EDGAR 10-K Filing

Company CIK: 1645873
Filing Year: 2024
Filename: 1645873_10-K_2024_0001645873-24-000030.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
The Company
Modiv Industrial, Inc. (“Modiv”) is an internally-managed Maryland corporation with publicly-traded shares of Class C Common Stock and Series A Preferred Stock (defined below) which has operated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the year ended December 31, 2016. Modiv acquires, owns and manages a portfolio of single-tenant net-lease properties throughout the United States, with a focus on acquiring critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nation's supply chains. Modiv also owns a few non-core, legacy retail and office real estate properties, and is gradually reducing its non-core exposure, subject to market conditions, as it furthers its focus as a pure-play industrial manufacturing REIT. Modiv seeks to provide investors access to MOnthly DIVidends through a durable portfolio of real estate investments designed to generate both current income and long-term growth. We changed our name from Modiv Inc. to Modiv Industrial, Inc., effective August 11, 2023, upon achieving a super-majority of industrial properties in our portfolio.
As used herein, the terms “Modiv,” the “Company,” “we,” “our” and “us” refer to Modiv Industrial, Inc. and, as required by context, Modiv Operating Partnership, LP, a Delaware limited partnership (our “Operating Partnership” or “Modiv OP”).
Our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”), is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MDV.PA” and has been trading since September 14, 2021. Our Class C common stock, $0.001 par value per share (the “Class C Common Stock”), is also listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to that date, there was no public trading market for our Class C Common Stock. Our initial listed offering (our “Listed Offering”) of our Class C Common Stock closed on February 15, 2022.
As of December 31, 2023, our real estate investment portfolio consisted of 44 properties, including two properties held for sale and an approximate 72.7% tenant-in-common interest in a Santa Clara, California industrial property (the “TIC Interest”). Our portfolio is distributed across 16 states and consists of 39 industrial properties (including one held for sale and the TIC Interest), one retail property and four office properties (including one held for sale).
During the year ended December 31, 2023, we acquired 12 industrial manufacturing properties, including manufacturing facilities in Minnesota (4), Ohio (2), Illinois, Michigan, Ohio, Pennsylvania, South Carolina and Texas. We disposed of 14 properties during the year ended December 31, 2023, including 11 retail properties, two office properties and one flex property. See Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of our acquisitions and dispositions.
Following the January and February 2024 sales of the two properties that were held for sale as of December 31, 2023, our real estate investment portfolio consists of 42 properties. Details of these 42 operating properties as of December 31, 2023, and related financing are as follows:
• 38 industrial properties (including the TIC Interest), which represented approximately 76% of the portfolio (expressed as a percentage of annual base rent for the next 12 months (“ABR”)), one retail property, which represented approximately 11% of the portfolio by ABR, and three office properties, which represented approximately 13% of the portfolio by ABR;
• Occupancy rate of 98%;
• Leased to 28 different commercial tenants doing business in 12 separate industries;
• Approximately 4.5 million square feet of aggregate leasable space, including the entirety of the property in which we hold the TIC Interest;
• An average leasable space per property of approximately 106,000 square feet, including the TIC Interest; with approximately 110,000 square feet per industrial property, including the TIC Interest; approximately 73,000 square feet at our retail property; and approximately 77,000 square feet per office property; and
• Outstanding mortgage notes payable balance of $31,200,000 for two properties, a credit facility term loan balance of $250,000,000 and no credit facility revolver balance.
As of December 31, 2023, all 42 operating properties, including the TIC Interest and excluding the two properties held for sale, were single-tenant net-lease properties and all properties were leased, excluding the property formerly leased to Kalera, Inc. (see Note 11 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details), with a weighted average lease term (“WALT”), excluding rights to extend a lease at the option of the tenant, of approximately 14.1 years compared with a WALT of 11.9 years as of December 31, 2022.
As of December 31, 2023, we held an approximate 72.7% TIC Interest in a 91,740 square foot industrial property located in Santa Clara, California. The remaining approximately 27.3% of undivided interest in the Santa Clara, California property is held by third parties.
To date, we have invested primarily in single-tenant, income-producing properties, leased to creditworthy tenants under long-term net leases. Although we are not limited as to the form our investments may take, our investments in real estate will primarily constitute acquiring fee title or interests in entities that own and operate real estate. We own and will make acquisitions of our real estate investments through special purpose limited liability companies which are wholly-owned subsidiaries of our Operating Partnership or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership arrangements with other owners of properties through special purpose limited liability companies which are wholly-owned subsidiaries of our Operating Partnership. We are structured as an umbrella partnership REIT under which substantially all of our business is conducted and of which we are the sole general partner and own approximately 81% of the interests as of February 29, 2024, following the exchange of certain Class C OP Units (defined below) for Class C Common Stock in January and February 2024 as described in Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
We intend to continue to qualify as a REIT for U.S. federal income tax purposes. If we continue to meet the qualification requirements for taxation as a REIT for U.S. federal income tax purposes, we generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year. If we fail to maintain our qualification for taxation as a REIT in any year, our income will be taxed at regular corporate rates, and we would be precluded from qualifying for taxation as a REIT for the four taxable years following the year during which we failed to qualify. Such an event could materially and adversely affect our net income and cash available for distribution to our stockholders.
The Operating Partnership Agreement, as Amended
On February 1, 2021, we, and certain of the limited partners of the Operating Partnership, entered into the Third Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”), which amended and restated the Second Amended and Restated Limited Partnership Agreement of the Operating Partnership dated December 31, 2019. We are the sole general partner of the Operating Partnership and, as of December 31, 2023, we owned an approximate 68% interest in the Operating Partnership. Our limited partners owned an approximate 32% interest in the Operating Partnership, comprised of units of Class P limited partnership interest (“Class P OP Units”), units of Class R limited partnership interest for both time vesting and performance vesting (“Class R OP Units”) and units of Class C limited partnership interest (“Class C OP Units”) in the Operating Partnership. The Class P OP Units and Class R OP Units have now vested and will automatically convert to Class C OP Units on March 31, 2024, when they will be eligible to convert to shares of Class C Common Stock. Such Class P OP Units, Class R OP Units and Class C OP Units are described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. On December 29, 2023, we amended the Partnership Agreement to provide us with discretion to shorten the time between the date when we receive a notice of conversion or exchange and the date when such conversion or exchange takes place. On January 23, 2024, we amended the Partnership Agreement again to automatically convert all Class M OP Units (as defined below) to Class C OP Units on January 30, 2024, in light of the fact that the performance hurdles for the Class M OP Units were not met as of December 31, 2023. During January and February 2024, holders of 1,364,932 Class C OP Units exchanged them for Class C Common Stock.
Creditworthiness of Tenants
In the course of making a real estate investment decision, we assess the creditworthiness of the tenant that leases the property we intend to purchase. Tenant creditworthiness is an important investment criterion, as it provides a barometer of relative risk of tenant default, but tenant creditworthiness analysis is just one element of due diligence which we perform when considering a property purchase, and the weight we ascribe to tenant creditworthiness is a function of the results of other elements of due diligence.
Most of our leases require tenants to provide us with financial reports on a regular basis, or they are publicly-traded or have a parent that is public, and we analyze tenant creditworthiness on an ongoing basis, post-acquisition including review of tenant payment histories. However, a few of our older legacy leases limit our ability as landlord to demand non-public tenant financial information on a recurring basis. It is also our policy and practice to monitor public announcements regarding our tenants.
Description of Leases
We expect to invest in industrial manufacturing real estate investments, which are primarily single-tenant properties, with new leases negotiated in connection with sale and leaseback transactions or existing net leases. Under most commercial leases, tenants are obligated to pay a predetermined base rent. All of our leases also contain provisions that increase the amount of base rent payable annually during the lease term. We anticipate that most of our acquisitions will have lease terms of 15+ years at the time of the property acquisition and we may acquire properties under which the lease term has partially expired. We also may acquire properties with shorter lease terms if the property is located in a desirable location, is difficult to replace, or has other significant favorable real estate attributes.
There are various forms of net leases, typically classified as triple-net or double-net. Triple-net leases typically require tenants to pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance, common area maintenance charges, and building repairs related to the property, in addition to the lease payments. Double-net leases typically require the landlord to be responsible for structural and capital elements of the leased property, while the tenants are obligated to pay the majority of the operating expenses listed above. Modified gross leases require the landlord to be responsible for most operating expenses of the property. All of our leases entered into over the last two years are triple-net leases and we expect to enter into triple-net leases in connection with future acquisitions. Some of our older legacy leases are double-net leases and we have only one modified gross lease which is with the State of California’s Office of Emergency Services.
We expect to have adequate insurance coverage for all properties in which we invest. Generally, the triple-net and double-net leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. In such instances, the policy will list us an additional insured. However, lease terms may provide that tenants are not required to, and we may decide not to, obtain any or adequate earthquake or similar catastrophic insurance coverage because the premiums are too high, even in instances where it may otherwise be available. We may elect to obtain, to the extent commercially available, contingent liability and property insurance, flood insurance, environmental contamination insurance, as well as loss of rent insurance that covers one or more years of annual rent in the event of a rental loss. However, the coverage and amounts of our insurance policies may not be sufficient to cover our entire risk. See Part I, Item 1A. Risk Factors - General Risks Related to Investments in Real Estate. Tenants are required to provide proof of insurance by furnishing a certificate of insurance to us on an annual basis. We track and review the insurance certificates for compliance.
Disposition Policies
We generally intend to hold each property we acquire for an extended period. However, we may sell a property at any time if, in our judgment, the sale of the property is in the best interests of our stockholders. During the fourth quarter of 2021, we embarked on a strategic plan to reduce our exposure to office and retail properties and increase our WALT by acquiring industrial manufacturing properties with the majority of the lease terms having 15+ years in duration. We acted on this plan during 2022 and 2023, resulting in an increase in our industrial properties to 76% of our portfolio by ABR as of December 31, 2023, and the extension of our WALT to approximately 14 years.
The determination of whether a particular property should be sold or otherwise disposed of will generally be made after consideration of relevant factors, including prevailing economic conditions, other investment opportunities and considerations specific to the condition, value and financial performance of the property.
Affiliate Transaction Policy
Our independent directors will review and approve (by majority vote) all matters the board of directors believes may involve a conflict of interest and will approve any transactions between us and our affiliates.
Competitive Market Factors
The U.S. commercial real estate investment and leasing markets are competitive. We face competition from various entities for investment opportunities for prospective tenants and to retain our current tenants, including other REITs, pension funds, insurance companies, private equity and other investment funds and companies, partnerships and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Further, as a result of their greater resources, those entities may have more flexibility than we do in their ability to offer rental concessions to attract and retain tenants. This could put pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. As a result, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay distributions to our stockholders may be adversely affected.
Although we believe that we are well-positioned to compete effectively, there is significant competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.
Compliance with Federal, State and Local Environmental Law
Our business is subject to many laws and governmental regulations. Changes in these laws and regulations, or their interpretation by agencies and courts, occur frequently, and we consider these laws and regulations in the operation of our business.
Environmental Matters
All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the presence and release of hazardous substances and the remediation of any associated contamination.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removing or remediating hazardous or toxic substances. These laws often impose clean-up responsibility and liability without regard to whether the owner or operator was responsible for, or even knew of, the presence of the hazardous or toxic substances. The costs of investigating, removing or remediating these substances may be substantial, and the presence of these substances may adversely affect our ability to rent or sell properties or to borrow using the property as collateral and may expose us to liability resulting from any release of or exposure to these substances. If we arrange for the disposal or treatment of hazardous or toxic substances at another location, we may be liable for the costs of removing or remediating these substances at the disposal or treatment facility, whether or not the facility is owned or operated by us.
We perform a diligence review on each property that we purchase. As part of this review, we obtain an environmental site assessment for each proposed acquisition (which at a minimum includes a Phase I environmental assessment). We will not close the purchase of any property unless we are generally satisfied with the environmental status of the property. Furthermore, under most of our leases, the tenants have primary responsibility for compliance with all environmental laws and indemnify us for any costs or damages resulting from noncompliance with environmental laws.
We may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site that we own or operate. Certain environmental laws also impose liability in connection with the handling of or exposure to asbestos-containing materials, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances. In addition to indemnifications from our tenants, we maintain an environmental insurance policy for our portfolio to insure against the potential liability of remediation and exposure risk, but it may not be sufficient to cover any catastrophic claims. See Part I, Item 1A. Risk Factors - General Risks Related to Investments in Real Estate.
Other Regulations
The properties we acquire will be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We intend to acquire properties that are in material compliance with all such regulatory requirements. However, we cannot assure investors that these requirements will not change or that new requirements will not be imposed which would require significant unanticipated expenditures and could have an adverse effect on our financial condition and results of operations.
Industry Segments
Our current business consists of owning, managing, operating, leasing, acquiring, investing in and disposing of commercial real estate assets, primarily utilized for industrial manufacturing, as well as a few non-core assets. All of our consolidated revenues are derived from our consolidated real estate properties. We internally evaluate operating performance on an individual property level and view all of our real estate assets as one industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
Major Tenants
We have two tenants that each generate rental income over 10%, with the nine properties leased to Lindsay accounting for 13.0% of rental income and the KIA auto dealership property accounting for 11.0% of rental income for the year ended December 31, 2023. See Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details.
See Part I, Item 1A. Risk Factors - Risks Related to Our Business - We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
Employees
As of December 31, 2023, we had 12 total employees, all of which are full-time employees.
Principal Executive Offices
Our principal executive offices are located at 200 S. Virginia Street, Reno, Nevada, 89501. Our telephone number and website address are (888) 686-6348 and http://www.modiv.com, respectively.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Access to copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and other filings with the SEC, including amendments to such filings, may be obtained free of charge from our website, http://www.modiv.com, and/or through a link to the SEC’s website, http://www.sec.gov. These filings are available promptly after we file them with, or furnish them to, the SEC.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Risks Related to an Investment in Our Class C Common Stock
Our listing on the NYSE does not guarantee an active and liquid market for our Class C Common Stock, and the market price and trading volume of the shares of our Class C Common Stock may fluctuate significantly.
Our Class C Common Stock began trading on the NYSE in 2022, and we can provide no assurance an active and liquid trading market for the shares of our Class C Common Stock will be sustained. The market price and liquidity of our Class C Common Stock may be adversely affected by the absence of an active trading market. The market price for the shares of our Class C Common Stock may not equal or may exceed the price our stockholders pay for their shares.
