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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission file number: 001-40814
MODIV INC.
(Exact name of registrant as specified in its charter)
Maryland
47-4156046
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
120 Newport Center Drive, Newport Beach, CA
92660
(Address of principal executive offices)(Zip Code)
(888) 686-6348
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class C Common Stock, $0.001 par value per share
MDV
New York Stock Exchange
7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share
MDV.PA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 


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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
As of April 30, 2022, there were 7,477,466 shares of Class C common stock outstanding.


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Modiv Inc.
FORM 10-Q
INDEX
2

Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the safe harbor provisions created thereby. For this purpose, any statements made in this Quarterly Report on Form 10-Q that are not historical or current facts may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “anticipates,” “believes,” “seeks,” “estimates,” “expects,” “intends,” “continue,” “can,” “may,” “plans,” “potential,” “projects,” “should,” “could,” “will,” “would” or similar expressions and the negatives of those expressions are intended to identify forward-looking statements. Such statements include, but are not limited to, any statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods.
The forward-looking statements included herein represent our management’s current expectations and assumptions based on information available as of the date of this report. These statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time-to-time with the Securities and Exchange Commission (the “SEC”). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information, which speak only as of the date of this report.
Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time-to-time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual future results to be materially different from those expressed or implied by any forward-looking statements. The following are some, but not all, of the assumptions, risks, uncertainties and other factors that could cause our actual results to differ materially from our forward-looking statements:
We have only a limited operating history, and the prior performance of our real estate investments or real estate programs sponsored by us or our affiliates may not be indicative of our future results.
The current COVID-19 pandemic, including the emergence of any future variants of COVID-19, and any future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.
The continuing developments in the Russian war against Ukraine and sanctions which have been announced by the United States and other countries against Russia have caused and may continue to cause significant uncertainty in the market, adding to continuing concerns about supply chain disruptions, inflation and increases in interest rates in the market in which we operate.
Volatility in stock and bond markets, particularly the rapid rise in yields on U.S. Treasury securities, may negatively impact our operating results.
Listing on the New York Stock Exchange (the “NYSE”) does not guarantee an active and liquid market for our Class C common stock, and the market price and trading volume of our Class C common stock may fluctuate significantly.
Our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), is senior to our Class C common stock, and the interests of our common stockholders could be diluted by the issuance of additional preferred stock and by other transactions in the future.
We may fail to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes, which could adversely affect our operations and our ability to make distributions.
We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all.
If we fail to diversify our investment portfolio, downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a diversified investment portfolio.
We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.
We are subject to disruptions in the financial markets and uncertain economic conditions that could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing, service future debt obligations, or pay distributions to our stockholders.
Our properties and goodwill may be subject to further impairment charges.
We are subject to competition in the acquisition and disposition of properties and in the leasing of our properties, and we may be unable to acquire or dispose of, or lease, our properties on advantageous terms.
We could be subject to risks associated with bankruptcies or insolvencies of tenants, or from tenant defaults generally.
We have substantial indebtedness, and may incur additional secured or unsecured debt, which may affect our ability to pay distributions, expose us to interest rate fluctuation risk, impose limitations on how we operate and expose us to the risk of default under our debt obligations.
We may not be able to extend or refinance existing indebtedness before it becomes due.
Cost inflation may adversely affect our financial condition and results of operations.
Restrictions on share ownership contained in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.
We may not be able to attain or maintain profitability and we may not generate cash flows sufficient to pay distributions to stockholders or meet our debt service obligations.
We may be affected by risks resulting from losses in excess of insured limits.
Risks of security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems, could adversely affect our business and results of operations.
Our forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in light of the risk factors identified above and the additional risks and uncertainties described in Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2021.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.
