Q4 2025 Modiv Industrial Inc Earnings Call

March 25, 2026

Operator 1: Good day, and welcome to Modiv Industrial, Inc. Q4 2025 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks, and then we will open up the call for your questions. To ask a question, analysts may press star then the number one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then the number two. Please note this event is being recorded. I would now like to turn the conference over to Sarah Gresham, Chief Accounting Officer. Please go ahead.

Speaker #2: On today's call, management will provide prepared remarks, and then we will open up the call for your questions. To ask a question, analysts may press star, then the number 1 on your touch-tone phone.

Speaker #2: If you're using a speakerphone, please pick up your headset before pressing any key. And to withdraw your question, please press star (*) then the number 2.

Speaker #2: Please note, this event is being recorded. I would now like to turn the conference over to Sarah Grisham, Chief Accounting Officer. Please go ahead.

Speaker #2: Thank you, Operator, and thank you, everyone, for joining us for MODIV INDUSTRIAL's fourth quarter and full year 2025 earnings call. We issued our earnings release after market closed today, and it's available on our website at modiv.com.

Sarah Gresh: Thank you, operator, and thank you everyone for joining us for Modiv Industrial's Q4 and full year 2025 earnings call. We issued our earnings release after market close today, and it's available on our website at modiv.com. I'm here today with Aaron Halfacre, Chief Executive Officer, Ray Pacini, Chief Financial Officer, and John Raney, Chief Operating Officer and General Counsel. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words or phrases. Statements that are not historical facts, such as statements about our expected acquisitions and dispositions and business plans, are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements.

Speaker #2: I'm here today with Aaron Halfacre, Chief Executive Officer; Ray Pacini, Chief Financial Officer; and John Raney, Chief Operating Officer and General Counsel. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the Federal Securities Laws.

Speaker #2: Forward-looking statements are identified by words such as 'will be,' 'intend,' 'believe,' 'expect,' 'anticipate,' or other comparable words or phrases. Statements that are not historical facts, such as statements about our expected acquisitions and dispositions and business plans, are also forward-looking statements.

Speaker #2: Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings including our reports on Form 10-K and 10-Q.

Sarah Gresh: Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would like to turn the call over to Aaron. Aaron, please go ahead.

Speaker #2: With that, I would like to turn the call over to Aaron. Aaron, please go ahead.

Speaker #3: Thanks, Sarah. Hello, everyone. I hope you're doing well. Crazy times, so I know I'm looking forward to this call—I’m sure you are too.

Aaron Halfacre: Thanks, Sarah. Hello, everyone. Hope you're doing well. Crazy times. I know I'm looking forward to this call, and I'm sure you are too. You know, let me start off by saying, you know, Sarah just read the standard preamble that everyone has. It talks about forward-looking statements. You know, I spend the vast majority of my time thinking about forward things. The historical things and the things that are measured, the accounting, are really important. I just, this is a poignant time because this is going to be Ray's last earnings call, even though Ray's gonna be with us for, you know, the remainder of the year. This is his last official earnings call, and John's gonna be taking over the helm. I just really want to speak and thank our team.

Speaker #3: Let me start off by saying Sarah just read the standard preamble that everyone has, that talks about forward-looking statements. And I spend the vast majority of my time thinking about forward things.

Speaker #3: But the historical things, and the things that are measured—the accounting—are really important. And I just, this is a poignant time because this is going to be Ray's last earnings call, even though Ray's going to be with us for the remainder of the year.

Speaker #3: This is his last official earnings call, and John’s going to be taking over the helm. I just really want to speak and thank our team.

Speaker #3: So Sarah, John, Winnie, Lamont, Jason, all the accounting team, in particular, which is candidly more than half of our company. Does such a good job, and they make my job easier so I can spend all this time talking about the forward thinking things and dealing with these things that don't always have measurable outcomes.

Aaron Halfacre: Sarah, John, Winnie, Lamont, Jason, all the accounting team in particular, which is handily more than half of our company, does such a good job, and they make my job easier, so I can spend all this time talking about the forward thinking things and dealing with these things that, you know, don't always have measurable outcomes. That messy part of it that I do is that much easier because of how good they are. I appreciate that they're all here and just wanted to welcome Sarah to the call. Even though she's always been there in the background, she's gonna be part of the call now, along with John going forward, and of course, Ray. With that, let me sort of shifting gears.

Speaker #3: And that messy part of it that I do is that much easier because of how good they are. So I appreciate that they're all here and just wanted to welcome Sarah to the call, even though she's always been there in the background.

Speaker #3: She’s going to be part of the call now, along with John going forward, and of course, Ray. So with that, let me sort of shift gears. I’m sure we’re going to have a whole host of interesting questions.

Aaron Halfacre: I'm sure we're gonna have, you know, a whole host of interesting questions. I have no idea if I can answer your interesting questions, but I will do my best. First, let's let Ray have the stage and do his thing. Ray.

Speaker #3: I have no idea if I can answer your interesting questions, but I will do my best. But first, let's let Ray have the stage and do his thing.

Speaker #3: Ray?

Speaker #4: Thank you, Aaron. I'll begin with an overview of our fourth quarter operating results. Rental income for the fourth quarter was $11.0 million, compared with $11.7 million in the prior year period.

Ray Pacini: Thank you, Aaron. I'll begin with an overview of our Q4 operating results. Rental income for the Q4 was $11 million, compared with $11.7 million in the prior year period. The decrease in rental income reflects expiration of our lease with Costco on our office property in Issaquah, Washington, which was sold to KB Home on 15 December 2025, and expiration of our lease with Solar Turbines on an office property in San Diego, California, which we plan to market for sale upon receiving approval from the city of San Diego for a lot split. Q4 adjusted funds from operations, or AFFO, was $4 million compared to $4.1 million in the year ago quarter.

Speaker #4: The decrease in rental income reflects the expiration of our lease with Costco on our office property in Issaquah, Washington, which was sold to KB Home on December 15, 2025.

Speaker #4: And expiration of our lease with Solar Turbines on an office property in San Diego, California, which we plan to market for sale upon receiving approval from the City of San Diego for a lot split.

Speaker #4: Fourth quarter adjusted funds from operations, or AFFO, was $4.0 million, compared to $4.1 million in the year-ago quarter. The $30,000 decrease in AFFO reflects a $554,000 decrease in cash rents, which was partially offset by a $299,000 decrease in cash interest expense, a $138,000 decrease in preferred stock dividends, a $40,000 decrease in property expenses, and a $15,000 decrease in G&A.

Ray Pacini: The $30,000 decrease in AFFO reflects a $554,000 decrease in cash rents, which was partially offset by a $299,000 decrease in cash interest expense, a $138,000 decrease in preferred stock dividends, a $40,000 decrease in property expenses, and a $15,000 decrease in G&A. AFFO per share decreased from $0.37 per share in the prior year period to $0.32 per share for Q4 2025. The decrease in AFFO per share was primarily due to a 1.7 million share increase in diluted shares outstanding, which reflects previously disclosed issuance of operating partnership units during Q1 2025, along with the issuance of common shares in our ATM and distribution reinvestment plan.

Speaker #4: AFFO per share decreased from $0.37 per share in the prior year period to $0.32 per share for the fourth quarter of 2025.

Speaker #4: The decrease in AFFO per share was primarily due to a 1.7 million share increase in diluted shares outstanding, which reflects previously disclosed issuance of operating partnership units during the first quarter of 2025, along with the issuance of common shares in our ATM and distribution reinvestment plan.