The trading price for our Class C Common Stock may be influenced by many factors, including:
• general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate-related companies including the potential impact of inflation;
• low trading volume in our Class C Common Stock, which makes it difficult to attract institutional investors;
• our financial condition and performance;
• our ability to grow through property acquisitions or real estate-related investments, the terms and pace of any acquisitions we may make and the availability and terms of financing for those acquisitions;
• the financial condition of our tenants, including tenant bankruptcies or defaults;
• actual or anticipated quarterly fluctuations in our operating results and financial condition;
• the amount and frequency of our payment of dividends and other distributions;
• additional sales of equity securities, including Series A Preferred Stock, Class C Common Stock or any other equity interests, or the perception that additional sales may occur;
• the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, and fixed income debt securities;
• uncertainty and volatility in the equity and credit markets;
• fluctuations in interest rates and exchange rates;
• changes in revenue or earnings estimates, if any, or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
• failure to meet analysts’ revenue or earnings estimates;
• strategic actions by us or our competitors, such as acquisitions or restructurings;
• the extent of investment in our Class C Common Stock by institutional investors;
• the extent of short-selling of our Class C Common Stock;
• failure to maintain our REIT status;
• changes in tax laws;
• additions and departures of key personnel;
• domestic and international economic factors unrelated to our performance including uncertainty and volatility resulting from global pandemics such as COVID-19, the violence and unrest in the Middle East, the ongoing war between Russia and Ukraine, and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto, all of which have added to continuing concerns about supply chain disruptions, inflation and increased interest rates in the markets in which we operate; and
• the occurrence of any of the other risk factors presented in this Annual Report on Form 10-K, including in this “Part I, Item 1A. Risk Factors” section.
Our Class C Common Stock is subordinate to our Series A Preferred Stock and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions.
Our Class C Common Stock ranks junior to all Series A Preferred Stock and our existing and future debt and to other non-equity claims on us and our assets available to satisfy claims against us, including claims in bankruptcy, liquidation or similar proceedings. Our Credit Facility includes, and our future debt may include, restrictions on our ability to pay dividends to common stockholders, including holders of Class C Common Stock. As of December 31, 2023, there were 2,000,000 shares of Series A Preferred Stock issued and outstanding. In addition, our board of directors has the power under our charter to classify any of our unissued shares of preferred stock, and to reclassify any of our previously classified but unissued shares of preferred stock of any class or series, from time to time, in one or more series of preferred stock.
In the future, we may attempt to increase our capital resources by offering debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Debt securities or shares of preferred stock will generally be entitled to receive interest payments or distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. We are not required to offer any such additional debt or equity securities to existing common stockholders on a preemptive basis. Therefore, offerings of common stock or other equity securities may dilute the holdings of our existing stockholders. Future offerings of debt or equity securities, or the perception that such offerings may occur, may reduce the market price of our common stock and/or the distributions that we pay with respect to our common stock. Because we may generally issue any such debt or equity securities in the future without obtaining the consent of our stockholders, our stockholders will bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionate ownership.
Further, in connection with acquisitions in January 2022 and April 2023, as discussed herein, the sellers received Class C OP Units as a portion of the purchase price. These holders of the Class C OP Units may request the redemption of all or a portion of these units for shares of Class C Common Stock or, at our option as the general partner of the Operating Partnership, for cash (the “Class C OP Unit Redemption”). If we determine to satisfy the Class C OP Unit Redemption with shares of Class C Common Stock, such holder of Class C OP Units will be entitled to receive one share of Class C Common Stock for each Class C OP Unit, subject to adjustment. As a result, our stockholders will be diluted by the issuance of Class C Common Stock in connection with the Class C OP Unit Redemption, which could have a material adverse impact on the market price of our common stock.
The future issuance or sale of additional shares of our Class C Common Stock could adversely affect the trading price of our Class C Common Stock.
Future issuances or sales of substantial numbers of shares of our Class C Common Stock in the public market or the perception that issuances or sales might occur, could adversely affect the per share trading price of our Class C Common Stock. The per share trading price of our Class C Common Stock may decline significantly upon the sale or offering of additional shares of our Class C Common Stock. Because we have a large number of stockholders and our shares of Class C Common Stock have not been listed on a national securities exchange until recently, there may be significant pent-up demand to sell our shares.
Our distributions to stockholders may change, which could adversely affect the market price of our Class C Common Stock.
All distributions will be at the sole discretion of our board of directors and will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and funds from operations, maintenance of our REIT qualification and such other matters as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future or may need to fund such distributions from external sources, as to which no assurances can be given. In addition, we may choose to retain operating cash flow for investment purposes, working capital reserves or other purposes, and these retained funds, although increasing the value of our underlying assets, may not correspondingly increase the market price of our Class C Common Stock. Our failure to meet the market’s expectations with regard to future cash distributions likely would adversely affect the market price of our Class C Common Stock.
Increases in market interest rates may result in a decrease in the value of our Class C Common Stock.
One of the factors that may influence the price of our Class C Common Stock will be the distribution rate on the Class C Common Stock (as a percentage of the price of our Class C Common Stock) relative to market interest rates. If market interest rates rise, prospective purchasers of shares of our Class C Common Stock may expect a higher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution. We therefore may not be able, or we may not choose, to provide a higher distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our Class C Common Stock, which would reduce the demand for, and result in a decline in the market price of, our Class C Common Stock.
Risks Related to Our Business
We are focused on future acquisitions of industrial manufacturing properties while reducing the number of non-core properties in our portfolio, and therefore the prior performance of our real estate investments may not be comparable to our ongoing results.
We were incorporated in the State of Maryland on May 15, 2015, and during the fourth quarter of 2021, we embarked on a strategic plan to reduce our exposure to non-core properties and invest primarily in industrial manufacturing real estate properties. We also may seek to acquire listed and non-listed real estate companies or portfolios. As of December 31, 2023, we owned 44 properties, including one tenant-in-common real estate investment (an approximate 72.7% interest in a 91,740 square foot industrial property located in Santa Clara, California). Because we are focused on future acquisitions of industrial manufacturing properties while reducing the number of non-core properties in our portfolio, the prior performance of our real estate investments or real estate investment programs, particularly those in place prior to the fourth quarter of 2021, may not be comparable to our ongoing results.
Investors should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that are, like us, in their early stage of operations or have recently shifted investment objectives. To be successful in this market, we must, among other things:
•identify and acquire investments that further our investment objectives;
•increase awareness of our brand within the investment products market;
•retain qualified personnel to manage our day-to-day operations; and
•respond to competition for our targeted real estate properties and other investments as well as for potential investors.
We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause our investors to lose money.
We face risks associated with cybersecurity incidents through cyber-attacks, cyber intrusions or otherwise, as well as failures of systems on which we rely and other significant disruptions of our information technology (“IT”) networks and related systems.
The risk of a cybersecurity incident or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our website, www.modiv.com, IT networks and related systems, including third party providers of software-as-a-service (“SaaS”) platforms, are essential to the operation of our business and our ability to perform day-to-day operations. Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have implemented various measures to manage our risk of a cyber-attack or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted cyber-attacks or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted cyber-attacks evolve and may be designed to be undetectable. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk. Additionally, data protection laws and regulations often require “reasonable,” “appropriate” or “adequate” technical and organizational security measures, and the interpretation and application of those laws and regulations are often uncertain and evolving; there can be no assurance that our security measures will be deemed adequate, appropriate or reasonable by a regulator or court. Moreover, even security measures that are deemed appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the information we maintain.
A cybersecurity incident or other significant disruption involving IT networks and related systems we use could:
•disrupt the proper functioning of our networks and systems and therefore our operations;
•result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines to the regulators;
•result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
•result in the unauthorized access to, or destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us, or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes;
•require significant management attention and resources to remedy any damages that result or improve our security;
•subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements;
•result in litigation or increased regulatory oversight, including governmental investigations, enforcement actions, regulatory fines, and/or criminal prosecution; and/or
•damage our reputation among investors.
We rely heavily on SaaS solutions supplied by third party providers, including data centers and cloud storage services. If these third party providers cease to provide the facilities or services, experience operational interference or disruptions, breach their agreements with us, fail to perform their obligations and meet our expectations, or experience a cybersecurity incident, our operations could be disrupted or otherwise negatively affected, which could result in damage to our reputation among investors and brands, and materially and adversely affect our business. We may not carry business interruption insurance sufficient to compensate us for all losses that may result from interruptions in our service as a result of systems failures and similar events. And while we may be entitled to damages if our third-party providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.
Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.
We face significant competition for real estate investment opportunities, which may limit our ability to acquire suitable investments and achieve our investment objectives or pay distributions.
We face competition from various entities for real estate investment opportunities, including other REITs, pension funds, banks and insurance companies, private equity and other investment funds, and companies, partnerships and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of their investments. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets could impact the cost and availability of debt to finance real estate investments, which is a key component of our acquisition strategy. A downturn in the credit markets and a potential lack of available debt could limit our ability to pursue suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire investments at higher prices and/or by using less-than-ideal capital structures, or if we are not able to acquire investments at all, our returns will be lower and the value of our respective assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, our stockholders may experience a lower return on their investment.
We plan to sell our remaining non-core properties as we seek to pursue growth through our investment strategy. However, investments in real estate are illiquid, and it may not be possible to dispose of assets in a timely manner or on favorable terms, which could adversely affect our financial condition, operating results and cash flows.
Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers, and we cannot predict whether we will be able to sell any property we desire to for the price or on the terms set by us or acceptable to us, or the length of time needed to find a willing buyer and to close the sale. Upon sales of properties or assets, we may become subject to contractual indemnity obligations, incur unusual or extraordinary distribution requirements, be required to expend funds to correct defects or make capital improvements or, as a result of required debt repayment, face a shortage of liquidity. Therefore, as a result of the foregoing events or circumstances, we may not be able to achieve our targeted industrial composition of our portfolio promptly, on favorable terms or at all in response to changing economic, financial and investment conditions, which may adversely affect our cash flows and our ability to make distributions to stockholders.
Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders.
Currently, both the investing and leasing environments are highly competitive. The uncertainty regarding the economic environment has made businesses reluctant to make long-term commitments or changes in their business plans. For example, the COVID-19 pandemic has resulted in significant disruptions in financial markets, supply chains, sustained elevated inflation and interest rate levels, uncertainty about how the economy will perform and the extent to which employees working from home will return to the office. In addition, the violence and unrest in the Middle East, the ongoing war between Russia and Ukraine, and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto has further disrupted global financial markets and affected macroeconomic conditions. Volatility in global markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Economic slowdowns of large economies outside the United States are likely to negatively impact growth of the U.S. economy. Political uncertainties both home and abroad may discourage business investment in real estate and other capital spending. Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants may result in decreases in cash flows from investment properties. Increases in the cost of financing due to higher interest rates may cause difficulty in refinancing debt obligations prior to maturity at terms as favorable as the terms of existing indebtedness. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.
We plan to rely on debt financing to finance our real estate properties and we may have difficulty refinancing some of our debt obligations prior to or at maturity, or we may not be able to refinance these obligations at terms as favorable as the terms of our current indebtedness and we also may be unable to obtain additional debt financing on attractive terms or at all. If we are not able to refinance our current indebtedness on attractive terms at the various maturity dates, we may be forced to dispose of some of our assets.
The debt market remains sensitive to the macro environment, such as Federal Reserve policy, market sentiment or regulatory factors affecting the banking and commercial mortgage-backed securities industries, significant increases in inflation, and global and political volatility. We may experience more stringent lending criteria, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable.
Disruptions in the financial markets and uncertain economic conditions could adversely affect the values of our investments. Furthermore, declining economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us:
1. the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or
2. revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay distributions or meet our debt service obligations on debt financing.
All of these factors could reduce stockholders’ return and decrease the value of an investment in us.
Our real estate properties and related intangible assets may be subject to impairment charges.
We routinely evaluate our real estate properties and related intangible assets for impairment indicators and have recognized impairment charges to the value of our real estate properties, goodwill and intangible assets. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and lease structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Furthermore, as we reposition our portfolio by selling some of our legacy office and retail properties with short lease terms, such pending sales could lead to potential impairment charges depending on the final selling price. If we determine that an impairment has occurred, we would be required to make a downward adjustment to the net carrying value of the property or related intangible assets, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. Negative developments in the real estate market may cause management to reevaluate the business and macro-economic assumptions used in its impairment analysis. Changes in management’s assumptions based on actual results may have a material impact on our financial statements.
Downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a more diversified investment portfolio.
While we intend to diversify our portfolio of investments by geography, investment size and investment risk, we are not required to observe specific diversification criteria. Therefore, our investments may at times be concentrated in a limited number of geographic locations, or secured by assets concentrated in a limited number of geographic locations. To the extent that our portfolio is concentrated in limited geographic regions, industries or business sectors, downturns relating generally to such region, industry or business sector may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our Class C Common Stock and accordingly limit our ability to pay distributions to our stockholders. As of December 31, 2023, nine of our 44 operating properties, including one held for sale property and our approximate 72.7% TIC Interest, are located in California, which makes the performance of our properties highly dependent on the health of the California economy.
Furthermore, we are not required to meet any property-type, tenant or geographic diversification standards. Therefore, our investments may become concentrated by type, tenant or geographic location, which could subject us to significant risks with potentially adverse effects on our investment objectives. For example, 76% of our ABR as of December 31, 2023, is concentrated in industrial property assets and we expect that percentage to continue to increase as we target acquisitions of additional industrial property assets and dispose of our remaining legacy retail and office assets.
Any adverse economic or real estate developments in our markets could adversely affect our operating results and our ability to pay distributions to our stockholders.
We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
Our portfolio has two tenants that in the aggregate contribute approximately 23% of our ABR as of December 31, 2023, with Lindsay (which is comprised of nine properties in six states) representing 13% of our ABR and Trophy of Carson representing 10% of our ABR. As a result, our financial performance depends significantly on the revenues generated from these tenants and, in turn, their financial condition. Although we expect to increase tenant diversification over time, in the future, we may experience additional tenant and industry concentrations. In the event that one of these tenants, or another tenant that occupies a significant portion of our properties or whose lease payments represent a significant portion of our rental revenue, were to experience financial weakness or file for bankruptcy, it could have a material adverse effect on us.
The loss of or our inability to retain key executive officers could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our shares.
Our success depends to a significant degree upon the contributions of Messrs. Aaron Halfacre, Ray Pacini, Bill Broms and John Raney, our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and Chief Operating Officer and General Counsel, respectively, each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with these individuals. If any of these persons were to cease their association with us, we may be unable to find suitable replacements and our operating results could suffer as a result. We believe that our future success depends, in large part, upon our ability to retain our highly skilled managerial, financial and operational professionals. Competition for such professionals is intense, and we may be unsuccessful in retaining such skilled professionals. If we lose or are unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered.
We may change our targeted investments or investment strategy.
We intend to focus future investments in industrial manufacturing real estate properties and reduce the number of non-core properties in our portfolio; however, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K. A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our Class C Common Stock and our ability to make distributions to our stockholders. We will not forgo an investment opportunity because it does not precisely fit our expected portfolio composition. We believe that we are most likely to meet our investment objectives through the careful selection and underwriting of assets. When making an acquisition, we will analyze the performance and risk characteristics of that investment, how that investment will fit with our portfolio-level performance objectives, the other assets in our portfolio and how the returns and risks of that investment compare to the returns and risks of available investment alternatives. Thus, our portfolio composition may vary from our initial expectations. However, we will
attempt to continue to construct a portfolio that produces stable and attractive returns by spreading risk across different real estate investments.
We have incurred losses in the past and we may experience additional losses in the future.
Historically, we have experienced net losses (calculated in accordance with generally accepted accounting principles in the United States (“GAAP”)) and in the future, we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to depreciation and amortization, as well as interest expense and general and administrative expenses. Accordingly, we may not generate cash flows sufficient to pay distributions to stockholders or meet our debt service obligations.
Risks Related to Our Corporate Structure
Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our Class C Common Stock or a change in control.
Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stockholders.
• Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we elect to be taxed as a REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our Class C Common Stock, or 9.8% in value of the aggregate of the outstanding shares of all classes or series of our stock. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding Class C Common Stock or the outstanding shares of all classes or series of our stock by an individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Our charter also prohibits any person from owning shares of our stock that could result in our being “closely held” under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our Class C Common Stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void. These ownership limits may prevent a third-party from acquiring control of us if our board of directors does not grant an exemption from the ownership limits, even if our stockholders believe the change in control is in their best interests.
• Our Board of Directors Has the Power to Cause Us to Issue Additional Shares of Our Stock Without Stockholder Approval. Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of common stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of Class C Common Stock or otherwise be in the best interests of our stockholders.
If we are unable to obtain funding for future capital needs, cash distributions to our stockholders and the value of our investments could decline.
When tenants do not renew their leases or otherwise vacate their space, we will often need to expend substantial funds for improvements to the vacated space in order to attract replacement tenants. Even when tenants do renew their leases, we may agree to make improvements to their space as part of our negotiations. If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain funding from sources other than our cash flow from operations or proceeds from our Distribution Reinvestment Plan (“DRP”) and At-The-Market (“ATM”) offering, such as borrowings or future equity offerings. These sources of funding may not be available on attractive terms, or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investment in us.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the company’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. As permitted by Maryland law, our charter limits the liability of our directors and officers and our stockholders for money damages, except for liability resulting from:
• actual receipt of an improper benefit or profit in money, property or services; or
• a final judgment based on a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.
In addition, our charter requires us to indemnify our directors and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law, and we have entered into indemnification agreements with our directors and executive officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. Accordingly, in the event that any of our directors or officers are exculpated from, or indemnified against, liability but whose actions impede our performance, our stockholders’ ability to recover damages from that director or officer will be limited.
Certain provisions of Maryland law may limit the ability of a third-party to acquire control of us.
Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of inhibiting a third-party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
• “business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding stock of the corporation) or an affiliate of any interested stockholder for a period of five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and
• “control share” provisions that provide that holders of “control shares” of the company (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.
Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. This bylaw provision may be amended or eliminated at any time in the future.
Additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which we do not have.
The change of control conversion and redemption features of the Series A Preferred Stock may make it more difficult for a party to acquire us or discourage a party from seeking to acquire us.
Upon the occurrence of a change of control, holders of Series A Preferred Stock will, under certain circumstances, have the right to convert some of or all their shares of Series A Preferred Stock into shares of our Class C Common Stock (or equivalent value of alternative consideration) and under these circumstances we will also have a change of control redemption right to redeem shares of Series A Preferred Stock. Upon exercise of this conversion right, the holders will be limited to a maximum number of shares of our Class C Common Stock pursuant to a predetermined ratio. These features of the Series A Preferred Stock may have the effect of discouraging a third party from seeking to acquire us or of delaying, deferring or preventing a change of control under circumstances that otherwise could provide the holders of our Class C Common Stock and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price or that stockholders may otherwise believe is in their best interests.
General Risks Related to Investments in Real Estate
Pandemics or other health crises, such as the COVID-19 pandemic, may adversely affect our business and/or operations, our tenants’ financial condition and the profitability of our properties.
Our business and/or operations and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the COVID-19 pandemic and the emergence of any future variants. The outbreak of COVID-19 in the United States and in many countries adversely impacted global economic activity and contributed to significant volatility and negative pressure in the financial markets, which could occur again if a new pandemic were to occur.
The potential effects of a pandemic on our tenants may adversely impact their businesses and affect their ability to pay rent on a timely basis. Temporary closures of businesses and the resulting remote working arrangements for personnel in response to pandemics or outbreaks, such as occurred as a result of COVID-19, may result in long-term changed work practices that could negatively impact us and our business. The increase in remote work practices may continue in a post-pandemic environment, even in the suburban markets and markets with lower demand in which we primarily operate. The need to reconfigure a leased space, either in response to the pandemic or to tenants' needs, may impact space requirements and also may require us to spend increased amounts for tenant improvements. If substantial space reconfiguration is required, a tenant may explore other space and find it more advantageous to relocate than to renew its lease and renovate the existing space. If so, our business, operating results, financial condition and prospects may be materially adversely impacted.
Economic, market and regulatory changes that impact the real estate market generally may decrease the value of our investments and weaken our operating results.
Our operating results and the performance of the properties we acquire are subject to the risks typically associated with real estate, any of which could decrease the value of our investments and could weaken our operating results, including:
•downturns in national, regional and local economic conditions;
•competition from other commercial developments;
•adverse local conditions, such as oversupply or reduction in demand for commercial buildings and changes in real estate zoning laws that may reduce the desirability of real estate in an area;
•vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
•changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive;
•changes in tax (including real and personal property tax), real estate, environmental and zoning laws;
•material failures, inadequacy, interruptions or security failures of the technology on which our operations rely;
•natural disasters such as hurricanes, earthquakes and floods;
•acts of war or terrorism, including the consequences of terrorist attacks or the ongoing war between Russia and Ukraine and the economic sanctions and other restrictive actions taken against Russia by the U.S. and other countries in response thereto;
•a pandemic or other public health crisis (such as the COVID-19 virus outbreak);
•the potential for uninsured or underinsured property losses; and
•periods of high inflation, high interest rates and tight money supply.
Any of the above factors, or a combination thereof, could result in a decrease in our cash flow from operations and a decrease in the value of our investments, which would have an adverse effect on our operations, on our ability to pay distributions to stockholders and on the value of stockholders’ investment.
We may finance properties which have debt with prepayment penalties, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.
Prepayment provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan unless a prepayment penalty is paid at the time of repayment. Such provisions are typically provided by the terms of the agreement underlying a loan. Prepayment provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to stockholders.
Prepayment provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.
Prepayment provisions could impair our ability to take actions during the prepayment period that would otherwise be in our stockholders' best interests and, therefore, may have an adverse impact on the value of the shares, relative to the value that would result if the prepayment provisions did not exist. In particular, prepayment provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in our stockholders' best interests.
We intend to purchase properties with (or enter into, as necessary) long-term leases with tenants, which may not result in fair market rental rates over time.
We intend to purchase properties with (or enter into as necessary) long-term leases with tenants. These leases would provide for rent to increase over time; however, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that, even after contractual rent increases, the rent under our long-term leases is less than then-current market rates.
Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our cash available for distribution could be lower than if we did not purchase properties with, or enter into, long-term leases.
We depend on tenants for our revenue generated by our real estate investments and, accordingly, our revenue generated by our real estate investments and our ability to make distributions to our stockholders are dependent upon the success and economic viability of our tenants and our ability to retain and attract tenants. Non-renewals, terminations or lease defaults could reduce our net income and limit our ability to make distributions to our stockholders.
The success of our real estate investments materially depends upon the financial stability of the tenants leasing the properties we own. The inability of a single major tenant or a significant number of smaller tenants to meet their rental obligations would significantly lower our net income. A non-renewal after the expiration of a lease term, termination or default by a tenant on its lease payments to us would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord of a property and may incur substantial costs in protecting our investment and re-leasing the property. Tenants may have the right to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may only be able to renew their leases on terms that are less favorable to us than the terms of their initial leases. Further, some of our assets may be outfitted to suit the particular needs of the tenants. We may have difficulty replacing the tenants of these properties if the outfitted space limits the types of businesses that could lease that space without major renovation. If a tenant does not renew, terminates or defaults on a lease, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. These events could cause us to reduce distributions to stockholders.
Following the sales of the properties leased to Highline Warren LLC as successor in interest to Levins Auto Supply, LLC (“Levins”) and Cummins Inc. (“Cummins”) in January and February of 2024, respectively, we have no leases scheduled to expire in the next 12 months. However, our inability to renew or re-lease space in 2025 and beyond could adversely impact our financial condition, results of operations, cash flow and our ability to pay distributions to our stockholders.
Actions of our potential future tenants-in-common could reduce the returns on tenants-in-common investments and decrease our stockholders’ overall return.
We may enter into tenants-in-common or other joint ownership structures with third parties to acquire properties and other assets. For example, we own an approximate 72.7% TIC Interest in an individual property leased to Fujifilm Dimatix. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:
• our co-owner in an investment could become insolvent or bankrupt;
• our co-owner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;
• our co-owner may be in a position to block or take action contrary to our instructions or requests or contrary to our policies or objectives; or
• disputes between us and our co-owner may result in litigation, arbitration, buyout or partition that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations.
While we intend that any co-ownership investment that we enter into will be subject to a co-ownership contractual arrangement that will address some or all of the above issues, any of the above might still subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment and the value of stockholders' investment in us.
Costs imposed pursuant to laws and governmental regulations may reduce our net income and our cash available for distribution to our stockholders.
Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials and other health and safety-related concerns.
Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Activities of our tenants, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.
The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties or damages we must pay will reduce our ability to pay distributions to our stockholders and could seriously harm our operating results and financial condition.
The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property or of paying personal injury or other damage claims could reduce our cash available for distribution to our stockholders.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose liens on property or restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances and governments may seek recovery for natural resource damage. The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury, property damage or natural resource damage claims could reduce our cash available for distribution to our stockholders.
We intend that most if not all of our real estate acquisitions be subject to Phase I environmental assessments prior to the time they are acquired; however, such assessments may not provide complete environmental histories due, for example, to limited available information about prior operations at the properties or other gaps in information at the time we acquire the property. A Phase I environmental assessment is an initial environmental investigation to identify potential environmental liabilities associated with the current and past uses of a given property. If any of our properties were found to contain hazardous or toxic substances after our acquisition, the value of our investment could decrease below the amount paid for such investment.
We are subject to risks relating to litigation and regulatory liability.
We face legal risks in our businesses, including risks related to the securities laws and regulations across various state and federal jurisdictions.
We may in the future become subject to claims and litigation alleging violations of the securities laws or other related claims, which could harm our business and require us to incur significant costs. Significant litigation costs could impact our ability to comply with certain financial covenants under our Credit Agreement. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these types of lawsuits. Regardless of the outcome, litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on our financial position, results of operations and cash flows.
Inflation and rising interest rates may adversely affect our financial condition and results of operations or result in a decrease in the value of our Class C Common Stock.
Rising inflation may have an adverse impact on our Credit Facility and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. The U.S. Federal Reserve has significantly raised interest rates to combat inflation and restore price stability. To the extent our exposure to increases in interest rates is not eliminated through interest rate swaps or other protection agreements, such increases may result in higher debt service costs, which will adversely affect our cash flows. Inflation may also have an adverse effect on consumer spending, which could impact our tenants’ revenues and, in turn, their demand for space and future extensions of their leases.
In addition, one of the factors that may influence the price of our Class C Common Stock will be the distribution rate on the Class C Common Stock (as a percentage of the price of our Class C Common Stock) relative to market interest rates. If market interest rates rise, prospective purchasers of shares of our Class C Common Stock may expect a higher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution. We therefore may not be able, or we may not choose, to provide a higher distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our Class C Common Stock, which would reduce the demand for, and result in a decline in the market price of, our Class C Common Stock.
Risks Related to Investments in Single-Tenant Real Estate
Our current properties depend upon a single-tenant for their rental income, and our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination in bankruptcy or otherwise.
While we are focused on future acquisitions of industrial manufacturing properties, we expect that most of our properties will be occupied by only one tenant or will derive a majority of their rental income from one tenant and, therefore, the success of those properties will be materially dependent on the financial stability of such tenants. Lease payment defaults by tenants could cause us to reduce the amount of distributions we pay. A default of a tenant on its lease payments to us and the potential resulting vacancy would cause us to lose the revenue from the property and force us to find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting the property, and we may be required to renovate the property or to make rent concessions in order to lease the property to another tenant. If a lease is terminated or an existing tenant elects not to renew a lease upon its expiration, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. In addition, many of our single-tenant properties are also special-use and if the current lease is terminated or not renewed and we are forced to sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been designed. A default by a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration, and other limitations, could have an adverse effect on our financial condition and our ability to pay distributions.
If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases, including sale-leaseback transactions, which could harm our operating results and financial condition.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities or their properties, including any work performed by contactors that could result in mechanics liens on our property, unless we receive an enabling order from the bankruptcy court. Post-bankruptcy debts would be
paid currently. If a lease is assumed, all pre-bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims. If mechanics liens are filed on our property, we could be required to pay the amounts owed to contractors if they are not paid by the tenant in order to avoid a foreclosure.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to stockholders. In the event of a bankruptcy, we cannot assure stockholders that the tenant or its trustee will assume our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected. Further, our lenders may have a first priority claim to any recovery under the leases, any guarantees and any credit support, such as security deposits and letters of credit.
In addition, we often enter into sale-leaseback transactions, whereby we purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be recharacterized as either a financing or a joint venture, either of which outcomes could adversely affect our business. If the sale-leaseback were recharacterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan to restructure the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were recharacterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property. Either of these outcomes could adversely affect our cash flow and the amount available for distributions to stockholders.
Net leases may not result in fair market lease rates over time.
We expect most of our rental income to come from net leases. Net leases typically contain: (i) longer lease terms; (ii) fixed rental rate increases during the primary term of the lease; and (iii) fixed rental rates or fixed increases for renewal options, and, thus, there is an increased risk that these contractual lease terms will fail to result in fair market rental rates if fair market rental rates increase at a greater rate than the fixed rental rate increases.
Risks Associated with Debt Financing
We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.
We are targeting leverage, over the long-term once we achieve scale, of 40% or lower of the aggregate fair value of our real estate properties plus our cash and cash equivalents; however, we increased our borrowing during 2023 in order to execute attractive acquisition opportunities, resulting in leverage of 48% as of December 31, 2023. We may have higher leverage in the near or medium-term if we identify attractive investment opportunities in advance of completing dispositions or raising additional equity. Our board of directors has approved our maximum leverage ratio of 55% of the aggregate fair value of our real estate properties plus our cash and cash equivalents.
We may exceed the 55% limit only if any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report, along with justification for such excess. There is no limitation on the amount we may borrow for the purchase of any single asset, and our charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. Further, our Credit Facility allows for borrowings up to 60% of our borrowing base; however, we are targeting leverage of 40% over the long-term and do not currently plan to allow our leverage ratio to exceed 55% in order to minimize the interest rate payable on the Revolver and Term Loan.
Additionally, we may provide full or partial guarantees of mortgage debt incurred by our subsidiaries that own the mortgaged properties. Under these circumstances, we will be responsible to the lender for satisfaction of the debt if it is not paid by our subsidiary. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
Our use of indebtedness could have important consequences to us. For example, it could: (1) result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions, other debt; (2) result in the loss of assets, including individual properties or portfolios, due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds; (3) materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all; (4) require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to make distributions, including those necessary to maintain our REIT qualification, unless we decide to make distributions of our Class C Common Stock; (5) increase our vulnerability to an economic downturn; (6) limit our ability to withstand competitive pressures; or (7) reduce our flexibility to respond to changing business and economic conditions.
Secured indebtedness exposes us to the possibility of foreclosure on our ownership interests in pledged properties.
