EX-99.2 3 ef20022917_ex99-2.htm EXHIBIT 99.2
Exhibit 99.2
 
 
NYSE: MDV
 
QUARTERLY SUPPLEMENTAL DATA
 

December 31, 2023
 
Financial Information
 
and
 
Portfolio Information


Modiv Industrial, Inc.
Supplemental Information - Fourth Quarter 2023

Table of Contents

About the Data
3
     
Company Overview
 4
     
Financial Results
 
 
Earnings Release
 5
 
Consolidated Statements of Operations - Last Five Quarters
10
 
Property Portfolio - Statements of Operations - Fourth Quarter of 2023
 12
 
Consolidated Statements of Comprehensive (Loss) Income - Last Five Quarters
 14
 
(Loss) Earnings Per Share - Last Five Quarters
 15
 
FFO and AFFO - Last Five Quarters
 16
 
Property Portfolio - FFO and AFFO - Fourth Quarter of 2023
 18
 
Adjusted EBITDA - Last Five Quarters
 19
 
Leverage Ratio
 20
Balance Sheets and Capitalization
 
 
Capitalization
 21
 
Consolidated Balance Sheets
 22
 
Property Portfolio - Balance Sheets - As of December 31, 2023
 23
 
Debt Overview
 24
 
Credit Facility and Mortgage Notes Covenants
25
     
Real Estate
 
 
Real Estate Acquisitions
26
 
Real Estate Dispositions
 27
 
Top 20 Tenants
 28
 
Property Type
 29
 
Tenant Industry Diversification
30
 
Tenant Geographic Diversification
30
 
Lease Expirations
31
     
Appendix
 
 
Disclosures Regarding Non-GAAP and Other Metrics
32

2

About the Data
 
This data and other information described herein are as of and for the three months ended December 31, 2023 unless otherwise indicated. Future performance may not be consistent with past performance and is subject to change and inherent risks and uncertainties. This information should be read in conjunction with Modiv Industrial, Inc.’s (f/k/a Modiv Inc.) Annual Report on Form 10-K for the year ended December 31, 2023, including the financial statements and management’s discussion and analysis of financial condition and results of operations, which will be filed in the first week of March 2024.
 
Forward-Looking Statements
 
Information set forth herein contains forward-looking statements, which reflect our current views regarding our business, financial performance, growth prospects and strategies, market opportunities, and market trends. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words or other comparable words. All of the forward-looking statements herein are subject to various risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results, performance, and achievements could differ materially from those expressed in or by the forward-looking statements and may be affected by a variety of risks and other factors. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from such forward-looking statements. These factors include, but are not limited to, changes in the rate of inflation and interest rates, general economic conditions, local real estate conditions, tenant financial health, property acquisitions and dispositions and the timing of any acquisitions and dispositions, supply-chain disruptions and negative impacts associated with the violence and unrest in the Middle East, and the ongoing Russian war against Ukraine and sanctions which have been implemented by the United States and other countries against Russia. These and other risks, assumptions, and uncertainties are described in our filings with the SEC, which are available on the SEC’s website at www.sec.gov. You are cautioned not to place undue reliance on any forward-looking statements included herein. All forward-looking statements are made as of the date of this document and the risk that actual results, performance, and achievements will differ materially from the expectations expressed or referenced herein will increase with the passage of time. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

3

Company Overview

 
Modiv Industrial, Inc. (NYSE:MDV) (“Modiv Industrial”, the “Company”, “we”, “us” and “our”) is a real estate investment trust (“REIT”) that acquires, owns and manages a portfolio of single-tenant net-lease real estate. The Company actively acquires critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nation’s supply chains. For more information, please visit: www.modiv.com.
 
Modiv Industrial strives towards a “best-in-class” corporate governance structure through a board of directors and management team with decades of institutional real estate industry experience.
 
Management Team:
Independent Directors:
   
Aaron S. Halfacre
Adam S. Markman
Chief Executive Officer and Director
Chairman of the Board
   
Raymond J. Pacini
Curtis B. McWilliams
Chief Financial Officer and Secretary
 
   
John C. Raney Kimberly Smith
Chief Operating Officer and General Counsel  
   
Sandra G. Sciutto
Thomas H. Nolan, Jr.
Chief Accounting Officer
 
   
William R. Broms
Connie Tirondola
Chief Investment Officer
 

Investor Inquiries:
management@modiv.com

Transfer Agent:
Computershare Trust Company, N.A.
150 Royall Street
Canton, MA 02021
800-736-3001

4


Modiv Industrial Announces Fourth Quarter and Full Year 2023 Results

Management Provides Forward-Looking Thoughts

Reno, Nevada, March 4, 2024 – Modiv Industrial, Inc. (“Modiv Industrial”, “Modiv”, the “Company”, “we” or “our”), (NYSE:MDV), the only public REIT exclusively focused on acquiring industrial manufacturing real estate, today announced operating results for the fourth quarter and full year ended December 31, 2023.

Highlights:


Annual revenue of $46.9 million increased 7.1% year-over-year compared with 2022 revenue of $43.8 million. 2022 revenue included a $3.8 million non-recurring early lease termination fee and excluding that fee, 2023 revenue increased $6.9 million, or 17.3%.

Full year 2023 AFFO of $14.7 million, or $1.33 per diluted share, exceeding street expectations by $0.04 per share.

Fourth quarter revenue of $12.3 million increased $2.3 million year-over-year, or 23%, excluding the 2022 lease termination fee.

Fourth quarter AFFO of $4.5 million, or $0.40 per diluted share, exceeding street expectations by $0.05 per share.

Sold and issued 162,063 shares of MDV common stock between November 15, 2023 and January 29, 2024 at an average price of $15.22 per share.

December 29, 2023, prepaid the remaining $3.0 million balance of the mortgage on our Rancho Cordova, California property leased to the State of California’s Office of Emergency Services, resulting in no debt maturities until 2027.

January 10, 2024, sold our Sacramento property leased to Levins for $7.0 million.

January 11, 2024, entered into a contingent purchase and sale agreement to sell our Issaquah, Washington office property (currently leased to Costco until July 31, 2025) to a national home builder for $28.7 million which would close no later than August 15, 2025.

January 31, 2024, completed the stock distribution of Generation Income Properties, Inc. (NASDAQ: GIPR), common stock to the stockholders of Modiv Industrial.

February 28, 2024, sold our Nashville, Tennessee office property leased to Cummins for $7.95 million.

Currently have a cash balance of $17.9 million and full availability on our $150 million revolving credit facility.

5

“We’ve now been public for over two years, having listed without any shareholder lock-ups on February 11, 2022, mere weeks before the Russian invasion of Ukraine and the Fed’s expedient climb up the yield curve. To date, our entire publicly-traded existence has been during one of the more pronounced risk-off trade environments. REITs have been plagued by a historic increase in interest rates and a backdrop of heightened geo-political risk and price volatility. All of this has effectively left public REITs, who rely upon the capital markets, bereft of an opportunity to show meaningful growth. Yet, Modiv Industrial, a diminutive tardigrade of the stock market, has been able to produce eight quarters of transformational growth – accretively shedding non-core assets while building a stalwart industrial manufacturing portfolio. We may currently be the size of a water bear, but we have the fighting spirit of a grizzly.

For those quant hedge funds and the AI text bots still with us, feel free to drop off as the remainder of this release has more words than numbers and has been written for those that spend their time analyzing management’s thinking.

