cik0001645873-20230331

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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, 2023


☐			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.)

200 S. Virginia Street, Suite 800, Reno, NV			89501
(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 Class

Trading 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 the 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, 2023, there were 7,553,709 shares of Class C common stock outstanding.

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Modiv Inc.

FORM 10-Q

INDEX


PART I -	FINANCIAL INFORMATION		4

	Item 1.	Financial Statements (Unaudited)	4

		Condensed Consolidated Balance Sheets – Marc h 3 1 , 202 3 and December 31, 202 2	4

		Condensed Consolidated Statements of Operations – Three Months Ended March 3 1 , 202 3 and 202 2	5

		Condensed Consolidated Statements of Comprehensive Loss – Three Months Ended M arc h 3 1 , 202 3 and 202 2	6

		Condensed Consolidated Statements of Equity – Three Months Ended March 3 1 , 202 3 and 202 2	7

		Condensed Consolidated Statements of Cash Flows – Three Months Ended March 3 1 , 202 3 and 202 2	8

		Notes to Condensed Consolidated Financial Statements	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

	Item 4.	Controls and Procedures	62

PART II -	OTHER INFORMATION		63

	Item 1.	Legal Proceedings	63

	Item 1A.	Risk Factors	63

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

	Item 6.	Exhibits	63

SIGNATURES			65

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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 are implementing our strategic plan to acquire industrial manufacturing properties while reducing the number of office and retail properties in our portfolio, and therefore the prior performance of our real estate investments may not be indicative of our future results.

•Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values and our ability to secure debt financing when our debt matures, at interest rates acceptable to us or at all, to service future debt obligations, or to pay distributions to our stockholders.

•We have a substantial amount of indebtedness outstanding, which may expose us to the risk of default under our debt obligations.

•Increases in mortgage rates or changes in underwriting standards may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash available for distributions to our stockholders.

•Inflation and rising interest rates may adversely affect our financial condition and results of operations.

•The COVID-19 pandemic has caused significant disruption to our tenants' business operations and any future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our business operations, financial condition, results of operations, cash flows and performance.

•Our listing on the New York Stock Exchange does not guarantee an active and liquid market for our Class C common stock, and the market price and trading volume of the shares of our Class C common stock may fluctuate significantly.

•Our Class C common stock is subordinate to our 7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share, and our existing and future debt, and our common stockholders' interests could be diluted by the issuance of additional preferred stock, future offerings of debt securities, which could be senior to our common stock, or equity securities, and by other transactions.

•Failure to continue to qualify as a real estate investment trust would reduce our net earnings available for investment or distribution.

•Our real estate investments may include special use single-tenant properties that may be difficult to sell or re-lease upon tenant defaults or early terminations.

•Downturns relating to certain geographic regions, industries or business sectors may have a more significant adverse impact on our assets and our ability to pay distributions than if we had a more diversified investment portfolio.

•We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us.

•Our real estate properties and related intangible assets may be subject to impairment charges.

•We face significant competition for real estate investment opportunities, which may limit our ability to acquire suitable investments and achieve our investment objectives or pay distributions.

•Our financial condition and ability to make distributions may be adversely affected by the bankruptcy or insolvency of a tenant, a downturn in the business of a tenant or a tenant’s lease termination.

•Our charter and bylaws contain provisions, including restrictions on the ownership and transfer of our stock, that may delay, defer or prevent an acquisition of our common stock or a change in control.

•We have experienced losses in the past and we may experience additional losses in the future.

•Uninsured losses relating to real property could reduce our cash flow from operations and reduce the value of stockholders’ investment in us.

•We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems.

•We may be subject to adverse legislative or regulatory tax changes.

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, 2022.