Ray Pacini: Interest expense for the quarter was $1.1 million higher than the comparable period of 2024, primarily due to amortization of off-market interest rate swaps. With respect to our balance sheet liquidity, as of 31 December 2025, total cash and cash equivalents were $14.4 million, and we have $30 million available to draw on a revolver. Our $262.1 million in consolidated debt outstanding consists of a $12.1 million mortgage on one property, excluding a $12.1 million mortgage on the Santa Clara property that was owned by tenants in common and therefore not consolidated as of 31 December 2025, and $250 million of outstanding borrowings on our $280 million credit facility.

Speaker #4: Interest expense for the quarter was $1.1 million higher than the comparable period of 2024, primarily due to amortization of off-market interest rate swaps. With respect to our balance sheet and liquidity, as of December 31, 2025, total cash and cash equivalents were $14.4 million, and we had $30 million available to draw on a revolver.

Speaker #4: Our $262.1 million of consolidated debt outstanding consists of a $12.1 million mortgage on one property, excluding a $12.1 million mortgage on the Santa Clara property that was owned by tenants in common and therefore not consolidated as of December 31, 2025.

Speaker #4: And $250 million of outstanding borrowings on our $280 million credit facility. Following the January 2026 extension of our credit facility, we do not have any outstanding debt maturities until July 2028.

Ray Pacini: Following the January 2026 extension of our credit facility, we do not have any outstanding debt maturities until July 2028. Based on interest rate swap agreements we entered into in January 2026, 100% of our indebtedness as of 31 December 2025 held a fixed interest rate with a weighted average interest rate of 4.15% based on our leverage ratio of 45.1% at quarter end and the January amendment to our credit facility. I'll now turn the call back over to Aaron.

Speaker #4: Based on interest rate swap agreements we entered into in January 2026, 100% of our indebtedness as of December 31, 2025, held a fixed interest rate with a weighted average interest rate of 4.15%. Based on our leverage ratio of 45.1% at quarter end.

Speaker #4: And the January amendment to our credit facility. I'll now turn the call back over to Aaron.

Speaker #3: Thanks, Ray. Let's just operate. Let's just go to questions. It'll just be easier.

Aaron Halfacre: Thanks, Ray. Operator, let's just go to questions. It'll just be easier.

Speaker #5: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have any questions, please press star followed by one on your telephone keypad.

Operator 1: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star four point one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press star four point two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead.

Speaker #5: You will hear a prompt at your hand has been raised, and should you wish to cancel your request, please press star followed by the two.

Speaker #5: If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. And your first question comes from the line of Garab Mepa from Alliance Global Partners.

Speaker #5: Please go ahead.

Speaker #6: Yeah, thank you. I wanted to ask you, I think in your in the press release, you talk about receiving multiple offers and spending some time on one of those.

Gaurav Mehta: Yeah, thank you. I wanted to ask you. I think in your in the press release you talk about receiving multiple offers and spending some time on one of those and in the end not pursuing it. Just want to get some more color on, you know, what those reasons were for not pursuing the offer?

Speaker #6: And in the end, not pursuing it. So, just wanted to get some more color on what those reasons were for not pursuing the offer.

Aaron Halfacre: I figured you'd ask that. You know, I don't really have an answer that I can give you other than to say that, you know, we at that moment didn't see a secure path forward, so we stepped back from discussions. You know, I think fundamentally the vast majority of the stuff there was good. It just that, you know, our job is to protect our investors and to make sure that we have, you know, put forward the requests that we need to make sure that our investors are gonna get what they're gonna get. You know, it was just a process. I think that it was a generally positive exchange.

Speaker #3: I figured you'd ask that, and I don't really have an answer that I can give you, other than to say that we, at that moment, didn't see a secure path forward.

Speaker #3: So, we stepped back from discussions. And I think that, fundamentally, the vast majority of the stuff there was good. It's just that our job is to protect our investors and to make sure that we have put forward the requests that we need to make sure that our investors are going to get what they're going to get.

Speaker #3: And it was just a process. I think that it was a generally positive exchange. And sometimes these things happen. Where it's just like it's not quite flowing.

Aaron Halfacre: Sometimes these things happen, where, you know, it's just like, you know, it's not quite flowing. That's about all I can say. It doesn't give you much. As it relates to that, we just, in that particular moment, we didn't see a secure path forward, so we stepped back from discussions.

Speaker #3: So that's about all I could say. It doesn't give you much. But as it relates to that, we just—in that particular moment—we didn't see a secure path forward.

Speaker #3: And so, we stepped back from discussions.

Speaker #6: All right, thanks for that color. Maybe on 2026, I was wondering, as far as asset recycling, should we expect any—are you guys expecting to sell any assets this year?

Gaurav Mehta: All right. Thanks for that color. Maybe on 2026, I was wondering, you know, as far as asset recycling, should we expect any? Are you guys expecting to sell any assets this year? Maybe some comments on the acquisition environment as you guys are seeing.

Speaker #6: And then maybe some comments on the acquisition environment that you guys are seeing?

Speaker #3: So yeah, on a go-forward basis, the recycling will, as I mentioned in January, start to pick up in earnest. I'd say the stuff that's happened in the last two or three weeks, it might—it's going to cause—it's hard, right?

Aaron Halfacre: On a go-forward basis, the recycling will, as I mentioned in January, start to pick up in earnest. I'd say, you know, the stuff that's happened in the last two or three weeks is going to cause. It's hard, right? It's hard for our pipelines, it's hard for dispositions because you've got rates just gyrating all over, and that just really stings confidence for buyers and sellers in general. And I think, you know, appetite is always there, but it's hard. It's just hard. You know, if you're a buyer, you're pricing in a huge margin of safety, because, you know, you could be wrong.

Speaker #3: It's hard for our pipelines. It's hard for dispositions because you've got rates just gyrating all over, and that just really stings confidence for buyers and sellers in general.

Speaker #3: And I think appetite is always there, but it's hard. It's just hard. If you're a buyer, you're pricing in a huge margin of safety.

Speaker #3: Because you could be wrong. And if you're a seller, you don't want to sell and do a deal that you would regret. Literally 30 days later, right?

Aaron Halfacre: If you're a seller, you know, you don't want to sell and you know do a deal that you would regret literally 30 days later, right? The landscape has changed a lot. I think the near term is, it's a little bit harder, a little bit cloudier. Candidly, it's not any different than before. Let's assume that the trend long term, barring $200 barrels of oil, is that we will eventually find REITs returning to favor, right? I think all of us here on the call probably presume this at some point. It's certainly been long in the tooth, and we would have liked to seen it sooner, but this is a narrative we have. We will continue on our recycling.

Speaker #3: And so the landscape has changed a lot. So I think in the near term, it's a little bit harder, a little bit cloudier, but candidly, it's not any different than before.

Speaker #3: But let's assume that the trend—long-term borrowing, $200 barrels of oil—is that we will eventually find REITs returning to favor, right? I think all of us here on the call probably presume this.

Speaker #3: At some point, it's certainly been long in the tooth. And we would have liked to have seen it sooner, but this is the narrative we have.

Speaker #3: So, we will continue on our recycling. I think the way we're thinking about the recycling in this is a couple of different phases. The first phase is really looking at—we have some non-core assets, particularly office.

Aaron Halfacre: I think the way we're thinking about the recycling in this is a couple different phases. The first phase is really looking at, like, we have some non-core assets, particularly office. Those we're gonna get rid of those, right? There's only two office properties we have. One is Solar, which, as you know, went. Or not Solar, it's the property in San Diego that was formerly leased to Solar Turbines. They left the end of September. That's why we had a little bit of fall off, which is inevitable in, you know, rents in Q4. That property is a great property to sell to an owner-user. We've actually had quite a bit of interest for it. The interest has been above the appraised value of the property.

