8-K: Modiv Industrial Reports Strong 2023 Results, Exceeds Expectations

Modiv Industrial announced its fourth quarter and full year 2023 results, highlighting significant revenue growth and exceeding street expectations for AFFO.

Summary

• Modiv Industrial reported a 7.1% year-over-year increase in annual revenue, reaching $46.9 million in 2023, compared to $43.8 million in 2022.
• Excluding a $3.8 million non-recurring lease termination fee in 2022, the company's 2023 revenue increased by 17.3%, or $6.9 million.
• Full year 2023 AFFO was $14.7 million, or $1.33 per diluted share, which exceeded street expectations by $0.04 per share.
• Fourth quarter revenue increased by 23% year-over-year to $12.3 million, excluding a 2022 lease termination fee.
• Fourth quarter AFFO was $4.5 million, or $0.40 per diluted share, exceeding street expectations by $0.05 per share.
• The company sold and issued 162,063 shares of MDV common stock between November 15, 2023, and January 29, 2024, at an average price of $15.22 per share.
• Modiv prepaid the remaining $3.0 million mortgage on its Rancho Cordova property on December 29, 2023, resulting in no debt maturities until 2027.
• The company sold its Sacramento property for $7.0 million on January 10, 2024, and its Nashville property for $7.95 million on February 28, 2024.
• Modiv entered into an agreement to sell its Issaquah property for $28.7 million, with closing expected no later than August 15, 2025.
• The company completed the stock distribution of Generation Income Properties, Inc. (GIPR) common stock to its stockholders on January 31, 2024.
• Modiv currently has a cash balance of $17.9 million and full availability on its $150 million revolving credit facility.
• The company has sold $135 million of assets across 24 properties in the past two years, shifting its portfolio from 55% office to a focus on industrial manufacturing.
• Modiv's debt is $281 million, with 100% at fixed rates, a weighted average interest rate of 4.52%, and a weighted average maturity of 3.4 years.
• The company's debt to asset ratio is 48%, and its debt to adjusted EBITDA multiple is 6.6x.
• Modiv's portfolio of 42 assets produces over $44 million of net operating income, with contractual growth of about 2.5% per annum and a weighted average lease duration of approximately 14 years.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, strategic portfolio transformation, and a clear vision for the future. The management's candid and confident tone also contributes to the positive outlook, despite some challenges.

Positives

• Modiv Industrial has shown strong revenue growth and exceeded AFFO expectations.
• The company has successfully transformed its portfolio by selling non-core assets and focusing on industrial manufacturing.
• Modiv has a healthy balance sheet with 100% fixed-rate debt and no debt maturities until 2027.
• The company has a strong portfolio with long-term leases and contractual rent growth.
• Modiv has a significant cash balance and full availability on its credit facility.
• The company is actively managing its portfolio and has made strategic dispositions to improve its financial position.

Negatives

• The company experienced a loss on the sale of real estate investments, net of $1.7 million for the year.
• Modiv had an impairment of real estate investment property of $4.3 million for the year.
• The company experienced a net loss attributable to common stockholders of $10.3 million for the year.
• Modiv experienced a loss on early extinguishment of debt of $1.7 million in 2022.

Risks

• The company is operating in a risk-off trade environment with heightened geo-political risk and price volatility.
• The company's tenant, Kalera, filed for bankruptcy protection and is seeking to reject their lease.
• The company has learned lessons from the Kalera situation and will no longer invest in early-stage or pre-revenue growth concepts without substantial credit behind the lease.
• The company has stated they will never again do a related party transaction.
• The company is exploring strategic partnerships, but there is no guarantee that any of these will materialize.

Future Outlook

The company intends to make any single asset purchases on an unlevered basis and use its $150 million revolver only for short-term timing mismatches. They are also exploring strategic partnerships to accelerate their transformation and provide scale.

Management Comments

• We may currently be the size of a water bear, but we have the fighting spirit of a grizzly.
• We believe that there will be no shortage of assets to acquire, and we believe this because we have no shortage of the patience needed to wait for the right opportunities.
• Two years ago we quickly surmised that few would pay attention to our transformation while it was happening, but they sure as heck would pay attention to see that it did happen.
• We will no longer invest in early stage or pre-revenue growth concepts without substantial credit behind the lease.
• We will also never again do a related party transaction.
• We believe it is better to produce candid content with the prospect that it will find its target audience in time rather than mimic everyone else and find no audience at all.

Industry Context

Modiv Industrial is the only public REIT exclusively focused on acquiring industrial manufacturing real estate, which positions them uniquely in the market. The company is capitalizing on the trend of reshoring manufacturing and the need for critical infrastructure items.

Comparison to Industry Standards

• Modiv's focus on industrial manufacturing differentiates it from many net-lease REITs that focus on retail properties like dollar stores and fast food chains.
• The company's weighted average lease duration of approximately 14 years is strong compared to many other REITs.
• Modiv's debt to asset ratio of 48% is within a reasonable range for REITs, but the debt to adjusted EBITDA multiple of 6.6x is higher than some peers.
• The company's AFFO per share of $1.33 for the full year 2023 is a key metric for comparison with other REITs, and it exceeded street expectations.
• Modiv's strategic shift from office to industrial assets is a notable move, aligning with current market trends favoring industrial real estate.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and strategic portfolio transformation.
• Employees will be impacted by the company's focus on industrial manufacturing and its culture of transparency.
• Customers (tenants) will benefit from the company's focus on critical industrial manufacturing properties.
• Suppliers and creditors will be impacted by the company's financial health and strategic direction.

Next Steps

• The company will continue to focus on acquiring industrial manufacturing properties.
• Modiv will continue to dispose of non-core assets.
• The company will continue to explore strategic partnerships.
• Modiv will work to extend or restructure the cancellation option on their interest rate swaps.

Key Dates

Keywords

Industrial Manufacturing, REIT, Real Estate, AFFO, Revenue, Dispositions, Acquisitions, Debt, Portfolio, Net Lease