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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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Modiv Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	March 31, 2023		December 31, 2022
Assets
Real estate investments:
Land	$	103,919,101	$	103,657,237
Buildings and improvements	338,027,128		329,867,099
Equipment	4,429,000		4,429,000
Tenant origination and absorption costs	20,085,465		19,499,749
Total investments in real estate property	466,460,694		457,453,085
Accumulated depreciation and amortization	(50,024,383)		(46,752,322)
Total real estate investments excluding real estate investments held for sale, net	416,436,311		410,700,763
Unconsolidated investment in a real estate property	9,997,292		10,007,420
Total real estate investments, net	426,433,603		420,708,183
Real estate investments held for sale, net	5,255,725		5,255,725
Total real estate investments, net	431,689,328		425,963,908
Cash and cash equivalents	13,280,104		8,608,649
Tenant receivables	8,653,550		7,263,202
Above-market lease intangibles, net	1,808,483		1,850,756
Prepaid expenses and other assets	5,904,737		6,100,937
Interest rate swap derivative	3,485,684		4,629,702
Assets related to real estate investments held for sale	15,939		12,765
Total assets	$	464,837,825	$	454,429,919
Liabilities and Equity
Mortgage notes payable, net	$	44,338,481	$	44,435,556
Credit facility revolver	—		3,000,000
Credit facility term loan, net	168,140,752		148,018,164
Accounts payable, accrued and other liabilities	7,338,674		7,649,806
Below-market lease intangibles, net	9,724,717		9,675,686
Interest rate swap derivatives	1,327,342		498,866
Liabilities related to real estate investments held for sale	51,918		117,881
Total liabilities	230,921,884		213,395,959

Commitments and contingencies (Note 10)

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, 2023 and December 31, 2022	2,000		2,000
Class C common stock, $0.001 par value, 300,000,000 shares authorized; 7,822,940 shares issued and 7,568,322 shares outstanding as of March 31, 2023 and 7,762,506 shares issued and 7,512,353 shares outstanding as of December 31, 2022	7,823		7,762
Class S common stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Additional paid-in-capital	279,565,984		278,339,020
Treasury stock, at cost, 254,618 shares and 250,153 shares held as of March 31, 2023 and December 31, 2022, respectively	(4,211,300)		(4,161,618)
Cumulative distributions and net losses	(124,790,431)		(117,938,876)
Accumulated other comprehensive income	3,289,446		3,502,616
Total Modiv Inc. equity	153,863,522		159,750,904
Noncontrolling interests in the Operating Partnership	80,052,419		81,283,056
Total equity	233,915,941		241,033,960
Total liabilities and equity	$	464,837,825	$	454,429,919

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,
	2023		2022
Rental income	$	10,311,182	$	9,569,613

Expenses:
General and administrative	1,908,055		2,106,183
Stock compensation expense	660,169		511,865
Depreciation and amortization	3,272,061		3,300,492
Interest expense	4,018,792		1,568,175
Property expenses	1,706,843		2,159,865
Impairment of real estate investment property	3,499,438		—
Impairment of goodwill	—		17,320,857
Total expenses	15,065,358		26,967,437

Gain on sale of real estate investments	—		6,875,086
Operating loss	(4,754,176)		(10,522,738)

Other income (expense):
Interest income	53,695		13,435
Income from unconsolidated investment in a real estate property	55,567		95,464
Loss on early extinguishment of debt	—		(1,725,318)
Other	65,993		65,993
Other income (expense), net	175,255		(1,550,426)

Net loss	(4,578,921)		(12,073,164)
Less: net loss attributable to noncontrolling interest in Operating Partnership	(816,199)		(1,928,028)
Net loss attributable to Modiv Inc.	(3,762,722)		(10,145,136)
Preferred stock dividends	(921,875)		(921,875)
Net loss attributable to common stockholders	$	(4,684,597)	$	(11,067,011)

Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.62)	$	(1.47)
Weighted-average number of common shares outstanding:
Basic and diluted	7,532,452		7,533,158

Distributions declared per common share	$	0.2875	$	0.3875

See accompanying notes to condensed consolidated financial statements.

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Modiv Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Net loss	$	(4,578,921)	$	(12,073,164)
Other comprehensive loss: cash flow adjustment
Add: Amortization of unrealized holding gain on interest rate swap	250,311		—
Comprehensive loss	(4,328,610)		(12,073,164)

Net loss attributable to noncontrolling interest in Operating Partnership	(816,199)		(1,928,028)
Other comprehensive loss attributable to noncontrolling interest in Operating Partnership: cash flow adjustment
Add: Amortization of unrealized holding gain on interest rate swap	37,141		—
Comprehensive loss attributable to noncontrolling interest in Operating Partnership	(779,058)		(1,928,028)

Comprehensive loss attributable to Modiv Inc.	$	(3,549,552)	$	(10,145,136)

See accompanying notes to condensed consolidated financial statements.

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Modiv Inc.

