SEC Company Response from MODIV INDUSTRIAL, INC. (MDV, MDV-PA) (CIK 0001645873) (MDV) — Feb 29, 2016
MODIV INDUSTRIAL, INC. (MDV, MDV-PA) (CIK 0001645873)
Date: Feb. 29, 2016 · CIK: 0001645873 · Accession: 0001185185-16-003798
AI Filing Summary & Sentiment
File numbers found in text: 333-205684
Referenced dates: August 11, 2015, February 5, 2016
Letter
VIA EDGAR Division of Corporation Finance Securities and Exchange Commission Rich Uncles REIT, Inc. Amendment No. 6 to Registration Statement on Form S-11 Filed February 26, 2016 File No. 333-205684
Dear Ms. Gowetski:
On behalf of our client, Rich Uncles NNN REIT, Inc. (formerly known as Rich Uncles REIT, Inc.), we are responding to your letter dated February 5, 2016. On February 26, 2016, the Company filed Pre-Effective Amendment No.6 to its Registration Statement on Form S-11. Responses in this letter refer to Amendment No. 6. We enclose five paper copies of Amendment No. 6, marked to show changes from the Amendment No. 4 to Registration Statement on Form S-11 filing made on January 8, 2016 and keyed to comments.
Please also note that we have updated the financial statements for the issuer to its fiscal year ended December 31, 2015, and we have also updated the MD&A accordingly.
General
1. We note your response to comment 8 of our letter dated August 11, 2015, and we reissue the comment. Your existing public website, www.RichUncles.com, does not appear to include disclaimers, restrictive legends or consistent technological measures limiting communications and making it clear that the offering is limited to California residents pursuant to Rule 147 and to non-residents of the United States pursuant to Regulation S. Please revise accordingly and tell us how your existing public website complies with Section 5 of the Securities Act of 1933. Refer to the Securities Act Rules Compliance and Disclosure Interpretations, including Question 141.05 thereof. We may have further comment.
Response: We believe that the technological measures used by the Company assure that only California residents and non-residents of the U.S. are able to review the website in detail and access the subscription pages. We also believe that given the likely use of the website on “small screen” media such as smart phones and computer notebooks, the disclosures prohibiting sales to non-residents of California provide sufficient protection against use by non-residents. The Company has been selling its common stock using its website since 2012, and the Company believes that it does not have any investors who are not residents of California.
We are aware that recently, in January, one of the electronic filters used by the Company’s software to screen out non-residents failed to operate for a period of time. We had this pointed out to us by a member of the New Mexico Securities Division staff who was able to get into the website, though she was unable to fill out a subscription agreement because a second filter identified her as a non-California resident. The Company immediately contacted its software developer who fixed the problem and turned on the non-resident filter as soon as we found out about it. The Company does not believe that this failure could have existed for more than a few days. Despite this failure, no non-California residents invested in the offering. The Company views this as an unfortunate error, which coincidently demonstrates the effectiveness of its redundant system to filter out non-California residents.
Securities and Exchange Commission
February 29, 2016
Page 2
2. We further note the proposed website submitted by you as sales literature on January 11, 2016. The proposed website appears to be substantially identical to your existing public website, www.RichUncles.com, and includes projected cash distributions and returns as well as information regarding properties that you do not own. Please revise your proposed website to be consistent with the representations in the prospectus and present a balanced discussion of the both the risk and reward of an investment. Please refer to Industry Guide 5 and CF Disclosure Guidance: Topic No. 3 at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic3.htm. We may have further comment.
Response: The Company will revise and resubmit the proposed website presentation. Until the Company has submitted the revised website material and it has been reviewed by the staff, we will not use the website to sell securities or make it available for review by investors.
3. Please provide a narrative summary of the prior performance of programs sponsored by your sponsor that invested primarily in real estate. In your response, please include all relevant disclosure required by Section 8.A of Industry Guide 5. Additionally, please balance your disclosure in this section by including a discussion of the major adverse business developments experienced by any prior program of your sponsor. Refer to Section 8.A(2) of Industry Guide 5.
