DEFA14A: Modiv Industrial Clarifies Rationale for Proposed Large Reverse Stock Split to Optimize Shareholder Administration and Reduce Costs

Modiv Industrial, Inc. (NYSE:MDV) has issued a message from its CEO to clarify the administrative rationale behind a proposed large reverse stock split, aiming to reduce significant transfer agent costs and improve liquidity by addressing thousands of dormant legacy shareholder accounts.

Summary

• Modiv Industrial, Inc. (NYSE:MDV) is seeking stockholder approval for a reverse stock split of its common stock, ranging from 1:500 to 1:1,500, to be implemented by December 31, 2026.
• The primary purpose of this large reverse split is to address a legacy issue of nearly 10,000 (now over 4,000) small, dormant retail investor accounts held directly at its transfer agent, Computershare, which incur a 'meaningful six digits expense every year'.
• The Company's history as a direct-to-retail crowdfunded REIT, which publicly listed in early 2022, led to an unusually high number of direct transfer agent accounts compared to typical public companies.
• The proposed mechanism involves a large reverse split to convert these small, dormant accounts into fractional shares, which can then be cashed out, followed immediately by a forward split to return the share price to a normal level.
• Management emphasizes that the split is purely an administrative function intended to reduce costs and potentially increase liquidity, not to artificially inflate the share price.
• The Company believes the impact on shares held in brokerage accounts (street name) will be minimal, as fractional shares would primarily be addressed at the participant level (DTC), not individual beneficial owner accounts.
• Even if approved, the Company will make a final push to encourage dormant account holders to move their shares to brokerage firms before considering implementation of the split.

Sentiment

Score: 7

Explanation: The sentiment is generally positive due to the proactive and transparent communication from management regarding a necessary administrative action. The proposed action aims to resolve a significant legacy cost burden and improve efficiency, which is beneficial for long-term shareholder value. While the underlying issue of high transfer agent costs is a negative, the clear plan to address it and the CEO's candor contribute to a positive outlook on management's approach.

Positives

• The proposed reverse stock split is designed to eliminate a 'meaningful six digits expense every year' associated with maintaining thousands of dormant transfer agent accounts, leading to significant annual cost savings.
• Addressing the large number of dormant accounts could potentially increase liquidity by streamlining the shareholder base.
• The CEO's proactive communication provides transparency and clarity regarding a potentially confusing corporate action, aiming to alleviate investor concerns.
• The plan to follow the reverse split with a forward split ensures the share price returns to a 'normal' range, avoiding a ridiculously high and potentially illiquid price point.
• The Company's commitment to making a final push for account transfers before implementing the split demonstrates a shareholder-friendly approach.

Negatives

• The initial proposal of a very large reverse stock split (1:500 to 1:1,500) caused confusion among investors, necessitating this clarification.
• The existence of thousands of dormant accounts and the associated high transfer agent costs highlight a significant administrative inefficiency stemming from the Company's crowdfunding legacy.
• The process of implementing the reverse and forward splits, and cashing out fractional shares, could take several days, potentially causing temporary disruption or uncertainty.

Risks

• The forward-looking statements regarding the reverse stock split, forward stock split, annualized dividend rates, and future distributions are subject to various risks and uncertainties, as detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
• There is a risk that the proposed reverse stock split may not be approved by stockholders, meaning the Company would continue to bear the significant cost burden of the dormant accounts.
• Despite the Company's efforts to clarify, there remains a potential for continued investor confusion or misinterpretation regarding the purpose and impact of the reverse stock split.
• The success of moving dormant accounts to brokerage firms before implementing the split is not guaranteed, potentially still requiring the split to address the issue.

Future Outlook

The Company anticipates that if the reverse stock split proposal is approved and implemented, it will lead to reduced administrative costs, potentially increased liquidity, and a return to a normal stock price after a subsequent forward split. The CEO also mentions forward-looking statements related to annualized dividend rates and future distributions.

Management Comments

• "Given that there appears to be a pattern of confusion (not surprising given the legalese of the proxy), we decided to send this missive out so that everyone can hopefully receive a clearer explanation straight from the horses mouth."
• "I am here to tell you that is NOT the case at all and the reverse split (which would be followed by a forward split that I will describe a bit later) is purely an administrative function intended to reduce cost and potentially increase liquidity."
• "It is from this original mission that the reverse stock split proposal is derived."
• "Suffice it to say that using a transfer agent account as a brokerage account is like using a rotary phone instead of your smart phone."
• "We are all in this together, its all our monies, and I strongly believe that transparency and candor are of utmost importance in our pursuit of making our money grow."
• "By doing it this way, we specifically address this legacy cost burden without wiping out thousands of retail investors who bought shares through their brokerage account."
• "Our goal would be to make another final push to get as many of those seemingly dormant accounts moved over to brokerage firms (heck, maybe this press release will help that cause)."
• "In a nutshell, if the reverse split is approved (and we are ok if you don't want it), then the final ending result would be a normal stock price, less dormant accounts at our transfer agent, and more money saved."

Industry Context

Modiv Industrial, Inc. is uniquely positioned as the only public REIT exclusively focused on acquiring industrial manufacturing real estate. Its history as a direct-to-retail crowdfunded REIT sets it apart from most publicly listed companies, leading to an atypical and costly shareholder administration structure with a very large number of direct transfer agent accounts.

Comparison to Industry Standards

• The Company's initial nearly 10,000 separate accounts at its transfer agent is described as 'a very large number of accounts for a company of our size and very atypical' compared to most newly public companies that typically have a small handful of direct accounts and thousands indirectly held at brokerage firms.
• The 'meaningful six digits expense every year' for transfer agent services is presented as a significant cost burden for a company of Modiv's size, implying it is higher than industry norms due to the unique legacy shareholder base.

Corporate Governance

Stakeholder Impact

• **Shareholders:** Potential for reduced administrative costs leading to improved profitability, potential increase in liquidity for shares, and a temporary change in share price during the split process. Dormant account holders may have their fractional shares cashed out.
• **Employees:** No direct impact mentioned.
• **Customers:** No direct impact mentioned.
• **Suppliers:** No direct impact mentioned.
• **Creditors:** No direct impact mentioned.

Next Steps

• Stockholders will vote on the reverse stock split proposal at the 2025 Annual Meeting of Stockholders.
• The Company will make a final push to encourage dormant account holders to move their shares from the transfer agent to brokerage firms.
• If approved and after the final push, the Company may implement the reverse stock split, followed by a forward split, at any time prior to December 31, 2026.

Key Dates

Recommendation

Keywords

Modiv Industrial, REIT, reverse stock split, corporate governance, shareholder relations, industrial real estate, NYSE, crowdfunding, transfer agent costs, liquidity, administrative efficiency