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Table of Contents
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Modiv Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31,
2022
December 31, 2021
Assets
Real estate investments:
Land$94,309,538 $61,005,402 
Buildings and improvements291,543,521 251,246,290 
Tenant origination and absorption costs21,847,712 21,504,210 
Equipment4,429,000  
Total investments in real estate property412,129,771 333,755,902 
Accumulated depreciation and amortization(40,911,625)(37,611,133)
Total investments in real estate property, net371,218,146 296,144,769 
Unconsolidated investment in a real estate property9,941,435 9,941,338 
Total real estate investments, net381,159,581 306,086,107 
Real estate investments held for sale, net 31,510,762 
Total real estate investments381,159,581 337,596,869 
Cash and cash equivalents25,344,063 55,965,550 
Restricted cash 2,441,970 
Receivable from early termination of lease1,641,767 1,836,767 
Tenant receivables7,220,013 5,996,919 
Above-market lease intangibles, net658,563 691,019 
Prepaid expenses and other assets7,809,681 5,856,255 
Assets related to real estate investments held for sale 788,296 
Goodwill, net 17,320,857 
Total assets$423,833,668 $428,494,502 
Liabilities and Equity
Mortgage notes payable, net$44,711,910 $152,223,579 
Mortgage notes payable related to real estate investments held for sale, net 21,699,912 
Total mortgage notes payable, net44,711,910 173,923,491 
Credit facility revolver20,775,000 8,022,000 
Credit facility term loan, net98,786,750  
Accounts payable, accrued and other liabilities8,783,533 11,844,881 
Below-market lease intangibles, net10,739,866 11,102,940 
Interest rate swap derivatives 788,016 
Liabilities related to real estate investments held for sale 383,282 
Total liabilities183,797,059 206,064,610 
Commitments and contingencies (Note 11)
7.375% Series A cumulative redeemable perpetual preferred stock, $0.001 par value, 2,000,000 shares authorized, issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
2,000 2,000 
Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,601,081 and 7,426,636 shares issued and 7,550,218 and 7,426,636 shares outstanding as of March 31, 2022 and December 31, 2021, respectively
7,601 7,427 
Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares and 63,768 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
 64 
Additional paid-in-capital275,371,078 273,441,831 
Treasury stock, at cost, 50,863 shares and no shares held as of March 31, 2022 and December 31, 2021, respectively
(852,721) 
Cumulative distributions and net losses(115,598,562)(101,624,430)
Total Modiv Inc. equity158,929,396 171,826,892 
Noncontrolling interests in the Operating Partnership81,107,213 50,603,000 
Total equity240,036,609 222,429,892 
Total liabilities and equity$423,833,668 $428,494,502 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
20222021
Rental income$9,648,649 $8,974,870 
Expenses:
General and administrative2,106,183 2,678,239 
Stock compensation expense511,865 604,645 
Depreciation and amortization3,300,492 4,024,703 
Interest expense1,568,175 1,781,136 
Property expenses2,764,592 1,754,947 
Impairment of goodwill17,320,857  
Total expenses27,572,164 10,843,670 
Other operating loss:
Gain on sale of real estate investments7,400,777 289,642 
Operating loss(10,522,738)(1,579,158)
Other (expense) income:
Interest income13,435 50 
Income from unconsolidated investment in a real estate property95,464 72,467 
Gain on forgiveness of economic relief note payable 517,000 
Loss on early extinguishment of debt(1,725,318) 
Other65,993 85,993 
Other (expense) income, net(1,550,426)675,510 
Net loss(12,073,164)(903,648)
Less: net loss attributable to noncontrolling interest in Operating Partnership1,928,029  
Net loss attributable to Modiv Inc.(10,145,135)(903,648)
Preferred stock dividends(921,875) 
Net loss attributable to common stockholders$(11,067,010)$(903,648)
Net loss per share attributable to common stockholders
Basic and diluted$(1.47)$(0.12)
Weighted-average number of common shares outstanding
Basic and diluted7,533,158 7,706,621 
Distributions declared per common share$0.3875 $0.2625 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Condensed Consolidated Statements of Equity
Three Months Ended March 31, 2022 and 2021
(Unaudited)
Preferred StockCommon StockAdditional
Paid-in
Capital
Cumulative
Distributions
and Net
Losses
Total
Modiv Inc.
Equity
Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class C and Class STreasury Stock
SharesAmountsSharesAmountsSharesAmounts
Balance, December 31, 20212,000,000 $2,000 7,490,404 $7,491 $273,441,831  $ $(101,624,430)$171,826,892 $50,603,000 $222,429,892 
Issuance of common stock -distribution reinvestments— — 66,078 66 1,492,338 — — — 1,492,404 — 1,492,404 
Listed offering of common stock, net— — 40,000 40 114,460 — — — 114,500 — 114,500 
Issuance of Class C OP Units— — — — — — — — — 32,809,551 32,809,551 
Conversion of Class S common stock to Class C common stock— — — — — — — — — — — 
Stock compensation expense— — 4,599 4 82,496 — — — 82,500 — 82,500 
OP Units compensation expense— — — — 429,365 — — — 429,365 — 429,365 
Offering costs— — — — (189,412)— — — (189,412)— (189,412)
Repurchase of common stock— —  — — (50,863)(852,721)— (852,721)— (852,721)
Dividends declared, preferred stock— — — — — — — (921,875)(921,875)— (921,875)
Distributions declared, common stock and Class C OP Units— — — — — — — (2,907,122)(2,907,122)(377,309)(3,284,431)
Net loss— — — — — — — (10,145,135)(10,145,135)(1,928,029)(12,073,164)
Balance, March 31, 20222,000,000 $2,000 7,601,081 $7,601 $275,371,078 (50,863)$(852,721)$(115,598,562)$158,929,396 $81,107,213 $240,036,609 
Preferred StockCommon StockAdditional
Paid-in
Capital
Cumulative
Distributions
and Net
Losses
Total
Modiv Inc.
