Modiv Industrial Increases AFFO and Retires Preferred Shares

Rhea-AI Summary

Modiv Industrial (NYSE:MDV) has announced significant financial updates, including the retirement of 150,000 Series A Preferred shares at $23.50 per share, representing 7.5% of their preferred stack. The $3.525 million transaction was executed at a 6% discount to par value, yielding 7.85% annually and 13.45% to call.

The company has increased its base case, static 2025 Adjusted Funds From Operations (AFFO) estimate to $1.39 per fully diluted share. This strategic move will result in $276,000 in additional annual savings, complementing the previously announced $700,000 in interest savings and $300,000 in revolver savings.

The transaction demonstrates Modiv's commitment to reducing leverage and strengthening cash flow for common equity investors. The company deployed capital raised from Q4 2024 ATM sales at 7.24% dividend yield into this higher-yielding investment at 7.85%.

Positive

• Retirement of 7.5% preferred shares at 6% discount to par value
• Additional $276,000 annual savings from preferred share retirement
• Increased 2025 AFFO estimate to $1.39 per share
• Higher yield deployment of ATM capital (7.85% vs 7.24%)
• Combined savings of $1.276M from recent financial initiatives

Negative

• Small-cap REIT facing high interest rate environment challenges
• market reaction to recent positive earnings results

Insights

Financial Analyst

Modiv Industrial's preferred share repurchase represents a financially accretive transaction that demonstrates intelligent capital allocation. By repurchasing 150,000 preferred shares (7.5% of their preferred equity stack) at a 6% discount to par value, management created immediate shareholder value through multiple mechanisms.

The transaction yields 7.85% annually while providing $276,000 in additional yearly savings. This comes on top of previously announced interest and revolver savings totaling $1 million. The cumulative effect has increased their 2025 AFFO projection to $1.39 per share.

What's particularly noteworthy is the execution strategy: Modiv issued equity at a 7.24% dividend yield/cost and redeployed that capital at a 7.85% yield with defined upside potential. This positive spread demonstrates the management team's ability to create value through financial engineering even in a challenging rate environment for REITs.

For a smaller industrial REIT like Modiv, with a market cap around $153 million, these incremental financial improvements are significant. The retirement of high-cost preferred equity effectively deleverages the balance sheet while simultaneously improving cash flow available to common shareholders. The 13.45% yield-to-call metric indicates this was particularly well-timed from a present value perspective.

This transaction aligns with management's history of opportunistic capital management, including last year's retirement of OP units at substantial discounts to issuance price. Such disciplined capital allocation demonstrates a shareholder-value focus that could eventually translate to share price appreciation if consistently executed.

REIT Specialist

Modiv's preferred share repurchase highlights a important advantage smaller REITs can leverage in the current market - nimble capital structure adjustments that produce meaningful per-share impacts. For a REIT focused exclusively on industrial manufacturing properties, strengthening the balance sheet carries strategic importance beyond just cost savings.

The 7.5% reduction in preferred equity represents a structural improvement in Modiv's capital stack. By opportunistically repurchasing these shares at $23.50 versus the $25.00 issuance price, management effectively captured $225,000 in immediate value ($1.50 discount × 150,000 shares) while permanently reducing annual preferred dividend obligations.

The resulting 2¢ AFFO increase may seem modest in absolute terms, but represents approximately a 1.5% improvement to AFFO per share from a single transaction - an efficiency rarely achievable through property acquisitions in today's compressed-cap-rate environment. This demonstrates how financial engineering can complement traditional real estate operations.

Modiv's focus on industrial manufacturing real estate positions them in a specialized segment with potential growth opportunities as reshoring and supply chain security trends continue. Their ability to optimize capital costs through transactions like this preferred share repurchase provides additional firepower for potential acquisitions when appropriate opportunities arise.

The transaction also strengthens Modiv's position relative to debt covenants and improves financial flexibility, particularly valuable for smaller REITs navigating a higher interest rate environment. The reduced preferred dividend burden creates a more resilient cash flow profile that can better withstand economic volatility while maintaining distributions to common shareholders.

DENVER--(BUSINESS WIRE)-- Modiv Industrial, Inc. (“Modiv Industrial”, “Modiv”, the “Company”, “we” or “our”), (NYSE:MDV), the only public REIT exclusively focused on acquiring industrial manufacturing real estate, today provided a financial update.

Highlights:

• Retires 7.5% of Modiv’s Series A Preferred shares at a 6% discount to par value.
• The 150,000 preferred share acquisition at $23.50 per share, for a total of $3.525 million, represents a 7.85% annual yield and a 13.45% yield to call.
• Increases base case, static 2025 Adjusted Funds From Operations (“AFFO”) estimate to $1.39 per fully diluted share.