Incurring mortgage and other secured indebtedness increases our risk of loss of our ownership interests in the pledged property because defaults thereunder, and the inability to refinance such indebtedness, may result in foreclosure action initiated by lenders. As of December 31, 2023, three of our 44 properties, including the TIC Interest, were encumbered with mortgages, representing $43,930,664, or 15% of our total debt. Incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the loan secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We have and may in the future give full or partial guarantees to lenders of mortgage loans to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the loan if it is not paid by such entity. If any mortgage contains cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders may be adversely affected.
Covenants in the Credit Facility and our mortgages may restrict our operating activities and adversely affect our financial condition.
The Credit Facility and our mortgage loans contain, and future debt agreements may contain, financial and/or operating covenants, including, among other things, certain coverage ratios, borrowing base requirements, net worth requirements and limitations on our ability to make distributions. These covenants may limit our operational flexibility and acquisition and disposition activities. Moreover, if any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default.
Increases in mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distribution to our stockholders.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on a property, we run the risk of being unable to refinance part or all of the debt when it becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance properties subject to mortgage debt, our income could be reduced. We may be unable to refinance or may only be able to partly refinance properties if underwriting standards, including loan to value ratios and yield requirements, among other requirements, are stricter than when we originally financed the properties. If any of these events occurs, our cash flow could be reduced and/or we might have to pay down existing mortgages. This, in turn, would reduce cash available for distribution to our stockholders, could cause us to require additional capital and may hinder our ability to raise capital by issuing more stock or by borrowing more money.
We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our business plan.
We may finance our assets over the long-term through a variety of means, including repurchase agreements, credit facilities, issuances of commercial mortgage-backed securities and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase agreements may not accommodate long-term financing. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash
flow, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.
To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective.
From time to time, we may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. There is no assurance that our hedging strategy will achieve our objectives. We may be subject to costs, such as transaction fees or breakage costs, if we terminate these arrangements.
To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Legal enforceability risks encompass general contractual risks including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. There is a risk that counterparties could fail, shut down, file for bankruptcy or be unable to pay out contracts. The failure of a counterparty that holds collateral that we post in connection with an interest rate swap agreement could result in the loss of that collateral.
Variable rate indebtedness would subject us to interest rate risk, and could cause our debt service obligations to increase significantly.
As of February 29, 2024, amounts outstanding under the Credit Facility, as adjusted by swap agreements, bear interest at fixed rates. However, in the future, we may incur additional indebtedness that bears interest at variable rates or be unable to enter into new swap agreements to fix interest rates. Variable rate borrowings expose us to increased interest expense in a rising interest rate environment. If interest rates were to increase, our debt service obligations on variable rate indebtedness would increase even though the amount borrowed remained the same, which could adversely affect our cash flows and cash available for distribution to our stockholders.
Changes in the Secured Overnight Financing Rate (“SOFR”) could adversely affect the amount of interest that accrues on SOFR-linked instruments.
Our Credit Facility includes floating rates based, in part, on SOFR. Because SOFR is published by the Federal Reserve Bank of New York (“FRBNY”) based on data received from other sources, we have no control over its determination, calculation or publication. There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of debtors in SOFR-linked instruments. If the manner in which SOFR is calculated is changed, that change may result in a change in the amount of interest that accrues on any SOFR-linked instruments. In addition, the interest rate on SOFR-linked instruments may for any day not be adjusted for any modification or amendments to SOFR for that day that the FRBNY may publish if the interest rate for that day has already been determined prior to such determination. There is no assurance that changes in SOFR could not have a material adverse effect on the yield on, value of, and market for SOFR-linked instruments.
Further, SOFR is a relatively new interest rate, and the FRBNY or any successor, as administrator of SOFR, may make methodological or other changes that could change the value of SOFR, including changes related to the methodology by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR or timing related to the publication of SOFR. If the manner in which SOFR is calculated is changed, the change may result in an increase in the amount of interest payable on loans we owe from the lenders. The administrator of SOFR may withdraw, modify, suspend or discontinue the calculation or dissemination of SOFR in its sole discretion and without notice, and has no obligation to consider the interests of lenders in calculating, withdrawing, modifying, amending, suspending or discontinuing SOFR.
Federal Income Tax Risks
Failure to qualify as a REIT would subject us to U.S. federal income tax, which would reduce the cash available for distribution to our stockholders.
We expect to operate in a manner that will allow us to continue to qualify as a REIT for U.S. federal income tax purposes. However, the U.S. federal income tax laws governing REITs are extremely complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we may not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, there can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not contend that our assets or income cause a violation of the REIT requirements under the Internal Revenue Code.
While we intend to continue to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the tax treatment of certain investments we may make, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income. We might need to borrow money or sell assets to pay that tax. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our REIT taxable income to our stockholders. Unless we were to qualify for certain statutory relief provisions, we would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost.
In addition, as a result of the Agreement and Plan of Merger dated September 19, 2019, pursuant to which Rich Uncles Real Estate Investment Trust I (“REIT I”) merged with and into our newly created subsidiary “Merger Sub,” with Merger Sub surviving as our direct, wholly-owned subsidiary (the “Merger”), if REIT I is determined to have lost its REIT status or not qualified as a REIT prior to the Merger, we will face serious tax consequences that would substantially reduce cash available for distribution, including cash available to pay dividends to our stockholders, because:
1. REIT I would be subject to U.S. federal income tax on its net income at regular corporate rates for the years it did not qualify for taxation as a REIT (and, for such years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income);
2. REIT I could be subject to the federal alternative minimum tax (for tax years beginning before December 31, 2017) and possibly increased state and local taxes for such periods;
3. we would inherit any such liability, including any interest and penalties that have accrued on such U.S. federal income tax liabilities;
4. if we were considered a “successor corporation” under the Internal Revenue Code and applicable Treasury Regulations, we could not elect to be taxed as a REIT until the fifth taxable year following the year during which REIT I was disqualified; and
5. for up to 5 years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, we could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.
Moreover, if REIT I failed to qualify as a REIT prior to the Merger, but we nevertheless qualified as a REIT, in the event of a taxable disposition of a former REIT I asset during the five years following the Merger, we would be subject to corporate tax with respect to any built-in gain inherent in such asset as of the Merger. The failure of REIT I to qualify as a REIT prior to the Merger could impair our ability to remain qualified as a REIT, could impair our business and ability to raise capital, and would materially adversely affect the value of our stock.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could decrease the value of our stockholders’ investment in us.
The U.S. federal income tax provisions applicable to REITs provide that any gain realized by a REIT on the sale of property held as inventory or other property held primarily for sale to tenants in the ordinary course of business is treated as income from a “prohibited transaction” that is subject to a 100% excise tax. Our ability to dispose of a property during the first few years following its acquisition is restricted to a substantial extent as a result of these rules. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. Properties we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our taxable REIT subsidiaries (“TRS”), may, depending on how we conduct our operations, be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Any taxes we pay would reduce our cash available for distribution to our stockholders. Our concern over paying the prohibited transactions tax may cause us to forgo disposition opportunities that would otherwise be advantageous if we were not a REIT.
Even if we qualify as a REIT for U.S. federal income tax purposes, we may nonetheless be subject to tax in certain circumstances that reduce our cash flow and our ability to make distributions to our stockholders.
Even if we qualify as a REIT for U.S. federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property. For example:
1. In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on the undistributed income.
2. We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
3. If we elect to treat property that we acquire in connection with certain leasehold terminations as “foreclosure property,” we may avoid the 100% tax on the gain from a resale of that property, but the income from the sale or operation of that property may be subject to corporate income tax at the highest applicable rate.
4. As discussed above, if we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our TRSs or the sale met certain “safe harbor” requirements under the Internal Revenue Code.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution.
From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirements and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase properties and lease them back to the sellers of such properties. We would characterize such a sale-leaseback transaction as a “true lease,” which treats the lessor as the owner of the property for U.S. federal income tax purposes. In the event that any sale-leaseback transaction is challenged by the IRS and re-characterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If
a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status. Alternatively, such a re-characterization could cause the amount of our REIT taxable income to be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year and thus lose our REIT status.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To continue to qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including investments in certain mortgage loans and residential and commercial mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
Characterization of any repurchase agreements we enter into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT.
We may enter into repurchase agreements with a variety of counterparties to achieve our desired amount of leverage for the assets in which we invest. When we enter into a repurchase agreement, we generally sell assets to our counterparty to the agreement and receive cash from the counterparty. The counterparty is obligated to resell the assets back to us at the end of the term of the transaction. We believe that for U.S. federal income tax purposes we will be treated as the owner of the assets that are the subject of repurchase agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that we did not own these assets during the term of the repurchase agreements, in which case we could fail to qualify as a REIT if tax ownership of these assets was necessary for us to meet the income and/or asset tests.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate, (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests or (iii) a transaction entered into in connection with the termination of a hedging transaction described in either clause (i) or (ii) where the property or indebtedness that was the subject of the prior hedging transaction was disposed of or extinguished, and such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.
Our ownership of and relationship with our TRSs will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.
We may own one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. A domestic TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We cannot assure our stockholders that we will be able to comply with the 20% value limitation on ownership of TRS stock and securities on an ongoing basis so as to maintain REIT status or to avoid application of the 100% excise tax imposed on certain non-arm’s length transactions.
Dividends paid by REITs are generally not eligible for the reduced rates for qualified dividends and therefore could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates for qualified dividends and are taxed at ordinary income rates (U.S. stockholders that are individuals, trusts and estates generally may deduct 20% of ordinary dividends from a REIT for taxable years beginning before January 1, 2026). Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
If our Operating Partnership fails to maintain its status as a partnership, its income may be subject to taxation, which would reduce the cash available for distribution to stockholders and likely result in a loss of our REIT status.
We intend to maintain the status of our Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also likely result in our losing REIT status, and, if so, becoming subject to a corporate level tax on our own income. This would substantially reduce any cash available to pay distributions. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership or limited liability company, as applicable, and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our status as a REIT.
We may be subject to adverse legislative or regulatory tax changes.
At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Properties and Investment:
As of December 31, 2023, we owned a real estate investment portfolio consisting of 44 operating properties, comprised of 39 industrial properties, including one held for sale and our approximate 72.7% TIC Interest in an industrial property in Santa Clara, California, one retail property and four office properties, including one property held for sale, with an overall occupancy rate of 98%. See Notes 3 and 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of our real estate investments.
The following tables provide summary information regarding the Company’s real estate portfolio as of December 31, 2023, excluding ABR for periods subsequent to the sales of the two properties held for sale which were sold in January and February 2024:
Tenant Industry Diversification:
Industry Number of Properties ABR ABR as a Percentage of Total Portfolio Area (Square Feet) Square Feet as a Percentage of Total Portfolio
Infrastructure 18 $ 10,237,187 26 % 1,459,535 32 %
Automotive 5 6,230,572 17 % 664,463 14 %
Aerospace/Defense 3 4,542,814 11 % 316,347 7 %
Industrial Products 3 4,361,052 11 % 694,324 15 %
Metals 5 2,451,001 6 % 450,263 10 %
Retailer 1 2,435,849 6 % 97,191 2 %
Technology 2 2,281,148 6 % 130,240 3 %
Energy 2 2,040,133 5 % 249,118 5 %
Other 5 5,006,955 12 % 570,988 12 %
Total 44 $ 39,586,711 100 % 4,632,469 100 %
Tenant Geographic Diversification:
State Number of Properties ABR ABR as a Percentage of Total Portfolio Area (Square Feet) Square Feet as a Percentage of Total Portfolio
California 9 $ 11,580,695 30 % 515,954 11 %
Ohio 6 4,749,720 12 % 1,016,742 22 %
Arizona 2 4,028,408 10 % 379,441 8 %
Illinois 2 3,439,624 9 % 629,687 14 %
Washington 1 2,435,849 6 % 97,191 2 %
Pennsylvania 2 2,083,596 5 % 253,646 5 %
South Carolina 3 2,063,223 5 % 343,422 7 %
Florida 2 1,888,772 5 % 204,211 4 %
Texas 2 1,652,296 4 % 255,969 6 %
Minnesota 5 1,625,769 4 % 377,450 8 %
North Carolina 2 1,538,571 4 % 134,576 3 %
Other 8 2,500,188 6 % 424,180 10 %
Total 44 39,586,711 100 % 4,632,469 100 %
Lease Expirations:
We completed extensions of existing leases with five of our tenants during 2022 and 2023 and we are continuing to explore potential lease extensions for certain of our other properties. We also entered into a new lease with the State of California's Office of Emergency Services (“OES”) effective January 4, 2023, for 12 years through December 31, 2034. OES has a purchase option which OES can exercise any time from May 1, 2024, through December 31, 2026. OES also has an early termination option which OES can exercise any time on or after December 31, 2028, by giving written notice at least 120 days prior to the date of early termination. The exercise of tenant’s right to cancel the lease on or after December 31, 2028, was not determined to be probable for financial accounting purposes.
The following tables reflect lease expirations with respect to our properties as of December 31, 2023, including the TIC Interest and excluding ABR for periods subsequent to the sales of the two properties held for sale which were sold in January and February 2024:
Year Number of Leases Expiring Leased Square Footage Expiring Percentage of Leased Square Footage Expiring Cumulative Percentage of Leased Square Footage Expiring ABR Expiring (1)
Percentage of ABR Expiring
Cumulative Percentage of ABR Expiring
2024 (2) 2 163,230 3.5 % 3.5 % 258,519 0.7 % 0.7 %
2025 3 144,027 3.1 % 6.6 % 3,711,525 9.4 % 10.1 %
2026 3 236,608 5.1 % 11.7 % 3,729,789 9.4 % 19.5 %
2027 1 64,637 1.4 % 13.1 % 921,428 2.3 % 21.8 %
2028 1 148,012 3.2 % 16.3 % 551,323 1.4 % 23.2 %
2029 2 84,714 1.8 % 18.1 % 1,480,307 3.7 % 26.9 %
2030 - - - % 18.1 % - - % 26.9 %
2031 - - - % 18.1 % - - % 26.9 %
2032 1 162,714 3.5 % 21.6 % 2,364,941 6.0 % 32.9 %
2033 1 216,727 4.7 % 26.3 % 1,663,467 4.2 % 37.1 %
Thereafter 30 3,411,800 73.7 % 100.0 % 24,905,412 62.9 % 100.0 %
Total 44 4,632,469 100.0 % $ 39,586,711 100.0 %
(1)ABR is calculated based on the next 12 months of contractual monthly base rent as of December 31, 2023.
(2)These properties were sold in January and February 2024.
Investments:
As of December 31, 2023, we had the following other real estate investment:
TIC Interest Investment
Balance
Santa Clara, CA Property - an approximate 72.7% TIC Interest (1)
$ 10,053,931
(1)This industrial property was acquired in 2017 and has approximately 91,740 rentable square feet. The TIC Interest ABR is $1,678,944. The tenant's lease expiration date is March 16, 2026, the mortgage matures on October 1, 2027, and the lease provides for three five-year renewal options.
Additional information about our other real estate investments is included in Note 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
None.
For information regarding other legal proceedings, see Note 11 - Commitments and Contingencies - Legal Matters to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
As of February 29, 2024, there were approximately 4,800 holders of record of our Class C Common Stock. However, because many of our shares of Class C Common Stock are held by brokers and other institutions on behalf of stockholders, we believe there are considerably more beneficial holders of our Class C Common Stock than record holders.