Response: We have included a narrative summary of prior performance in Appendix C of Amendment Number 6 to the Form S-11. A copy of Appendix C is attached to this letter for ease of reference. The Sponsor and Advisor do not believe that there have been major adverse business developments experienced by either prior program.
4. We note your response to comment 4 of our letter. We disagree that your repurchase program is similar to those granted relief in the letters you referenced in your response. We note, among other things, that your program appears to have no limit on the number of shares that could be repurchased other than by reference to the funds available to you, that you intend to purchase more shares than those requested to be purchased by holders who would have fewer than 500 shares subsequent to the repurchase requested, and that it is unclear what the periods are for making a request and withdrawing a request for repurchase. Please advise or revise.
Response: See pages 98 and 99 and Exhibit 4.3. We have revised the terms of the repurchase program and the description of the repurchase program in the prospectus to reflect the Staff’s comment number 4 and our discussions with the Staff. We have added a limit to the number of shares that may be repurchased. The limit is an annual limitation of 5% of our outstanding shares. The Company will measure such limitation on a trailing 12 calendar months basis, such that the number of shares that the Company may repurchase during any 12 calendar month period does not exceed 5% of the number of shares outstanding as of the last day of such 12 month period. We have eliminated the provisions that would allow the Company to purchase more shares than those requested to be purchased by holders who would own fewer than 500 shares subsequent to the repurchase request. In addition, we have more clearly provided that a request for repurchase in any particular month must be received at least five business days prior to the end of the month, and that a request to withdraw a previously submitted request for repurchase must be received at least five business days prior to the end of the month.
Estimated Use of Proceeds, page 35
5. We note your response to comment 5 of our letter. We further note the disclosure in the fee tables starting on pages 3 and 44 relating to “Estimated Amount Paid in First Year of Operations (Assuming 5,000,000 Shares Are Sold).” Please note that Industry Guide 5 references the inclusion of the maximum and minimum proceeds of the offering. Calculations that show the amount of fees or other benefits to be paid to the advisor and its affiliates should be based on the total amount registered. Please revise accordingly.
Response: We deleted columns presenting the estimated sales amounts in the first year from the Estimated Use of Proceeds section (see page 35) and from the estimated fee tables (see pages 3-5 and 44-46).
Compensation, page 44
6. We note your response to comment 7 of our letter. Please revise your disclosure to include the information set forth in your supplemental response. Please also tell us with a view toward disclosure how you considered any conflicts of interest relating to the board’s ability to make the final determination on your net asset value in light of the subordinated participation in distributions.
Response: See pages 49 and 50. Your prior comment 7 indicated that we should revise the prospectus to clarify how distributions to the shareholders may impact the calculation of the subordinated participation interest as it appears fees and reimbursements could be deferred to increase cash flow from operations. We have revised the prospectus to include the requested disclosure.
Securities and Exchange Commission
February 29, 2016
Page 3
In addition, we advise you that we have considered the potential for a conflict of interest relating to the board’s ability to make the final determination regarding the Company’s NAV in light of the subordinated participation in distributions that may be paid to the advisor. In order to address the risks related to the potential for a conflict of interest, we have provided that our conflicts committee, which is comprised of the independent members of our board of directors, must approve the terms of the advisory agreement. See pages 54 and 55. In order to be considered independent under our articles of incorporation, a director may not own an interest in the sponsor, advisor or any of their affiliates; be employed by the sponsor, advisor or any of their affiliates; be an officer or director of the sponsor, advisor or any of their affiliates; or have any material business or professional relationship with the sponsor, advisor or any of their affiliates. See pages 36 and 54 and Section 3.1.11 of the Company’s Articles of Incorporation filed as Exhibit 3.1. Four out of seven of the Company’s directors are independent. See pages 36, 37, 38 and 39.
