SEC Company Response from MODIV INDUSTRIAL, INC. (MDV, MDV-PA) (CIK 0001645873) (MDV) — Sep 23, 2015
MODIV INDUSTRIAL, INC. (MDV, MDV-PA) (CIK 0001645873)
Date: Sept. 23, 2015 · CIK: 0001645873 · Accession: 0001162677-15-000083
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-205684
Referenced dates: August 11, 2015, December 3, 2003, June 4, 2001
Letter
VIA EDGAR Division of Corporation Finance Securities and Exchange Commission Re: Rich Uncles REIT, Inc. Registration Statement on Form S-11 Filed July 15, 2015 File No. 333-205684
Dear Ms. Gowetski:
On behalf of our client, Rich Uncles REIT, Inc., we are responding to your letter dated August 11, 2015, regarding the referenced registration statement. On September 9, 2015, the Company filed Pre-Effective Amendment No. 1 to its Form S-11 containing revisions responding to your comments. Responses in this letter refer to that amendment. We enclose five copies of Amendment No. 1, marked to show changes from the original S-11 filing made on July 15, 2015 and keyed to comments.
The following numbered responses in this letter correspond to the numbered comments in your August 11 letter. Page references are to the Form S-11/A as filed with the Commission on September 9 via EDGAR.
General
1.
We note your disclosure on the cover page and under “Risk Factors” that you are a blind pool as you have not identified any properties to acquire with the net proceeds of this offering. Accordingly, please provide the disclosure required by Industry Guide 5, as applicable. See Securities Act Release 33-6900 (June 17, 1991). In particular, please provide appropriate disclosure relating to prior performance, including prior performance tables and narrative disclosure regarding material adverse business developments.
Response: We will file the Company’s track record disclosure in a separate amendment on Form S-11/A.
Page 2
2.
We note your disclosure on the cover page that you will offer these shares indefinitely. We further note that you are offering the securities on a continuous basis pursuant to Rule 415 under the Securities Act of 1933. Please tell us how your intention to offer these shares indefinitely complies with Rule 415(a)(5) or revise to provide the date on which your offering will terminate. In addition, please revise your disclosure throughout, including a cover page risk factor, to state that you are not required to ever provide a liquidity event and does not intend to provide a liquidity event or advise.
Response: See Cover page and pages 2 and 9. We revised the prospectus to include a termination date of the offering two years from the commencement of the offering. See Cover page. We have also revised the prospectus to include the risk that the Company is not required to provide a liquidity event and do not intend to provide one.
3.
Please note that any sales literature that is to be used in connection with this offering must be submitted to us prior to use, including, if applicable, sales literature intended for broker-dealer use only. Please be aware that we will need time to review these materials. In addition, note that sales materials must set forth a balanced presentation of the risks and rewards to investors and should not contain any information or disclosure that is inconsistent with or not also provided in the prospectus. For guidance, refer to Item 19.D of Industry Guide 5 and CF Disclosure Guidance Topic No. 3.
Response: We will provide this material supplementally as it is prepared.
4.
Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
Response: We will provide this material supplementally as it is prepared.
5.
Please provide us with copies of any graphics, maps, photographs, and related captions or other artwork including logos that you intend to use in the prospectus. Such graphics and pictorial representations should not be included in any preliminary prospectus distributed to prospective investors prior to our review.
Response: We will provide this material supplementally as it is prepared.
6.
Please be advised that you are responsible for analyzing the applicability of the tender offer rules, including Rule 13e-4 and Regulation 14E, to your share repurchase program. We urge you to consider all the elements of your share repurchase program in determining whether the program is consistent with relief granted by the Division of Corporation Finance in prior no action letters. See, for example, T REIT Inc. (Letter dated June 4, 2001) and Wells Real Estate Investment Trust II, Inc. (Letter dated December 3, 2003). To the extent you have questions as to whether the program is entirely consistent with the relief previously granted by the Division of Corporation Finance, you may contact the Division’s Office of Mergers and Acquisitions at 202-551-3440.
