4744 operating properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California industrial property (the “TIC Interest”), as of September 30, 20222023 are as follows:
•2639 industrial properties, including the TIC Interest, which represent approximately 54% of the portfolio, 13 retail properties which represent approximately 19% of the portfolio and eight office properties which represent approximately 27%76% of the portfolio (expressed as a percentage of annualized base rent (“ABR”) as of September 30, 2022);2023), one retail property which represents approximately 10% of the portfolio and four office properties (including one classified as held for sale) which represent approximately 14% of the portfolio;
•Weighted average remaining lease term (“WALT”), excluding tenant rights to extend leases, of approximately 14.0 years;
•Occupancy rate of 100%;, excluding the property formerly leased to Kalera, Inc., which rejected our lease in its bankruptcy proceeding as discussed in Notes 11 and 14 of our accompanying unaudited condensed consolidated financial statements;
•Located in 1716 states;
•Leased to 30 different commercial tenants doing business in 1712 separate industries;
•Approximately 3.24.6 million square feet of aggregate leasable space, including the TIC Interest;
•An average leasable space per property of approximately 68,000105,000 square feet; approximately 94,000109,000 square feet per industrial property; approximately 18,00073,000 square feet perfor our retail property and approximately 64,00079,000 square feet per office property; and
•Outstanding mortgage notes payable balance of $44,590,536$34,284,849 for three properties aand credit facility term loan balance of $150,000,000$250,000,000.
On August 10, 2023, we disposed of 13 properties consisting of 11 retail properties and credit facility revolver balancetwo office properties in a sale to Generation Income Properties, Inc., a publicly-traded REIT (NASDAQ: GIPR) (“GIPR”). These 13 properties were sold for $42,000,000 with $30,000,000 paid in cash and the remaining $12,000,000 paid in 2,400,000 shares of $6,775,000.GIPR's newly-created Series A Redeemable Preferred Stock with a liquidation preference of $5.00 per share and an annual dividend yield of 9.5% from the original issuance date to August 9, 2024 and an annual dividend rate of 12.0% thereafter.
Recent Events and Uncertainties
There are continuing significant uncertainties in the market in which we operate related to inflation and increases in interest rates, supply chain disruptions, and negative impacts associated with the violence and unrest in the Middle East, which started with the war by Hamas militants against Israel, and the ongoing 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 and particularly the rapid rise in yields on U.S. Treasury securities during 2022 and 2023, the ripple effect of bank failures in the first half of 2023 and increased bank regulations, may negatively impact our operating results, liquidity and sources of borrowings.
We, our tenants and operating partners are impacted by inflation and rising interest rates. While the rate of inflation has been declining over the last few months, inflation remains above the Federal Reserve's 2% target and there is significant uncertainty over the future rate of inflation. Depending on the future course of inflation, the Federal Reserve may continue raising interest rates to try to rein in inflation, which could lead to a recession and will negatively impact our future results due to higher borrowing costs on any future floating rate borrowing. As of September 30, 2022, all 47 operating properties in2023, 100% of our portfolio are single-tenant net-lease properties and all 47 properties were leased,$284,284,849 outstanding debt is at fixed rates with a weighted average remaining lease term (“WALT”), excluding rights to extendrate of 4.52% as a lease at the optionresult of the tenant,swap agreements entered into in May 2022 and October 2022.
In addition, although the impacts of approximately 11.3 years.
As of September 30, 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)COVID-19 pandemic on the economy appear to have diminished and Hagg Lane III, LLC (an approximate 3.9% interest). The manager of Hagg Lane II, LLC and Hagg Lane III, LLC was an independent member of our board of directors (“Board”) from December 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 realize 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 tothe general commercial real estate.
While future purchases of properties willestate market appears to be partially funded with cashrecovering from such impacts, the longer-term macroeconomic effects on handglobal supply chains, inflation, labor shortages and funds received fromwage increases continue to impact many industries. Additionally, 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 are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we will consider incurring higher leverageCOVID-19 pandemic has resulted in the near-term if we identify attractive acquisition opportunitiessignificant disruptions 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 numberutilization 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 Factorslikely negative impacts regarding how tenants of the Quarterly Report on Form 10-Q included herein.
Investment Strategy
Commercial Real Estate
In pursuit of our primary investment objectives, we seekoffice properties will respond when their leases are scheduled to acquire a portfolio of income-generating commercial real estate investments in industrial manufacturing properties throughout the United States diversified by corporate credit, physical geography, industry and lease duration. While we are primarily focused on acquiring industrial manufacturing properties, we may also 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 and typically subject to long-term leases with defined rental rate increases.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, may result in decreases in cash flows from office properties. We have one office lease expiring in the next 12 months with Cummins Inc. (“Cummins”) which is scheduled to expire on February 29, 2024, with 87,230 leasable square feet and representing approximately 1.6% of ABR as of September 30, 2023. This property is classified as held for sale in our accompanying unaudited condensed consolidated financial statements as discussed in Note 3 of our accompanying unaudited condensed consolidated financial statements. As tenants in office properties 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, they may also acquire assets with short-termdetermine not to renew these leases or that require some amountto seek rent or other concessions as a condition of capital investmentrenewing their leases.
Potential future declines in ordereconomic 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 be renovated fewer tenants and/or repositioned.lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations. We generally will limit investmentsuccessfully negotiated lease extensions for five properties during 2022 and the first nine months of 2023; however, changing circumstances may make future lease extensions more difficult.
The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, bank failures in new developmentsthe first half of 2023, the impacts of the COVID-19 pandemic on a standalone basis,office properties, market sentiment and regulatory factors affecting the banking and commercial mortgage-backed securities industries. In January 2022, we refinanced all but may consider development thatfour of our properties (including the TIC Interest) with proceeds from our Credit Facility (as defined below), which includes floating rates based on the Secured Overnight Financing Rate (“SOFR”) and our leverage ratio as described below. The mortgage on our Rancho Cordova, California property which is ancillaryleased to an overall investment. Although our current focus is industrial manufacturing, wethe State of California's Office of Emergency Services (“OES”) matures on March 9, 2024 and the other three mortgages do not designate specific geography or sector allocations formature until after September 2027. All four of the portfolio; rather we intend to invest in regions or asset classes where we seeremaining mortgages are at fixed rates. As a result of the best opportunities that supportinterest rate swap agreements entered into during 2022, 100% of our investment objectives. We areconsolidated indebtedness as of September 30, 2023 held a weighted average fixed interest rate of 4.52%.
Any future uncertainties in the processcapital markets may cause difficulty in refinancing debt obligations prior to maturity at terms as favorable as the terms of increasingexisting indebtedness. If we are not able to refinance our asset allocation toindebtedness on attractive terms, or at all, at the industrial sector and decreasing our allocation to the office sector.
Although not currently intended,various maturity dates, we may also invest inbe forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate debt and equity securities and other real estate-related investments to provide current income, portfolio diversification and a source of liquidity for distributions to stockholders, cash management and other purposes.
We cannot assure our stockholders that any of the properties we acquire will result in the benefits discussed above.investments.
Liquidity and Capital Resources
Generally, our cash requirements for property acquisitions, debt payments and refinancings, capital expenditures and other investments will be funded by bank borrowings from financial institutions,through our Credit Facility, mortgage indebtedness on our properties, assetreal estate property sales and internally generated funds, or offerings of shares of ourClass C common stock. Our cash requirements for operating expenses and interest expenses, dividends on our Series A Preferred Stock and distributions on our Class C common stock will be funded by internally generated funds.
Credit Facility
On January 18, 2022, ourModiv Operating Partnership, LP, a Delaware limited partnership (our “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 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”).further described in Note 7 of our accompanying unaudited condensed consolidated financial statements. 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, we successfully exercised the accordion feature of our Credit Facility. OurFacility and increased the 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. OurThe 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.$750,000,000 subject to customary conditions, including the receipt of new commitments from the Lenders. 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 is priced on a leverage-based grid that fluctuates based on our actual leverage ratio at the end of the prior quarter. With our leverage ratio at 38%48% as of September 30, 2022,2023, the spread over the Secured Overnight Financing Rate (‘‘SOFR’’),SOFR, including a 10-basis point credit adjustment, is 165185 basis points andfor the Revolver. Therefore, the interest rate on the Revolver was 4.7125%7.1625% 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 rate2023; although there was no outstanding balance on the Revolver is approximately 5.46%.Revolver. 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 $94,525 and $47,543 for the three months ended September 30, 2023 and 2022, respectively, and $384,164 and $119,823 for the three and nine months ended September 30, 2023 and 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, to fix SOFR at 2.258% with respect to our original $150,000,000 Term Loan as described in detail in Note 8 toof our accompanying unaudited condensed consolidated financial statements. statements, which results in a fixed interest rate of 4.058% on our original $150,000,000 Term Loan based on our leverage ratio of 48% as of September 30, 2023.
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 with respect to our expanded Term Loan when our leverage ratio is less than or equal to 40% as described in detail in Note 148 toof our accompanying unaudited condensed consolidated financial statements. The Credit Facility includes customary covenants, including minimumstatements, which results in a fixed charge coverageinterest rate of 1.50x, minimum tangible net worth5.240% on the additional $100,000,000 borrowed under the Term Loan based on our leverage ratio 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 covenants48% as of September 30, 2022.2023.
The Credit Facility is secured by a pledgeAs of allSeptember 30, 2023 and December 31, 2022, the outstanding principal balance of our mortgage notes payable on the operating properties was $34,284,849 and $44,515,009, respectively, our Revolver outstanding principal balance was zero and $3,000,000, respectively, and our Term Loan outstanding principal balance was $250,000,000 and $150,000,000, respectively. As of September 30, 2023 and December 31, 2022, our approximately 72.7% pro-rata share of the Operating Partnership’s equity interestsTIC Interest’s mortgage note payable was $9,315,322 and $9,487,515, respectively, which is not included 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. We use available leverage based on the relative cost of debt and equity capital, and to address strategic borrowing advantages potentially available to us. While the Credit Facility allows for borrowings up to 60% of our borrowing base and our Board has approved a maximum leverage ratio of 55% of the aggregate fair value of our real estate properties plus our cash and cash equivalents, we are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we will consider incurring higher leverage in the near-term if we identify attractive acquisition opportunities in advance of completing dispositions or raising additional equity.accompanying unaudited condensed consolidated balance sheets.
Credit Facility Drawdowns and Repayments
On January 18, 2022,During April 2023, we borrowed $155,775,000 from$80,000,000 under our Credit Facility consisting of $100,000,000 under thedelayed draw Term Loan and $55,775,000 undercommitment, bringing the Revolver.total Term Loan balance outstanding to the total commitment amount of $250,000,000. 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 mortgagedraw on the KIA auto dealership property which was acquired on January 18, 2022,Term Loan to acquire eight properties as discusseddescribed in Note 3 toof our accompanying unaudited condensed consolidated financial statements,statements.
During July 2023, we borrowed $21,000,000 on the Revolver in advance of two acquisitions of industrial manufacturing properties, 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,August 2023, 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 acquisitiona portion of the Lindsay properties. On April 25, 2022, we drew the remaining $50,000,000 on the Term Loan for a partial repaymentcash proceeds from our August 10, 2023 GIPR disposition described in Note 3 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.our accompanying unaudited condensed consolidated financial statements.
While we intend for the Credit Facility to be our primaryan important source of financing, we may continue to use mortgage debt financing for certain real estate investments and acquisitions. This financing may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate. In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs.
See Note 7The $150,000,000 unused capacity on our Revolver as of the date of this quarterly report on Form 10-Q subject to our accompanying unaudited condensed consolidated financial statementsborrowing base covenant, along with proceeds from any future offerings of shares of Class C common stock, can be 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 costs and fees associated with such investments, such as capital expenditures, tenant improvement costs and leasing costs. We also may use a portion of the proceeds from our offerings for loan maturitiespayment of our three remaining mortgage notes payable as of September 30, 2022.
As of September 30, 2022, the outstanding principal balance of our mortgage notes payable on our operatingoutstanding indebtedness and for general corporate purposes.
Acquisitions of Real Estate Investments
We acquired a total of 12 properties for an aggregate of $129,753,499 during the first nine months of 2023 at a blended initial cap rate of 7.8% and our Credit Facility were $44,590,536 and $156,775,000, respectively. Asa weighted average cap rate of September 30, 2022, our approximately 72.7% pro-rata share10.3%. We define “initial cap rate” for property acquisitions as the initial annual cash rent divided by the purchase price of the TIC Interest’s mortgage note payable was $9,544,130, which is not included in our accompanying unaudited condensed consolidated balance sheets.property. We define “weighted average cap rate” for property acquisitions as the average annual cash rent including rent escalations over the lease term, divided by the purchase price of the property.
