Modiv Industrial Announces First Quarter 2025 Results
Provides Update on Tariff Impacts
DENVER--(BUSINESS WIRE)--May 07, 2025--
Modiv Industrial, Inc. ("Modiv Industrial," "Modiv" or the "Company") $(MDV)$, the only public REIT exclusively focused on acquiring industrial manufacturing real estate, today announced operating results for the first quarter ended March 31, 2025.
Highlights:
-- First quarter 2025 revenue of $11.8 million and net income attributable
to common stockholders of $2,000.
-- First quarter AFFO of $3.9 million, or $0.33 per diluted share, increased
$0.6 million, or 18% year-over year, beating consensus estimates.
-- Repurchased 275,000 shares of preferred stock YTD, representing 13.8% of
total issued, at an average price of $23.74.
-- Executed a 10 year lease renewal with 3% annual escalations on our
FujiFilm Dimatix property located in Santa Clara, California.
-- Based on MDV's recent share price, investors are earning an 8.0% dividend
with 118% AFFO coverage on equity that is trading at 40% discount to net
asset value.
The following is a statement from Aaron Halfacre, CEO of Modiv Industrial.
"It's been 60 days exactly since our last update - not a lot of time to shuffle a balance sheet - so part of this earnings release is a confirmatory progress check on our performance. All the while, this same sixty-day period has been tumultuous in the public markets as it pertains to tariffs and we felt it worthwhile to dive into that topic a bit. My nose is to the grindstone, fiercely, and I am not gonna waste any of our collective time on niceties so let me punch this out so you can get back to your own grindstone. Here goes...
First quarter results -- Financial performance came in as we planned and ahead of consensus. The same disciplined and patient execution that we like to deliver. We closed on the Jacksonville FL MSA property as we said we would. We didn't acquire anything else given the market backdrop (seems foolish to try to catch a falling knife without having x-ray vision to see through the current cloud of price volatility). That said, our pipeline of potential opportunities has noticeably picked up and we are getting some interesting looks. Suffice it to say, if there is a deal that will make us money, then you will hear about it.
We negotiated and signed a 10-year lease renewal with FujiFilm at our property located in Santa Clara, CA (spittin' distance from Nvidia's HQ) with a pleasant 6.75% increase in future rent when compared to current rent. We acquired an additional 125,000 shares of our series A preferred at favorable pricing. All these activities represent positive AFFO growth -- grindstone stuff.
Tariffs -- Being the only public REIT dedicated to U.S. industrial manufacturing, we believe deeply in our investment thesis. For those new to us, I encourage you to read our March 4, 2024 earnings release to better understand the depth of our conviction. All the recent news on tariffs, and their intended and unintended effects on manufacturing, have produced an amazing amount of overnight armchair experts and pontificators. Below I share a bit of our opinion on the topic and, more importantly, share actual on-the-ground feedback from our manufacturing tenants.
Given that we are long U.S. manufacturing, it comes as no surprise that we are highly supportive of all efforts to strengthen our nation's manufacturing capacity as it has been a forsaken economic sector for far too long. We view manufacturing assets as an infrastructure play important to our nation's well-being just the same as seaports, railways, power plants and a host of other critical hard assets. Before setting aside the politics of global trade, it is worthy to point out that both the current and prior administration were desirous to bring manufacturing back to the United States, and there are few, if any, disputing the fact that domestic critical manufacturing capabilities help to strengthen a nation. However, where divergence of opinion does come into play is how best to bring about a so-called manufacturing renaissance. Good, bad or ugly, the current administration has decided to address the issue headfirst via the implementation of tariffs. Candidly, I don't know that it matters what anyone's personal opinion is on that last point; however, what does matter, both near term and long term, is the economic result.
Long term we believe that all the attention on U.S. manufacturing capabilities is a positive for the sector. We are supportive of an American manufacturing renaissance and hope it comes to fruition but are also very pragmatic about the limitations. It goes to reason that we will continue to see headlines about the reshoring of semiconductors, pharmaceuticals, shipbuilding and other similar strategically defensive sectors. As a nation, we are noticeably vulnerable to the lack of domestic production capacity in those sectors. The headlines for those will be filled with very large dollar amounts and grand proclamations. That said, we believe realistically that a renaissance of manufacturing comparable to post WW II vintage America is quite challenging unless the entire nation becomes unified in that pursuit. Why? Simply put, inertia. So much of the U.S. manufacturing capacity has been eliminated over the last 35 years that to replace it would require extraordinary capital investment, a timeline requiring multiple presidential terms and, most importantly, a rebuilding of a skilled (and willing) workforce to be employed in the factories.