Page 3
Response: The terms of the Company’s share repurchase program (the “Repurchase Program”) are disclosed in the Registration Statement, as revised in connection with this response to the Commission’s Letter dated August 11, 2015. The Company, with the assistance of counsel, has analyzed the applicability of the tender offer rules, including Rule 13e-4 and Regulation 14E, to its Repurchase Program. The Company believes that the Repurchase Program is consistent with the relief granted by the Division of Corporate Finance in prior no-action letters and that its purchases of common stock from stockholders under its Repurchase Program would not constitute an issuer tender offer within the meaning of Rule 13e-4 or Regulation 14E.
The Commission’s Division of Corporate Finance has previously not recommended that the Commission take enforcement action under Rule 13e-4 and Regulation 14E with respect to repurchases made under the repurchase programs of non-listed REITs programs that allow investors to make repurchase requests on a periodic (such as monthly or quarterly) basis. The Company believes that its share Repurchase Program is similar to programs of other companies for which the Commission has granted no-action relief regarding the issuer tender offer rules of Rule 13e-4 and the rules regarding the conduct of tender offers in Regulation 14E.
Pursuant to Rule 13e-4 under the Securities Exchange Act of 1934 (the “Exchange Act”), an issuer with equity securities registered under Section 12 of the Exchange Act or that is required to file periodic reports with the Commission pursuant to Section 15(d) of the Exchange Act is required, in connection with any tender offer for its own equity securities, to make certain disclosures with respect to such offers. The provisions of Rule 13e-4 are intended to prevent fraudulent, deceptive or manipulative acts in connection with issuer tender offers. Regulation 14E provides for rules regarding the conduct of tender offers, if a purchaser is engaged in a tender offer.
As provided in SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir. 1985), the following eight factors are applied to determine whether a purchase of shares constitutes a “tender offer”: (i) the presence of active and widespread solicitation of public stockholders for the shares of an issuer; (ii) the solicitation is made for a substantial percentage of the issuer’s stock; (iii) the offer to purchase is made at a premium over the prevailing market price; (iv) the terms of the offer are firm, rather than negotiable; (v) the offer is contingent on the tender of a fixed number of shares; (vi) the offer is open only for a limited period of time; (vii) the offeree is subjected to pressure to sell; and (viii) there is a public announcement of an acquisition program prior to the accumulation of stock by a purchaser followed by a rapid accumulation of a large amount of securities. These factors are generally attributable to Wellman v. Dickinson, 475 F. Supp. 783 (C.D. Cal. 1979).
(i) The presence of active and widespread solicitation of public stockholders for the shares of an issuer:
The Company will not engage in active and widespread solicitation for stockholders to participate in the Repurchase Program. Information regarding the Repurchase Program is provided in the Registration Statement, as required by the Securities Act of 1933, to make stockholders aware of the existence of the Repurchase Program. However, the Company will not solicit or encourage stockholders to participate in the Repurchase Program.
Page 4
(ii) The solicitation is made for a substantial percentage of the issuer’s stock:
This factor is often addressed through the first and eighth factors. The Company will not solicit or encourage the participation of any stockholder in the Repurchase Program, and there is no particular percentage of stock that the Company is expected to purchase through the Repurchase Program. There are limits in the Repurchase Program on the Company’s ability to repurchase shares. Specifically, the Company may not purchase shares in an amount that would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. In addition, purchases made under the Repurchase Program will be limited by the Company’s sources of capital. Finally, the purpose of the Repurchase Program is not for the Company to acquire a substantial percentage of its own securities. The Company intends to raise capital through public offerings and invest the net proceeds in real estate assets. The Repurchase Program is being instituted solely to provide stockholders of the Company with a vehicle through which they can liquidate a portion of their investment in the Company’s common stock, in light of the fact that there is no public secondary trading market for the shares and the Company does not anticipate that a secondary trading market will develop.