Acquisitions and Dispositions of Real Estate Investments
During the nine months ended September 30, 2022, we acquired the following nine industrial and one retail (KIA) real estate investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property and Location | | Acquisition Date | | Land | | Buildings and
Improvements | | Equipment | | Tenant
Origination
and Absorption
Costs | | Above-
Market
Lease Intangibles | | Acquisition Price |
| KIA, Carson, CA | | 1/18/2022 | | $ | 32,741,781 | | | $ | 36,544,663 | | | $ | — | | | $ | 118,606 | | | $ | — | | | $ | 69,405,050 | |
| Kalera, St. Paul, MN | | 1/31/2022 | | 562,356 | | | 3,127,653 | | | 4,429,000 | | | — | | | — | | | 8,119,009 | |
| Lindsay, Colorado Springs 1, CO | | 4/19/2022 | | 1,195,178 | | | 1,116,756 | | | — | | | — | | | — | | | 2,311,934 | |
| Lindsay, Colorado Springs 2, CO | | 4/19/2022 | | 2,239,465 | | | 1,074,941 | | | — | | | — | | | — | | | 3,314,406 | |
| Lindsay, Dacono, CO (1) | | 4/19/2022 | | 2,263,982 | | | 3,804,806 | | | — | | | — | | | — | | | 6,068,788 | |
| Lindsay, Alachua, FL | | 4/19/2022 | | 966,192 | | | 7,551,931 | | | — | | | — | | | — | | | 8,518,123 | |
| Lindsay, Franklinton, NC | | 4/19/2022 | | 2,843,811 | | | 4,337,302 | | | — | | | — | | | — | | | 7,181,113 | |
| Lindsay, Fulton 1, OH | | 4/19/2022 | | 726,877 | | | 10,618,656 | | | — | | | — | | | — | | | 11,345,533 | |
| Lindsay, Fulton 2, OH | | 4/19/2022 | | 635,865 | | | 9,555,077 | | | — | | | — | | | — | | | 10,190,942 | |
| Lindsay, Rock Hill, SC | | 4/19/2022 | | 2,816,322 | | | 3,739,661 | | | — | | | — | | | — | | | 6,555,983 | |
| Producto, Endicott, NY | | 7/15/2022 | | 327,964 | | | 2,034,346 | | | — | | | — | | | — | | | 2,362,310 | |
| Producto, Yorktown, NY | | 7/15/2022 | | 919,332 | | | 2,154,354 | | | — | | | — | | | — | | | 3,073,686 | |
| Valtir, Centerville, UT | | 7/26/2022 | | 2,467,565 | | | 2,217,789 | | | — | | | — | | | — | | | 4,685,354 | |
| Valtir, Orangeburg, SC | | 7/26/2022 | | 1,678,818 | | | 2,564,491 | | | ��� | | | — | | | 1,356,961 | | | 5,600,270 | |
| Valtir, Fort Worth, TX | | 7/26/2022 | | 1,785,240 | | | 1,493,281 | | | — | | | — | | | — | | | 3,278,521 | |
| Valtir, Lima, OH | | 8/4/2022 | | 747,746 | | | 9,174,197 | | | — | | | — | | | — | | | 9,921,943 | |
| | | | $ | 54,918,494 | | | $ | 101,109,904 | | | $ | 4,429,000 | | | $ | 118,606 | | | $ | 1,356,961 | | | $ | 161,932,965 | |
(1) 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, 2022, we sold the following six office and one flex (Omnicare) real estate investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | Disposition Date | | Rentable Square Feet | | Contract Sale Price | | Net Proceeds | | Gain on Sale |
| Bon Secours (1) | | Richmond, VA | | 2/11/2022 | | 72,890 | | | $ | 10,200,000 | | | $ | — | | | $ | 179,404 | |
| Omnicare (1) | | Richmond, VA | | 2/11/2022 | | 51,800 | | | 8,760,000 | | | — | | | 2,062,890 | |
| Texas Health (1) | | Dallas, TX | | 2/11/2022 | | 38,794 | | | 7,040,000 | | | 11,892,305 | | | 160,377 | |
| Accredo | | Orlando, FL | | 2/24/2022 | | 63,000 | | | 14,000,000 | | | 5,012,724 | | | 4,998,106 | |
| Emcor | | Cincinnati, OH | | 6/29/2022 | | 39,385 | | | 6,525,000 | | | 6,345,642 | | | 1,002,101 | |
| Williams Sonoma | | Summerlin, NV | | 8/26/2022 | | 35,867 | | | 9,300,000 | | | 8,964,252 | | | 1,703,616 | |
| Wyndham | | Summerlin, NV | | 9/16/2022 | | 41,390 | | | 12,900,000 | | | 12,267,571 | | | 2,967,668 | |
| Total | | | | | | 343,126 | | | $ | 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.
Listed Offering - Class C Common Stock
On November 2, 2021, our Board terminated our offering of Class C common stock pursuant to a Regulation A Offering Statement on Form 1-A (the “Reg A Offering”) effective upon the close of business on November 24, 2021 and directed management to seek the listing of our Class C common stock on a national securities exchange in early 2022. Our Board also terminated our Class C and Class S share repurchase programs.
On December 8, 2021, we filed with the SEC a Registration Statement on Form S-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 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 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 (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
On February 15,December 21, 2022, our Boardboard of directors (the “Board”) authorized up to $20,000,000$15,000,000 in repurchases of our outstanding shares of Class C common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2022.2023 (the “2023 SRP”). Purchases made pursuant to the program2023 SRP have been and 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 program2023 SRP may be suspended or discontinued at any time. Since the inceptionFrom January 1, 2023 to June 30, 2023, we repurchased a total of the program in February 2022 through September 30, 2022, we have repurchased 233,14593,357 shares of our Class C common stock for a total of $3,957,752,$1,129,162 under the 2023 SRP for an average repurchase pricecost of $16.98$12.10 per share. Our last share repurchases during the quarter ended September 30, 2022 were made on August 24, 2022.
Class C OP Units
On January 18, 2022, we completed the acquisitionWe did not repurchase any shares of a KIA auto dealership property in an “UPREIT” transaction pursuant to a contribution agreement whereby an affiliate of the seller received 1,312,382 units of Class C limited partnership interest in the Operating Partnership (the “Class C OP Units”) based on an agreed upon value of $25.00 per unit, representing approximately 47% of the property’s value. Following expiration of the lock-up period ending on August 11, 2022, the holder of the Class C OP Units may require the redemption of all or a portion of these units and we have the option to redeem the units for cash or shares ofour Class C common stock. The Class C OP Units received $377,298 and $1,006,136 in distributionsstock during the three and nine months ended September 30, 2022, respectively (also see the “Distributions” section below).2023.
Cash Flow Summary
The following table summarizes our cash flow activity for the nine months ended September 30, 20222023 and 2021:2022:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 9,326,763 | | | $ | 6,312,683 | | Net cash provided by operating activities | $ | 11,210,166 | | | $ | 9,326,763 | |
| Net cash (used in) provided by investing activities | $ | (64,969,591) | | | $ | 20,293,056 | | |
| Net cash used in investing activities | | Net cash used in investing activities | $ | (90,995,924) | | | $ | (64,969,591) | |
| Net cash provided by financing activities | Net cash provided by financing activities | $ | 2,962,196 | | | $ | 19,727,618 | | Net cash provided by financing activities | $ | 76,818,719 | | | $ | 2,962,196 | |
Cash Flows from Operating Activities
TheNet cash provided by operating activities was $11,210,166 for the first nine months of 2023 compared to $9,326,763 for the first nine months of 2022, resulting in an increase in cash provided by operating activities of $9,326,763 during the nine months ended September 30, 2022 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 amortization, 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 offset in part by cash used to fund changes in operating assets and 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 to exclude net 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-market lease intangibles, which were partially offset by 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 offset in part by cash used to fund changes in operating assets and liabilities of $1,700,177 during the nine months ended September 30, 2021 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.$1,883,403 period-over-period.
We expect our cash flows from operations will continue to be positive in the next twelve12 months due to an increase in our investments in operating assets as a result of our recentyear-to-date acquisitions; however, there can be no assurance that this expectation will be realized.
Cash Flows from Investing Activities
Net cash used in investing activities was $90,995,924 for the first nine months of 2023 compared to $64,969,591 for the first nine months ended September 30,of 2022 and consistedresulting in an increase in cash used of $26,026,333 in investing activities, primarily due to a reduction in net sales proceeds received of the following:
•$127,144,029$31,751,530 in 2023 for the acquisition of 16 real estate properties;
•$3,855,719 of14 properties, which were primarily smaller retail properties, compared with net sales proceeds received in 2022 for seven properties. This decrease in net proceeds from asset sales was partially offset by a decrease in funds utilized to invest in acquisitions and additions to existing real estate investments;
•$2,100,000 paymentinvestments 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$6,477,071, reflecting 12 property acquisitions 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:
•$22,840,0262023 compared with 16 property acquisitions in net proceeds from the sale of three real estate investments; and
•$1,824,383 in collection of a note receivable from the sale of real estate property.
These proceeds were partially offset by:
•$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 intangibles assets.2022.
Cash Flows from Financing Activities
Net cash provided by financing activities was $76,818,719 for the first nine months of 2023 compared to $2,962,196 for the first nine months ended September 30,of 2022, and consistedwhich primarily reflects a decrease in the principal payments on notes payable that were refinanced or repaid upon sales of the following:
•$150,000,000properties, partially offset by a decrease in proceeds from borrowings on our Credit Facility Term Loan;
•$6,775,000 in net proceeds from our Credit Facility Revolver, more than offset by repaymentLoan borrowings of $8,022,000 on the prior credit facility with Banc of California (the “Prior Credit Facility”); and
•$114,500 in net proceeds from issuance of common stock in the Listed Offering.
These uses were partially offset by:
•$130,421,220 of mortgage note principal$50,000,000 period-over-period. In addition, 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 repurchases of common stock;costs and
•$1,084,748 for payments of offering costs.
Net cash provided by financing activities was $19,727,618costs incurred for the first nine months ended September 30, 2021 and consisted primarily of 2022 aggregated $3,271,216. No such charges were incurred for the following:first nine months of 2023.
•$47,570,374 in net proceeds from issuance of preferred stock;
•$2,911,744 in proceeds from issuance of common stock;
•$25,436,000 in proceeds from mortgage notes payable; and
•$18,804 of refundable loan deposits.
These uses were partially offset by:
•$29,434,396 of mortgage notes principal payments;
•$6,000,000 of net repayments on the Prior Credit Facility revolver;
•$16,881,466 used for repurchases of common stock;
•$2,565,452 of cash distributions paid to common stockholders;
•$946,914 for payments of offering costs; and
•$381,076 of deferred financing cost payments.
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 real estate impairments. Because FFO calculations adjust for such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or may interpret the current Nareit definition differently than we do, making comparisons less meaningful.
Additionally, we use AFFOAdjusted Funds From Operations (“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, deferred rent, amortization of stock-based compensation, deferred rent, amortization of in-place lease valuation intangibles, deferred financing fees, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, and write-offs of transaction costs and other one-time transactions.due diligence expenses for abandoned pursuits. We also believe that AFFO is a recognized measure of sustainable operating performance of 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)or loss from operations, net income (loss)or 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 net asset value (“NAV”) because impairments are taken into account in determining NAV but not in determining FFO and AFFO. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income (loss)or loss from operations, net income (loss)or 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 ofto 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”) can increase if the specified performance hurdles are achieved, which would increase the fully-diluted weighted average shares outstanding. The increased conversion ratio for the Class R OP Units is reflected in the fully-diluted weighted average shares outstanding below,
The following are the calculations of FFO and AFFO for the three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| 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 Units | 3,528,892 | | | 3,505,052 | | | (7,997,678) | | | 1,599,561 | |
| FFO adjustments: | | | | | | | |
| Add: Depreciation and amortization | 3,598,592 | | | 3,342,713 | | | 10,581,765 | | | 10,420,000 | |
| Amortization of lease incentives | 176,296 | | | 86,694 | | | 323,347 | | | 192,235 | |
| Depreciation and amortization for unconsolidated investment in a real estate property | 192,551 | | | 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 Units | 2,825,047 | | | 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 compensation | 549,240 | | | 743,609 | | | 1,740,852 | | | 2,115,341 | |
| Deferred financing costs | 101,783 | | | 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 leases | 43,763 | | | 32,454 | | | 108,675 | | | 97,367 | |
| Due diligence expenses, including abandoned pursuit costs | 44,863 | | | 474,429 | | | 636,171 | | | 723,669 | |
| Less: Deferred rents | (237,164) | | | (247,716) | | | (1,046,721) | | | (950,694) | |
| Unrealized gains on interest rate swaps, net | 59,000 | | | (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 | |
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Net (loss) income (in accordance with GAAP) | | Net (loss) income (in accordance with GAAP) | | $ | (6,905,242) | | | $ | 4,450,767 | | | $ | (6,854,210) | | | $ | (5,232,053) | |
| Preferred stock dividends | | Preferred stock dividends | | (921,875) | | | (921,875) | | | (2,765,625) | | | (2,765,625) | |
| Net (loss) income attributable to common stockholders and Class C OP Unit holders | | Net (loss) income attributable to common stockholders and Class C OP Unit holders | | (7,827,117) | | | 3,528,892 | | | (9,619,835) | | | (7,997,678) | |
| FFO adjustments: | | FFO adjustments: | |
| Depreciation and amortization of real estate properties | | Depreciation and amortization of real estate properties | | 4,175,209 | | | 3,598,592 | | | 11,403,603 | | | 10,581,765 | |
| Amortization of lease incentives | | Amortization of lease incentives | | 40,397 | | | 176,296 | | | 217,537 | | | 323,347 | |
| Depreciation and amortization for unconsolidated investment in a real estate property | | Depreciation and amortization for unconsolidated investment in a real estate property | | 187,479 | | | 192,551 | | | 567,721 | | | 573,487 | |
| Impairment of real estate investment property | | Impairment of real estate investment property | | — | | | — | | | 3,499,438 | | | — | |
| Loss (gain) on sale of real estate investments, net | | Loss (gain) on sale of real estate investments, net | | 1,708,801 | | | (3,932,028) | | | 1,708,801 | | | (11,527,185) | |
| FFO attributable to common stockholders and Class C OP Unit holders | | FFO attributable to common stockholders and Class C OP Unit holders | | (1,715,231) | | | 3,564,303 | | | 7,777,265 | | | (8,046,264) | |
| AFFO adjustments: | | AFFO adjustments: | |
| Impairment of goodwill | | Impairment of goodwill | | — | | | — | | | — | | | 17,320,857 | |
| Stock compensation | | Stock compensation | | 8,469,867 | | | 549,240 | | | 9,790,206 | | | 1,740,852 | |
| Deferred financing costs | | Deferred financing costs | | 165,709 | | | 101,783 | | | 556,134 | | | 1,470,289 | |
| Non-recurring loan prepayment penalties | | Non-recurring loan prepayment penalties | | — | | | — | | | — | | | 615,336 | |
| Swap termination costs | | Swap termination costs | | — | | | — | | | — | | | 733,000 | |
| Due diligence expenses, including abandoned pursuit costs | | Due diligence expenses, including abandoned pursuit costs | | 1,208 | | | 44,863 | | | 347,598 | | | 636,171 | |
| Deferred rents | | Deferred rents | | (1,772,403) | | | (976,420) | | | (4,528,120) | | | (2,593,698) | |
| Unrealized (gain) loss on interest rate swap valuation | | Unrealized (gain) loss on interest rate swap valuation | | (795,425) | | | 59,000 | | | (2,781,838) | | | (1,319,013) | |
| Amortization of (below) above market lease intangibles, net | | Amortization of (below) above market lease intangibles, net | | (204,011) | | | (214,889) | | | (596,194) | | | (862,861) | |
| Unrealized gain on investment in preferred stock | | Unrealized gain on investment in preferred stock | | (440,000) | | | — | | | (440,000) | | | — | |
| Other adjustments for unconsolidated investment in a real estate property | | Other adjustments for unconsolidated investment in a real estate property | | 11,819 | | | (188) | | | 35,457 | | | (564) | |
| AFFO attributable to common stockholders and Class C OP Unit holders | | AFFO attributable to common stockholders and Class C OP Unit holders | | $ | 3,721,533 | | | $ | 3,127,692 | | | $ | 10,160,508 | | | $ | 9,694,105 | |
| | Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | |
| Basic | Basic | 7,449,968 | | | 7,531,559 | | | 7,486,945 | | | 7,575,013 | | Basic | | 7,548,052 | | | 7,449,968 | | | 7,537,505 | | | 7,486,945 | |
| Fully diluted (1) | 10,180,543 | | | 8,750,875 | | | 10,217,361 | | | 8,763,112 | | |
| Fully Diluted (1) | | Fully Diluted (1) | | 11,128,772 | | | 10,180,543 | | | 11,022,386 | | | 10,217,361 | |
| | FFO Per Share: | FFO Per Share: | | FFO Per Share: | |
| Basic | Basic | $ | 0.38 | | | $ | 0.38 | | | $ | (1.28) | | | $ | 1.03 | | Basic | | $ | (0.23) | | | $ | 0.48 | | | $ | 1.03 | | | $ | (1.07) | |
| Fully Diluted | Fully Diluted | $ | 0.28 | | | $ | 0.33 | | | $ | (1.28) | | | $ | 0.89 | | Fully Diluted | | $ | (0.23) | | | $ | 0.35 | | | $ | 0.71 | | | $ | (1.07) | |
| | AFFO Per Share: | AFFO Per Share: | | AFFO Per Share: | |
| Basic | Basic | $ | 0.42 | | | $ | 0.51 | | | $ | 1.29 | | | $ | 1.20 | | Basic | | $ | 0.49 | | | $ | 0.42 | | | $ | 1.35 | | | $ | 1.29 | |
| Fully Diluted | Fully Diluted | $ | 0.31 | | | $ | 0.44 | | | $ | 0.95 | | | $ | 1.04 | | Fully Diluted | | $ | 0.33 | | | $ | 0.31 | | | $ | 0.92 | | | $ | 0.95 | |
(1) Includes the Class C, Class M, Class P and Class R OP Units (time vesting and performance) to compute the weighted average number of shares.