Further, our articles of incorporation provide that the advisory agreement may not have a term that is longer than one year term, any renewal of the advisory agreement must be approved by the independent directors and the independent directors must evaluate the performance of the advisor before renewing the advisory agreement. See pages 43, 54 and 55 and Section 5.11.4 of the Company’s Articles of Incorporation filed as Exhibit 3.1. Finally, our NAV and NAV per share calculations must be approved by our board of directors, including a majority of our independent directors. See pages 4, 45 and 47 – 50. We believe that by requiring these independent director approvals we have eliminated the potential for a conflict of interest with respect to the terms of the advisory agreement, including the terms of the subordinated participation in distributions that may be payable to the advisor.
The amount of the subordinated participation is related to calculations of NAV. Our board of directors, including the majority of our independent directors, will calculate NAV. See pages 47 and 49. In calculating NAV, the board of directors will rely on valuations of its assets prepared by a valuation firm that will be independent from the advisor. See pages 47 – 49. We believe that using a valuation firm that is independent from the advisor to assist with valuing the assets that will be included in the calculation of NAV and placing the ultimate responsibility for calculation of NAV with the board of directors, including the majority of our four independent directors, eliminates the potential for a conflict of interest relating to the board’s determination of NAV and the effect of that determination upon the subordinated participation in distributions that may be paid to the advisor.
7. Please disclose whether you may increase the compensation and fees payable to your advisor and its affiliates, including your sponsor, without the consent of your stockholders.
Response: We have added the requested disclosure on pages 4 and 45.
Calculation of Net Asset Value Per Share, page 47
In response to the following comments 8 – 10, we have completely revised the section on Calculation of Net Asset Value Per Share and renamed it Valuation Policies. Our responses should be read in conjunction with the Valuation Policies, which we reproduce here in its entirety for ease of reference. In the section reproduced below, we have numbered the paragraphs in order to refer to specific disclosures in answering comments 8 – 10.
Valuation Policies
1. Our board of directors, including a majority of our independent directors, will calculate NAV annually in January as of December 31 of the prior year, beginning with the year ending December 31, 2016. The NAV calculation will reflect the total value of all of our assets minus the total value of all our liabilities. Prior to year-end 2016 and annually thereafter, our board of directors will retain a nationally or regionally recognized independent valuation firm. The valuation firm will be provided with access to all of the information in our possession about our commercial real estate investments and other financial information that it may deem relevant to the discharge of its responsibilities. The compensation we pay to the valuation firm will not be based on the estimated values of our assets and our liabilities. Our valuation firm will not be affiliated with us, or with our advisor or its affiliates. The valuation firm will discharge its responsibilities under the oversight of our board of directors and in accordance with valuation guidelines to be adopted by our board of directors prior to the engagement of the valuation firm. Our board of directors may change the valuation firm at any time by majority vote (including a majority vote of our independent directors).
2. Our board of directors, including a majority of our independent directors, will adopt valuation guidelines to be used by our valuation firm in connection with estimating the values of our real estate assets and liabilities. These valuations will be one of several components to be used by our valuation firm in its calculation of our NAV per share. Our valuation firm will periodically review our valuation guidelines and methodologies with our advisor and our board of directors. Any changes to our valuation guidelines will require the approval of our board of directors, including a majority of our independent directors. We will publicly announce any changes to the identity or role of the valuation firm or material changes to our valuation guidelines in reports we file with the SEC and/or via our website.
Securities and Exchange Commission
February 29, 2016
Page 4
3. In conducting its investigation and analyses, our valuation firm will take into account such accepted financial and commercial procedures and considerations as it deems relevant, which may include, without limitation, the review of documents, materials and information provided by us to the valuation firm. In connection with its review, while the valuation firm may review the information supplied or otherwise made available to it by us for reasonableness, the valuation firm will assume and rely upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to it by any other party, and will not undertake any duty or responsibility to verify independently any of such information. With respect to operating or financial information and data to be provided to or otherwise to be reviewed by or discussed with our valuation firm, our valuation firm will assume that such information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management, board of directors and advisor, and will rely upon us to advise our valuation firm promptly if any information previously provided becomes inaccurate or was required to
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richuncles-corresp022916.htm
STRASBURGER & PRICE, LLP
720 Congress Avenue, Suite 700
Austin, Texas 78701
512-499-3600
Lee.Polson@strasburger.com
February 29, 2016
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.