(iii) The offer to purchase is made at a premium over the prevailing market price:
There is no public secondary trading market for the Company’s shares and the Company does not anticipate that a secondary trading market will develop. The Repurchase Program will be terminated if the Company’s shares are listed on a national securities exchange, included for quotation on a national securities market or if a secondary trading market otherwise develops. The Company will utilize an independent valuation firm to calculate the NAV per share of the Company’s shares on an annual basis commencing December 31, 2016. The Company will report the NAV per share of the common stock in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, in each case as filed with the Commission. The Company will also provide information about its NAV per share on its website (such information may be provided by means of a link to the Company’s public filings on the Commission’s website, www.sec.gov). Shares will be repurchased at a discount to the most recently published NAV (or, if there is no published NAV, $10.00 per share), unless the shares have been held for at least three years, in which case they will be repurchased at a price equal to the most-recently published NAV (or, if there is no published NAV, $10.00 per share). In addition, the Repurchase Program will not purchase shares at a price greater than the then-current public offering price of the common stock at any time that the Company is engaged in a distribution of its common stock (other than a distribution under the Company’s dividend reinvestment program).
(iv) The terms of the offer are firm, rather than negotiable:
The terms of the Repurchase Program are firm.
Page 5
(v) The offer is contingent on the tender of a fixed number of shares:
The Repurchase Program is not contingent on the tender of a fixed number of shares. If the Company cannot repurchase all shares presented for repurchase in any month because of the limitations on repurchases set forth in the Repurchase Program, then the Company will honor repurchase requests on a pro rata basis, except that if a stockholder has requested that the Company repurchase all of the shares hold by such stockholder and a pro rata repurchase would result in such stockholder owning less than 500 shares, then the Company would repurchase all of such stockholder’s shares.
(vi) The offer is open only for a limited period of time:
The Repurchase Program is open for an indefinite period. The risk of manipulation and pressure to sell associated with tender offers subject to limited time frames are not present in the Repurchase Program.
(vii) The offeree is subjected to pressure to sell:
As noted above, the Company will not solicit or encourage stockholders to participate in the Repurchase Program. The Company will not place upon stockholders any pressure to participate in the Repurchase Program. The role of the Company in effectuating purchases under the Repurchase Program will be purely ministerial. The Company acknowledges that some features of the Repurchase Program may to a limited extent encourage or pressure a stockholder to tender shares at a particular time. Stockholders must submit a repurchase request no later than the fifth day of a month in order for their shares to be eligible for purchase during the following month. In addition, if the Company cannot repurchase all shares presented for repurchase in any month because of the limitations on repurchases set forth in the Company’s Repurchase Program, the repurchase of any such shares will be delayed until the purchases may be made in compliance with the limitations. The Company does not believe that these pressures are the types of pressures placed on offerees in a tender offer as contemplated by the Wellman test or for which the Williams Act was intended to address. The limitations in the Repurchase Program may delay the purchase of shares from a stockholder, but will not result in the stockholder being pressured to accept an inadequate price for their shares to avoid the risk of being forced to accept an even lower price at a later date, which is how the pressure to sell arises in connection with a coercive, two-tier tender offer. In addition, the features of the Repurchase Program will be first disclosed to stockholders when they make their initial decision to invest in the Company, rather than at the time of their decision to participate in the Repurchase Program, and any stockholder can withdraw a repurchase request by sending written notice to the administrator of the Repurchase Program, provided such notice is received at least five business days before the repurchase date.
Page 6
(viii)
There is a public announcement of an acquisition program prior to the accumulation of stock by a purchaser followed by a rapid accumulation of a large amount of securities:
The Company has described the Repurchase Program in the Registration Statement, and the Repurchase Program will be described in registration statements and offering materials for future offerings (if any), and when required in filings with the Commission made pursuant to the Exchange Act. The Company will give notice to the stockholders of any amendments to the Repurchase Program by including such information regarding any amendment in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, in each case, as publicly filed with the Commission, or in a separate written notice to its stockholders. As noted above, the purpose of the Repurchase Program is not for the Company to rapidly acquire a large amount of its own securities. The Company has no desire to accumulate a large amount of its securities, as the Company’s purpose is to invest in real estate assets. In addition, the Company is restricted from acquiring shares in an amount that would violate the restrictions on dist
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CORRESP
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STRASBURGER & PRICE, LLP
720 Brazos Street, Suite 700
Austin, Texas 78701
512-499-3600
www.strasburger.com
September 23, 2015
VIA EDGAR
and FEDERAL EXPRESS
Jennifer Gowetski
Special Counsel
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549
Re:
Rich Uncles REIT, Inc.