Equity
Noncontrolling Interests in the Operating PartnershipTotal
Equity
Class CClass S
SharesAmountsSharesAmountsSharesAmounts
Balance, December 31, 2020 $ 7,874,541 $7,874 62,860 $63 $224,288,417 $(92,012,686)$132,283,668 $50,603,000 $182,886,668 
Issuance of common stock— — 127,556 128 241 — 2,756,908 — 2,757,036 — 2,757,036 
Stock compensation expense— — 4,052 4 — — 91,246 — 91,250 — 91,250 
OP Units compensation expense— — — — — — 534,645 — 534,645 — 534,645 
Offering costs— — — — — — (409,844)— (409,844)— (409,844)
Reclassification of common stock— — — — — — (442,674)— (442,674)— (442,674)
Repurchase of common stock— — (481,939)(482)— — (10,374,581)— (10,375,063)— (10,375,063)
Distributions declared, common stock— — — — — — — (1,991,676)(1,991,676)— (1,991,676)
Net loss— — — — — — — (903,648)(903,648)— (903,648)
Balance, March 31, 2021 $ 7,524,210 $7,524 63,101 $63 $216,444,117 $(94,908,010)$121,543,694 $50,603,000 $172,146,694 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
20222021
Cash Flows from Operating Activities:
Net loss$(12,073,164)$(903,648)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization3,300,492 4,024,703 
Stock compensation expense511,865 604,645 
Amortization of deferred rents(110,505)(274,823)
Amortization of deferred lease incentives71,394 65,301 
Write-offs and amortization of deferred financing costs and premium/discount1,266,726 99,069 
Amortization of above-market lease intangibles32,456 32,455 
Amortization of below-market lease intangibles(363,074)(367,575)
Impairment of goodwill17,320,857  
Gain on forgiveness of economic relief note payable (517,000)
Gain on sale of real estate investments(7,400,777)(289,642)
Unrealized gain on interest rate swaps valuation (427,119)
Write-off of unrealized gain on interest rate swaps(788,016) 
Income from unconsolidated investment in a real estate property(95,464)(72,467)
Distributions from unconsolidated investment in a real estate property95,367 79,379 
Change in operating assets and liabilities:
Increase in tenant receivables(358,227)(183,201)
Increase in prepaid and other assets(618,439)(991,512)
Decrease in accounts payable, accrued and other liabilities(1,874,801)(777,940)
Net cash (used in) provided by operating activities(1,083,310)100,625 
Cash Flows from Investing Activities:
Acquisitions of real estate investments(44,714,508) 
Additions to existing real estate investments(749,481)(330,414)
Collection of note receivable195,000  
Deposit for investment in special purpose acquisition company (4,500,000)
Net proceeds from sale of real estate investments38,911,538 13,221,509 
Refundable purchase deposit(500,000) 
Payment of lease incentives(2,000,000) 
Net cash (used in) provided by investing activities(8,857,451)8,391,095 
Cash Flows from Financing Activities:
Borrowings from credit facility term loan100,000,000  
Borrowings from credit facility revolver, net20,775,000  
Repayment of prior year credit facility revolver(8,022,000) 
Proceeds from mortgage notes payable 12,136,000 
Principal payments on mortgage notes payable(130,277,534)(13,198,773)
Payments of deferred financing costs to third parties(2,186,468)(246,587)
Proceeds from issuance of common stock, net114,500 1,627,707 
Payments of offering costs(189,412)(409,844)
Repurchases of common stock(852,721)(10,375,063)
Dividends paid to preferred stockholders(1,065,278) 
Distributions paid to common stockholders(1,418,783)(867,410)
Net cash used in financing activities(23,122,696)(11,333,970)
Net decrease in cash, cash equivalents and restricted cash(33,063,457)(2,842,250)
Cash, cash equivalents and restricted cash, beginning of period58,407,520 8,377,530 
Cash, cash equivalents and restricted cash, end of period$25,344,063 $5,535,280 
Modiv Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
Three Months Ended
March 31,
20222021
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest for the three months ended March 31, 2022 and 2021 (as revised)$1,477,384 $2,019,036 
Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of Class C OP Units in the acquisition of a real estate investment$32,809,551 $ 
Reclassification from redeemable common stock$ $442,674 
Reinvested distributions from common stockholders$1,492,404 $1,129,329 
Unpaid real estate improvements$612,403 $ 
Reclassification of tenant improvements from other assets to real estate investments$73,323 $ 
Decrease in share repurchase payable$ $(2,082,817)
Deferred lease incentive$100,000 $ 
Accrued distributions$124,698 $6,525 
Supplemental disclosure related to real estate investment held for sale, net:
Real estate investments held for sale, net$31,510,762 $13,207,054 
Other assets related to real estate investments held for sale$788,296 $60,230 
Decrease in above-market lease intangibles, net$ $(50,549)
Mortgage notes payable related to real estate investments held for sale, net$(21,699,912)$(2,600,684)
Other liabilities related to real estate investments held for sale$(383,282)$(421,903)
Increase in below-market lease intangibles, net$ $325,734 
Increase in interest swap derivatives$ $14,166 
See accompanying notes to condensed consolidated financial statements.