Speaker #3: Those are going to get—we're going to get rid of those, right? There's only two office properties we have. One is Solar, which, as you know, went the—or not Solar.

Speaker #3: It's the property in San Diego that was formerly leased to Solar Turbines. They left the end of September. That's why we had a little bit of falloff, which is inevitable in rents in the fourth quarter.

Speaker #3: That property is a great property to sell to an owner-user. We've actually had quite a bit of interest for it. The interest has been above the appraised value of the property.

Speaker #3: The reason why we haven't sold it yet, or the flip side, the reason why we haven't leased it, is that it was—or it is—on the same technical parcel as our WSP property.

Aaron Halfacre: The reason why we haven't sold it yet, or the flip side, the reason why we haven't leased it, is that it was, or it is on the same technical parcel as our WSP property. They're right next to each other. This is a property that was acquired by the prior legacy team. We've had it. We have been working through the bureaucratic process that is not uncommon in any city, county, or city since 2021. Five years now trying to get that parcel split, so that it has its own parcel, and we can sell it separately. We are so close to that. We are at the final, you know, very detailed scrutiny, like refiling parcel maps. I mean, the little things like ADA slopes on things, all that stuff is done.

Speaker #3: So, they're right next to each other. This is a property that was acquired by the prior legacy team. We've had it. We have been working through the bureaucratic process that is not uncommon in any county or city.

Speaker #3: Since 2021, five years now, trying to get that parcel split in so that it has its own parcel and we can sell it separately.

Speaker #3: We are so close to that. We are at the final, very detailed scrutiny—filing, refiling parcel maps. I mean, the little things, like ADA slopes on things.

Speaker #3: All that stuff is done. We're super close to that. Once we have that in hand, then we will take that property to market. The reason why we haven't leased it is because, look, I think the right user of that is an owner-user or some sort of tenant who might want a five-year lease or might want a gross lease. Or, we want long-term industrial manufacturing tenants.

Aaron Halfacre: We're super close to that. Once we have that in hand, we will take that property to market. The reason why we haven't leased it is because, look, I think the right user of that is an owner user or some sort of, you know, some sort of tenant who might want a five-year lease or might want a gross lease. We want long-term industrial manufacturing tenants on that lease basis. That's not gonna fit that box. That box has a better use. We will sell that one. That's an office property. Technically, it's really a flex space. If you look at it now from what it was before, it's like completely an open, clean shell. It's ready to go, right? That'll get sold.

Speaker #3: On that lease basis, you can't—that's not going to fit that box. That box has a better use, so we will sell that one.

Speaker #3: That's an office property technically. It's really a flex space. If you look at it now from when it was before, it's completely open clean shell.

Speaker #3: It's ready to go, right? So that'll get sold. My guess right now, if you were to put a gun to my head, that's like—call it $7 million or $7 to $8 million.

Aaron Halfacre: My guess right now, if you were to put a gun to my head, that's like, call it $7 to 8 million, right? So it's not a huge number. The other office property is OES. OES has this purchase option. Talking to them, they like, there's a blue chip. I mean, that's an investment-grade tenant, but it's a government, right? We think that's a super sticky asset, but it's not a net lease manufacturing asset. So we're going to end it as office. It's a balancing act. We've waited. You know, if we'd sold it two years ago, you know, it probably sell to, like, a 10 cap. I mean, who wants to do that when you've got, you know, really good rent that's coming in? We have to be patient.

Speaker #3: Right? So it's not a huge number. The other office property is OES. OES has this purchase option. We've been talking to them. It's a blue I mean, that's an investment-grade tenant, but it's a government, right?

Speaker #3: That's got—we think that's a super sticky asset, but it's not in that lease manufacturing asset. So we're going to—and it is office.

Speaker #3: It's a balancing act. We've waited. We know if we'd sold it two years ago, it'd probably sell at like a 10 cap. I mean, who wants to do that when you've got really good rent that's coming in?

Speaker #3: And so we have to be patient. But at some point, you're like, okay, you got to should or get off the pot. And so we'll clean that one up.

Aaron Halfacre: At some point you're like, "Okay, you gotta shit or get off the pot." You know, we'll clean that one up and, you know, that'll happen, ideally by the end of the year. We're gonna be thoughtful about the timing. We're not gonna force it, but it's moving forward, so no longer to wait. That's the obvious part. People ask about the Kia dealership. It's a non-core asset. The conundrum with that one, that is a layup to recycle, right? We've seen interest in that one, not offers, but interest at or below the cap rate that it's appraised at. It's a very attractive asset, but it's a big one. You know, it's $70 million, call it, property. That was a 1031.

Speaker #3: And that's what'll happen. Ideally, by the end of the year. I don't—we're going to be thoughtful about the timing. We're not going to force it.

Speaker #3: But it's moving forward, so no longer to wait. So that's the obvious part. People ask about the key of the dealership—it's a non-core asset.

Speaker #3: That one is a the conundrum with that one, that is a layup to recycle, right? We've seen interest in that one, not offers, but interest at or below the cap rate that it's appraised at.

Speaker #3: It's a very attractive asset. But it's a big one. It's $70 million, call it. Property. That was a 1031—I mean, excuse me, an UPREIT transaction from five years ago.

Aaron Halfacre: I mean, excuse me, an UPREIT transaction from about 5 years ago. We have a really low tax basis on that one, so it's super sensitive. If you're gonna sell it, you have to make sure you already know what to buy. To buy, you know, I don't want to buy a $70 million industrial manufacturing facility. I would be better served buying, you know, sort of three $23 million industrial manufacturing facilities and rolling it into it, right? That will be an accretive transaction because, you know, our. We'll talk about the forward pipeline here in a bit. You know, that cap rate that it's selling at, or we would sell it, the Kia, is at least, and if not more, 100 basis points tighter than what we can redeploy it in.

Speaker #3: So we have a really low tax basis on that one. So it's super sensitive. And so if you're going to sell it, you have to make sure you already know what to buy.

Speaker #3: And to buy, I don't want to buy a $70 million industrial manufacturing facility. I would be better served buying, sort of, three $23 million industrial manufacturing facilities.

Speaker #3: And rolling it into it, right? And so that will be an accretive transaction because we'll talk about the Ford pipeline here in a bit.

Speaker #3: But that cap rate, that Ed's selling at, we would sell at the Kia is at least at least, and if not more, 100 basis points tighter than what we can redeploy it in.

Speaker #3: So that would be generated. But we have to line that up because you can't just take it to market. You would get bids, undoubtedly—a lot of those bids would be fast-closing bids.

Aaron Halfacre: That would be generative. We have to line that up because you can't just take it to market. You would get bids undoubtedly. A lot of those bids would be fast-closing bids, and then you would be left with a short window to 1031 designate. We'll be patient on that one in terms of non-core. That'll happen when we find the right target to roll it into. Setting that non-core aside, obviously we move the office, and then from there we have a lot of short wall. Our short wall philosophy is this. We will do our darndest to see if they will extend. We'll have conversations with them. We are starting to have those conversations.

Speaker #3: And then you would be left with a short window to 1031 designate. So we'll be patient on that one in terms of non-core. That'll happen when we find the right target to roll it into.

Speaker #3: So, setting that non-core aside, obviously, we move the office. And then from there, we have a lot of short wall. And our short wall philosophy is this.

Speaker #3: We will do our darndest to see if they will extend. We'll have conversations with them. We are starting to have those conversations. If they're willing to extend, and not just extend like two years, but just really give us something that makes us decide we might want to keep it.

