The real estate investment trust (REIT) sector is ever-evolving. Mergers and privatizations subtract REITs from the investable universe, while initial public offerings and spinoffs provide new investment options. This past year has seen more subtractions than usual, as M&A activity in the sector has already hit a record high of more than $100 million.
However, replenishments are on the way. Modiv recently announced that it plans to seek a direct listing next year. The non-traded REIT would be the first one built via crowdfunding to list on a stock exchange.
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A unique REIT built from the crowd
Modiv has used its fintech platform to raise money from more than 7,500 investors to build a tech-enabled real estate asset manager. Overall, the company has more than $400 million of assets under management.
At its core, Modiv is a diversified REIT. The company owns a diversified portfolio of commercial real estate consisting of 12 retail properties, 12 industrial facilities, and 14 office buildings with 2.3 million square feet of space as of the end of the second quarter. The company utilizes triple net leases, making the tenant responsible for maintenance, real estate taxes, and building insurance.
Modiv also focuses on investment-grade tenants, which make up 67% of the total. That makes it similar to Realty Income (O +0.24%). That REIT focuses on owning a diversified portfolio of properties net leased primarily to investment-grade tenants. Another similarity is that they both pay a monthly dividend.
In addition to real estate investments, Modiv has three other platforms embedded within the REIT, including:
- Investment manager: Modiv internalized its management platform, which manages other alternative real estate products. The company acquired REITless and BuildingBITs in 2020.
- Crowdfunding platform: Modiv acquired Rich Uncles in 2019, one of the first crowdfunding real estate platforms. While Modiv will cease raising capital from investors online later this month, it can launch other products in the future to utilize this fintech platform.
- Venture capital investments: Modiv makes investments in fintech and proptech companies.
Modiv has likened its platform approach to the business models of BlackRock (BLK +0.00%) and CBRE (CBRE 0.25%). Both built out industry-leading platforms by making acquisitions that expanded their scale. Modiv wants to follow those blueprints, which is no surprise, considering that CEO Aaron Halfacre worked at BlackRock, while current chairman Ray Wirta was formerly the CEO of CBRE.
Going public to continue building for the crowd
Modiv will be the first crowdfunded REIT to become publicly traded when it lists on a public exchange next year. However, even though it's going public, that doesn't mean the company is abandoning the crowdfunding sector. That's clear from the comments of CEO Aaron Halfacre on the company's second-quarter conference call. He stated that:
We view crowdfunding as not just an enabler, but a disruptor of traditional capital raising. Crowdfunding offers investors an opportunity to participate in commercial real estate typically only available to high-net-worth individuals or institutions. Given Modiv's unique structure in this unique industry, we will continue to look for opportunities to acquire, merge, or invest in other crowdfunding platforms and other real estate businesses that could accelerate the industry evolution and create shareholder value.
Modive has two distinct reasons for the public listing. First, it wants to provide existing investors with greater access to liquidity. By listing on a public exchange, investors can sell their shares on a secondary market to other investors instead of having to sell them back to Modiv as part of its redemption program. That program uses capital that the company could have used to purchase commercial real estate or expand its other platforms.
The other driver is that investors aren't currently getting full credit for the technology embedded in the REIT. Modiv only does private market valuations for its commercial real estate, not its other investments. The company believes that by listing on a public exchange, the market will appropriately value its technology platform.
An interesting option for REIT investors
Modiv plans to join the ranks of publicly traded REITs next year. The company believes this listing will provide its investors with liquidity while unlocking the value of its growing technology platform. It will also give it more opportunity to be a consolidator in the crowdfunding industry, where it sees lots of growth potential. That will make it a unique offering in the public markets, as it will combine the income stability of its net lease real estate portfolio with the growth potential of its other platforms.
