10-Q: Modiv Industrial Reports Q1 2025 Results: Focus on Industrial Portfolio Continues

Sentiment:

Quarterly Report 6 May 2025 6:26 PM

Modiv Industrial's Q1 2025 results reflect a continued strategic shift towards industrial properties, with rental income remaining stable and strategic financial maneuvers undertaken.

Capital raiseDuring the three months ended March 31, 2025, the company sold 98,261 shares of Class C Common Stock in the ATM Offering at an average price of $15.86 per share for proceeds of $1.5 million, net of sale commissions.From November 15, 2023 through March 31, 2025, an aggregate of 705,170 shares have been sold in the ATM Offering at an average price of $16.02 per share, net of sale commissions, for aggregate net proceeds of $9.8 million after legal, accounting, investor relations and other offering costs of $1.2 million.As of March 31, 2025, the Company had $38.7 million of shares of Class C Common Stock available for future issuance under the ATM Offering.

Worse than expectedNet income attributable to common stockholders was $2,000, while earnings per share attributable to common stockholders and Class C OP Units was $(0.01), which is worse than the same period last year.

Summary

Modiv Industrial, Inc. reported its financial results for the quarter ended March 31, 2025.
The company continues to focus on transitioning its portfolio towards industrial properties, which now represent approximately 80% of the portfolio's annual base rent (ABR).
Rental income remained relatively constant at $11.7 million compared to $11.9 million in the same period last year.
The company sold 98,261 shares of Class C Common Stock in the ATM Offering at an average price of $15.86 per share, generating net proceeds of $1.5 million.
Modiv repurchased 205,000 shares of its Series A Preferred Stock for a total of $4.9 million at an average cost of $23.66 per share.
The company acquired an industrial property for $6.1 million, consisting of $0.3 million cash and 344,119 Class C OP Units valued at $5.9 million.
A property in Endicott, New York was sold for $2.4 million.
Net income attributable to common stockholders was $2,000, while earnings per share attributable to common stockholders and Class C OP Units was $(0.01).
The company entered into two new swap agreements, effective December 31, 2024, for $125.0 million each, for an aggregate of $250.0 million, corresponding to the Term Loan, which fixed SOFR for the year ending December 31, 2025 at 2.45%, resulting in a fixed rate of 4.25% based on the company's current leverage ratio.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The company is making strategic moves to improve its portfolio, but the financial results are mixed. The focus on industrial properties is a positive trend, but the company needs to improve its profitability.

Positives

The strategic shift towards industrial properties continues, aligning with the company's long-term goals.
The company successfully executed sales in the ATM Offering and repurchased preferred stock, managing its capital structure.
The acquisition of a new industrial property expands the portfolio and contributes to future revenue.
The company's WALT is approximately 13.8 years as of March 31, 2025 and approximately 14.2 years after including the lease amendments executed in April 2025.
The company entered into two new swap agreements, effective December 31, 2024, for $125.0 million each, for an aggregate of $250.0 million, corresponding to the Term Loan, which fixed SOFR for the year ending December 31, 2025 at 2.45%, resulting in a fixed rate of 4.25% based on the company's current leverage ratio.

Negatives

Net income attributable to common stockholders was $2,000, while earnings per share attributable to common stockholders and Class C OP Units was $(0.01).
The company paid aggregate premiums of $4.2 million, including accrued interest receivable of $0.3 million, to buy down the fixed rate below the market rate.

Risks

Uncertainties in the market related to inflation, interest rates, tariffs, and geopolitical events could negatively impact operating results.
Possible future declines in rental rates and expectations of future rental concessions may result in decreases in cash flows from office properties.
Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy and rental rates.
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.

Future Outlook

The company expects that cash requirements for operating and interest expenses, dividends on Series A Preferred Stock, and distributions on Class C Common Stock and OP Units will be funded by internally generated funds, and that they will have adequate liquidity to meet cash requirements for the next 12 months and beyond.

Management Comments

We are a Maryland corporation with issued and outstanding stock consisting of Series A Preferred Stock, listed on the NYSE under the symbol MDV.PA, and Class C Common Stock, listed on the NYSE under the symbol MDV.
We currently own and manage single-tenant net-lease properties throughout the United States, which are primarily, but not exclusively, industrial properties.
Our focus for future acquisitions is on critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nations supply chains.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2016.
We believe that we have operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes.
Since December 31, 2019, we have been internally managed.

Industry Context

The company's focus on industrial properties aligns with the current trend of increasing demand for industrial space due to e-commerce growth and supply chain reshoring. The company's strategic shift to industrial assets is a common strategy among REITs seeking to capitalize on this trend.