Property Portfolio Information
Although we only have a single segment for financial reporting purposes, given our strategic initiative to focus solely on acquiring and operating industrial manufacturing properties, we are presenting the following information regarding our property portfolio to help investors better understand our strategic direction:
The following is a breakdown of our FFO and AFFO by property type for the three and nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 |
| | Industrial Core | | Tactical Non-Core (1) | | Other Non-Core (2) | | Non-Property & Other (3) | | Consolidated |
| Net income (loss) (in accordance with GAAP) | | $ | 1,341,198 | | | $ | 620,498 | | | $ | (1,770,631) | | | $ | (7,096,307) | | | $ | (6,905,242) | |
| Preferred stock dividends | | — | | | — | | | — | | | (921,875) | | | (921,875) | |
| Net income (loss) attributable to common stockholders and Class C OP Unit holders | | 1,341,198 | | | 620,498 | | | (1,770,631) | | | (8,018,182) | | | (7,827,117) | |
| FFO adjustments: | | | | | | | | | | |
| Depreciation and amortization of real estate properties | | 3,323,055 | | | 808,337 | | | 43,817 | | | — | | | 4,175,209 | |
| Amortization of lease incentives | | 9,690 | | | — | | | 30,707 | | | — | | | 40,397 | |
| Depreciation and amortization for unconsolidated investment in a real estate property | | 187,479 | | | — | | | — | | | — | | | 187,479 | |
| (Gain) loss on sale of real estate investments, net | | (178,239) | | | — | | | 1,887,040 | | | — | | | 1,708,801 | |
| FFO attributable to common stockholders and Class C OP Unit holders | | 4,683,183 | | | 1,428,835 | | | 190,933 | | | (8,018,182) | | | (1,715,231) | |
| AFFO adjustments: | | | | | | | | | | |
| Stock compensation | | — | | | — | | | — | | | 8,469,867 | | | 8,469,867 | |
| Deferred financing costs | | 167,034 | | | (21,863) | | | 20,538 | | | — | | | 165,709 | |
| Due diligence expenses, including abandoned pursuit costs | | 1,208 | | | — | | | — | | | — | | | 1,208 | |
| Deferred rents | | (1,193,508) | | | (599,485) | | | 20,590 | | | — | | | (1,772,403) | |
| Unrealized gain on interest rate swap valuation | | — | | | — | | | — | | | (795,425) | | | (795,425) | |
| Amortization of (below) above market lease intangibles, net | | (210,608) | | | — | | | 6,597 | | | — | | | (204,011) | |
| Unrealized gain on investment in preferred stock | | — | | | — | | | (440,000) | | | — | | | (440,000) | |
| Other adjustments for unconsolidated investment in a real estate property | | 11,819 | | | — | | | — | | | — | | | 11,819 | |
| AFFO attributable to common stockholders and Class C OP Unit holders | | $ | 3,459,128 | | | $ | 807,487 | | | $ | (201,342) | | | $ | (343,740) | | | $ | 3,721,533 | |
| | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | |
| Basic | | 7,548,052 | | | 7,548,052 | | | 7,548,052 | | | 7,548,052 | | | 7,548,052 | |
| Fully diluted (4) | | 11,128,772 | | | 11,128,772 | | | 11,128,772 | | | 11,128,772 | | | 11,128,772 | |
| | | | | | | | | | |
| FFO Per Share: | | | | | | | | | | |
| Basic | | $ | 0.62 | | | $ | 0.19 | | | $ | 0.03 | | | $ | (1.06) | | | $ | (0.23) | |
| Fully Diluted (5) | | $ | 0.42 | | | $ | 0.13 | | | $ | 0.02 | | | $ | (0.72) | | | $ | (0.23) | |
| | | | | | | | | | |
| AFFO Per Share: | | | | | | | | | | |
| Basic | | $ | 0.46 | | | $ | 0.11 | | | $ | (0.03) | | | $ | (0.05) | | | $ | 0.49 | |
| Fully Diluted (5) | | $ | 0.31 | | | $ | 0.07 | | | $ | (0.02) | | | $ | (0.03) | | | $ | 0.33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 |
| | Industrial Core | | Tactical Non-Core (1) | | Other Non-Core (2) | | Non-Property & Other (3) | | Consolidated |
| Net income (loss) (in accordance with GAAP) | | $ | 3,857,478 | | | $ | 1,997,373 | | | $ | (5,651,366) | | | $ | (7,057,695) | | | $ | (6,854,210) | |
| Preferred stock dividends | | — | | | — | | | — | | | (2,765,625) | | | (2,765,625) | |
| Net income (loss) attributable to common stockholders and Class C OP Unit holders | | 3,857,478 | | | 1,997,373 | | | (5,651,366) | | | (9,823,320) | | | (9,619,835) | |
| FFO adjustments: | | | | | | | | | | |
| Depreciation and amortization of real estate properties | | 7,963,523 | | | 2,422,979 | | | 1,017,101 | | | — | | | 11,403,603 | |
| Amortization of lease incentives | | 44,044 | | | — | | | 173,493 | | | — | | | 217,537 | |
| Depreciation and amortization for unconsolidated investment in a real estate property | | 567,721 | | | — | | | — | | | — | | | 567,721 | |
| Impairment of real estate investment property | | — | | | — | | | 3,499,438 | | | — | | | 3,499,438 | |
| (Gain) loss on sale of real estate investments, net | | (178,239) | | | — | | | 1,887,040 | | | — | | | 1,708,801 | |
| FFO attributable to common stockholders and Class C OP Unit holders | | 12,254,527 | | | 4,420,352 | | | 925,706 | | | (9,823,320) | | | 7,777,265 | |
| AFFO adjustments: | | | | | | | | | | |
| Stock compensation | | — | | | — | | | — | | | 9,790,206 | | | 9,790,206 | |
| Deferred financing costs | | 462,598 | | | (31,392) | | | 124,928 | | | — | | | 556,134 | |
| Due diligence expenses, including abandoned pursuit costs | | 13,252 | | | — | | | 334,346 | | | — | | | 347,598 | |
| Deferred rents | | (2,749,121) | | | (1,815,900) | | | 36,901 | | | — | | | (4,528,120) | |
| Unrealized gain on interest rate swap valuation | | — | | | — | | | — | | | (2,781,838) | | | (2,781,838) | |
| Amortization of (below) above market lease intangibles, net | | (628,099) | | | — | | | 31,905 | | | — | | | (596,194) | |
| Unrealized gain on investment in preferred stock | | — | | | — | | | (440,000) | | | — | | | (440,000) | |
| Other adjustments for unconsolidated investment in a real estate property | | 35,457 | | | — | | | — | | | — | | | 35,457 | |
| AFFO attributable to common stockholders and Class C OP Unit holders | | $ | 9,388,614 | | | $ | 2,573,060 | | | $ | 1,013,786 | | | $ | (2,814,952) | | | $ | 10,160,508 | |
| | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | |
| Basic | | 7,537,505 | | | 7,537,505 | | | 7,537,505 | | | 7,537,505 | | | 7,537,505 | |
| Fully diluted (4) | | 11,022,386 | | | 11,022,386 | | | 11,022,386 | | | 11,022,386 | | | 11,022,386 | |
| | | | | | | | | | |
| FFO Per Share: | | | | | | | | | | |
| Basic | | $ | 1.63 | | | $ | 0.59 | | | $ | 0.12 | | | $ | (1.30) | | | $ | 1.03 | |
| Fully Diluted (5) | | $ | 1.11 | | | $ | 0.40 | | | $ | 0.08 | | | $ | (0.89) | | | $ | 0.71 | |
| | | | | | | | | | |
| AFFO Per Share: | | | | | | | | | | |
| Basic | | $ | 1.25 | | | $ | 0.34 | | | $ | 0.13 | | | $ | (0.37) | | | $ | 1.35 | |
| Fully Diluted (5) | | $ | 0.85 | | | $ | 0.23 | | | $ | 0.09 | | | $ | (0.26) | | | $ | 0.92 | |
(1) We categorize Tactical Non-Core Assets as those assets that offer compelling value-add or opportunistic investment characteristics when measured over a near-term or interim holding period. We currently hold three such assets: (i) our tactical non-core acquisition of a leading KIA auto dealership located in a prime location in Los Angeles County in January 2022, which was structured as an UPREIT transaction resulting in a favorable equity issuance of $32,809,550 of units of Class C limited partnership interest in the Operating Partnership (“Class C OP Units”) at a cost basis of $25.00 per share; (ii) our 12 year lease to OES executed in January 2023 for one of our existing assets located in Rancho Cordova, California that includes an attractive purchase option by the tenant which we believe has a favorable probability of being executed upon in the next 24 months; and (iii) our property leased to Costco located in Issaquah, Washington which offers compelling redevelopment opportunities following Costco's lease expiration given its higher density infill location and the fact that the land is zoned for additional uses to include flex/R&D and multi-family.
(2) Other non-core assets include (1) one legacy office property leased to Cummins classified as held for sale as of September 30, 2023 (see Note 3 of our accompanying unaudited condensed consolidated financial statements for additional details of the held for sale asset) and (2) one additional legacy office property leased to Solar Turbines. We define legacy assets as those inherited through prior mergers and acquisitions activity and such assets that were acquired by different management teams utilizing different investment objectives or underwriting criteria.
(3) We do not allocate non-property expenses across our property-specific segments; therefore, we report these expenses separately under the Non-Property & Other caption in the table above. Such expenses can include stock compensation expense, general and administrative, unrealized gains and losses on interest rate hedges, and other comprehensive items.
(4) Weighted average fully diluted shares outstanding includes the following:
(i) 7,548,052 and 7,537,505 shares of Class C common stock for the three and nine months ended September 30, 2023, respectively;
(ii) 1,599,898 and 1,504,059 Class C OP Units for the three and nine months ended September 30, 2023, respectively, including 1,312,382 issued in January 2022 in connection with the acquisition of the KIA auto dealership property and 287,516 and 191,677, respectively, weighted average units outstanding which were issued in April 2023 in conjunction with our acquisition of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC;
(iii) 1,189,964 Class C OP Units that would result from conversion of 657,949.5 Class M OP Units and 56,029 Class P OP Units assuming a conversion ratio of 1.6667 Class C OP Units for each Class M OP Unit and Class P OP Unit outstanding for both the three and nine months ended September 30, 2023; and
(iv) 790,858 Class C OP Units that would result from conversion of Class R OP Units, which reflects the conversion ratio of 2.5-for-1 based on the probable achievement of the FFO performance target of $1.05 per diluted share for the year ending December 31, 2023, that are eligible to be issued on March 31, 2024, as further described in Note 12 of our accompanying unaudited condensed consolidated financial statements, for both the three and nine months ended September 30, 2023.
(5) For the intraperiod allocation, we treat all component per share amounts as fully-diluted to correspond with the consolidated FFO and AFFO results reflected above.