Condensed Consolidated Statements of Equity

Three Months Ended March 31, 2023 and 2022

(Unaudited)


	Preferred Stock			Class C			Additional Paid-in Capital					Cumulative Distributions and Net Losses		Accumulated Other Comprehensive Income (Loss)		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
				Common Stock					Treasury Stock
	Shares	Amounts		Shares	Amounts				Shares	Amounts
Balance, December 31, 2022	2,000,000	$	2,000	7,762,506	$	7,762	$	278,339,020	(250,153)	$	(4,161,618)	$	(117,938,876)	$	3,502,616	$	159,750,904	$	81,283,056	$	241,033,960
Issuance of common stock - distribution reinvestments	—	—		52,673	53		566,803		—	—		—		—		566,856		—		566,856
Stock compensation expense	—	—		7,761	8		82,492		—	—		—		—		82,500		—		82,500
OP Units compensation expense	—	—		—	—		577,669		—	—		—		—		577,669		—		577,669
Repurchase of common stock	—	—		—	—		—		(4,465)	(49,682)		—		—		(49,682)		—		(49,682)
Dividends declared, preferred stock	—	—		—	—		—		—	—		(921,875)		—		(921,875)		—		(921,875)
Distributions declared, common stock	—	—		—	—		—		—	—		(2,166,958)		—		(2,166,958)		—		(2,166,958)
Distributions declared, Class C OP Units	—	—		—	—		—		—	—		—		—		—		(377,297)		(377,297)
Net loss	—	—		—	—		—		—	—		(3,762,722)		—		(3,762,722)		(816,199)		(4,578,921)
Amortization of unrealized holding gain on interest rate swap	—	—		—	—		—		—	—		—		(213,170)		(213,170)		(37,141)		(250,311)
Balance, March 31, 2023	2,000,000	$	2,000	7,822,940	$	7,823	$	279,565,984	(254,618)	$	(4,211,300)	$	(124,790,431)	$	3,289,446	$	153,863,522	$	80,052,419	$	233,915,941


	Preferred Stock			Class C			Additional Paid-in Capital					Cumulative Distributions and Net Losses		Total Modiv Inc. Equity		Noncontrolling Interests in the Operating Partnership		Total Equity
				Common Stock					Treasury Stock
	Shares	Amounts		Shares	Amounts				Shares	Amounts
Balance, December 31, 2021	2,000,000	$	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 reinvestment	—	—		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	—	—		—	—		—		—	—		—		—		32,809,550		32,809,550
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)
Dividend declared - preferred stock	—	—		—	—		—		—	—		(921,875)		(921,875)		—		(921,875)
Distributions declared, common stock	—	—		—	—		—		—	—		(2,907,122)		(2,907,122)		(251,539)		(3,158,661)
Distributions declared, Class C OP Units	—	—		—	—		—		—	—		—		—		(125,770)		(125,770)
Net loss	—	—		—	—		—		—	—		(10,145,136)		(10,145,136)		(1,928,028)		(12,073,164)
Balance, March 31, 2022	2,000,000	$	2,000	7,601,081	$	7,601	$	275,371,078	(50,863)	$	(852,721)	$	(115,598,563)	$	158,929,395	$	81,107,213	$	240,036,608

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,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(4,578,921)	$	(12,073,164)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	3,272,061		3,300,492
Stock compensation expense	660,169		511,865
Amortization of deferred rents	(1,175,359)		(110,505)
Amortization of deferred lease incentives	88,570		71,394
Write-offs and amortization of deferred financing costs and premium/discount	195,212		1,266,726
Amortization of (below) above market lease intangibles, net	(196,283)		(330,618)
Impairment of real estate investment property	3,499,438		—
Impairment of goodwill	—		17,320,857
Gain on sale of real estate investments	—		(6,875,086)
Unrealized loss on interest rate swap valuation	1,722,184		—
Write-off of unrealized gain on interest rate swaps	—		(788,016)
Income from unconsolidated investment in a real estate property	(55,567)		(95,464)
Distributions from unconsolidated investment in a real estate property	65,696		95,367
Change in operating assets and liabilities:
Increase in tenant receivables	(220,251)		(634,127)
Increase in prepaid and other assets	(122,884)		(618,439)
Decrease in accounts payable, accrued and other liabilities	(369,196)		(2,124,592)
Net cash provided by (used in) operating activities	2,784,869		(1,083,310)
Cash Flows from Investing Activities:
Acquisitions of real estate investments	(11,913,361)		(44,714,508)
Additions to existing real estate investments	(308,547)		(749,481)
Collection of note receivable from early termination of lease	—		195,000
Net proceeds from sale of real estate investments	—		38,911,538
Purchase deposits, net	112,200		(500,000)
Payment of lease incentives	(10,815)		(2,000,000)
Net cash used in investing activities	(12,120,523)		(8,857,451)
Cash Flows from Financing Activities:
Borrowings from credit facility term loan	20,000,000		100,000,000
(Repayments of) borrowings from credit facility revolver, net	(3,000,000)		20,775,000
Repayments of prior year credit facility revolver, net	—		(8,022,000)
Principal payments on mortgage notes payable	(78,027)		(130,277,534)
Payments of deferred financing costs	—		(2,186,468)
Proceeds from listed offering of common stock, net	—		114,500
Payments of offering costs	—		(189,412)
Repurchases of common stock	(49,682)		(852,721)
Dividends paid to preferred stockholders	(921,875)		(1,065,278)
Distributions paid to common stockholders	(1,566,010)		(1,167,244)
Distributions paid to Class C OP Units holder	(377,297)		(251,539)
Net cash provided by (used in) financing activities	14,007,109		(23,122,696)
Net increase (decrease) in cash and cash equivalents	4,671,455		(33,063,457)
Cash and cash equivalents, beginning of period	8,608,649		58,407,520
Cash and cash equivalents, end of period	$	13,280,104	$	25,344,063

