Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ☐ No ☒
As of June 28, 2024, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of its Class C common stock held by non-affiliates was $134,076,555, calculated by reference to the closing price of the Registrant’s Class C common stock on the New York Stock Exchange on June 28, 2024, of $14.14 per share.
As of February 28, 2025, there were 9,966,527 outstanding shares of the Registrant’s Class C common stock.
Documents Incorporated by Reference:
The information that is required to be included in Part III of this Annual Report on Form 10-K is incorporated by reference to the definitive proxy statement to be filed by the registrant within 120 days of December 31, 2024. Only those portions of the definitive proxy statement that are specifically incorporated by reference herein shall constitute a part of this Annual Report on Form 10-K.
Certain statements contained in this Annual Report on Form 10-K of Modiv Industrial, Inc. (the “Company,” “Modiv,” “us,” “we,” or “our”), other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act, Section 21E of the Exchange Act and other applicable law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “can,” “will,” “would,” “could,” “should,” “plan,” “potential,” “project,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words.
These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Stockholders should carefully review the Part I,Item 1A. Risk Factors section below for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (the “SEC”). We make no representation or warranty, express or implied, about the accuracy of any such forward-looking statements contained hereunder. Except as otherwise required by federal securities laws, we undertake no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, whether as a result of new information, future events or otherwise.
Our business, financial condition and results of operations are subject to numerous risks and uncertainties. Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face and should be read in conjunction with the full risk factors contained below in the Part I, Item 1A. Risk Factors section in this Annual Report on Form 10-K.
•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 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.
•We are focused on future acquisitions of industrial manufacturing properties and have reduced 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 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 networks and related systems.
•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 are gradually reducing 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 or at all, which could adversely affect our financial condition, operating results and cash flows.
•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.
•Our real estate properties and related intangible assets may be subject to impairment charges.
•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.
•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.
•We may change our targeted investments or investment strategy.
•We have incurred losses in the past and we may experience additional losses in the future.
•Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control.
•Certain provisions in the Partnership Agreement of our Operating Partnership may delay, make more difficult, or prevent unsolicited acquisitions of us.
•We are subject to risks from natural disasters, such as hurricanes, tornados and flooding, and changes in weather patterns.
•We are subject to risks relating to litigation and regulatory liability.
•Inflation and rising interest rates may adversely affect our financial condition and results of operations or result in a decrease in the market price of our Class C Common Stock.
•Each of our current properties depends upon a single-tenant for its 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.
•We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.
•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.
•We may be subject to adverse legislative or regulatory tax changes.
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 operating results and financial condition, including actual or anticipated quarterly fluctuations therein;
• 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;
• 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;
•potential tariffs which could impact our manufacturing tenants;
• domestic and international economic factors unrelated to our performance including uncertainty and volatility resulting from public health crises, the violence and unrest in the Middle East, the ongoing war between Russia and Ukraine, the economic sanctions and other restrictive actions taken against Russia, China and Iran 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, 2024, there were 2.0 million 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. In February 2025, we granted Class X OP Units, which convert automatically into Class C OP Units upon vesting and satisfaction of certain other conditions, to our executive officers. These holders of the Class C OP Units that have been outstanding for at least one year may require 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.
Our Operating Partnership may issue additional OP Units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our Operating Partnership and could have a dilutive effect on the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders.
As of February 28, 2025, we owned 83% of the outstanding OP Units in our Operating Partnership. We have issued OP Units to third parties as consideration for acquisitions and to employees as compensation, and we may do so in the future. Any such future issuances would reduce our ownership percentage in our Operating Partnership and could affect the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders. Because our stockholders do not directly own OP Units, our stockholders do not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.
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 could adversely affect the market price of our Class C Common Stock.
Increases in market interest rates may result in a decrease in the market price 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, 2024, we owned 43 properties, including one property held for sale and a 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 are gradually reducing 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 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, China and Iran by the U.S. and other countries in response thereto has further disrupted global financial markets and affected macroeconomic conditions. More recently, the U.S. has imposed and subsequently paused, in part, tariffs on certain foreign products, including from China, Mexico and Canada, that in the past have resulted in retaliatory tariffs on U.S. goods and products. Such uncertainty has disrupted global financial markets and the enforcement of any new or significant tariffs could harm our tenants. 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 could 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 market price of our Class C Common Stock and accordingly limit our ability to pay distributions to our stockholders. As of December 31, 2024, eight of our 43 operating properties, including 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. As of December 31, 2024, approximately 30% of our ABR is concentrated in California.
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. For example, 78% of our ABR as of December 31, 2024, 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, 2024, with Lindsay (which is comprised of nine properties in six states) representing approximately 13% of our ABR and the KIA retail property in Carson, California representing approximately 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 and John Raney, our Chief Executive Officer, Chief Financial 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 market price 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.
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.
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.
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.
Certain provisions in our Operating Partnership Agreement may delay, make more difficult, or prevent unsolicited acquisitions of us.
Provisions in the Operating Partnership Agreement may delay, make more difficult, or prevent unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some of our stockholders might consider such proposals, if made, desirable. These provisions include, among others:
•exchange rights of holders of our Class C OP Units;
•a requirement that we may not be removed as the general partner of our Operating Partnership without our consent;
• transfer restrictions on OP Units;
•our ability, as general partner, in some cases, to amend the partnership agreement and to cause the Operating Partnership to issue units with terms that could delay, defer, or prevent a merger or other change of control of us or our Operating Partnership without the consent of the limited partners; and
•the right of the limited partners to consent to direct or indirect transfers of the general partnership interest, including as a result of a merger or a sale of all or substantially all of our assets.
The limited partners in our Operating Partnership (other than us) owned approximately 17% of the outstanding OP Units of our Operating Partnership as of February 28, 2025.
General Risks Related to Investments in Real Estate
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;
•potential tariffs and trade wars;
•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;
•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 market price of our Class C Common Stock.
We are subject to risks from natural disasters, such as hurricanes, tornados and flooding, and changes in weather patterns.
Natural disasters and severe weather such as flooding, earthquakes, fires, tornadoes or hurricanes may result in significant damage to our properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration like we have in California, a single catastrophe (such as an earthquake) or destructive weather event (such as a
tornado or hurricane) affecting a region may have a significant negative effect on our financial condition and results of operations. Our financial results may be adversely affected by our exposure to losses arising from natural disasters or severe weather.
We also are exposed to risks associated with inclement winter weather which could increase the need for maintenance and repair of our properties.
Lastly, to the extent that natural disasters do occur, their physical effects could have a material adverse effect on our properties, operations, and business. To the extent there are changes in weather patterns, our markets could experience increases in storm intensity. These conditions could result in physical damage to our properties or declining demand for space in our buildings or the inability of us to operate the buildings at all in the areas affected by these conditions. Natural disasters and changes in weather patterns that increase the intensity of storms also may have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy, and increasing the cost of snow removal or related costs at our properties. In addition, proposed legislation and regulatory actions to address climate change could increase utility and other costs of operating our properties which, if not offset by rising rental income, would reduce our net income. Should any of these events be material in nature or occur for lengthy periods of time, our properties, operations, or business would be adversely affected.
Pandemics or other health crises 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 new pandemic or other health crisis. 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.
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.
We have two leases scheduled to expire in the next 12 months: our property in Issaquah, Washington leased to Costco, which expires on July 31, 2025 and is under contract to be sold to KB Home as described in Note3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K, and our property in San Diego, California leased to Solar Turbines that also expires on July 31, 2025. We also have two leases scheduled to expire in 2026: our TIC Interest in a property in Santa Clara, California leased to Fujifilm Dimatix, Inc. that expires on March 16, 2026 and our property in Melbourne, Florida leased to Northrop Grumman that expires on May 31, 2026.
Our inability to renew or re-lease space in 2025, 2026 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 market price of our Class C Common Stock.
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 market price of our Class C Common Stock.
Rising inflation may have an adverse impact on our 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, results of operations 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 2024 in order to execute attractive acquisition opportunities, resulting in leverage of 47.6% as of December 31, 2024. 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.
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 50% in order to minimize the interest rate payable on the Revolver and Term Loan (each as defined below).
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, 2024, three of our 43 properties, including the TIC Interest, were encumbered with mortgages. 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 interest 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 debt is unavailable at reasonable interest 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 28, 2025, amounts outstanding under the Credit Facility, as adjusted by swap agreements, bear interest at fixed rates through December 31, 2025. 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.
We may finance properties with debt that has 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.
U.S. 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 at corporate rates. Additionally, distributions would no longer qualify for the dividends paid deduction, which could result in an increase in our tax liabilities. If this occurs, 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.
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 in the ordinary course of business is treated as income from a “prohibited transaction” 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 a sale is a “prohibited transaction” depends on the particular facts and circumstances surrounding each property and its sale. However, if we meet the requirements of a statutory “safe harbor” with respect to any such sales, such sales will be deemed not to constitute “prohibited transactions”. Such safe harbor, among other things, requires that we hold property to be sold at least two years for the production of income and places limits on the amount of sales we can undertake each year. Therefore, our ability to dispose of a property in the near term following its acquisition is restricted to a substantial extent and, in order to comply with the safe harbor or otherwise avoid the prohibited transaction tax, we may forgo disposition opportunities that would otherwise be advantageous if we were not a REIT.
Even if we qualify as a REIT, 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, we may be subject to some federal, state and local taxes. 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. As discussed above, if we sell an asset, other than foreclosure property (described below), 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 of 1986, as amended (the “Code”).
4. If we elect to treat property that we acquire in connection with foreclosures or certain leasehold terminations as “foreclosure property,” we may avoid the 100% prohibited transaction 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.
5. We may be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets.
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 to qualify as a REIT. 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. In order to qualify as a REIT and avoid such taxes, 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, we may be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient 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 generally 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. As a result, the amount of our REIT taxable income may increase, resulting in additional taxes and/or required distributions. In addition, if a sale-leaseback transaction were so re-characterized, we might fail to satisfy the “asset tests” or the “income tests” for REIT qualification and, consequently, 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 securities issued by REITs) generally cannot constitute 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, no more than 5% of the value of our assets (other than government securities and securities issued by REITs) 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. We may be required to liquidate from our portfolio otherwise attractive investments in order to meet these REIT requirements.
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 may fail to satisfy the “asset tests” or the “income tests” for REIT qualification and, consequently, lose our REIT status.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the 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 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 U.S. federal, state and local income tax at regular corporate rates on any income that it earns. In addition, certain tax laws may 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 U.S. federal income tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20% plus a 3.8% “Medicare tax”. Dividends payable by REITs, however, generally are not eligible for the reduced rates for qualified dividends and are taxed at ordinary income rates (and are also subject the 3.8% “Medicare tax”; provided, however, that under current tax laws that will expire at the end of 2025 (if not extended), U.S. stockholders that are individuals (directly or indirectly through a pass-through entity), trusts and estates generally may deduct 20% of ordinary dividends from a REIT. 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.
Our stockholders may have current tax liability on distributions if they elect to reinvest in shares of our common stock.
Participation in our DRP does not defer the recognition of any taxable income that results from the reinvested dividends. Stockholders who elect to participate in our DRP, and who are subject to U.S. federal income taxation laws, will incur a tax liability on any such reinvested dividend to the extent such dividend is properly treated as being paid out of “earnings and profits,” even though such stockholders have elected to receive shares instead of cash. Each of our stockholders that is not a tax-exempt entity may have to use funds from other sources to pay such tax liability.
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.
Change to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have an adverse
impact on our business and financial results.
In recent years, numerous legislative, judicial and administrative changes have been made to the U.S. federal income tax laws applicable to investments in real estate and REITs, and it is possible that additional legislation may be enacted in the future. There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results. In addition, various provisions of the Code are set to expire at the end of 2025, including the 20% deduction described above and other provisions that are favorable to REITs and their shareholders.
We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs, including whether various favorable U.S. federal tax laws will be extended. Prospective investors are urged to consult their tax advisors regarding the effect of potential future changes to the U.S. federal tax laws on an investment in our shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM1. 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 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 four 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.
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.” 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.”
Details of our diversified portfolio of 43 operating properties, including one property held for sale and an approximate 72.7% tenant-in-common interest in a Santa Clara, California industrial property (the “TIC Interest”) as of December 31, 2024 are as follows:
• Annual base rent (“ABR”) aggregating $39.6 million, which is calculated based on the next 12 months of contractual monthly base rent as of December 31, 2024;
• 39 industrial properties, which represent approximately 78% of the portfolio (expressed as a percentage of ABR), including the TIC Interest, and four non-core properties which represent approximately 22% of the portfolio by ABR, including one property held for sale;
•32% of the portfolio by ABR is leased by investment grade tenants;
•Weighted average remaining lease term (“WALT”), excluding tenants’ rights to extend leases, of approximately 13.8 years;
•Occupancy rate of 98% based on square footage;
• Located in 15 states;
• Leased to 29 different commercial tenants doing business in 12 separate industries;
• Approximately 4.5 million square feet of aggregate leasable space, including the TIC Interest;
• An average leasable space per property of approximately 105,000 square feet (approximately 108,000 square feet per industrial property and approximately 76,000 square feet per non-core property); and
• Outstanding mortgage notes payable balance of $30.9 million for two properties, including one property held for sale, and a credit facility term loan balance of $250.0 million.
During the year ended December 31, 2024, we acquired an industrial manufacturing property located in Florida. We also sold two properties (an office property in Tennessee and an industrial property in California) and a land parcel which was part of an industrial property in Canal Fulton, Ohio, to be converted into a park, during the year ended December 31, 2024. 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.
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 83% of the interests as of February 28, 2025, following the exchange of certain Class C OP Units (defined below) for Class C Common Stock in the first half of 2024, the purchase of Class C OP Units in July 2024, as described in Note 12 to our accompanying consolidated financial statements, and the grant of Class X OP Units (defined below) to our executive officers, as described in Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Our limited partners owned an approximate 17% interest in the Operating Partnership, comprised of units of Class C limited partnership interest (“Class C OP Units”) and units of Class X limited partnership interest (“Class X OP Units”) in the Operating Partnership as of February 28, 2025. The limited partners previously owned units of Class M limited partnership interest (“Class M OP Units”), units of Class P limited partnership interest (“Class P OP Units”) and units of Class R limited partnership interest (“Class R OP Units” and, together with the Class C OP Units, Class X OP Units, Class M OP Units and Class P OP Units, the “OP Units”). The OP Units are further described in Note 12 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.
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 continue to analyze tenant creditworthiness on an ongoing basis, 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 three 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 as 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.
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 from 2022 through 2024, resulting in an increase in our industrial properties to 78% of our portfolio by ABR as of December 31, 2024, and the extension of our WALT to approximately 13.8 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
Pursuant to the Company’s Related Party Transaction Policy, the Nominating and Corporate Governance Committee (the “NCGC”) is responsible for approving any transaction between us and our affiliates (including any director, nominee for director or executive officer of the Company, any known beneficial holder of 5% of the Company’s common stock and any person who isor was known to be an immediate family member of any of the foregoing); provided that any director who has a direct or indirect material interest in the affiliate transaction shall recuse himself or herself from voting on any such affiliate transaction.
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 over 10% of our rental income, with the nine properties leased to Lindsay accounting for 14.3% of rental income and the KIA retail property accounting for 10.8% of rental income for the year ended December 31, 2024. 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, 2024, we had 12 total employees, all of which are full-time employees.
Our principal executive offices are located at 2195 South Downing Street, Denver, Colorado, 80210. 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. Our website is intended to serve as a primary means of public disclosure of material information about Modiv under Regulation FD. Investors should regularly check this section for important updates and announcements. The information on, or accessible through, our website is not incorporated into and does not constitute a part of this Annual Report on Form 10-K or any other report or document we file with or furnish to the SEC.
ITEM 1C. CYBERSECURITY
We believe we maintain an information technology and cybersecurity program appropriate for a company our size, taking into account our operations and risks.
We are committed to cybersecurity and vigilantly protecting all our resources and information from unauthorized access. Our cybersecurity approach incorporates a layered portfolio of employee training programs, multiple resources to manage and monitor the evolving threat landscape, effective board oversight of cybersecurity risks and knowledgeable teams responsible for preventing and detecting cybersecurity risks.
Management and Board Oversight
Our board of directors has delegated oversight of our cybersecurity program to our audit committee. Our audit committee, which consists of solely independent directors, reviews our enterprise risk and cybersecurity risks on a regular basis. It also reviews steps management has taken to protect against threats to our information systems and security and receives updates on cybersecurity from our information technology team on a periodic basis. The full board of directors also periodically reviews our cybersecurity risks with management and the actions we are taking to mitigate such risks.The Chief Accounting Officer (“CAO”) or their designee reports to the audit committee on a periodic basis on the status of our cybersecurity program. These actions include implementing industry-recognized practices for protecting systems, third-party monitoring of certain systems and cybersecurity training for employees.
With oversight from our audit committee and our board of directors, our management team including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer and General Counsel (“COO/GC”), is responsible for managing all cybersecurity risks and overseeing our security programs. Our information technology team is comprised of our CAO and other knowledgeable employees, and is responsible for management of our cybersecurity programs. Our information technology team consists of individuals with experience in assessing and addressing cybersecurity risk and is responsible for executing our cybersecurity programs as well as communicating regularly with senior management. Our CEO, CFO and COO/GC have familiarity and oversight experience, appropriate for their positions, regarding general cybersecurity matters and threats affecting business-to-business software and cloud services vendors. In addition, our cybersecurity program includes engagement of other Company management and employees and outside service providers to oversee or perform specific roles in connection with cybersecurity risk assessment and management, and incident management.
Processes for Assessing, Identifying and Managing Material Risks from Cybersecurity Threats
The principal objectives of our cybersecurity program (“Cybersecurity Program”) are to minimize the risks associated with cybersecurity threats to our business operations, financial performance and financial condition, and protect confidential information, our intellectual property and other assets, and those of our investors, tenants, vendors, partners and employees that may be at risk due to our cybersecurity threats.
We use industry recognized cybersecurity frameworks and standards as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business. Recognizing that the nature of cybersecurity threats and the particular threat vectors we face continually change, our board, audit committee, senior management, and information technology team continually evaluate and invest in updating and enhancing our Cybersecurity Program.
Under our Cybersecurity Program, our information technology team and our senior management, with input where appropriate from our third-party advisors, work to identify our cybersecurity threats, assess the risks, and deploy appropriate technologies and processes to manage those risks. Cybersecurity incidents may be detected through a variety of means, including but not limited to automated event-detection notifications or similar technologies which are monitored by our cybersecurity provider, notifications from employees, vendors or service providers, and notifications from third-party information technology system providers. When cybersecurity incidents occur, our actions are guided by an incident response plan to (i) detect, contain and eradicate threats, (ii) notify executive management and the Chairman of the audit committee as appropriate based on the severity level of the cybersecurity incident, (iii) recover compromised data and information systems, (iv) limit impacts of any such incident on our operations and (v) report any such incident as required by law or as otherwise appropriate.