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Modiv Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
Modiv Inc. (the “Company”) was incorporated on May 15, 2015 as a Maryland corporation. The Company has the authority to issue 450,000,000 shares of stock, consisting of 50,000,000 shares of preferred stock, $0.001 par value per share, of which 2,000,000 shares are designated as 7.375% Series A cumulative redeemable perpetual preferred stock (“Series A Preferred Stock”), 300,000,000 shares of Class C common stock, $0.001 par value per share, and 100,000,000 shares of Class S common stock, $0.001 par value per share. The Company's five-year emerging growth company registration with the Securities and Exchange Commission (the “SEC”) ended on December 31, 2021 but the Company continues to report with the SEC as a smaller reporting company under Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The Company's Series A Preferred Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol MDV.PA and has been trading since September 17, 2021. The Company's Class C common stock is listed on the NYSE under the symbol “MDV” and has been trading since February 11, 2022. Prior to that date, there was no public trading market for the Company's Class C common stock. In connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into Class C common stock (see details of the initial listed offering (the “Listed Offering”) below).
The Company has been internally managed since its December 31, 2019 acquisition of the business of BrixInvest, LLC, a Delaware limited liability company and the Company’s former sponsor (“BrixInvest”), and the Company’s merger with Rich Uncles Real Estate Investment Trust I (“REIT I”) on December 31, 2019.
The Company holds its investments in real property through special purpose limited liability companies which are wholly-owned subsidiaries of Modiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owned an approximately 73% and 83% partnership interest in, the Operating Partnership as of March 31, 2022 and December 31, 2021, respectively. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 12.
As of March 31, 2022, the Company's portfolio of approximately 2.3 million square feet of aggregate leasable space consisted of investments in 36 real estate properties, comprised of: 12 industrial properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California property (the “TIC Interest”), which represent approximately 40% of the portfolio, 13 retail properties, which represent approximately 21% of the portfolio, and 11 office properties, which represent approximately 39% of the portfolio (expressed as a percentage of annual base rent (“ABR”) as of March 31, 2022).
Common Stock Offerings
Since the Company’s initial registered offering of common stock was declared effective by the SEC in 2016, the Company has raised an aggregate of $289,839,103 pursuant to offerings of common stock registered with the SEC (collectively, the “Registered Offering”), offerings of common stock exempt from registration pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), distribution reinvestment plan (“DRP”) offerings of common stock registered with the SEC, a private offering of common stock pursuant to Regulation D under the Securities Act, a qualified offering of common stock pursuant to Regulation A under the Securities Act and an offering of common stock listed on the NYSE.
On January 22, 2021, the Company filed a registration statement on Form S-3 (File No. 333-252321) to register a maximum of $100,000,000 in share value of Class C common stock to be issued pursuant to its DRP (the “Registered DRP Offering”). The Company commenced offering shares of Class C common stock pursuant to the Registered DRP Offering upon termination of the Registered Offering.
On December 8, 2021, the Company filed with the SEC a Registration Statement on Form S-11 (File No. 333-261529), and, on February 9, 2022, the Company filed with the SEC Amendment No. 1 to the Registration Statement on Form S-11, in connection with the Listed Offering of the Company’s Class C common stock, which became effective on February 10, 2022. In connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into a share of Class C common stock. The Listed Offering of the Company's Class C common stock closed on February 15, 2022. In connection with the Listed Offering, the Company sold 40,000 shares of its Class C common stock at $25.00 per share to a major stockholder who was formerly a related party (see Note 9 additional information).
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Table of Contents
MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
On March 30, 2022, the Company filed a registration statement on Form S-3 (File No. 333-263985) to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units.
