Business Overview and History
Modiv Industrial, Inc. (MDV) is the only public REIT exclusively focused on acquiring industrial manufacturing real estate properties across the United States. The company has demonstrated its ability to navigate the complex and ever-evolving industrial real estate market, showcasing resilience and a commitment to delivering sustainable growth and returns for its shareholders.
Modiv Industrial was incorporated in the state of Maryland on May 15, 2015, and elected to be taxed as a Real Estate Investment Trust (REIT) beginning in 2016. The company's primary strategy is to acquire, own, and manage a diversified portfolio of single-tenant, net-lease industrial manufacturing properties throughout the United States.
Initially known as Modiv Inc., the company changed its name to Modiv Industrial, Inc. in August 2023 upon achieving 70% of its portfolio in industrial properties. Modiv Industrial operates through special purpose limited liability companies, which are wholly-owned subsidiaries of Modiv Operating Partnership, LP. As of December 31, 2024, the company was the sole general partner of the Operating Partnership and owned an approximate 89% partnership interest.
Over the years, Modiv Industrial has strategically expanded its portfolio, leveraging its expertise in the industrial real estate sector. As of December 31, 2024, the company's portfolio consisted of 43 properties, with 39 industrial properties representing approximately 78% of the company's annualized base rent (ABR) and the remaining 22% comprising non-core assets, including a few retail and office properties. The company's weighted average lease term stood at an impressive 13.8 years, reflecting the stability and long-term nature of its tenant relationships.
Modiv Industrial's properties are located across 15 states, with the largest concentrations in California, Ohio, and Arizona. The company's portfolio has maintained a high overall occupancy rate of 98%, demonstrating its ability to attract and retain quality tenants.
Since its inception, Modiv Industrial has faced several challenges. In 2021, the company embarked on a strategic plan to reduce its exposure to non-core office and retail properties and focus its investments on industrial manufacturing real estate. This shift in strategy has required careful management of the disposition of legacy non-core assets while acquiring new industrial properties. Additionally, Modiv Industrial has had to navigate a volatile market environment, including rising interest rates and inflationary pressures, which have impacted its financing and operations.
Financial Performance and Metrics
Modiv Industrial has demonstrated strong financial performance, with full-year 2024 rental income reaching $46.5 million and Adjusted Funds from Operations (AFFO) totaling $14.99 million, or $1.34 per diluted share. The company's AFFO per diluted share exceeded the consensus estimates by $0.08, showcasing its ability to deliver solid results even in the face of market challenges.
For the full year 2024, Modiv Industrial reported revenue of $46.5 million, net income of $6.49 million, and operating cash flow of $18.24 million. The company's free cash flow for the year also stood at $18.24 million. In the most recent quarter (Q4 2024), the company generated revenue of $11.66 million and net income of $0.63 million. However, it's worth noting that revenue decreased by 1% year-over-year, and net income decreased from the prior year quarter.
The company's financial performance is largely driven by its industrial properties segment, which accounted for $35.2 million of the total rental income in 2024. The non-core properties segment, including retail and office properties, contributed $11.3 million to the rental income. Additionally, Modiv Industrial generated $264,000 in management fee income during 2024.
Liquidity and Capital Structure
As of December 31, 2024, Modiv Industrial had $11.53 million in cash and cash equivalents, and total debt outstanding of $280 million, with a weighted average interest rate of 4.27% on its fixed-rate debt. The company's leverage ratio stood at 47.6%, reflecting a prudent approach to managing its balance sheet. Modiv Industrial targets to maintain leverage of 40% or lower over the long-term but opportunistically increased leverage to execute attractive acquisition opportunities.
The company's debt-to-equity ratio was 1.47, and it had $30 million available under its $280 million Credit Facility. The current ratio stood at 0.21, while the quick ratio was 0.12. It's worth noting that Modiv Industrial reduced the size of its revolving credit facility from $150 million to $30 million to save on unused fees, as they do not plan to use the revolver for large acquisitions.
Operational Highlights and Strategic Initiatives
Modiv Industrial has been actively managing its portfolio, successfully executing on its strategy to reduce exposure to non-core properties and focus on critical industrial manufacturing assets. During 2024, the company acquired an industrial manufacturing property in Tampa, Florida, while also selling two non-core properties in California and Ohio.
The company has demonstrated its ability to extend leases with key tenants, further strengthening the stability of its portfolio. For example, in September 2024, Modiv Industrial extended the lease term of its San Diego, California property leased to WSP USA Inc. (formerly Wood Group) for an additional eight years, from February 2026 to February 2034.
Additionally, Modiv Industrial has identified several opportunities to capitalize on its properties' additional land and development potential. The company is exploring the possibility of building a 60,000 to 100,000 square foot facility adjacent to one of its existing properties, with the current tenant expressing interest in occupying a portion of the new space to consolidate its operations.
The company's strategic focus on industrial manufacturing properties has driven its financial performance, with industrial core properties accounting for an increasing percentage of its portfolio and rental income. As of December 31, 2024, 78% of the company's portfolio by annualized base rent (ABR) was comprised of industrial properties, up from 41% in 2021, reflecting the strategic shift in the portfolio composition.
Risks and Challenges
While Modiv Industrial has navigated the challenges of the industrial real estate market effectively, the company is not without its risks. The company's concentration in industrial manufacturing properties exposes it to the cyclical nature of the manufacturing sector, which could be impacted by factors such as trade policies, geopolitical tensions, and changes in consumer demand.
Additionally, Modiv Industrial's reliance on a limited number of large tenants, such as Lindsay and KIA, increases its vulnerability to tenant-specific risks, including bankruptcy, financial distress, or unexpected lease terminations. The company's ability to quickly backfill vacant space or renegotiate lease terms could have a significant impact on its financial performance.
Outlook and Future Growth Strategy
Modiv Industrial's focus on the industrial manufacturing real estate sector, combined with its strategic initiatives and prudent balance sheet management, position the company well to navigate the current market environment. The company's strong AFFO performance, long-term lease durations, and identified development opportunities suggest a positive outlook for Modiv Industrial's future growth and shareholder value creation.
While the company did not provide specific numerical guidance for 2025, CEO Aaron Halfacre emphasized a patient and disciplined approach to acquisitions and growth. The company is closely monitoring the market and pipeline but has not yet seen opportunities compelling enough to pursue. This cautious strategy underscores Modiv Industrial's commitment to protecting its balance sheet and making prudent decisions in the current economic climate.
The company's approach to growth includes a focus on accretive acquisitions and strategic use of its at-the-market (ATM) equity program. In Q4 2024, Modiv Industrial issued a small amount of equity through its ATM program, which was accretive to its financial position.
As Modiv Industrial continues to execute on its strategic plan, investors should closely monitor the company's ability to successfully acquire and manage high-quality industrial assets, extend lease terms with key tenants, and capitalize on the embedded growth potential within its existing portfolio. The company's resilience and adaptability in the face of market challenges make it a REIT worth considering for investors seeking exposure to the industrial real estate sector.