We have relationships with a number of third-party service providers to assist with cybersecurity containment and remediation efforts, including outside legal counsel and vendors.
We consider our cybersecurity risk and related management processes when assessing risk across the Company. Our risk management systems and processes comprise numerous components, including policies and procedures, risk detection systems, tools and protocols, internal auditing, management review, defined lines of communications, cybersecurity awareness training for employees, phishing simulation tests, penetration testing, engagement of outside advisors and experts to assess, test or otherwise assist with aspects of our security controls, regular operations reviews with the CEO, and board (and audit committee) oversight. We use a number of means to assess and manage cyber risks related to our third-party service providers, such as conducting due diligence in connection with onboarding new vendors and legal review of vendor engagements and new products. We utilize the foregoing systems and processes to manage our risks and associated cybersecurity threats.
Cybersecurity Risks
We are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents that have materially affected the business strategy, results of operations or financial condition of the Company or are reasonably likely to have such a material effect. However, any future potential risks from cybersecurity threats, including but not limited to exploitation of vulnerabilities, ransomware, unauthorized transactions, or other similar threats may materially affect us, including our execution of business strategy, reputation, results of operations and/or financial condition. See Item 1A, “Risk Factors - Risks Related to Our Business - 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.”
As of December 31, 2024, we owned a real estate investment portfolio consisting of 43 operating properties, comprised of 39 industrial properties, including our approximate 72.7% TIC Interest in an industrial property in Santa Clara, California, and four non-core 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 our real estate portfolio as of December 31, 2024 (dollars in thousands):
Tenant Industry Diversification
Industry
Number of Properties
ABR
ABR as a Percentage of Total Portfolio
Leased Area (Square Feet)
Square Feet as a Percentage of Total Portfolio
Infrastructure
17
$
9,284
23
%
1,246,022
28
%
Automotive
3
6,015
15
%
501,233
11
%
Industrial Products
4
5,603
14
%
907,837
20
%
Aerospace/Defense
4
5,057
13
%
346,046
8
%
Government
1
2,618
7
%
106,592
2
%
Metals
5
2,509
6
%
450,263
10
%
Technology
2
2,347
6
%
130,240
3
%
Energy
2
1,830
5
%
249,118
6
%
Agriculture/Food Production
2
1,688
4
%
295,584
7
%
Retail
1
1,446
4
%
97,191
2
%
Other (1)
2
1,241
3
%
168,812
3
%
Total
43
$
39,638
100
%
4,498,938
100
%
(1) Includes industries with ABR of less than 4% of total portfolio.
Tenant Geographic Diversification
State
Number of Properties
ABR
ABR as a Percentage of Total Portfolio
Leased Area (Square Feet)
Square Feet as a Percentage of Total Portfolio
California
8
$
11,925
30
%
439,954
10
%
Ohio
6
4,866
12
%
1,016,742
23
%
Arizona
2
4,100
10
%
379,441
8
%
Illinois
2
3,463
9
%
629,687
14
%
Florida
3
2,341
6
%
233,910
5
%
Pennsylvania
2
2,135
6
%
253,646
6
%
South Carolina
3
2,115
5
%
343,422
8
%
Texas
2
1,698
4
%
255,969
6
%
Minnesota
5
1,671
4
%
377,450
8
%
North Carolina
2
1,574
4
%
134,576
3
%
Washington
1
1,446
4
%
97,191
2
%
Other (1)
7
2,304
6
%
336,950
7
%
Total
43
$
39,638
100
%
4,498,938
100
%
(1) Includes states with ABR of less than 4% of total portfolio.
We completed extensions of existing leases with six of our tenants during 2023 and 2024 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.
The following tables reflect lease expirations with respect to our properties as of December 31, 2024, including the TIC Interest and one held for sale property (dollars in thousands):
Year
Number of Leases Expiring
ABR Expiring
Percentage of ABR Expiring
Cumulative Percentage of ABR Expiring
Leased Area Expiring (Square Feet)
Percentage of Leased Area Expiring (Square Feet)
Cumulative Percentage of Leased Area Expiring (Square Feet)
2025
2
$
1,812
5
%
5
%
123,227
3
%
3
%
2026
2
3,053
8
%
13
%
199,159
4
%
7
%
2027
1
944
2
%
15
%
64,637
1
%
8
%
2028
1
568
1
%
16
%
148,012
3
%
11
%
2029
2
1,525
4
%
20
%
84,714
2
%
13
%
2030
1
673
2
%
22
%
20,800
1
%
14
%
2031
—
—
—
%
22
%
—
—
%
14
%
2032
1
2,412
6
%
28
%
162,714
4
%
18
%
2033
1
1,688
4
%
32
%
216,727
5
%
23
%
2034 (1)
3
5,295
13
%
45
%
554,441
12
%
35
%
Thereafter
29
21,668
55
%
100
%
2,924,507
65
%
100
%
Total
43
$
39,638
100
%
4,498,938
100
%
(1) Includes OES that has a purchase option that can be exercised any time through December 31, 2026 and an early termination option that can be exercised any time on or after December 31, 2028. The exercise of these options was not determined to be probable.
Investment:
As of December 31, 2024, we had the following other real estate investment (dollars in thousands):
TIC Interest
Investment Balance
Santa Clara, CA Property – an approximate 72.7% TIC Interest (1)
$
9,324
(1)This industrial property was acquired in 2017 and has approximately 91,740 rentable square feet. Our TIC Interest ABR is approximately $1.7 million. The tenant's lease expiration date is March 16, 2026, the mortgage bears interest at a fixed rate of 3.86% and matures on October 1, 2027, and the lease provides for two seven-year renewal options.
As part of our continued effort to increase balance sheet simplicity, management is currently exploring opportunities to acquire the minority interests in the property in which we hold the TIC Interest, which would result in consolidation of the asset, or to sell the TIC Interest.
Additional information about our other real estate investment is included in Note 4 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
As of February 28, 2025, there were approximately 3,900 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” (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
During the three months ended December 31, 2024, we issued 4,369 shares of Class C Common Stock 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.
During the year ended December 31, 2024, we issued a total of 1,675,219 shares of Class C Common Stock to holders of Class C OP Units who requested an exchange, including 199,924 shares of Class C Common Stock to employees who exchanged their Class C OP Units upon vesting in March 2024. 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, 2024, distributions paid to our stockholders were approximately 84% return of capital and 16% ordinary income and for the year ended December 31, 2023, distributions paid to our stockholders were approximately 71% return of capital and 29% ordinary income.
The following presents the U.S. federal income tax characterization of the distributions paid in 2024 and 2023:
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 2024 cash distribution details are as follows:
Distribution Period
Amount Per Share and Unit
Per Month
Declaration Date
Payment Date
2024:
January 1-31
$
0.09583
November 6, 2023
February 28, 2024
February 1-28
$
0.09583
November 6, 2023
March 25, 2024
March 1-31
$
0.09583
November 6, 2023
April 25, 2024
April 1-30
$
0.09583
March 1, 2024
May 28, 2024
May 1-31
$
0.09583
March 1, 2024
June 25, 2024
June 1-30
$
0.09583
March 1, 2024
July 25, 2024
July 1-31
$
0.09583
May 1, 2024
August 26, 2024
August 1-31
$
0.09583
May 1, 2024
September 25, 2024
September 1-30
$
0.09583
May 1, 2024
October 25, 2024
October 1-31
$
0.09583
July 31, 2024
November 25, 2024
November 1-30
$
0.09583
July 31, 2024
December 24, 2024
December 1-31
$
0.09583
July 31, 2024
January 27, 2025
On January 31, 2024, we distributed 2,623,153 shares of common stock of Generation Income Properties, Inc. (NASDAQ: GIPR) (“GIPR”) to our stockholders and holders of Class C OP Units, which we received in exchange for shares of GIPR Preferred Stock that were originally received as partial proceeds for the sale of property on August 10, 2023. The shares were distributed to holders of record on January 17, 2024, based on the distribution ratio of 0.28 GIPR common shares for each share of our Class C Common Stock or Class C OP Unit which represented $1.1648 for each share of our Class C Common Stock or Class C OP Unit based on the closing price of GIPR common stock on January 31, 2024 (see Note 5 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
On November 4, 2024, our board of directors authorized a 1.7% increase in the annual distribution rate from $1.15 per share to $1.17 per share commencing with monthly distributions payable to common stockholders and Class C OP Unit holders of record beginning as of January 31, 2025.
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.
On January 22, 2021, we filed a Registration Statement on Form S-3 (File No. 333-252321) to register a maximum of $100 million 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 our distribution reinvestment plan (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 our DRP. The purpose of this change was to reflect the fact that our Class C Common Stock was listed on the NYSE and no longer priced based on net asset value (“NAV”) per share. As more fully described in the Second Amended and Restated DRP, the purchase price for the 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.
For the years ended December 31, 2024 and 2023, the purchase price for the Class C Common Stock issued directly by us is 97% of the market price (as defined in the Second Amended and Restated DRP) of the Class C Common Stock, reflecting a 3% discount. On November 4, 2024, we, with the authorization of our board of directors, increased the discount for the purchase price of shares of Class C Common Stock under our DRP from 3% to 5%, which went into effect on December 7, 2024 and applies to distributions payable on January 27, 2025 and thereafter.
The purchase price for the Class C Common Stock that we or any third-party administrator purchases from parties other than us, either in the open market or in privately negotiated transactions, will be 100% of the “average price per share” (as described in the Second Amended and Restated DRP) actually paid for such shares of Class C Common Stock, excluding any processing fees. The Second Amended and Restated DRP also reflects the $0.05 per share processing fee that will be paid to our transfer agent by DRP participants for each share of Class C Common Stock purchased through the DRP. The Second Amended and Restated DRP was effective beginning with distributions paid in February 2022.
Issuer Purchases of Equity Securities
We did not have a share repurchase program in place for the year ended December 31, 2024.
Private Repurchase Transaction
On July 31, 2024, we entered into an agreement with First City Investment Group, LLC (“First City”) to purchase the remaining 656,191 Class C OP Units held by First City and to repurchase 123,809 shares of Class C Common Stock also held by First City. The transaction closed on August 1, 2024 at a price of $14.80 per share/unit, for total consideration of $11.5 million. The repurchased shares of Class C Common Stock 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.
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 RegardingForward-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.
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 89% and 83% interest in the Operating Partnership as of December 31, 2024 and February 28, 2025, respectively. The Operating Partnership’s limited partners are 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 (as defined below) 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.
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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, potential tariffs 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, China and Iran. Volatility in stock and bond markets and particularly the rapid rise in yields on U.S. Treasury securities during 2023 and 2024 may negatively impact our operating results, liquidity and sources of borrowings.
We, our tenants and operating partners are impacted by inflation and interest rates. While the rate of inflation has declined from historic highs, inflation remains somewhat elevated and there is continued uncertainty over the future rate of inflation. In January 2025, the Federal Reserve maintained the current federal funds rate after reducing rates three times in 2024. The Federal Reserve may continue to 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 borrowing. 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.
On December 31, 2024, the counterparties to the swap agreements exercised their one-time options to cancel the swap agreements (see Note 8 for more details). In January 2025, we entered into two new swap agreements, effective December 31, 2024, for $125.0 million each, for an aggregate of $250.0 million, corresponding to the Term Loan (as defined
below), which fixed the Secured Overnight Financing Rate (“SOFR”) for the year ending December 31, 2025 to 2.45%, resulting in a fixed rate of 4.25% based on our leverage ratio of 47.6% as of December 31, 2024. We paid aggregate premiums of $4.2 million to buy down the fixed rate below the prevailing market rate. The buydown premium is a derivative that will be recorded as an asset on our balance sheet as of January 31, 2025 and amortized over the 12 months ending December 31, 2025, increasing interest expense by approximately $1.1 million per quarter. We designated these pay-fixed, receive-floating interest rate swaps as cash flow hedges, which are expected to be effective through December 31, 2025. The derivatives will be marked to fair value each reporting period with any change in fair value being recorded through accumulated other comprehensive income as long as the derivatives are deemed effective.
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. We have two leases expiring in the next 12 months: our office property in Issaquah, Washington leased to Costco, which expires on July 31, 2025 and is under contract to be sold to KB Home, as described in Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K, and our office property in San Diego, California leased to Solar Turbines that also expires on July 31, 2025. We also have two leases scheduled to expire in 2026: our industrial property in Santa Clara, California leased to Fujifilm Dimatix, Inc. that expires on March 16, 2026 and our industrial property in Melbourne, Florida leased to Northrop Grumman that expires on May 31, 2026.
Potential future declines in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy and rental rates and cause 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 six properties during the years ended December 31, 2024 and 2023; 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, the impacts of increases in tariffs by the U.S. and other countries, market sentiment and regulatory factors affecting the banking and commercial mortgage-backed securities industries. Our Credit Facility (as defined below), includes floating interest rates based on SOFR and our leverage ratio as described below and although our swaps entered into in 2022 were cancelled on December 31, 2024, we entered into new swaps for 2025 which fix the rate of our Term Loan for one year. Our two mortgages with fixed rates do not mature until after September 2027. As a result of the interest rate swap agreements entered into for the year ending December 31, 2025, 100% of our consolidated indebtedness held a weighted average fixed interest rate of 4.27% as long as our leverage ratio is less than 50%.
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.
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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 (as defined below), 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 47.6% as of December 31, 2024. We have $30.0 million of borrowing capacity available under our Credit Facility 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.
We expect that our cash requirements for operating and interest expenses, dividends on our Series A Preferred Stock and distributions on our Class C Common Stock and OP Units 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.
ATM Program
On March 30, 2022, we filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, we filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200.0 million: Class C Common Stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and we filed a prospectus supplement for our at-the-market offering of up to $50.0 million of its Class C Common Stock (the “ATM Offering”) on June 6, 2022 (the “ATM Prospectus”).
On November 13, 2023, we filed Supplement No. 1 to the ATM Prospectus to reflect the Amended and Restated At Market Issuance Sales Agreement, dated November 13, 2023, and the change in our corporate name. During the year ended December 31, 2024, 521,837 shares were sold at an average price of $16.16 per share and issued for $8.2 million, net of sale commissions of $0.2 million, of which 287,840 shares were sold at an average price of $16.16 per share and issued for $4.5 million, net of sale commissions, during the three months ended December 31, 2024. The resulting net proceeds from the ATM Offering for the year ended December 31, 2024 were $7.7 million after legal, accounting, investor relations and other offering costs of $0.5 million. As of December 31, 2024, we had $40.3 million of shares of Class C Common Stock available for future issuance under the ATM Offering.
Credit Facility and Mortgages
Our Operating Partnership entered into an agreement for a line of credit (the “Credit Agreement”) on January 18, 2022 with KeyBank and the other lending institutions party thereto (the “Lenders”), with KeyBank acting as agent for the Lenders (in such capacity, the “Agent”). The Credit Agreement currently provides a $280.0 million line of credit comprised of a $30.0 million revolving line of credit (“Revolver”), and a $250.0 million term loan (“Term Loan” and together with the Revolver, the “Credit Facility”), 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, capital expenditures and general corporate purposes.
On February 26, 2025, we entered into an agreement with the Lenders to amend the Credit Agreement by (a) extending the maturity of the Revolver to January 18, 2027, which is coterminous with the maturity of the Term Loan, and (b) changing the definition of “Distributions” to exclude any repurchases of our Series A Preferred Stock that are funded by proceeds from the sale of our Class C Common Stock.
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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 of 47.6% as of December 31, 2024, the spread over SOFR, including a 10-basis point credit adjustment, is 185 basis points and the interest rate on the Revolver was 6.2250% as of February 28, 2025; however, 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 incurred total unused fees of $0.4 million for each of the years ended December 31, 2024 and 2023. On December 27, 2024, we exercised our right to reduce the Revolver to $30.0 million from $150.0 million in order to reduce annual unused fees to less than $0.1 million.
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 $150.0 million Term Loan. 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 the $100.0 million expansion of our Term Loan. On the December 31, 2024, the counterparties to both swap agreements exercised their one-time options to cancel their respective swap agreements (see Note 8 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details). In January 2025, we entered into two new swap agreements, for $125.0 million each, for an aggregate of $250.0 million, corresponding to the Term Loan, to fix SOFR for the year ending December 31, 2025 at 2.45%, resulting in a fixed rate of 4.25% effective December 31, 2024, based on our leverage ratio of 47.6% as of December 31, 2024. (see Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for more details).
As of December 31, 2024 and 2023, the outstanding principal balance of our mortgage notes payable secured by two properties, including one held for sale property, was $30.9 million and $31.2 million, respectively. As of December 31, 2024 and 2023, the Term Loan outstanding principal balance was $250.0 million and there was no outstanding balance on the Revolver. As of December 31, 2024, our approximate 72.7% pro-rata share of the TIC Interest’s mortgage note payable of $12.4 million was $9.0 million, 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. 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.
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 $30.0 million 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, 2024.
Acquisitions and Dispositions of Real Estate Investments
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.
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Acquisitions
The details of the one property and 12 properties we acquired during the years ended December 31, 2024 and 2023, respectively, are as follows (dollars in thousands):
Location
Property Type
Leased Area (Square Feet)
Lease Terms (Years)
Annual Rent Increase
Acquisition Price
Initial Cap Rate
2024
Torrent Photonics LLC
Tampa, FL
Industrial
29,699
20
2.85
%
$
5,183
8.00
%
During the year ended December 31, 2023, we acquired 12 industrial manufacturing real estate properties for an aggregate of $129.8 million, including closing costs, at a blended initial cap rate of 7.8% and a weighted average cap rate of 10.3%. These properties are located in Princeton, Savage, Detroit Lakes and Plymouth, Minnesota; Gap and Reading, Pennsylvania; Roscoe, Illinois; Lansing, Michigan; Ashland and Piqua, Ohio; Alleyton, Texas; and Andrews, South Carolina. The properties acquired had a weighted average lease term of approximately 20.6 years upon acquisition.
On or before March 14, 2025, following the completion of our exploration of a potential tenant build-to-suit opportunity, we will acquire an industrial property for $6.1 million, consisting of a $0.25 million cash deposit that has been distributed to the contributor, and at closing, approximately 344,118 Class C OP Units valued at $5.85 million, based on an agreed upon value of $17.00 per Class C OP Unit. The property is located in the Jacksonville, Florida metropolitan statistical area and is subject to an existing lease that expires on December 31, 2032, with annual rent escalations based on the consumer price index. The property contains an adjacent land parcel that has the potential to be developed into additional industrial space. We priced this transaction at an 8.00% initial cap rate based upon a rent increase that will occur on July 1, 2025.
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.
