Executive Summary / Key Takeaways

• Pure-Play Industrial Focus: Modiv Industrial (MDV) has successfully transformed into the only public REIT exclusively focused on single-tenant net-lease industrial manufacturing real estate, with 81% of its Annual Base Rent (ABR) derived from this core segment as of Q2 2025. This strategic pivot positions MDV to capitalize on national economic tailwinds and supply chain strengthening.
• Disciplined Capital Allocation & Strong Fundamentals: Despite market volatility, MDV demonstrates robust financial health with strong AFFO growth (22% YoY in Q2 2025), a fixed-rate debt profile (100% hedged at 4.27% as of Q2 2025), and a patient, disciplined approach to acquisitions and asset recycling, prioritizing shareholder value over growth for growth's sake.
• Accretive Asset Recycling Pipeline: Management has identified a significant pipeline of legacy assets, including non-core properties and non-manufacturing industrial assets, totaling an estimated $80 million to $150 million in proceeds. These are targeted for disposition at high 5s/low 6s cap rates and redeployment into core manufacturing assets at 7s cap rates, promising substantial AFFO accretion.
• Resilient Tenant Base & Dividend Growth: MDV's tenants, primarily "salt of the earth manufacturers," exhibit strong rent coverage and appear largely unbothered by tariff rhetoric, with some even anticipating an uplift in order demand. This stability supports a growing dividend, with an annualized rate of $1.17 per share declared for Q3 2025, representing an 8.1% yield.
• Undervalued with Long-Term Upside: Trading at an implied cap rate in the mid-8s, significantly wider than acquisition cap rates in the low-to-mid 7s, and with an appraised value of approximately $24 per share, MDV appears deeply discounted. Its long-term focus on a niche, mission-critical sector, coupled with a commitment to transparency and a retail-investor-centric approach, offers compelling asymmetric upside potential.

The Bedrock of American Industry: Modiv's Strategic Transformation

Modiv Industrial, Inc. (MDV) stands as a unique entity in the crowded REIT landscape, having meticulously sculpted its portfolio to become the sole publicly traded REIT exclusively dedicated to single-tenant net-lease industrial manufacturing real estate. This strategic focus, a culmination of a multi-year transformation, positions MDV at the heart of the national economy, supporting critical supply chains and domestic production. The company's journey, from its inception in 2015 and its REIT election in 2016, through its public listings in 2021 and 2022, has been defined by a relentless pursuit of this specialized niche.

Three years ago, Modiv's portfolio was over 50% office properties. Today, industrial properties constitute 81% of its Annual Base Rent (ABR), a testament to its successful pivot. This transformation is not merely a shift in asset allocation but a fundamental re-alignment with a long-term vision for stability and value creation. The company's properties, spanning 4.5 million square feet across 15 states, are leased to 30 diverse commercial tenants in 13 industries, boasting a robust weighted average remaining lease term (WALT) of 14.4 years. Excluding shorter-term leases, the core manufacturing portfolio's WALT extends to an impressive 18-19 years, underscoring the long-duration nature of its income streams.

MDV's core technology, though not a proprietary software or hardware, lies in its highly specialized real estate underwriting and asset management approach. This "technology" is the deep expertise in identifying, acquiring, and managing mission-critical manufacturing facilities. The tangible benefits are quantifiable: a portfolio of properties where tenant rent represents a very small percentage of their overall cost input, leading to exceptional stability. This allows MDV to secure long-term leases with built-in rent escalations, such as the 3% annual bumps seen in its recently acquired Jacksonville property and the Fujifilm Dimatix, Inc. lease extension. This operational "technology" translates directly into predictable, growing cash flows and a competitive moat against broader industrial REITs that may lack this granular focus.

Financial Strength and Disciplined Capital Deployment

Modiv Industrial's financial performance in the second quarter of 2025 reflects the fruits of its disciplined strategy. Revenue for Q2 2025 increased 4% year-over-year to $11.8 million, primarily driven by two industrial manufacturing property acquisitions since June 30, 2024. Adjusted Funds From Operations (AFFO) saw a significant 22% year-over-year increase to $4.8 million, or $0.38 per diluted share. This growth was fueled by a $576,000 increase in cash rents, a $217,000 decrease in General and Administrative (G&A) expenses, and a $126,000 reduction in preferred stock dividends. The G&A decrease was notably due to a reduced headcount (from 12 to 9 employees in April 2025) and the CEO's salary transitioning to Class X OP Units, signaling a commitment to operational efficiency.

The company's balance sheet is prudently managed. As of June 30, 2025, total debt outstanding was $280 million, comprising $31 million in mortgages and a $250 million term loan. Critically, 100% of this indebtedness is at a weighted average fixed interest rate of 4.27%, thanks to new interest rate swap agreements entered in January 2025. These swaps fixed SOFR at 2.45% for the term loan for the year, with MDV paying $4.2 million in premiums. This proactive hedging strategy insulates the company from interest rate volatility, a significant risk in the current macroeconomic climate. Furthermore, MDV strategically reduced its revolver capacity from $150 million to $30 million in December 2024, saving $300,000 annually in unused fees, demonstrating a keen eye on optimizing capital structure.