Business Outlook:

Acquisitions – Yes, that’s right, no acquisitions for fourth quarter or YTD 2024. As we mentioned in last quarter’s release, we take the Buffett-esque view that, at this stage of the market cycle, we can afford to stand over the plate looking for the fat pitch without fear of strikes being called. We saw several pitches, even a few where our grip of the bat twitched a bit, but we didn’t swing. What did swing though was market sentiment, with greed and fear tussling about, from a December sentiment when folks were speculating about a March Fed cut to recent rhetoric fearing that the Fed might not cut at all this year. We believe that there will be no shortage of assets to acquire, and we believe this because we have no shortage of the patience needed to wait for the right opportunities.

Dispositions – $135 million of assets sold across 24 properties (including 10 office) in the past two years is no small feat. When I first joined this firm, nearly 55% of the portfolio was office and less than 20% industrial. With our recently announced sale contract with a national homebuilder to buy our Issaquah, WA, office asset, we are now down to two office properties which I have the highest confidence will be the easiest to sell. Two years ago we quickly surmised that few would pay attention to our transformation while it was happening, but they sure as heck would pay attention to see that it did happen. Happen it has, drama-free and at a fast clip. There is still some portfolio maneuvering to be completed, with some likely to occur in 2024, so we will continue to keep our nose to the grindstone.

Balance Sheet – We now have $281 million of indebtedness, 100% of which is at fixed rates, with a weighted average interest rate of 4.52% and a weighted average maturity of 3.4 years with the earliest maturity not until January 2027. Our debt to asset ratio is 48%, our debt to adjusted EBITDA multiple is 6.6x.

Barring a compelling consolidation or M&A opportunity, we do not see any further benefit in using additional leverage and intend to make any single asset purchases on an unlevered basis with the intent that our $150 million revolver will be used only in those instances where there may be a short-term timing mismatch.

6

A healthy counterbalance to our manageable debt load is a ~$600 million portfolio of 42 assets producing over $44 million of net operating income, contractually growing about 2.5% per annum, with a hearty weighted average lease duration of approximately 14 years. Any future acquisitions, most likely on the heels of our remaining capital recycling activity, will help to further strengthen our future.

Strategic Partner – For those who are new to this topic, we encourage you to read our third quarter 2023 earnings release for a bit of back story. For those anxiously waiting to decipher our latest cave paintings, we are now under ten nondisclosure agreements (with several others working with public info only) with a list of organizations that are well known and far more impressive than us. Yes, many of these organizations are private-equity (PE) firms, or at the very least have private-equity mindsets. We hereby affectionately call this journey ‘Project Fuh’.

For those who don’t know, a stereotypical dialogue with a potential PE partner goes something like this…1) an enthusiastic kick-off call with a lot of friendly banter, from them, about how their firm’s flexibility and creativity can help MDV; 2) a nearly glazed over look from them when you describe that which you seek, all the while, nodding their heads in agreement; 3) a healthy due diligence deep dive, typically on the backs of some junior analyst tasked to complete too many models in too short a time frame; and 4) an end result whereby they tell you they need a total rate of return that you might find more appropriate for a growth stock like Nvidia or Tesla all the while seeking a guaranteed, or nearly so, repayment of any capital they invest.

Clearly, I jest (in part) as not all our conversations suffered from such hyperbole, but several did. I feel for them though as they have all raised institutional funds predicated on past performances and today’s market is not yet feeding them the deals like they saw in yesteryears. We get it, they are the titans of the money universe, and they are used to getting their way with wayward companies lining up with hats in hand seeking alms. Alas, even though we are a lowly REIT who would enjoy some capital, we don’t own a hat and, as such, aren’t in any state of desperation.

That said, all is not lost. We have had some very productive conversations with firms that believe in our asset class and see the opportunity. We have discussed terms with these parties that are worthy of continued consideration. Terms that contemplate contributing industrial manufacturing assets in exchange for equity. Terms that contemplate contributing additional equity capital to be used to further consolidate the many buckets of manufacturing assets out there that we know exist (and that we actively monitor). Terms that could, potentially, accelerate our transformation and provide the scale our REIT needs to be even more vibrant. Terms that might just be actionable. Our management team is working with our independent board of directors to contemplate, discern and diligence all the varying terms that have been discussed. There is nothing material to report today, and there may never be, but there is more to come on this topic.

Sundry thoughts:
 
Raison D’etre – I have long been a fan of Simon Sinek’s classic, Start With WHY, and how it advocates for having a clear purpose. A large part of our job as management, beyond the buying and selling of real estate, is to educate those who wish to know more. One of the more common questions I get is ‘Why Manufacturing?’. Let’s tackle this question with a rhetorical triangle…
 
Logos – 1989 marked a seminal year for U.S. manufacturing, it was the year that Eastman Kodak not only decided to outsource their manufacturing to a third party, but they did so overseas. Sure, as early as the late 70’s we saw a few international manufacturing conglomerates shuffle production to their various owned facilities across the globe, but Kodak’s decision began an accelerated trend in U.S. business to ‘offshore’ large swaths of the once dominant U.S. manufacturing capability. As we know, China was one of the earliest to capitalize on this trend by building manufacturing facilities which in turn helped fuel its multi-decade economic growth and improved the economic quality of life of many Chinese citizens. Concurrently, countless business school professors began to teach the glorious simplicity of a global-just-in-time-delivery supply chain model whereby the smart corporate manager could globally arbitrage labor costs, keep thin inventories and benefit from being an asset-light company. For the past thirty years, the U.S. consciously chose to underinvest in U.S. manufacturing and fully embrace a supply chain model that was inherently dependent on the premise that it would always work.
 
Flash forward to 2020 and we have seen rampant supply disruptions emerge from a slew of uncharacteristically frequent ‘black swan’ events to include the COVID-19 pandemic (LINK), the Russian invasion of Ukraine (LINK), the physical limitations of the Panama Canal (LINK) and the geo-political risk threatening the Suez Canal/Red Sea (LINK).
 
The culmination of events has led to considerable economic, military, and political discourse. Thought leaders now clearly recognize that the past 30+ year pursuit of economic profit has resulted in a massive under investment in U.S. manufacturing capacity, particular for those critical infrastructure items that are essential to a nation’s viability (LINK).
 
As a result of the new level of awareness, we have witnessed the emergence of several government economic initiatives (e.g. CHIPS Act, etc.) to spur a long-term manufacturing reinvestment process while at the same time many corporate leaders have decided to accept the risk of higher cost of goods sold for their critical components in order to reduce, or eliminate, the risk of even costlier supply chain disruptions. The value of domestic manufacturing has come back into our collective purview and strong economic tailwinds for the sector have only just begun.
 
We own manufacturing assets because we clearly see their critical need, their economic value and believe that countless others will soon begin to see the same.
 
Pathos – Modiv’s culture is about as politically agnostic as they come (think purple and balanced), but when it comes to our fellow citizens, we patriotically bleed red, white and blue. For me personally, maybe it’s part of my origin, living in a trailer in Indiana when my dad got promoted from electrician to the maintenance supervisor at a manufacturing facility. Or maybe it’s the time I spent working in a poultry processing factory in West Virginia or the time I spent in the United States Air Force learning how to fix electronics in Mississippi. Or maybe it’s what I learned from my father and uncles who worked summer jobs picking cotton in the Arkansas heat. Whatever the reason, I care deeply about the well-being of our nation, about our collective quality of life and the belief that the rungs of life’s ladder should at least attempt to lead us to a better vantage point. I know that my team cares as much as I do. As such, we are mindful of capitalism’s impact on human life as it marches toward the never-ending goal to maximize profit. REITs, being capitalistic constructs, exist to maximize real estate profit for their investors; however, such pursuits can sometimes have unintended consequences. For example, in the net-lease REIT sector, most of these REITs rely upon the continuous consumption of cheap goods by the American citizen as their portfolios are chock full of dollar stores, fast food chains, pharmacies, car washes and, in some instances, even casinos – all capitalistic venues that entice individuals to spend their money on things they very likely don’t need. So many of these property concepts sell things and so few make things.
 