Dispositions
Our dispositions during the year ended December 31, 2024 were as follows (dollars in thousands):
Property Tenant
Location
Disposition Date
Property Type
Leased Area (Square Feet)
Contract Sale Price
Gain on Sale
Net Proceeds
2024
Levins
Sacramento, CA
01/10/2024
Industrial
76,000
$
7,075
$
3,179
$
7,034
Cummins
Nashville, TN
02/28/2024
Office
87,230
7,950
9
7,749
Lindsay (Land parcel)
Canal Fulton, OH
09/27/2024
Industrial
—
240
172
240
163,230
$
15,265
$
3,360
$
15,023
For the year ended December 31, 2023, we sold 14 non-core real estate properties (11 retail and three office) comprised of 241,795 square feet for aggregate contract sales prices of $47.5 million, with net proceeds of $44.4 million (net of commissions and closing costs) and a net loss on sales of $1.7 million. See Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for further details of these dispositions.
On February 26, 2025,we completed the sale of our property that is located in Endicott, New York and is leased to New Vision Industries, LLC, a subsidiary of Producto Holdings LLC (“Producto”) for a sales price of $2.4 million. In connection with this sale, the lease for our property in Jamestown, New York with another Producto subsidiary was amended to increase the base rent by $2,500 per month.
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Capital Expenditures and Tenant Improvements
Other than as discussed below, we do not have 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, 2024 and 2023, we had obligations to reimburse $3.0 million and $2.4 million, 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 2025 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 $0.5 million 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 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 investments, 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 stock-based compensation, amortization of deferred rent, amortization of below/above market lease intangibles, amortization of deferred financing costs, 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 in 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. 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. 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 or loss from operations, net income or 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 or 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 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.
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The following are the calculations of FFO and AFFO for the years ended December 31, 2024 and 2023 (in thousands, except shares outstanding and per share data):
Year Ended December 31,
2024
2023
Net income (loss) (in accordance with GAAP)
$
6,493
$
(8,696)
Preferred stock dividends
(3,688)
(3,688)
Net income (loss) attributable to common stockholders and Class C OP Unit holders
2,805
(12,384)
FFO adjustments:
Depreciation and amortization of real estate properties
16,601
15,551
Amortization of deferred lease incentives
—
154
Depreciation and amortization for unconsolidated investment in a real estate property
756
757
Impairment of real estate investment property
—
4,388
(Gain) loss on sale of real estate investments, net
(3,360)
1,709
FFO attributable to common stockholders and Class C OP Unit holders
16,802
10,175
AFFO adjustments:
Stock compensation expense
1,586
11,171
Amortization and write-off of deferred financing costs
1,192
767
Abandoned pursuit costs
240
348
Amortization of deferred rents
(5,716)
(6,232)
Unrealized loss on interest rate swap valuation
1,479
618
Amortization of (below) above market lease intangibles, net
(847)
(808)
Loss on equity investments
151
—
Increase in fair value of investment in preferred stock
—
(1,419)
Other adjustments for unconsolidated investment in a real estate property
101
53
AFFO attributable to common stockholders and Class C OP Unit holders
$
14,988
$
14,673
Weighted Average Shares/Units Outstanding:
Fully diluted (1)
11,188,974
11,067,725
FFO Per Share/Unit:
Fully diluted
$
1.50
$
0.92
AFFO Per Share/Unit:
Fully diluted
$
1.34
$
1.33
(1) Fully diluted weighted average number of shares for 2023 includes the Class M OP Units which automatically converted to Class C OP Units on January 30, 2024, and Class P and Class R OP Units which automatically converted to Class C OP Units as of March 31, 2024, to compute the fully diluted weighted average number of shares.
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Property Portfolio Information
Following the issuance of our publicly listed Series A Preferred Stock in September 2021, we began to significantly transform our portfolio in furtherance of our strategic plan to reduce our exposure to office properties and increase our WALT. The following is a summary of how we have transformed the composition of our real estate portfolio over time, resulting in a majority of our ABR produced by industrial properties, including the TIC Interest, as shown and described below.
Percentage of Annual ABR:
Year Ended December 31,
2021
2022
2023
2024
Industrial core
41
%
59
%
76
%
78
%
Non-core
59
%
41
%
24
%
22
%
WALT (years)
6.1
11.9
14.1
13.8
Following the public listing of our Class C Common Stock in February 2022, we began to focus strategically and exclusively on acquiring industrial manufacturing properties while at the same time continuing the tactical reduction of our non-core properties exposure. To that end, we acquired 15 industrial manufacturing properties and sold eight non-core properties during 2022.
In 2023, we acquired 12 more industrial manufacturing properties and made a significant step in transforming our portfolio in August 2023 when we sold 13 non-core properties to GIPR, comprised of 11 retail properties and two office properties (see Notes 3 and 5 to our accompanying unaudited condensed consolidated financial statements included in this Annual Report on Form 10-K for details), followed by the sale of another office property at the end of August 2023.
We continued our transformation in 2024 with the sale of two non-core properties in January and February and the acquisition of an industrial manufacturing property in July 2024. Industrial properties now comprise 78% of the portfolio ABR and 22% of ABR is attributable to non-core properties, as of December 31, 2024. Our goal is to have a portfolio consisting of 100% industrial manufacturing properties over the intermediate-term.
The following is a breakdown of our income by property type for the year ended December 31, 2024 (in thousands):
Industrial Core (1)
Non-Core (2)
Total
Total rental income
$
35,190
$
11,307
$
46,497
Management fee income
$
264
$
—
$
264
(1) Industrial core properties include an approximate 72.7% TIC interest in the Santa Clara, California property.
(2) Non-core properties include the following:
(i) our non-core acquisition of a leading KIA retail property located in a prime location in Los Angeles County acquired in January 2022, which was structured as an OP Unit transaction resulting in a favorable equity issuance of $32.8 million represented by 1,312,382 Class C OP Units at a cost basis of $25 per share. We repurchased 656,191 of those units and 123,809 shares of Class C Common Stock from an affiliate of the seller at $14.80 per share on August 1, 2024 as described in Note 12 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K;
(ii) our 12-year lease with OES executed in January 2023 for one of our legacy assets located in Rancho Cordova, California that includes a purchase option which OES may exercise until December 31, 2026. We have received preliminary indications from OES of interest in exercising the option. (We define legacy assets as those that were acquired by different management teams utilizing different investment objectives and underwriting criteria);
(iii) our legacy 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 to allow for multi-family development. We entered into a purchase and sale agreement for the Costco property with KB Home, a national homebuilder, in January 2024 and the buyer has made $1.7 million of non-refundable deposits as of December 31, 2024 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details of the pending sale); and
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(iv) two legacy office properties including a property leased to Solar Turbines that we expect to sell after we complete a parcel split to maximize its value and a property leased to Cummins that was sold on February 28, 2024 (see Note 3 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K for additional details of this sale).
The following is a breakdown of our assets by property type (in thousands):
As of December 31, 2024
Industrial Core (1)
Non-Core (2)
Total investments in real estate property
$
393,488
$
108,200
Accumulated depreciation and amortization
(49,604)
(9,920)
Total real estate investments, net, excluding unconsolidated investment in real estate property
343,884
98,280
Unconsolidated investment in a real estate property (3)
9,324
—
Total real estate investments, net
353,208
98,280
Real estate investments held for sale, net
—
22,372
Tenant deferred rent and other receivables
13,137
5,169
Above-market lease intangibles, net
1,240
—
Prepaid expenses and other assets
1,161
289
Other assets related to real estate investments held for sale
—
215
Total assets
$
368,746
$
126,325
(1) See footnote (1) above
(2) See footnote (2) above.
(3) As part of our continued effort to increase balance sheet simplicity, management is currently exploring opportunities to acquire the minority interests in the property in which we hold the TIC Interest, which would result in consolidation of the asset, or to sell the TIC Interest.
We have one mortgage secured by an industrial core property and one mortgage secured by a non-core property. The equity of each special purpose subsidiary that owns our other properties is pledged as collateral under our Credit Facility or the properties are unencumbered. See details of mortgage debt in Note 7 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
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. On November 4, 2024, our board of directors authorized a 1.7% increase in the annual distribution rate from $1.15 per share to $1.17 per share commencing with monthly distributions payable to common stockholders and Class C OP Unit holders of record beginning as of January 31, 2025.
44
Cash Flow Summary
The following table summarizes our cash flow activity for the years ended December 31, 2024 and 2023 (in thousands):
December 31,
2024
2023
Net cash provided by operating activities
$
18,241
$
16,579
Net cash provided by (used in) investing activities
$
8,395
$
(93,602)
Net cash (used in) provided by financing activities
$
(18,235)
$
71,544
Cash Flows from Operating Activities
The net increase in cash provided by operating activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily reflects a decrease in property expenses which resulted from the August 2023 sale of properties subject to gross leases and an increase in distributions from unconsolidated investment in a real estate property, which resulted from an increase in available cash following completion of roof replacements. These were partially offset by an increase in interest expense, net of derivative cash receipts, year-over-year since the Term Loan was not fully drawn until April 2023.
Cash Flows from Investing Activities
The net cash provided by investing activities for the year ended December 31, 2024 primarily reflects the net proceeds from the sale of two real estate properties and a land parcel aggregating $15.0 million, partially offset by the cost of one acquisition and building additions aggregating $7.0 million. The net cash used in investing activities for the year ended December 31, 2023 primarily reflects funds used for acquisitions of 12 properties aggregating $122.8 million and additions to existing real estate properties of $4.8 million, offset in part by the net proceeds of $34.7 million from the sale of real estate properties.
Cash Flows from Financing Activities
The net cash used in financing activities for the year ended December 31, 2024 primarily reflects the net cost of repurchasing Class C OP Units and shares of Class C Common Stock for $11.5 million, our dividends and distributions paid to preferred and common stockholders and Class C OP Unit holders and monthly repayments of mortgage notes payable, partially offset by net proceeds from the sale of common stock under our ATM offering. The net cash provided by financing activities for the year ended December 31, 2023 primarily reflects our net borrowings of $97.0 million from the Credit Facility, partially offset by repayments of principal on a mortgage note payable, funds used to repurchase common stock and dividends and distributions paid to preferred and common stockholders and Class C OP Unit holders.
Results of Operations
Portfolio Information
Our wholly-owned investments in real estate properties as of December 31, 2024 and 2023, including one and two properties held for sale as of the years ended December 31, 2024 and 2023, respectively, and the 91,740 square foot industrial property underlying the TIC Interest for all balance sheet dates presented were as follows:
December 31,
2024
2023
Number of properties:
Industrial (1) (2)
39
39
Non-core properties (2)
4
5
Total operating properties
43
44
Leasable square feet:
Industrial properties(1) (2)
4,196,496
4,242,797
Non-core properties (2)
302,442
389,672
Total leasable square feet
4,498,938
4,632,469
(1) Includes the TIC Interest.
45
(2) Includes one office property held for sale as of December 31, 2024 and two properties (one industrial and one office) held for sale as ofDecember 31, 2023, which were sold on January 10, 2024 and February 28, 2024.
We acquired one operating property during 2024 and 12 operating properties during 2023, respectively. We sold two and 14 non-core properties during 2024 and 2023, respectively. The operating results of properties that were classified as held for sale as of December 31, 2024 and 2023 and the properties that were sold during 2024 and 2023 were included in the continuing results of operations in our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Our results of operations for the year ended December 31, 2024, may not be comparable to those expected for 2025 or in future periods.
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Rental Income
Rental income for the years ended December 31, 2024 and 2023 was $46.5 million and $46.9 million, respectively, including tenant reimbursements of $2.0 million and $3.0 million, respectively. The decrease in rental income of $0.4 million, or 1%, year-over-year reflects the disposition of two properties during the first quarter of 2024 and 14 properties in August 2023, which included tenant reimbursements for modified gross leases and double-net leases. The decrease in rental income from sold properties was largely offset by rental income from 12 industrial manufacturing properties acquired in 2023 and one industrial manufacturing property acquired in July 2024. Pursuant to most of our current lease agreements, tenants are required to pay property operating expenses directly; however, some tenants reimburse all or a portion of the property operating expenses that they do not pay directly.
General and Administrative
General and administrative expenses were $6.3 million and $6.6 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $0.3 million, or 5%, year-over-year primarily reflects reduced employee compensation and investor relations costs, partially offset by non-recurring legal and transfer agent costs related to the distribution of GIPR’s common stock to our stockholders in January 2024.
Stock Compensation
Stock compensation expense was $1.6 million and $11.2 million for the years December 31, 2024 and 2023, respectively. The significant decrease of $9.6 million, or 86%, compared to 2023 primarily reflects the change in stock compensation expense for our Class P OP Units and Class R OP Units which vested at the end of March 2024. Stock compensation expense in 2024 includes $1.2 million for our Class P OP Units and Class R OP Units for the first quarter, of which $0.7 million related to our achievement of management’s performance target for FFO of $1.05 per diluted share for the year ended December 31, 2023. Stock compensation expense for these units was $10.9 million in 2023, which included a one-time, non-cash catch-up adjustment of $8.6 million for performance-based stock compensation expense based on our determination that it was probable that we would achieve management’s performance target for FFO of $1.05 per diluted share for the year ended December 31, 2023. Amortization of the stock compensation expense related to our Class P OP Units and Class R OP Units was completed effective with their automatic conversion to Class C OP Units on the last business day of March 2024. From April 1, 2024 through December 31, 2024, there were no other stock incentive awards outstanding. In addition to the portion of independent directors' fees that are paid in common stock, stock compensation expense in future periods will include amortization for the Class X OP Units granted on February 3, 2025 as described in Note 14 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Depreciation and Amortization
Depreciation and amortization expense was $16.6 million and $15.6 million for the years ended December 31, 2024 and 2023, 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 $1.0 million, or 7%, year-over-year primarily reflects a full year of depreciation of real estate properties acquired in the first seven months of 2023, and an increase due to an industrial manufacturing property acquired on July 15, 2024, partially offset by reductions due to properties sold in August 2023 and the first quarter of 2024, along with reductions in amortization of intangible lease assets for the year ended December 31, 2024, due to the disposition of properties with acquired leases rather than leases initiated by us.
46
Property Expenses
Property expenses were $3.6 million and $5.2 million for the years ended December 31, 2024 and 2023, respectively. These expenses primarily relate to property taxes and repairs and maintenance expenses, the majority of which are reimbursed by tenants and included in rental income. The decrease of $1.5 million, or 30%, year-over-year primarily reflects decreases in repairs and maintenance and property taxes related to 14 properties sold during August 2023, which included modified gross leases and double-net leases, offset in part by an increase in non-recoverable environmental insurance expenses.
Impairment of Real Estate Investment Property
There was no impairment for the year ended December 31, 2024. Impairment of real estate investment property amounted to $4.4 million for the year ended December 31, 2023 related to our property in Nashville, Tennessee, which was leased to Cummins Inc. The impairment charge represents the excess of the property’s carrying value over the property’s contracted sale price less estimated selling costs for the sale that was completed on February 28, 2024.
Gain (Loss) on Sale of Real Estate Investments, Net
The gain on sale of real estate investments of $3.4 million for the year ended December 31, 2024 relates to the aggregate gain on sale of two properties (one industrial property with a lease expiration at the end of 2024 and one office property), which were sold during the first quarter of 2024 and the gain on sale of a land parcel in September 2024 (see Note 3 to our accompanying consolidated financial statements included in this this Annual Report on Form 10-K for more details). The loss on sale of real estate investments of $1.7 million for the year ended December 31, 2023 includes the $1.9 million loss on sale of the 13 non-core properties sold to GIPR on August 10, 2023, partially offset by the $0.2 million gain on sale of the office property sold on August 31, 2023. The loss included the $2.4 million difference between the $12.0 million liquidation value and the $9.6 million 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).
Other (Expense) Income
Interest income was $0.5 million and $0.3 million for the years ended December 31, 2024 and 2023, respectively. Interest income for 2024 primarily reflects interest earned on the proceeds from the sale of two properties (one industrial and one office) sold during the first two months of 2024 and higher interest rates earned on available cash and cash equivalents. Interest income for 2023 primarily reflects interest earned on cash proceeds from the April 2023 draws on the Term Loan, prior to utilizing such cash to acquire industrial manufacturing properties.
Dividend income was $0.1 million and $0.5 million for the years ended December 31, 2024 and 2023, respectively, reflecting dividends received on our investment in GIPR preferred stock for August through December 2023 and in January 2024, along with dividends received prior to the sale of 171,444 shares of common stock issued by GIPR and retained by us as described in Note5 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
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, remained relatively constant at $0.3 million for the years ended December 31, 2024 and 2023.
Interest expense, including unrealized gain or loss on interest rate swaps and net of derivative settlements, was $16.2 million and $13.8 million for the years ended December 31, 2024 and 2023, 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 $2.4 million, year-over-year primarily reflects (i) a $0.9 million increase in unrealized losses, net on valuation of interest rate swaps, and (ii) a $2.2 million net increase in interest expense and unused commitment fees incurred on our Credit Facility due to larger balances outstanding during 2024, since the Term Loan was not fully drawn until April 2023. This increase was partially offset by greater derivative cash settlements of $0.5 million and a reduction of $0.3 million in mortgage notes interest expense year-over-year as a result of paying off the mortgage on the property leased to OES in December 2023.
The year ended December 31, 2023 includes a gain of $1.4 million for the fair value adjustment of the GIPR preferred stock for the period from August 10, 2023 (when the GIPR preferred stock was acquired) through December 31, 2023.
47
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 on 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
In connection with our acquisition of properties, we allocate the purchase price, including transaction costs, to the tangible and intangible assets and liabilities acquired based on their respective estimated fair values. Tangible assets consist of land, buildings, fixtures and tenant improvements. Intangible assets consist of above- and below- market lease values and the value of in-place leases. 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, market land and building values, discount and capitalization rates, and future cash flows. The use of different assumptions could impact the timing of recognition of related revenues and expenses.
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. These indicators include, but are not limited to: changes in real estate market conditions, our ability to re-lease properties that are vacant, reclassification of properties to held for sale, and tenants in bankruptcy. Identification of such events may involve certain assumptions, estimates, and significant judgment. 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. The undiscounted operating cash flows are based on estimated market lease rates, property-operating expenses, carrying costs during lease-up periods, estimated hold periods, discount rates, and capitalization rates. 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. The use of different assumptions could have a material impact on our results of operations.
Recent Accounting Pronouncements
See Note 2 to our accompanying consolidated financial statements included in this Annual Report on Form 10-K.
48
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
See the Index to Consolidated Financial Statements at page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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, 2024 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 procedures 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.
49
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, 2024, using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (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, 2024.
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, 2024.