Being pragmatic about the limitations of a golden manufacturing renaissance shouldn't be construed as us being a Negative Nancy. We want to see it happen, but we realize that we need the majority of the nation to want it too -- right now that is hard to see. However, what we do clearly see is that the tide has shifted from neglecting manufacturing to focusing on it. This focus, even absent a golden renaissance, will bring about a demand for production capacity in the United States and the suppliers to meet that demand are the existing, and finite, manufacturing facilities that are already built, already staffed and fully operational today. We strongly believe that the sector will see increased utilization rates as companies begin to source more from the U.S., even if tariffs were to go away, just to reduce supply chain uncertainty. Existing manufacturing assets can readily add additional shifts to their production schedules and have, in many instances, the ability to build additional production lines to existing facilities as needed. Some of our tenants are seeing this happen now and the Wall Street Journal has reported similar anecdotes .
Over the past two weeks we have held 1:1 calls with the management teams of our tenants -- nearly 20 hours of conference calls. We set up these calls to mutually share current and expected tariff impacts, as well as actions taken and ready to be taken depending on future tariff news. For practical purposes, we did not speak to our tenants that are large public companies (e.g., Northrop, L3Harris, Fuji, etc.) or those that are being sold (i.e., Costco). The tenants that we did speak to are middle market manufacturers for a wide range of industries to include automotive, aerospace, defense, medical, construction, agriculture and many others.
The histrionics and dystopic proclamations that we have all publicly witnessed since Liberation Day appear to be noise at this point in time as our tenants simply haven't incurred any material impact since the tariff announcements. That's not to say that they aren't prepared for a material negative impact, but the current reality is the implemented tariffs haven't caused the economic pain the armchair experts expected. Here are the key takeaways as to why that is the case (with more detail available on our earnings conference call)...
-- Non-consumer discretionary products: We consciously chose to invest in
the manufacturing segment that supplies critical infrastructure related
industries and try to avoid retail consumer products (absent a compelling
real estate or financial opportunity). Our manufacturers are building
subcomponents that are essential to the completion of larger products
that serve the industry groups previously mentioned. These products
typically are highly specialized and produced to very tight tolerances --
attributes that don't lend themselves to cheap, mass-produced
commoditization. Many of our manufacturers supply under the demands of
ITAR and DOT requirements which require manufacturers to adhere to "Buy
America" provisions when sourcing their raw materials.
-- Survivorship bias: Most of our tenants have been in operation for many
decades and have found success despite the three decade decline of U.S.
manufacturing as it moved offshore. These companies have been
successfully competing with cheaper sourced products for many years and
have developed advantages that create inherent demand for their
manufacturing capacity.
-- COVID-19 and prior tariff preparedness: Universally, it appears that the
massive supply chain disruptions experienced from COVID-19 provided a
good playbook this time around for our tenants. It was only five years
ago that everyone saw their supply chains massively disrupted, and the
lessons learned/actions taken then have better prepared everyone this
time around. Our tenants that rely on steel and aluminum as raw goods
noted that the 2018 tariffs were more disruptive as they were unexpected.
Razor thin just-in-time inventory models shifted before these recent
tariff announcements in favor of an inventory model that afforded a
production cushion to both the manufacturer and their client.
-- No surprise: Not a single one of our tenants was surprised by the news of
tariffs. Most expected that the current administration was going to
implement some sort of tariff, particularly on China, as that was
telegraphed in the run up to the election. In fact, one of our clients
started a plan, in November, to relocate the production of a relatively
small metal component supplied from China to a vertically integrated
source in Malaysia. Several tenants told us they have back up suppliers
(identified since COVID) in several countries that should have much lower
tariffs (if any at all). Further, and this is an interesting data point,
they stated that a fair number of their clients were also expecting the
tariffs and were receptive to necessary tariff surcharges to ensure a
smooth supply chain.
-- Immateriality: Several of our tenants noted that they do source some of
their production inputs from China and, in some cases, there was no other
viable source for such goods. However, these very specific items did not
represent a material percentage of their raw input costs and an even
smaller percentage of the price they sold to their clients. Further, they
noted that given that they were typically manufacturing subcomponents
that their clients were then incorporating into much larger finished
goods, that their own product prices weren't necessarily material to
their clients. One tenant noted that they would continue buying this
product from China even with a 145% tariff because there was nowhere else
to get it (currently) and the cost of the raw good, even after tariffs,
was less than $3 and went into completed products they sold to their
clients for 20x or more. Two tenants did note immaterial sales/client
exposure to Canada but in no case was it more than 5% of total sales.