If you travel the heartland of America, like we do when we tour manufacturing assets, you see so many small towns pervaded with low paying, low skill retail jobs and their streets lined with redundant franchises. Yes, on the margin, we do need elements of these retail concepts, but overall, it definitely reminds us that too much of something can be detrimental in the long run.
 
We own manufacturing assets because we believe that, as humans, we benefit more in our daily lives from making things of critical value rather than the constant consuming of things of questionable value.
 
Ethos – A REIT’s management team, and particularly the role of the CEO, exist to advocate for, and steward the well-being of, the capital entrusted by its many REIT investors. It is a prerequisite that a company’s leadership have the necessary levels of expertise, integrity, and alignment to perform their duties. However, it is rare in the for-hire executive ranks to find leadership that holds the same level of extreme passion for their business, mission, and advocacy as we find from the famous entrepreneurs that we have all come to admire and fawn over. When I invest my hard-earned capital in a particular stock, I want the leader of that company to be absolutely relentless in thinking about all that can go wrong while focusing on making sure as many things go right. Further, I want them to be a raving fan for the investment at a level of motivation that no compensation can induce.
 
Maybe because of my background, I find that I resonate with this asset class at a level that likely makes me look a bit different than your standard REIT CEO – and I am ok with that. I feel blessed to be the scrappy type who can tirelessly champion the benefits of owning manufacturing real estate to all that will listen. Culturally here at Modiv, we are comfortable with the role of the underdog and wake up every morning willing to fight the fight by embracing our inner Johnny Cash (LINK).
 
We own manufacturing assets because we are extraordinarily passionate about this asset class, for our investment thesis and for the tremendous upside potential we see for all MDV investors.
 
Calf Kicks – I have been a fan of the UFC for about 20 years, rarely missing a PPV. Over the years I have witnessed the evolution of this form of combat sport as the tactics, strategies, athleticism, and skills have been honed to an impressive degree. One byproduct of this evolution is the calf kick. Whereas the jab exists for the upper body, the calf kick exists for the lower body. A hard and fast kick to the calf, especially right below the knee, can stun or stumble a fighter. Excessive kicks to the calf, usually a result of someone not learning to avoid them, will likely leave a fighter limping out of the octagon - possibly with a loss and a pair of crutches. However, a few kicks to the calf early in the fight do not portend failure but rather are more likely to cause the best champions to alter their gameplan, learn valuable lessons and go on to prevent calf kicks, and their resulting pain, altogether. Oftentimes, those initial kicks will make you better.
 
We pride ourselves here at Modiv on being candid and transparent. It would be disingenuous for us to only speak of the great things and never deal with the not-so-great. Like everyone, our stuff can stink too, and we have recently suffered from a few non-fatal, kicks to our proverbial calf (e.g. Kalera).
 
As we have stated in our SEC filings over the past quarters and in our forthcoming 2023 Form 10-K, Kalera, which was the tenant in our Saint Paul, Minnesota, property filed for bankruptcy protection and is seeking to reject our lease. Kalera’s mistake was relying upon a SPAC transaction to successfully close amidst the massive risk-off market environment that resulted from the Fed’s rate increase – it didn’t go according to their plan. Beyond them no longer paying rent, they left several mechanics liens on the property that we ultimately had to pay. The process is ongoing, but we fully expect that we will soon have full control over the destiny of this property. Given the leasing and sale prospects we have for the asset as well as the value confirmation from two recent independent appraisals valuing it at an average of $11.9 million compared to our net $10 million cash investment, we currently see a path forward with this property that could very well end up with no economic loss. Lucky for us we have a property in a prime location that had a massive amount of capital expenditure (including refrigerated space) installed by Kalera as they renovated the space to become a premier indoor growing facility.
 
We are grateful this investment hasn’t resulted in a broken nose or a concussion, but as a REIT team always looking to improve, we have learned a few lessons to prevent future calf kicks. Namely, we will no longer invest in early stage or pre-revenue growth concepts without substantial credit behind the lease. Instead, we will continue to hone our focus on those assets which have benefitted from survivorship bias having survived years of global outsourcing and multiple Federal Reserve Chairs. We will also never again do a related party transaction. Even though the fact that it was sourced, arms-length, from a related party had nothing to do with the lease failure, it is a terrible look if not a black eye. We have learned lessons; we have modified our gameplan and we will continue to strive to serve you better tomorrow than we did yesterday.

Wordy Missives – Why all the dialogue? Surely, some have contemplated that exact question. Despite errant speculation that maybe we are trying to emulate a certain oracle of the Midwest, the truth lies distinctly within two broader thoughts – 1) the simplicity of REITs and 2) infinite monetary returns.

If I may…

7

1)
The simplicity of REITs – For those who have heard me speak, they have heard me say that this REIT business isn’t a terribly complicated one. There is no risk of life or limb, which makes for a better job than many. There are roughly 150 publicly traded REITs in North America, with a rough average of three named executive officers per REIT – let’s round up and say there are 500 of these so-called ‘executives’. If you think about it, that is a more exclusive club than what you might find with the NFL, MLB, or NBA. If the REITs are the teams, then management are the players. You, the savvy REIT investor, get to choose the players that you want to play in your league.

In the simplest of terms, a REIT investor must form an opinion on three primary things…the asset class, the balance sheet and the quality of management. The asset class is easy to ascertain and either the potential investor likes it or doesn’t. Next is the balance sheet which is something that is best taken in a relative context given that balance sheets can, and do, change – for better or worse. You might not like a balance sheet today, but maybe you can see how you could like it, with some changes, tomorrow. Of course, the asset class and the balance sheets are subject to the decisions made, in large part, by the management team, and it is here, on this third tenant of REIT simplicity, that compels us to share more (not less). As a genuine REIT nerd, I have read so many press releases and listened to so many earnings calls. In the vast, vast, majority of these instances you are left with a word soup that feels like it was written by either an investor relations professional, an accountant or an attorney – effectively saying nothing. As management, we understand that your job is to figure out if we will make good ‘plays’ with your capital and not fumble the ball. The less we say with candor, the less we share on how we are thinking, then the harder it is for you to figure out if we are any good. You, the savvy REIT investor, will figure out our thinking by hook or by crook, sooner or later. Why not sooner? Why not be open with our thinking so that you can get on with your investment choice. That’s the first reason why we will continue to share more and not less.

Infinite monetary returns – Have you ever picked up a penny off the ground?  I do every chance I can because that one cent of monetary return is infinite when you consider I invested no money in exchange for that penny (a dime is a real treat because I liken it to a monthly MDV dividend). Most don’t know this, but when you list on a public stock exchange you typically get some listing benefits. In our case, when we listed on the NYSE, we got four years’ worth of earnings press releases for free. A typical press release might cost you anywhere from $500 to $1,000, some newswire companies charge by the word. Even if this press release cost $1,000, it would be a worthwhile monetary investment because this press release will be accessible by millions of potential readers. Why spend multiples more for generic internet outreach or advertising for a lower potential return? Given that this particular press release was a proverbial penny found on the ground, it is truly an infinite monetary return for MDV. But wait, there is more…

Allow me to continue the use of abstract analogies this last time. The ‘stock market’ is arguably the biggest social media platform on the planet. Millions upon millions tune in every day to see what’s new and what’s changing. Countless of us have our favorite ‘feeds’ and we regularly consume copious amounts of ‘content’ that is generated by and about this ‘platform’. MDV, if we like it or not, is one of the many thousands of content creators on this platform. We believe it is better to produce candid content with the prospect that it will find its target audience in time rather than mimic everyone else and find no audience at all. To produce this content with a far-reaching, free press release is just smart money.