Comparison to Industry Standards

Comparing Modiv Industrial to other industrial REITs such as Prologis (PLD) and Duke Realty (DRE now part of Prologis) reveals some differences.
Prologis and Duke Realty are much larger, with significantly higher market capitalization and broader geographic diversification.
Modiv's focus on single-tenant net-lease properties differentiates it from REITs that own and operate multi-tenant industrial parks.
The company's WALT of approximately 13.8 years as of March 31, 2025 and approximately 14.2 years after including the lease amendments executed in April 2025 is competitive with industry standards for net-lease REITs.
The company's leverage ratio of 47.6% as of March 31, 2025 is within the typical range for REITs.

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.
The Company earns management fee income from the Santa Clara property, in which it has a TIC Interest.

Stakeholder Impact

Shareholders: The company's strategic shift and capital allocation decisions will impact shareholder value.
Tenants: The company's ability to maintain high occupancy rates and extend lease terms will impact tenants.
Employees: The company's headcount reductions and executive compensation changes will impact employees.
Creditors: The company's ability to comply with debt covenants and refinance debt obligations will impact creditors.

Next Steps

Continue to execute the strategic shift towards industrial properties.
Manage the portfolio to maintain high occupancy rates and extend lease terms.
Monitor market conditions and adjust capital allocation strategies as needed.
Explore opportunities to acquire the minority interests in the property in which they hold the TIC Interest, which would result in consolidation of the asset, or to sell the TIC Interest.

Key Dates

Date	Description
2015-05-15	Modiv Industrial, Inc. was incorporated.
2016-01-28	The Operating Partnership was formed.
2016-12-31	Modiv elected to be taxed as a REIT for U.S. federal income tax purposes beginning with this taxable year.
2021-09-17	The Company's Series A Preferred Stock has been trading on the NYSE since this date.
2022-02-11	The Company's Class C Common Stock has been trading on the NYSE since this date.
2022-02-15	The Companys board of directors amended and restated the Companys distribution reinvestment plan (the Second Amended and Restated DRP) with respect to the Class C Common Stock.
2022-05-31	Effective date of the five-year swap agreement to fix SOFR at 2.258% related to the variable interest rate on its original $150.0 million Term Loan.
2022-06-06	The Company filed a prospectus supplement for the Companys at-the-market offering of up to $50.0 million of its Class C Common Stock (the ATM Offering).
2022-11-30	Effective date of the five-year swap agreement to fix SOFR at 3.440% related to the variable interest rate on its additional $100.0 million Term Loan commitment.
2023-08-11	The Company changed its name from Modiv Inc. to Modiv Industrial, Inc.
2023-11-15	The Company filed Supplement No. 1 to the Prospectus Supplement dated June 6, 2022, and to the Prospectus dated June 2, 2022, to reflect the Amended and Restated At Market Issuance Sales Agreement, dated November 13, 2023, and the change in the Company's corporate name.
2024-11-04	The Companys board of directors authorized a 1.7% increase in the annual distribution rate from $1.15 per share to $1.17 per share commencing with monthly distributions payable to common stockholders and Class C OP Unit holders of record beginning as of January 31, 2025.
2024-12-27	The company exercised its right to reduce the Revolver to $30.0 million from $150.0 million in order to reduce annual unused fees to less than $0.1 million.
2024-12-31	The counterparties to both swap agreements exercised their one-time options to cancel their respective swap agreement.
2025-01-18	The Operating Partnership entered into an agreement for a line of credit (the Credit Agreement) on this date.
2025-01-31	Commencement of monthly distributions payable to common stockholders and Class C OP Unit holders of record beginning as of this date.
2025-02-03	The Company entered into the Fourth Amended and Restated Limited Partnership Agreement (the Amended OP Agreement) of the Operating Partnership.
2025-02-26	The Company completed the sale of its industrial property located in Endicott, New York.
2025-02-27	The Companys board of directors declared Series A Preferred Stock dividends payable of $0.8 million for the first quarter of 2025.
2025-03-04	The Company filed Supplement No. 2 to the ATM Prospectus to reflect Amendment No. 1 to the Amended and Restated At Market Issuance Sales Agreement, dated March 4, 2025.
2025-03-04	The Companys board of directors authorized the Company to repurchase shares of its Series A Preferred Stock up to an aggregate amount not to exceed the aggregate amount of proceeds from sales of the Companys Class C Common Stock during the trailing twelve month period (the Repurchase Program).
2025-03-07	The Company acquired an industrial property for $6.1 million.
2025-03-31	End of the quarterly period.
2025-04-15	The Company paid its Series A Preferred Stock dividends payable of $0.8 million for the first quarter of 2025.
2025-04-24	The TIC leases with Fujifilm Dimatix, Inc. were amended to extend the leases for ten years from March 17, 2026 to March 16, 2036.
2025-05-06	The Companys board of directors declared Series A Preferred Stock dividends payable of $0.8 million for the second quarter of 2025, which are scheduled to be paid on July 15, 2025.

Keywords

industrial properties, real estate, Modiv Industrial, ATM Offering, preferred stock, acquisitions, REIT, financial results, lease, SOFR

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