Preferred Stock Offering
On September 14, 2021, the Company and the Operating Partnership entered into an underwriting agreement (the “Preferred Stock Underwriting Agreement”) with B. Riley Securities, Inc., as representative of the underwriters listed on Schedule I thereto (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell 1,800,000 shares of the Company’s Series A Preferred Stock in an underwritten public offering (the “Preferred Offering”) at a price per share of $25.00. In addition, the Company granted the Underwriters a 30-day option to purchase up to an additional 200,000 shares of the Series A Preferred Stock, which the Underwriters exercised in full on September 16, 2021. The issuance and sale of the shares of Series A Preferred Stock, including the Underwriters’ full exercise of their option to purchase additional shares, closed on September 17, 2021 and the shares of Series A Preferred Stock trade on the NYSE under the symbol “MDV.PA” (see Note 9 for additional information).
Distribution Reinvestment Plan
On February 15, 2022, the Company's board of directors amended and restated the DRP (the “Second Amended and Restated DRP”) with respect to the Class C common stock to change the purchase price at which the Class C common stock is issued to stockholders who elect to participate in the DRP. The purpose of this change was to reflect the fact that the Company's Class C common stock is now listed on the NYSE and no longer priced based on net asset value (“NAV”) per share. As more fully described in the Second Amended and Restated DRP, the purchase price for the Class C common stock under the DRP depends on whether the Company issues new shares to DRP participants or the Company or any third-party administrator obtains shares to be issued to DRP participants by purchasing them in the open market or in privately negotiated transactions. The purchase price for the Class C common stock issued directly by the Company will be 97% (or such other discount as may then be in effect) of the Market Price (as defined in the Second Amended and Restated DRP) of the Class C common stock. This discount is subject to change from time to time, in the Company’s sole discretion, but will be between 0% to 5% of the Market Price. The purchase price for the Class C common stock that the Company or any third-party administrator purchases from parties other than the Company, either in the open market or in privately negotiated transactions, will be 100% of the “average price per share” (as described in the Second Amended and Restated DRP) actually paid for such shares of Class C common stock, excluding any processing fees. The Second Amended and Restated DRP also reflects the $0.05 per share processing fee that will be paid to the Company's transfer agent by DRP participants for each share of Class C common stock purchased through the DRP. The Second Amended and Restated DRP was effective beginning with distributions paid in February 2022.
Share Repurchase Program
On February 15, 2022, the Company's board of directors authorized up to $20,000,000 in repurchases of the Company's outstanding shares of common stock through December 31, 2022. Repurchases made pursuant to the program will be made from time-to-time in the open market, in privately negotiated transactions or in any other manner as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time.
From February 15, 2022 through March 31, 2022, the Company repurchased a total of 50,863 shares of its common stock for a total of $852,721 under this share repurchase program and these shares are held as treasury stock.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC. Accordingly, they do not contain all information and footnotes required by GAAP for annual financial statements pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Such unaudited condensed consolidated financial statements and accompanying notes are the representations of the Company’s management, which is responsible for their integrity and objectivity. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, 2022.
The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are normal and recurring, necessary to fairly state the Company's financial position, results of operations and cash flows. All significant intercompany balances and transactions are eliminated in consolidation. The unaudited condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. These estimates are based on historical experience and, in some cases, assumptions based on current and future market experience. Actual results may differ from those estimates.
Noncontrolling Interests in the Operating Partnership
The Company accounts for the noncontrolling interests in its Operating Partnership in accordance with the related accounting guidance. Due to the Company's control of the Operating Partnership through its general partnership interest therein and the limited rights of the limited partners, the Operating Partnership, including its wholly-owned subsidiaries, are consolidated with the Company, and the limited partner interests not held by the Company are reflected as noncontrolling interests in the accompanying unaudited condensed consolidated balance sheets and statements of equity. Other than the noncontrolling interests related to an “UPREIT” transaction as discussed in Note 12, all other noncontrolling interests currently represent non-voting, non-distribution accruing interests with no allocation of profits or losses, but have various conversion rights to obtain future rights to distributions and allocation of profits and losses as discussed in Note 12.
Business Combinations
The Company accounts for business combinations in accordance with FASB ASC 805, Business Combinations (“ASC 805”) and applicable Accounting Standards Updates (each, an “ASU”), whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to any non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.
ASC 805 defines a business as an integrated set of activities and assets (collectively, a “set”) that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. To be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. ASC 805 provides a practical screen to determine when a set would not be considered a business. If the screen is not met and further assessment determines that the set is not a business, then the set is an asset acquisition. The primary difference between a business combination and an asset acquisition is that an asset acquisition requires cost accumulation and allocation at relative fair value whereas in a business combination the total consideration transferred is allocated among the fair value of the identifiable tangible and intangible assets and liabilities assumed. Acquisition costs are capitalized for an asset acquisition and expensed for a business combination.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Revenue Recognition
The Company accounts for revenue in accordance with FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), which includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. Such revenues are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements, consisting of amounts due from tenants for common area maintenance, property taxes and other recoverable costs, are recognized in rental income subsequent to the adoption of Topic 842, as discussed below, in the period the recoverable costs are incurred. Tenant reimbursements, for which the Company pays the associated costs directly to third-party vendors and is reimbursed by the tenants, are recognized and recorded on a gross basis.