8

Ok, that’s a wrap. Until next time. Stay Modivated!” – Aaron Halfacre, CEO of Modiv Industrial.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held on Monday, March 4, 2024, at 8:30 a.m. Eastern Time / 5:30 a.m. Pacific Time, to discuss the fourth quarter and full year 2023 operating results and answer questions.

Live conference call: 1-877-407-0789 at 8:30 a.m. Eastern Time, Monday, March 4, 2023

Webcast: To listen to the webcast, either live or archived, please use this link:
https://viavid.webcasts.com/starthere.jsp?ei=1658305&tp_key=83c3e36e04
or visit the investor relations page of Modiv’s website at www.modiv.com.

Notice Involving Non-GAAP Financial Measures

In addition to U.S. GAAP financial measures, this press release and the supplemental financial and operating report included in our Form 8-K dated March 4, 2024 contain and may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures should not be considered replacements for, and should be read together with, the most comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures and statements of why management believes these measures are useful to investors are provided below.

AFFO is a measure that is not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See the Reconciliation of Non-GAAP Measures later in this press release.

Inquiries:
management@modiv.com

9

Modiv Industrial, Inc.
Consolidated Statements of Operations - Last Five Quarters

(Unaudited)
 
   
Three Months Ended
 
   
December 31,
2023
   
September 30,
2023
   
June 30,
2023
   
March 31,
2023
   
December 31,
2022
 
Rental income (a)
 
$
12,288,516
   
$
12,500,338
   
$
11,836,563
   
$
10,311,182
   
$
13,804,539
 
                                         
Operating expenses:
                                       
General and administrative (b)
   
1,402,055
     
1,735,104
     
1,597,776
     
1,908,055
     
2,252,304
 
Stock compensation expense (c)
   
1,381,001
     
8,469,867
     
660,170
     
660,169
     
660,170
 
Depreciation and amortization
   
4,147,570
     
4,175,209
     
3,956,334
     
3,272,060
     
4,347,809
 
Property expenses (d)
   
731,081
     
1,195,224
     
1,527,868
     
1,706,844
     
1,537,690
 
Impairment of real estate investment property (e)
   
888,186
     
     
     
3,499,438
     
2,080,727
 
Total operating expenses
   
8,549,893
     
15,575,404
     
7,742,148
     
11,046,566
     
10,878,700
 
                                         
(Loss) gain on sale of real estate investments (f)
   
     
(1,708,801
)
   
     
     
669,186
 
Operating income (loss)
   
3,738,623
     
(4,783,867
)
   
4,094,415
     
(735,384
)
   
3,595,025
 
                                         
Other (expense) income:
                                       
Interest income
   
28,967
     
26,386
     
216,841
     
53,694
     
5,047
 
Dividend income
   
285,000
     
190,000
     
     
     
 
Income from unconsolidated investment in a real estate property
   
72,043
     
79,164
     
72,773
     
55,569
     
51,312
 
Interest expense (income), including unrealized loss (gain) on interest rate swaps and net of derivative settlements (g)
   
(7,045,059
)
   
(2,922,918
)
   
179,931
     
(4,018,792
)
   
(2,826,491
)
Increase in fair value of investment in preferred stock (h)
   
978,658
     
440,000
     
     
     
 
Other
   
99,717
     
65,993
     
65,993
     
65,992
     
(104,158
)
Other (expense) income, net
   
(5,580,674
)
   
(2,121,375
)
   
535,538
     
(3,843,537
)
   
(2,874,290
)
                                         
Net (loss) income
   
(1,842,051
)
   
(6,905,242
)
   
4,629,953
     
(4,578,921
)
   
720,735
 
Less: net loss (income) attributable to noncontrolling interest in Operating Partnership
   
546,967
     
1,368,896
     
(649,643
)
   
816,199
     
42,508
 
Net (loss) income attributable to Modiv Industrial, Inc.
   
(1,295,084
)
   
(5,536,346
)
   
3,980,310
     
(3,762,722
)
   
763,243
 
Preferred stock dividends
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
Net (loss) income attributable to common stockholders
 
$
(2,216,959
)
 
$
(6,458,221
)
 
$
3,058,435
   
$
(4,684,597
)
 
$
(158,632
)
                                         
Net (loss) income per share attributable to common stockholders:
                                       
Basic
 
$
(0.29
)
 
$
(0.86
)
 
$
0.41
   
$
(0.62
)
 
$
(0.02
)
Diluted
 
$
(0.29
)
 
$
(0.86
)
 
$
0.35
   
$
(0.62
)
 
$
(0.02
)
                                         
Weighted-average number of common shares outstanding:
                                       
Basic
   
7,621,871
     
7,548,052
     
7,532,106
     
7,532,452
     
7,487,728
 
Diluted (i)
   
7,621,871
     
7,548,052
     
10,638,311
     
7,532,452
     
7,487,728
 
                                         
Distributions declared per common share (j)
 
$
1.3975
   
$
0.2875
   
$
0.2875
   
$
0.2875
   
$
0.2875
 

10

(a)
Rental income includes tenant reimbursements for property expenses and the fourth quarter of 2022 includes an early termination fee of $3,781,929 received from Sutter Health.
 
(b)
General and administrative expenses in the fourth quarter of 2022 include a $500,000 accrual for costs of relocating our corporate offices to Reno, Nevada.
 
(c)
Stock compensation expense in the third quarter of 2023 includes a one-time non-cash catch-up adjustment of $7,822,197 related to our determination that at that time it was probable that we would achieve our performance target for FFO of $1.05 per diluted share for the year ended December 31, 2023, exclusive of the dilutive effect of the performance units and related stock compensation expense. Our FFO per fully diluted share excluding the dilutive impact of the performance units and the related stock compensation expense was $1.77 for the year ended December 31, 2023. The $0.72 of FFO per diluted share in excess of the performance target of $1.05 per diluted share exceeded the target by 69%. As a result of achieving our performance target of FFO of $1.05 per diluted share (excluding the performance units), an additional 474,515 Class C OP Units will be issued on March 31, 2024 upon the automatic conversion of our Class R OP Units based on a conversion ratio of 2.5 Class C OP Units for each Class R OP Unit. This catch-up adjustment reflects amortization of the grant date fair value of $19.58 per share for the 474,515 performance units from the January 25,2021 grant date through September 30, 2023. Stock compensation expense of $733,331 was recorded for the performance units for the fourth quarter of 2023 and an additional $733,331 will be recorded through the end of the vesting period on March 31, 2024.
 
(d)
Property expenses are largely offset by tenant reimbursements included in rental income.
 
(e)
The impairment charges for the first and fourth quarters of 2023 relate to an office property located in Nashville, Tennessee leased to Cummins, Inc. through February 29, 2024, which was sold on February 28, 2024. We determined that an impairment charge in the first quarter of 2023 was triggered by expectations of a shortened holding period and estimated the property’s fair value based upon market comparables at the time. The additional charge in the fourth quarter of 2024 was based on the sale agreement executed on December 15, 2023, reflecting the excess of the property’s carrying value over the property’s contracted sale price less estimated selling costs for the sale. The impairment charge for the fourth quarter of 2022 relates to an office property located in Rocklin, California to reflect the net realizable value as a result of its reclassification to asset held for sale. On June 29, 2023, the property was leased to the EMC Shop, LLC for 11.5 years for industrial use and then sold to EMC Shop, LLC on August 31, 2023 resulting in a gain of $178,239 included in the third quarter of 2023.
 