Changes in Internal Control Over Financial Reporting
There were no 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, 2024, 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
During the three months ended December 31, 2024, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
On February 27, 2025, Sandra G. Sciutto, our Principal Accounting Officer since July 2018, informed us that she is retiring effective as of March 31, 2025. On February 27, 2025, our board of directors appointed Sara R. Grisham, our current Senior Vice President of Accounting, as our Principal Accounting Officer to succeed Ms. Sciutto effective upon her retirement. Ms. Grisham, age 44, has served as our Senior Vice President of Accounting since September 2024. She previously served as Vice President, Financial Reporting for CaliberCos Inc. from August 2022 to September 2024; Vice President, Financial Data Analytics for Realty Income Corporation (NYSE: O) from November 2021 to August 2022; Senior Vice President, Head of Financial Reporting for VEREIT, Inc. (NYSE: VER) from March 2016 to November 2021 and Vice President, Regulatory and Investor Communications for VEREIT from March 2015 to March 2016; Director, Consolidations and International Accounting for Starwood Hotels and Resorts Worldwide, Inc. from March 2014 to March 2015; and various financial roles for Cole Real Estate Investments, Inc. (NYSE: COLE) from June 2007 to February 2014, including Vice President, Financial Reporting and Accounting from January 2012 to February 2014. Ms. Grisham started her career with PricewaterhouseCoopers LLP in September 2003 to June 2007 and is a licensed CPA in the state of Arizona. Ms. Grisham earned her B.S. in Business Administration, Accounting from the University of Arizona and her Master of Taxation from Arizona State University.
No family relationship exists between Ms. Grisham and any of our directors or executive officers. We have not entered into
any new compensation arrangements with Ms. Grisham in connection with her appointment. Ms. Grisham is not a party to any
transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
50
PART III
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, 2024, and delivered to stockholders in connection with our 2025 annual meeting of stockholders.
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, 2024, and delivered to stockholders in connection with our 2025 annual meeting of stockholders.
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, 2024, and delivered to stockholders in connection with our 2025 annual meeting of stockholders.
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, 2024, and delivered to stockholders in connection with our 2025 annual meeting of stockholders.
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, 2024, and delivered to stockholders in connection with our 2025 annual meeting of stockholders.
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
See Index to Consolidated Financial Statements at page F-1 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedule:
The following financial statement schedule is included herein at pages F-36 through F-39 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.
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.
All other schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Modiv Industrial, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Modiv Industrial, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of investments in real estate properties
As described further in notes 2 and 3 to the consolidated financial statements, the Company monitors events and changes in circumstances that could indicate that the carrying amounts of investments in real estate properties may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of investments in real estate properties may not be recoverable, management assesses whether the carrying value of the investments in 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, the Company does not believe that it will be able to recover the carrying value of the investments in real estate properties, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the investments in real estate properties. As of December 31, 2024, the Company’s net real estate investments totaled $473.9 million. We identified impairment of investments in real estate properties as a critical audit matter.
The principal consideration for our determination that impairment of investments in real estate properties is a critical audit matter is that auditing management’s evaluation of impairment of investments in real estate properties is challenging due to the high degree of judgment necessary in evaluating management’s indicators of possible impairment and due to significant auditor judgment in assessing the key inputs and assumptions used in forecasting undiscounted future cash flows and determining fair value.
Our audit procedures related to assessing impairment of investments in real estate properties included the following, among others.
•We evaluated the completeness of the population of real estate investments requiring further impairment evaluation as compared to the criteria established in management’s accounting policies.
F-2
•We tested the Company’s undiscounted cash flow analyses and estimates of fair value for investments in real estate properties with indicators of impairment, including evaluating the reasonableness of the methods and significant inputs and assumptions used. We compared anticipated sale values, appraised values, and capitalization rates with comparable observable market data, which involved the use of our real estate valuation professionals with specialized skills and knowledge.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2023.
Newport Beach, California
March 3, 2025
F-3
MODIV INDUSTRIAL, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
As of December 31,
2024
2023
Assets
Real estate investments:
Land
$
98,009
$
104,859
Buildings and improvements
386,102
399,667
Equipment
4,429
4,429
Tenant origination and absorption costs
13,194
15,707
Total investments in real estate property
501,734
524,662
Accumulated depreciation and amortization
(59,524)
(50,902)
Total real estate investments, net, excluding unconsolidated investment in real estate property and real estate investments held for sale, net
442,210
473,760
Unconsolidated investment in a real estate property
9,324
10,054
Total real estate investments, net, excluding real estate investments held for sale, net
451,534
483,814
Real estate investments held for sale, net
22,372
11,558
Total real estate investments, net
473,906
495,372
Cash and cash equivalents
11,530
3,129
Tenant deferred rent and other receivables
18,460
12,795
Above-market lease intangibles, net
1,240
1,314
Prepaid expenses and other assets
2,693
4,174
Investment in preferred stock
—
11,039
Interest rate swap derivative
—
2,970
Other assets related to real estate investments held for sale
—
103
Total assets
$
507,829
$
530,896
Liabilities and Equity
Mortgage notes payable, net
$
30,777
$
31,030
Credit facility term loan, net
248,999
248,509
Accounts payable, accrued and other liabilities
4,035
4,468
Distributions payable
1,994
12,175
Below-market lease intangibles, net
7,948
8,869
Interest rate swap derivative
—
474
Other liabilities related to real estate investments held for sale
26
249
Total liabilities
293,779
305,774
Commitments and contingencies (Note 11)
7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of December 31, 2024 and 2023 with an aggregate liquidation value of $50,000
2
2
Class C common stock, $0.001 par value, 300,000,000 shares authorized; 10,404,211 shares issued and 9,936,892 shares outstanding as of December 31, 2024, and 8,048,110 shares issued and 7,704,600 outstanding as of December 31, 2023
10
8
Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of December 31, 2024 and 2023
—
—
Additional paid-in-capital
349,479
292,618
Treasury stock, at cost, 467,319 and 343,510 shares held as of December 31, 2024 and 2023, respectively
(7,112)
(5,291)
Cumulative distributions and net losses
(154,074)
(145,552)
Accumulated other comprehensive income
1,841
2,658
Total Modiv Industrial, Inc. equity
190,146
144,443
Noncontrolling interests in the Operating Partnership
23,904
80,679
Total equity
214,050
225,122
Total liabilities and equity
$
507,829
$
530,896
See accompanying notes to consolidated financial statements.
F-4
MODIV INDUSTRIAL, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
For the Years Ended December 31,
2024
2023
Income:
Rental income
$
46,497
$
46,936
Management fee income
264
298
Total income
46,761
47,234
Expenses:
General and administrative
6,340
6,643
Stock compensation expense
1,586
11,171
Depreciation and amortization
16,601
15,551
Property expenses
3,613
5,161
Impairment of real estate investment property
—
4,388
Total expenses
28,140
42,914
Gain (loss) on sale of real estate investments, net
3,360
(1,709)
Operating income
21,981
2,611
Other income (expense):
Interest income
474
326
Dividend income
113
475
Income from unconsolidated investment in a real estate property
297
280
Interest expense, including unrealized loss on interest rate swaps and net of derivative settlements
(16,221)
(13,807)
Loss on equity investments
(151)
—
Increase in fair value of investment in preferred stock
—
1,419
Other expense, net
(15,488)
(11,307)
Net income (loss)
6,493
(8,696)
Less: net (income) loss attributable to noncontrolling interests in Operating Partnership
(475)
2,082
Net income (loss) attributable to Modiv Industrial, Inc.
6,018
(6,614)
Preferred stock dividends
(3,688)
(3,688)
Net income (loss) attributable to common stockholders
$
2,330
$
(10,302)
Net income (loss) per share attributable to common stockholders:
Basic
$
0.25
$
(1.36)
Net income (loss) per share attributable to common stockholders and noncontrolling interests:
Diluted
$
0.25
$
(1.36)
Weighted-average number of common shares outstanding:
Basic
9,293,103
7,558,883
Weighted-average number of common shares and Class C OP Units outstanding:
Diluted
11,188,974
9,086,903
See accompanying notes to consolidated financial statements.
F-5
MODIV INDUSTRIAL, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
For the Years Ended December 31,
2024
2023
Net income (loss)
$
6,493
$
(8,696)
Other comprehensive income (loss): cash flow hedge adjustments
Amortization of unrealized holding gain on interest rate swap
(1,017)
(1,016)
Comprehensive income (loss)
5,476
(9,712)
Comprehensive (income) loss attributable to noncontrolling interest in Operating Partnership
(303)
2,253
Comprehensive income (loss) attributable to Modiv Industrial, Inc.
$
5,173
$
(7,459)
See accompanying notes to consolidated financial statements.
F-6
MODIV INDUSTRIAL, INC.
Consolidated Statements of Equity
For the Years Ended December 31, 2024 and 2023
(in thousands, except share data)
Class C Common Stock (“CS”)
Additional Paid-in Capital
Cumulative Distributions and Net Losses
Accumulated Other Comprehensive Income (Loss)
Total Modiv Industrial, Inc. Equity
Noncontrolling Interest in the Operating Partnership
Total Equity
Preferred Stock
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Balance, December 31, 2022
2,000,000
$
2
7,762,506
$
8
$
278,339
(250,153)
$
(4,162)
$
(117,939)
$
3,503
$
159,751
$
81,283
$
241,034
Issuance of common stock - distribution reinvestments
—
—
178,379
—
2,276
—
—
—
—
2,276
—
2,276
ATM offering of common stock, net (Note 9)
—
—
85,072
—
832
—
—
—
—
832
—
832
Issuance of Class C OP Units for property acquisition
—
—
—
—
—
—
—
—
—
—
5,175
5,175
Stock compensation expense
—
—
22,153
—
305
—
—
—
—
305
—
305
OP Units compensation expense
—
—
—
—
10,866
—
—
—
—
10,866
—
10,866
Repurchases of common stock
—
—
—
—
—
(93,357)
(1,129)
—
—
(1,129)
—
(1,129)
Dividends, preferred stock
—
—
—
—
—
—
—
(3,688)
—
(3,688)
—
(3,688)
Cash distributions declared, CS and Class C OP Units
—
—
—
—
—
—
—
(8,719)
—
(8,719)
(1,757)
(10,476)
In kind distribution declared, CS and Class C OP Units
—
—
—
—
—
—
—
(8,592)
—
(8,592)
(1,769)
(10,361)
Net loss
—
—
—
—
—
—
—
(6,614)
—
(6,614)
(2,082)
(8,696)
Amortization of unrealized holding gain on interest rate swap
—
—
—
—
—
—
—
—
(845)
(845)
(171)
(1,016)
Balance, December 31, 2023
2,000,000
2
8,048,110
8
292,618
(343,510)
(5,291)
(145,552)
2,658
144,443
80,679
225,122
Issuance of common stock - distribution reinvestments
—
—
141,418
—
2,114
—
—
—
—
2,114
—
2,114
ATM offering of common stock, net (Note 9)
—
—
521,837
—
7,711
—
—
—
—
7,711
—
7,711
Exchange of Class C OP Units to common stock
—
—
1,675,219
2
42,914
—
—
—
(102)
42,814
(42,814)
—
Stock compensation expense
—
—
17,627
—
275
—
—
—
—
275
—
275
OP Units compensation expense
—
—
—
—
1,311
—
—
—
—
1,311
—
1,311
Repurchase of CS and Class C OP Units
—
—
—
—
—
(123,809)
(1,821)
—
—
(1,821)
(9,713)
(11,534)
Dividends declared, preferred stock
—
—
—
—
—
—
—
(3,688)
—
(3,688)
—
(3,688)
Cash distributions declared, CS and Class C OP Units
—
—
—
—
—
—
—
(10,852)
—
(10,852)
(1,885)
(12,737)
Net income
—
—
—
—
—
—
—
6,018
—
6,018
475
6,493
Amortization of unrealized holding gain on interest rate swap
—
—
—
—
—
—
—
—
(845)
(845)
(172)
(1,017)
Adjustment to noncontrolling interests
—
—
—
—
2,536
—
—
—
130
2,666
(2,666)
—
Balance, December 31, 2024
2,000,000
$
2
10,404,211
$
10
$
349,479
(467,319)
$
(7,112)
$
(154,074)
$
1,841
$
190,146
$
23,904
$
214,050
See accompanying notes to consolidated financial statements.
F-7
MODIV INDUSTRIAL, INC.
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
2024
2023
Cash Flows from Operating Activities:
Net income (loss)
$
6,493
$
(8,696)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
16,601
15,551
Stock compensation expense
1,586
11,171
Amortization of deferred rents
(5,716)
(6,232)
Amortization of deferred lease incentives
—
154
Write-off and amortization of deferred financing costs and premium/discount
1,192
767
Amortization of (below) above market lease intangibles, net
(847)
(808)
Impairment of real estate investment property
—
4,388
Loss on equity investments
151
—
Increase in fair value of investment in preferred stock
—
(1,419)
(Gain) loss on sale of real estate investments, net
(3,360)
1,709
Unrealized loss on interest rate swap valuation
1,479
618
Income from unconsolidated investment in a real estate property
(297)
(280)
Distributions from unconsolidated investment in a real estate property
1,027
231
Changes in operating assets and liabilities:
Decrease in tenant rent and other receivables
71
387
Increase in prepaid expenses and other assets
460
(59)
Decrease in accounts payable, accrued and other liabilities
(599)
(903)
Net cash provided by operating activities
18,241
16,579
Cash Flows from Investing Activities:
Acquisitions of real estate investments
(5,183)
(122,778)
Improvements to existing real estate investments and other assets
(1,847)
(4,750)
Net proceeds from sale of real estate investments
15,023
34,738
Net proceeds from sale of investment in common stock
652
—
Purchase deposits, net
(250)
(812)
Net cash provided by (used in) investing activities
8,395
(93,602)
Cash Flows from Financing Activities:
Borrowings from credit facility term loan
—
100,000
Repayments of credit facility revolver, net
—
(3,000)
Principal payments on mortgage notes payable
(281)
(13,315)
Proceeds from offering of common stock, net
7,711
832
Repurchases of common stock and Class C OP Units
(11,534)
(1,129)
Dividends paid to preferred stockholders
(3,688)
(3,688)
Distributions paid to common stockholders and Class C OP Unit holders
(10,443)
(8,156)
Net cash (used in) provided by financing activities
(18,235)
71,544
Net increase (decrease) in cash and cash equivalents
8,401
(5,479)
Cash and cash equivalents, beginning of year
3,129
8,608
Cash and cash equivalents, end of year
$
11,530
$
3,129
MODIV INDUSTRIAL, INC.
Consolidated Statements of Cash Flows - (Continued)
(in thousands)
For the Years Ended December 31,
2024
2023
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest
$
13,504
$
12,009
Supplemental Schedule of Noncash Investing and Financing Activities:
Distribution of GIPR common stock to Class C Common Stock and Class C OP Units
$
10,361
$
—
Receipt of GIPR common stock in exchange of GIPR preferred stock
$
(11,039)
$
—
Conversion of Classes M, P and R OP Units to Class C OP Units
$
(17,705)
$
—
Exchange of Class C OP Units for Class C Common Stock
$
60,518
$
—
Change in construction advances
$
1,199
$
—
Investment in preferred stock from sale of real estate investments
$
—
$
9,620
Issuance of Class C OP Units in the acquisition of a real estate investment
$
—
$
5,175
Reinvested distributions from common stockholders
$
2,114
$
2,265
Increase in accrued distributions
$
180
$
10,407
Supplemental disclosure of real estate investment held for sale, net:
Increase in real estate investments held for sale
$
(10,814)
$
(6,302)
Decrease (increase) in assets related to real estate investments held for sale
$
103
$
(91)
(Decrease) increase in liabilities related to real estate investments held for sale
$
(223)
$
131
See accompanying notes to consolidated financial statements.
F-8
MODIV INDUSTRIAL, INC.
Notes to Consolidated Financial Statements
NOTE 1. BUSINESS AND ORGANIZATION
Modiv Industrial, Inc. (the “Company”) was incorporated on May 15, 2015 as a Maryland corporation. The Company changed its name from Modiv Inc. to Modiv Industrial, Inc., effective August 11, 2023, upon achieving 70% (expressed as a percentage of annual base rent (“ABR”)) of industrial properties in its portfolio. The Company has the authority to issue 450.0 million shares of stock, consisting of 50.0 million shares of preferred stock, $0.001 par value per share, of which 2.0 million shares are designated as 7.375% Series A cumulative redeemable perpetual preferred stock (“Series A Preferred Stock”), 300.0 million shares of Class C common stock (“Class C Common Stock”), $0.001 par value per share, and 100.0 million shares of Class S common stock, $0.001 par value per share. The Company’s 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 17, 2021. The Company’s Class C Common Stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022.
The Company holds its investments in real property primarily through special purpose limited liability companies which are wholly-owned subsidiaries of Modiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owned an approximate 89% and 68% partnership interest in, the Operating Partnership as of December 31, 2024 and 2023, respectively. The Operating Partnership’s limited partners include holders of Class C Operating Partnership Units (“Class C OP Units”), as described in Note 12.
As of December 31, 2024, the Company’s portfolio of approximately 4.5 million square feet of aggregate leasable space consisted of investments in 43 real estate properties, comprised of 39 industrial properties, which represent approximately 78% of the portfolio (expressed as a percentage of ABR) as of December 31, 2024, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California industrial property (the “TIC Interest”), and four non-core properties, including one held for sale property, which represent approximately 22% of the portfolio by ABR.
At the Market Offering
On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200.0 million: Class C Common Stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022, and the Company filed a prospectus supplement for the Company’s at-the-market offering of up to $50.0 million of its Class C Common Stock (the “ATM Offering”) on June 6, 2022. On November 13, 2023, the Company filed Supplement No. 1 to the Prospectus Supplement dated June 6, 2022, and to the Prospectus dated June 2, 2022, to reflect the Amended and Restated At Market Issuance Sales Agreement, dated November 13, 2023, and the change in the Company's corporate name.
During the year ended December 31, 2024, 521,837 shares were sold at an average price of $16.16 per share and issued for $8.2 million, net of sale commissions of $0.2 million, of which 287,840 shares were sold at an average price of $16.16 per share and issued for $4.5 million, net of sale commissions, during the three months ended December 31, 2024. The resulting net proceeds from the ATM Offering for the year ended December 31, 2024 were $7.7 million after legal, accounting, investor relations and other offering costs of $0.5 million. As of December 31, 2024, the Company had $40.3 million of shares of Class C Common Stock available for future issuance under the ATM Offering.
Distribution Reinvestment Plan
On February 15, 2022, the Company’s board of directors amended and restated the Company’s distribution reinvestment plan (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 Company’s distribution reinvestment plan (the “DRP”). The purpose of this change was to reflect the fact that the Company’s Class C Common Stock was listed on the NYSE and no longer priced based on net asset value (“NAV”) per share. As more fully described in the Second Amended and Restated DRP, the purchase price for the Class C Common Stock under the DRP depends on whether the Company issues new shares to DRP participants or the Company 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. For the years ended December 31, 2024 and 2023, the purchase price for the Class C Common Stock issued directly by the Company is 97% of the market price (as defined in the Second Amended and Restated DRP) of the Class C Common Stock, reflecting a 3% discount.