The Company accounts for leases in accordance with FASB ASU No. 2016-02, Leases (Topic 842), and the related FASB ASU Nos. 2018-10, 2018-11, 2018-20 and 2019-01, which provide practical expedients, technical corrections and improvements for certain aspects of ASU No. 2016-02 (collectively “Topic 842”). Topic 842 established a single comprehensive model for entities to use in accounting for leases. Topic 842 applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. Topic 842 impacts the Company's accounting for leases primarily as a lessor. Topic 842 also impacts the Company's accounting as a lessee; however, such impact is considered not material.
As a lessor, the Company's leases with tenants generally provide for the lease of real estate properties, as well as common area maintenance, property taxes and other recoverable costs. To reflect recognition as one lease component, rental income and tenant reimbursements and other lease related property income that meet the requirements of the practical expedient provided by ASU No. 2018-11 have been combined under rental income in the Company's unaudited condensed consolidated statements of operations. For the three months ended March 31, 2022 and 2021, tenant reimbursements included in rental income amounted to $2,050,371 and $1,625,394, respectively.
The Company recognizes rental income from tenants under operating leases on a straight-line basis over the noncancelable term of the lease when collectability of such amounts is reasonably assured. Recognition of rental income on a straight-line basis includes the effects of rental abatements, lease incentives and fixed and determinable increases in lease payments over the lease term. If the lease provides for tenant improvements, management of the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company.
When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
whether the lease stipulates how a tenant improvement allowance may be spent;
whether the amount of a tenant improvement allowance is in excess of market rates;
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
whether the tenant improvements are unique to the tenant or general-purpose in nature; and
whether the tenant improvements are expected to have any residual value at the end of the lease.
Tenant reimbursements of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the expenses are incurred and presented gross if the Company is the primary obligor and, with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk. In instances where the operating lease agreement has an early termination option, the termination penalty is based on a predetermined termination fee or based on the unamortized tenant improvements and leasing commissions.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, credit rating, the asset type, and current economic conditions. If the Company’s evaluation of these factors indicates it may not recover the full value of the receivable, it provides an allowance against the portion of the receivable that it estimates may not be recovered. This analysis requires the Company to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected.
Bad Debts and Allowances for Tenant and Deferred Rent Receivables
The Company's determination of the adequacy of its allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection, the Company also may record an allowance under other authoritative GAAP depending upon the Company's evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income in the Company's unaudited condensed consolidated statements of operations.
With respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt allowance for the tenant’s receivable balance and generally will not recognize subsequent rental income until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.
Gain or Loss on Sale of Real Estate Investments
The Company recognizes gain or loss on sale of real estate property when the Company has executed a contract for sale of the property, transferred controlling financial interest in the property to the buyer and determined that it is probable that the Company will collect substantially all of the consideration for the property. The Company's real estate property sale transactions during the three months ended March 31, 2022 and 2021 met these criteria at closing. When properties are sold, operating results of the properties remain in continuing operations, and any associated gain or loss from the disposition is included in gain or loss on sale of real estate investments in the Company’s accompanying unaudited condensed consolidated statements of operations.
Impairment of Investment in Real Estate Properties
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate assets may not be recoverable, management assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows expected from the use of and eventual disposition of the property. If, based on the analysis, the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the asset.
Other Comprehensive Loss
For all periods presented, other comprehensive loss is the same as net loss.
Treasury Stock
Effective on the date of the Listed Offering, the Company accounts for repurchased shares of its Class C common stock as treasury stock. Treasury shares are recorded at cost and are included as a component of equity in the Company's condensed consolidated balance sheet as of March 31, 2022.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Per Share Data
The Company reports a dual presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted EPS uses the treasury stock method or the if-converted method, where applicable, to compute for the potential dilution that would occur if dilutive securities or commitments to issue common stock were exercised. For the three months ended March 31, 2022 and 2021, the Company presented both Basic EPS and Diluted EPS reflecting its reported net loss attributable to common stockholders for the period.
As discussed in Note 1, in connection with and upon listing on the NYSE, each share of the Company's Class S common stock converted into a share of Class C common stock. Prior to the conversion of the Company's Class S common stock into Class C common stock, application of the two-class method for allocating net loss attributable to common stockholders in accordance with the provisions of ASC 260, Earnings per Share, would have resulted in basic net loss attributable to common stockholders of $0.12 per share of Class C common stock for the three months ended March 31, 2021 and net loss attributable to common stockholders of $0.12 per share of Class S common stock for the three months ended March 31, 2021.