Registration Statement on Form S-11
Filed July 15, 2015
File No. 333-205684
Dear Ms. Gowetski:
On behalf of our client, Rich Uncles REIT, Inc., we are responding to your letter dated August 11, 2015, regarding the referenced registration statement. On September 9, 2015, the Company filed Pre-Effective Amendment No. 1 to its Form S-11 containing revisions responding to your comments. Responses in this letter refer to that amendment. We enclose five copies of Amendment No. 1, marked to show changes from the original S-11 filing made on July 15, 2015 and keyed to comments.
The following numbered responses in this letter correspond to the numbered comments in your August 11 letter. Page references are to the Form S-11/A as filed with the Commission on September 9 via EDGAR.
General
1.
We note your disclosure on the cover page and under “Risk Factors” that you are a blind pool as you have not identified any properties to acquire with the net proceeds of this offering. Accordingly, please provide the disclosure required by Industry Guide 5, as applicable. See Securities Act Release 33-6900 (June 17, 1991). In particular, please provide appropriate disclosure relating to prior performance, including prior performance tables and narrative disclosure regarding material adverse business developments.
Response: We will file the Company’s track record disclosure in a separate amendment on Form S-11/A.
Page 2
2.
We note your disclosure on the cover page that you will offer these shares indefinitely. We further note that you are offering the securities on a continuous basis pursuant to Rule 415 under the Securities Act of 1933. Please tell us how your intention to offer these shares indefinitely complies with Rule 415(a)(5) or revise to provide the date on which your offering will terminate. In addition, please revise your disclosure throughout, including a cover page risk factor, to state that you are not required to ever provide a liquidity event and does not intend to provide a liquidity event or advise.
Response: See Cover page and pages 2 and 9. We revised the prospectus to include a termination date of the offering two years from the commencement of the offering. See Cover page. We have also revised the prospectus to include the risk that the Company is not required to provide a liquidity event and do not intend to provide one.
3.
Please note that any sales literature that is to be used in connection with this offering must be submitted to us prior to use, including, if applicable, sales literature intended for broker-dealer use only. Please be aware that we will need time to review these materials. In addition, note that sales materials must set forth a balanced presentation of the risks and rewards to investors and should not contain any information or disclosure that is inconsistent with or not also provided in the prospectus. For guidance, refer to Item 19.D of Industry Guide 5 and CF Disclosure Guidance Topic No. 3.
Response: We will provide this material supplementally as it is prepared.
4.
Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
Response: We will provide this material supplementally as it is prepared.
5.
Please provide us with copies of any graphics, maps, photographs, and related captions or other artwork including logos that you intend to use in the prospectus. Such graphics and pictorial representations should not be included in any preliminary prospectus distributed to prospective investors prior to our review.
Response: We will provide this material supplementally as it is prepared.
6.
Please be advised that you are responsible for analyzing the applicability of the tender offer rules, including Rule 13e-4 and Regulation 14E, to your share repurchase program. We urge you to consider all the elements of your share repurchase program in determining whether the program is consistent with relief granted by the Division of Corporation Finance in prior no action letters. See, for example, T REIT Inc. (Letter dated June 4, 2001) and Wells Real Estate Investment Trust II, Inc. (Letter dated December 3, 2003). To the extent you have questions as to whether the program is entirely consistent with the relief previously granted by the Division of Corporation Finance, you may contact the Division’s Office of Mergers and Acquisitions at 202-551-3440.