Aaron Halfacre: If they're willing to extend, and not just extend like, you know, 2 years, but they just really give us something that makes us decide we might wanna keep it for longer term. Or if they don't, realizing that, you know, let's just clean up the walls. Even though they're great tenants, I think our goal is, our vision is let's get to a rock solid portfolio long term. We understand that as leases get shorter, and you see this in sort of W. P. Carey, that you get down to the option periods, and CFOs and things like that typically just, they just exercise 5-year renewals, they exercise their option periods. That's normal.

Speaker #3: For longer term, or if they don't, realizing that, let's just clean up the wall. Even though they're great tenants, I think our goal is a vision—let's get to a rock-solid portfolio long term.

Speaker #3: We understand that as leases get shorter—and you see this in sort of O and W carry—you get down to the option periods, and CFOs and things like that typically, they just exercise five-year renewals, five-year renewals.

Speaker #3: They exercise their option periods. That's normal. But we have a period of time right now that we can positively position ourselves by selling certain assets, even if they're shorter WAL, and creating more AFFO by reallocating them into a longer WAL and having a more solid portfolio.

Aaron Halfacre: We have a period of time right now that we can positively take positive arb by selling certain assets, even if they're shorter WAL, and creating, you know, more AFFO by reallocating them into a longer WAL and having a more solid portfolio. We'll spend time this year looking at Northrop was one of those properties. We got an unsolicited offer that came in. It was worth our time, it was worth our energy, but we gave them. We were patient with it. We were not in rush for them to do their due diligence. We were not in rush for them to close because we do need to roll it into a replacement property ideally. There's other uses for it too, and we'll get into that, but we could use that money fungibly. That was one, as an example.

Speaker #3: So, we'll spend time this year looking at Northrop. It was one of those properties. We got an unsolicited offer that came in. It was worth our time.

Speaker #3: It was worth our energy. We gave them— we were patient with it. We were not in a rush for them to do their due diligence.

Speaker #3: We were not in rush for them to close because we do need to roll it into a replacement property ideally. There's other uses for it too.

Speaker #3: And we'll get into that. But we could use that money fungibly. But that was one— that is an example. That's a property that, look, it's a short wall.

Aaron Halfacre: That's a property that, look, it's a short wall. We got an offer that was compelling, and we took it. That, that's on the play. We will see more of that activity. Separate from that phase is we have a few industrial credits that I'd probably like to recycle through. There's nothing wrong with them. They're perfectly fine. They're just smaller. They're less institutional. You know, I think recycling those at the right time, and that might be this year, it might be early next, will allow us to just clean ourselves up that much more. When I say clean up, it doesn't mean we're dirty.

Speaker #3: We got an offer that was compelling, and we took it. So that's on the plate. We will see more of that activity. Separate from that phase is we have a few industrial credits that I would probably like to recycle through.

Speaker #3: There's nothing wrong with them. They're perfectly fine. They're just smaller. They're less institutional. And so they would—I think recycling those at the right time, and that might be this year.

Speaker #3: It might be early next. It will allow us to just clean ourselves up that much more. And when I say clean up, it doesn't mean we're dirty.

Speaker #3: It just means I want to polish it. As best we can because I think the process that we've been through with these offers and the interest and it's helped us say, "Hey, if we do these things and extract the value for our shareholders, then we're going to be in a really solid position." Outside of that, we have a few and I mentioned this before in January, sort of some opportunistic assets that are great assets.

Aaron Halfacre: It just means I wanna polish it as best we can because I think the process that we've been through with these offers and the interest, and it's helped us say, "Hey, like, if we do these things and extract the value for our shareholders, then we're going to be in a really solid position." Outside of that, we have a few, and I mentioned this before in January, sort of some opportunistic assets that are great assets. They may not be manufacturing assets. They're certainly lower cap rate assets that, you know, at the right time, if we got ready or we had clearly identified things to buy, we would roll those as well, right? And so you will see more activity over the courses here.

Speaker #3: They may not be manufacturing assets. They're certainly lower cap rate assets that, at the right time, if we thought ready or we had clearly identified things to buy, we would roll those as well.

Speaker #3: Right? And so, you will see more activity over the course of this year. Barring something bigger and strategic happening, you'll see more activity in the course of this year.

Aaron Halfacre: Barring something bigger and strategic happening, you'll see more activity in the course of this year and next. Those weren't just words, those were actions that we're going to take. I think the interesting thing about all this is they're all, as I mentioned before, they're all tax sensitive in terms of we have low basis. If we don't redeploy them in 1031, investors are going to have, you know, taxable events, and you know, that's not how you're supposed to manage a REIT, so we're trying to be thoughtful about that. The selling of the assets is actually pretty easy. You can have them pretty quickly, and a lot of brokers ready to go.

Speaker #3: And next, we're—not those weren't just words. Those were actions that we're going to take. I think the interesting thing about all this is they're all, as I mentioned before, they're all tax sensitive.

Speaker #3: In terms of, we have low basis. If we don't redeploy them in a 1031, investors are going to have taxable events. And that's just not how you're supposed to manage your REITs.

Speaker #3: We're trying to be thoughtful about that. So, the selling of the assets is actually pretty easy. It could happen pretty quickly, and a lot of brokers are ready to go.

Speaker #3: If you put a property on there, you probably are sold in 60 days if you really wanted to, but comfortably 90. The problem is finding replacement properties that line up.

Aaron Halfacre: If you put a property on there, you probably are sold in 60 days if you really wanted to, but comfortably 90. The problem is finding replacement properties that line up. I'd say over the course of our journey, I've gotten and the team has gotten a lot more selective in the terms of you want really good manufacturing products. So the products that they're manufacturing, it's got to be really good. We've gotten that right. You want to make sure that the lease structure is really good. You want to make sure that the financials of that tenant are really good.

Speaker #3: And I'd say, over the course of our journey, I've gotten, and the team has gotten, a lot more selective in terms of, you want really good manufacturing products.

Speaker #3: So the products that they're manufacturing, it's got to be really good. We've gotten that right. You want to make sure that the lease structure is really good.

Speaker #3: You want to make sure that their financials, of that tenant, are really good. You would ideally like that tenant to only have one source of manufacturing, which is your thing, or you have control of all their manufacturing.

Aaron Halfacre: You would ideally like that tenant to only have one source of manufacturing, which is your thing, or you have control of all their manufacturing, so that you can't get rejection in a bankruptcy proceeding, God willing, if it ever happens, but you're addressing that through credit. You'd also really like to have good location as best as you can, and then on top of that, a good cap rate. Those are a lot of fine wish lists, and you can't be, you know, you can't be the princess and the pea about it. You have to really be compromised in marginal areas if you have to. We don't have to right now, and we've been patient. The pipeline has been episodic. It's been erratic.

Speaker #3: So that you can't get rejection in a bankruptcy proceeding, God willing, if it ever happens. But you're addressing that through credit. And you would also really like to have good location as best as you can.

Speaker #3: And then, on top of that, a good cap rate. Those are a lot of, those are a lot of fine wishlists. And you can't be, you can't be the princess and the pea about it.

Speaker #3: You have to really be compromised in marginal areas if you have to, but we don't have to right now. And we've been patient. But the pipeline has been episodic.

Speaker #3: It's been erratic. We started to see pipeline come out in January. Some of it is just like, sometimes we're still waiting for the OMs.

Aaron Halfacre: We started to see pipeline come out in January, and some of it's just like sometimes we're still waiting for the OMs, right? They're like the OMs haven't come out. Well, why? Because the person on the other end is concerned about selling, right? We might want to be bidding with a margin of safety. They're wanting to sell with security that they know they're going to get. This is a stable ground, and that they go out in the market, they're going to execute on what they think they are, and it's not going to just change on them. It's a little bit of weird timing in that regard. We're looking at our box, the buy box, making sure we're looking.