Amendment No. 6 to Registration Statement on Form S-11
Filed February 26, 2016
File No. 333-205684
Dear Ms. Gowetski:
On behalf of our client, Rich Uncles NNN REIT, Inc. (formerly known as Rich Uncles REIT, Inc.), we are responding to your letter dated February 5, 2016. On February 26, 2016, the Company filed Pre-Effective Amendment No.6 to its Registration Statement on Form S-11. Responses in this letter refer to Amendment No. 6. We enclose five paper copies of Amendment No. 6, marked to show changes from the Amendment No. 4 to Registration Statement on Form S-11 filing made on January 8, 2016 and keyed to comments.
Please also note that we have updated the financial statements for the issuer to its fiscal year ended December 31, 2015, and we have also updated the MD&A accordingly.
General
1. We note your response to comment 8 of our letter dated August 11, 2015, and we reissue the comment. Your existing public website, www.RichUncles.com, does not appear to include disclaimers, restrictive legends or consistent technological measures limiting communications and making it clear that the offering is limited to California residents pursuant to Rule 147 and to non-residents of the United States pursuant to Regulation S. Please revise accordingly and tell us how your existing public website complies with Section 5 of the Securities Act of 1933. Refer to the Securities Act Rules Compliance and Disclosure Interpretations, including Question 141.05 thereof. We may have further comment.
Response: We believe that the technological measures used by the Company assure that only California residents and non-residents of the U.S. are able to review the website in detail and access the subscription pages. We also believe that given the likely use of the website on “small screen” media such as smart phones and computer notebooks, the disclosures prohibiting sales to non-residents of California provide sufficient protection against use by non-residents. The Company has been selling its common stock using its website since 2012, and the Company believes that it does not have any investors who are not residents of California.
We are aware that recently, in January, one of the electronic filters used by the Company’s software to screen out non-residents failed to operate for a period of time. We had this pointed out to us by a member of the New Mexico Securities Division staff who was able to get into the website, though she was unable to fill out a subscription agreement because a second filter identified her as a non-California resident. The Company immediately contacted its software developer who fixed the problem and turned on the non-resident filter as soon as we found out about it. The Company does not believe that this failure could have existed for more than a few days. Despite this failure, no non-California residents invested in the offering. The Company views this as an unfortunate error, which coincidently demonstrates the effectiveness of its redundant system to filter out non-California residents.
Securities and Exchange Commission
February 29, 2016
Page 2
2. We further note the proposed website submitted by you as sales literature on January 11, 2016. The proposed website appears to be substantially identical to your existing public website, www.RichUncles.com, and includes projected cash distributions and returns as well as information regarding properties that you do not own. Please revise your proposed website to be consistent with the representations in the prospectus and present a balanced discussion of the both the risk and reward of an investment. Please refer to Industry Guide 5 and CF Disclosure Guidance: Topic No. 3 at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic3.htm. We may have further comment.
Response: The Company will revise and resubmit the proposed website presentation. Until the Company has submitted the revised website material and it has been reviewed by the staff, we will not use the website to sell securities or make it available for review by investors.
3. Please provide a narrative summary of the prior performance of programs sponsored by your sponsor that invested primarily in real estate. In your response, please include all relevant disclosure required by Section 8.A of Industry Guide 5. Additionally, please balance your disclosure in this section by including a discussion of the major adverse business developments experienced by any prior program of your sponsor. Refer to Section 8.A(2) of Industry Guide 5.