Page 3
Response: The terms of the Company’s share repurchase program (the “Repurchase Program”) are disclosed in the Registration Statement, as revised in connection with this response to the Commission’s Letter dated August 11, 2015. The Company, with the assistance of counsel, has analyzed the applicability of the tender offer rules, including Rule 13e-4 and Regulation 14E, to its Repurchase Program. The Company believes that the Repurchase Program is consistent with the relief granted by the Division of Corporate Finance in prior no-action letters and that its purchases of common stock from stockholders under its Repurchase Program would not constitute an issuer tender offer within the meaning of Rule 13e-4 or Regulation 14E.
The Commission’s Division of Corporate Finance has previously not recommended that the Commission take enforcement action under Rule 13e-4 and Regulation 14E with respect to repurchases made under the repurchase programs of non-listed REITs programs that allow investors to make repurchase requests on a periodic (such as monthly or quarterly) basis. The Company believes that its share Repurchase Program is similar to programs of other companies for which the Commission has granted no-action relief regarding the issuer tender offer rules of Rule 13e-4 and the rules regarding the conduct of tender offers in Regulation 14E.
Pursuant to Rule 13e-4 under the Securities Exchange Act of 1934 (the “Exchange Act”), an issuer with equity securities registered under Section 12 of the Exchange Act or that is required to file periodic reports with the Commission pursuant to Section 15(d) of the Exchange Act is required, in connection with any tender offer for its own equity securities, to make certain disclosures with respect to such offers. The provisions of Rule 13e-4 are intended to prevent fraudulent, deceptive or manipulative acts in connection with issuer tender offers. Regulation 14E provides for rules regarding the conduct of tender offers, if a purchaser is engaged in a tender offer.
As provided in SEC v. Carter Hawley Hale Stores, Inc., 760 F.2d 945, 950 (9th Cir. 1985), the following eight factors are applied to determine whether a purchase of shares constitutes a “tender offer”: (i) the presence of active and widespread solicitation of public stockholders for the shares of an issuer; (ii) the solicitation is made for a substantial percentage of the issuer’s stock; (iii) the offer to purchase is made at a premium over the prevailing market price; (iv) the terms of the offer are firm, rather than negotiable; (v) the offer is contingent on the tender of a fixed number of shares; (vi) the offer is open only for a limited period of time; (vii) the offeree is subjected to pressure to sell; and (viii) there is a public announcement of an acquisition program prior to the accumulation of stock by a purchaser followed by a rapid accumulation of a large amount of securities. These factors are generally attributable to Wellman v. Dickinson, 475 F. Supp. 783 (C.D. Cal. 1979).
(i) The presence of active and widespread solicitation of public stockholders for the shares of an issuer:
The Company will not engage in active and widespread solicitation for stockholders to participate in the Repurchase Program. Information regarding the Repurchase Program is provided in the Registration Statement, as required by the Securities Act of 1933, to make stockholders aware of the existence of the Repurchase Program. However, the Company will not solicit or encourage stockholders to participate in the Repurchase Program.
Page 4
(ii) The solicitation is made for a substantial percentage of the issuer’s stock:
This factor is often addressed through the first and eighth factors. The Company will not solicit or encourage the participation of any stockholder in the Repurchase Program, and there is no particular percentage of stock that the Company is expected to purchase through the Repurchase Program. There are limits in the Repurchase Program on the Company’s ability to repurchase shares. Specifically, the Company may not purchase shares in an amount that would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. In addition, purchases made under the Repurchase Program will be limited by the Company’s sources of capital. Finally, the purpose of the Repurchase Program is not for the Company to acquire a substantial percentage of its own securities. The Company intends to raise capital through public offerings and invest the net proceeds in real estate assets. The Repurchase Program is being instituted solely to provide stockholders of the Company with a vehicle through which they can liquidate a portion of their investment in the Company’s common stock, in light of the fact that there is no public secondary trading market for the shares and the Company does not anticipate that a secondary trading market will develop.