F-9
On November 4, 2024, the Company, with the authorization of the board of directors of the Company, increased the discount for the purchase price of shares of Class C Common Stock under the Company’s DRP from 3% to 5%, which went into effect on December 7, 2024 and was first effective for the December distribution paid on January 27, 2025. This discount is subject to change from time to time, in the Company’s sole discretion, but will be between 0% to 5% of the market price.
The purchase price for the Class C Common Stock that the Company or any third-party administrator purchases from parties other than the Company, either in the open market or in privately negotiated transactions, will be 100% of the “average price per share” (as described in the Second Amended and Restated DRP) actually paid for such shares of Class C Common Stock, excluding any processing fees. The Second Amended and Restated DRP also reflects the $0.05 per share processing fee that will be paid to the Company’s transfer agent by DRP participants for each share of Class C Common Stock purchased through the DRP. The Second Amended and Restated DRP was effective beginning with distributions paid in February 2022.
Through December 31, 2024, the Company has issued 499,301 shares of Class C Common Stock pursuant to the DRP.
Share Repurchase Program
On December 21, 2022, the Company’s board of directors authorized up to $15.0 million in repurchases of the Company’s outstanding shares of common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2023 (“2023 SRP”). Repurchases made pursuant to the 2023 SRP were 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 the Company in its 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, the Company repurchased a total of 93,357 shares of its Class C Common Stock for a total of $1.1 million 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 sheets and consolidated statements of equity.
As of December 31, 2024, the Company’s board of directors has not authorized a new stock repurchase program for the repurchase of the Company’s outstanding shares of common stock and Series A Preferred Stock.
Private Repurchase Transaction
On August 1, 2024, the Company completed a private repurchase transaction whereby it repurchased 123,809 shares of its Class C Common Stock and 656,191 Class C OP Units at an average cost of $14.80 per share/ unit for an aggregate cost of $11.5 million, as further described in Note 12. The repurchased Class C Common Stock shares are held as treasury stock and presented as a component of equity in the accompanying consolidated balance sheets and consolidated statements of equity.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. The Company’s financial statements, and the financial statements of the Operating Partnership, including its wholly-owned subsidiaries, are consolidated in the accompanying consolidated financial statements. The portion of the Operating Partnership which is not wholly-owned by the Company is presented as a noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.
The accompanying consolidated financial statements and related notes are the representations of the Company’s management, who is responsible for their integrity and objectivity. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
As of and for the year ended December 31, 2024 the Company changed the presentation of its consolidated financial statements from displaying the dollar amounts in ones to thousands, unless otherwise noted. This change has been made to enhance the readability and clarity of the financial information presented. Prior period figures have been rounded to conform to the current year's presentation for comparability purposes. This change in presentation does not affect the underlying consolidated financial data or the financial position and performance of the Company.
F-10
Use of Estimates
The preparation of the accompanying consolidated financial statements and the related notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in such consolidated financial statements and related notes thereto. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience. Actual results could differ materially from those estimates.
Noncontrolling Interest in Consolidated Entities
The Company accounts for the noncontrolling interests in its Operating Partnership in accordance with the related accounting guidance. Due to the Company’s exclusive responsibility and discretion in the management and control of the Operating Partnership as its sole general partner, the Operating Partnership, including its wholly-owned subsidiaries, are consolidated by the Company, and the limited partner interests not held by the Company are reflected as noncontrolling interests in the accompanying consolidated balance sheets and statements of equity. As discussed further in Note 12, other than the noncontrolling interests related to Class C OP Units issued in acquisitions completed in January 2022 and April 2023, all other noncontrolling interests, which previously represented non-voting, non-distribution accruing interests, with no allocation of profits or losses, automatically converted and obtained rights to future distributions and allocations of profits and losses effective during the first quarter of 2024.
Revenue Recognition
The Company accounts for leases in accordance with FASB Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), and the related FASB ASU Nos. 2018-10, 2018-11, 2018-20 and 2019-01, which provide practical expedients, technical corrections and improvements for certain aspects of ASU 2016-02 (collectively, “Topic 842”). As a lessor, the Company’s leases with tenants generally provide for the lease of real estate properties, as well as common area maintenance, property taxes and other recoverable costs. Rental income and tenant reimbursements and other lease related property income that meet the requirements of the practical expedient provided by ASU No. 2018-11 have been combined under rental income in the Company’s accompanying consolidated statements of operations.
The Company recognizes rental income from tenants under operating leases on a straight-line basis over the noncancellable term of the lease when collectability of such amounts is reasonably assured. Recognition of rental income on a straight-line basis includes the effects of rental abatements, lease incentives and fixed and determinable increases in lease payments over the lease term. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company.
When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term.
The Company records tenant reimbursements on a gross basis in instances when its tenants reimburse the Company for lessor costs, including real estate taxes, which the Company incurs. Conversely, the Company records lessor costs on a net basis when these costs are paid directly by the Company’s tenants to suppliers and service providers, including taxing authorities, on the Company’s behalf. To the extent any tenant responsible for these obligations under the applicable lease defaults on such lease, or if it is deemed probable that the tenant will fail to pay for these obligations, the Company records a liability for such obligations.
The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, credit rating, the asset type and current economic conditions. If the Company’s evaluation of these factors indicates it may not recover the full value of the receivable, it provides an allowance against the portion of the receivable that it estimates may not be recovered. This analysis requires the Company to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected.
Collectability of Tenant Deferred Rent Receivables
The Company’s determination of the collectability of tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or
F-11
(ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. The Company also may record an allowance under other authoritative GAAP depending upon the Company’s evaluation of the individual receivables, specific credit enhancements, current economic conditions and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company’s consolidated statements of operations.
With respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt allowance for the tenant’s receivable balance and generally will not recognize subsequent rental income until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.
Gain or Loss on Sale of Real Estate Investments
The Company recognizes gain or loss on sale of real estate property when the Company has executed a contract for sale of the property, transferred controlling financial interest in the property to the buyer and determined that it is probable that the Company will collect substantially all of the consideration for the property. The Company’s real estate property sale transactions for the years ended December 31, 2024 and 2023 met these criteria at closing. When properties are sold, operating results of the properties prior to the sale remain in continuing operations, and any associated gain or loss from the disposition is included in gain or loss on sale of real estate investments in the Company’s accompanying consolidated statements of operations.
Income Taxes
The Company has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under Section 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Company expects to operate in a manner that will allow it to continue to qualify as a REIT for U.S. federal income tax purposes. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including meeting various tests regarding the nature of the Company’s assets and income, the ownership of the Company’s outstanding stock and distribution of at least 90% of the Company’s annual REIT taxable income to its stockholders (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). As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service (“IRS”) grants the Company relief under certain statutory provisions.
The Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements. Neither the Company nor its subsidiaries has been assessed material interest or penalties by any major tax jurisdictions. The Company’s evaluations were performed for the tax years ended December 31, 2024 and 2023. As of December 31, 2024, the returns for calendar years 2021, 2022 and 2023 remain subject to examination by the IRS and some additional years may be subject to examination wherein tax loss carryforwards are utilized and in certain state tax jurisdictions.
Treasury Stock
The Company accounts for repurchased shares of its Class C Common Stock as treasury stock. Treasury shares are recorded at cost and are included as a component of equity in the Company’s accompanying consolidated balance sheets as of December 31, 2024 and 2023.
Per Share Data
The Company reports both basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income (loss) less net income (loss) attributable to noncontrolling interests in Operating Partnership and preferred stock dividends by the weighted average number of common shares outstanding during the period. Diluted EPS uses the treasury stock method or the if-converted method, where applicable, to compute for the potential dilution that would occur if dilutive securities or commitments to issue common stock were exercised. See Note 13 for additional information.
F-12
Fair Value Measurements and Disclosures
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:
Cash and cash equivalents; tenant receivables; prepaid expenses and other assets and accounts payable, accrued and other liabilities. These balances approximate their fair values due to their short maturities.
Investment in preferred stock: The preferred stock investment as of December 31, 2023 was based on Level 1 inputs since the number of Generation Income Properties, Inc. (NASDAQ: GIPR) (“GIPR”) common shares to be received in redemption of the preferred stock was known (see Notes 3 and 5 for additional information).
Derivative instruments: The Company’s derivative instruments are presented at fair value in the accompanying consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a gross basis by counterparty portfolio. The Company’s derivatives are subject to master netting agreements, but there was no impact of offsetting as of December 31, 2024 and 2023.
Credit facilities: The fair values of the Company’s credit facility approximate the carrying value as their interest rates are variable and based on the secured overnight financing rate (“SOFR”).
Mortgage notes payable: The fair value of the Company’s mortgage notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.
F-13
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Cash and cash equivalents are stated at cost, which approximates fair value. The Company’s cash and cash equivalents balance may exceed federally insurable limits. The Company mitigates this risk by depositing funds in government money market funds or with major financial institutions; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.
As of December 31, 2024, the Company had cash and cash equivalents of 11.5 million, of which $9.7 million was held in investments in government money market funds and $0.8 million exceeded the federally insurable limits and was held with major financial institutions. Although the Company bears the risk with respect to amounts not federally insured, it has not experienced and does not anticipate any losses as a result due to the high quality of the financial institutions where the Company’s cash and cash equivalents are held.
Real Estate Investments
Real Estate Acquisition Valuation
The Company records acquisitions that meet the definition of a business as a business combination. If the acquisition does not meet the definition of a business, the Company records the acquisition as an asset acquisition. All real estate acquisitions during the years ended December 31, 2024 and 2023 qualified as asset acquisitions. The Company allocates the purchase price, including transaction costs, to the tangible and intangible assets and liabilities acquired based on their respective estimated fair values. Tangible assets consist of land, buildings, fixtures and tenant improvements. Intangible assets consist of above- and below- market lease values and the value of in-place leases.
The Company assesses the estimated fair values 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. The majority of the Company’s properties that were acquired during the years ended December 31, 2024 and 2023 were purchased through sale-leaseback transactions. These acquisitions satisfied the requirements of sale-leaseback accounting under ASC 842, Leases.
The Company records 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 noncancellable term of above-market in-place leases plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income.
The Company estimates 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, the Company generally includes real estate taxes, insurance and other operating expenses and estimates of lost rent at market rates during the expected lease up periods. The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining term of the respective lease.
Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, market land and building values, discount and capitalization rates, and future cash flows. Therefore, the Company classifies these inputs as Level 3 inputs.
F-14
Depreciation and Amortization
Real estate costs related to the acquisition and improvement of properties are capitalized and depreciated or amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset and are expensed as incurred. Significant replacements and improvements are capitalized. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
●
Buildings
15 to 50 years
●
Site improvements
2 to 15 years
●
Tenant improvements
Shorter of remaining lease term or useful life
●
Industrial equipment
20 years
●
Tenant origination and absorption costs, and above-/below-market lease intangibles
Remaining lease term
Impairment of Investment in Real Estate Properties
The Company monitors events and changes in circumstances that could indicate that the carrying amounts of investments in real estate properties may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of investments in real estate properties may not be recoverable, management assesses whether the carrying value of the investments in 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, the Company does not believe that it will be able to recover the carrying value of the investments in real estate properties, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the investments in real estate properties.
The fair value of assets with impairment indicators is determined using techniques including discounted cash flow analysis, analysis of recent comparable sales transactions and purchase offers received from third parties, which are Level 3 inputs. When estimating the fair value of the Company’s real estate investment, consideration may be given to a single valuation technique or multiple valuation techniques, as appropriate. Estimating future cash flows is highly subjective and estimates can differ materially from actual results.
Leasing Costs
The Company accounts for leasing costs under Topic 842, capitalizing initial direct costs, which include only those costs that are incremental to the lease arrangement and would not have been incurred if the lease had not been obtained. The Company amortizes third-party leasing commissions over the life of lease or lease term extension and charges internal leasing costs and third-party legal leasing costs to expense as incurred. These expenses are included in property expenses or general and administrative expenses in the Company’s consolidated statements of operations.
Real Estate Investments Held for Sale
The Company generally considers a real estate investment to be held for sale when the following criteria are met as of the balance sheet date: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate investments classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or their estimated fair value less estimated costs to sell. Operating results of properties that were classified as held for sale in the ordinary course of business are included in continuing operations in the Company’s accompanying consolidated statements of operations.
Equity Investment in a Joint Venture and Unconsolidated Investment in a Real Estate Property
The Company accounts for investments in an entity over which the Company has the ability to exercise significant influence using the equity method of accounting. Under the equity method of accounting, an investment is initially recognized at cost and is subsequently adjusted to reflect the Company’s share of earnings or losses of the investee. The investment is also increased for additional amounts invested and decreased for any distributions received from the investee. Equity method investments are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the investment might not be recoverable. If an equity method investment is determined to be other-than-temporarily impaired, the investment is reduced to fair value and an impairment charge is recorded as a reduction to earnings. The Company’s unconsolidated investment is in the form of its share in the ownership of a real estate property where the equity method of accounting is applied.
F-15
Other Investments
The Company has insignificant investments through simple agreements for future equity (“SAFE”) in two entities that it made when the Company was in the crowdfunding business. These SAFE investments provide that the Company will automatically receive shares of the entities based on the conversion rate of any future equity rounds up to a valuation cap. The investments are included in prepaid expenses and other assets in the accompanying consolidated balance sheets. The Company has recorded these investments at cost. An impairment of $0.1 million was recorded for the year ended December 31, 2024 for one of these investments, which is included in loss on equity investments in the accompanying consolidated statement of operations, and no impairment was recorded for the year ended December 31, 2023.
Deferred Financing Costs
Deferred financing costs represent commitment fees, mortgage loan and line of credit fees, legal fees, and other third-party costs associated with obtaining financing and are presented on the Company’s balance sheet as a direct deduction from the carrying value of the associated mortgage note payable and deferred financing costs related to revolving credit facilities are presented as an asset under prepaid expenses and other assets in the Company’s consolidated balance sheets. These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Derivative Instruments and Hedging Activities
The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates on its variable rate debt. The Company does not enter into derivatives for speculative purposes. The Company records derivative instruments at fair value on its accompanying consolidated balance sheets. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. If the Company elects to designate a derivative in a hedging relationship and the hedging relationship satisfies the criteria necessary to apply hedge accounting, the derivative is designated as a cash flow hedge and the unrealized gain or loss on the interest rate swap is presented in comprehensive income (loss) and accumulated other comprehensive income in the Company’s accompanying consolidated statements of comprehensive income (loss) and consolidated balance sheets, respectively. If the derivative instrument does not meet the hedge accounting criteria, the change in the fair value of the derivative is recorded as a gain or loss on the interest rate swap and included in interest expense, net of derivative settlements in the Company’s consolidated statements of operations.
The Company will discontinue hedge accounting prospectively when it is determined that the derivative instrument is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative instrument expires or is terminated, the derivative instrument is re-designated as a hedging instrument or management determines that designation of the derivative instrument as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the Company recognizes any changes in the derivative’s fair value in its consolidated statements of operations and continues to carry the derivative instrument on its consolidated balance sheet.
The Company has entered into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate term loan. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Restricted Operating Partnership Unit Awards
Operating Partnership units are recorded in equity under noncontrolling interest in the Operating Partnership in the Company’s consolidated balance sheets and statements of equity. For units granted to employees of the Company, the fair value of awards is amortized using the straight-line method over the requisite service period of the award, which is generally the vesting period (see Note 12 for more details). The Company has elected to record forfeitures as they occur. Compensation cost is recorded for units to be issued subject to a performance condition when it is probable that the performance condition will be met.
F-16
Segments
The Company owns and manages single-tenant long-term net-lease properties located in the United States. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other and are managed as one unit by a common management team. The Company aggregates its investments in real estate into one reportable segment and manages the business activities on a consolidated basis.
The Company’s chief operating decision maker (the “CODM”) is the chief executive officer, who assesses the Company’s performance and decides how to allocate resources based on net income (loss), which is reported on the accompanying statements of operations. The CODM uses net income (loss) in deciding whether to use profits for acquisitions, further investment in owned properties, repay debt, repurchase preferred shares, or change the monthly distribution rate. Net income or loss is also used to monitor budget versus actual results. The CODM reviews the consolidated expenses, which are reported on the face of the statements of operations and include general and administrative expenses, property expenses, depreciation and amortization, any impairment loss and interest expense. Additionally, the measure of segment assets is reported on the consolidated balance sheets as total assets, including long-lived real estate assets which include land, buildings, and improvements subject to operating leases.
Recent Accounting Pronouncements
New Accounting Standard Recently Issued and Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (“ASU 2023-07”), which establishes improvements to reportable segments disclosures to enhance segment reporting under Topic 280. This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments. This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures. The guidance is effective for the Company as of and for the year ended December 31, 2024 and for interim periods after December 31, 2024. The adoption of ASU 2023-07 did not have a material impact on the Company’s consolidated financial statements.
New Accounting Standard Recently Issued and Not Yet Adopted
In August 2023, the FASB issued ASU 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60) (“ASU 2023-05”), which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. At present, GAAP does not provide specific authoritative guidance on how a joint venture, upon formation, should recognize and initially measure assets contributed and liabilities assumed. ASU 2023-05 will require that a joint venture apply a new basis of accounting upon formation. By applying the new basis of accounting, a joint venture, upon formation, will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments in ASU 2023-05 are effective prospectively for all joint ventures formed on or after January 1, 2025. Joint ventures formed prior to January 1, 2025 may elect to apply the amendments retrospectively and early adoption is permitted. The Company does not anticipate any material impact from the implementation of ASU 2023-05.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included on the face of the statement of income. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related notes thereto.
F-17
NOTE 3. REAL ESTATE INVESTMENTS
As of December 31, 2024, the Company’s real estate net investment portfolio of $464.6 million consisted of 42 operating properties, excluding the TIC Interest and including one property held for sale, located in 15 states.
Acquisitions
Year Ended December 31, 2024
On July 15, 2024, the Company acquired an industrial manufacturing property that produces optical systems for the defense and aerospace industries for $5.1 million. The property is located in the Tampa, Florida metropolitan area and the tenant entered into a 20-year sale-leaseback agreement. The total acquisition cost, including legal fees and transaction costs, was $5.2 million and was allocated as follows: $1.4 million to land, $3.7 million to buildings and improvements, and $0.1 million to tenant origination and absorption costs. The seller is not affiliated with the Company or its affiliates. The Company recognized $0.3 million of rental income related to this property during the year ended December 31, 2024.
Year Ended December 31, 2023
During the year ended December 31, 2023, the Company acquired 12 industrial manufacturing real estate properties for an aggregate of $129.8 million. These properties are located in Princeton, Savage, Detroit Lakes and Plymouth, Minnesota; Gap and Reading, Pennsylvania; Roscoe, Illinois; Lansing, Michigan; Ashland and Piqua, Ohio; Alleyton, Texas; and Andrews, South Carolina. They had a weighted average lease term of approximately 20.6 years upon acquisition. The Company recognized $12.5 million and $8.2 million of rental income related to these properties during the years ended December 31, 2024 and 2023, respectively.