Fair Value Disclosures
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an existing price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:
Cash and cash equivalents, restricted cash, receivable from sale of real estate property, tenant receivables, prepaid expenses and other assets and accounts payable, accrued and other liabilities: These balances approximate their fair values due to their short maturities.
Derivative Instruments: The Company’s derivative instruments are presented at fair value in the accompanying unaudited condensed consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Goodwill: The fair value measurement of goodwill is considered a Level 3 nonrecurring fair value measurement. For goodwill, fair value measurement involves the determination of fair value of a reporting unit.
Credit facilities: The fair values of the Company’s credit facilities approximate their carrying values as their interest rates and other terms are comparable to those available in the marketplace for similar credit facilities.
Mortgage notes payable: The fair values of the Company’s mortgage notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.
Related party transactions: The Company has concluded that it is not practical to determine the estimated fair value of related party transactions. Disclosure rules for fair value measurements require that for financial instruments for which it is not practicable to estimate fair value, information pertinent to those instruments be disclosed. Further information as to these financial transactions with related parties is included in Note 10.
Restricted Cash
Restricted cash is comprised of funds which are restricted for use as required by certain lenders in conjunction with an acquisition or debt financing or modification and for on-site and tenant improvements or property taxes. Restricted cash as of December 31, 2021 amounted to $2,441,970 for the mortgages related to properties discussed below and other lender reserves. There were no restricted cash balances as of March 31, 2022.
Under the terms of the Company’s June 2021 refinancing of mortgages on its properties leased to Northrop Grumman and L3Harris Technologies, Inc. (“L3Harris”) with Banc of California as described in Note 7, the Company established restricted cash accounts at Banc of California with $1,400,000 and $1,000,000 held for the Northrop Grumman and L3Harris properties, respectively, to fund building improvements, tenant improvements and leasing commissions. Subsequent to the origination of the loans, $128,538 was released to fund a leasing commission, resulting in $2,271,462 remaining as aggregate restricted cash as of December 31, 2021. Pursuant to the refinancing of the Northrop Grumman and L3Harris mortgages on January 18, 2022 as further discussed in Note 7, these funds became unrestricted. Additional restricted cash balances of $170,508 as of December 31, 2021 were also released during the first three months of 2022 due to refinancing.
Real Estate Investments Held for Sale
The Company generally considers a real estate investment to be “held for sale” when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as “real estate investments held for sale, net” and “assets related to real estate investment held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Mortgage notes payable and other liabilities related to real estate investments held for sale are classified as “mortgage notes payable related to real estate investments held for sale, net” and “liabilities related to real estate investments held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Real estate investments classified as held for sale are no longer depreciated and are reported at the lower of their carrying value or their estimated fair value less estimated costs to sell. Operating results of properties that were classified as held for sale in the ordinary course of business are included in continuing operations in the Company’s accompanying unaudited condensed consolidated statements of operations.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Goodwill
The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. The Company evaluates goodwill and other intangible assets for possible impairment in accordance with ASC 350, Intangibles–Goodwill and Other, on an annual basis, or more frequently when events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit has declined below its carrying value. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized.
In assessing goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macro-economic, industry-specific and company-specific factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of such reporting unit is less than its carrying amount, then a quantitative analysis is unnecessary. However, if the Company concludes otherwise, or if it elects to bypass the qualitative analysis, then it is required to perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit.
Restricted Stock and Restricted Stock Unit Awards
The fair values of the Operating Partnership's units or restricted stock unit awards issued or granted by the Company are based on an estimated NAV per share of the Company’s common stock on the date of issuance or grant, adjusted for an illiquidity discount due to the illiquid nature of the underlying equity prior to the listing of the Company's Class C common stock on the NYSE. The fair value of future grants of the Operating Partnership's units or restricted stock unit awards will be determined based on the NYSE's market closing price of the Company's Class C common stock on the date of grant. Operating Partnership units issued as purchase consideration in connection with the Self-Management Transaction and UPREIT Transaction defined and discussed in Note 12 are recorded in equity under noncontrolling interests in the Operating Partnership in the Company's unaudited condensed consolidated balance sheets and statements of equity. For units granted to employees of the Company that are not included in the purchase consideration, the fair value of the award is amortized using the straight-line method over the requisite service period of the award, which is generally the vesting period (see Note 12). The Company has elected to record forfeitures as they occur.