(iii) The offer to purchase is made at a premium over the prevailing market price:
There is no public secondary trading market for the Company’s shares and the Company does not anticipate that a secondary trading market will develop. The Repurchase Program will be terminated if the Company’s shares are listed on a national securities exchange, included for quotation on a national securities market or if a secondary trading market otherwise develops. The Company will utilize an independent valuation firm to calculate the NAV per share of the Company’s shares on an annual basis commencing December 31, 2016. The Company will report the NAV per share of the common stock in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, in each case as filed with the Commission. The Company will also provide information about its NAV per share on its website (such information may be provided by means of a link to the Company’s public filings on the Commission’s website, www.sec.gov). Shares will be repurchased at a discount to the most recently published NAV (or, if there is no published NAV, $10.00 per share), unless the shares have been held for at least three years, in which case they will be repurchased at a price equal to the most-recently published NAV (or, if there is no published NAV, $10.00 per share). In addition, the Repurchase Program will not purchase shares at a price greater than the then-current public offering price of the common stock at any time that the Company is engaged in a distribution of its common stock (other than a distribution under the Company’s dividend reinvestment program).
(iv) The terms of the offer are firm, rather than negotiable:
The terms of the Repurchase Program are firm.
Page 5
(v) The offer is contingent on the tender of a fixed number of shares:
The Repurchase Program is not contingent on the tender of a fixed number of shares. If the Company cannot repurchase all shares presented for repurchase in any month because of the limitations on repurchases set forth in the Repurchase Program, then the Company will honor repurchase requests on a pro rata basis, except that if a stockholder has requested that the Company repurchase all of the shares hold by such stockholder and a pro rata repurchase would result in such stockholder owning less than 500 shares, then the Company would repurchase all of such stockholder’s shares.
(vi) The offer is open only for a limited period of time:
The Repurchase Program is open for an indefinite period. The risk of manipulation and pressure to sell associated with tender offers subject to limited time frames are not present in the Repurchase Program.
(vii) The offeree is subjected to pressure to sell:
As noted above, the Company will not solicit or encourage stockholders to participate in the Repurchase Program. The Company will not place upon stockholders any pressure to participate in the Repurchase Program. The role of the Company in effectuating purchases under the Repurchase Program will be purely ministerial. The Company acknowledges that some features of the Repurchase Program may to a limited extent encourage or pressure a stockholder to tender shares at a particular time. Stockholders must submit a repurchase request no later than the fifth day of a month in order for their shares to be eligible for purchase during the following month. In addition, if the Company cannot repurchase all shares presented for repurchase in any month because of the limitations on repurchases set forth in the Company’s Repurchase Program, the repurchase of any such shares will be delayed until the purchases may be made in compliance with the limitations. The Company does not believe that these pressures are the types of pressures placed on offerees in a tender offer as contemplated by the Wellman test or for which the Williams Act was intended to address. The limitations in the Repurchase Program may delay the purchase of shares from a stockholder, but will not result in the stockholder being pressured to accept an inadequate price for their shares to avoid the risk of being forced to accept an even lower price at a later date, which is how the pressure to sell arises in connection with a coercive, two-tier tender offer. In addition, the features of the Repurchase Program will be first disclosed to stockholders when they make their initial decision to invest in the Company, rather than at the time of their decision to participate in the Repurchase Program, and any stockholder can withdraw a repurchase request by sending written notice to the administrator of the Repurchase Program, provided such notice is received at least five business days before the repurchase date.
Page 6
(viii)
There is a public announcement of an acquisition program prior to the accumulation of stock by a purchaser followed by a rapid accumulation of a large amount of securities:
The Company has described the Repurchase Program in the Registration Statement, and the Repurchase Program will be described in registration statements and offering materials for future offerings (if any), and when required in filings with the Commission made pursuant to the Exchange Act. The Company will give notice to the stockholders of any amendments to the Repurchase Program by including such information regarding any amendment in a Current Report on Form 8-K or in the Company’s annual or quarterly reports, in each case, as publicly filed with the Commission, or in a separate written notice to its stockholders. As noted above, the purpose of the Repurchase Program is not for the Company to rapidly acquire a large amount of its own securities. The Company has no desire to accumulate a large amount of its securities, as the Company’s purpose is to invest in real estate assets. In addition, the Company is restricted from acquiring shares in an amount that would violate the restrictions on dist