Modiv is a public non-traded real estate investment trust (REIT), a sub-niche of the larger REIT sector. Non-traded REITs are a little obscure but offer some notable benefits to investors that prize safety and consistency. Modiv, meanwhile, puts a modern twist on the REIT model with its crowdsourcing approach. But here's the really interesting thing about this unique REIT: It's looking to start trading publicly potentially as early as 2022. Here's why you might want to get to know this landlord today.
Dancing to its own beat
A non-traded public REIT is roughly similar to a publicly traded REIT, except that you can only buy and sell shares directly from the REIT. That often has to take place through a financial intermediary, but the business of the REITs is still to invest in income-producing properties on behalf of shareholders.
Modiv focuses on owning single-tenant net lease properties, where it owns the asset but its tenants are responsible for most of the operating costs of the buildings they occupy. It's a fairly low-risk way to invest in real estate. Currently, Modiv's portfolio is spread across industrial (about 40% of rents), office (around 50%), and retail (roughly 10% or so). However, the REIT is working to reduce its office exposure in favor of more retail and industrial. And it only has about 40 properties, so Modiv is pretty small.
But that's exactly why the non-traded REIT is trying to get its name into the minds of Wall Street investors. The first step was to raise cash via a preferred stock offering. Preferred stock is somewhere between equity and bonds, offering a set dividend but without an end date like a bond, which eventually matures.
According to Modiv CEO Aaron Halfacre, who had worked for some notable public REITs before taking the reins here, the goal of the preferred is to both raise capital and to "introduce" Modiv to a larger pool of investors. The hope is that this will help Modiv gain traction with investors if, perhaps when, it transitions to trading on an exchange. Such a shift is a very real possibility over the next year or two.
What's so special here?
There are a couple of things investors should take note of with Modiv. First, it's a relatively small REIT. That means even small transactions can have a material impact on its top and bottom lines.
Step back and think about that for a second. As a public non-traded REIT Modiv's access to capital is constrained because it can't sell stock on Wall Street. Assuming it transitions to trading on an exchange, it will open up a whole new source of funding, which could amp up the REIT's growth profile. The truth is, it appears the REIT's current method of raising capital isn't really providing the levels of capital it wants to grow as quickly as management would like. This brings up another interesting piece of the story.
Public non-traded REITs basically sell stock to the public directly, usually through a financial intermediary. Most investors simply don't know these types of REITs exist unless a broker tells them. Modiv, however, has an even more unique approach because it uses a crowdsourcing platform to raise cash. That means investors are, literally, buying shares from Modiv.
But you have to be both knowledgeable about public non-traded REITs and tech-savvy to get in the door with Modiv. That's one of the reasons why it might want to go public, since the universe of potential investors will, quite literally, explode.
Here's the thing, though: Modiv owns the crowdsourcing platform it uses. On the one hand, this platform becomes moot if the REIT starts trading on an exchange. On the other, it could be an opportunity for the REIT to raise capital for others, generating fees, or for creating new REITs that it manages itself, again generating fees. This isn't so far-fetched, given that a lot of REITs create partnerships with large institutional investors that would be roughly similar to what Modiv would be set up to do on a smaller scale. And this platform would basically come "free" when the stock shifts to an exchange.
Another piece of the puzzle, which is a bit harder to quantify, is that Modiv is currently sold at net asset value, or NAV in industry lingo. That's basically the value of its property portfolio divided by the outstanding shares. It hires an outside company to establish this NAV and generally opts for the conservative side of the NAV range provided.
If Modiv starts trading on an exchange, it will shift from trading at NAV to trading based on supply and demand. Thus, it could trade above the current NAV, noting that the company uses a conservative lens on this front.
The fly in the ointment here is that once on an exchange, Modiv's shares could also trade below NAV, since investors will be setting the price. There's no way to know what will happen until it's trading. That said, Modiv's preferred has a public offering price of $25 per share and is currently trading above that level. So, reading into the price action, investors appear to believe the REIT is in strong financial shape. That bodes well for the stock, if, more likely when, it should shift to a public exchange.
Modiv is worth watching
So today, Modiv is a public non-traded REIT that you can buy through the crowdsourcing platform the company owns and operates. But, for more aggressive investors, the real story is that this relatively small REIT could end up traded on an exchange. That would provide the potential for it to trade above NAV and give it access to larger pools of growth capital.
Meanwhile, it would have its crowdsourcing platform sitting in its back pocket for use down the line to boost the fee income it generates. While it would be hard to suggest this is a good option for really conservative types, it is probably worth watching, if not buying, for more aggressive, tech-savvy investors.