Modiv Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
	Three Months Ended March 31,
	2023		2022
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	1,946,005	$	1,477,384

Supplemental Schedule of Noncash Investing and Financing Activities:
Issuance of Class C OP Units in the acquisition of a real estate investment	$	—	$	32,809,550
Reinvested distributions from common stockholders	$	595,585	$	1,492,404
Unpaid real estate improvements	$	—	$	612,403
Reclassification of tenant improvements from other assets to real estate investments	$	—	$	73,323
Deferred lease incentive	$	—	$	100,000
Accrued distributions and dividends	$	5,363	$	124,698
Supplemental disclosure related to real estate investments held for sale, net:
Real estate investments held for sale, net	$	—	$	31,510,762
Other assets related to real estate investments held for sale	$	3,174	$	788,296
Mortgage notes payable related to real estate investments held for sale, net	$	—	$	(21,699,912)
Other liabilities related to real estate investments held for sale	$	(65,963)	$	(383,282)

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 files its reports with the Securities and Exchange Commission (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 (see details of the initial listed offering (the “Listed Offering”) below).

The Company holds its investments in real property primarily through special purpose limited liability companies which are wholly-owned subsidiaries of Modiv Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Operating Partnership was formed on January 28, 2016. The Company is the sole general partner of, and owned an approximate 73% partnership interest in, the Operating Partnership as of March 31, 2023 and December 31, 2022. The Operating Partnership's limited partners include holders of several classes of units with various vesting and enhancement terms as further described in Note 11.

As of March 31, 2023, the Company's portfolio of approximately 3.4 million square feet of aggregate leasable space consisted of investments in 48 real estate properties, comprised of: 29 industrial properties, including an approximate 72.7% tenant-in-common interest in a Santa Clara, California property (the “TIC Interest”), which represent approximately 61% of the portfolio, 12 retail properties, which represent approximately 20% of the portfolio, and seven office properties, which represent approximately 19% of the portfolio (expressed as a percentage of annual base rent (“ABR”) as of March 31, 2023).

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 $212,682,267 pursuant to: (i) non-listed offerings of common stock registered with the SEC (collectively, the “Registered Offering”), (ii) offerings of common stock exempt from registration pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), (iii) distribution reinvestment plan (“DRP”) offerings of common stock registered with the SEC, (iv) a private offering of common stock pursuant to Regulation D under the Securities Act, (v) a qualified offering of common stock pursuant to Regulation A under the Securities Act and (vi) an offering of common stock listed on the NYSE.

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. 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 8 for more details).

On March 30, 2022, the Company filed a Registration Statement on Form S-3 (File No. 333-263985), and on May 27, 2022, the Company filed Amendment No. 1 to the Registration Statement on Form S-3, to issue and sell from time to time, together or separately, the following securities at an aggregate public offering price that will not exceed $200,000,000: Class C common stock, preferred stock, warrants, rights and units. The Form S-3, as amended, became effective on June 2, 2022 and the Company filed a prospectus supplement for the Company's at-the-market offering of up to $50,000,000 of its Class C common stock (the “ATM Offering”) on June 6, 2022. As of March 31, 2023, no shares have been issued in connection with the Company's ATM Offering.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Preferred Stock Offering

On September 17, 2021, the Company and the Operating Partnership completed the issuance and sale of 2,000,000 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 (see Note 8 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 is 97%, reflecting a 3% discount (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. From February 2022 through March 31, 2023, the Company issued 262,984 shares of Class C common stock under the DRP.