Speaker #3: Right? They're like, 'And it's like the OMs haven't come out.' Well, why? Because the person on the other end is concerned about selling. Right?

Speaker #3: We might want to be bidding with a margin of safety. They're wanting to—they're wanting to sell with security, that they know they're going to get. This is a stable ground.

Speaker #3: And that they go and go out in the market. They're going to execute on what they think they are, and it's not going to just change on them.

Speaker #3: So it's a little bit of a weird time in that regard. And so we're looking at our box-to-buy box, making sure we're looking—we're looking at a lot of things.

Aaron Halfacre: We're looking at a lot of things. I'd say price talk about overall is interesting. You know, if you go look at the $22.19 NAV per share we have, which, like, everyone has an NAV, right? Some people use a street analyst NAV. Most REITs have an internal NAV of some sort. Our internal NAV happens to be done by a blue chip appraisal firm, Cushman & Wakefield, and they've been doing it for, I don't know, six years. There's consistent history if you go piece it together. You're like, "Eh, appraisals are full of shit," right? They're not real. But they actually are pretty indicative. I would tell you that we have three.

Speaker #3: I'd say price talk overall is interesting. If you go look at the $22.19 NAV per share we have, which everyone has an NAV.

Speaker #3: Right? Some people use a street analyst NAV. Most REITs have an internal NAV of some sort. We have our internal NAV happens to be done by a blue chip appraisal firm.

Speaker #3: Gershwin Wakefield. And they've been doing it for, I don't know, six years. So there's consistent history. We go piece it together. And so you're like, appraisals are full of shit. Right?

Speaker #3: They're not real. But they actually are pretty indicative. I would tell you that we have I can think of three properties in our portfolio in the last six months where we have received unsolicited offers that are at or below the cap our appraisals.

Aaron Halfacre: I can think of three properties in our portfolio in the last six months where we have received unsolicited offers that are at or below the cap rate that is implied in our appraisals. You know, I think we all understand, particularly now in this environment, that there's a fairly large disconnect between private real estate and public real estate, and public real estate is just taking it on the chin repeatedly. We understand that. That $22.19 NAV, I think round numbers is a 6; it's an implied 6.8 cap rate. You know, first you think, well, you're not trading anywhere near that, and we're not. Price talk we've seen, and price talk is maybe like an appraisal. It is indicative of something. Doesn't mean it's transactional, but it's in the range of possible.

Speaker #3: So and we've all I think we all understand, particularly now in this environment, that there's a fairly large disconnect between private real estate and public real estate.

Speaker #3: And public real estate is just taking it on the chin. Repeatedly. So we understand that. So that $22.19 NAV, I think, round numbers, is an implied 6–8 cap rate.

Speaker #3: At first, you're just like, 'Well, you're not trading anywhere near that.' And we're not. And price talk we've seen—and price talk is maybe like an appraisal.

Speaker #3: It is indicative of something. Doesn't mean it's transactional, but it's in the range of possible. There's a $200 million portfolio going out there today.

Aaron Halfacre: There's a $200 million portfolio going out there today. It has a tenancy that's very similar to our largest tenancy in terms of the sector. You know, it's got. They're talking 6.75% on that one. We saw another property where someone was talking 6.75%. Now, that's broker talk. They're leading a little bit. Do I think it's gonna trade there? Probably, it's gonna trade wider than that. Might be 7%, might be 7.25%. Clearly, you're seeing stuff between 6.75% and 7.5% right now. You just got to find the right thing. Sometimes you'll find something that might, you know, if something is 7.5% and it's just dog doo doo, you don't wanna pay 7.5%.

Speaker #3: It has a tendency that's very similar to our largest tendency in terms of the sector. And it's got—they're talking 6.75 on that one.

Speaker #3: We saw another property where someone was talking 6.75. Now, that's broker talk. They're leading a little bit. I think it's going to trade there.

Speaker #3: Probably it's going to trade wider than that. Might be 7. Might be 7 and a quarter. But clearly, you're seeing stuff between 6.75 and 7.5.

Speaker #3: Right now, you just got to find the right thing. Sometimes you'll find something that might, if something is 7.5 and it's just dog doo-doo, you don't want to pay 7.5.

Speaker #3: If something is great and it's a 7, then you can do it. But sometimes there's dog doo-doo that's 6 and 75 too. Just everyone's trying to do their own thing.

Aaron Halfacre: If something is great and it's a 7, then you can do it. Sometimes there's dog doo doo that's 6.75 too. Just, you know, everyone's trying to do their own thing. I would say that the pipeline right now, and it's a little bit of a strobe light effect. When you see it, sometimes it's there, sometimes it's not. When the light comes back on, it's tighter than it was a year ago. It does feel tighter to me. Whereas a year ago, I was probably saying 7.5 to 7.75. Now the talk has gotten tighter. I think that might be a little bit of the optimism that we saw 3 or 4 weeks ago.

Speaker #3: But I would say that the pipeline right now and it's a little bit of a strobe-like effect when you see it. Sometimes it's there.

Speaker #3: Sometimes it's not when the light comes back on. It's tighter than it was a year ago. It does feel tighter to me. Whereas a year ago, I was probably saying 7.5 to 7 and three-quarters.

Speaker #3: It's now—the talk has gotten tighter. I think that might be a little bit of the optimism that we saw three or four weeks ago.

Speaker #3: And now, I'm not really hearing calls for the last two weeks. But I think everyone's kind of holding their breath, right? I mean, the first weekend with the conflict, we were like, 'Oh, is this going to be like the last time?'

Aaron Halfacre: You know, now I'm not really hearing calls for the last two weeks, but I think everyone's kind of holding their breath, right? I mean, the first weekend with the conflict, we were like, oh, is this going to be like the last time where we just bombed them, and then we went back to our business? Then, no, it's now extended. Then, you know, we've all, as a collective, gotten ADHD. We're like, "Oh no, it's been an 18-day war." I mean, historically, we've had wars that lasted for years. I don't know if you can hold your breath on this one. It might be over soon. It might not be. It's certainly volatile, and you certainly got to stick to your knitting. It's a long-winded way of saying that we see opportunity. We're looking at it.

Speaker #3: Are we just bombed them?" And then we went back to our business. And then, no, it's now extended. And then we've gotten all as a collective gotten ADHD where we're like, "Oh, no, it's been an 18-day war." I mean, historically, we've had wars that lasted for years.

Speaker #3: So, I don't know if you can hold your breath on this one. It might be over soon; it might not be. It's certainly volatile.

Speaker #3: And you certainly got to stick to your knitting. But it’s a long-winded way of saying that we see opportunity. We’re looking at it.

Speaker #3: We're just being extremely thoughtful. It takes an inordinate amount of patience, which is very hard to do. It's very hard to do. It's not fun.

Aaron Halfacre: We're just being extremely thoughtful. It takes an inordinate amount of patience, which is very hard to do. It's not fun. It's not sexy. I wish I was a, an AI company. That would be fun, but we're not. Sorry for the long-winded answer. I hope that helps.

Speaker #3: It's not sexy. It's—I wish I was an AI company. That would be fun. But we're not. So, sorry for the long-winded answer. I hope that helps.

Speaker #1: No, thanks for those details. I appreciate it. That's all I had.

Gaurav Mehta: No, thanks for those details. I appreciate it. That's all I had.

Speaker #3: Thank you. And your next question comes from the line of Jay Kornwick from Cantor Fitzgerald. Please go ahead.