The following is a breakdown of our accompanying unaudited condensed consolidated statement of operations by property type for the three and nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 |
| | Industrial Core | | Tactical Non-Core (1) | | Other Non-Core (2) | | Non-Property & Other (3) | | Consolidated |
| Rental income | | $ | 8,772,104 | | | $ | 2,678,424 | | | $ | 1,049,810 | | | $ | — | | | $ | 12,500,338 | |
| | | | | | | | | | |
| Expenses: | | | | | | | | | | |
| General and administrative | | — | | | — | | | — | | | 1,735,104 | | | 1,735,104 | |
| Stock compensation expense | | — | | | — | | | — | | | 8,469,867 | | | 8,469,867 | |
| Depreciation and amortization | | 3,323,055 | | | 808,337 | | | 43,817 | | | — | | | 4,175,209 | |
| Property expenses | | 541,007 | | | 232,597 | | | 421,620 | | | — | | | 1,195,224 | |
| Total expenses | | 3,864,062 | | | 1,040,934 | | | 465,437 | | | 10,204,971 | | | 15,575,404 | |
| | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | |
| Gain (loss) on sale of real estate investments | | 178,239 | | | — | | | (1,887,040) | | | — | | | (1,708,801) | |
| Operating income (loss) | | 5,086,281 | | | 1,637,490 | | | (1,302,667) | | | (10,204,971) | | | (4,783,867) | |
| | | | | | | | | | |
| Other (expense) income: | | | | | | | | | | |
| Interest income | | — | | | — | | | — | | | 26,386 | | | 26,386 | |
| Dividend income | | — | | | — | | | — | | | 190,000 | | | 190,000 | |
| Income from unconsolidated investment in a real estate property | | 79,164 | | | — | | | — | | | — | | | 79,164 | |
| Interest expense, net of derivative settlements and unrealized gain on interest rate swaps (4) | | (3,824,247) | | | (1,016,992) | | | (467,964) | | | 2,386,285 | | | (2,922,918) | |
| Increase in fair value of investment in preferred stock | | — | | | — | | | — | | | 440,000 | | | 440,000 | |
| Other (5) | | — | | | — | | | — | | | 65,993 | | | 65,993 | |
| Other (expense) income, net | | (3,745,083) | | | (1,016,992) | | | (467,964) | | | 3,108,664 | | | (2,121,375) | |
| | | | | | | | | | |
| Net income (loss) | | 1,341,198 | | | 620,498 | | | (1,770,631) | | | (7,096,307) | | | (6,905,242) | |
| Less: net loss attributable to noncontrolling interest in Operating Partnership | | — | | | — | | | — | | | 1,368,896 | | | 1,368,896 | |
| Net income (loss) attributable to Modiv Industrial, Inc. | | 1,341,198 | | | 620,498 | | | (1,770,631) | | | (5,727,411) | | | (5,536,346) | |
| Preferred stock dividends | | — | | | — | | | — | | | (921,875) | | | (921,875) | |
| Net income (loss) attributable to common stockholders | | $ | 1,341,198 | | | $ | 620,498 | | | $ | (1,770,631) | | | $ | (6,649,286) | | | $ | (6,458,221) | |
(1)-(3) See footnotes (1) through (3) above.
(4) Non-Property & Other interest expense includes a net unrealized gain on interest rate swap valuation, including amortization, of $795,424 and derivative cash settlements of $1,586,641 (see Notes 7 and 8 of our accompanying unaudited condensed consolidated financial statements for details).
(5) Other income reflects management fees earned for managing the TIC Interest.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 |
| | Industrial Core | | Tactical Non-Core (1) | | Other Non-Core (2) | | Non-Property & Other (3) | | Consolidated |
| Rental income | | $ | 22,075,020 | | | $ | 8,199,340 | | | $ | 4,373,723 | | | $ | — | | | $ | 34,648,083 | |
| | | | | | | | | | |
| Expenses: | | | | | | | | | | |
| General and administrative | | — | | | — | | | — | | | 5,240,935 | | | 5,240,935 | |
| Stock compensation expense | | — | | | — | | | — | | | 9,790,206 | | | 9,790,206 | |
| Depreciation and amortization | | 7,963,525 | | | 2,422,979 | | | 1,017,099 | | | — | | | 11,403,603 | |
| Property expenses | | 1,647,894 | | | 819,172 | | | 1,962,870 | | | — | | | 4,429,936 | |
| Impairment of real estate investment property | | — | | | — | | | 3,499,438 | | | — | | | 3,499,438 | |
| Total expenses | | 9,611,419 | | | 3,242,151 | | | 6,479,407 | | | 15,031,141 | | | 34,364,118 | |
| | | | | | | | | | |
| Operating income (loss): | | | | | | | | | | |
| Gain (loss) on sale of real estate investments | | 178,239 | | | — | | | (1,887,040) | | | — | | | (1,708,801) | |
| Operating income (loss) | | 12,641,840 | | | 4,957,189 | | | (3,992,724) | | | (15,031,141) | | | (1,424,836) | |
| | | | | | | | | | |
| Other (expense) income: | | | | | | | | | | |
| Interest income | | (46) | | | — | | | — | | | 296,967 | | | 296,921 | |
| Dividend income | | — | | | — | | | — | | | 190,000 | | | 190,000 | |
| Income from unconsolidated investment in a real estate property | | 207,506 | | | — | | | — | | | — | | | 207,506 | |
| Interest expense, net of derivative settlements and unrealized gain on interest rate swaps (4) | | (8,991,820) | | | (2,959,816) | | | (1,658,642) | | | 6,848,499 | | | (6,761,779) | |
| Increase in fair value of investment in preferred stock | | — | | | — | | | — | | | 440,000 | | | 440,000 | |
| Other (5) | | — | | | — | | | — | | | 197,978 | | | 197,978 | |
| Other (expense) income, net | | (8,784,360) | | | (2,959,816) | | | (1,658,642) | | | 7,973,444 | | | (5,429,374) | |
| | | | | | | | | | |
| Net income (loss) | | 3,857,480 | | | 1,997,373 | | | (5,651,366) | | | (7,057,697) | | | (6,854,210) | |
| Less: net loss attributable to noncontrolling interest in Operating Partnership | | — | | | — | | | — | | | 1,535,452 | | | 1,535,452 | |
| Net income (loss) attributable to Modiv Industrial, Inc. | | 3,857,480 | | | 1,997,373 | | | (5,651,366) | | | (5,522,245) | | | (5,318,758) | |
| Preferred stock dividends | | — | | | — | | | — | | | (2,765,625) | | | (2,765,625) | |
| Net income (loss) attributable to common stockholders | | $ | 3,857,480 | | | $ | 1,997,373 | | | $ | (5,651,366) | | | $ | (8,287,870) | | | $ | (8,084,383) | |
(1)-(3) See footnotes (1) through (3) above.
(4) Non-Property & Other interest expense includes a net unrealized gain on interest rate swap valuation, including amortization, of $2,781,838 and derivative cash settlements of $4,062,442 (see Notes 7 and 8 of our accompanying unaudited condensed consolidated financial statements for details).
(5) Other income reflects management fees earned for managing the TIC Interest.
The following is a breakdown of our accompanying unaudited condensed consolidated balance sheet by property type as of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2023 |
| | Industrial Core | | Tactical Non-Core (1) | | Other Non-Core (2) | | Non-Property & Other (3) | | Consolidated |
| Assets | | | | | | | | | | |
| Real estate investments: | | | | | | | | | | |
| Land | | $ | 60,391,661 | | | $ | 43,387,936 | | | $ | 2,483,960 | | | $ | — | | | $ | 106,263,557 | |
| Buildings and improvements | | 314,216,320 | | | 83,117,030 | | | 4,702,734 | | | — | | | 402,036,084 | |
| Equipment | | 4,429,000 | | | — | | | — | | | — | | | 4,429,000 | |
| Tenant origination and absorption costs | | 11,104,811 | | | 4,500,352 | | | 324,222 | | | — | | | 15,929,385 | |
| Total investments in real estate property | | 390,141,792 | | | 131,005,318 | | | 7,510,916 | | | — | | | 528,658,026 | |
| Accumulated depreciation and amortization | | (33,956,998) | | | (12,749,497) | | | (881,175) | | | — | | | (47,587,670) | |
| Total investments in real estate property, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net | | 356,184,794 | | | 118,255,821 | | | 6,629,741 | | | — | | | 481,070,356 | |
| Unconsolidated investment in a real estate property | | 10,035,805 | | | — | | | — | | | — | | | 10,035,805 | |
| Total real estate investments, net, excluding real estate investments held for sale, net | | 366,220,599 | | | 118,255,821 | | | 6,629,741 | | | — | | | 491,106,161 | |
| Real estate investments held for sale, net | | — | | | — | | | 8,628,186 | | | — | | | 8,628,186 | |
| Total real estate investments, net | | 366,220,599 | | | 118,255,821 | | | 15,257,927 | | | — | | | 499,734,347 | |
| Cash and cash equivalents | | — | | | — | | | — | | | 5,641,610 | | | 5,641,610 | |
| Tenant receivables | | 7,872,215 | | | 3,272,860 | | | 65,983 | | | — | | | 11,211,058 | |
| Above-market lease intangibles, net | | 1,332,458 | | | — | | | — | | | — | | | 1,332,458 | |
| Prepaid expenses and other assets (4) | | 3,069,326 | | | 87,688 | | | 186,671 | | | 1,537,698 | | | 4,881,383 | |
| Investment in preferred stock | | — | | | — | | | — | | | 10,060,000 | | | 10,060,000 | |
| Interest rate swap derivatives | | — | | | — | | | — | | | 6,156,179 | | | 6,156,179 | |
| Other assets related to real estate investments held for sale | | — | | | — | | | 46,158 | | | — | | | 46,158 | |
| Total assets | | $ | 378,494,598 | | | $ | 121,616,369 | | | $ | 15,556,739 | | | $ | 23,395,487 | | | $ | 539,063,193 | |
| Liabilities and Equity | | | | | | | | | | |
| Mortgage notes payable, net | | $ | 12,228,788 | | | $ | 21,889,960 | | | $ | — | | | $ | — | | | $ | 34,118,748 | |
| Credit facility term loan | | 187,841,252 | | | 36,735,226 | | | 23,809,449 | | | — | | | 248,385,927 | |
| Accounts payable, accrued and other liabilities | | 4,114,951 | | | 935,301 | | | 356,308 | | | 3,487,070 | | | 8,893,630 | |
| Below-market lease intangibles, net | | 9,098,703 | | | — | | | — | | | — | | | 9,098,703 | |
| Liabilities related to real estate investments held for sale | | — | | | — | | | 162,349 | | | — | | | 162,349 | |
| Total liabilities | | 213,283,694 | | | 59,560,487 | | | 24,328,106 | | | 3,487,070 | | | 300,659,357 | |
| | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | |
| | | | | | | | | | |
| Total Modiv Industrial, Inc. equity, net of due to affiliates | | 165,210,904 | | | 62,055,882 | | | (8,771,367) | | | (63,591,519) | | | 154,903,900 | |
| Noncontrolling interests in the Operating Partnership | | — | | | — | | | — | | | 83,499,936 | | | 83,499,936 | |
| Total equity | | 165,210,904 | | | 62,055,882 | | | (8,771,367) | | | 19,908,417 | | | 238,403,836 | |
| Total liabilities and equity | | $ | 378,494,598 | | | $ | 121,616,369 | | | $ | 15,556,739 | | | $ | 23,395,487 | | | $ | 539,063,193 | |
(1)-(3) See footnotes (1) through (3) above.
(4) Non-Property & Other prepaid expenses and other assets include deferred financing fees on our Revolver and prepaid directors and officers insurance.
Results of Operations
As of September 30, 2022,2023, we owned 4744 operating properties including(including one held for sale property and the TIC Interest.Interest). We acquired 12 and 16 operating properties (15 industrial and one retail) during the first nine months of 2023 and 2022, compared withrespectively. We also sold 14 properties (11 retail, two office and one real estate acquisition of a retail propertyflex) during the first nine months of 2021. We sold2023 and seven properties (six office and one flex) during the first nine months of 20222022. The operating results of the property that was classified as held for sale as of September 30, 2023, and three retailthe 14 properties and one industrial propertyseven properties that were sold during the first nine months of 2021. The operating results of the four properties that were classified as held for sale at December 31, 2021, including three properties that were sold during the three months ended March 31, 2021,2023 and 2022, respectively, were included in our continuing results of operations.
operations for the three and nine months ended September 30, 2023 and 2022. We expect that rental income, tenant reimbursements, depreciation and amortization expense, and interest expense will increase for the full year of 20222023 as compared with the full year of 2021,2022, as a result of the 16$129,753,499 of industrial manufacturing property acquisitions in 2022 (two in January 2022, an eight-property portfolio in April 2022, five in July 2022 and one in August 2022),during the first nine months of 2023, which were partially offset by five dispositionsthe sale of 14 properties completed in 2021 (three during the 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).2023. Our results of operations for the three and nine months ended September 30, 20222023 may not be indicative of those expected for the full year of 20222023 or in future periods.
Due to the continuing COVID-19 pandemic, including the recent spread of its variants, in the United States and globally, many of our tenants and operating partners continue to be impacted, particularly by ongoing economic trends. The continued impact of the COVID-19 pandemic and its 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, 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, 20222023 to the Three Months Ended September 30, 20212022
Rental Income
Rental income, including tenant reimbursements, for the three months ended September 30, 2023 and 2022 was $12,500,338 and 2021 was $10,212,418 and $10,241,690,$10,303,402, respectively. The relatively flatincrease in rental income quarter-over-quarter primarily reflects the early termination fee revenue of $1,528,484 in the prior year quarter related to the Cedar Park, Texas property 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 quarter, rental income increased by $1,499,212,$2,196,936, or 17.2%21%, primarily due to rental income contributions from our acquisition of the KIA auto dealership property in Carson, California on January 18, 2022, and our acquisition of eight industrial properties leased by Lindsay Precast, which contributed approximately 14.8% and 13.0% of our total rental income duringas compared with the third quarter of 2022 respectively (see Note 3 to our accompanying unaudited condensed consolidated financial statements for more details). These increases together withprimarily reflects the rental income contributionscontribution from our acquisitions of nine other property acquisitions (one12 industrial property acquired in January 2022, five industrialmanufacturing properties acquired in Julysince September 30, 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 1213 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(11 retail properties sold in the first quarter of 2021 and two properties sold during the second half of 2021 (one industrialoffice) on August 10, 2023, one flex property on August 31, 2023 and one retail).retail property in December 2022. 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 ABR of the operating44 properties owned as of September 30, 20222023 was $34,843,592.$39,957,823.
General and Administrative
General and administrative expenses were $1,838,388$1,735,104 and $2,907,956$1,838,388 for the three months ended September 30, 20222023 and 2021,2022, respectively. The decrease of $1,069,568,$103,284, or 37%6%, as compared with the third quarter of 2021 primarily2022 reflects decreases in compensation to employees due to personnel reductions during the second half of 20212022, and the first quarter of 2022, as well as decreases in due diligencedirectors and officers insurance, partially offset by increased costs andfor professional services during the third quarter of 2022 compared to the third quarter of 2021.