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 (“2022 SRP”). On December 21, 2022, the Company's board of directors authorized up to $15,000,000 in repurchases of the Company's outstanding shares of common stock and Series A Preferred Stock from January 1, 2023 through December 31, 2023 (“2023 SRP”). Repurchases made pursuant to the 2023 SRP 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.

Under the 2022 SRP, the Company repurchased an aggregate of 250,153 shares of its Class C common stock for an aggregate value of $4,161,618 at an average cost of $16.64 per share. Under the 2023 SRP, during the three months ended March 31, 2023, the Company repurchased an aggregate of 4,465 shares of its Class C common stock for an aggregate value of $49,682 at an average cost of $11.13 per share.

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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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2023.

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, 2022 included herein was derived from the audited financial statements.

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 completed in January 2022, as discussed in Note 11, all 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 11.

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.

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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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Revenue Recognition

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. 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.

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.

The Company records tenant reimbursements on a gross basis in instances when its tenants reimburse the Company for lessor costs, including real estate taxes, which the Company incurs. Conversely, the Company records lessor costs on a net basis when these costs are paid directly by the Company's tenants to suppliers and service providers, including taxing authorities, on the Company's behalf. To the extent any tenant responsible for these obligations under the applicable lease defaults on such lease, or if it is deemed probable that the tenant will fail to pay for these obligations, the Company records a liability for such obligations.

The Company evaluates the collectability of rents and other receivables on a regular basis based on factors including, among others, payment history, credit rating, the asset type, and current economic conditions. If the Company’s evaluation of these factors indicates it may not recover the full value of the receivable, it provides an allowance against the portion of the receivable that it estimates may not be recovered. This analysis requires the Company to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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 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 monitors events and changes in circumstances that could indicate that the carrying amounts of investments in real estate properties may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of investments in real estate properties may not be recoverable, management assesses whether the carrying value of the investments in real estate properties will be recovered through the future undiscounted operating cash flows expected from the use of and eventual disposition of the property. If, based on the analysis, the Company does not believe that it will be able to recover the carrying value of the investments in real estate properties, the Company records an impairment charge to the extent the carrying value exceeds the estimated fair value of the investments in real estate properties.

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 unaudited condensed consolidated balance sheets as of March 31, 2023 and 2022.

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, 2023 and 2022, the Company presented both Basic EPS and Diluted EPS reflecting its reported net loss attributable to common stockholders for each period (see Note 12 for additional information).

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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, 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.

Credit facility: The fair values of the Company’s credit facility approximate the carrying value as their interest rate 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 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 9.

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MODIV INC.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Real Estate Investments Held for Sale

The Company generally considers a real estate investment to be “held for sale” when the following criteria are met as of the balance sheet date: (i) management commits to a plan to sell the property, (ii) the property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable and (v) significant changes to the plan to sell are not expected. Real estate 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 investments held for sale,” respectively, in the accompanying unaudited condensed consolidated balance sheets. Other liabilities related to real estate investments held for sale are classified as “liabilities related to real estate investments held for sale” 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.

Derivative Instruments and Hedging Activities

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates on its variable rate debt. The Company does not enter into derivatives for speculative purposes. The Company records derivative instruments at fair value on its unaudited condensed consolidated balance sheets. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The accounting for changes in fair value of the derivative instrument depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. If the derivative instrument meets the hedge accounting criteria, the change in the fair value of a derivative instrument may be designated as a cash flow hedge where the unrealized holding gain or loss on the interest rate swap is presented in the Company's unaudited condensed consolidated statements of comprehensive loss and accumulated other comprehensive income in the Company's unaudited condensed consolidated balance sheets. If the derivative instrument does not meet the hedge accounting criteria, the change in the fair value of the derivative is recorded as a gain or loss on the interest rate swap and included in interest expense in the Company's unaudited condensed consolidated statements of operations.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate term loan. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Restricted Operating Partnership Unit Awards

Historically, the fair values of the restricted Operating Partnership unit awards issued or granted by the Company were based on an estimated NAV per share (unaudited) 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 restricted Operating Partnership 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 (each as defined and discussed in Note 11) 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 11). The Company has elected to record forfeitures as they occur.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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.