As I mentioned, I will add more color on our conference call, but I must admit I was pleased by what I heard in the many conversations held. That said, I believe a caveat is warranted here. Just because our clients have not experienced any material negative impact from the tariffs (many are seeing upswings in their order books), that does not mean that tariffs aren't inflationary to global economies. Further, the risk of recession from a global trade war, should things go awry, is not to be taken lightly as is the case with all high-stakes affairs. We remain keenly focused to see how everything shakes out, particularly as it relates to changes to the USMCA as Canada and Mexico are very much integral to the broader North American manufacturing landscape. None of us know what the ultimate outcome will be but based on our very granular read, to include quarterly tenant financials, we do not see the logic in the current panic selling* and believe a compelling buy opportunity exists in our name. As has been the case for the past several years, the only certainty that we here at Modiv can rely upon is that things will likely remain uncertain for the foreseeable future.
Ok, that's enough word soup for today, back to the grindstone.
Grit, grind, get it done!" Aaron Halfacre, CEO of Modiv Industrial.
*For those investors who heavily sold recently, we are sad to see you go but wish you the best. For the savvy investors who stepped in to buy those shares, welcome to the tribe! Zulu Foxtrot. :)
Conference Call and Webcast
A conference call and audio webcast with analysts and investors will be held on Wednesday, May 7, 2025, at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time, to discuss the first quarter ended March 31, 2025 operating results and answer questions.
Live conference call: 1-877-407-0789 at 11:00 a.m. Eastern Time, Wednesday, May 7, 2025
Webcast: To listen to the webcast, either live or archived, please use this link: https://viavid.webcasts.com/starthere.jsp?ei=1718826&tp_key=0f462a9f79 or visit the investor relations page of Modiv's website at www.modiv.com.
About Modiv Industrial
Modiv Industrial, Inc. is an internally managed REIT that is focused on single-tenant net-lease industrial manufacturing 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.
Forward-looking Statements
There is no guarantee that the Company's Board will authorize, or that the Company will declare, additional dividends in the future, and the amount of future dividends, if any, and the authorization and payment thereof, will be determined by the Board based on the Company's financial condition and such other factors as the Board deems relevant. Certain statements contained in this press release, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to annualized dividend rates, future distributions and distributions declared by the Company's board of directors. Such forward-looking statements are subject to various risks and uncertainties, including but not limited to those described under the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the "SEC") on March 4, 2025. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this press release and in the Company's other filings with the SEC. Any forward-looking statements herein speak only as of the time when made and are based on information available to the Company as of such date and are qualified in their entirety by this cautionary statement. The Company assumes no obligation to revise or update any such statement now or in the future, unless required by law.
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 May 7, 2025 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.
MODIV INDUSTRIAL, INC.
Condensed Consolidated Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
Three Months Ended March 31,
----------------------------------
2025 2024
----------------- ---------------
Revenue:
Rental $ 11,727 $ 11,901
Management fee 66 66
------------ -----------
Total revenue 11,793 11,967
------------ -----------
Expenses:
General and administrative 1,993 1,999
Stock compensation 484 1,379
Depreciation and amortization 3,818 4,134
Property 846 984
Impairment of real estate
investment property -- --
------------ -----------
Total expenses 7,141 8,496
------------ -----------
Gain on sale of real estate
investments, net 84 3,188
------------ -----------
Operating income 4,736 6,659
------------ -----------
Other income (expense):
Interest income 62 124
Dividend income -- 108
Income from unconsolidated
investment in a real estate
property 79 74
Interest expense, net of
unrealized gain on interest
rate swaps and derivative
settlements (4,048) (2,307)
Loss on equity investments -- (21)
------------ -----------
Other expense, net (3,907) (2,022)
------------ -----------
Net income 829 4,637
------------ -----------
Less: net (income) loss
attributable to noncontrolling
interests in Operating
Partnership -- (913)
------------ -----------
Net income attributable to Modiv
Industrial, Inc. 829 3,724
------------ -----------
Preferred stock dividends (827) (922)
------------ -----------
Net income attributable to common
stockholders $ 2 $ 2,802
============ ===========
Earnings (loss) per share
attributable to common
stockholders:
Basic $ (0.01) $ 0.33
Earnings (loss) per share
attributable to common
stockholders and Class C OP
Units:
Diluted $ (0.01) $ 0.33
Weighted-average number of common
shares outstanding:
Basic 9,972,967 8,568,353
Weighted-average number of common
shares and Class C OP Units
outstanding:
Diluted 11,317,765 11,359,258
Distributions declared per common
share 0.2925 $ 0.2875
While net income attributable to common stockholders is $2,000 for the three months ended March 31, 2025, Earnings (loss) per share is $(0.01) for the period because distributions paid to Class X OP Units are deducted in calculating Earnings (loss) per share.
MODIV INDUSTRIAL, INC.