(f)
(Loss) gain on sale of real estate investments for the third quarter of 2023 includes a loss of $(1,887,040) on the sale of 13 properties to Generation Income Properties, Inc. (“GIPR”) (11 retail and two office), partially offset by a gain on the sale of the Rocklin, California property discussed above. Sale proceeds from the GIPR sale included cash of $30,000,000 and newly issued GIPR preferred stock with a liquidation value of $12,000,000. The loss includes the $2,380,000 difference between the $12,000,000 liquidation value and the $9,620,000 fair value of our investment in GIPR’s newly-created Series A Redeemable Preferred Stock received on August 10, 2023.
 
(g)
Interest (expense) income, including unrealized (loss) gain on interest rate swaps and net of derivative settlements in the fourth quarter of 2023 includes $3,400,139 of unrealized loss on interest rate swaps, net of $1,617,279 of derivative cash settlements received. The third quarter of 2023 is net of $795,425 unrealized gain on interest rate swaps and $1,586,641 of derivative cash settlements received, the second quarter of 2023 is net of $3,708,597 unrealized gain on interest rate swaps and $1,401,716 of derivative cash settlements received and the first quarter of 2023 includes $1,722,184 unrealized loss on interest rate swaps and is net of $1,074,085 of derivative cash settlements received.
 
(h)
Increase in fair value of investment in preferred stock in the third and fourth quarters of 2023 reflect adjustment to fair value.
 
(i)
Diluted shares outstanding for periods when we reported a net loss do not include the OP Units since they would be anti-dilutive. Diluted shares outstanding in the second quarter of 2023 include Class C, Class M, Class P and time vesting Class R OP Units since we reported net income for the quarter.
 
(j)
Distributions for the three months ended December 31, 2023 include the distribution of GIPR common stock of $1.11 per share declared on December 29, 2023 which reflects 0.28 shares of GIPR common stock per one share of our stock multiplied by $3.95 which was the closing price of GIPR common stock on December 29, 2023.
 
11

Modiv Industrial, Inc.
Property Portfolio - Statements of Operations - Fourth Quarter of 2023

(Unaudited)

   
Three Months Ended December 31, 2023
 
   
Industrial
Core
   
Tactical
 Non-Core (1)
   
Other
Non-Core (2)
   
Non-Property
 & Other (3)
   
Consolidated
 
Rental income
 
$
8,815,404
   
$
2,778,276
   
$
694,836
   
$
   
$
12,288,516
 
                                         
Operating expenses:
                                       
General and administrative
   
     
     
     
1,402,055
     
1,402,055
 
Stock compensation expense
   
     
     
     
1,381,001
     
1,381,001
 
Depreciation and amortization
   
3,294,284
     
808,619
     
44,667
     
     
4,147,570
 
Property expenses
   
384,021
     
335,878
     
11,182
     
     
731,081
 
Impairment of real estate investment property
   
     
     
888,186
     
     
888,186
 
Total operating expenses
   
3,678,305
     
1,144,497
     
944,035
     
2,783,056
     
8,549,893
 
                                         
Operating income (loss):
                                       
Gain (loss) on sale of real estate investments
   
     
     
     
     
 
Operating income (loss)
   
5,137,099
     
1,633,779
     
(249,199
)
   
(2,783,056
)
   
3,738,623
 
                                         
Other (expense) income:
                                       
Interest income
   
     
     
     
28,967
     
28,967
 
Dividend income
   
     
     
     
285,000
     
285,000
 
Income from unconsolidated investment in a real estate property
   
72,043
     
     
     
     
72,043
 
Interest expense, including unrealized loss on interest rate swaps and net of derivative settlements (4)
   
(4,091,348
)
   
(995,058
)
   
(175,793
)
   
(1,782,860
)
   
(7,045,059
)
Increase in fair value of investment in preferred stock
   
     
     
     
978,658
     
978,658
 
Other (5)
   
(1,175
)
   
     
     
100,892
     
99,717
 
Other (expense), income net
   
(4,020,480
)
   
(995,058
)
   
(175,793
)
   
(389,343
)
   
(5,580,674
)
                                         
Net income (loss)
   
1,116,619
     
638,721
     
(424,992
)
   
(3,172,399
)
   
(1,842,051
)
Less: net loss attributable to noncontrolling interest in Operating Partnership
   
     
     
     
546,967
     
546,967
 
Net income (loss) attributable to Modiv Industrial, Inc.
   
1,116,619
     
638,721
     
(424,992
)
   
(2,625,432
)
   
(1,295,084
)
Preferred stock dividends
   
     
     
     
(921,875
)
   
(921,875
)
Net income (loss) attributable to common stockholders
 
$
1,116,619
   
$
638,721
   
$
(424,992
)
 
$
(3,547,307
)
 
$
(2,216,959
)

(1)
We categorize Tactical Non-Core Assets as those assets that offer compelling value-add or opportunistic investment characteristics when measured over a near-term or interim holding period. We currently hold three such assets: (i) our tactical non-core acquisition of a leading KIA auto dealership located in a prime location in Los Angeles County in January 2022, which was structured as an UPREIT transaction resulting in a favorable equity issuance of $32,809,550 Class C OP Units at a cost basis of $25.00 per share; (ii) our 12 year lease to the State of California’s Office of Emergency Services (OES) executed in January 2023 for one of our existing assets located in Rancho Cordova, California that includes an attractive purchase option by the tenant which we believe has a favorable probability of being executed in the next 24 months; and (iii) our property leased to Costco located in Issaquah, Washington which offers compelling redevelopment opportunities following Costco’s lease expiration in July 2025 given its higher density infill location and the fact that the land is zoned for additional uses to include multi-family. In January 2024, we entered into a purchase and sale agreement with a national homebuilder for the sale of this property, for a sale price of $28,650,000, which is contingent upon the buyer’s satisfaction of various due diligence matters in its sole discretion by April 1, 2024. The sale would not close until 15 days following the earlier of (a) buyer obtaining all necessary development approvals, or (b) tenant vacating the property, but not prior to February 1, 2025, and not later than August 15, 2025. The buyer is not affiliated with the Company or its affiliates.

12

(2)
Other non-core assets includes one remaining legacy office property leased to Solar Turbines in San Diego and the Cummins office property in Nashville, Tennessee that was sold in February 2024. We define legacy assets as those inherited through prior mergers and acquisitions activity and such assets that were acquired by different management teams utilizing different investment objectives or underwriting criteria.
 
(3)
We do not allocate non-property expenses across our property-specific segments; therefore, we report these expenses separately under the Non-Property & Other caption in the table above. Such expenses and income include stock compensation expense, general and administrative, unrealized gains and losses on valuation of interest rate swaps, and other comprehensive items.
 
(4)
Non-Property & Other’s interest expense, including unrealized loss on interest rate swaps and net of derivative settlements in the fourth quarter of 2023 includes $3,400,139 of unrealized loss on interest rate swaps and is net of $1,617,279 of derivative cash settlements received.
 
(5)
Other income reflects management fees earned for managing the TIC Interest.