Immaterial Error Corrections

During the first quarter of 2023 with the transition to a new independent registered public accounting firm, management determined that its prior treatment of property taxes in those instances where the Company was responsible for paying property taxes and subsequently seeking tenant reimbursement should be treated differently than those instances where property taxes were paid directly by tenants to taxing authorities. After a thorough review, management determined that property taxes paid directly by tenants to taxing authorities should have not been recorded in the Company’s unaudited condensed consolidated statement of operations for the first quarter of 2022 in accordance with ASU 2018-20 “Leases (Topic 842) - Narrow-Scope Improvements for Lessors.” Accordingly, the Company’s unaudited condensed consolidated statement of operations for the first quarter of 2022 reflects an adjustment to reduce rental income and a corresponding reduction in property expenses of $604,727 for such property taxes and the Company's consolidated balance sheet as of December 31, 2022 reflects a reduction in tenant receivables with a corresponding reduction in accounts payable, accrued and other liabilities of $1,596,127. The corrections did not affect net loss or net loss per share of the first quarter of 2022 unaudited condensed consolidated statement of operations.

During the fourth quarter of 2022, management determined that straight-line rents receivable write-offs associated with real estate investments previously sold should be reclassified as a component of the related gain on sale of the real estate investments rather than as an offset to rental income as previously presented in the Company's statements of operations. Accordingly, the Company’s unaudited condensed consolidated statement of operations for the first quarter of 2022 reflects an increase in rental income and a corresponding reduction in the gain on sale of real estate investments of $525,691. The reclassification did not affect net loss or net loss per share of the first quarter of 2022 unaudited condensed consolidated statement of operations.

Recent Accounting Pronouncements

New Accounting Standards Recently Issued or Adopted

There were no new accounting standards recently issued or adopted during the three months ended March 31, 2023 that will materially affect or affected the Company's consolidated financial statements or operations.

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Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

NOTE 3. REAL ESTATE INVESTMENTS, NET

As of March 31, 2023, the Company’s real estate investment portfolio consisted of 48 operating properties located in 17 states comprised of: 29 industrial properties (including the Company's approximate 72.7% TIC Interest in a Santa Clara, California industrial property which is not reflected in the table below but discussed in Note 4), 12 retail properties and seven office properties (including the one held for sale property not reflected in the table below).

The following table provides summary information regarding the Company’s operating properties as of March 31, 2023:


Property	Location	Acquisition Date	Property Type	Land, Buildings and Improvements		Equipment		Tenant Origination and Absorption Costs		Accumulated Depreciation and Amortization		Total Investment in Real Estate Property, Net
Northrop Grumman	Melbourne, FL	3/7/2017	Industrial	$	13,608,084	$	—	$	1,469,737	$	(4,130,132)	$	10,947,689
Northrop Grumman Parcel	Melbourne, FL	6/21/2018	Land	329,410		—		—		—		329,410
Husqvarna	Charlotte, NC	11/30/2017	Industrial	11,840,200		—		1,013,948		(1,917,112)		10,937,036
AvAir	Chandler, AZ	12/28/2017	Industrial	27,357,899		—		—		(3,672,797)		23,685,102
3M	DeKalb, IL	3/29/2018	Industrial	14,762,819		—		3,037,057		(5,732,211)		12,067,665
Taylor Fresh Foods	Yuma, AZ	10/24/2019	Industrial	34,194,369		—		2,894,017		(4,570,787)		32,517,599
Levins	Sacramento, CA	12/31/2019	Industrial	4,429,390		—		221,927		(716,978)		3,934,339
Labcorp	San Carlos, CA	12/31/2019	Industrial	9,672,174		—		408,225		(664,043)		9,416,356
WSP USA	San Diego, CA	12/31/2019	Industrial	9,869,520		—		539,633		(1,203,450)		9,205,703
ITW Rippey	El Dorado, CA	12/31/2019	Industrial	7,071,143		—		304,387		(911,705)		6,463,825
L3Harris	San Diego, CA	12/31/2019	Industrial	11,690,952		—		662,101		(1,384,511)		10,968,542
Arrow-TruLine	Archbold, OH	12/3/2021	Industrial	11,518,084		—		—		(535,376)		10,982,708
Kalera	Saint Paul, MN	1/31/2022	Industrial	3,690,009		4,429,000		—		(410,756)		7,708,253
Lindsay	Colorado Springs 1, CO	4/19/2022	Industrial	2,311,934		—		—		(55,892)		2,256,042
Lindsay	Colorado Springs 2, CO	4/19/2022	Industrial	3,314,406		—		—		(33,262)		3,281,144
Lindsay	Dacano, CO	4/19/2022	Industrial	6,561,054		—		—		(80,636)		6,480,418
Lindsay	Alachua, FL	4/19/2022	Industrial	8,518,123