Stock Compensation Expense
Stock compensation expense was $549,240$8,469,867 and $743,609$549,240 for the three months ended September 30, 20222023 and 2021,2022, respectively. The decreaseincrease of $194,369, or 26%,$7,920,627 as compared with the third quarter of 2022 reflects a one-time non-cash catch-up adjustment of $7,822,197 related to our determination that it is probable that we will achieve our performance target for FFO of $1.05 per diluted share for the year ending December 31, 2023, which would result in the issuance of an additional 474,515 Class C OP Units on March 31, 2024 upon the conversion of our Class R OP Units based on a conversion ratio of 2.5 Class C OP Units for each Class R OP Unit. This one-time charge reflects a catch-up adjustment to reflect amortization of the $19.58 per share grant date fair value of the performance units from the January 25, 2021 primarilygrant date through September 30, 2023. The remaining unamortized fair value of $733,331 per quarter will be recorded as compensation expense for the performance units through the end of the vesting period on March 31, 2024, if achieving the FFO performance target of $1.05 per share is still deemed probable. The performance target was established in January 2021 and represented a 20% increase over the FFO per diluted share achieved for the year ended December 31, 2020. The remaining $98,430 increase in stock compensation expense reflects the absence of forfeitures in the third quarter of 2023 as compared to forfeitures related to an employee terminations and resignations duringretirement in the second half of 2021 and the first and third quartersquarter of 2022.
Depreciation and Amortization
Depreciation and amortization expense was $3,598,592$4,175,209 and $3,814,503$3,598,592 for the three months ended September 30, 20222023 and 2021,2022, 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 decreaseincrease of $215,911,$576,617, or 6%16%, as compared with the third quarter of 20212022 primarily reflects the absencean increase in depreciation of real estate properties due to our acquisitions, partially offset by a reduction in amortization of corporate intangibles, which were impairedintangible lease assets during the fourth quarter of 2021 in connection with our decision to exit the crowdfunding business.three months ended September 30, 2023.
Interest ExpenseProperty Expenses
Interest expense includes interest paid or payable to lenders on our property mortgagesProperty expenses were $1,195,224 and Credit Facility and related amortization of deferred financing costs and unrealized gains and losses on swap valuations. Total interest expense was $2,514,838 and $1,831,545$1,415,621 for the three months ended September 30, 20222023 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 increase of $683,293, or 37%, in interest expense as compared with the third quarter of 2021 primarily reflects an increase in interest expense and amortization of deferred financing costs related to the 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 expense and amortization of deferred financing costs on our mortgage notes payable due to the payoff of 20 properties discussed above and the sale of four held for sale properties as of December 31, 2021 in February 2022. 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 $2,063,892 and $1,681,059 for the three 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 increasedecrease of $382,833,$220,397, or 23%less than 16%, as compared with the thirdsecond quarter of 2021,2022 primarily reflects increasesdecreases in property taxes and repairs and maintenance expenses related to assets sold during 2022 and August 2023, partially offset by increases in insurance and property management fees and property taxes during the third quarter of 2022.associated with acquired properties.
(Loss) Gain on Sale of Real Estate Investments
The loss on sale of real estate investments of $(1,708,801) for the three months ended September 30, 2023 includes the $(1,887,040) loss on sale of the 13 properties (11 retail and two office) sold to GIPR on August 10, 2023, partially offset by the $178,239 gain on sale of the flex property sold on August 31, 2023. The loss includes the $2,380,000 difference between the $12,000,000 liquidation value and the $9,620,000 fair value of our investment in GIPR’s newly-created Series A Redeemable Preferred Stock received on August 10, 2023 as a portion of the sale proceeds (see Note 5 of our accompanying unaudited condensed consolidated financial statements for additional details). The gain on sale of real estate investments of $4,671,284 and $4,242,771$3,932,028 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).two office properties.
Other Income (Expense)
Interest income was $1,665$26,386 and $1,270$1,665 for the three months ended September 30, 2023 and 2022, respectively, reflecting interest earned on available cash and 2021, respectively.cash equivalents due to higher interest rates.
Dividend income was $190,000 and zero for the three months ended September 30, 2023 and 2022, respectively, reflecting dividends on the GIPR preferred stock received in August 2023.
Income from unconsolidated investment in a real estate property was $64,358$79,164 and $75,403$64,358 for the three months ended September 30, 20222023 and 2021,2022, respectively. This reflects our approximate 72.7% TIC Interest in the Santa Clara property'sproperty’s results of operations for the third quartersquarter of 2023 and 2022, respectively.
Interest expense, net of derivative settlements and unrealized gain on interest rate swaps was $2,922,918 and $2,514,838 for the three months ended September 30, 2023 and 2022, respectively (see Note 7 of our accompanying unaudited condensed consolidated financial statements for details of the components of interest expense, net of derivative settlements and unrealized gain on interest rate swaps). The increase of $408,080 in interest expense, net of derivative settlements and unrealized gain on interest rate swaps as compared with the third quarter of 2022 primarily reflects the increase in interest incurred on our Credit Facility due to larger balances outstanding, partially offset by unrealized gains on swap valuation and 2021, respectively.related amortization.
The weighted average interest rate on our $250,000,000 Term Loan inclusive of swaps was 4.33% during July and August 2023 based on our leverage ratio of 40% as of March 31, 2023 and increased to 4.53% on September 1, 2023 based on our leverage ratio of 47% as of June 30, 2023. The net unrealized gains on swap valuation of $542,332 for the three months ended September 30, 2023 reflect the changes in valuation of both our $150,000,000 first swap and $100,000,000 second swap. The first swap derivative instrument failed to qualify as a cash flow hedge beginning January 1, 2023 because the swap was deemed ineffective due to our counterparty’s one-time cancellation option on December 31, 2024, as compared with the maturity date of the Term Loan. We granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The second derivative instrument was not designated as a cash flow hedge. This unrealized net gain reflects an increase during the quarter in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). The Company has begun, and intends to further explore in 2024, various alternatives available to extend or restructure the cancellation option.
The increase in fair value of our investment in preferred stock reflects the fair value adjustment for the period from August 10, 2023 when the stock was acquired through September 30, 2023.
Other income of $65,992$65,993 and $65,993 for the three months ended September 30, 2023 and 2022, and 2021, respectively, primarily reflects our monthly management fee from the entities that own the TIC Interest property, which is equal to 0.1% of the total investment value of the property.
Comparison of the Nine Months Ended September 30, 20222023 to the Nine Months Ended September 30, 20212022
Rental Income
Rental income, including tenant reimbursements, for the nine months ended September 30, 2023 and 2022 was $34,648,083 and 2021 was $30,255,185 and $28,323,568,$30,017,493, respectively. The increase in 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,$4,630,590, or 12.9%15%, as compared with the first nine months of 20212022 primarily reflectingreflects the rental income contribution from our acquisitionacquisitions of the KIA auto dealership property in Carson, California on January 18, 2022, and our acquisition of eight12 industrial properties leased 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 industrialmanufacturing properties acquired in Julysince September 30, 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 12eight properties over the last 21 months including four properties sold in Februaryduring 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 two14 properties sold during the second half of 2021 (one industrial and one retail).August 2023. 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, 20222023 was $34,843,592.$39,957,823.
General and Administrative
General and administrative expenses were $5,559,753$5,240,935 and $7,526,577$5,559,753 for the nine months ended September 30, 20222023 and 2021,2022, respectively. The decrease of $1,966,824,$318,818, or 26%6%, as compared with the first nine months of 2022 reflects decreases in compensation to employees due to personnel reductions reducedduring 2022, directors and officers insurance and costs for technology services, following our exit from the crowdfunding businessoffset in the first quarter of 2022 and reducedpart by an increase in costs for professional services during the first nine months of 2022.2023.
Stock Compensation Expense
Stock compensation expense was $1,740,852$9,790,206 and $2,115,341$1,740,852 for the nine months ended September 30, 20222023 and 2021,2022, respectively. The decreaseincrease of $374,489, or 18%,$8,049,354 as compared with the first nine months of 2022 reflects a one-time, non-cash catch-up adjustment of $7,822,197 related to our determination that it is probable that we will achieve management’s performance target for FFO of $1.05 per diluted share for the year ending December 31, 2023, which will result in the issuance of an additional 474,515 Class C OP Units on March 31, 2024 upon the conversion of our Class R OP Units based on a conversion ratio of 2.5 Class C OP Units for each Class R OP Unit. This one-time charge reflects a catch-up adjustment to reflect amortization of the $19.58 per share fair value of the performance units from the January 25, 2021 primarilygrant date through September 30, 2023. The remaining unamortized fair value of $733,331 per quarter will be recorded as compensation expense for the performance units through the end of the vesting period on March 31, 2024, if achieving the FFO performance target of $1.05 per share is still deemed probable. The performance target was established in January 2021 and represented a 20% increase over the FFO per diluted share achieved for the year ended December 31, 2020. The remaining $227,157 increase in stock compensation expense reflects the absence of forfeitures during the nine months ended September 30, 2023 as compared to forfeitures related to an employee terminations and resignations during the second half of 2021 anddeparture in the first quarter of 2022 and an employee retirement in the third quartersquarter of 2022.
Depreciation and Amortization
Depreciation and amortization expense was $10,581,765$11,403,603 and $11,817,529$10,581,765 for the nine months ended September 30, 20222023 and 2021,2022, 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 decreaseincrease 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,$821,838, or 8%, as compared with the first nine months of 20212022 primarily reflects an approximately $821,000 decreaseincrease in interest expense paid or payable to lenders,depreciation of real estate properties acquired, partially offset by reductions due to properties sold in the decreasesecond half of 2022 and August 2023, along with reductions in unrealized gain on interest rate swaps and additional amortization of deferred financing costs. Followingintangible lease assets during 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 ofnine months ended September 30, 2022.2023, due to the disposition of properties with acquired leases rather than leases initiated by us.
Property Expenses
Property expenses were $6,794,369$4,429,936 and $5,302,292$5,009,701 for the nine months ended September 30, 20222023 and 2021,2022, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses, the majority of which are reimbursed by tenants. The increasedecrease of $1,492,077,$579,765, or 28%12%, as compared with the first nine months of 20212022 primarily reflects a decrease in due diligence expenses on abandoned pursuits of $288,574 and decreases in property taxes related primarily to assets sold, offset in part by increases in repairs and maintenance, property management fees and property taxesassociated with acquired properties 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.2023.
Reversal of Impairment of Investment in Real Estate Investment Property
ReversalImpairment of impairment of investment in real estate investment property of $400,999amounted to $3,499,438 for the nine months ended September 30, 2021 reflects an adjustment to reduce2023. During the first quarter of 2023, we determined that the impairment charge recordedwas required based on the plan to sell our property in December 2020Nashville, Tennessee which is leased to Cummins until February 29, 2024. The impairment charge represents the excess of the property's carrying value over the property's estimated sale price less estimated selling costs for the potential sale. We did not incur any impairment of real estate property located in Bedford, Texas due to its reclassification from heldcharges for sale to held for investment and use in June 2021.the first nine months of 2022.
Impairment of Goodwill
The impairment of goodwill of $17,320,857 for the nine months ended September 30, 2022 reflects the significant decline in the market value of our common stock since it began trading on the NYSENew York Stock Exchange 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 book value of our equity as of March 31, 2022. Our stock price iswas evaluated to be materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession. We, therefore, reduced the carrying value of goodwill to zero as of March 31, 20222022.
(Loss) Gain on Sale of Real Estate Investments
The loss on sale of real estate investments of $(1,708,801) for the nine months ended September 30, 2023 includes the $(1,887,040) loss on sale of the 13 properties (11 retail and two office) sold to GIPR on August 10, 2023, partially offset by the $178,239 gain on sale of the flex property sold on August 31, 2023. The loss includes the $2,380,000 difference between the $12,000,000 liquidation value and the $9,620,000 fair value of our investment in GIPR's newly-created Series A Redeemable Preferred Stock received on August 10, 2023 as a portion of the sale proceeds (see Note 5 toof our accompanying unaudited condensed consolidated financial statements for additional details).
Gain on Sale of Real Estate Investments
The gain on sale of real estate investments of $13,074,162 and $4,532,413$11,527,185 for the nine months ended September 30, 2022 and 2021, respectively, relates to the gain on sale of seven properties (six office and one flex) sold during the first nine months of 2022 and three retail properties and one industrial property during the first nine months of 2021 (see Note 3 toof our accompanying unaudited condensed consolidated financial statements for more details of the gain on sale of real estate investments).
Other Income (Expense) Income
Interest income was $16,863$296,921 and $1,370$16,863 for the nine months ended September 30, 2023 and 2022, respectively, reflecting interest earned on cash proceeds from April 2023 draws on the Term Loan prior to utilizing such cash to acquire industrial manufacturing properties in May 2023.
Dividend income was $190,000 and 2021, respectively.zero for the nine months ended September 30, 2023 and 2022, respectively, reflecting dividends on the GIPR preferred stock received in August 2023.
Income from unconsolidated investment in a real estate property, was $226,690 and $222,705 for the nine months ended September 30, 2022 and 2021, respectively. Thiswhich reflects our approximate 72.7% TIC Interest in the Santa Clara property's results of operations, for the first nine months of 2022was $207,506 and 2021, respectively.
Gain on forgiveness of economic relief note payable of $517,000$226,690 for the nine months ended September 30, 20212023 and 2022, respectively. The decrease primarily reflects changes in the timing of common area maintenance recoveries.
Interest expense, net of derivative settlements and unrealized gain on interest rate swaps was $6,761,779 and $5,280,167 for the nine months ended September 30, 2023 and 2022, respectively (see Note 7 of our accompanying unaudited condensed consolidated financial statements for details of the components of interest expense, net). The increase of $1,481,612, or 28%, as compared with the first nine months of 2022 primarily reflects the Small Business Administration’s forgivenessincrease in February 2021interest expense incurred due to larger balances outstanding, partially offset by the net unrealized gain on swap valuations and related amortization.