13

Modiv Industrial, Inc.
Consolidated Statements of Comprehensive (Loss) Income - Last Five Quarters

(Unaudited)
 
   
Three Months Ended
 
   
December 31,
2023
   
September 30,
2023
   
June 30,
2023
   
March 31,
2023
   
December 31,
2022
 
Net (loss) income
 
$
(1,842,051
)
 
$
(6,905,242
)
 
$
4,629,953
   
$
(4,578,921
)
 
$
720,735
 
                                         
Other comprehensive (loss) income: cash flow hedge adjustment
                                       
Amortization of unrealized holding gain on interest rate swap (a)
   
(258,655
)
   
(253,092
)
   
(253,093
)
   
(250,311
)
   
 
Unrealized holding loss on interest rate swap designated as a cash flow hedge (b)
   
     
     
     
     
(216,200
)
Comprehensive (loss) income
   
(2,100,706
)
   
(7,158,334
)
   
4,376,860
     
(4,829,232
)
   
504,535
 
                                         
Net loss (income) attributable to noncontrolling interest in Operating Partnership
   
546,967
     
1,368,896
     
(649,643
)
   
816,199
     
42,508
 
Other comprehensive loss (income) attributable to noncontrolling interest in Operating Partnership:
                                       
Amortization of unrealized holding gain on interest rate swap (a)
   
44,959
     
44,264
     
44,341
     
37,141
     
 
Unrealized holding loss on interest rate swap designated as a cash flow hedge (b)
   
     
     
     
     
(34,942
)
Comprehensive loss (income) attributable to noncontrolling interest in Operating Partnership
   
591,926
     
1,413,160
     
(605,302
)
   
853,340
     
7,566
 
Comprehensive (loss) income attributable to Modiv Industrial, Inc.
 
$
(1,508,780
)
 
$
(5,745,174
)
 
$
3,771,558
   
$
(3,975,892
)
 
$
512,101
 
 
(a)
Due to the $150 million Term Loan swap’s failure to qualify as a cash flow hedge for each of the quarterly periods ended December 31, 2023, the unrealized gain on interest rate swap derivative on the consolidated balance sheet is being amortized on a straight-line basis, as a reduction to interest expense, through the maturity date of the Term Loan. The interest rate swap derivative instrument failed to qualify as a cash flow hedge during each of the quarterly periods ended December 31, 2023 because the swap was deemed ineffective due to the one-time cancellation option on December 31, 2024 as compared with the maturity of the Term Loan. The Company has begun, and intends to further explore various alternatives available to extend or restructure the cancellation option.
 
(b)
Reflects the change in fair value of the interest rate swap derivative for the three months ended December 31, 2022 when the swap qualified as a cash flow hedge for financial accounting purposes.

14

Modiv Industrial, Inc.
(Loss) Earnings Per Share - Last Five Quarters

(Unaudited)
 
   
Three Months Ended
 
   
December 31,
2023
   
September 30,
2023
   
June 30,
2023
   
March 31,
2023
   
December 31,
2022
 
Numerator - Basic:
                             
Net (loss) income
 
$
(1,842,051
)
 
$
(6,905,242
)
 
$
4,629,953
   
$
(4,578,921
)
 
$
720,735
 
Less: net loss (income) attributable to noncontrolling interest in Operating Partnership
   
546,967
     
1,368,896
     
(649,643
)
   
816,199
     
42,508
 
Preferred stock dividends
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
Net (loss) income attributable to common stockholders
 
$
(2,216,959
)
 
$
(6,458,221
)
 
$
3,058,435
   
$
(4,684,597
)
 
$
(158,632
)
                                         
Numerator - Diluted:
                                       
Net (loss) income
 
$
(1,842,051
)
 
$
(6,905,242
)
 
$
4,629,953
   
$
(4,578,921
)
 
$
720,735
 
Preferred stock dividends
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
Net (loss) income attributable to common stockholders
 
$
(2,763,926
)
 
$
(7,827,117
)
 
$
3,708,078
   
$
(5,500,796
)
 
$
(201,140
)
                                         
Denominator:
                                       
Weighted average shares outstanding - basic
   
7,621,871
     
7,548,052
     
7,532,106
     
7,532,452
     
7,487,728
 
Operating Partnership Units - Class C (a)(b)
   
     
     
1,599,898
     
     
 
Operating Partnership Units - Classes M, P and R (c)
   
     
     
1,506,307
     
     
 
Weighted average shares outstanding - diluted
   
7,621,871
     
7,548,052
     
10,638,311
     
7,532,452
     
7,487,728
 
                                         
(Loss) earnings per share attributable to common stockholders:
                                       
Basic
 
$
(0.29
)
 
$
(0.86
)
 
$
0.41
   
$
(0.62
)
 
$
(0.02
)
Diluted
 
$
(0.29
)
 
$
(0.86
)
 
$
0.35
   
$
(0.62
)
 
$
(0.02
)
 
(a)
We issued 1,312,382 Class C OP Units at an agreed upon value of $25.00 per unit in connection with our January 18, 2022 acquisition of a KIA auto dealership property in an “UPREIT” transaction. These units were not included in the computation of Diluted EPS for the quarters ended December 31, 2023, September 30, 2023, March 31, 2023 and December 31, 2022 because their effect would be anti-dilutive.
 
(b)
The weighted average Class C OP Units of 1,599,898 for the quarter ended June 30, 2023 included the weighted effect of 287,516 units issued in April 2023 in conjunction with our acquisition in an “UPREIT” transaction of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC.
 
(c)
During the three months ended December 31, 2023, September 30, 2023, March 31, 2023 and December 31, 2022, the weighted average dilutive effect of 1,506,307, 1,506,307, 1,506,307 and 1,395,759 shares, respectively, related to Classes M, P and R Operating Partnership units were excluded from the computation of Diluted EPS because their effect would be anti-dilutive. There were no other outstanding securities or commitments to issue common stock that would have a dilutive effect for the periods then ended.
 
15

Modiv Industrial, Inc.
FFO and AFFO - Last Five Quarters

(Unaudited)

   
Three Months Ended
 
   
December 31,
2023
   
September 30,
2023
   
June 30,
2023
   
March 31,
2023
   
December 31,
2022
 
Net (loss) income (in accordance with GAAP)
 
$
(1,842,051
)
 
$
(6,905,242
)
 
$
4,629,953
   
$
(4,578,921
)
 
$
720,735
 
Preferred stock dividends
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
   
(921,875
)
Net (loss) income attributable to common stockholders and Class C OP Unit holders
   
(2,763,926
)
   
(7,827,117
)
   
3,708,078
     
(5,500,796
)
   
(201,140
)
FFO adjustments:
                                       
Depreciation and amortization of real estate properties
   
4,147,570
     
4,175,209
     
3,956,334
     
3,272,060
     
4,347,809
 
Amortization of lease incentives
   
(63,956
)
   
40,397
     
88,570
     
88,570
     
88,751
 
Depreciation and amortization for unconsolidated investment in a real estate property
   
188,889
     
187,479
     
186,069
     
194,173
     
203,554
 
Impairment of real estate investment property
   
888,186
     
     
     
3,499,438
     
2,080,727
 
Loss (gain) on sale of real estate investments, net
   
     
1,708,801
     
     
     
(669,186
)
FFO attributable to common stockholders and Class C OP Unit holders (a)
   
2,396,763
     
(1,715,231
)
   
7,939,051
     
1,553,445
     
5,850,515
 
Stock compensation for performance units expense (b)
   
733,332
     
7,822,197
     
     
     
 
FFO excluding performance units expense
   
3,130,095
     
6,106,966
     
7,939,051
     
1,553,445
     
5,850,515
 
AFFO adjustments:
                                       
Non-recurring corporate relocation costs
   
     
     
     
     
500,000
 
Stock compensation excluding performance units expense (c)
   
647,669
     
647,670
     
660,170
     
660,169
     
660,170
 
Deferred financing costs
   
210,604
     
165,709
     
195,213
     
195,212
     
179,641
 
Due diligence expenses, including abandoned pursuit costs (d)
   
     
1,208
     
3,848
     
342,542
     
25,051
 
Amortization of deferred rents
   
(1,704,137
)
   
(1,772,403
)
   
(1,580,358
)
   
(1,175,359
)
   
(643,784
)
Unrealized loss (gain) on interest rate swaps, net
   
3,400,138
     
(795,425
)
   
(3,708,598
)
   
1,722,185
     
505,263
 
Amortization of (below) above market lease intangibles, net
   
(211,600
)
   