Response: We have included a narrative summary of prior performance in Appendix C of Amendment Number 6 to the Form S-11. A copy of Appendix C is attached to this letter for ease of reference. The Sponsor and Advisor do not believe that there have been major adverse business developments experienced by either prior program.
4. We note your response to comment 4 of our letter. We disagree that your repurchase program is similar to those granted relief in the letters you referenced in your response. We note, among other things, that your program appears to have no limit on the number of shares that could be repurchased other than by reference to the funds available to you, that you intend to purchase more shares than those requested to be purchased by holders who would have fewer than 500 shares subsequent to the repurchase requested, and that it is unclear what the periods are for making a request and withdrawing a request for repurchase. Please advise or revise.
Response: See pages 98 and 99 and Exhibit 4.3. We have revised the terms of the repurchase program and the description of the repurchase program in the prospectus to reflect the Staff’s comment number 4 and our discussions with the Staff. We have added a limit to the number of shares that may be repurchased. The limit is an annual limitation of 5% of our outstanding shares. The Company will measure such limitation on a trailing 12 calendar months basis, such that the number of shares that the Company may repurchase during any 12 calendar month period does not exceed 5% of the number of shares outstanding as of the last day of such 12 month period. We have eliminated the provisions that would allow the Company to purchase more shares than those requested to be purchased by holders who would own fewer than 500 shares subsequent to the repurchase request. In addition, we have more clearly provided that a request for repurchase in any particular month must be received at least five business days prior to the end of the month, and that a request to withdraw a previously submitted request for repurchase must be received at least five business days prior to the end of the month.
Estimated Use of Proceeds, page 35
5. We note your response to comment 5 of our letter. We further note the disclosure in the fee tables starting on pages 3 and 44 relating to “Estimated Amount Paid in First Year of Operations (Assuming 5,000,000 Shares Are Sold).” Please note that Industry Guide 5 references the inclusion of the maximum and minimum proceeds of the offering. Calculations that show the amount of fees or other benefits to be paid to the advisor and its affiliates should be based on the total amount registered. Please revise accordingly.
Response: We deleted columns presenting the estimated sales amounts in the first year from the Estimated Use of Proceeds section (see page 35) and from the estimated fee tables (see pages 3-5 and 44-46).
Compensation, page 44
6. We note your response to comment 7 of our letter. Please revise your disclosure to include the information set forth in your supplemental response. Please also tell us with a view toward disclosure how you considered any conflicts of interest relating to the board’s ability to make the final determination on your net asset value in light of the subordinated participation in distributions.
Response: See pages 49 and 50. Your prior comment 7 indicated that we should revise the prospectus to clarify how distributions to the shareholders may impact the calculation of the subordinated participation interest as it appears fees and reimbursements could be deferred to increase cash flow from operations. We have revised the prospectus to include the requested disclosure.
Securities and Exchange Commission
February 29, 2016
Page 3
In addition, we advise you that we have considered the potential for a conflict of interest relating to the board’s ability to make the final determination regarding the Company’s NAV in light of the subordinated participation in distributions that may be paid to the advisor. In order to address the risks related to the potential for a conflict of interest, we have provided that our conflicts committee, which is comprised of the independent members of our board of directors, must approve the terms of the advisory agreement. See pages 54 and 55. In order to be considered independent under our articles of incorporation, a director may not own an interest in the sponsor, advisor or any of their affiliates; be employed by the sponsor, advisor or any of their affiliates; be an officer or director of the sponsor, advisor or any of their affiliates; or have any material business or professional relationship with the sponsor, advisor or any of their affiliates. See pages 36 and 54 and Section 3.1.11 of the Company’s Articles of Incorporation filed as Exhibit 3.1. Four out of seven of the Company’s directors are independent. See pages 36, 37, 38 and 39.