Cash flow from operations for the six months ended June 30, 2025, was $7.0 million. While this was a decrease from the prior year, it was largely due to the reclassification of derivative cash settlements to investing activities, partially offset by increased cash rents and reduced G&A. Net cash used in financing activities increased to $13.0 million, primarily due to the opportunistic repurchase of $6.5 million of Series A Preferred Stock. This repurchase, executed at an average cost of $23.74 per share (originally issued at $25), effectively delevers the company and boosts AFFO by saving over $400,000 annually in preferred dividends.

Competitive Landscape and Strategic Positioning

Modiv Industrial operates within the highly competitive net-lease REIT sector, where it distinguishes itself as a pure-play industrial manufacturing specialist. While larger, diversified net-lease REITs like Realty Income (O) and W. P. Carey (WPC) benefit from immense scale, brand recognition, and broader diversification across retail, industrial, and office properties, MDV's strength lies in its focused, mission-critical niche. Realty Income, with its vast portfolio, demonstrates consistent revenue growth and robust cash flow, while W. P. Carey leverages global diversification and a mix of property types. NetSTREIT (NTST), a closer peer, also focuses on single-tenant retail and industrial, showing agility in acquisitions.

MDV's competitive advantage stems from its deep understanding of the domestic manufacturing sector. Its "technology" of specialized underwriting allows it to identify and acquire properties that are integral to its tenants' operations, fostering long-term relationships and stable income. This focus provides a degree of insulation from broader market fluctuations affecting other property types. For example, while the rapid growth of data centers and utility infrastructure (as seen in broader industry trends) might indirectly benefit diversified REITs, MDV's direct engagement with manufacturing tenants provides a more direct path to capitalize on onshoring and supply chain strengthening initiatives.

However, MDV's smaller scale presents certain vulnerabilities. Its market capitalization of approximately $155 million means it trails larger competitors in market presence and access to institutional capital. This can lead to higher costs per property and potentially limit bargaining power in large-scale acquisitions. The CEO acknowledges this, stating that unless a REIT is "$1 billion market cap or larger, you're in the food chain." Despite this, MDV's disciplined approach to capital allocation, avoiding dilutive equity raises and prioritizing accretive asset recycling, is a strategic response to its subscale position. This approach, combined with a strong emphasis on direct communication with its predominantly retail investor base, aims to build long-term value without succumbing to "growth for growth's sake."

Outlook, Guidance, and Risk Assessment

Modiv Industrial's outlook is one of patient, disciplined growth, underpinned by a clear strategic roadmap. The company does not provide explicit quantitative forward-looking guidance but offers a detailed narrative of its strategic rationale and assumptions. Management anticipates continued market volatility, which necessitates a cautious approach to acquisitions. However, they are "poised" to begin recycling legacy assets, including non-core properties and non-manufacturing industrial assets, estimated to generate $80 million to $150 million in proceeds. These dispositions are expected to occur at high 5s/low 6s cap rates, with proceeds redeployed into core industrial manufacturing assets at 7s cap rates, generating "close to 100 basis points, if not more than 100 basis points of accretion" to AFFO.

Key assumptions driving this outlook include management's belief that greater clarity in the rate environment will eventually lead to more favorable asset pricing. Direct conversations with tenants suggest that tariffs, while a source of macroeconomic uncertainty, will have a limited or even slightly positive impact on their manufacturing operations, with increased input costs largely passed on to clients. This resilience is crucial given the "continuing significant uncertainties in the market... related to inflation and interest rates, tariffs, supply chain disruptions and negative impacts associated with foreign policy actions."

MDV is proactively managing its debt maturities, with the credit facility maturing in January 2027 and preferred shares callable in September 2026. Early discussions for refinancing the credit facility are encouraging, with management expecting terms to be "the same or better." Future hedging strategies will aim for "perfectly tied" hedges to maturity dates, eliminating non-cash FFO volatility.

Risks include potential declines in commercial real estate fundamentals, making it harder to meet debt obligations or distributions. The company's smaller scale also makes it susceptible to market whipsaws, as highlighted by the CEO's comments on stock price volatility. Tenant concentration, while mitigated by the mission-critical nature of properties, remains a factor. However, MDV's strong rent coverage, disciplined expense control, and a "fortress portfolio" approach are designed to mitigate these risks. The company's dividend coverage is strong, supporting the recently increased annualized dividend rate of $1.17 per share.

Conclusion

Modiv Industrial is executing a focused and disciplined strategy to build a resilient, pure-play industrial manufacturing REIT. Its transformation from a diversified portfolio to a specialized industrial powerhouse, coupled with a commitment to operational efficiency and prudent capital management, positions it uniquely within the REIT sector. The company's "technology" of specialized underwriting for mission-critical assets, combined with a clear roadmap for accretive asset recycling and proactive debt management, underpins a compelling long-term investment thesis.

Despite its smaller scale and the inherent volatility of the current market, MDV's strong fundamentals, growing dividend, and deeply discounted valuation present a significant opportunity for discerning investors. The company's dedication to its retail shareholder base and transparent communication further enhances its appeal. As the broader market seeks stability and domestic supply chain strength, Modiv Industrial stands ready to deliver consistent value, leveraging its niche expertise and patient strategy to unlock its intrinsic worth.