Dispositions
Years Ended December 31, 2024 and 2023
Dispositions during the year ended December 31, 2024 were as follows (dollars in thousands):
Property Tenant
Location
Disposition Date
Property Type
Contract Sale Price
Gain on Sale
Net Proceeds
Levins
Sacramento, CA
01/10/2024
Industrial
$
7,075
$
3,179
$
7,034
Cummins
Nashville, TN
02/28/2024
Office
7,950
9
7,749
Lindsay (Land parcel)
Canal Fulton, OH
09/27/2024
Industrial
240
172
240
$
15,265
$
3,360
$
15,023
During the year ended December 31, 2023, the Company sold 14 non-core real estate properties (11 retail and three office) for aggregate contract sales prices of $47.5 million, aggregate loss on sale of $1.7 million and aggregate net proceeds of $44.4 million, net of commissions, closing costs and repayment of the outstanding mortgages.
Impairment Charge
During the year ended December 31, 2023, the Company recorded total impairment charges of $4.4 million related to its property located in Nashville, Tennessee, leased to Cummins Inc. (“Cummins”). The impairment charge represents the excess of the property’s carrying value over the property’s contracted sale price less estimated selling costs. This property was held for sale as ofDecember 31, 2023and sold on February 28, 2024 as described in Dispositions above.
Asset Concentration
As of December 31, 2024 and 2023, the Company’s real estate portfolio asset concentration (greater than 10% of total assets) was as follows (dollars in thousands):
December 31, 2024
December 31, 2023
Property and Location
Net Carrying Value
Percentage of Total Assets
Net Carrying Value
Percentage of Total Assets
KIA retail property, Carson, CA
$
66,263
13.0
%
$
67,326
12.7
%
F-18
Rental Income Concentration
During the year ended December 31, 2024 and 2023, the Company’s rental income concentration (greater than 10% of rental income) was as follows (dollars in thousands):
Year Ended December 31, 2024
Year Ended December 31, 2023
Property and Location
Rental Income
Percentage of Total Rental Income
Rental Income
Percentage of Total Rental Income
Lindsay, nine industrial properties located in: Colorado (three), Ohio (two), Pennsylvania, North Carolina, South Carolina and Florida
$
6,651
14.3
%
$
6,125
13.0
%
KIA retail property, Carson, CA
$
5,029
10.8
%
$
5,168
11.0
%
Operating Leases
The Company’s real estate properties are primarily leased to tenants under net leases for which terms and expirations vary. The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors tenant credit by (1) reviewing the credit ratings of tenants (or their parent companies or lease guarantors) that are rated by nationally recognized rating agencies; (2) reviewing financial statements and related metrics and information that are publicly available or that are required to be provided pursuant to the lease; (3) monitoring news reports and press releases regarding the tenants (or their parent companies or lease guarantors), and their underlying business and industry; and (4) monitoring the timeliness of rent collections. Except for properties leased to Solar Turbines Incorporated in San Diego, California and the State of California’s Office of Emergency Services in Rancho Cordova, California, all of the Company’s operating leases contain options to extend the lease term one to sixfive-year extensions or one to two10-year extensions. The lease with OES includes a purchase option that may be exercised until December 31, 2026.
In September 2024, the Company extended the lease term of its San Diego, California property leased to WSP USA Inc. (f/k/a Wood Group) for an additional eight years to February 28, 2034, and is continuing to explore potential lease extensions for certain of its other properties.
On October 31, 2024, the Company received a notice from Labcorp that it is exercising its first option to extend its lease on the Company’s San Carlos, California property for an additional five years, from November 1, 2025 through October 31, 2030 with annual rate increases of 2.00%. Labcorp has one remaining option to extend its lease for an additional five years.
As of December 31, 2024, the future minimum contractual rent payments due to the Company under the Company’s non-cancellable operating leases, including the property held for sale with a lease termination in 2025, are as follows (in thousands):
Amount
2025
$
37,911
2026
36,168
2027
36,014
2028
36,328
2029
35,685
Thereafter
493,611
$
675,717
F-19
Intangible Assets, Net Related to the Company’s Real Estate
As of December 31, 2024 and 2023, intangible assets, net related to the Company’s real estate were as follows (in thousands):
December 31, 2024
December 31, 2023
Tenant Origination and Absorption Costs
Above-Market Lease Intangibles
Below-Market Lease Intangibles
Tenant Origination and Absorption Costs
Above-Market Lease Intangibles
Below-Market Lease Intangibles
Cost
$
13,194
$
1,560
$
(14,365)
$
15,707
$
1,560
$
(14,365)
Accumulated amortization
(9,203)
(320)
6,417
(10,716)
(246)
5,496
Net amount
$
3,991
$
1,240
$
(7,948)
$
4,991
$
1,314
$
(8,869)
The intangible assets acquired in connection with the acquisitions have a weighted average amortization period of approximately 9.9 yearsas of December 31, 2024. Amortization of tenant origination and absorption costs for the years ended December 31, 2024 and 2023 was $1.0 million and $1.2 million, respectively. Amortization of below market lease intangibles, net for each of the years ended December 31, 2024 and 2023 was 0.8 million.
As of December 31, 2024, amortization of intangible assets for each of the next five years and thereafter is expected to be as follows (in thousands):
Tenant Origination and Absorption Costs
Above-Market Lease Intangibles
Below-Market Lease Intangibles
2025
$
576
$
71
$
(920)
2026
502
54
(920)
2027
492
54
(920)
2028
472
54
(910)
2029
377
54
(871)
Thereafter
1,572
953
(3,407)
$
3,991
$
1,240
$
(7,948)
Weighted-average remaining amortization period
8.4 years
22.4 years
8.9 years
Real Estate Investments Held for Sale
The Company’s office property located in Issaquah, Washington leased to Costco Wholesale Corporation until July 31, 2025 is subject to a purchase and sale agreement, as amended, with KB Home, a national homebuilder with a sales price of $25.3 million, with the ability to increase the purchase price by $0.3 million for each additional townhome the buyer can add to the development prior to closing. The buyer completed its due diligence on April 26, 2024 and the total non-refundable deposit is $1.7 million as of December 31, 2024. The Company has assigned its interest in the deposit to the mortgage lender as described in Note 7.
Completing the sale remains subject to the buyer obtaining development approvals and the sale will not close until the earlier of (a) 15 days following the later of buyer obtaining all necessary development approvals and tenant vacating the property, and (b) August 15, 2025 unless extended. The amendment to the purchase and sale agreement provides that the buyer can extend the outside closing date up to three times for 60 days for each extension, with February 11, 2026 the outside closing date. The nonrefundable extension fee for the first extension is $0.3 million with 50% applicable to the purchase price. The nonrefundable extension fees for the second and third extensions are $0.2 million and $0.3 million, respectively, and none of these extension fees will be applicable to the purchase price. The buyer is not affiliated with the Company or its affiliates. Given the facts and circumstances as of December 31, 2024, the Company believes that it is probable that the disposition of the properly will be completed within 12 months and therefore classified it as a real estate investment held for sale as of December 31, 2024.
F-20
As of December 31, 2023, the Company classified its industrial property located in Sacramento, California that was leased to Levin’s Auto Supply, LLC and its office property located in Nashville, Tennessee that was leased to Cummins as held for sale properties. The properties were sold on January 10, 2024 and February 28, 2024, respectively.
The following table summarizes the major components of assets and liabilities related to real estate investments held for sale as of December 31, 2024 and 2023 (in thousands):
December 31,
2024
2023
Assets related to real estate investments held for sale:
Land, buildings and improvements
$
27,586
$
14,590
Tenant origination and absorption costs
2,765
1,779
Accumulated depreciation and amortization
(7,979)
(4,811)
Real estate investments held for sale, net
22,372
11,558
Other assets, net
—
103
Total assets related to real estate investments held for sale:
$
22,372
$
11,661
Liabilities related to real estate investments held for sale:
Other liabilities, net
$
26
$
249
Total liabilities related to real estate investments held for sale:
$
26
$
249
NOTE 4. UNCONSOLIDATED INVESTMENT IN A REAL ESTATE PROPERTY
The Company’s unconsolidated investment in a real estate property as of December 31, 2024 and 2023, is as follows (in thousands):
December 31,
2024
2023
The TIC Interest
$
9,324
$
10,054
The Company’s income from unconsolidated investment in a real estate property for the years ended December 31, 2024 and 2023, is as follows (in thousands):
Years Ended December 31,
2024
2023
The TIC Interest
$
297
$
280
During 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an approximate 72.7% TIC Interest. The remaining approximate 27.3% interest in the Santa Clara, California property is held by third parties.
The Company and the third parties each hold an individual, undivided ownership interest in the Santa Clara property. Undivided ownership interests are arrangements in which two or more parties jointly own the property and the title is held individually to the extent of each party’s interest. Based upon the nature of the Company’s interest, consolidation is not appropriate, as the consolidation guidance applies to the consolidation of separate legal entities. As the Santa Clara property is subject to joint control, the Company accounts for its TIC Interest using the equity method. The property lease expiration date is March 16, 2026, and the lease provides for twoseven-year renewal options. The mortgage on this property bears interest at 3.86% and has a maturity date of October 1, 2027.
The Company receives an approximate 72.7% of the cash flow distributions and recognizes approximately 72.7% of the results of operations. During the years ended December 31, 2024 and 2023, the Company received cash distributions of $1.0 million and $0.2 million in cash distributions, respectively, from the TIC Interest.
F-21
The following is summarized financial information for the Santa Clara, California property as of and for the years ended December 31, 2024 and 2023 (in thousands):
December 31,
2024
2023
Assets:
Real estate investments, net
$
27,529
$
28,564
Cash and cash equivalents
599
483
Other assets
59
80
Total assets
$
28,187
$
29,127
Liabilities:
Mortgage note payable, net
$
12,337
$
12,643
Below-market lease, net
2,221
2,368
Other liabilities
806
289
Total liabilities
15,364
15,300
Total equity
12,823
13,827
Total liabilities and equity
$
28,187
$
29,127
Years Ended December 31,
2024
2023
Total revenue
$
2,758
$
2,731
Operating expenses:
Depreciation and amortization
1,039
1,041
Other expenses
794
778
Total operating expenses
1,833
1,819
Operating income
925
912
Interest expense
516
528
Net income
$
409
$
384
NOTE 5. INVESTMENT IN PREFERRED STOCK
On August 10, 2023, the Company disposed of 13 properties consisting of 11 retail properties and two office properties in a sale to GIPR. These 13 properties were sold for $42.0 million with $30.0 million received in cash and the remaining $12.0 million received in 2,400,000 shares of GIPR’s newly-created Series A Redeemable Preferred Stock (the “GIPR Preferred Stock”) with a liquidation preference of $5.00 per share and an annual dividend yield of 9.5% from August 10, 2023 to August 9, 2024, and an annual dividend rate of 12.0% thereafter. The Company recorded its investment in preferred stock at fair value. The fair value of the GIPR Preferred Stock at the closing date of the sale of the Company’s 13 properties was included in the net proceeds from sale to determine the loss on sale. The Company’s investment in preferred stock as of December 31, 2023 was $11.0 million.
GIPR exercised its right to redeem all 2,400,000 shares of the GIPR Preferred Stock in exchange for 2,794,597 shares of GIPR common stock (the “GIPR Common Stock”), which were issued to the Company on January 31, 2024. The Company distributed 2,623,153 shares of the GIPR Common Stock to the holders of the Company’s Class C Common Stock and Class C OP Units. By May 9, 2024, the Company sold the remaining 171,444 shares of GIPR Common Stock, which had a fair value of $0.7 million as of March 31, 2024, at an average price of $3.80 per share for aggregate net proceeds of $0.7 million, resulting in an immaterial net loss on sale.
F-22
NOTE 6. OTHER BALANCE SHEET DETAILS
Tenant Deferred Rent and Other Receivables
As of December 31, 2024 and 2023, tenant deferred rent and other receivables consisted of the following (in thousands):
December 31,
2024
2023
Straight-line rent
$
18,206
$
12,474
Tenant rent and reimbursements
254
321
Total
$
18,460
$
12,795
Prepaid Expenses and Other Assets
As of December 31, 2024 and 2023, prepaid expenses and other assets were comprised of the following (in thousands):
December 31,
2024
2023
Prepaid expenses
$
1,213
$
1,446
Construction advances (1)
153
1,352
Purchase deposit
250
—
Other assets
1,000
627
Deferred financing cost on credit facility revolver
77
749
Total
$
2,693
$
4,174
(1) The balances as of December 31, 2024 and December 31, 2023 represent advances for improvements to be made to the Lindsay property in Franklinton, North Carolina and the Lindsay property in Dacono, Colorado, respectively.
Accounts Payable, Accrued and Other Liabilities
As of December 31, 2024 and 2023, accounts payable, accrued and other liabilities were comprised of the following (in thousands):
December 31,
2024
2023
Accounts payable
$
365
$
561
Accrued expenses
884
1,202
Accrued interest payable
158
359
Unearned rent
2,030
2,076
Security deposits
469
83
Lease incentive obligation
129
187
Total
$
4,035
$
4,468
F-23
NOTE 7. DEBT
The components of debt as of December 31, 2024 and 2023 are as follows (in thousands):
December 31,
2024
2023
Mortgage notes payable, net
$
30,777
$
31,030
Credit facility term loan, net
248,999
248,509
Total debt
$
279,776
$
279,539
Mortgage Notes Payable, Net
As of December 31, 2024 and 2023, the Company’s mortgage notes payable consisted of the following (in thousands):
Collateral
2024 Principal
Balance
2023 Principal
Balance
Interest Rate (1)
Loan Maturity
Costco property (2)
$
18,589
$
18,850
4.85%
01/01/2030
Taylor Fresh Foods property
12,329
12,350
3.85%
11/01/2029
Total mortgage notes payable
30,918
31,200
Less unamortized deferred financing costs
(141)
(170)
Mortgage notes payable, net
$
30,777
$
31,030
(1)Represents the contractual interest rate in effect under the respective mortgage note payable.
(2)The mortgage note includes a 4.0% prepayment penalty which will be due upon any sale of the property prior to February 1, 2026. The Company has assigned its interest in a $1.7 million non-refundable purchase deposit (see Note 3) to the mortgage lender. In the event the sale does not close by August 15, 2025, the deposit shall be released to the lender and pledged as additional security for the borrower’s obligations under the loan documents.
The following summarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable, net which are Level 3 fair value measurement, reflecting unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, as of December 31, 2024 and 2023 (in thousands):
December 31, 2024
December 31, 2023
Face Value
Carrying Value
Fair Value
Face Value
Carrying Value
Fair Value
Mortgage notes payable, net
$
30,918
$
30,777
$
27,964
$
31,200
$
31,030
$
28,000
Disclosures of the fair values of financial instruments are based on pertinent information available to the Company as of the period end and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.
Credit Facility, Net
The Company’s Operating Partnership entered into an agreement for a line of credit (the “Credit Agreement”) on January 18, 2022. The Credit Agreement currently provides a $280.0 million line of credit comprised of a $30.0 million revolving line of credit (the “Revolver”), and a $250.0 million term loan (the “Term Loan” and together with the Revolver, the “Credit Facility”) with KeyBank and the other lending institutions party thereto (collectively, the “Lenders”), including KeyBank as Agent for the Lenders (in such capacity, the “Agent”). The Credit Facility is available for general corporate purposes, including, but not limited to, acquisitions, repayment of existing indebtedness, and capital expenditures.
The Company’s Revolver and Term Loan maturities are in January 2026 and January 2027, respectively, with options to extend the Revolver for a total of 12 months. In February 2025, the Revolver maturity was extended to January 2027 as described in Note 14.
F-24
The Credit Facility is priced on a leverage-based grid that fluctuates based on the Company’s actual leverage ratio at the end of the prior quarter. Based on the Company’s leverage ratio, the spread over the secured overnight financing rate (“SOFR”), including a 10-basis point credit adjustment, was 185 basis points and the interest rate on the Revolver was 6.1625% on December 31, 2024; however, there was no outstanding balance on the Revolver. The Company also pays an annual unused fee of up to 25 basis points on the Revolver, depending on the daily amount of the unused commitment, and incurred total unused fees of $0.4 million for each of the years ended December 31, 2024 and 2023. On December 27, 2024, the Company exercised its right to reduce the Revolver to $30.0 million from $150.0 million in order to save on the cost of unused fees.
On May 10, 2022, the Company entered into a swap agreement, effective from May 31, 2022 to January 17, 2027, subject to the Company counterparty’s one-time cancellation option on December 31, 2024, to fix SOFR at 2.258% with respect to its original $150.0 million Term Loan. On October 26, 2022, the Company entered into a second swap agreement, effective from November 30, 2022 to November 30, 2027, subject to the Company counterparty’s one-time cancellation option on December 31, 2024, to fix SOFR at 3.44% with respect to the $100.0 million expansion of its Term Loan. On the December 31, 2024, the counterparties to both swap agreements exercised their one-time options to cancel their respective swap agreements (see Note 8 for more details). The interest rate was 6.1125% on the Term Loan as of December 31, 2024. In January 2025, the Company entered into two new swap agreements to fix SOFR at 2.45% from December 31, 2024 to December 31, 2025. (See Note 14 for more details).
The Credit Facility includes customary representations, warranties and covenants. 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 the Company, and various cash collateral owned by the Operating Partnership and the Subsidiary Guarantors. In connection with the Credit Facility, the Company and each of the Subsidiary Guarantors entered into an Unconditional Guaranty of Payment and Performance in favor of the Agent, pursuant to which the Company and each of the Subsidiary Guarantors agreed to guarantee the full and prompt payment of the Operating Partnership’s obligations under the Credit Agreement.
Compliance with All Debt Agreements
Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the Credit Facility, the Company and/or the subsidiary borrowers are subject to certain financial loan covenants. The Company and/or the subsidiary borrowers were in compliance with such financial loan covenants as of December 31, 2024.
Future Principal Payments
The following summarizes the future principal repayments of the Company’s mortgage notes payable and Credit Facility as of December 31, 2024 (in thousands):
December 31, 2024
Mortgage Notes Payable
Credit Facility
Revolver
Term Loan
Total
2025
$
557
$
—
$
—
$
557
2026
582
—
—
582
2027
608
—
250,000
250,608
2028
635
—
—
635
2029
11,595
—
—
11,595
Thereafter
16,941
—
—
16,941
Total principal
30,918
—
250,000
280,918
Less: deferred financing costs, net
(141)
—
(1,001)
(1,142)
Net
$
30,777
$
—
$
248,999
$
279,776
F-25
Interest Expense, Including Unrealized Gain or Loss on Interest Rate Swaps and Net of Derivative Settlements
The following is a reconciliation of the components of interest expense, net of derivative settlements and unrealized loss (gain) on interest rate swaps for the years ended December 31, 2024 and 2023 (in thousands):
Years Ended December 31,
2024
2023
Mortgage notes payable:
Interest expense
$
1,383
$
1,719
Amortization of deferred financing costs
29
29
Credit facility:
Interest expense
17,767
15,464
Unused commitment fees
377
480
Amortization and write-off of deferred financing costs
1,163
857
Swap derivatives:
Derivative cash settlements (1)
(6,206)
(5,680)
Unrealized loss on interest rate swap valuation for first swap (2)
2,970
1,659
Amortization of unrealized gain on interest rate swap valuation (2)
(1,017)
(1,015)
Unrealized gain on interest rate swap valuation for second swap (3)
(474)
(26)
Other
229
320
Total interest expense
$
16,221
$
13,807
(1)Derivative cash settlements received from swap instruments entered into by the Company covering (i) its original $150 million Credit Facility Term Loan (first swap) effective May 31, 2022 and (ii) its additional $100 million Term Loan commitment (second swap) effective November 30, 2022 and both swap instruments were canceled on December 31, 2024, as discussed above and in Note 8. See Note 14 for details of the new swap instruments.