Operator 1: Thank you. Your next question comes from the line of Jay Kornreich from Cantor Fitzgerald. Please go ahead.

Speaker #4: All right, thanks. In line with a lot of your comments there, obviously there are a lot of questions on the macro perspective at the moment. And I guess if we could just wrap up all those comments you just made about the transaction front and how you're thinking about that going forward—do you still feel on track to get the portfolio to the 100% pure-play manufacturing industrial over the next 24 months?

Jay Kornreich: Hey, thanks. In line with a lot of your comments there, you know, obviously a lot of questions on the macro perspective at the moment, and I guess if we could just wrap up all those comments you just made about the transaction front and how you're thinking about that going forward. Do you still feel on track to get the portfolio to, you know, the 100% pure play manufacturing industrial over the next 24 months? Or does maybe the timeline shift just, you know, with everything that's going on at the moment?

Speaker #4: Or does maybe the timeline shift just with everything that's going on at the moment?

Speaker #5: Yeah, I do. Because I always like to under-promise and over-deliver—whatever the phrase is. So that 24 months, I think if things are rosy and the market starts hitting its stride, that's a 12-month process.

Aaron Halfacre: Yeah, I do, because I always like to under promise and over deliver, whatever the phrase is. That 24 months, look, I think if things are rosy and the market hits in its stride, that's a 12-month process, right? It can be a lot tighter. Again, the bottleneck is having the right assets to acquire, and the right assets to acquire will become much more evident when the market gets a little bit more stable. You know, and theoretically, just putting out there, you know, our portfolio. I could. Like if I identified the right portfolio of assets as an example, and I had the right timing to buy them, that I could almost in effect do it in one fell swoop, right?

Speaker #5: Right? It can be a lot. The bottleneck is having the right assets to acquire. And the right assets to acquire will become much more evident when the market gets a little bit more stable.

Speaker #5: So, and theoretically, just putting out our portfolio, I could, if I identified the right portfolio of assets, as an example, and I had the right timing to buy them, I could almost, in effect, do it in one fell swoop.

Speaker #5: Right? So, just mathematically, if you think about it, it's not likely going to happen. Because it's hard to find these things. But it doesn't mean it can't happen.

Aaron Halfacre: Just mathematically, if you think about it's not going to happen likely because it's hard to find these things, but it doesn't mean it can't happen, and it doesn't mean we're not looking. If you found a $100 million portfolio of assets that you like, that you could line up to purchase, that met your box, you could take your assets out to market, they would all be reverse 1031 or forward 1031 designated exchange, and you're done in one fell swoop. It's the pipeline that matters. Yes, I do think 24 months is very realistic, and doable.

Speaker #5: It doesn't mean we're not looking. But if you found a $100 million portfolio of assets that you liked, that you could line up to purchase, that met your box, and then you sold, you could take your assets out to market. They would all be reverse 10-31 or 4-10-31 designated exchange, and you're done in one fell swoop.

Speaker #5: It's the pipeline that matters. So yes, I do think 24 months is very realistic and doable.

Speaker #4: Okay, I appreciate that. And then just one follow-up. I recognize that there's little commentary you can provide on the potential acquisition offers that you received.

Jay Kornreich: Okay. I appreciate that. Just one follow-up, and I recognize that there's little commentary you can provide on the potential acquisition offers that you received. Can you maybe just from a different angle, talk about what's perhaps brought you more on the radar of others more recently as an acquisition target, you know, maybe relative to a year ago? Is it the state of interest rates? Is it the progress you've done on the asset recycling efforts? Is it something else? Just, you know, what do you think has brought you more into the limelight of others looking for a portfolio like yours, and how do you expect, you know, additional potential inbounds moving forward?

Speaker #4: But can you maybe, just from a different angle, talk about what's perhaps brought you more on the radar of others more recently as an acquisition target?

Speaker #4: Maybe relative to a year ago. Is it the state of interest rates? Is it the progress you've made on the asset recycling efforts? Is it something else?

Speaker #4: Just what do you think has brought you more into the limelight of others looking for a portfolio like yours? And how do you expect additional potential inbounds moving forward?

Aaron Halfacre: That's a good question. I think, look, we've seen REIT M&A. The discount for public REITs to private real estate has been persistent. We started to see REITs get picked off. In some ways, you could argue why hasn't there been more M&A volume, but there's still been a decent amount of M&A activity, you know. In our space, you obviously had like the real germane thing, you had sort of fundamental, which was not public, but they got taken out by Starwood. You had Plymouth taken out, you had Peakstone taken out. Broader than that, you got Alexander & Baldwin, you just had the NSA deal. We've had, you know, a lot of different names get consumed.

Speaker #5: That's a good question. So, I think we've seen REIT M&A—the discount for public REITs to private real estate has been persistent. We've started to see REITs get picked off.

Speaker #5: In some ways, you could argue why there hasn't been more M&A volume, but there's still been a decent amount of M&A activity. So in our space, you obviously had the real germane thing.

Speaker #5: You had Sortis Fund Management, which was not public, but they got taken out by Starwood. You had Plymouth taken out. You had Peakstone taken out.

Speaker #5: Broader than that, you’ve got Alexander & Baldwin. You just had the NSA deal. We’ve had a lot of different names get consumed. I think a lot of them were smaller-cap names, which means that there’s a greater buyer pool of people who can afford to take those out.

Aaron Halfacre: I think a lot of them were small-cap names, which means that there's a greater buyer pool of people who can afford to take those out. I think there's been a trend where for a while now, I mean, if you had raised a value-added opportunistic fund in 2023, you know, you've got a three-year investment window maybe, or you raised it in 2024, you've got a three-year, you know, deployment window that you got to get it deployed. At some point, people are starting to deploy, and they're waiting, they're waiting. I think we saw early signs. Well, we started seeing signs as early as the Q3 of last year where activity started to pick up, and we've seen a fair number of those things. Once that starts happening, people start looking, right?

Speaker #5: So I think there's been a trend where for a while now I mean, if you had raised a value-added opportunistic fund in '23, you've got a three-year investment window maybe.

Speaker #5: Or you raised it in '24. You've got a three-year deployment window that you got to get it deployed. At some point, people are starting to deploy.

Speaker #5: And they were waiting. They're waiting. And I think we saw early signs—well, we started seeing signs as early as the third quarter of last year where activity started to pick up.

Speaker #5: And we've seen a fair number of those things. And so once that starts happening, people start looking. Right? If you're once you decide you're a seller, then you're potentially a seller.

Aaron Halfacre: Once you decide you're a seller, then you're potentially a seller, so that attracts buyers. If you're sort of only a buyer, you start to look for things to buy, right? I think that's been the first thing. I think the near-term volatility in rates is in global economic pictures, it's frustrating that on the margin. Again, I don't think it's changing directionally where things are at, is that people see attractive positive leverage, long-term positive leverage opportunities in public real estate, either public to public or like we saw with Public Storage, or it's a public to private, right? We've seen this at different times, and look, there are probably too many REITs out there. You know, there are too many undercapitalized REITs out there. We are one of those buckets.

Speaker #5: So that attracts buyers. But if you start early as a buyer, you start to look for things to buy, right? And so I think that's been the first thing.

Speaker #5: I think the near-term volatility and rates and global economic pictures, it's frustrating that on the margin. But again, I don't think it's changing directionally where things are at.

Speaker #5: It's that people see attractive, positive, leveraged, long-term opportunities in public real estate, either other public-to-public—or, like we saw with Public Storage—or it's a public-to-private.

Speaker #5: Right? And we've seen this at different times. And there are probably too many REITs out there. There are too many under-capitalized REITs out there.