The unrealized gains on swap valuation of $2,025,343 for the nine months ended September 30, 2023 reflect the change in valuation of both our $150,000,000 first swap and $100,000,000 second swap. The first swap derivative instrument failed to qualify as a cash flow hedge beginning January 1, 2023 because the swap was deemed ineffective due to our counterparty’s one-time cancellation option on December 31, 2024, as compared with the maturity date of the Term Loan. We granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The second derivative instrument was not designated as a cash flow hedge. These unrealized gains reflect increases during the nine months ended September 30, 2023 in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). The Company has begun, and intends to further explore in 2024, various alternatives available to extend or restructure the cancellation option.
The increase in fair value of our economic relief note payable obtainedinvestment in April 2020 underpreferred stock reflects the terms offair value adjustment for the Paycheck Protection Program.period from August 10, 2023 when the stock was acquired through September 30, 2023.
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 with borrowings on our Credit Facility in January 2022, full repayment of our Prior Credit Facilityprior credit facility and mortgage repayments related to four asset sales in February 2022, as well as $733,000 of swap termination fees related to four of the four mortgage refinancings, andwhich were more than offset by the related recognitionwrite-off of terminationunrealized valuation gains of $788,016 (see Notes 7 and 8 to our accompanying unaudited condensed consolidated financial statements for more details).$788,016.
Other income of $198,128$197,978 and $217,978$198,129 for the nine months ended September 30, 2023 and 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 CostsCapital Expenditures
Organizational and offeringOther than as discussed below, we do not have plans to incur any significant costs include all costs incurred in connection with the offerings prior to the Listed Offering, including investor relations' payroll costs and other costs incurred in connection with the offerings ofrenovate, improve or develop our stock, including, but not limitedproperties. We believe that our properties are adequately insured. Pursuant to legal fees, federal and state filing fees and other costs. Through November 24, 2021, the termination date of the Reg A Offering, we had recorded cumulative organizational and offering costs of $8,298,499, including $5,429,105 paid to our former sponsor or 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,lease agreements, 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, 2023 and December 31, 2022, no shares were issuedwe had obligations to pay $2,595,468 and $1,789,027, respectively, for on-site and tenant improvements to be incurred by tenants. We expect that the related improvements will be completed during the next twelve months and will be funded with cash on hand, operating cash flow or borrowings under our Revolver.
In addition, we have identified approximately $343,500 of roof and HVAC, and door replacement, paving replacement, sealing and parking lot repairs/restriping that are expected to be completed in connection withthe next 12 months. Approximately $6,500 of these improvements are expected to be recoverable from tenants through operating expense reimbursements. We will initially pay for the improvements, and the recoveries will be billed over an extended period of time according to the terms of the leases. The remaining costs of approximately $337,000 are not recoverable from tenants. These improvements will be funded from cash on hand, operating cash flows, or borrowings under our ATM Offering.Revolver.
Distributions
Preferred Dividends
On March 9, 2023 and March 18, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for each of the first quarters of 2023 and 2022, which were paid on April 17, 2023 and April 15, 2022, respectively. On June 15, 2023 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 2023 and 2022, which were paid on April 15, 2022July 17, 2023 and July 15, 2022, respectively. On August 7, 2023 and August 18, 2022, our Board declared Series A Preferred Stock dividends payable of $921,875 for each of the third quarterquarters of 2022. This amount was accrued as of September 30,2023 and 2022, and waswhich were paid on October 16, 2023 and October 17, 2022, (see Note 14 to our accompanying unaudited condensed consolidated financial statements for more details).respectively.
Common Stock Distributions
We intend to pay distributions on a monthly basis, and we paid our first distribution on 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 out, cash flows from operations and our sources of distribution payments were as follows for the first nine monthsthree quarters of 20222023 and the four quarters of 2021:2022:
| | Period (1) | | Total Distributions Declared | | Distributions Declared Per Share | | Distributions Paid | | Cash Flows (Used in) Provided by Operating Activities | | Net Rental Income Received | | Offering Proceeds | | Quarter End Accrued Distribution | |
| Cash | | Reinvested | | |
| 2022 (2) | | | | | | | | | | | | | | | | | |
| | | Cash Flows Provided by (Used in) Operating Activities | |
| Period | | Period | | Total Distributions Declared | | Distributions Declared Per Share | | Distributions Paid | | Net Rental Income Received | | Offering Proceeds | | Quarter End Accrued Distribution |
| | Cash | | Reinvested | | Cash Flows Provided by (Used in) Operating Activities |
| 2023 | | 2023 | | | | | | | | | | | | | | |
| First Quarter | First Quarter | | $ | 2,907,122 | | | $ | 0.387499 | | | $ | 1,418,783 | | | $ | 1,492,404 | | | $ | (1,083,310) | | | $ | 2,907,122 | | | $ | — | | | $ | 854,599 | | First Quarter | | $ | 2,544,255 | | | $ | 0.287500 | | | $ | 1,943,307 | | | $ | 595,585 | | | $ | 2,784,869 | | | $ | 2,544,255 | | | $ | — | | $ | 851,794 | |
| Second Quarter | Second Quarter | | 2,142,075 | | | 0.287500 | | | 2,070,570 | | | 711,223 | | | 6,159,782 | | | 2,142,075 | | | — | | | 844,183 | | Second Quarter | | 2,622,987 | | | 0.287500 | | | 2,038,397 | | | 566,309 | | | 4,504,239 | | | 2,622,987 | | | — | | | 875,408 | |
| Third Quarter | Third Quarter | | 2,143,444 | | | 0.287500 | | | 1,856,735 | | | 663,219 | | | 4,250,291 | | | 2,143,444 | | | — | | | 841,510 | | Third Quarter | | 2,631,165 | | | 0.287500 | | | 2,074,630 | | | 554,505 | | | 3,921,058 | | | 2,631,165 | | | — | | | 879,857 | |
| 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 | | |
| 2023 Total | | 2023 Total | | $ | 7,798,407 | | | $ | 0.862500 | | | $ | 6,056,334 | | | $ | 1,716,399 | | | $ | 11,210,166 | | | $ | 7,798,407 | | | $ | — | | |
| 2022 | | 2022 | | | | | | | | | | | | | | | |
| First Quarter (1) | | First Quarter (1) | | $ | 3,284,431 | | | $ | 0.387499 | | | $ | 1,418,783 | | | $ | 1,492,404 | | | $ | (1,083,310) | | | $ | 3,284,431 | | | $ | — | | | $ | 854,599 | |
| Second Quarter | Second Quarter | | 1,976,511 | | | 0.261780 | | | 835,381 | | | 1,131,281 | | | 2,981,262 | | | 1,976,511 | | | — | | | 650,167 | | Second Quarter | | 2,519,371 | | | 0.287500 | | | 2,070,570 | | | 711,223 | | | 6,159,782 | | | 2,519,371 | | | — | | | 844,183 | |
| Third Quarter | Third Quarter | | 1,981,725 | | | 0.264656 | | | 838,868 | | | 1,137,501 | | | 3,299,330 | | | 1,981,725 | | | — | | | 643,025 | | Third Quarter | | 2,520,740 | | | 0.287500 | | | 1,856,735 | | | 663,219 | | | 4,250,291 | | | 2,520,740 | | | — | | | 841,510 | |
| Fourth Quarter | Fourth Quarter | | 2,160,966 | | | 0.289864 | | | 907,927 | | | 1,200,880 | | | 3,346,002 | | | 2,160,966 | | | — | | | 730,445 | | Fourth Quarter | | 2,523,067 | | | 0.287500 | | | 1,895,194 | | | 623,313 | | | 7,322,058 | | | 2,523,067 | | | — | | | 846,070 | |
| 2021 Totals | | $ | 8,110,878 | | | $ | 1.075203 | | | $ | 3,473,378 | | | $ | 4,600,611 | | | $ | 9,728,685 | | | $ | 8,110,878 | | | $ | — | | | |
| 2022 Totals | | 2022 Totals | | $ | 10,847,609 | | | $ | 1.249999 | | | $ | 7,241,282 | | | $ | 3,490,159 | | | $ | 16,648,821 | | | $ | 10,847,609 | | | $ | — | | |
(1) The distribution paid per share of Class S common stock was net of deferred selling commissions.
(2) Includes the 13th distribution for 2021 declared on January 5, 2022 for Class C common stock only and distributions to Class C OP Units.
Prior to 2022, distributions to stockholders were declared and paid based on daily record dates at rates per share per day. Beginning in 2022, distributionsDistributions to stockholders are declared and paid based on monthly record dates. The distribution details are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Distribution Period | | Rate Per Share Per Day (1) | | Declaration Date | | Payment Date |
2021 | | | | | | |
January 1-31 | | $ | 0.00287670 | | | December 9, 2020 | | February 25, 2021 |
February 1-28 | | $ | 0.00287670 | | | January 27, 2021 | | March 25, 2021 |
March 1-31 | | $ | 0.00287670 | | | January 27, 2021 | | April 26, 2021 |
April 1-30 | | $ | 0.00287670 | | | March 25, 2021 | | May 25, 2021 |
May 1-31 | | $ | 0.00287670 | | | March 25, 2021 | | June 25, 2021 |
June 1-30 | | $ | 0.00287670 | | | March 25, 2021 | | July 26, 2021 |
July 1-31 | | $ | 0.00287670 | | | June 16, 2021 | | August 25, 2021 |
August 1-31 | | $ | 0.00287670 | | | June 16, 2021 | | September 27, 2021 |
September 1-30 | | $ | 0.00287670 | | | June 16, 2021 | | October 25, 2021 |
October 1-31 | | $ | 0.00315070 | | | August 12, 2021 | | November 24, 2021 |
November 1-30 | | $ | 0.00315070 | | | August 12, 2021 | | December 21, 2021 |
December 1-31 | | $ | 0.00315070 | | | August 12, 2021 | | January 5, 2022 |
13th Distribution (2) | | $ | 0.00027397 | | | January 5, 2022 | | January 18, 2022 |
| | | | | | |
Distribution Period | | Rate Per Share Per Month | | Declaration Date | | Payment Date |
| 2022 | | | | | | |
| January 1-31 | | $ | 0.095833000.095833 | | | January 27, 2022 | | February 25, 2022 |
| February 1-28 | | $ | 0.095833000.095833 | | | February 17, 2022 | | March 25, 2022 |
| March 1-31 | | $ | 0.095833000.095833 | | | February 17, 2022 | | April 25, 2022 |
| April 1-30 | | $ | 0.095833000.095833 | | | March 18, 2022 | | May 25, 2022 |
| May 1-31 | | $ | 0.095833000.095833 | | | March 18, 2022 | | June 27, 2022 |
| June 1-30 | | $ | 0.095833000.095833 | | | March 18, 2022 | | July 25, 2022 |
| July 1-31 | | $ | 0.095833000.095833 | | | June 15, 2022 | | August 25, 2022 |
| August 1-31 | | $ | 0.095833000.095833 | | | June 15, 2022 | | September 26, 2022 |
| September 1-30 | | $ | 0.095833000.095833 | | | June 15, 2022 | | October 25, 2022 |
| October 1-31 | | $ | 0.095833000.095833 | | | August 18, 2022 | | November 23, 2022 (3) |
| November 1-30 | | $ | 0.095833000.095833 | | | August 18, 2022 | | December 23, 2022 (3) |
| December 1-31 | | $ | 0.095833 | | | August 18, 2022 | | January 25, 2023 |
| | | | | | |
| 2023 | | | | | | |
| January 1-31 | | $ | 0.095833 | | | November 7, 2022 | | February 24, 2023 |
| February 1-28 | | $ | 0.095833 | | | November 7, 2022 | | March 24, 2023 |
| March 1-31 | | $ | 0.095833 | | | November 7, 2022 | | April 25, 2023 |
| April 1-30 | | $ | 0.095833 | | | March 9, 2023 | | May 25, 2023 |
| May 1-31 | | $ | 0.095833 | | | March 9, 2023 | | June 26, 2023 |
| June 1-30 | | $ | 0.095833 | | | March 9, 2023 | | July 25, 2023 |
| July 1-31 | | $ | 0.095833 | | | June 15, 2023 | | August 25, 2023 |
| August 1-31 | | $ | 0.095833 | | | June 15, 2023 | | September 25, 2023 |
| September 1-30 | | $ | 0.095833 | | | June 15, 2023 | | October 25, 2023 |
| October 1-31 | | $ | 0.095833 | | | October 10, 2023 | | November 27, 2023 (1) |
| November 1-30 | | $ | 0.095833 | | | October 10, 2023 | | December 26, 2023 (1) |
| December 1-31 | | $ | 0.095833 | | | October 10, 2023 | | January 25, 2024 (1) |
| | | | | | |
| 2024 | | | | | | |
| January 1-31 | | $ | 0.09583300 | | | August 18, 2022November 6, 2023 | | JanuaryFebruary 26, 2024 (1) |
| February 1-29 | | $ | 0.09583300 | | | November 6, 2023 | | March 25, 2022 (3)2024 (1) |
| March 1-31 | | $ | 0.09583300 | | | November 6, 2023 | | April 25, 2024 (1) |
(1) Distributions paid per share of Class S common stock through January 2022 were net of deferred selling commissions.
(2) On January 5, 2022, our Board declared a 13th distribution to our common stockholders since our AFFO exceeded 110% of distributions declared for the year ended December 31, 2021. The 13th distribution was based on the outstanding shares of common stock 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) Reflects the expected payment date since the distribution has not been paid as of the filing date of this Quarterly Report on Form 10-Q.
Properties
Portfolio Information
Our wholly-owned investments in real estate properties as of September 30, 2022, December 31, 2021 and September 30, 2021, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:
| | | | | | | | | | | | | | | | | |
| As of |
| September 30,
2022 | | December 31, 2021 | | September 30,
2021 |
| Number of properties: | (1) | | (1) | | (2) |
| Industrial, including TIC Interest | 26 | | | 12 | | | 12 | |
| Retail | 13 | | | 12 | | | 12 | |
| Office | 8 | | | 14 | | | 14 | |
| Total operating properties and properties held for sale | 47 | | | 38 | | | 38 | |
| Land | 1 | | | 1 | | | 1 | |
| Total properties | 48 | | 39 | | 39 |
| | | | | |
| Leasable square feet: | | | | | |
| Industrial | 2,434,373 | | | 1,514,876 | | | 1,145,519 | |
| Retail | 234,029 | | | 161,406 | | | 291,513 | |
| Office | 508,710 | | | 800,036 | | | 853,963 | |
| Total | 3,177,112 | | | 2,476,318 | | | 2,290,995 | |
(1) Includes four properties (three office and one industrial) held for sale as of December 31, 2021.