Further, our articles of incorporation provide that the advisory agreement may not have a term that is longer than one year term, any renewal of the advisory agreement must be approved by the independent directors and the independent directors must evaluate the performance of the advisor before renewing the advisory agreement. See pages 43, 54 and 55 and Section 5.11.4 of the Company’s Articles of Incorporation filed as Exhibit 3.1. Finally, our NAV and NAV per share calculations must be approved by our board of directors, including a majority of our independent directors. See pages 4, 45 and 47 – 50. We believe that by requiring these independent director approvals we have eliminated the potential for a conflict of interest with respect to the terms of the advisory agreement, including the terms of the subordinated participation in distributions that may be payable to the advisor.
The amount of the subordinated participation is related to calculations of NAV. Our board of directors, including the majority of our independent directors, will calculate NAV. See pages 47 and 49. In calculating NAV, the board of directors will rely on valuations of its assets prepared by a valuation firm that will be independent from the advisor. See pages 47 – 49. We believe that using a valuation firm that is independent from the advisor to assist with valuing the assets that will be included in the calculation of NAV and placing the ultimate responsibility for calculation of NAV with the board of directors, including the majority of our four independent directors, eliminates the potential for a conflict of interest relating to the board’s determination of NAV and the effect of that determination upon the subordinated participation in distributions that may be paid to the advisor.
7. Please disclose whether you may increase the compensation and fees payable to your advisor and its affiliates, including your sponsor, without the consent of your stockholders.
Response: We have added the requested disclosure on pages 4 and 45.
Calculation of Net Asset Value Per Share, page 47
In response to the following comments 8 – 10, we have completely revised the section on Calculation of Net Asset Value Per Share and renamed it Valuation Policies. Our responses should be read in conjunction with the Valuation Policies, which we reproduce here in its entirety for ease of reference. In the section reproduced below, we have numbered the paragraphs in order to refer to specific disclosures in answering comments 8 – 10.
Valuation Policies
1. Our board of directors, including a majority of our independent directors, will calculate NAV annually in January as of December 31 of the prior year, beginning with the year ending December 31, 2016. The NAV calculation will reflect the total value of all of our assets minus the total value of all our liabilities. Prior to year-end 2016 and annually thereafter, our board of directors will retain a nationally or regionally recognized independent valuation firm. The valuation firm will be provided with access to all of the information in our possession about our commercial real estate investments and other financial information that it may deem relevant to the discharge of its responsibilities. The compensation we pay to the valuation firm will not be based on the estimated values of our assets and our liabilities. Our valuation firm will not be affiliated with us, or with our advisor or its affiliates. The valuation firm will discharge its responsibilities under the oversight of our board of directors and in accordance with valuation guidelines to be adopted by our board of directors prior to the engagement of the valuation firm. Our board of directors may change the valuation firm at any time by majority vote (including a majority vote of our independent directors).
2. Our board of directors, including a majority of our independent directors, will adopt valuation guidelines to be used by our valuation firm in connection with estimating the values of our real estate assets and liabilities. These valuations will be one of several components to be used by our valuation firm in its calculation of our NAV per share. Our valuation firm will periodically review our valuation guidelines and methodologies with our advisor and our board of directors. Any changes to our valuation guidelines will require the approval of our board of directors, including a majority of our independent directors. We will publicly announce any changes to the identity or role of the valuation firm or material changes to our valuation guidelines in reports we file with the SEC and/or via our website.
Securities and Exchange Commission
February 29, 2016
Page 4
3. In conducting its investigation and analyses, our valuation firm will take into account such accepted financial and commercial procedures and considerations as it deems relevant, which may include, without limitation, the review of documents, materials and information provided by us to the valuation firm. In connection with its review, while the valuation firm may review the information supplied or otherwise made available to it by us for reasonableness, the valuation firm will assume and rely upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to it by any other party, and will not undertake any duty or responsibility to verify independently any of such information. With respect to operating or financial information and data to be provided to or otherwise to be reviewed by or discussed with our valuation firm, our valuation firm will assume that such information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management, board of directors and advisor, and will rely upon us to advise our valuation firm promptly if any information previously provided becomes inaccurate or was required to