Speaker #5: We are one of those buckets. We understand people say, "Why did you ever go public?" Well, the time we were a non-traded REIT, and we knew that if we didn't provide immediate liquidity, we would be gating and no one wants to gate ask B-REIT, ask Starwood REIT that thing.

Aaron Halfacre: We understand, you know, people say, "Why did you ever go public?" Well, we at the time we were a non-traded REIT, and we knew that if we didn't provide immediate liquidity, we would be. You know, gating and no one wants to gate, ask BREIT, ask Starwood REIT that thing. They're much bigger, so they can afford to do it, but no one wants to be that. We provide liquidity for that generation of investors, and we've recycled, and we've just been in a rough time. We've created a valuable portfolio. I can't, you know, off the top of my head, I would think our share price is a, it's a ridiculously wide cap rate to the assets. That's what's attracting people. They're like, "Hey, you've got 14 years. You've got 2.5% in place.

Speaker #5: They're much bigger. So they can afford to do it. But no one wants to do that. So we provide liquidity for that generation of investors.

Speaker #5: And we've recycled. And we've just been in a rough time. But we've created a valuable portfolio. I can't off the top of my head, I would think our share price is it's a ridiculously wide cap rate to the assets.

Speaker #5: And so that's what's attracting people. They're like, "Hey, you've got 14 years you've got two and a half percent in place. You've got manufacturing tenants that don't have offsell." There are arguably the real estate is already obsolete in the sense that it's not whiz-bang.

Aaron Halfacre: There are arguably that real estate is already obsolete in the sense that it's not whiz-bang. It's been doing this stuff for 40 or 50 years. It's really good, durable real estate, and it's still here, right? If you bought a 2018 vintage data center, it's already obsolete. You're already having to replace all the guts on it, other than the shell of a box. If you bought a 1999 warehouse, it's obsolete, right? Our stuff arguably is not that sexy. It's older real estate, but it doesn't have any more obsolescent value. You're buying it at real core income producing value. You know, with the EBITDA to rent coverage and the fixed charge coverage ratio of our tenancy, it's a strong portfolio.

Speaker #5: It's been doing this stuff for 40 or 50 years. It's really good, durable real estate. And it's still here, right? If you bought a 2018-vintage data center, it's already obsolete.

Speaker #5: You're already having to replace all the guts on it other than the shell of a box. If you bought a 1999 warehouse, it's obsolete.

Speaker #5: Right? Our stuff, arguably, is not that sexy. It's older real estate. But it doesn't have any more obsolescence value. You're buying it at real core, income-producing value.

Speaker #5: And with the EBITRA, or the rent coverage and the fixed charge coverage ratio of our tenancy, it's a strong portfolio. And if you look long-term and think, 'Hey, long-term, not right now though, because if you look at a futures market, the ZB or the UB in the long bond area, they've sold off.' Right?

Aaron Halfacre: If you look long term and think, hey, long term, not right now, though, because if you look at, you know, in a futures market, the ZB or the UB in the long bond area, they've sold off, right? Which is counterintuitive. In the short term with the war, they typically rally, but they've sold off, which would make rates going up. If you think longer term, that we'll have a yield curve that suggests that long duration assets with low, low leakage in terms of NOI, then and particularly the advent that we can start putting private capital into retiree 401(k)s and things like that, there's a natural demand for this niche pool of portfolio. We are synergistic, right? Which I'll give you the color. The people looking at us, we're not looking for the team.

Speaker #5: Which is counterintuitive. In the short term, with the war, they typically rally. But they've sold off, which has made trades go up. But if you think longer term, that will have a yield curve that suggests that long-duration assets with low leakage in terms of NOI—and particularly the advent that we can start putting private capital into retired 401(k)s and things like that—there's a natural demand for this nice little portfolio.

Speaker #5: We are synergistic. Right? I'll give you the colors. The people looking at us, we're not looking for the team. They're looking at the assets.

Aaron Halfacre: They're looking at the assets. I wish they were looking for the team. It'd be fun to do that, but they're looking at the assets. You can strip out. You know, this portfolio, you can strip out. It's pretty simple. You can strip out the G&A, and it becomes accretive. We're not opposed to selling. We're just wanting to make sure it's the right value for our investors because we're not desperate, we're not gonna just give it away. That might be a great payday for me because, you know, all I do is I have equity like everyone else. We're gonna do the right thing, and the right thing will come about. In the meantime, we're gonna pay that $0.10 a share per month and get it done.

Speaker #5: I wish they were looking for the team. It'd be fun to do that. But they're looking at the assets. And you can, this portfolio, you can strip out—it's pretty simple.

Speaker #5: You can strip out the G&A. And it becomes accretive. We're not opposed to selling. We're just wanting to make sure it's the right value for our investors.

Speaker #5: Because we're not desperate. We're not going to just give it away. That might be a great payday for me, because all I do is I have equity like everyone else.

Speaker #5: But we're going to do the right thing. And the right thing will come about. And in the meantime, we're going to pay that $0.10 a share per month.

Speaker #5: And get it done. But so, I think the interest is because there's really good value, coupled with the fact that there are people who have money, and they're starting to decide they want to make allocations.

Aaron Halfacre: I think the interest is because there's really good value coupled with there are people who have money, and they're starting to decide they want to make allocations. I think the last element is look, there are arguably four small-cap industrial REITs that I can think of and maybe you can include ILPT in there, so maybe that's five. Of those five, ILPT and Gladstone are externally managed, so good luck with that, right? Getting a hold of those. The other three were Plymouth, Peakstone, and us. Clearly, we're the smallest. I think that's part of it too. There's just like if you want to pick up this sector, you like the space, there's not a whole lot you can do, right? That's where we're at.

Speaker #5: I think the last element is, look, there are arguably four small-cap industrial REITs that I can think of—maybe you can include ILPT in there.

Speaker #5: So maybe that's five. But of those five, ILPT and Gladstone are externally managed, so good luck with that, right? Getting a hold of those.

Speaker #5: And the other three were Plymouth, Peakstone, and us. And clearly, we're the smallest. But and so I think that's part of it too. There's just like if you want to pick up this specter, you like the space, there's not a whole lot you can do.

Speaker #5: Right? So that's where we're at. Okay. Well, I'll help with commentary. And perspective. So thanks, Tim. I'll stop it there.

Jay Kornreich: Okay. Well, all helpful commentary and perspective. Thanks, Aaron Halfacre. I'll stop it there.

Speaker #4: Okay.

Aaron Halfacre: Okay.

Speaker #6: Thank you once again. That is Star and One to ask a question. Your next question comes from the line of Jen Masuka from B. Riley Securities.

Operator 1: Thank you. Once again, that is Toran. Want to ask a question. Your next question comes from the line of John Massocca from B. Riley Securities. Please go ahead.

Speaker #6: Please go ahead.

Speaker #4: Good afternoon. How’s it going? So, I know we’ve kind of talked a lot about the inbound interest after the January 20 update. But I guess, given that you’ve seen that, does that maybe spark an interest in running a kind of strategic alternatives process earlier than that?

John Massocca: Good afternoon.

Aaron Halfacre: Hey.

John Massocca: How's it going? I know we kinda talked a lot about the inbound interest after the January 2020 update. But I guess given that you've seen that, does that maybe spark an interest in running a kinda strategic alternatives process earlier than that? You know, I guess maybe that kinda post 24-month timeline that was kinda talked about in that update. Just kinda curious how that changes your mindset, if at all.

Speaker #4: I guess maybe that kind of post-24-month timeline that was kind of talked about in that update—just kind of curious how that changes your mindset, if at all.

Speaker #4: I think that the interest suggests to me that people know there's value here, and that they know we can clean up the portfolio.