(2) Includes one retail property held for sale as of September 30, 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.
We completed the following acquisitions during the nine months ended September 30, 2022 and 2021 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property and Location | | Acquisition Date | | Property Type | | Rentable Square Feet | | Acquisition Price |
| KIA, Carson, CA | | 1/18/2022 | | Retail | | 72,623 | | | $ | 69,405,050 | |
| Kalera, St. Paul, MN | | 1/31/2022 | | Industrial | | 78,857 | | | 8,119,009 | |
| Lindsay, Colorado Springs 1, CO | | 4/19/2022 | | Industrial | | 23,452 | | | 2,311,934 | |
| Lindsay, Colorado Springs 2, CO | | 4/19/2022 | | Industrial | | 36,454 | | | 3,314,406 | |
| Lindsay, Dacono, CO (1) | | 4/19/2022 | | Industrial | | 39,088 | | | 6,068,788 | |
| Lindsay, Alachua, FL | | 4/19/2022 | | Industrial | | 96,792 | | | 8,518,123 | |
| Lindsay, Franklinton, NC | | 4/19/2022 | | Industrial | | 69,939 | | | 7,181,113 | |
| Lindsay, Fulton 1, OH | | 4/19/2022 | | Industrial | | 147,998 | | | 11,345,533 | |
| Lindsay, Fulton 2, OH | | 4/19/2022 | | Industrial | | 129,112 | | | 10,190,942 | |
| Lindsay, Rock Hill, SC | | 4/19/2022 | | Industrial | | 75,360 | | | 6,555,983 | |
| Producto, Endicott, NY | | 7/15/2022 | | Industrial | | 31,262 | | | 2,362,310 | |
| Producto, Jamestown, NY | | 7/15/2022 | | Industrial | | 41,111 | | | 3,073,686 | |
| Valtir, Centerville, UT | | 7/26/2022 | | Industrial | | 133,678 | | | 4,685,354 | |
| Valtir, Orangeburg, SC | | 7/26/2022 | | Industrial | | 54,549 | | | 5,600,270 | |
| Valtir, Fort Worth, TX | | 7/26/2022 | | Industrial | | 72,498 | | | 3,278,521 | |
| Valtir, Lima, OH | | 8/4/2022 | | Industrial | | 32,887 | | | 9,921,943 | |
| | | | | | 1,135,660 | | | $ | 161,932,965 | |
| 2021 | | | | | | | | |
| Raising Cane's, San Antonio, TX | | 07/26/2021 | | Retail | | 3,853 | | | $ | 3,644,221 | |
(1) As 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | Disposition Date | | Property Type | | Rentable Square Feet | | Contract Sales Price | | Net Proceeds | |
| 2022 | | | | | | | | | | | | | |
| Bon Secours | | Richmond, VA | | 2/11/2022 | | Office | | 72,890 | | | $ | 10,200,000 | | | $ | — | | |
| Omnicare | | Richmond, VA | | 2/11/2022 | | Flex | | 51,800 | | | 8,760,000 | | | — | | |
| Texas Health | | Dallas, TX | | 2/11/2022 | | Office | | 38,794 | | | 7,040,000 | | | 11,892,305 | | (1) | |
| Accredo | | Orlando, FL | | 2/24/2022 | | Office | | 63,000 | | | 14,000,000 | | | 5,012,724 | | |
| EMCOR | | Cincinnati, OH | | 6/29/2022 | | Office | | 39,385 | | | 6,525,000 | | | 6,345,642 | | |
| Williams Sonoma | | Summerlin, NV | | 8/26/2022 | | Office | | 35,867 | | | 9,300,000 | | | 8,964,252 | | |
| Wyndham | | Summerlin, NV | | 9/16/2022 | | Office | | 41,390 | | | 12,900,000 | | | 12,267,571 | | |
| | | | | | | | 343,126 | | | $ | 68,725,000 | | | $ | 44,482,494 | | |
| 2021 | | | | | | | | | | | | | |
| Chevron Gas Station | | Roseville, CA | | 1/7/2021 | | Retail | | 3,300 | | | $ | 4,050,000 | | | $ | 3,914,909 | | |
| EcoThrift | | Sacramento, CA | | 1/29/2021 | | Retail | | 38,536 | | | 5,375,300 | | | 2,684,225 | | |
| Chevron Gas Station | | San Jose, CA | | 2/12/2021 | | Retail | | 1,060 | | | 4,288,888 | | | 4,054,327 | | |
| Dana | | Cedar Park, TX | | 7/7/2021 | | Industrial | | 45,465 | | | 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 and repayment of the outstanding mortgages.
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 disposition table above).
We are continuing to explore potential lease extensions for certain of our other properties.
Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop the properties. We believe that our properties are adequately insured. Pursuant 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 improvements to be incurred by tenants. We expect that the related improvements will be completed during the 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 $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. Approximately $317,000 of these improvements are expected to be recoverable from the tenant through operating expense reimbursements. We will initially pay for the improvements, and the recoveries will be billed over an extended period of time according to the terms of the leases. The remaining costs of approximately $538,000 are not recoverable from tenants. These improvements will be funded from cash on hand, operating cash flows, borrowings under our Revolver or proceeds from the sale of shares of our common stock.
Recent Market Conditions
The 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 impacts of the COVID-19 pandemic on the economy appear to have diminished and the general commercial real estate market appears to be recovering from such impacts. Both the investing and leasing environments are currently highly competitive. The COVID-19 pandemic has resulted in significant disruptions in utilization of office 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, may result in decreases in cash flows from investment properties. We have no leases scheduled to expire in the remainder of 2022, and three leases (two office and one industrial) scheduled to expire in 2023, which comprise an aggregate of 142,146 leasable square feet and represent approximately 2.8% of projected ABR from 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.
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 successfully negotiated lease extensions for nine properties during 2021 and the first quarter of 2022 and are in the process of negotiating potential lease extensions with other tenants.
The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, impacts of the COVID-19 pandemic, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries. Increases in interest rates on our floating rate debt will reduce our net income and cash flows. In January 2022, we refinanced all but four of our properties (including the TIC Interest) with proceeds from the $250,000,000 Credit Facility which includes floating rates based on SOFR and our leverage ratio as described above. The mortgage on our Sutter Health property does not mature until March 9, 2024 and the 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. If we are not able to refinance our indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate investments.
We continuously review our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure. 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 of 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 of 5.04% on additional draws under the expanded Term Loan when our leverage ratio is less than or equal to 40%. As part of the 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. We intend to continue to qualify as a REIT. To continue to qualify and maintain status as a REIT, we must meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally would not be subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the distributions paid deduction and excluding net capital gains).
If we fail to maintain our qualification as a REIT in any taxable year, 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)or loss and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to continue to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying unaudited condensed consolidated financial statements. We will be subject to certain state and local taxes related to the operations of properties in certain locations. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying unaudited condensed consolidated financial statements.
Critical Accounting Policies and Estimates
Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included under “Critical Accounting Policies” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K, filed with the SEC on March 23, 2022.13, 2023. There have been no significant changes to our accounting policies during the nine months ended September 30, 2022.2023.
Commitments and Contingencies
We may be subject to certain commitments and contingencies with regard to certain transactions (see Note 11 toof our accompanying unaudited condensed consolidated financial statements for discussion of commitmentcommitments and contingencies).
Related-Party Transactions and Agreements
See Note 10 toof our accompanying unaudited condensed consolidated financial statements for details of the various related-party transactions and agreements.
Subsequent Events
See Note 14 toof our accompanying unaudited condensed consolidated financial statements for events that occurred subsequent to September 30, 20222023 through the filing date of this report.
Recent Accounting Pronouncements
See Note 2 toof 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, 2022.2023.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable as we are a smaller reporting company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of September 30, 20222023 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 were ineffective due to the weakness discussed below.
Notwithstanding this material weakness, management has concluded that our consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.
Material Weakness in Internal Control over Financial Reporting
In the course of reviewing the immaterial error corrections described in Note 2 of our condensed consolidated financial statements regarding corrections made during the first quarter of 2023 related to (i) accounting for property taxes paid directly by tenants to taxing authorities on a net basis as of September 30,and for the years ended December 31, 2022 were effective atand 2021, inclusive of the reasonable assurance level.interim periods therein, and (ii) corrections made during the fourth quarter of 2022 related to the classification of straight-line rent receivable write-offs associated with real estate investment sales for the years ended December 31, 2022 and 2021, inclusive of the interim periods therein, it was concluded that the combination of the two immaterial error corrections constituted a material weakness as of December 31, 2022 in our ability to properly identify and evaluate applicable accounting standards involved with non-recurring transactions and recent accounting pronouncements.
The corrections did not affect net loss or net loss per share during the years ended December 31, 2022 and 2021 as previously reported in the consolidated statement of operations. The corrections also did not affect non-GAAP measures AFFO and EBITDA.
Remediation Plan
Through the third quarter of 2023, management enhanced our internal control environment by executing refinements in our policies and procedures including but not limited to utilizing additional qualified consultants to assist us in addressing non-recurring transactions and new applicable accounting pronouncements. In addition, management is currently conducting a review and reorganization of our accounting policy documentation as it relates to our current business in an effort to ensure that it is comprehensive, in conformance with GAAP and available for key accounting personnel to reference when evaluating new transactions.
Changes in Internal Control over Financial Reporting
ThereOther than the controls related to the remediation plan discussed above, there were no other 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, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are continually monitoring and assessingwill continue to implement this remediation plan to address the COVID-19 pandemic and the worsening inflation and the impact both may have on our operations, including our internal control.material control weakness described above.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The information disclosed under Legal Matters in Note 11 toof our accompanying unaudited condensed consolidated financial statements is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20212022 as filed with the SEC on March 23, 2022.13, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended September 30, 2022,2023, we issued an aggregate of 10,3174,194 shares of Class C common stock to non-employee members of the Board for their service as Board members during the third quarter of 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 2022.2023. Such issuances were made in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.
Our Stock Repurchases
On February 15,December 21, 2022, our Board authorized up to $20,000,000$15,000,000 in repurchases of our outstanding shares of Class C common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2022. Purchases2023. Repurchases made pursuant to the program2023 SRP have been and 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 program2023 SRP may be suspended or discontinued at any time.
From July 1, 2022 through September 30, 2022, we repurchased a total of 45,715 We did not repurchase any shares of our common stock for a total of $703,850 under this share repurchase program for an average cost of $15.40 per share. Since inception of our share repurchase program in February 2022 through September 30, 2022, we have repurchased a total of 233,145 shares for a total of $3,957,752, for an average cost of $16.98 per share. Our last share repurchases during the quarter ended September 30, 2022 were made on August 24, 2022.
The following table summarizes our repurchase activity under our share repurchase program for our Class C common stock forduring the three months ended September 30, 2023.
Item 5. Other Information
On August 10, 2023, we, including certain wholly-owned subsidiaries of the Operating Partnership, entered into an Agreement of Purchase and Sale (the “GIPR Sale Agreement”) with Generation Income Properties, Inc. (NASDAQ: GIPR) (“GIPR”) and its operating partnership, Generation Income Properties, L.P. (the “GIPR Operating Partnership”), pursuant to which we sold to the GIPR Operating Partnership a portfolio of 13 net leased properties (the “GIPR Portfolio”). The GIPR Portfolio consists of 11 retail properties and two office properties as discussed in Note 3 to our accompanying unaudited condensed consolidated financial statements under the heading Dispositions - Nine Months Ended September 30, 2023.
The properties comprising the GIPR Portfolio are located across seven states and aggregate approximately 200,000 rentable square feet. The GIPR Portfolio was sold for a price of $42,000,000, excluding estimated transaction costs and expenses and subject to prorations and credits as set forth in the GIPR Sale Agreement. An amount equal to $30,000,000 of the purchase price was paid in cash and $12,000,000 was paid in shares of a newly issued series of GIPR preferred stock designated as “Series A Redeemable Preferred Stock” having the rights, preferences, and redemption provisions described below (the “GIPR Preferred Stock”).
The GIPR Sale Agreement provides for an as-is/where-is purchase and sale with certain waivers, releases and covenants not to sue us and also contains additional covenants, representations and warranties, indemnifications, and other provisions that are generally customary for real estate purchase and sale agreements. In addition to customary terms relating to the purchase and sale of a portfolio of commercial properties, the material terms of the GIPR Sale Agreement include (i) subject to our receipt of the approval of our lenders to make such distribution and subject to the redemption conditions described below, our agreement to distribute the shares of common stock of GIPR (the “GIPR Common Stock”) issuable upon the potential redemption by GIPR of the GIPR Preferred Stock to our stockholders and/or the holders of units of our Operating Partnership, (ii) our agreement that we will promptly distribute or sell shares of the GIPR Common Stock owned by us following such a redemption if our ownership of GIPR Common Stock exceeds 19.9% of the aggregate number of outstanding shares of GIPR Common Stock, and (iii) an agreement by GIPR to prepare and file with the SEC a registration statement to register the distribution by us to our stockholders and to the holders of units of our Operating Partnership and/or the resale of the shares of GIPR Common Stock issuable upon redemption of the GIPR Preferred Stock.
The foregoing description of the GIPR Sale Agreement is summary in nature, does not purport to be complete, and is qualified in its entirety by reference to the full text of the GIPR Sale Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated by reference herein.
The GIPR Preferred Stock ranks, with respect to dividend rights and rights upon GIPR’s voluntary or involuntary liquidation, dissolution or winding up, senior to all classes or series of GIPR Common Stock. Holders of the GIPR Preferred Stock are entitled to cumulative cash dividends at the rate of 9.5% per annum of the $5.00 liquidation preference per share, equivalent to a fixed annual amount of $0.475 per share, which shall increase to a rate of 12.0% per annum of the $5.00 liquidation preference per share, equivalent to a fixed annual amount of $0.60 per share, beginning on August 10, 2024.