(204,011
)
   
(195,901
)
   
(196,282
)
   
(142,626
)
Unrealized gain on investment in preferred stock
   
(978,658
)
   
(440,000
)
   
     
     
 
Other adjustments for unconsolidated investment in a real estate property
   
17,821
     
11,819
     
11,819
     
11,819
     
5,815
 
AFFO attributable to common stockholders and Class C OP Unit holders (e)
 
$
4,511,932
   
$
3,721,533
   
$
3,325,244
   
$
3,113,731
   
$
6,940,045
 
                                         
Weighted Average Shares Outstanding:
                                       
Basic
   
7,621,871
     
7,548,052
     
7,532,106
     
7,532,452
     
7,487,728
 
Fully diluted excluding performance units
   
10,728,076
     
10,654,257
     
10,638,311
     
10,351,141
     
10,195,869
 
Fully diluted (e) (f)
   
11,202,591
     
11,128,772
     
10,638,311
     
10,351,141
     
10,195,869
 
FFO Per Share:
                                       
Basic
 
$
0.31
   
$
(0.23
)
 
$
1.05
   
$
0.21
   
$
0.78
 
Fully diluted
 
$
0.21
   
$
(0.23
)
 
$
0.75
   
$
0.15
   
$
0.57
 
FFO Per Share Excluding Performance Units Expense:
                                       
Basic
 
$
0.41
   
$
0.81
   
$
1.05
   
$
0.21
   
$
0.78
 
Fully diluted
 
$
0.29
   
$
0.58
   
$
0.75
   
$
0.15
   
$
0.57
 
AFFO Per Share:
                                       
Basic
 
$
0.59
   
$
0.49
   
$
0.44
   
$
0.41
   
$
0.93
 
Fully diluted
 
$
0.40
   
$
0.33
   
$
0.31
   
$
0.30
   
$
0.68
 

16

(a)
FFO and AFFO for the fourth quarter of 2022 include an early termination fee of $3,751,984 received from Sutter Health.
 
(b)
Stock compensation expense for the performance-based portion of the Class R OP Units for the quarter ended September 30, 2023 reflects a non-cash catch-up adjustment of $7,822,197 for the period from the January 25, 2021 grant date through September 30, 2023 based on our determination that at that time it was probably that we would achieve our performance target for FFO of $1.05 per diluted share for the year ended December 31, 2023, exclusive of the effect of the performance units and related stock compensation expense. Our FFO per fully diluted share excluding the performance units expense was $1.77 for the year ended December 31, 2023. The $0.72 of FFO per diluted share in excess of the performance target of $1.05 per diluted share exceeded the target by 69%. The fully diluted shares include the additional 474,515 Class R performance OP Units for the quarters ended September 2023 and December 31, 2023, respectively, that have vested and will automatically convert to Class C OP Units on March 31, 2024. Stock compensation expense of $733,331 was recorded for the performance units for the fourth quarter of 2023 and an additional $733,331 will be recorded through the end of the vesting period on March 31, 2024.
 
(c)
Stock compensation expense includes (i) amortization of the value of Class P OP Units granted to our Chief Executive Officer and Chief Financial Officer on December 31, 2019; (ii) amortization of the value of the time-based Class R OP Units granted to all of our employees, including the Chief Executive Officer and Chief Financial Officer, on January 25, 2021; and (iii) stock granted to our independent directors each quarter as partial consideration for their service as directors.
 
(d)
Abandoned pursuit costs for the first quarter of 2023 primarily reflect the write-off of due diligence costs incurred during 2022 and 2023 for a potential acquisition of a portfolio of industrial manufacturing properties that we abandoned due to changes in market conditions.
 
(e)
The weighted average Class C OP Units for the second, third and fourth quarters of 2023 included the weighted effect of 287,516 units issued in April 2023 in conjunction with our acquisition in an “UPREIT” transaction of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC.
 
(f)
Includes the Class C, Class M, Class P and Class R OP Units to compute the weighted average number of shares for each of the five quarters ended December 31, 2023 presented above, including the performance portion of the Class R OP Units for the quarters ended September 30, 2023 and December 31, 2023.

17

Modiv Industrial, Inc.
Property Portfolio - FFO and AFFO - Fourth Quarter of 2023

(Unaudited)

   
Three Months Ended December 31, 2023
 
   
Industrial
Core
   
Tactical Non-
Core (1)
   
Other Non-
Core (1)
   
Non-Property
& Other (1)
   
Consolidated
 
Net (loss) income (in accordance with GAAP)
 
$
1,116,619
   
$
638,721
   
$
(424,992
)
 
$
(3,172,399
)
 
$
(1,842,051
)
Preferred stock dividends
   
     
     
     
(921,875
)
   
(921,875
)
Net (loss) income attributable to common stockholders and Class C OP Unit holders
   
1,116,619
     
638,721
     
(424,992
)
   
(4,094,274
)
   
(2,763,926
)
FFO adjustments:
                                       
Depreciation and amortization of real estate properties
   
3,294,284
     
808,619
     
44,667
     
     
4,147,570
 
Amortization of lease incentives
   
(63,956
)
   
     
     
     
(63,956
)
Depreciation and amortization for unconsolidated investment in a real estate property
   
188,889
     
     
     
     
188,889
 
(Gain) loss on sale of real estate investments, net
   
     
     
888,186
     
     
888,186
 
FFO attributable to common stockholders and Class C OP Unit holders
   
4,535,836
     
1,447,340
     
507,861
     
(4,094,274
)
   
2,396,763
 
Stock compensation for performance units expense
   
     
     
     
733,332
     
733,332
 
FFO excluding performance units expense
   
4,535,836
     
1,447,340
     
507,861
     
(3,360,942
)
   
3,130,095
 
AFFO adjustments:
                                       
Stock compensation
   
     
     
     
647,669
     
647,669
 
Deferred financing costs
   
178,829
     
(8,657
)
   
40,432
     
     
210,604
 
Deferred rents
   
(1,130,483
)
   
(593,410
)
   
19,756
     
     
(1,704,137
)
Unrealized gains on interest rate swap valuations
   
     
     
     
3,400,138
     
3,400,138
 
Amortization of (below) above market lease intangibles, net
   
(211,600
)
   
     
     
     
(211,600
)
Increase in fair value of investment in preferred stock
   
     
     
     
(978,658
)
   
(978,658
)
Other adjustments for unconsolidated investment in a real estate property
   
17,821
     
     
     
     
17,821
 
AFFO attributable to common stockholders and Class C OP Unit holders
 
$
3,390,403
   
$
845,273
   
$
568,049
   
$
(291,793
)
 
$
4,511,932
 
                                         
Weighted average shares outstanding:
                                       
Basic
   
7,621,871
     
7,621,871
     
7,621,871
     
7,621,871
     
7,621,871
 
Fully diluted excluding performance units
   
10,728,076
     
10,728,076
     
10,728,076
     
10,728,076
     
10,728,076
 
Fully diluted (2)
   
11,202,591
     
11,202,591
     
11,202,591
     
11,202,591
     
11,202,591
 
                                         
FFO Per Share:
                                       
Basic
 
$
0.60
   
$
0.19
   
$
0.07
   
$
(0.54
)
 
$
0.31
 
Fully diluted (2)
 
$
0.40
   
$
0.13
   
$
0.05
   
$
(0.37
)
 
$
0.21
 
FFO Per Share Excluding Performance Units Expense:
                                       
Basic
 
$
0.59
   
$
0.19
   
$
0.07
   
$
(0.44
)
 
$
0.41
 
Fully diluted
 
$
0.42
   
$
0.13
   
$
0.05
   
$
(0.31
)
 
$
0.29
 
AFFO Per Share:
                                       
Basic
 
$
0.44
   
$
0.11
   
$
0.07
   
$
(0.04
)
 
$
0.59
 
Fully diluted (2) (3)
 
$
0.30
   
$
0.08
   
$
0.05
   
$
(0.03
)
 
$
0.40
 
 
(1)
See Footnotes (1), (2), (3) and (4) of Property Portfolio Statement - Statement of Operations - Fourth Quarter of 2023.
 