(2)During the year ended December 31, 2023, the Company’s $150 million derivative instrument failed to qualify as a cash flow hedge because it was deemed ineffective, as described in Note 8. The unrealized losses on the swap valuation for the years ended December 31, 2024 and 2023 were recognized as increases in interest expense. Additionally, the unrealized gain on interest rate swap derivative previously recorded in accumulated other comprehensive income and noncontrolling interest in Operating Partnership is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the loan agreement (see Note 8 for more details).
(3) The Company’s $100 million derivative instrument was not designated as a cash flow hedge and, therefore, the unrealized gains in the valuation of this swap for the years ended December 31, 2024 and 2023 were reflected as decreases in interest expense (see Note 8 for more details).
NOTE 8. INTEREST RATE SWAP DERIVATIVES
The Company, through its Operating Partnership, entered into a five-year swap agreement on May 10, 2022 to fix SOFR at 2.258% effective May 31, 2022 related to the variable interest rate on its original $150 million Term Loan. The Company designated the pay-fixed, receive-floating interest rate swap as a cash flow hedge, which was effective through December 31, 2022. The derivative instrument failed to qualify as a cash flow hedge during the years ended December 31, 2024 and 2023, as described below.
The Company, through its Operating Partnership, entered into another five-year swap agreement on October 26, 2022 to fix SOFR at 3.440% effective November 30, 2022 related to the variable interest rate on its additional $100 million Term Loan commitment. The Company did not designate the pay-fixed, receive-floating interest rate swap as a cash flow hedge.
On the December 31, 2024, the counterparties to the swap agreements exercised their one-time option to cancel the swap agreements. In January 2025, the Company entered into two new swap agreements to fix SOFR at 2.45% from December 31, 2024 to December 31, 2027 (see Note 14 for more details).
F-26
The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of December 31, 2024 and 2023 (dollars in thousands):
December 31, 2024
December 31, 2023
Interest Rate Derivative Instruments
Number of Instruments
Notional Amount
Reference Rate
Weighted
Average
Fixed Pay Rate
Weighted Average Remaining Term
Number of Instruments
Notional Amount (i)
Reference Rate
Weighted Average Fixed Pay Rate (ii)
Weighted Average Remaining Term
Non-designated
—
$
—
—%
—
%
0.0 years
2
$
250,000
USD - SOFR
4.53
%
3.0 years
(i)The notional amount of the Company’s swaps correspond to the principal balance on the Term Loan. The minimum notional amounts (outstanding principal balance at the maturity date) as of December 31, 2023 was $250.0 million.
(ii)Based on the terms of the Credit Facility, the fixed pay rate increases if the Company’s leverage ratio increases above 50%.
The following table sets forth the fair value of the Company’s derivative instruments (in thousands) under Level 2 measurement, as well as their classification in the accompanying consolidated balance sheets as of December 31, 2024 and 2023 (dollars in thousands):
December 31, 2024
December 31, 2023
Derivative Instruments
Balance Sheet Location
Number of Instruments
Fair Value
Number of Instruments
Fair Value
Change in Fair Value
Interest Rate Swap
Asset - Interest rate swap derivative, at fair value
—
$
—
1
$
2,970
$
(2,970)
Interest Rate Swap
Liability - Interest rate swap derivative, at fair value
—
$
—
1
$
(474)
$
474
The interest rate swap derivative on the original $150 million Term Loan was designated as a cash flow hedge for financial accounting purposes from July 1, 2022 through December 31, 2022. Subsequent to December 31, 2022, based on the Company’s prospective effectiveness testing of the derivative instrument, the swap failed to qualify as a cash flow hedge because it was deemed ineffective due to the potential for a reduced term of the swap that could result from the cancellation option described above as compared with the maturity of the Term Loan.
As a result, the net change in fair value of the first Term Loan swap was recorded as a component of interest expense with any losses resulting in an increase to interest expense and any gains resulting in a decrease to interest expense. During the years ended December 31, 2024 and 2023, the Company recognized unrealized losses of $3.0 million and $1.7 million, respectively.
Due to the above $150 million Term Loan derivative instrument’s failure to qualify as a cash flow hedge, the unrealized gain on interest rate swap derivative of $4.1 million as of December 30, 2022 (recorded in the Company’s financial statements as follows: (i) $3.5 million of accumulated other comprehensive income and (ii) $0.6 million of noncontrolling interest in operating partnership), is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the loan agreement. There is no income tax expense resulting from this amortization.
During each of the years ended December 31, 2024 and 2023, interest expense was reduced by $1.0 million for amortization of the unrealized gain on this swap previously recorded in accumulated other comprehensive income and noncontrolling interest in Operating Partnership.
As of December 31, 2024, the Company’s unamortized unrealized gain on interest rate swap derivative in accumulated other comprehensive income and noncontrolling interest in operating partnership in the Company’s consolidated balance sheet amounted to $2.1 million. The Company estimates that $1.0 million of the remaining unrealized gain on interest rate swap derivative will be reclassified from accumulated other comprehensive income and noncontrolling interest in operating partnership as a reduction to interest expense in the Company’s accompanying consolidated statements of operations over the next 12 months.
The second interest rate swap derivative on the additional $100 million Term Loan was not designated as a cash flow hedge for financial accounting purposes. The increase in the fair value of $0.5 million for the year ended December 31, 2024 was recorded as unrealized gains on interest rate swap valuation and resulted in a decrease to interest expense in the Company’s accompanying consolidated statements of operations. During the year ended December 31, 2023, the change in fair value was immaterial.
F-27
NOTE 9. PREFERRED STOCK AND COMMON STOCK
Preferred Stock
The Company is authorized to issue up to $50.0 million shares of preferred stock. In connection with an underwritten public offering in September 2021 (discussed below in detail), the Company issued 2.0 million shares of its authorized preferred stock. As of December 31, 2024 and 2023, 2.0 million shares of authorized Series A Preferred Stock were issued and outstanding.
Series A Preferred Stock - Terms
Holders of Series A Preferred Stock are entitled to cumulative dividends in the amount of $1.84375 per share each year, which is equivalent to the rate of 7.375% of the $25 liquidation preference per share per annum. The Series A Preferred Stock has no stated maturity and will remain outstanding indefinitely unless redeemed, converted or otherwise repurchased. Except in limited circumstances relating to the Company’s qualification as a REIT for U.S. federal income tax purposes, and as described in the articles supplementary governing the terms of the Series A Preferred Stock (the “Articles Supplementary”), the Series A Preferred Stock is not redeemable prior to September 17, 2026.
On and after September 17, 2026, at any time and from time to time, the Series A Preferred Stock will be redeemable in whole or in part, at the Company’s option, at a cash redemption price of $25 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date. In addition, upon the occurrence of a Delisting Event or a Change of Control (each as defined in the Articles Supplementary), the Company may, subject to certain conditions, at its option, redeem the Series A Preferred Stock, in whole or in part, (i) after the first date on which the Delisting Event occurred or (ii) on, or within 120 days after, the first date on which the Change of Control occurred, as applicable, by paying the liquidation preference of $25 per share, plus an amount equal to all dividends accrued and unpaid (whether or not authorized or declared), if any, to, but not including, the redemption date.
Upon the occurrence of a Change of Control during a continuing Delisting Event, unless the Company has elected to exercise its redemption right, holders of the Series A Preferred Stock will have certain rights to convert the Series A Preferred Stock into shares of the Company’s Class C Common Stock. In addition, upon the occurrence of a Delisting Event, the dividend rate will be increased on the day after the occurrence of the Delisting Event by 2.00% per annum to the rate of 9.375% of the $25 liquidation preference per share per annum (equivalent to $2.34 per share each year) from and after the date of the Delisting Event. Following the cure of such Delisting Event, the dividend rate will revert to the rate of 7.375% of the $25 liquidation preference per share per annum. The necessary conditions to convert the Series A Preferred Stock into the Company’s Class C Common Stock have not been met as of December 31, 2024.
The Series A Preferred Stock ranks senior to the Company’s Class C Common Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up.
Voting rights for holders of Series A Preferred Stock exist primarily with respect to the ability to elect two additional directors to the board of directors if six or more quarterly dividends (whether or not authorized or declared or consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to the Company’s charter (which includes the Articles Supplementary) that materially and adversely affect the rights of the Series A Preferred Stock or create additional classes or series of shares of the Company’s capital stock that are senior to the Series A Preferred Stock. Other than the limited circumstances described above and in the Articles Supplementary, holders of Series A Preferred Stock do not have any voting rights.
Series A Preferred Stock Dividends
Dividends on the Company’s Series A Preferred Stock accrue in an amount equal to $1.84375 per share each year ($0.460938 per share per quarter) to holders of Series A Preferred Stock, which is equivalent to 7.375% of the $25 liquidation preference per share per annum. Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year (or, if not a business day, the next succeeding business day) to holders of record on the applicable record date. Any accrued and unpaid dividends payable with respect to the Series A Preferred Stock become part of the liquidation preference thereof.
F-28
On March 1, 2024, May 1, 2024, July 1, 2024 and November 4, 2024, the Company’s board of directors declared Series A Preferred Stock dividends payable of $0.9 million for each of the quarters of 2024, for an aggregate of $3.7 million for the year ended December 31, 2024, which were paid on April 15, 2024, July 15, 2024, October 15, 2024 and January 15, 2025, respectively (see Note 14 for more details). On March 9, 2023, June 15, 2023, August 7, 2023 and November 6, 2023, the Company’s board of directors declared Series A Preferred Stock dividends payable of $0.9 million for each of the quarters of 2023, or an aggregate of $3.7 million for the year ended December 31, 2023, which were paid on April 17, 2023, July 17, 2023, October 16, 2023 and January 16, 2024, respectively.
Common Stock Offerings
On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200.0 million: Class C Common Stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company’s at-the-market offering of up to $50.0 million of its Class C Common Stock (the “ATM Offering”) on June 6, 2022 (the “ATM Prospectus”).
On November 13, 2023, the Company filed Supplement No. 1 to the ATM Prospectus to reflect the Amended and Restated At Market Issuance Sales Agreement, dated November 13, 2023, and the change in the Company’s corporate name. During the year ended December 31, 2024, 521,837 shares were sold at an average price of $16.16 per share and issued for $8.2 million, net of sale commissions of $0.2 million, of which 287,840 shares were sold at an average price of $16.16 per share and issued for $4.5 million, net of sale commissions, during the three months ended December 31, 2024. The resulting net proceeds from the ATM Offering for the year ended December 31, 2024 were $7.7 million after legal, accounting, investor relations and other offering costs of $0.5 million. As of December 31, 2024, the Company had $40.3 million of shares of Class C Common Stock available for future issuance under the ATM Offering.
Common Stock Repurchase
See Note 12 for repurchase of 123,809 shares of Class C Common Stock on August 1, 2024.
Common Stock Distributions
On November 4, 2024, the Company’s board of directors authorized a 1.7% increase in the annual distribution rate from $1.15 per share to $1.17 per share commencing with monthly distributions payable to common stockholders and Class C OP Unit holders of record beginning as of January 31, 2025 (see Note 14).
Aggregate distributions declared per share of Class C Common Stock were $1.15 for the years ended December 31, 2024 and 2023, respectively.
NOTE 10. RELATED PARTY TRANSACTIONS
The Company pays the members of its board of directors who are not executive officers for services rendered through cash payments and by issuing shares of Class C Common Stock to them. Total fees incurred and paid or accrued by the Company for board services for the years ended December 31, 2024 and 2023, are as follows (dollars in thousands):
December 31,
Board of Directors Compensation
2024
2023
Payments for services rendered
$
223
$
250
Value of shares of Class C Common Stock issued for services rendered
275
305
Total
$
498
$
555
Number of shares issued for services rendered
17,627
22,153
F-29
Transactions with Other Related Parties
On January 31, 2022, the Company acquired an industrial property and related equipment leased to Kalera Inc. (“Kalera”) in Saint Paul, Minnesota, for $8.1 million. Kalera was introduced to the Company by Curtis B. McWilliams, a former director of the Company. Since Mr. McWilliams was serving as a director of the Company and as an executive of Kalera at the time of the acquisition, all of the disinterested members of the Company’s board of directors approved this transaction in January 2022. Mr. McWilliams resigned as a director of the Company effective September 18, 2024. His resignation was not due to any disagreement with the Company, the Company’s board of directors, or the Company’s management on any matter relating to the Company’s operations, policies, or practices, including the Kalera bankruptcy.
On April 4, 2023, Kalera filed a voluntary petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code and Mr. McWilliams was appointed as Kalera’s independent director as Kalera continued to operate its business while in bankruptcy. Mr. McWilliams served as Kalera Inc.’s independent director from April 2023 until December 2023 and, while he was an independent director of the Company, recused himself from any matters that related to the Company’s property in Saint Paul, Minnesota which was previously leased to Kalera (see in Note 11 for additional information on the Saint Paul, Minnesota property).
Related Party Transactions with Unconsolidated Investment in a Real Estate Property
The Company earns management fee income from the Santa Clara property, in which it has a TIC Interest. The management fee income is presented as part of total income in the Company’s statements of operations. The related Santa Clara asset management fee expense is included as a reduction in the income from unconsolidated investment in a real estate property. Amounts of each for the years ended December 31, 2024 and 2023 are as follows (in thousands):
Years Ended December 31,
2024
2023
Management fee income from TIC Interest
$
264
$
264
Company’s share in TIC asset management fee expense
$
192
$
192
Common Stock and OP Unit Repurchases from Related Party
See Note 12 for the description of the Company’s repurchase of Class C Common Stock and Class C OP Units from a major shareholder, which was completed on August 1, 2024.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Environmental
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, a real estate property owner may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines, penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the property owner knew of, or was responsible for, the presence or disposal of such substances. Although most of the tenants of properties in which the Company has an interest are primarily responsible for any environmental damage and claims related to the leased premises, in the event of the bankruptcy or inability of the tenant of such leased premises to satisfy any obligations with respect to such environmental liability, or if the tenant is found not responsible, the Company’s property owner subsidiary may be required to satisfy any of such obligations, should they exist. In addition, the property owner subsidiary, as the owner of such property, may be held directly liable for any such damages or claims irrespective of the terms and provisions of any lease. As of December 31, 2024, the Company was not aware of any environmental matter relating to any of its real estate investments that would have a material impact on the Company’s consolidated financial statements. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.
F-30
Tenant Improvements
Pursuant to lease agreements, as of December 31, 2024 and 2023, the Company had obligations to pay $3.0 million and $2.4 million, respectively, for on-site building and tenant improvements to be incurred by tenants.
Legal Matters
From time-to-time, the Company or its subsidiaries may become party to legal proceedings that arise in the ordinary course of its business. As of December 31, 2024, the Company, including its subsidiaries, is not a party to any legal proceeding, nor is the Company aware of any pending or threatened litigation that could have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
On October 31, 2023, Kalera filed a motion with the bankruptcy court to reject the Company’s lease and abandon all of its property located at the premises in Saint Paul, Minnesota effective as of October 31, 2023, subject to approval of the motion by the bankruptcy court. On November 21, 2023, the Company filed (i) a limited objection to retroactive rejection of its lease and (ii) a motion to compel Kalera to pay post-petition rent and related charges with the bankruptcy court. The Company and Kalera entered into a settlement agreement for these claims on March 18, 2024, which was approved by the bankruptcy court on April 12, 2024. Kalera’s revised motion to reject the Company’s lease effective as of October 31, 2023 was approved by the bankruptcy court on June 28, 2024.
NOTE 12. OPERATING PARTNERSHIP UNITS
As of December 31, 2024 and 2023, there were 1,249,210 and 1,599,898 Class C OP Units outstanding that were not held by the Company, which are entitled to distributions, but have no voting rights. The Class C OP Units are exchangeable for the Company’s shares of Class C Common Stock on a 1-for-1 basis, or for cash at the sole and absolute discretion of the Company. As of December 31, 2023, there were also units outstanding for three types of units of limited partnership interest in the Operating Partnership (“Class M OP Units,” “Class P OP Units,” and “Class R OP Units”), which were not entitled to distributions and had no voting rights.
All of the Class M OP Units, Class P OP Units, and Class R OP Units automatically converted to Class C OP Units during the first quarter of 2024. Some of these units were then exchanged on a one-for-one basis for the Company's Class C Common Stock during the year ended December 31, 2024.
The following table summarizes the Operating Partnership units outstanding by class as of December 31, 2023, the conversion, exchange and purchase activity during the current year, and outstanding Class C OP Units as of December 31, 2024:
December 31, 2023
Conversion Ratio/Exchange to Class C OP Units
Class C OP Units after Conversions
Class C OP Units Exchanged for Class C Common Stock
December 31, 2024
OP Units
Classes of OP Units Outstanding
Purchased Class OP Units
Class C OP Units Outstanding
Class C
1,599,898
NA
3,580,720
(1,675,219)
(656,291)
1,249,210
Class M
657,950
1.666667
—
—
—
—
Class P
56,029
1.666667
—
—
—
—
Class R
316,343
2.500000
—
—
—
—
Total
2,630,220
3,580,720
(1,675,219)
(656,291)
1,249,210
On July 31, 2024, the Company entered into an agreement with First City Investment Group, LLC (“First City”), an affiliate of Group of Trophy, LLC, to purchase the remaining 656,191 Class C OP Units held by First City and to repurchase 123,809 shares of Class C Common Stock also held by First City. The transaction closed on August 1, 2024 at a price of $14.80, for total consideration of $11.5 million. The Company funded this transaction with available cash on hand. As a result of this transaction, the KIA retail property is no longer subject to a tax protection agreement.
F-31
Pursuant to the fifth amendment to the Third Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Third A&R Partnership Agreement”) to establish a minimum number of 10,000 Common Units that must be held by a Limited Partner, 57,728 Class C OP Units were exchanged for Class C Common Stock and the Company repurchased 100 Class C OP Units on December 31, 2024.
On April 13, 2023, the Company acquired an industrial manufacturing property located in Reading, Pennsylvania leased to Summit Steel whereby the seller received 287,516 Class C OP Units based on the terms of the Third A&R Partnership Agreement and an agreed upon value of $18.00 per unit.