Market Information
Our Class C Common Stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022, in connection with our Listed Offering which closed on February 15, 2022 (see Note 9 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
Unregistered Sales of Equity Securities to Independent Board Members
During the years ended December 31, 2023 and 2022, we issued 22,153 and 21,791 shares of Class C Common Stock, respectively, to our independent directors for their services as board members. Such issuances were made in reliance on the exemption from registration under Rule 4(a)(2) of the Securities Act.
Distribution Information
We have historically paid distributions on a monthly basis, and we paid our first distribution on August 10, 2016. The distribution rate is determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage range of return for distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders other than as necessary to meet REIT qualification requirements.
For the year ended December 31, 2023, distributions paid to our stockholders were approximately 71% return of capital and 29% ordinary income and for the year ended December 31, 2022, distributions paid to our stockholders were approximately 66% return of capital and 34% ordinary income.
The following presents the U.S. federal income tax characterization of the distributions paid in 2023 and 2022:
Years Ended December 31,
2023 2022
Ordinary taxable income $ 0.33 $ 0.42
Capital gain $ - $ -
Non-taxable distribution $ 0.82 $ 0.83
Total $ 1.15 $ 1.25
Beginning with distributions in 2022 when we listed our Class C Common Stock, distributions generally are declared during the month or two prior to the beginning of a quarter and paid based on a month end record date and a monthly rate per share. The distribution rate details are as follows:
Distribution Period Rate Per Share
Per Month Declaration Date Payment Date
2023:
January 1-31 $ 0.095833 November 7, 2022 February 24, 2023
February 1-28 $ 0.095833 November 7, 2022 March 24, 2023
March 1-31 $ 0.095833 November 7, 2022 April 25, 2023
April 1-30 $ 0.095833 March 9, 2023 May 25, 2023
May 1-31 $ 0.095833 March 9, 2023 June 26, 2023
June 1-30 $ 0.095833 March 9, 2023 July 25, 2023
July 1-31 $ 0.095833 June 15, 2023 August 25, 2023
August 1-31 $ 0.095833 June 15, 2023 September 25, 2023
September 1-30 $ 0.095833 June 15, 2023 October 25, 2023
October 1-31 $ 0.095833 October 10, 2023 November 27, 2023
November 1-30 $ 0.095833 October 10, 2023 December 26, 2023
December 1-31 $ 0.095833 October 10, 2023 January 25, 2024
On December 29, 2023, our board of directors declared a distribution of 0.28 shares of Generation Income Properties, Inc. (NASDAQ: GIPR) (“GIPR”) common stock for each share or unit of our common stock or Class C OP Units held as of the record date of January 17, 2024 and distributed on January 31, 2024.
To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends-paid deduction or net capital gain, and which does not necessarily equal net income as calculated in accordance with GAAP). If we meet the REIT qualification requirements, we generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year. Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.
Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under Part I, Item 1A. Risk Factors. Those factors include: (a) our ability to continue to raise capital to make additional investments; (b) the future operating performance of our current and future real estate investments in the existing real estate and financial environment; (c) our ability to identify additional real estate investments that are suitable to execute our investment objectives; (d) the success and economic viability of our tenants; (e) our ability to refinance existing indebtedness at maturity on comparable terms; (f) changes in interest rates on any variable rate debt obligations we incur; and (g) the level of participation in our DRP. In the event our cash flow from operations decreases in the future, the level of our distributions may also decrease.
Distribution Reinvestment Plan
On January 22, 2021, we filed a Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 of additional shares of Class C Common Stock to be issued pursuant to the DRP (the “Registered DRP Offering”). We commenced offering shares of Class C Common Stock pursuant to the Registered DRP Offering on January 27, 2021.
On February 15, 2022, our board of directors amended and restated the DRP (the “Second Amended and Restated DRP”) with respect to the Class C Common Stock to change the purchase price at which the Class C Common Stock is issued to stockholders who elect to participate in the DRP, and we filed a Post-Effective Amendment to our Registration Statement on Form S-3 (File No. 333-252321). The purpose of this change was to reflect the fact that our Class C Common Stock is now listed on the NYSE. As more fully described in the Second Amended and Restated DRP, the purchase price for our Class C Common Stock under the DRP depends on whether we issue new shares to DRP participants or we or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions.
Share Repurchase Program
2023 Share Repurchase Program
On December 31, 2022, our board of directors authorized up to $15,000,000 in repurchases of our outstanding shares of Class C Common Stock and Series A Preferred Stock from January 1, 2023, through December 31, 2023 (the “2023 SRP”). Purchases made pursuant to the 2023 SRP have been made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases were determined by us in our discretion and were subject to economic and market conditions, stock price, applicable legal requirements and other factors.
From January 1, 2023, through December 31, 2023, we repurchased a total of 93,357 shares of our Class C Common Stock for a total of $1,129,162 at an average cost of approximately $12.10 per share. These shares are held as treasury stock and presented as a component of equity in the accompanying consolidated balance sheet and consolidated statement of equity included in this Annual Report on Form 10-K.
We did not repurchase any Class C Common Stock for the three months ended December 31, 2023, under our 2023 SRP.
We did not repurchase any Series A Preferred Stock during 2023.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition, results of operations and cash flows together with the consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. Also, see “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this Annual Report on Form 10-K and Part I, Item 1A. Risk Factors herein.
Management’s discussion and analysis of financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Overview
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 nation's 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, as further described below in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Following the January and February 2024 sales of the two properties that were held for sale as of December 31, 2023, our real estate investment portfolio consists of 42 properties, including the TIC Interest, as further described in Notes 3 and 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. Our portfolio is distributed across 15 states and consists of 38 industrial properties which represent approximately 76% of the portfolio by ABR, one retail property which represents approximately 11% of the portfolio by ABR, and three office properties which represent approximately 13% of the portfolio by ABR. As of December 31, 2023, excluding the two properties that were held for sale, our ABR was $39,328,192 with a WALT of 14.1 years and 33% of our tenants by ABR are investment grade.
Although we are not limited as to the form our investments may take, our investments in real estate will generally constitute acquiring fee title or interests in entities that own and operate real estate. We will make substantially all acquisitions of our real estate investments directly through the Operating Partnership or indirectly through limited liability companies or limited partnerships, including through other REITs, or through investments in joint ventures, partnerships, tenants-in-common, co-tenancies or other co-ownership arrangements with other owners of properties. We are the sole general partner of, and owned an approximate 68% partnership interest in the Operating Partnership on December 31, 2023. The Operating Partnership’s limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. We report with the SEC as a smaller reporting company under Rule 12b-2 of the Exchange Act.
Primary Investment Objectives
Our primary investment objectives are:
•to provide attractive growth in AFFO and sustainable cash distributions;
•to realize appreciation from proactive investment selection and management;
•to provide future opportunities for growth and value creation; and
•to provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to industrial manufacturing real estate.
We expect the trend of onshoring manufacturing to accelerate and we will continue to focus future acquisitions on industrial manufacturing properties, subject to market conditions and the availability of prices that we consider attractive. We can provide no assurance that we will achieve our investment objectives. See the Part I, Item 1A. Risk Factors section of this Annual Report on Form 10-K for additional information.
Recent Events and Uncertainties
There are continuing significant uncertainties in the market in which we operate related to inflation and interest rates, supply chain disruptions, and negative impacts associated with the violence and unrest in the Middle East, the ongoing Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia. Volatility in stock and bond markets and particularly the rapid rise in yields on U.S. Treasury securities during 2022 and 2023, the ripple effect of bank failures in the first half of 2023 and increasing bank regulations, may negatively impact our operating results, liquidity and sources of borrowings.
We, our tenants and operating partners are impacted by inflation and rising interest rates. While the rate of inflation has been declining over the last few months, inflation remains above the Federal Reserve's 2% target and there is significant uncertainty over the future rate of inflation. Depending on the future course of inflation, the Federal Reserve may refrain from reducing interest rates to try to rein in inflation, which could lead to a recession and will negatively impact our future results due to higher borrowing costs on any future floating rate borrowing. As of December 31, 2023, 100% of our $281,200,000 outstanding debt is at fixed rates with a weighted average rate of 4.52% as a result of the swap agreements entered into in May 2022 and October 2022. In addition, sustained elevated inflation rates may negatively impact our longer term leases if contractual rent increases are not sufficient to keep up with market leases.
Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from office properties. Following the January and February 2024 sales of the two properties held for sale leased by Levins and Cummins, respectively, we have no leases expiring in the next 12 months.
Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio, which could have the following negative effects on us: the values of our investments in commercial properties could decrease below the amounts paid for such investments; and/or revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to make distributions or meet our debt service obligations. We successfully negotiated lease extensions for three and two properties during 2022 and 2023, respectively; however, changing circumstances may make future lease extensions more difficult.
The debt market remains sensitive to the macro environment, such as inflation, Federal Reserve policy, bank failures in the first half of 2023, the impacts of the COVID-19 pandemic on office properties, market sentiment and regulatory factors affecting the banking and commercial mortgage-backed securities industries. In January 2022, we refinanced all but four of our properties (including the TIC Interest) with proceeds from our Credit Facility (as defined below), which includes floating rates based on the Secured Overnight Financing Rate (“SOFR”) and our leverage ratio as described below. The mortgage on our Rancho Cordova, California property, which is leased to the State of California's Office of Emergency Services (“OES”) and was scheduled to mature on March 9, 2024, was fully repaid in December 2023 and the other three mortgages do not mature until after September 2027. All of the remaining mortgages are at fixed rates. As a result of the interest rate swap agreements entered into during 2022, 100% of our consolidated indebtedness as of December 31, 2023, held a weighted average fixed interest rate of 4.52%.
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. If we are not able to refinance our indebtedness on attractive terms, or at all, at the various maturity dates, we may be forced to dispose of some of our assets. Market conditions can change quickly, potentially negatively impacting the value of real estate investments.
Liquidity and Capital Resources
Generally, our cash requirements for property acquisitions, debt payments and refinancings, capital expenditures and other investments will be funded by bank borrowings through our Credit Facility, mortgage indebtedness on our properties, real estate property sales, internally generated funds or offerings of shares of our Class C Common Stock.
Purchases of properties in the near-term will be funded primarily with proceeds from dispositions of remaining non-core properties, proceeds from our ATM program and cash on hand. In the future, we expect to sell additional shares of our Class C Common Stock, subject to market conditions and a recovery in the trading price of our Class C Common Stock. We are targeting leverage, over the long-term once we achieve scale, of 40% or lower of the aggregate fair value of our real estate properties plus our cash and cash equivalents; however, we increased our borrowing during 2023 in order to execute attractive acquisition opportunities resulting in leverage of 48% as of December 31, 2023. We have $150 million of borrowing capacity available under our Credit Facility (defined below) which we may utilize in the near or medium-term if we identify attractive investment opportunities in advance of completing dispositions or raising additional equity, which could result in temporary increases in leverage.
Our cash requirements for operating and interest expenses, dividends on our Series A Preferred Stock and distributions on our Class C Common Stock will be funded by internally generated funds. We expect to have adequate liquidity to meet our cash requirements for the next 12 months and beyond.
Credit Facility and Mortgages
Our Operating Partnership entered into an agreement for a line of credit (the “Credit Agreement”) on January 18, 2022 which was amended on October 21, 2022, and currently provides a $400,000,000 line of credit comprised of a $150,000,000 four-year Revolver, which may be extended by up to 12 months subject to certain conditions, and a $250,000,000 five-year Term Loan with KeyBank and the other lending institutions party thereto (collectively, the “Lenders”), including KeyBank as Agent for the Lenders (in such capacity, the “Agent”), as further described in Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K. The Credit Facility is available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness and capital expenditures.
The Credit Facility includes an accordion option that allows us to request additional Revolver and Term Loan lender commitments up to a total of $750,000,000 subject to customary conditions, including the receipt of new commitments from the Lenders. The Revolver’s maturity is in January 2026, with options to extend for a total of 12 months, and the Term Loan’s maturity is in January 2027.
The Credit Facility is priced on a leverage-based grid that fluctuates based on our actual leverage ratio at the end of the prior quarter. With our leverage ratio at 48% as of September 30, 2023, the spread over SOFR, including a 10-basis point credit adjustment, is 185 basis points for the Revolver. Therefore, the interest rate on the Revolver was 7.1625% as of February 29, 2024; although there was no outstanding balance on the Revolver. We also pay an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and paid total unused fees of $378,816 and $200,578 for the years ended December 31, 2023 and 2022, respectively.
On May 10, 2022, we entered into a swap agreement, effective from May 31, 2022 to January 17, 2027, subject to our counterparty’s one-time cancellation option on December 31, 2024, to fix SOFR at 2.258% with respect to our original $150,000,000 Term Loan. We granted the cancellation option because it reduced the swap rate by approximately 50 basis points. The Company has begun to explore, and intends to further explore various alternatives available to extend or restructure the cancellation option. This swap agreement resulted in a fixed interest rate of 4.058% on our original $150,000,000 Term Loan based on our leverage ratio of 48% as of December 31, 2023, as described in Note 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
On October 26, 2022, we entered into a swap agreement, effective from November 30, 2022 to November 30, 2027, subject to our counterparty’s one-time cancellation option on December 31, 2024, to fix SOFR at 3.44% with respect to our expanded Term Loan. We granted the cancellation option because it reduced the swap rate by approximately 50 basis points. This swap agreement resulted in a fixed interest rate of 5.240% on the additional $100,000,000 borrowed under the expanded Term Loan based on our leverage ratio of 48% as of December 31, 2023, as described in Note 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
As of December 31, 2023 and 2022, the outstanding principal balance of our mortgage notes payable on our operating properties was $31,200,000 and $44,515,009, respectively, our Revolver outstanding principal balance was zero and $3,000,000, respectively, and our Term Loan outstanding principal balance was $250,000,000 and $150,000,000, respectively. As of December 31, 2023, our approximate 72.7% pro-rata share of the TIC Interest’s mortgage note payable of $12,730,664 was $9,256,466, which is not included in our consolidated balance sheets in this Annual Report on Form 10-K.
The Credit Facility includes customary representations, warranties and covenants, including covenants regarding minimum fixed charge coverage of 1.50x, minimum tangible net worth of $208,629,727 plus 85% of net offering proceeds after January 18, 2022, and maximum consolidated leverage of 60%. The Credit Facility is secured by a pledge of all of the Operating Partnership’s equity interests in certain of the single-purpose, property-owning entities (the ‘‘Subsidiary Guarantors’’) that are indirectly owned by us, and various cash collateral owned by the Operating Partnership and the Subsidiary Guarantors. In connection with the Credit Facility, we and each of our Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which we and each of our Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.
We are targeting leverage of 40% or lower over the long-term once we achieve scale; however, we increased our borrowing during 2023 in order to execute attractive acquisition opportunities resulting in leverage of 48% as of December 31, 2023. We may have higher leverage in the near or medium-term if we identify attractive investment opportunities in advance of completing dispositions or raising additional equity to fund future acquisitions.
