Business Overview and History:
Modiv Industrial, Inc. (MDV) has emerged as a unique real estate investment trust (REIT) that is exclusively focused on acquiring and managing industrial manufacturing properties across the United States. As the only publicly-traded REIT dedicated to this specialized asset class, Modiv Industrial has carved out a distinctive niche in the market, positioning itself as a critical player in supporting America’s manufacturing backbone and supply chain resilience.
Modiv Industrial was incorporated on May 15, 2015 as a Maryland corporation, initially operating under the name Modiv Inc. The company underwent a name change to Modiv Industrial, Inc. on August 11, 2023, to better reflect its strategic focus on industrial properties. Modiv primarily generates revenue by leasing properties, with a particular emphasis on industrial manufacturing properties, to tenants under net leases.
The company’s portfolio has undergone significant transformation since its inception. As of September 30, 2024, Modiv owned and operated a diversified portfolio of 43 properties, including an approximate 72.7% tenant-in-common interest in a property located in Santa Clara, California. These properties encompass approximately 4.5 million square feet of leasable space across 15 states.
In 2021, Modiv took a significant step in its growth by issuing publicly traded Series A Preferred Stock. The following year, in 2022, the company reached another milestone by listing its Class C Common Stock on the New York Stock Exchange. During 2022 and 2023, Modiv executed a strategic shift in its portfolio composition, acquiring 27 industrial manufacturing properties while divesting 22 non-core retail and office properties.
This transition has been instrumental in Modiv’s evolution, with industrial properties now accounting for 77% of the company’s annualized base rent (ABR) as of September 30, 2024, a substantial increase from 41% at the end of 2021. The company’s management team has recognized the growing importance of domestic manufacturing and the need to support robust supply chain infrastructure, particularly in the wake of global disruptions and the push for onshoring and nearshoring initiatives.
Despite its growth and strategic repositioning, Modiv has faced some challenges along the way. In 2023, the company recorded a $3.5 million impairment charge related to its Nashville, Tennessee office property leased to Cummins. The previous year, in 2022, Modiv had to contend with $21.1 million in asset impairment charges. However, these setbacks have not deterred the company from pursuing its core strategy of acquiring durable industrial manufacturing properties.
Financial Performance and Operational Highlights:
Modiv’s financial performance in recent years has been marked by a steady focus on growth and operational efficiency. For the fiscal year ended December 31, 2023, the company reported total revenue of $46.94 million, a 7.1% increase compared to the prior year. However, the company faced challenges, posting a net loss of $6.61 million for the year. Operating cash flow and free cash flow both stood at $16.58 million for the fiscal year 2023.
The company’s quarterly results have been similarly resilient. In the third quarter of 2024, Modiv reported rental income of $11.6 million, a 7.0% decrease from $12.5 million in the prior-year period, primarily due to the disposition of two properties during the first quarter of 2024 and the sale of 14 properties in August 2023. This decrease was partially offset by rental income from one industrial manufacturing property acquired in July 2024. The company reported a net loss of $1.51 million for the quarter, with operating cash flow and free cash flow both at $5.14 million.
Despite these challenges, Modiv was able to mitigate the impact of these divestments through a reduction in property expenses and general and administrative costs, leading to Adjusted Funds from Operations (AFFO) of $3.7 million, on par with the third quarter of 2023. AFFO per share increased to $0.34 from $0.33 in the prior year quarter, primarily due to a decrease in fully-diluted weighted average shares outstanding.
Modiv’s portfolio exhibits a weighted average lease term (WALT) of 13.8 years as of September 30, 2024, providing the company with a high degree of cash flow stability and visibility. Furthermore, approximately 33% of the company’s tenants or their parent companies hold investment-grade credit ratings, underscoring the strength and creditworthiness of Modiv’s tenant base.
Financials:
For the fiscal year ended December 31, 2023, Modiv reported: – Total revenue: $46.94 million (7.1% increase year-over-year) – Net loss: $6.61 million – Operating cash flow: $16.58 million – Free cash flow: $16.58 million
For the third quarter of 2024, Modiv reported: – Rental income: $11.6 million (7.0% decrease year-over-year) – Net loss: $1.51 million – Operating cash flow: $5.14 million – Free cash flow: $5.14 million – Adjusted Funds from Operations (AFFO): $3.7 million – AFFO per share: $0.34 (increase from $0.33 in prior year quarter)
As of September 30, 2024: – Annualized base rent (ABR): $40.2 million – Occupancy rate: 98% based on square footage – Portfolio composition: 39 industrial properties (77% of ABR) and 4 non-core properties (23% of ABR)
Liquidity:
As of September 30, 2024, Modiv’s liquidity position was as follows: – Total cash and cash equivalents: $6.82 million – Outstanding debt: $280 million – No debt maturities until January 2027 – 100% of indebtedness at fixed rates with a weighted average of 4.52% – Debt/Equity ratio: 1.50 – Current ratio: 0.09 – Quick ratio: 0.09 – Available credit: $400 million credit facility, consisting of a $150 million revolving line of credit (fully undrawn) and a $250 million term loan (fully drawn)
Dividend and Capital Allocation:
Modiv has demonstrated a commitment to shareholder returns through its dividend policy. The company recently announced a quarterly cash dividend of $0.4609375 per share on its 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock for the fourth quarter of 2024. Additionally, the board of directors authorized a regular monthly cash distribution of $0.0975 per share on the company’s Class C common stock for each of January, February, and March 2025, representing an annualized distribution rate of $1.17 per share, an increase of 1.7% over the previous rate of $1.15 per share.
In terms of capital allocation, Modiv has adopted a disciplined approach, focusing on accretive acquisitions and strategic divestments to optimize its portfolio. During the third quarter of 2024, the company acquired an industrial manufacturing property in the Tampa, Florida metropolitan area for $5.18 million, further expanding its footprint in the industrial manufacturing sector.
Risks and Challenges:
While Modiv’s focus on industrial manufacturing properties has proven to be a strategic advantage, the company is not immune to broader macroeconomic and industry-specific risks. Factors such as rising interest rates, supply chain disruptions, and potential shifts in manufacturing trends could impact the company’s operating performance and financial results.
Additionally, Modiv’s relatively small size and limited institutional investor base may present challenges in terms of access to capital and liquidity, which could constrain the company’s growth prospects. The company’s reliance on a small number of large tenants also introduces concentration risk, underscoring the importance of diversification within its portfolio.
Conclusion:
Modiv Industrial, Inc. (MDV) has carved out a unique and essential role in the REIT landscape by exclusively focusing on the acquisition and management of industrial manufacturing properties. As the only publicly-traded REIT dedicated to this specialized asset class, Modiv is well-positioned to capitalize on the growing importance of domestic manufacturing and supply chain resilience.
Despite the challenges posed by the broader macroeconomic environment, including recent net losses and decreases in rental income due to property dispositions, Modiv has demonstrated its ability to navigate these headwinds. The company has maintained stable AFFO performance and implemented a disciplined approach to capital allocation. Modiv’s focus on long-term leases, investment-grade tenants, and prudent balance sheet management has reinforced its position as a reliable and attractive investment option for those seeking exposure to the industrial manufacturing sector.
As Modiv continues to execute on its strategic vision, investors would do well to closely monitor the company’s progress and its ability to capitalize on the growing demand for mission-critical industrial real estate assets that are essential to powering America’s manufacturing capabilities and supply chain infrastructure. The recent increase in dividend payout, despite challenging market conditions, signals management’s confidence in the company’s long-term prospects and commitment to shareholder value.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.