From the date of issuance until March 15, 2024, the GIPR Preferred Stock will be redeemable at GIPR’s option for either (i) cash, in whole or in part, at a price per share equal to the $5.00 liquidation preference, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, until the redemption date on each share of GIPR Preferred Stock to be redeemed (the “GIPR Cash Redemption Price”) or (ii) subject to GIPR’s satisfaction of certain conditions, a number of shares of GIPR Common Stock (the “GIPR Underlying Shares”), in whole only and not in part, equal to the GIPR Cash Redemption Price, divided by the share price of the GIPR Common Stock as measured by the product of (a) the volume weighted average price (“VWAP”) of the GIPR Common Stock for the 60 trading days immediately preceding the date GIPR provides written notice of its intent to redeem the GIPR Preferred Stock and (b) 110%. The maximum number of shares of GIPR Common Stock that shall be required to redeem the shares of GIPR Series A Preferred Stock in full shall not exceed 3,000,000 shares of GIPR Common Stock (the “GIPR Ceiling”) and the minimum number of shares of GIPR Common Stock that shall be required to redeem the shares of GIPR Preferred Stock in full shall be no less than 2,200,000 shares (the “GIPR Floor”); provided that the GIPR Ceiling will not apply if at any time after August 10, 2023, and before redemption of the GIPR Preferred Stock, GIPR fails to pay a monthly dividend on the GIPR Common Stock or reduces, or announces its intent to reduce, the monthly dividend paid on shares of GIPR Common Stock to a rate lower than $0.039 per share per month. Each of the GIPR Floor and the GIPR Ceiling is subject to proportionate adjustments for any share splits (including those effected pursuant to a distribution of the GIPR Common Stock), subdivisions, reclassifications or combinations with respect to the GIPR Common Stock.
In addition, GIPR’s right to redeem the GIPR Preferred Stock for the GIPR Underlying Shares is conditioned upon GIPR obtaining the approval of its stockholders for the issuance of such GIPR Underlying Shares as required by the rules of the Nasdaq Stock Market; such GIPR Underlying Shares being listed on Nasdaq; the SEC having declared a registration statement effective registering the distribution of such GIPR Underlying Shares by us to our stockholders and/or the resale of such GIPR Underlying Shares by us; and our receipt of approval by our lenders to distribute such GIPR Underlying Shares to our stockholders.
After March 15, 2024, GIPR may only redeem the GIPR Preferred Stock for the GIPR Cash Redemption Price, unless we agree, in our sole and absolute discretion, to a redemption of the GIPR Preferred Stock for shares of GIPR Common Stock, on terms acceptable to us.
The disposition of the GIPR Portfolio closed on August 10, 2023. Since the disposition of the GIPR Portfolio exceeded 20% of the aggregate worldwide market value of our voting and non-voting common equity as of July 31, 2023, the transaction is deemed to be a significant disposition under Regulation S-X 1-02(w). We therefore provide the following financial information related to our disposition of the GIPR Portfolio as of and for the six months ended June 30, 2023 and for the year ended December 31, 2022.
| | | | | | | | | | | | | | |
| | | Total Number of
Shares
Repurchased
During the
Quarter | | Average Price Paid Per Share |
| July 1-31, 2022 | | 19,425 | | | $ | 15.52 | |
| August 1-31, 2022 | | 26,290 | | | $ | 15.30 | |
| September 1-30, 2022 | | — | | | $ | — | |
| Total | | 45,715 | | | $ | 15.40 | |
| | | | | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma Condensed Consolidated Balance Sheet |
| As of June 30, 2023 |
| | | | | | |
| | Modiv Industrial, Inc. | | Less Assets Sold to GIPR (1) | | Pro Forma Modiv Industrial, Inc. |
| Assets | | | | | | |
| Real estate investments: | | | | | | |
| Land | | $ | 105,646,718 | | | $ | — | | | $ | 105,646,719 | |
| Buildings and improvements | | 376,619,602 | | | — | | | 376,619,602 | |
| Equipment | | 4,429,000 | | | — | | | 4,429,000 | |
| Tenant origination and absorption costs | | 16,393,977 | | | — | | | 16,393,977 | |
| Total investments in real estate property | | 503,089,297 | | | — | | | 503,089,297 | |
| Accumulated depreciation and amortization | | (44,974,782) | | | — | | | (44,974,782) | |
| Total investments in real estate property, net | | 458,114,515 | | | — | | | 458,114,515 | |
| Investments in unconsolidated entity | | 10,011,347 | | | — | | | 10,011,347 | |
| Total real estate investments, net | | 468,125,862 | | | — | | | 468,125,862 | |
| Real estate investments held for sale, net | | 47,169,589 | | | (38,541,403) | | | 8,628,186 | |
| Total real estate investments, net | | 515,295,451 | | | (38,541,403) | | | 476,754,048 | |
| Cash and cash equivalents | | 9,912,110 | | | 29,282,508 | | | 39,194,618 | |
| Investment in preferred stock | | — | | | 9,620,000 | | | 9,620,000 | |
| Tenant receivables, net | | 9,468,576 | | | — | | | 9,468,576 | |
| Above-market lease intangibles, net | | 1,351,949 | | | — | | | 1,351,949 | |
| Prepaid expenses and other assets | | 5,430,520 | | | — | | | 5,430,520 | |
| Interest rate swap derivative | | 5,613,847 | | | — | | | 5,613,847 | |
| Assets related to real estate investments held for sale | | 2,337,517 | | | (2,304,732) | | | 32,785 | |
| Total assets | | $ | 549,409,970 | | | $ | (1,943,627) | | | $ | 547,466,343 | |
| | | | | | |
| Liabilities and Equity | | | | | | |
| Mortgage notes payable, net | | $ | 44,243,807 | | | $ | — | | | $ | 44,435,556 | |
| Mortgage notes payable related to real estate investments held for sale, net | | — | | | — | | | — | |
| Total mortgage notes payable, net | | 44,243,807 | | | — | | | 44,243,807 | |
| Credit facility revolver | | — | | | — | | | — | |
| Credit facility term loan, net | | 248,263,340 | | | — | | | 248,263,340 | |
| Accounts payable, accrued and other liabilities | | 7,015,513 | | | — | | | 7,015,513 | |
| Below-market lease intangibles, net | | 9,328,801 | | | — | | | 9,328,801 | |
| Liabilities related to real estate investments held for sale | | 465,252 | | | (359,138) | | | 106,114 | |
| Total liabilities | | 309,316,713 | | | (359,138) | | | 308,957,575 | |
| | | | | | |
| Commitments and contingencies | | | | | | |
| | | | | | |
| 7.3750% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 authorized, issued and outstanding as of June 30, 2023 and December 31, 2022 | | 2,000 | | | — | | | 2,000 | |
| Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,874,502 shares issued and 7,530,992 shares outstanding as of June 30, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022 | | 7,875 | | | — | | | 7,875 | |
| Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of June 30, 2023 and December 31, 2022 | | — | | | — | | | — | |
| Additional paid-in-capital | | 280,815,445 | | | — | | | 280,815,445 | |
| Treasury stock, at cost, 343,510 shares and 250,153 shares held as of June 30, 2023 and December 31, 2022, respectively | | (5,290,780) | | | — | | | (5,290,780) | |
| Cumulative distributions and net losses | | (123,895,028) | | | (1,584,489) | | | (125,479,517) | |
| Accumulated other comprehensive income | | 3,080,694 | | | — | | | 3,080,694 | |
| Total Modiv Industrial, Inc. equity | | 154,720,206 | | | (1,584,489) | | | 153,135,717 | |
| Noncontrolling interests in the Operating Partnership | | 85,373,051 | | | — | | | 85,373,051 | |
| Total equity | | 240,093,257 | | | (1,584,489) | | | 238,508,768 | |
| Total liabilities and equity | | $ | 549,409,970 | | | $ | (1,943,627) | | | $ | 547,466,343 | |
See footnotes below.
| | | | | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma Condensed Consolidated Statement of Operations |
| For the Six Months Ended June 30, 2023 |
| | Modiv Industrial, Inc. | | Less Assets Sold to GIPR (2) | | Pro Forma Modiv Industrial, Inc. |
| Income: | | | | | | |
| Rental income | | $ | 20,461,327 | | | $ | (1,580,434) | | | $ | 18,880,893 | |
| Tenant reimbursements | | 1,686,418 | | | (300,765) | | | 1,385,653 | |
| Total rental income | | 22,147,745 | | | (1,881,199) | | | 20,266,546 | |
| | | | | | |
| Expenses: | | | | | | |
| General and administrative | | 3,505,831 | | | — | | | 3,505,831 | |
| Stock compensation expense | | 1,320,339 | | | — | | | 1,320,339 | |
| Depreciation and amortization | | 7,228,394 | | | (674,404) | | | 6,553,990 | |
| Property expenses | | 3,234,712 | | | (839,870) | | | 2,394,842 | |
| Impairment of real estate investment property | | 3,499,438 | | | — | | | 3,499,438 | |
| Total expenses | | 18,788,714 | | | (1,514,274) | | | 17,274,440 | |
| | | | | | |
| Operating income | | 3,359,031 | | | (366,925) | | | 2,992,106 | |
| | | | | | |
| Other (expense) income: | | | | | | |
| Interest income | | 270,535 | | | — | | | 270,535 | |
| Income from investments in unconsolidated entities | | 128,340 | | | — | | | 128,340 | |
| Interest expense, net | | (3,838,861) | | | 519,823 | | | (3,319,038) | |
| Other | | 131,987 | | | — | | | 131,987 | |
| Other (expense) income, net | | (3,307,999) | | | 519,823 | | | (2,788,176) | |
| | | | | | |
| Net income | | 51,032 | | | 152,898 | | | 203,930 | |
| Net income attributable to noncontrolling interest in Operating Partnership | | 166,556 | | | — | | | 166,556 | |
| Net income attributable to Modiv Industrial, Inc. | | 217,588 | | | 152,898 | | | 370,486 | |
| Preferred stock dividends | | (1,843,750) | | | — | | | (1,843,750) | |
| Net (loss) income attributable to common stockholders | | $ | (1,626,162) | | | $ | 152,898 | | | $ | (1,473,264) | |
| | | | | | |
| Net (loss) income per share attributable to common stockholders: | | | | | | |
| Basic and diluted | | $ | (0.22) | | | $ | 0.02 | | | $ | (0.20) | |
| Weighted-average number of common shares outstanding: | | | | | | |
| Basic and diluted | | 7,532,080 | | 7,532,080 | | 7,532,080 |
See footnotes below.
| | | | | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma Condensed Consolidated Statement of Operations |
| For the Year Ended December 31, 2022 |
| | | | | | |
| | Modiv Industrial, Inc. | | Less Assets Sold to GIPR (2) | | Pro Forma Modiv Industrial, Inc. |
| Income: | | | | | | |
| Rental income | | $ | 41,930,258 | | | $ | (3,154,930) | | | $ | 38,775,328 | |
| Tenant reimbursements | | 4,244,009 | | | (717,032) | | | 3,526,977 | |
| Total rental income | | 46,174,267 | | | (3,871,962) | | | 42,302,305 | |
| | | | | | |
| Expenses: | | | | | | |
| General and administrative | | 7,812,057 | | | — | | | 7,812,057 | |
| Stock compensation expense | | 2,401,022 | | | — | | | 2,401,022 | |
| Depreciation and amortization | | 14,929,574 | | | (1,343,259) | | | 13,586,315 | |
| Property expenses | | 8,899,626 | | | (1,282,234) | | | 7,617,392 | |
| Impairment of real estate investment property | | 2,080,727 | | | — | | | 2,080,727 | |
| Impairment of goodwill | | 17,320,857 | | | — | | | 17,320,857 | |
| Total expenses | | 53,443,863 | | | (2,625,493) | | | 50,818,370 | |
| | | | | | |
| Gain on sale of real estate properties | | 12,196,371 | | | — | | | 12,196,371 | |
| Operating income | | 4,926,775 | | | (1,246,469) | | | 3,680,306 | |
| | | | | | |
| Other (expense) income: | | | | | | |
| Interest income | | 21,910 | | | — | | | 21,910 | |
| Loss on early extinguishment on debt | | (1,725,318) | | | — | | | (1,725,318) | |
| Income from investments in unconsolidated entities | | 278,002 | | | — | | | 278,002 | |
| Interest expense, net | | (8,106,658) | | | 899,105 | | | (7,207,553) | |
| Other | | 93,971 | | | — | | | 93,971 | |
| Other (expense) income, net | | (9,438,093) | | | 899,105 | | | (8,538,988) | |
| | | | | | |
| Net loss | | (4,511,318) | | | (347,364) | | | (4,858,682) | |
| Net loss attributable to noncontrolling interest in Operating Partnership | | (1,222,783) | | | — | | | (1,222,783) | |
| Net loss attributable to Modiv Industrial, Inc. | | (3,288,535) | | | (347,364) | | | (3,635,899) | |
| Preferred stock dividends | | (3,687,500) | | | — | | | (3,687,500) | |
| Net loss attributable to common stockholders | | $ | (6,976,035) | | | $ | (347,364) | | | $ | (7,323,399) | |
| | | | | | |
| Net loss per share attributable to common stockholders: | | | | | | |
| Basic and diluted | | $ | (0.93) | | | $ | (0.05) | | | $ | (0.98) | |
| Weighted-average number of common shares outstanding: | | | | | | |
| Basic and diluted | | 7,487,204 | | 7,487,204 | | 7,487,204 |
(1) Reflects removal of recorded balances of the 13 properties sold to GIPR in real estate held for sale, other assets related to real estate investments held for sale and liabilities related to real estate investments held for sale as of June 30, 2023 and inclusion of proceeds received in the sale including cash of $30,000,000 net of transaction expenses related to the sale and the fair value of GIPR Preferred Stock as of the closing on August 10, 2023.
(2) Reflects removal of rental operations of the 13 properties sold to GIPR including an allocation of interest expense, net of derivative settlements, for interest incurred based upon the borrowing base value of the GIPR properties as a percentage of the total borrowing base value.
Item 6. Exhibits
The exhibits listed on the Exhibit Index below are included herewith or incorporated herein by reference.
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, 20222023 (and are numbered in accordance with Item 601 of Regulation S-K).
| | | | | |
| Exhibit | Description |
| 3.1 | |
| 3.2 | |
| 3.3 | |
| 3.4 | |
| 4.1 | |
| 10.1* | |
| 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. |
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 Industrial, 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 14, 202213, 2023