While we intend for the Credit Facility to be an important source of financing, we may continue to use mortgage debt financing for certain real estate investments and acquisitions. This financing may be obtained at the time an asset is acquired or an investment is made or at such later time as determined to be appropriate. In addition, debt financing may be used from time-to-time for property improvements, lease inducements, tenant improvements and other working capital needs.
The $150,000,000 unused capacity on our Revolver as of the date of this Annual Report on Form 10-K, subject to our borrowing base covenant, along with proceeds from any future offerings of shares of Class C Common Stock, can be used to invest in real estate and real estate-related investments or to re-lease and reposition our properties in accordance with our investment strategy and policies, including costs and fees associated with such investments, such as capital expenditures, tenant improvement costs and leasing costs. We also may use a portion of the proceeds from our equity offerings for payment of principal on our outstanding indebtedness and for general corporate purposes.
Compliance with All Debt Agreements
Pursuant to the terms of our Credit Facility and our two mortgage notes payable secured by certain of our properties, we and/or our subsidiary borrowers are subject to certain financial loan covenants. We and/or our subsidiary borrowers were in compliance with such financial loan covenants as of December 31, 2023.
Acquisitions and Sale of Real Estate Investments
We acquired a total of 12 industrial manufacturing properties for an aggregate of $129,753,499 (including closing costs) during the year ended December 31, 2023, at a blended initial cap rate of 7.8% and a weighted average cap rate of 10.3%. We define “initial cap rate” for property acquisitions as the initial annual cash rent divided by the purchase price of the property. We define “weighted average cap rate” for property acquisitions as the average annual cash rent including rent escalations over the lease term, divided by the purchase price of the property.
The details follow of the 12 and 16 properties we acquired during the years ended December 31, 2023 and 2022, respectively:
Property Tenant Location Property Type Area (Square Feet) Lease Terms (Years) Annual Rent Increase Acquisition Price Initial Cap Rate
Plastic Products Princeton, MN Industrial 148,012 5.8 3.0 % $ 6,368,776 7.5 %
Stealth Manufacturing Savage, MN Industrial 55,175 20 2.5 % 5,500,000 7.7 %
Lindsay (a) Gap, PA Industrial 137,086 24 2.2 % 18,343,624 7.5 %
Summit Steel (b) Reading, PA Industrial 116,560 20 2.9 % 11,200,000 7.3 %
PBC Linear Roscoe, IL Industrial 219,287 20 2.5 % 20,000,000 7.8 %
Cameron Tool Lansing, MI Industrial 93,085 20 2.5 % 5,721,174 8.5 %
S.J. Electro Systems Detroit Lakes, MN Industrial 69,556 17 2.8 % 6,278,867 7.5 %
S.J. Electro Systems Plymouth, MN Industrial 25,850 17 2.8 % 2,196,648 7.5 %
S.J. Electro Systems Ashland, OH Industrial 64,274 17 2.8 % 7,499,485 7.5 %
Titan Alleyton, TX Industrial 223,082 20 2.9 % 17,100,000 8.2 %
Vistech Piqua, OH Industrial 335,525 25 3.0 % 13,500,000 9.0 %
SixAxis Andrews, SC Industrial 213,513 25 2.8 % 15,440,000 7.5 %
1,701,005 $ 129,148,574
Property Tenant Location Property Type Area (Square Feet) Lease Terms (Years) Annual Rent Increase Acquisition Price Initial Cap Rate
KIA/Trophy of Carson (c) Carson, CA Retail 72,623 25 2.0 % $ 69,275,000 5.7 %
Kalera Saint Paul, MN Industrial 78,857 20 2.5 % 8,079,000 7.0 %
Lindsay Precast, eight properties acquired Colorado (3), Ohio (2), North Carolina, South Carolina and Florida Industrial 618,195 25 2.0 % 56,150,000 6.7 %
Producto, two properties acquired Endicott and Jamestown, NY
Industrial 72,373 20 2.0 % 5,343,862 7.2 %
Valtir, four properties acquired in Centerville, UT, Orangeburg, SC, Fort Worth, TX and Lima, OH Industrial 293,612 20 (d) 2.3 % 23,375,000 7.7 %
1,135,660 $ 162,222,862
(a) Includes $1,800,000 funding provided for improvements to the previously acquired Lindsay property in Franklinton, North Carolina, which was initially recorded as a construction advance in prepaid expenses and other assets (see Note 6 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for the remaining balance as of December 31, 2023).
(b) The Summit property was acquired in an ‘‘UPREIT’’ unit transaction wherein the seller received 287,516 Class C OP Units accounting for approximately 46% of the property value with the rest of the price paid in cash.
(c) The KIA property was acquired in an ‘‘UPREIT’’ unit transaction wherein the seller received 1,312,382 Class C OP Units accounting for approximately 47% of the property value and we repaid a $36,465,449 existing mortgage, including accrued interest, on the property.
(d) The South Carolina and Ohio properties each have a 25-year master lease and the Texas and Utah properties each have a 15-year master lease.
In evaluating the above properties as potential acquisitions, including the determination of an appropriate purchase price to be paid for the properties, we considered a variety of factors, including the condition and financial performance of the properties, the terms of the existing leases and the creditworthiness of the tenants, property location, visibility and access, age of the properties, physical condition and curb appeal, neighboring property uses, local market conditions, including vacancy rates, area demographics, including trade area population and average household income and neighborhood growth patterns and economic conditions.
We sold a total of 14 properties (11 retail, two office and one flex) during 2023, comprising 241,795 square feet for aggregate contract sales prices of $47,466,960, net losses on sales of $1,708,801 and aggregate net proceeds of $44,357,474, net of commissions and closing costs. See Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of these dispositions.
Capital Expenditures and Tenant Improvements
Other than as discussed below, we do not have other plans to incur any significant costs to renovate, improve or develop our properties. We believe that our properties are adequately insured. Pursuant to our lease agreements, as of December 31, 2023 and 2022, we had obligations to reimburse $2,439,098 and $1,789,027, respectively, for future on-site and tenant improvements expected to be incurred by tenants. We expect that the related improvements will be completed during the 2024 calendar year and will be funded from cash on hand, operating cash flow, offerings of shares of our Class C Common Stock or borrowings under our Credit Facility.
In addition, we have identified approximately $664,611 of capital expenditures that are expected to be completed in the next 12 months which are not recoverable from tenants with double-net leases. These improvements will be funded from cash on hand or operating cash flows. More information on our properties and investments can be found in Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Funds from Operations and Adjusted Funds from Operations
In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts (“Nareit”) promulgated a measure known as Funds from Operations (“FFO”). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures, preferred dividends and real estate impairments. Because FFO calculations adjust for such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current Nareit definition or may interpret the current Nareit definition differently than we do, making comparisons less meaningful.
Additionally, we use Adjusted Funds From Operations (“AFFO”) as a non-GAAP financial measure to evaluate our operating performance. AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, stock-based compensation, deferred rent, amortization of in-place lease valuation intangibles, deferred financing fees, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, and write-offs of due diligence expenses for abandoned pursuits. We also believe that AFFO is a recognized measure of sustainable operating performance of the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations. AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and AFFO, we present information that assists investors in aligning their analysis with management’s analysis of long-term operating activities.
For all of these reasons, we believe the non-GAAP measures of FFO and AFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. AFFO is useful in assisting management and investors in assessing our ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods. However, a material limitation associated with FFO and AFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO. Therefore, FFO and AFFO should not be viewed as a more prominent measure of performance than income (loss) from operations, net income (loss) or cash flows from operating activities and each should be reviewed in connection with GAAP measurements.
Neither the SEC, Nareit, nor any other applicable regulatory body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate AFFO and its use as a non-GAAP performance measure. In the future, the SEC or Nareit may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure.
The following are the calculations of FFO and AFFO for the years ended December 31, 2023 and 2022:
Years Ended December 31,
2023 2022
Net loss (in accordance with GAAP) $ (8,696,261) $ (4,511,318)
Preferred stock dividends (3,687,500) (3,687,500)
Net loss attributable to common stockholders and Class C OP Unit holders (12,383,761) (8,198,818)
FFO adjustments:
Depreciation and amortization of real estate properties 15,551,173 14,929,574
Amortization of deferred lease incentives 153,581 412,098
Depreciation and amortization for unconsolidated investment in a real estate property 756,610 777,041
Impairment of real estate investment property 4,387,624 2,080,727
Loss (gain) on sale of real estate investments, net 1,708,801 (12,196,371)
FFO attributable to common stockholders and Class C OP Unit holders 10,174,028 (2,195,749)
Stock compensation for performance units expense 8,555,529 -
FFO excluding performance units expense 18,729,557 (2,195,749)
AFFO adjustments:
Impairment of goodwill - 17,320,857
Non-recurring corporate relocation costs - 500,000
Stock compensation excluding performance units expense
2,615,678 2,401,022
Deferred financing costs 766,738 484,931
Loss on early extinguishment of debt
- 1,725,318
Due diligence expenses, including abandoned pursuit costs 347,598 661,222
Amortization of deferred rents (6,232,257) (3,237,482)
Unrealized loss (gain) on valuation of interest rate swaps, net
618,301 (25,733)
Amortization of (below) above market lease intangibles, net (807,794) (1,005,487)
Unrealized gain on investment in preferred stock (1,418,658) -
Other adjustments for unconsolidated investment in a real estate property 53,278 5,251
AFFO attributable to common stockholders and Class C OP Unit holders $ 14,672,441 $ 16,634,150
Weighted Average Shares Outstanding:
Basic 7,558,833 7,487,204
Fully diluted excluding performance units (1)
10,593,160 10,225,850
Fully diluted (2)
11,067,675 10,225,850
FFO Per Share:
Basic $ 1.35 $ (0.29)
Fully diluted
$ 0.92 $ (0.29)
FFO Per Share Excluding Performance Units Expense:
Basic $ 2.48 $ (0.29)
Fully diluted
$ 1.77 $ (0.29)
AFFO Per Share:
Basic $ 1.94 $ 2.22
Fully diluted
$ 1.33 $ 1.63
(1) Excludes 474,515 performance units in accordance with the terms of the Operating Partnership Agreement.
(2) Includes the Class M OP Units which were automatically converted to Class C OP Units on January 30, 2024, and Class P and Class R OP Units (time vesting and performance vesting) which have now vested and will be automatically converted to Class C OP Units on March 31, 2024, to compute the fully diluted weighted average number of shares.
Property Portfolio Information
Although we only have a single segment for financial reporting purposes, given our strategic initiative to focus solely on acquiring and operating industrial manufacturing properties, we are presenting the following information regarding our property portfolio to help investors better understand our strategic direction:
The following is a breakdown of our FFO and AFFO by property type for the year ended December 31, 2023:
Year Ended December 31, 2023
Industrial Core Tactical Non-Core (1)
Other Non-Core (2)
Non-Property & Other (3) Consolidated
Net income (loss) (in accordance with GAAP) $ 4,974,097 $ 2,636,094 $ (6,076,358) $ (10,230,094) $ (8,696,261)
Preferred stock dividends - - - (3,687,500) (3,687,500)
Net income (loss) attributable to common stockholders and Class C OP Unit holders 4,974,097 2,636,094 (6,076,358) (13,917,594) (12,383,761)
FFO adjustments:
Depreciation and amortization of real estate properties 11,257,807 3,231,598 1,061,768 - 15,551,173
Amortization of deferred lease incentives
(19,912) - 173,493 - 153,581
Depreciation and amortization for unconsolidated investment in a real estate property 756,610 - - - 756,610
Impairment of real estate investment property - - 4,387,624 - 4,387,624
Loss on sale of real estate investments, net
(178,239) - 1,887,040 - 1,708,801
FFO attributable to common stockholders and Class C OP Unit holders 16,790,363 5,867,692 1,433,567 (13,917,594) 10,174,028
Stock compensation for performance units expense - - - 8,555,529 8,555,529
FFO excluding performance units expense 16,790,363 5,867,692 1,433,567 (5,362,065) 18,729,557
AFFO adjustments:
Stock compensation excluding performance units expense
- - - 2,615,678 2,615,678
Deferred financing costs 641,427 (40,049) 165,360 - 766,738
Due diligence expenses, including abandoned pursuit costs 13,252 - 334,346 - 347,598
Amortization of deferred rents
(3,879,604) (2,409,310) 56,657 - (6,232,257)
Unrealized loss on valuation of interest rate swaps, net
- - - 618,301 618,301
Amortization of (below) above market lease intangibles, net (839,699) - 31,905 - (807,794)
Unrealized gain on investment in preferred stock - - - (1,418,658) (1,418,658)
Other adjustments for unconsolidated investment in a real estate property 53,278 - - - 53,278
AFFO attributable to common stockholders and Class C OP Unit holders $ 12,779,017 $ 3,418,333 $ 2,021,835 $ (3,546,744) $ 14,672,441
Weighted Average Shares Outstanding:
Basic 7,558,833 7,558,833 7,558,833 7,558,833 7,558,833
Fully diluted excluding performance units (4)
10,593,160 10,593,160 10,593,160 10,593,160 10,593,160
Fully diluted (5)
11,067,675 11,067,675 11,067,675 11,067,675 11,067,675
FFO Per Share:
Basic $ 2.22 $ 0.78 $ 0.19 $ (1.84) $ 1.35
Fully diluted (6)
$ 1.52 $ 0.53 $ 0.13 $ (1.26) $ 0.92
FFO Per Share Excluding Performance Units Expense:
Basic $ 2.22 $ 0.78 $ 0.19 $ (0.71) $ 2.48
Fully diluted
$ 1.59 $ 0.55 $ 0.14 $ (0.51) $ 1.77
AFFO Per Share:
Basic $ 1.69 $ 0.45 $ 0.27 $ (0.47) $ 1.94
Fully diluted (6)
$ 1.15 $ 0.31 $ 0.18 $ (0.32) $ 1.33
(1) We categorize Tactical Non-Core Assets as those assets that offer compelling value-add or opportunistic investment characteristics when measured over a near-term or interim holding period. We currently hold three such assets: (i) our tactical non-core acquisition of a leading KIA auto dealership located in a prime location in Los Angeles County in January 2022, which was structured as an UPREIT unit transaction resulting in a favorable equity issuance of $32,809,550 value of Class C OP Units at a cost basis of $25.00 per unit; (ii) our 12 year lease to OES executed in January 2023 for one of our legacy office assets located in Rancho Cordova, California that includes an attractive purchase option by the tenant which we believe has a favorable probability of being executed upon in the next 24 months; and (iii) our office property leased to Costco located in Issaquah, Washington which offers compelling redevelopment opportunities following Costco's lease expiration on July 31, 2025 given its higher density infill location and the fact that the land is zoned for additional uses including multi-family. On January 11, 2024, we entered into a contingent purchase and sale agreement with a national homebuilder for the sale of this property as further described in Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
(2) Other non-core assets include (1) one legacy office property leased to Cummins classified as held for sale beginning September 30, 2023, and sold on February 28, 2024 (see Notes 3 and 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details), and (2) one additional legacy office property leased to Solar Turbines. We define legacy assets as those inherited through prior mergers and acquisitions activity and such assets that were acquired by different management teams utilizing different investment objectives or underwriting criteria.