See Note 14 for a description of the Fourth Amended and Restated Partnership Agreement entered into on February 3, 2025 and the grant of new Class X OP Units.
OP Unit and Stock Compensation Expense
For the year ended December 31, 2024, $0.1 million was charged to stock compensation expense for the final vesting of the Class P OP Units and $1.2 million was charged to stock compensation expense for the final vesting of the Class R OP Units.
Stock compensation expense for the OP Units and for stock issued to the board of directors for the years ended December 31, 2024 and 2023, was as follows (in thousands):
Years Ended December 31,
2024
2023
Class P OP Units
$
89
$
355
Class R OP Units - time vesting units
489
1,956
Class R OP Units - performance vesting units
733
8,555
OP units stock compensation expense
1,311
10,866
Class C Common Stock issued to the board of directors for services (see Note 10)
275
305
Total stock compensation expense
$
1,586
$
11,171
Distributions and Allocations
Class C OP Units received the following distributions and allocations of net income (loss) during the years ended December 31, 2024 and 2023, as follows (in thousands):
Years Ended December 31,
2024
2023
Class C OP Units distributions
$
1,919
$
1,730
Class C OP Units net income (loss) allocation
$
475
$
(2,082)
F-32
NOTE 13. EARNINGS (LOSS) PER SHARE
The Company reports a dual presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS uses the if-converted method to compute for the potential dilution that would occur if holders of Class C OP Units exercise their right to exchange their Class C OP Units and the Company elects to exchange their Class C OP Units for shares of Class C Common Stock (see Note 12 for additional information).
The following table presents the computation of the Company’s basic net income (loss) per share attributable to common stockholders and its diluted net income (loss) per share attributable to common stockholders and noncontrolling interests which are Class C OP units for the years ended December 31, 2024 and 2023 (in thousands, except share and per share data):
Years Ended December 31,
2024
2023
Numerator - Basic:
Net income (loss)
$
6,493
$
(8,696)
Net income (loss) attributable to noncontrolling interest in Operating Partnership (a)
(475)
2,082
Preferred stock dividends
(3,688)
(3,688)
Net income (loss) attributable to common stockholders
$
2,330
$
(10,302)
Numerator - Diluted:
Net income (loss)
$
6,493
$
(8,696)
Preferred stock dividends
(3,688)
(3,688)
Net income (loss) attributable to common stockholders and noncontrolling interest
$
2,805
$
(12,384)
Denominator:
Weighted average shares outstanding - basic
9,293,103
7,558,883
Class C OP Units (b)
1,895,871
1,528,020
Weighted average shares and units outstanding - diluted
11,188,974
9,086,903
Earnings (loss) per share attributable to common stockholders:
Basic
$
0.25
$
(1.36)
Earnings (loss) per share attributable to common stockholders and noncontrolling interests:
Diluted
$
0.25
$
(1.36)
(a) Each Class C Common Share and Class C OP Unit have the same participation in earnings (loss) and therefore there is no difference between basic and diluted earnings (loss) per share.
(b) For the year ended December 31, 2023, the weighted average dilutive effect of 1,980,822 Class M OP Units, Class P OP Units, and Class R OP Units, discussed in Note 12, was excluded from the computation of diluted loss per share because their effect would be anti-dilutive since the units did not vest until the first quarter of 2024 and were not yet entitled to participate in earnings (losses).
F-33
NOTE 14. SUBSEQUENT EVENTS
The Company evaluates subsequent events until the date these consolidated financial statements are issued. Significant subsequent events are described below:
Amendments to Credit Agreement
On February 26, 2025, the Company entered into an agreement with the Lenders to amend the Credit Agreement by (a) extending the maturity of the Revolver to January 18, 2027, which is coterminous with the maturity of the Term Loan, and (b) changing the definition of Distributions to exclude any Company repurchases of its Series A Preferred Stock that are funded by proceeds from the sale of the Company’s Class C Common Stock.
Preferred Dividends
On January 15, 2025, the Company paid its Series A Preferred Stock dividends payable of $0.9 million for the fourth quarter of 2024, which were declared by the Company’s board of directors on November 4, 2024.
On February 27, 2025, the Company’s board of directors declared Series A Preferred Stock dividends payable of $0.9 million for the first quarter of 2025, which are scheduled to be paid on April 15, 2025.
Common Stock and Class C OP Unit Distributions
On July 31, 2024, the Company’s board of directors authorized monthly distributions payable to common stockholders and Class C OP Unit holders of record as of December 31, 2024, which were paid on January 27, 2025. The monthly distribution amount of $0.095833 per share represents an annualized distribution rate of $1.15 per share of common stock.
On November 4, 2024, the Company’s board of directors authorized monthly distributions payable to common stockholders and Class C OP Unit holders of record as of January 31, 2025, February 28, 2025 and March 31, 2025, which were paid on February 25, 2025 and will be paid on or about March 25, 2025 and April 25, 2025, respectively. The monthly distribution amount of $0.097500 per share represents an annualized distribution rate of $1.17 per share of common stock.
On February 27, 2025, the Company’s board of directors authorized monthly distributions payable to common stockholders and Class C OP Unit holders of record as of April 30, 2025, May 30, 2025 and June 30, 2025, which will be paid on or about May 15, 2025, June 16, 2025 and July 15, 2025, respectively. The monthly distribution amount of $0.097500 per share represents an annualized distribution rate of $1.17 per share of common stock.
Amended and Restated Partnership Agreement
On February 3, 2025, the Company entered into the Fourth Amended and Restated Limited Partnership Agreement (the “Amended OP Agreement”) of the Operating Partnership, to, among other things, incorporate prior amendments to the Third A&R Partnership Agreement, and designate and set forth the terms of the Class X units of limited partnership interests of the Operating Partnership (the “Class X OP Units”).
The Class X OP Units may, in the Company’s sole discretion, be issued subject to vesting, forfeiture and additional restrictions on transfer pursuant to the terms of an award, vesting or any other applicable compensatory arrangement or incentive program pursuant to which such Class X OP Units are issued. Upon vesting, such Class X OP Units automatically convert into Class C OP Units, provided that the value of the Operating Partnership has appreciated such that the capital account of such holder of Class X OP Units is equal to the capital account balance attributable to a Class C OP Unit on a per unit basis. After such Class C OP Units have been outstanding for at least one year (inclusive of any holding period for any Class X OP Units converted into Class C OP Units), the holder may require the Operating Partnership to exchange all or a portion of such holder’s Class C OP Units for cash or, at the option of the Company, shares of the Company’s Class C Common Stock, on a one-for-one basis.
The Class X OP Units are intended to qualify as “profits interest” in the Operating Partnership for U.S. federal income tax purposes. Holders of Class X OP Units have voting rights with respect to their Class X OP Units, and holders of Class X OP Units are entitled to approve, vote on or consent to any matter, as though each such Class X OP Unit was a Class C OP Unit. Class X OP Units generally are entitled to receive the same current distributions that are paid on the Class C OP Units.
F-34
Long-Term Incentive Plan
On February 3, 2025, the Compensation Committee of the Company’s board of directors approved a grant of Class X OP Units to each of Aaron S. Halfacre, Raymond J. Pacini and John C. Raney, the Company’s executive officers (the “Officers”). Mr. Halfacre received 546,542.50 Class X OP Units, Mr. Pacini received 65,000.00 Class X OP Units and Mr. Raney received 162,500.00 Class X OP Units (the “Grants”). The Grants were issued under the Company’s 2024 Omnibus Incentive Plan (the “Plan”) and each is evidenced by a Class X OP Unit Award Agreement.
The Class X OP Units awarded to Messrs. Halfacre and Raney shall vest on the fifth anniversary of the grant date, and the Class X OP Units awarded to Mr. Pacini shall vest on the second anniversary of the grant date, in each case subject to the Officer’s continued employment with the Company. The time-based vesting conditions shall accelerate and the Class X OP Units held by an Officer shall vest in full upon (i) a termination of such Officer’s employment (a) by the Company other than for Cause (as defined in the Class X OP Unit Award Agreement) or (b) by such Officer for Good Reason (as defined in the Class X OP Unit Award Agreement), and such Officer’s execution of a general release of claims against the Company, (ii) the death of such Officer or (iii) a Change in Control of the Company (as defined in the Plan).
New Interest Rate Swap Agreements
In January 2025, the Company entered into two new swap agreements, effective December 31, 2024, for $125.0 million each, for an aggregate of $250.0 million, corresponding to the Term Loan, which fixed SOFR for the year ending December 31, 2025 at 2.45%, resulting in a fixed rate of 4.25% based on the Company’s current leverage ratio. The Company paid aggregate premiums of $4.2 million to buy down the fixed rate below the prevailing market rate.
Disposition
On February 26, 2025, the Company completed the sale of its property that is located in Endicott, New York and is leased to New Vision Industries, LLC, a subsidiary of Producto Holdings LLC (“Producto”), for a sales price of $2.4 million to an affiliate of the lessee. In connection with this sale, the lease for the Company’s property in Jamestown, New York with another Producto subsidiary was amended to increase the base rent by $2,500 per month. The Company did not classify the property as real estate investment held for sale as of December 31, 2024 because management had not committed to sell this property as of that date and it was not being marketed for sale.
Lease Extension
On February 28, 2025, FUJIFILM Dimatix, Inc. notified the Company that it is exercising its option to extend the lease on the TIC Interest’s Santa Clara, California property for seven years, from March 17, 2026 to March 16, 2033.
F-35
MODIV INDUSTRIAL, INC.
Schedule III
Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2024
(in thousands, excludes real estate asset held for sale)
Initial Cost to Company
Costs
Capitalized
Subsequent
to
Acquisition (3)
Gross Amount at Which Carried at Close of Period
Description
Location
Original Year of Construction
Date Acquired
Encumbrances (1)
Land
Buildings &
Improvements
(2)
Total
Land
Buildings &
Improvements
(2)
Total
Accumulated Depreciation and Amortization
Net
Northrop Grumman
Melbourne, FL
1986
03-07-2017
$
—
$
1,191
$
12,533
$
13,724
$
1,993
$
1,191
$
14,526
$
15,717
$
(4,937)
$
10,780
Northrop Grumman Parcel
Melbourne, FL
—
06-21-2018
—
329
—
329
—
329
—
329
—
329
Husqvarna
Charlotte, NC
2010
11-30-2017
—
975
11,879
12,854
—
975
11,879
12,854
(2,542)
10,312
AvAir
Chandler, AZ
2015
12-28-2017
—
3,494
23,864
27,358
—
3,494
23,864
27,358
(4,887)
22,470
3M
DeKalb, IL
2007
03-29-2018
—
759
16,360
17,119
681
759
17,041
17,800
(6,610)
11,190
Taylor Fresh Foods
Yuma, AZ
2001
10-24-2019
12,329
4,312
32,776
37,088
—
4,312
32,776
37,088
(6,884)
30,205
Labcorp
San Carlos, CA
1974
12-31-2019
—
4,774
5,306
10,080
—
4,774
5,306
10,080
(1,022)
9,059
WSP USA
San Diego, CA
1985
12-31-2019
—
3,461
6,663
10,124
537
3,461
7,200
10,661
(1,667)
8,994
ITW Rippey
El Dorado Hills, CA
1998
12-31-2019
—
788
6,588
7,376
497
788
7,085
7,873
(1,332)
6,541
L3Harris
Carlsbad, CA
1984
12-31-2019
—
3,553
8,533
12,086
379
3,553
8,912
12,465
(1,942)
10,523
Arrow Tru-Line
Archbold, OH
1976
12-03-2021
—
779
10,739
11,518
—
779
10,739
11,518
(1,261)
10,257
Kalera
Saint Paul, MN
1980
01-31-2022
—
562
7,557
8,119
2,798
562
10,354
10,917
(1,006)
9,911
Lindsay
Colorado Springs 1, CO
Varies
04-19-2022
—
1,195
1,117
2,312
—
1,195
1,117
2,312
(158)
2,154
Lindsay
Colorado Springs 2, CO
Varies
04-19-2022
—
2,239
1,075
3,314
—
2,239
1,075
3,314
(94)
3,220
Lindsay
Dacono, CO
Varies
04-19-2022
—
2,264
1,825
4,089
2,800
2,264
4,625
6,889
(333)
6,556
Lindsay
Alachua, FL
2009
04-19-2022
—
966
7,552
8,518
—
966
7,552
8,518
(982)
7,536
Lindsay
Franklinton, NC
2007
04-19-2022
—
2,844
4,337
7,181
1,647
2,844
5,984
8,828
(433)
8,395
Lindsay
Canal Fulton 1, OH
1998
04-19-2022
—
659
10,619
11,278
—
659
10,619
11,278
(931)
10,346
Lindsay
Canal Fulton 2, OH
2004
04-19-2022
—
667
9,524
10,191
—
667
9,524
10,191
(853)
9,338
Lindsay
Rock Hill, SC
1999
04-19-2022
—
2,816
3,740
6,556
—
2,816
3,740
6,556
(456)
6,100
Lindsay
Gap, PA
1992/2008
04-13-2023
—
2,126
14,454
16,580
—
2,126
14,454
16,580
(1,274)
15,306
Producto
Endicott, NY
2000
07-15-2022
—
239
2,123
2,362
—
239
2,123
2,362
(192)
2,170
Producto
Jamestown, NY
1961/1971
07-15-2022
—
767
2,307
3,074
—
767
2,307
3,074
(235)
2,838
Valtir
Centerville, UT
1970/2013
07-26-2022
—
2,468
2,218
4,685
—
2,468
2,218
4,685
(288)
4,397
Valtir
Orangeburg, SC
1998
07-26-2022
—
1,679
2,564
4,243
—
1,679
2,564
4,243
(343)
3,901
F-36
Original Year of Construction
Initial Cost to Company
Costs
Capitalized
Subsequent
to
Acquisition (3)
Gross Amount at Which Carried at Close of Period
Accumulated Depreciation and Amortization
Description
Location
Date Acquired
Encumbrances (1)
Land
Buildings &
Improvements
(2)
Total
Land
Buildings &
Improvements
(2)
Total
Net
Valtir
Fort Worth, TX
1968
07-26-2022
$
—
$
1,785
$
1,493
$
3,279
$
—
$
1,785
$
1,493
$
3,279
$
(153)
$
3,126
Valtir
Lima, OH
1928/2002
08-04-2022
—
748
9,174
9,922
—
748
9,174
9,922
(878)
9,044
Plastic Products
Princeton, MN
1960/2020
01-26-2023
—
422
6,250
6,672
—
422
6,250
6,672
(1,141)
5,531
Stealth Manufacturing
Savage, MN
1982
03-31-2023
—
771
4,756
5,526
—
771
4,756
5,526
(304)
5,222
Summit Steel
Reading, PA
2005
04-13-2023
—
1,518
9,879
11,397
—
1,518
9,879
11,397
(681)
10,716
PBC Linear
Roscoe, IL
1961/2018
04-20-2023
—
699
19,325
20,024
—
699
19,325
20,024
(1,258)
18,766
Cameron Tool
Lansing, MI
Varies
05-03-2023
—
246
5,530
5,777
—
246
5,530
5,777
(370)
5,406
S.J. Electro Systems
Detroit Lakes, MN
1998/2009
05-05-2023
—
1,737
4,577
6,314
—
1,737
4,577
6,314
(299)
6,015
S.J. Electro Systems
Plymouth, MN
1989
05-05-2023
—
251
7,304
7,555
—
251
7,304
7,555
(345)
7,211
S.J. Electro Systems
Ashland, OH
2018
05-05-2023
—
628
1,598
2,226
—
628
1,598
2,226
(150)
2,076
Titan
Alleyton, TX
1976/2012
05-11-2023
—
2,056
15,090
17,147
—
2,056
15,090
17,147
(1,449)
15,698
Vistech
Piqua, OH
1974
07-03-2023
—
922
12,629
13,551
—
922
12,629
13,551
(765)
12,786
SixAxis
Andrews, SC
2002
07-11-2023
—
1,229
14,241
15,470
—
1,229
14,241
15,470
(1,081)
14,389
KIA/Trophy of Carson
Carson, CA
2016
01-18-2022
—
32,742
36,663
69,405
—
32,742
36,663
69,405
(3,141)
66,264
Solar Turbines
San Diego, CA
1985
12-31-2019
—
2,484
4,933
7,417
108
2,484
5,042
7,526
(1,105)
6,421
OES
Rancho Cordova, CA
2009
12-31-2019
—
2,443
28,728
31,172
98
2,443
28,827
31,270
(5,674)
25,596
Torrent
Tampa, FL
1996
07-15-2024
—
1,421
3,762
5,183
—
1,421
3,762
5,183
(68)
5,115.55
$
12,329
$
98,009
$
392,188
$
490,197
$
11,537
$
98,009
$
403,725
$
501,734
$
(59,524)
$
442,210
(1) Except for the Saint Paul, Minnesota property, properties leased to Plastic Products and Torrent, and the mortgaged Taylor Fresh Foods property, all other properties served as collateral for borrowings under our Credit Facility as of December 31, 2024.
(2) Building and improvements include tenant origination and absorption costs.
(3) Consists of capital expenditures and real estate development costs, net of a partial land sale.
Notes:
•The aggregate cost of real estate for U.S. federal income tax purposes was approximately $461,488 (unaudited) as of December 31, 2024.
•Real estate investments (excluding land) are depreciated over their estimated useful lives. Their useful lives are generally 15-50 years for buildings, the shorter of 15 years or remaining lease term for site/building improvements, the shorter of 15 years or remaining contractual lease term for tenant improvements and the remaining lease term with consideration as to above- and below-market extension options for above- and below-market lease intangibles for tenant origination and absorption costs.
•The real estate assets are 100% owned by the Company.
F-37
The following table summarizes the Company’s real estate assets and accumulated depreciation and amortization as of December 31, 2024 and 2023:
MODIV INDUSTRIAL, INC.
Schedule III
Real Estate Assets and Accumulated Depreciation and Amortization
December 31, 2024 and 2023
December 31,
2024
2023
Real estate investments:
Balance at beginning of year
$
524,662
$
457,453
Acquisitions
5,183
128,239
Improvements to real estate
2,308
4,750
Dispositions
(16,437)
(51,735)
Held for sale
(13,982)
(9,657)
Impairment of real estate investment
—
(4,388)
Balance at end of year
$
501,734
$
524,662
Accumulated depreciation and amortization:
Balance at beginning of year
$
(50,902)
$
(46,753)
Depreciation and amortization
(16,601)
(15,551)
Dispositions
4,812
8,047
Held for sale
3,167
3,355
Balance at end of year
$
(59,524)
$
(50,902)
F-38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on March 3, 2025.
MODIV INDUSTRIAL, INC.
By:
/s/ AARON S. HALFACRE
Aaron S. Halfacre
Chief Executive Officer, President and Director
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