The following is a statement from Aaron Halfacre, CEO of Modiv Industrial:

“Most days being a small cap REIT CEO in a high interest rate environment feels a lot like being Rodney Dangerfield…you might be entertaining to investors on any given day but the majority of time you get no respect. Case in point, just a few days ago we released results that solidly beat consensus estimates, and the market yawned with a blank stare – you’re a tough audience to please. Let’s see if today’s news can at least cause you to begrudgingly break a smile.

Though it may not be a four-leaf clover, at the very least it is a vibrant three-leaf clover found in the dead of winter, and I gladly accept this lucky charm as the yield is magically delicious. We received a random call from an unknown fixed income broker we had never heard of saying they had a client that would like to sell a large block of our series A preferred shares and wanted to know if we were interested. After a little price banter, we agreed to a private market transaction to acquire 150,000 preferred shares at $23.50 per share. That’s 7.5% of our entire preferred stack, that’s meaningful on multiple fronts. If I may…

- This transaction shows that discipline and patience pay off. This is arguably better than buying a $3.5 million property as the annual yield of 7.85% is higher than what we have seen in the market, and we know for a fact that this investment would cost us 6% more in as little as two years.

- For those who consider preferred equity as leverage, this shows our commitment to reducing our leverage and strengthening cash flow to common equity investors.

- This acquisition results in $276,000 in additional annual savings which is on top of the recently announced $700,000 in interest savings and $300,000 in revolver savings that are also related to ‘leverage’.

This transaction increases our base case, static, ‘stare-at-navel’ AFFO to $1.39 per fully diluted share for 2025. Yes, it is only a two-cent increase (in as many days) to our “do nothing” scenario but it highlights how a small REIT can move the needle with smart decisions. I will let you make your own bets on whether you think we will do nothing this year; however, not unlike when we retired OP units last year for $14.80 that we had issued at $25.00, acquiring preferred at $23.50 that was originally issued at $25.00 is another example of our ability to make money for our investors. Every penny matters and if you know how to make investors money, then you will be given the opportunity to do so with larger amounts over time. Though the cash to purchase this transaction was on balance sheet and is a bit fungible, let’s for illustrative purposes link this cash to the ATM sales we did in the fourth quarter of 2024. That equity was issued at a dividend yield/cost of capital of 7.24% and we have quickly redeployed that capital at a 7.85% yield with quantifiable upside.

Today’s news will likely not earn the respect of some of you and that’s ok. My hope is that those investors out there, who worked damn frickin hard for their money, will read this and say to themselves ‘this dude is a good steward of my capital’. To paraphrase Warren Buffett, I personally have put all my eggs in one basket (over 1.11 million eggs to be exact – which is over 8% of the MDV basket), and I am watching (and thinking and strategizing and perfecting) that basket 24/7. Each day we climb the hill, each day we grind it out, and for those of you who that resonates with – then welcome to the tribe.

Until next time.

Grit, grind, get it done!” Aaron Halfacre, CEO of Modiv Industrial

About Modiv Industrial

Modiv Industrial, Inc. is an internally managed REIT that is focused on single-tenant net-lease industrial manufacturing real estate. The Company actively acquires critical industrial manufacturing properties with long-term leases to tenants that fuel the national economy and strengthen the nation’s supply chains. For more information, please visit: www.modiv.com.

Forward-looking Statements

Certain statements contained in this press release, other than historical facts, may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements regarding our plans, strategies and prospects, both business and financial. Such forward-looking statements are subject to various risks and uncertainties, including but not limited to those described under the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 4, 2025. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this press release and in the Company’s other filings with the SEC. Any forward-looking statements herein speak only as of the time when made and are based on information available to the Company as of such date and are qualified in their entirety by this cautionary statement. The Company assumes no obligation to revise or update any such statement now or in the future, unless required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250306822061/en/

Inquiries:

management@modiv.com

Source: Modiv Industrial, Inc.

FAQ

What is the impact of MDV's preferred share retirement on annual savings?

The retirement of 150,000 preferred shares will generate $276,000 in additional annual savings for MDV.

What is Modiv Industrial's (MDV) projected AFFO per share for 2025?

MDV has increased its base case 2025 AFFO estimate to $1.39 per fully diluted share.

How many preferred shares did MDV retire and at what price?

MDV retired 150,000 preferred shares (7.5% of total preferred stack) at $23.50 per share, totaling $3.525 million.

What is the yield on MDV's preferred share retirement transaction?

The transaction yields 7.85% annually and 13.45% yield to call, at a 6% discount to par value.