(3) We do not allocate non-property expenses across our property types; therefore, we report these expenses separately under the Non-Property & Other caption in the table above. Such expenses can include stock compensation expense, general and administrative, unrealized gains and losses on interest rate hedges, and other comprehensive items.
(4) Excludes 474,515 performance units in footnote (5) (v) below in accordance with the terms of the Operating Partnership Agreement.
(5) Weighted average fully diluted shares outstanding includes the following for the year ended December 31, 2023:
(i) 7,558,833 shares of Class C Common Stock;
(ii) 1,528,020 Class C OP Units for the year ended December 31, 2023, including 1,312,382 issued in January 2022 in connection with the acquisition of the KIA auto dealership property and the weighted average of 287,516 units which were issued in April 2023 in conjunction with our acquisition of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC;
(iii) 1,096,582 Class C OP Units that resulted from conversion of 657,949.5 Class M OP Units during January 2024;
(iv) 93,382 Class C OP Units that will result from the automatic conversion of 56,029 Class P OP Units on March 31, 2024, based on the conversion ratio of 1.6667 Class C OP Units for each Class P OP Unit outstanding; and
(v) 790,858 Class C OP Units that will result from the automatic conversion of 316,343 Class R OP Units on March 31, 2024, which reflects the conversion ratio of 2.5-for-1 based on the achievement of the FFO performance target of $1.05 per diluted share for the year ended December 31, 2023, as described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
(6) For the intra-period allocation, we treat all component per share amounts as fully-diluted to correspond with the consolidated FFO and AFFO results reflected above.
The following is a breakdown of our accompanying consolidated statement of operations included in this Annual Report on Form 10-K by property type for the year ended December 31, 2023:
Year Ended December 31, 2023
Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated
Rental income $ 30,890,424 $ 10,977,616 $ 5,068,559 $ - $ 46,936,599
Expenses:
General and administrative - - - 6,642,990 6,642,990
Stock compensation expense - - - 11,171,207 11,171,207
Depreciation and amortization 11,257,809 3,231,598 1,061,766 - 15,551,173
Property expenses 2,031,915 1,155,050 1,974,052 - 5,161,017
Impairment of real estate investment property - - 4,387,624 - 4,387,624
Impairment of goodwill - - - - -
Total expenses 13,289,724 4,386,648 7,423,442 17,814,197 42,914,011
Loss on sale of real estate investments, net
178,239 - (1,887,040) - (1,708,801)
Operating income (loss) 17,778,939 6,590,968 (4,241,923) (17,814,197) 2,313,787
Other (expense) income:
Interest income (46) - - 325,934 325,888
Dividend income - - - 475,000 475,000
Income from unconsolidated investment in a real estate property 279,549 - - - 279,549
Interest expense, including unrealized loss on interest rate swaps and net of derivative settlements (4)
(13,083,168) (3,954,874) (1,834,435) 5,065,639 (13,806,838)
Increase in fair value of investment in preferred stock - - - 1,418,658 1,418,658
Other (5) (1,175) - - 298,870 297,695
Other expense, net
(12,804,840) (3,954,874) (1,834,435) 7,584,101 (11,010,048)
Net income (loss) 4,974,099 2,636,094 (6,076,358) (10,230,096) (8,696,261)
Less: net loss attributable to noncontrolling interest in Operating Partnership - - - 2,082,419 2,082,419
Net income (loss) attributable to Modiv Industrial, Inc. 4,974,099 2,636,094 (6,076,358) (8,147,677) (6,613,842)
Preferred stock dividends - - - (3,687,500) (3,687,500)
Net income (loss) attributable to common stockholders $ 4,974,099 $ 2,636,094 $ (6,076,358) $ (11,835,177) $ (10,301,342)
(1)-(3) See footnotes (1) through (3) above.
(4) Non-Property & Other interest expense includes amortization of a net unrealized gain on interest rate swap valuation of $1,015,151 and derivative cash settlements of $5,679,720 (see Notes 7 and 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details).
(5) Other income reflects management fees earned for managing the TIC Interest.
The following is a breakdown of our accompanying consolidated balance sheet included in this Annual Report on Form 10-K by property type as of December 31, 2023:
As of December 31, 2023
Industrial Core Tactical Non-Core (1) Other Non-Core (2) Non-Property & Other (3) Consolidated
Assets
Real estate investments:
Land $ 58,986,797 $ 43,387,936 $ 2,483,960 $ - $ 104,858,693
Buildings and improvements 311,840,089 83,128,327 4,698,365 - 399,666,781
Equipment 4,429,000 - - - 4,429,000
Tenant origination and absorption costs 10,882,884 4,500,352 324,222 - 15,707,458
Total investments in real estate property 386,138,770 131,016,615 7,506,547 - 524,661,932
Accumulated depreciation and amortization (36,417,654) (13,558,116) (925,842) - (50,901,612)
Total investments in real estate property, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net
349,721,116 117,458,499 6,580,705 - 473,760,320
Unconsolidated investment in a real estate property 10,053,931 - - - 10,053,931
Total real estate investments, net, excluding real estate investments held for sale, net 359,775,047 117,458,499 6,580,705 - 483,814,251
Real estate investments held for sale, net 3,817,689 - 7,740,000 - 11,557,689
Total real estate investments, net 363,592,736 117,458,499 14,320,705 - 495,371,940
Cash and cash equivalents - - - 3,129,414 3,129,414
Tenant receivables 8,824,293 3,938,943 31,332 - 12,794,568
Above-market lease intangibles, net 1,313,959 - - - 1,313,959
Prepaid expenses and other assets (4) 3,316,678 171,223 108,704 576,616 4,173,221
Investment in preferred stock
- - - 11,038,658 11,038,658
Interest rate swap derivative
- - - 2,970,733 2,970,733
Other assets related to real estate investments held for sale 42,066 - 61,271 - 103,337
Total assets $ 377,089,732 $ 121,568,665 $ 14,522,012 $ 17,715,421 $ 530,895,830
Liabilities and Equity
Mortgage notes payable, net $ 12,233,789 $ 18,796,452 $ - $ - $ 31,030,241
Credit facility term loan, net
201,614,183 37,961,072 8,933,260 - 248,508,515
Accounts payable, accrued and other liabilities 1,760,725 754,824 70,403 1,883,556 4,469,508
Distributions payable
- - - 12,174,979 12,174,979
Below-market lease intangibles, net 8,868,604 - - - 8,868,604
Interest rate swap derivative
- - - 473,348 473,348
Other liabilities related to real estate investments held for sale
22,040 - 226,687 - 248,727
Total liabilities 224,499,341 57,512,348 9,230,350 14,531,883 305,773,922
Commitments and contingencies
Total Modiv Industrial, Inc. equity
152,590,391 64,056,317 5,291,662 (77,495,032) 144,443,338
Noncontrolling interests in the Operating Partnership - - - 80,678,570 80,678,570
Total equity 152,590,391 64,056,317 5,291,662 3,183,538 225,121,908
Total liabilities and equity $ 377,089,732 $ 121,568,665 $ 14,522,012 $ 17,715,421 $ 530,895,830
(1)-(3) See footnotes (1) through (3) above.
(4) Non-Property & Other prepaid expenses and other assets include deferred financing fees on our Revolver and prepaid directors and officers insurance.
Distributions
The source of cash used to pay our distributions has been and is expected to continue to be internally generated funds from operations.
A table of distributions declared and paid is disclosed in Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Distribution Information.
We expect that our board of directors will continue to declare distributions based on a single record date as of the end of each month and to pay these distributions on a monthly basis. Distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. We have not established a minimum dividend or distribution level, and our charter does not require that we make dividends or distributions to our stockholders other than as necessary to meet REIT qualification standards.
Cash Flow Summary
The following table summarizes our cash flow activity for the years ended December 31, 2023 and 2022:
2023 2022
Net cash provided by operating activities
$ 16,578,228 $ 16,648,821
Net cash used in investing activities
$ (93,602,234) $ (61,063,193)
Net cash provided by (used in) financing activities $ 71,544,771 $ (5,384,499)
Cash Flows from Operating Activities
Net cash provided by operating activities was $16,578,228 for the year ended December 31, 2023 compared to $16,648,821 for the year ended December 31, 2022, resulting in a net decrease in cash provided by operating activities of $70,593 year-over-year primarily due to the increase in cash interest expense during 2023, partially offset by decreases in general and administrative and property expenses.
Cash Flows from Investing Activities
Net cash used in investing activities was $93,602,234 for the year ended December 31, 2023 compared to $61,063,193 for the year ended December 31, 2022, resulting in an increase in cash used in investing activities of $32,539,041, primarily due to a reduction in net sales proceeds received of $34,737,474 in 2023 for 14 properties, which were primarily smaller retail properties, compared with net sales proceeds of $70,662,287 received in 2022 for eight office, flex and retail properties. This decrease in net proceeds from asset sales was partially offset by a decrease in funds utilized to invest in acquisitions and additions to existing real estate investments of $3,970,067, reflecting 12 property acquisitions in 2023 compared with 16 property acquisitions in 2022.
Cash Flows from Financing Activities
Net cash provided by financing activities was $71,544,771 for the year ended December 31, 2023 compared to cash used in financing activities of $5,384,499 for the year ended December 31, 2022, which primarily reflects a decrease of $117,181,737 in the principal payments on notes payable that were refinanced with borrowings under our Credit Facility in January 2022, or repaid upon sales of properties, partially offset by a decrease in our Credit Facility Term Loan borrowings of $50,000,000 year-over-year. In addition, payments of deferred financing costs incurred in 2022 aggregated $3,638,229. No such charges were incurred in 2023.
Results of Operations
Portfolio Information
Our wholly-owned investments in real estate properties as of December 31, 2023 and 2022, including two and one properties held for sale as of the years ended December 31, 2023 and 2022, respectively, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:
December 31,
2023 2022
Number of properties: (b)
(c)
Industrial (a)
39 27
Retail 1 12
Office 4 7
Total operating properties 44 46
Leasable square feet:
Industrial 4,242,797 2,541,792
Retail 72,623 230,176
Office 317,049 401,291
Total leasable square feet 4,632,469 3,173,259
(a) Includes the TIC Interest.
(b) Includes two properties (one industrial and one office) held for sale as of December 31, 2023, which were sold on January 10, 2024 and February 28, 2024.
(c) Includes one flex property held for sale as of December 31, 2022, which was sold on August 31, 2023.
We acquired 12 and 16 operating properties during 2023 and 2022, respectively. We sold 14 properties (11 retail, two office and one flex) during 2023 and eight properties (six office, one retail and one flex) during 2022. The operating results of each property that was classified as held for sale as of December 31, 2023 and 2022, and the 14 and eight properties that were sold during 2023 and 2022, respectively, were included in the continuing results of operations in our accompanying consolidated financial statements included in this Annual Report on Form 10-K. We expect that rental income, depreciation and amortization expense, and interest expense will increase in 2024 as compared with 2023, as a result of the $129,753,499 of industrial manufacturing property acquisitions during 2023, which were partially offset by the sale of 14 properties completed in August 2023, along with the sale of the two properties held for sale in January and February 2024. Our results of operations for the year ended December 31, 2023, may not be comparable to those expected for 2024 or in future periods.
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Rental Income
Rental income, including tenant reimbursements, for the years ended December 31, 2023 and 2022 was $46,936,599 and $43,822,032, respectively. Rental income during 2022 included early termination fee revenue of $3,751,984 related to an office property in Rancho Cordova, California leased to Sutter Health, which was subsequently leased to OES effective January 4, 2023. The increase in rental income of $6,866,551, or 17%, year-over-year, excluding the 2022 early termination fee revenue, primarily reflects the rental income contribution from our acquisitions of 12 industrial manufacturing properties acquired during the first three quarters of 2023, partially offset by the decrease in rental income from the sale of eight properties during 2022 and 14 properties sold during August 2023. Pursuant to most of our lease agreements, tenants are required to pay or reimburse all or a portion of the property operating expenses. The ABR of the 44 operating properties owned as of December 31, 2023, was $40,114,613 and December 31, 2023 ABR, excluding periods subsequent to the sales of Levins and Cummins, was $39,586,711.
General and Administrative
General and administrative expenses were $6,642,990 and $7,812,057 for the years ended December 31, 2023 and 2022, respectively. The decrease of $1,169,067, or 15%, year-over-year primarily reflects decreases in (i) employee compensation due to personnel reductions during 2022; (ii) directors and officers insurance; and (iii) costs for technology services, offset in part by an increase in costs for professional services during 2023.
Stock Compensation
Stock compensation expense was $11,171,207 and $2,401,022 for the years December 31, 2023 and 2022, respectively. The increase of $8,770,185 reflects a catch-up adjustment of $8,555,529 related to our achievement of management’s performance target for FFO of $1.05 per diluted share for the year ended December 31, 2023, exclusive of the dilutive effect of the performance units and related stock compensation expense. Our FFO per fully diluted share excluding the dilutive impact of the performance units and the related stock compensation expense was $1.77 for the year ended December 31, 2023 (see “Funds from Operations and Adjusted Funds from Operations” above). This exceeded the performance target of $1.05 per diluted share by $0.72, or 69%. As a result of achieving our performance target of $1.05 per diluted share, exclusive of the effect of the performance units and related stock compensation expense, an additional 474,515 Class C OP Units will be issued on March 31, 2024, upon the automatic conversion of our Class R OP Units based on a conversion ratio of 2.5 Class C OP Units for each Class R OP Unit. The catch-up adjustment reflects amortization of the $19.58 per share fair value of the performance units from the January 25, 2021 grant date through December 31, 2023. The remaining unamortized fair value of $733,331 will be recorded as compensation expense for the performance units through the end of the vesting period on March 31, 2024. The performance target was established in January 2021 and represented a 20% increase over the FFO per diluted share achieved for the year ended December 31, 2020. The $1.77 of FFO per diluted share, exclusive of the effect of the performance units and related stock compensation expense, represents a 101% increase over the FFO per diluted share achieved for the year ended December 31, 2020. The remaining $224,656 increase in stock compensation expense reflects the absence of forfeitures during the year ended December 31, 2023, as compared to recapture of stock compensation expense related to employee departures and forfeitures in 2022.
Depreciation and Amortization
Depreciation and amortization expense was $15,551,173 and $14,929,574 for the years ended December 31, 2023 and 2022, respectively. The purchase price of properties acquired is allocated to tangible assets, identifiable intangibles and assumed liabilities, if any, and depreciated or amortized over their estimated useful lives. The increase of $621,599, or 4%, year-over-year primarily reflects an increase in depreciation of real estate properties acquired, partially offset by reductions due to properties sold in the second half of 2022 and August 2023, along with reductions in amortization of intangible lease assets for the year ended December 31, 2023, due to the disposition of properties with acquired leases rather than leases initiated by us.
Property Expenses
Our property expenses generally consist of site repair and maintenance costs, real estate taxes, business licenses, insurance, utilities, property management fees and other property costs. Property expenses were $5,161,017 and $6,547,391 for the years ended December 31, 2023 and 2022, respectively. A significant portion of these expenses are reimbursed by tenants and rental income includes tenant reimbursements of $2,962,297 and $4,244,009 for the years ended December 31, 2023 and 2022, respectively. The decrease of $1,386,374, or 21%, year-over-year primarily reflects decreases in property taxes and repairs and maintenance related to assets sold, which included double-net and modified gross leases, offset in part by increases in property management fees associated with acquired properties during the current year.
