Modiv Industrial: A 7.2% Dividend Yield From Made In The USA (NYSE:MDV)

Modiv Industrial (NYSE:MDV) might be probably the most distinctive fairness REITs I’ve encountered. The internally managed small-cap REIT is targeted on buying single-tenant net-lease industrial manufacturing properties within the US, with a portfolio of 44 properties on the finish of its most up-to-date fiscal 2023 fourth quarter. There has since been a disposition of two non-core belongings held on the market, with MDV now completed with its greater than two-year lengthy strategic shift away from a portfolio initially heavy on retail and workplace properties. There was $121 million value of tendencies for the reason that REIT listed on the NYSE in February 2022.

MDV final declared a quarterly money dividend of $0.0958 per share, stored unchanged from the prior month and $1.1496 per share annualized for a 7.2% dividend yield. The $160 million market cap REIT has stored its month-to-month payouts flat because it went public with AFFO for its fourth quarter at $0.40 per share, exceeding consensus expectations by 5 cents however down from FFO of $0.68 per share a yr in the past. The yield has been pulled down on the again of an upward re-rating of the ticker, which is up a exceptional 54% over the past 1 yr.

Direct year-over-year comps are troublesome as a result of MDV’s portfolio experiencing intense flux over the interval. The REIT is at the moment swapping palms for roughly 10x its annualized fourth-quarter AFFO with a dividend yield that is above the common for internet lease REITs, however that displays the improved danger profile from a small-cap single-tenant property proprietor working throughout the home manufacturing area of interest that for many years has been characterised by retrenchment. The REIT went public in essentially the most disruptive interval for REITs in a technology, with the Fed’s battle with inflation driving up the price of funds for REITs and tapering development.

Liquidity, Debt, And AFFO Progress

MDV’s 42 property portfolio is at the moment geared to generate $44 million of internet working earnings yearly and comes with 2.5% annual lease escalators and a weighted common lease time period of 14 years. The REIT generated income of $12.29 million throughout the fourth quarter, dipping by 11% over its year-ago comp. Nevertheless, the year-ago comp included a $3.8 million early termination price from a tenant, excluding this price would have seen year-over-year income development notch 23%. Critically, development is being pushed by MDV’s industrial acquisitions, offset by their non-core tendencies.

The REIT has spent $214 million on acquisitions because it went public however with no new acquisitions throughout the fourth quarter and year-to-date. Fourth quarter AFFO grew by 41% versus its year-ago comp with the 2022 lease termination price excluded. Whole debt on the finish of the fourth quarter can be extraordinarily well-laddered, with no debt maturities till 2027. The REIT held a money stability of $17.9 million on the time of its earnings name and an untapped $150 million revolving credit score facility.

The REIT has additionally been promoting its inventory to lift cash with 162,063 shares offered within the interval from 15 November 2023 to 29 January 2024, at a mean value of $15.22 per share for $2.47 million in proceeds. The dangers right here although are salient. Leverage is excessive, with MDV’s debt-to-equity ratio at roughly 1.94x as of the top of its fourth quarter, the best degree for the reason that REIT went public. This comes with no near-term debt maturities and pending Fed fee cuts set to cut back the chance posed by elevated leverage. The REIT additionally has Series A excellent preferreds (NYSE:MDV.PR.A) which at the moment provide a 7.6% yield on price.

MDV has a transparent funding pitch that it has constructed round its acquisition of important industrial manufacturing properties with long-dated leases. This concentrate on single-tenant net-lease industrial producers means an outsized publicity to a single trade. Russia’s invasion of Ukraine sparked a wave of inflation, nevertheless it additionally catalyzed a fabric shift of worldwide provide chains. Overseas direct funding in China has fallen to its lowest level in many years, with US commerce coverage additionally witnessing a big shift in direction of extra protectionism. The 2022 Inflation Discount Act and the CHIPS and Science Act each have a heavy home bias and have each catalyzed a home manufacturing increase. Therefore, MDV is working in a pretty area that may very well be set to see a brand new, extra growth-orientated zeitgeist than it skilled within the many years prior. I feel MDV is sensible as an funding right here, particularly towards feedback from the Fed, with Powell saying that the method of reducing rates of interest “can and will begin” over the course of 2024. I am going to probably take a small place someday this month on the again of the dividend yield that is roughly 140% coated by AFFO.