(2)
Weighted average fully diluted shares outstanding includes the following:
 

(i)
7,621,871 shares of Class C Common Stock;
 

(ii)
1,599,898 Class C OP Units, including 1,312,382 issued in January 2022 in connection with the acquisition of the KIA auto dealership property discussed above and 287,516 Class C OP Units issued in April 2023 in conjunction with our acquisition of the property in Reading, Pennsylvania leased to Summit Steel & Manufacturing, LLC;
 

(iii)
1,096,582 Class C OP Units that converted from 657,949.5 Class M OP Units on January 30, 2024;
 

(iv)
93,382 Class C OP Units that will result from automatic conversion of 56,029 Class P OP Units on March 31, 2024, based on the conversion ratio of 1.6667 Class C OP Units for each Class P OP Unit outstanding; and


(v)
790,858 Class R OP Units which have vested and will automatically convert to Class C OP Units on March 31, 2024, reflecting the conversion ratio of 2.5-for-1 based on achievement of the FFO performance target of $1.05 per diluted share for the year ended December 31, 2023. Our FFO per fully diluted share excluding the performance units expense was $1.77 for the year ended December 31, 2023. The $0.72 of FFO per diluted share in excess of the performance target of $1.05 per diluted share exceeded the target by 69%.
 
(3)
For the intraperiod allocation, we treat all component per share amounts as fully-diluted to correspond with the consolidated FFO and AFFO results reflected above.

18

Modiv Industrial, Inc.
Adjusted EBITDA - Last Five Quarters

(Unaudited)
 
   
Three Months Ended
 
   
December 31,
2023
   
September 30,
2023
   
June 30,
2023
   
March 31,
2023
   
December 31,
2022
 
Net (loss) income (in accordance with GAAP)
 
$
(1,842,051
)
 
$
(6,905,242
)
 
$
4,629,953
   
$
(4,578,921
)
 
$
720,735
 
Depreciation and amortization of real estate properties
   
4,147,570
     
4,175,209
     
3,956,334
     
3,272,060
     
4,347,809
 
Depreciation and amortization for unconsolidated investment in a real estate property
   
188,889
     
187,479
     
186,069
     
194,173
     
203,554
 
Interest expense (income), including unrealized loss on interest rate swaps and net of derivative settlements (a)
   
7,045,059
     
2,922,918
     
(179,931
)
   
4,018,792
     
2,826,491
 
Interest expense on unconsolidated investment in real estate property
   
95,801
     
96,375
     
95,932
     
95,485
     
98,073
 
Impairment of real estate investment property (b)
   
888,186
     
     
     
3,499,438
     
2,080,727
 
Stock compensation expense
   
1,381,001
     
8,469,867
     
660,170
     
660,169
     
660,170
 
Due diligence expenses, including abandoned pursuit costs
   
     
1,208
     
3,848
     
342,542
     
25,051
 
(Loss) gain on sale of real estate investments, net
   
     
1,708,801
     
     
     
(669,186
)
Unrealized gain on investment in preferred stock
   
(978,658
)
   
(440,000
)
   
     
     
 
Adjusted EBITDA (c)
 
$
10,925,797
   
$
10,216,615
   
$
9,352,375
   
$
7,503,738
   
$
10,293,424
 
                                         
Annualized adjusted EBITDA
 
$
43,703,188
   
$
40,866,460
   
$
37,409,500
   
$
30,014,952
   
$
41,173,696
 
                                         
Net debt:
                                       
Debt
 
$
281,200,000
   
$
284,284,849
   
$
294,361,357
   
$
214,436,983
   
$
197,515,009
 
Debt of unconsolidated investment in real estate property (d)
   
9,256,466
     
9,315,322
     
9,372,615
     
9,429,343
     
9,487,515
 
Cash and restricted cash
   
(3,129,414
)
   
(5,641,610
)
   
(9,912,109
)
   
(13,280,104
)
   
(8,608,649
)
Cash of unconsolidated investment in real estate property (d)
   
(350,937
)
   
(387,278
)
   
(494,250
)
   
(420,947
)
   
(218,424
)
   
$
286,976,115
   
$
287,571,283
   
$
293,327,613
   
$
210,165,275
   
$
198,175,450
 
                                         
Net debt / Adjusted EBITDA
   
6.6
x
   
7.0
x
   
7.8
x
   
7.0
x
   
4.8
x
 
(a)
Includes $(3,658,794), $542,332, $3,708,597 and $(1,722,184) of unrealized (losses) gains on swap valuations in the fourth, third, second and first quarters of 2023, respectively.
 
(b)
The impairment charges for the first and fourth quarters of 2023 relate to an office property located in Nashville, Tennessee leased to Cummins, Inc. through February 29, 2024 that was sold on February 28, 2024. We determined that an impairment charge in the first quarter of 2023 was triggered by expectations of a shortened holding period and estimated the property’s fair value based upon market comparables at the time. The additional charge in the fourth quarter of 2024 was based on the sale agreement executed on December 15, 2023 reflecting the excess of the property’s carrying value over the property’s contracted sale price less estimated selling costs for the sale. The impairment charge for the fourth quarter of 2022 relates to an office property located in Rocklin, California to reflect the net realizable value as a result of its reclassification to asset held for sale. On June 29, 2023, the property was leased to the EMC Shop, LLC for 11.5 years for industrial use and then sold to EMC Shop, LLC in the third quarter of 2023.
 
(c)
Adjusted EBITDA for the fourth quarter of 2022 includes an early termination fee of $3,781,929 received from Sutter Health.
 
(d)
Includes our approximate 72.71% pro rata share of the tenant-in-common’s mortgage note payable and cash of our unconsolidated investment in real estate property.
 
19

Modiv Industrial, Inc.
Leverage Ratio

(Unaudited)
 
We calculate our leverage ratio in conformance with the definition used in our KeyBank credit facility as set forth below.
 
   
December 31,
 
   
2023
   
2022
 
Total Asset Value
           
Cash and cash equivalents
 
$
3,129,414
   
$
8,608,649
 
Borrowing base value (a)
   
471,126,446
     
408,598,973
 
Other real estate value
   
102,340,000
     
97,340,000
 
Pro-rata share of unconsolidated investment in a real estate property
   
28,402,455
     
28,582,595
 
Total asset value
 
$
604,998,315
   
$
543,130,217
 
                 
Indebtedness
               
Credit facility revolver
 
$
   
$
3,000,000
 
Credit facility term loan
   
250,000,000
     
150,000,000
 
Mortgage debt
   
31,200,000
     
44,515,009
 
Pro-rata share of unconsolidated investment in a real estate property
   
9,256,466
     
9,487,515
 
Total indebtedness
 
$
290,456,466
   
$
207,002,524
 
                 
Leverage Ratio
   
48
%
   
38
%
 
(a)
The increase in borrowing base properties reflects $129.8 million of acquisitions, excluding a property with a lease term of less than seven years, partially offset by the 13 properties sold to GIPR in the third quarter of 2023.

20

Modiv Industrial, Inc.
Capitalization as of December 31, 2023

(Unaudited)
 
PREFERRED EQUITY
     
7.375% Series A Cumulative Redeemable Perpetual Preferred Stock
 
$
50,000,000
 
% of Total Capitalization