Impairment of Goodwill
The impairment of goodwill of $17,320,857 for the year ended December 31, 2022 reflects the significant decline in the market value of our Class C Common Stock following the inception of our trading on the NYSE in February 2022. For the quarter ended March 31, 2022, management considered the fact that the trading price of our Class C Common Stock caused our market capitalization to be below the book value of our equity as of March 31, 2022. Our stock price was evaluated to be materially below both our historical net asset value and the book value of our equity, reflecting the negative impacts of rising inflation and interest rates, declining office occupancy rates affecting owners of real estate properties and fears of a potential recession. We, therefore, reduced the carrying value of goodwill to zero as of March 31, 2022.
(Loss) Gain on Sale of Real Estate Investments, Net
The loss on sale of real estate investments of $1,708,801 for the year ended December 31, 2023 includes the $1,887,040 loss on sale of the 13 properties (11 retail and two office) sold to GIPR on August 10, 2023, partially offset by the $178,239 gain on sale of the flex property sold on August 31, 2023. The loss includes the $2,380,000 difference between the $12,000,000
liquidation value and the $9,620,000 fair value of our investment in GIPR's newly-created Series A Redeemable Preferred Stock received on August 10, 2023 as a portion of the sale proceeds (see Note 5 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details). The gain on sale of real estate investments of $12,196,371 for the year ended December 31, 2022 relates to the gain on sale of eight properties (six office, one retail and one flex) sold during 2022 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
Other (Expense) Income
Interest income was $325,888 and $21,910 for the years ended December 31, 2023 and 2022, respectively, reflecting interest earned on cash proceeds from April 2023 draws on the Term Loan prior to utilizing such cash to acquire industrial manufacturing properties in May 2023 and higher interest rates earned on available cash and cash equivalents during 2023.
Dividend income was $475,000 and zero for the years ended December 31, 2023 and 2022, respectively, reflecting dividends on the GIPR Series A Redeemable Preferred Stock received in August 2023.
Income from unconsolidated investment in a real estate property, which reflects our approximate 72.7% TIC Interest in the Santa Clara, California property's results of operations, was $279,549 and $278,002 for the years ended December 31, 2023 and 2022, respectively.
Interest expense, including unrealized loss on interest rate swaps and net of derivative settlements was $13,806,838 and $8,106,658 for the years December 31, 2023 and 2022, respectively (see Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for details of the components of interest expense, net). The increase of $5,700,180 year-over-year primarily reflects the increase in interest expense incurred on our Credit Facility due to larger balances outstanding and net unrealized loss on interest rate swap valuations, partially offset by an increase in derivative settlements.
The net unrealized loss on swap valuation of $1,633,451 for the year ended December 31, 2023 reflects the change in valuation of both our $150,000,000 first swap and $100,000,000 second swap. The unrealized loss was partially offset by the $1,015,151 amortization of the unrealized gain on interest rate swap derivative previously recorded in accumulated other comprehensive income. The first swap derivative instrument failed to qualify as a cash flow hedge beginning January 1, 2023, because the swap was deemed ineffective due to our counterparty’s one-time cancellation option on December 31, 2024, as compared with the maturity date of the Term Loan. We granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The second derivative instrument was not designated as a cash flow hedge. These unrealized losses reflect decreases during the year ended December 31, 2023 in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). We have begun, and intend to further explore various alternatives available to extend or restructure the cancellation option.
The increase in fair value of our investment in preferred stock of $1,418,658 reflects the change in the fair value between when the stock was acquired on August 10, 2023 and the fair value as of December 31, 2023.
Loss on early extinguishment of debt of $1,725,318 for the year ended December 31, 2022 reflects non-cash charges of $1,164,998 for deferred financing costs and prepayment penalties of $615,336 upon repayment of 20 mortgages on 27 properties, full repayment of our Prior Credit Facility and mortgage repayments related to four asset sales, as well as $733,000 of swap termination fees related to the four mortgage refinancings, which were offset by the related write-off of unrealized swap valuation losses of $788,016.
Other income of $297,695 and $93,971 for the years ended December 31, 2023 and 2022, respectively, reflects our monthly management fee from the entities that own the TIC Interest property, partially offset in 2022 by charges for the write-off of certain crowdfunding related investments. The monthly management fee is equal to 0.1% of the total investment value of the property. The total management fee was $263,971 for each of the years ended December 31, 2023 and 2022, of which our portion of expense relating to the TIC Interest was $191,933 for each year and is reflected as a component of income from unconsolidated investment in a real estate property in our accompanying consolidated statements of operations included in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The policies and estimates discussed below reflect those that management believes are or will be critical in affecting the preparation of our consolidated financial statements. We consider these policies critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our consolidated financial statements. Management evaluates these estimates based upon information currently available and on various assumptions that it believes are reasonable an ongoing basis. Additionally, other companies may have utilized different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. See “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements of this report on Form 10-K for additional discussion of our significant accounting policies.
Real Estate Investments
Real Estate Acquisition Valuation
We record acquisitions that meet the definition of a business as a business combination. If the acquisition does not meet the definition of a business, we record the acquisition as an asset acquisition. Under both methods, all assets acquired and liabilities assumed are measured based on their acquisition-date fair values. Transaction costs that are related to a business combination are charged to expense as incurred. Transaction costs that are related to an asset acquisition are capitalized as incurred.
We assess the acquisition date fair values of all tangible assets, identifiable intangibles, and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.
We record above-market and below-market in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases plus any extended term for any leases with below-market renewal options. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods.
We estimate the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease up periods. We amortize the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the respective lease.
Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of our net income (loss).
Impairment of Investment in Real Estate Properties
We monitor events and changes in circumstances that could indicate that the carrying amounts of real estate properties may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, management assesses whether the carrying value of the real estate properties will be recovered through the future undiscounted operating cash flows expected from the use of and eventual disposition of the property. If, based on the analysis, we do not believe that we will be able to recover the carrying value of the real estate properties, we will record an impairment charge to the extent the carrying value exceeds the estimated fair value of the real estate properties.
Recent Accounting Pronouncements
See Note 2 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as we are a smaller reporting company.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements at page of this Annual Report on Form 10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2023 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Under Rule 13a-15(c), management must evaluate, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness, as of the end of each fiscal year, of our internal control over financial reporting. The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedure that:
1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with the authorization of management of the issuer; and
3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In the course of preparing this Annual Report on Form 10-K and the consolidated financial statements included herein, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO) in the Internal Control-Integrated Framework (2013). Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm as we are a smaller reporting company as of December 31, 2023.
Remediation of Previously Disclosed Material Weakness
As we previously reported, a material weakness was identified in our internal control over financial reporting related to (i) accounting for property taxes paid directly by tenants to taxing authorities on a net basis and (ii) classification of straight-line rent receivable write-offs associated with real estate investment sales. During the fourth quarter of 2023, management completed the evaluation of the enhancement of our internal control environment which was implemented during the second and third quarters of 2023, by executing refinements in our policies and procedures. These enhancements included, but were not limited to, utilizing additional qualified consultants with expertise in GAAP and SEC rules and regulations to assist us in addressing accounting for nonrecurring transactions and newly applicable accounting pronouncements related to our leases and other areas of our business. Based upon these additional procedures and the related documentation, management concluded during the fourth quarter of 2023 that the revised control activities have been operating for a sufficient period of time and the material weakness identified in the first quarter of 2023 has been remediated.
Changes in Internal Control Over Financial Reporting
There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. We recognize that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurances that its objectives will be met. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
On March 1, 2024, the Board appointed John Raney, 43, as Chief Operating Officer and General Counsel of the Company. Prior to being appointed as Chief Operating Officer and General Counsel, Mr. Raney served as our Chief Legal Officer and General Counsel since September 2020. Mr. Raney brings over 16 years of legal, REIT, mergers and acquisitions and capital markets experience to our Company. Mr. Raney was a Partner with Acceleron Law Group, LLP from June 2020 to September 2020, a Partner with Massumi & Consoli LLP from June 2018 to May 2020, Counsel at O’Melveny & Myers LLP from May 2015 to June 2018 and an Associate with Latham & Watkins LLP from October 2008 to April 2015. Mr. Raney earned his B.A. at Boston College and his J.D. from the University of California, Los Angeles - School of Law. Mr. Raney is a licensed attorney in the State of California.
During the three months ended December 31, 2023, no director or officer of the Company, nor the Company itself, adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2023, and delivered to stockholders in connection with our 2024 annual meeting of stockholders.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2023, and delivered to stockholders in connection with our 2024 annual meeting of stockholders.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2023, and delivered to stockholders in connection with our 2024 annual meeting of stockholders.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2023, and delivered to stockholders in connection with our 2024 annual meeting of stockholders.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2023, and delivered to stockholders in connection with our 2024 annual meeting of stockholders.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
See Index to Consolidated Financial Statements at page of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedule:
The following financial statement schedule is included herein at pages through of this Annual Report on Form 10-K: Schedule III - Real Estate Assets and Accumulated Depreciation and Amortization.
(a)(3) Exhibits:
The exhibits listed in this section are included, or incorporated by reference, in this Annual Report on Form 10-K.
(b) Exhibits:
See (a)(3) above.
(c) Financial Statements Schedule:
See (a)(2) above.
EXHIBITS LIST
Exhibit Description
3.1 Articles of Amendment and Restatement of Modiv Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on July 8, 2021)
3.2 Articles of Amendment to the Articles of Amendment and Restatement of Modiv Inc. changing its name to Modiv Industrial, Inc. (incorporated by reference to Exhibit 3.4 to our Quarterly Report on Form 10-Q (File No. 001-40814) filed with the Securities and Exchange Commission on August 14, 2023
3.3 Second Amended and Restated Bylaws of Modiv Inc., adopted on March 9, 2023 (incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 13, 2023)
3.4 Articles Supplementary designating 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on September 17, 2021)
4.1 Second Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on February 15, 2022)
4.2 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 23, 2022)
10.1 Third Amended and Restated Limited Partnership Agreement of Modiv Operating Partnership, LP, dated February 1, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission of February 1, 2021)
10.2 First Amendment to Third Amended and Restated Limited Partnership Agreement of Modiv Operating Partnership, LP (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on September 17, 2021)
10.3 Second Amendment to Third Amended and Restated Limited Partnership Agreement of Modiv Operating Partnership, LP, dated December 21, 2022 (incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 13, 2023)
10.4* Third Amendment to Third Amended and Restated Limited Partnership Agreement of Modiv Operating Partnership, LP, dated December 29, 2023
10.5* Fourth Amendment to Third Amended and Restated Limited Partnership Agreement of Modiv Operating Partnership, LP, dated January 23, 2024
10.6+ Restricted Units Award Agreement dated as of December 31, 2019 between RW Holdings NNN REIT Operating Partnership, LP, and Aaron S. Halfacre (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on December 31, 2019)
10.7+ Restricted Units Award Agreement dated as of December 31, 2019 between RW Holdings NNN REIT Operating Partnership, LP, and The Raymond J. Pacini Trust u/a/d 5/3/01, Raymond J. Pacini, Trustee (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on December 31, 2019)
10.8+ Restricted Units Award Agreement dated as of January 25, 2021 between Modiv Operating Partnership, LP and Aaron S. Halfacre (incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K (File No. 000-55776) filed with the Securities and Exchange Commission on March 31, 2021)
10.9+ Restricted Units Award Agreement dated as of January 25, 2021 between Modiv Operating Partnership, LP and The Raymond J. Pacini Trust u/a/d 5/3/01, Raymond J. Pacini, Trustee (incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K (File No. 000-55776) filed with the Securities and Exchange Commission on March 31, 2021)
10.10+ Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 000-55776) filed with the Securities and Exchange Commission on August 2, 2021)
10.11 Contribution Agreement between Trophy of Carson Real Estate LLC and Modiv Operating Partnership, LP dated January 13, 2022 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on January 20, 2022)
10.12 First Amendment to Contribution Agreement Between Trophy of Carson Real Estate LLC and Modiv Operating Partnership, LP dated March 22, 2022 (incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 23, 2022)
10.13 Kia - Carson, CA Lease Agreement as of January 18, 2022, by and between MDV Trophy Carson CA LLC and Trophy of Carson LLC for the property located at 22020 Recreation Rd., Carson, California (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on January 20, 2022)
Exhibit Description
10.14 Credit Agreement dated as of January 18, 2022 by and among Modiv Operating Partnership, LP, as the borrower, KeyBank National Association, the other lenders which are parties to the agreement, and other lenders that may become parties to the agreement, KeyBank National Association, as the agent, BMO Capital Markets, Truist Bank and The Huntington Bank, as co-syndication agents, and KeyBanc Capital Markets Inc., BMO Capital Markets, Truist Securities, Inc. and The Huntington Bank, as joint-lead arrangers (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on January 20, 2022)
10.15 First Amendment to Credit Agreement and Guarantee dated October 21, 2022 between Modiv Operating Partnership, LP, as the borrower, KeyBank National Association, the other lenders which are parties to the agreement, and other lenders that may become parties to the agreement, KeyBank National Association, as the agent, First Financial Bank, Truist Bank and The Huntington Bank, as co-syndication agents, and KeyBanc Capital Markets Inc., First Financial Bank, Truist Securities, Inc. and The Huntington National Bank, as joint-lead arrangers for the expanded Credit Facility (incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 13, 2023)
10.16 Second Amendment to Credit Agreement dated December 20, 2022 between Modiv Operating Partnership, LP, as the borrower, KeyBank National Association, the other lenders which are parties to the agreement, and other lenders that may become parties to the agreement, KeyBank National Association, as the agent, First Financial Bank, Truist Bank and The Huntington Bank, as co-syndication agents, and KeyBanc Capital Markets Inc., First Financial Bank, Truist Securities, Inc. and The Huntington National Bank, as joint-lead arrangers for the expanded Credit Facility (incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 13, 2023)
10.17 Unconditional Guaranty of Payment and Performance of Modiv Operating Partnership, LP under the Credit Agreement dated January 18, 2022 with KeyBank and other lenders by Modiv Inc. and certain subsidiary guarantors (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to our Registration Statement on Form S-11 (File No. 333-261529) filed with the Securities and Exchange Commission on February 10, 2022)
10.18 Agreement of Purchase and Sale (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (File No. 001-40814) filed with the Securities and Exchange Commission on November 13, 2023)
10.19 First Amendment to Agreement of Purchase and Sale (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on January 2, 2024)
16.1 Letter from Baker Tilly US, LLP, dated March 30, 2023 (incorporated by reference to Exhibit 16.1 to our Current Report on Form 8-K (File No. 001-40814) filed with the Securities and Exchange Commission on March 31, 2023)
21.1* Subsidiaries of Modiv Industrial, Inc.
23.1* Consent of Baker Tilly US, LLP
23.2* Consent of Grant Thornton LLP
31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
97.1* Modiv Industrial, Inc. Incentive Compensation Recovery Policy
101.INS* XBRL INSTANCE DOCUMENT
101.SCH* XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB* XBRL TAXONOMY EXTENSION LABELS LINKBASE
101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104* COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101)
* Filed herewith.
** Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
+ Indicates management or compensatory plan.