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share data)
(unaudited)
March 31, December 31,
2025 2024
---------- ----------------
Assets
---------------------------------------
Real estate investments:
Land $ 98,738 $ 98,009
Buildings and improvements 388,884 386,102
Equipment 4,429 4,429
Tenant origination and absorption
costs 13,638 13,194
-------- ---------
Total investments in real estate
property 505,689 501,734
Accumulated depreciation and
amortization (63,139) (59,524)
-------- ---------
Total real estate investments,
net, excluding unconsolidated
investment in real estate
property and real estate
investments held for sale, net 442,550 442,210
Unconsolidated investment in a real
estate property 9,158 9,324
-------- ---------
Total real estate investments,
net, excluding real estate
investments held for sale, net 451,708 451,534
Real estate investments held for sale,
net 22,372 22,372
-------- ---------
Total real estate investments, net 474,080 473,906
Cash and cash equivalents 6,165 11,530
Tenant deferred rent and other
receivables 19,567 18,460
Above-market lease intangibles, net 1,221 1,240
Prepaid expenses and other assets 2,826 2,693
Interest rate swap derivatives 2,943 --
-------- ---------
Total assets $ 506,802 $ 507,829
======== =========
Liabilities and Equity
---------------------------------------
Mortgage notes payable, net $ 30,647 $ 30,777
Credit facility term loan, net 249,102 248,999
Accounts payable, accrued and other
liabilities 3,803 4,035
Distributions payable 2,052 1,994
Below-market lease intangibles, net 7,761 7,948
Other liabilities related to real estate
investments held for sale 61 26
-------- ---------
Total liabilities 293,426 293,779
-------- ---------
Commitments and contingencies (Note 10)
7.375% Series A cumulative redeemable
perpetual preferred stock, $0.001 par
value; $25.00 per share liquidation
preference; 2,000,000 shares
authorized; 1,795,000 outstanding as of
March 31, 2025 and 2,000,000
outstanding as of December 31, 2024 2 2
Class C common stock, $0.001 par value,
300,000,000 shares authorized;
10,540,351 shares issued and 10,073,032
shares outstanding as of March 31,
2025, and 10,404,211 shares issued and
9,936,892 outstanding as of December
31, 2024 11 10
Additional paid-in-capital 333,721 349,479
Treasury stock, at cost, 467,319 shares
held as of each March 31, 2025 and
December 31, 2024 (7,112) (7,112)
Cumulative distributions and net losses (156,967) (154,074)
Accumulated other comprehensive income 1,452 1,841
-------- ---------
Total Modiv Industrial, Inc. equity 171,107 190,146
Noncontrolling interests in the
Operating Partnership 42,269 23,904
-------- ---------
Total equity 213,376 214,050
-------- ---------
Total liabilities and equity $ 506,802 $ 507,829
======== =========
MODIV INDUSTRIAL, INC.
Reconciliation of Non-GAAP Measures - FFO and AFFO
(in thousands, except shares and per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------------
2025 2024
----------------- ---------------
Net income (in accordance with
GAAP) $ 829 $ 4,637
Preferred stock dividends (827) (922)
------------ -----------
Net income attributable to common
stockholders and OP Unit holders 2 3,715
FFO adjustments:
Depreciation and amortization
of real estate properties 3,818 4,134
Amortization of deferred lease
incentives -- (4)
Depreciation and amortization
for unconsolidated investment
in a real estate property 189 189
Gain on sale of real estate
investments, net (84) (3,188)
------------ -----------
FFO attributable to common
stockholders and OP Unit
holders 3,925 4,846
AFFO adjustments:
Stock compensation expense 484 1,379
Amortization of deferred
financing costs 157 221
Amortization of deferred rents (1,303) (1,672)
Amortization of unrealized
holding gain, net of
unrealized loss on
non-designated or ineffective
interest rate derivative
instruments (250) (1,289)
Amortization of off-market
interest rate derivatives and
reduction for accrued
interest 1,075 --
Amortization of (below) above
market lease intangibles,
net (212) (212)
Loss on equity investments -- 21
Other adjustments for
unconsolidated investment in
a real estate property 36 24
------------ -----------
AFFO attributable to
common stockholders and
OP Unit holders $ 3,912 $ 3,318
============ ===========
Weighted Average Shares/Units
Outstanding:
Fully diluted (1) 11,842,425 11,359,258
============ ===========
FFO Per Share/Unit:
Fully diluted $ 0.33 $ 0.43
============ ===========
AFFO Per Share/Unit:
Fully diluted $ 0.33 $ 0.29
============ ===========
(1) Fully diluted shares/units outstanding for the three months ended March
31, 2025 includes the weighted average dilutive effect of 1,344,798
Class C OP Units and 524,660 Class X OP Units (which are excluded from
the weighted average shares/units outstanding in calculating earnings
(loss) per share in the unaudited condensed consolidated statement of
operations since they are antidilutive). Fully diluted shares/units
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