The Company determines the accounting classification of equity instruments (e.g. restricted stock units) that are issued as purchase consideration or part of the purchase consideration in a business combination, as either liability or equity, by first assessing whether the equity instruments meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”), and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, equity instruments are classified as liabilities if the equity instruments are mandatorily redeemable, obligate the issuer to settle the equity instruments or the underlying shares by paying cash or other assets, or must or may require an unconditional obligation that must be settled by issuing a variable number of shares.
If equity instruments do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the equity instruments do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the equity instruments are indexed to its common stock and whether the equity instruments are classified as equity under ASC 815-40 or other applicable GAAP guidance. After all relevant assessments are made, the Company concludes whether the equity instruments are classified as liability or equity. Liability classified equity instruments are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified equity instruments are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Reclassifications
Certain prior year balance sheet, statement of operations and statement of cash flows accounts have been reclassified to conform with the current year presentation. The reclassification did not affect net loss in the prior year unaudited condensed consolidated statement of operations.
Recent Accounting Pronouncements
New Accounting Standards Recently Issued and Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 eases the potential burden in accounting for recognizing the effects of reference rate reform on financial reporting. Such challenges include the accounting and operational implications for contract modifications and hedge accounting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to loan and lease agreements, contracts, hedging relationships, and other transactions affected by reference rate reform. These provisions apply to contract modifications that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discounted because of reference rate reform.
Qualifying modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate, and the modification would be considered “minor” so that any existing unamortized deferred loan origination fees and costs would carry forward and continue to be amortized. Qualifying modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for hedge accounting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022, with adoption permitted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments must be applied prospectively for all eligible contract modifications. The Company implemented ASU 2020-04 effective January 1, 2022 and the impact of such implementation was not material to the Company’s consolidated financial statements. On January 18, 2022, the Company repaid the four loans existing as of December 31, 2021 which had LIBOR reference rates.
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MODIV INC.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
NOTE 3. REAL ESTATE INVESTMENTS, NET
As of March 31, 2022, the Company’s real estate investment portfolio consisted of (i) 36 operating properties located in 14 states comprised of: 12 industrial properties (including the TIC Interest in an industrial property not reflected in the table below but discussed in Note 4), 13 retail properties and 11 office properties and one parcel of land, which currently serves as an easement to one of the Company’s office properties.
The following table provides summary information regarding the Company’s operating properties as of March 31, 2022:
PropertyLocationAcquisition DateProperty TypeLand, Buildings and ImprovementsTenant Origination and Absorption CostsEquipmentAccumulated Depreciation and AmortizationTotal Investment in Real Estate Property, Net
Dollar GeneralLitchfield, ME11/4/2016Retail$1,281,812 $116,302 $ $(216,310)$1,181,804 
Dollar GeneralWilton, ME11/4/2016Retail1,543,776 140,653  (276,830)1,407,599 
Dollar GeneralThompsontown, PA11/4/2016Retail1,199,860 106,730  (207,835)1,098,755 
Dollar GeneralMt. Gilead, OH11/4/2016Retail1,174,188 111,847  (199,267)1,086,768 
Dollar GeneralLakeside, OH11/4/2016Retail1,112,872 100,857  (204,510)1,009,219 
Dollar GeneralCastalia, OH11/4/2016Retail1,102,086 86,408  (198,702)989,792 
Dollar GeneralBakersfield, CA12/31/2019Retail4,899,714 261,630  (331,048)4,830,296 
Dollar GeneralBig Spring, TX12/31/2019Retail1,281,683 76,351  (114,680)1,243,354 
Dollar TreeMorrow, GA12/31/2019Retail1,320,367 73,298  (159,549)1,234,116 
Northrop GrummanMelbourne, FL3/7/2017Office13,518,238 1,469,737  (3,662,436)11,325,539 
Northrop Grumman ParcelMelbourne, FL6/21/2018Land329,410    329,410 
exp US ServicesMaitland, FL3/27/2017Office6,069,180 388,248  (1,113,340)5,344,088 
WyndhamSummerlin, NV6/22/2017Office10,406,483 669,232  (1,613,337)9,462,378 
Williams SonomaSummerlin, NV6/22/2017Office8,079,612 640,868  (1,447,898)7,272,582 
EMCORCincinnati, OH8/29/2017Office5,960,610 463,488  (828,412)5,595,686 
HusqvarnaCharlotte, NC11/30/2017Industrial11,840,200 1,013,948  (1,560,018)11,294,130 
AvAirChandler, AZ12/28/2017Industrial27,357,899   (2,978,725)24,379,174 
3MDeKalb, IL3/29/2018Industrial14,762,819 3,037,057  (5,031,430)12,768,446 
CumminsNashville, TN4/4/2018Office14,538,528