Aaron Halfacre: I think the interest suggests to me that people know there's value here and that they know that we can clean up the portfolio. Look, again, the portfolio is not dirty, but if it's more polished, it's gonna be more valuable. They're see a window of opportunity. If they can take it out cheaper than what it will be in the future, that's their job. Their job is to try to take it, keep the upside for themselves and, you know, give you a few shekels. I think what this suggests to me is that, you know, barring someone closing that value gap, and again, closing that value gap does not mean $22. Let's just all be clear. No one's gonna do that.

Speaker #4: And look, again, the portfolio is not dirty. But if it's more polished, it's going to be more valuable. And so they see a window of opportunity.

Speaker #4: If they can take it out cheaper than what it will be in the future, that's their job. Their job is to try to take it, keep the upside for themselves, and give you a few shekels.

Speaker #4: I think what this suggests to me is that, barring someone closing that value gap—and again, closing that value gap does not mean $22.

Speaker #4: Let's just all be clear: no one's going to do that. No investor in their right mind, or buyer in their right mind, is going to do that.

Aaron Halfacre: No, no investor in their right mind or buyer in their right mind is gonna do that. There's no upside, right? They want it bad. They just buy a bond, right? They need upside, but our investors need upside. There's a dance of where that is. What it suggests to us is that if we didn't have you know, like if you look at if I'm gonna go buy a used car, and that car has got a little bit of rim rash in the back wheel or there's a little bit of scratch on it, I'm gonna use that to get lower price. What we have the ability to do is, you know, clean that polish that portfolio up and so that it's even more valuable. If you flash forward in this environment.

Speaker #4: There's no upside, right? They want it bad. They just buy a bond, right? So they need upside. But our investors need upside, and so it's a dance of where that is.

Speaker #4: But what it suggests to us is that if we didn't have—if you look at—if I'm going to go buy a used car, and that car has got a little bit of rim rash on the back wheel, or there's a little bit of a scratch on it, I'm going to use that to get a lower price.

Speaker #4: But what we have the ability to do is clean that, polish that portfolio up, so that it's even more valuable. So, if you flash forward in this environment, let's think about where we're at right now.

Aaron Halfacre: Let's think about where we're at right now. We're in a super crazy rate environment, right? Where the, like, people are yelling stagflation and bonds are doing this, and it's crazy. You're like, what do you expect if you went and ran a process now or in 6 months, right? If you did it where you flash forward, you clean up your portfolio, you're humming, you're good. The rate environment is stable. Maybe it's lower, but it's certainly stable. You've clearly gotten what it is. You know you can extract more value, and you've done that. Let's say that is in 24 months. Let's just put that hypothetical situation there. In that 24 months, our investors, assuming no change in our dividend, no increase or decrease in our dividend, which, look, I'm not decreasing the dividend, but let's assume no increase either.

Speaker #4: We're in a super crazy rate environment, right? Where people are yelling 'stagflation' and bonds are doing this, and it's crazy. And you're like, what do you expect if you went and ran a process now?

Speaker #4: Or in six months? Right? If you did it where you flash forward, you clean up your portfolio, you're humming, you're good, the rate environment is stable, maybe it's lower, but it's certainly stable.

Speaker #4: You've clearly gotten what it is. You know you can extract more value, and you've done that. And let's say that is in 24 months.

Speaker #4: Let's just put that hypothetical situation there. In that 24 months, our investors—assuming no change in our dividend, no increase or decrease in our dividend—which, look, I'm not decreasing the dividend.

Speaker #4: But let's assume no increase either. That's $2.40 of income in the next two years, and a higher value of your portfolio to execute. So you would try to buff out the scratches—you would try to get rid of the rim rash.

Aaron Halfacre: That's $2.40 of income in the next two years and a higher value of your portfolio to execute. You would try to buff out the scratches. You would try to get rid of the rim rash. You would get yourself an environment where your type of car that is for sale is in demand. Doing so prematurely would suggest one of two things, in my mind. Right. Doing so prematurely is running a straddle process, to be clear, which suggests either one, your leadership doesn't wanna do it or can't stomach it. Look, it's not fun sometimes, but we don't have weak stomachs here. Or two, you think you can't do any better. Otherwise, why would you do that? Why would you shortchange the investor? You just wouldn't.

Speaker #4: You would get yourself an environment where your type of car that is for sale is in demand. And so, doing so prematurely would suggest one of two things in my mind.

Speaker #4: It would suggest doing so prematurely is running a shred-outs process, to be clear. It would suggest either, one, your leadership doesn't want to do it, or can't stomach it.

Speaker #4: And look, it's not fun sometimes. But we don't have weak stomachs here. Or two, you think you can't do any better. Otherwise, why would you do that?

Speaker #4: Why would you shortchange the investor? You just wouldn't. If an opportunity comes along that closes the value gap, and you just say, "Well, okay."

Aaron Halfacre: If an opportunity comes along that closes the value gap, and you say, "Well, okay, this is pretty good. This is gonna give them a chance to redeploy their capital, or this is going to be a another public currency where they can get, you know, continue to get dividends and participate in the upside." There's a lot of different ways to look at it. If someone could do that better, we're all ears. But it doesn't mean just because you've gotten interest that you should now sell, right? If you've gotten really if you did go in for an offer, unless it was an offer where you felt secure and there was no go shop associated with it, you're effectively having a process there. I think that's a

Speaker #4: This is pretty good, this is pretty good. This is going to give them a chance to redeploy their capital. Or this is going to be another public currency where they can continue to get dividends and participate in the REIT upside. There's a lot of different ways to look at this.

Speaker #4: If someone could do that better, we're all ears. But it doesn't mean just because you've got an interest that you should not sell. Right?

Speaker #4: If you've gotten really, and if you did go on for an offer—unless it was an offer where you felt secure and there was no go-shop associated with it—you're effectively having a process there.

Speaker #4: So that's a—I just think, really, thinking about it philosophically. Let's think about what a shred-outs process suggests. I think there have been a lot of REITs out there that are undergoing shred-outs processes, even if they're quiet or they've done some publicly.

Aaron Halfacre: I just think really thinking about it philosophically, and I think about what does a strategic alternatives process suggest. I think there's been a lot of REITs out there that have that are undergoing strategic alternatives processes, even if they're quiet or they've done some publicly. You know, there are. I don't know if this is the right time to do that. Why are you trying to sell right now if you have to? If someone wants you, that's one thing. Why would you try to sell?

Speaker #4: And there are—I don't know if this is the right time to do that. Why are you trying to sell right now, if you have to?

Speaker #4: If someone wants to, that's one thing. But why would you try to sell?

Speaker #7: Okay, that makes sense. Again, at a more detailed level—and apologies if I missed this in the prepared material—what were the terms of, or the potential terms of, the Melbourne, Florida office sale?

John Massocca: Okay, that makes sense. Maybe on a more detailed level, and apologies if I missed this in the prepared material. What were the terms of or the potential terms of the Melbourne, Florida office sale, or is that kind of TBD?

Speaker #7: Or is that kind of TBD?

Aaron Halfacre: The terms are well known, but not to us, and out of respect to that buying party, and respect to us, I like to keep those silent until after the fact. Suffice it to say, we have slightly over $400,000 of earnest money that's gone hard. This has been a process. We've given them a long time. This was not a fast deal. It was an organized, methodical one. Once it closes, I'll inform you of what it was. I'll tell you right now, just to be clear, what we don't have right now, and we're working on it, and we don't have a replacement property identified yet.

Speaker #4: The terms are well-known, but not to us. And out of respect to that buying party, and respect to us, I’d like to keep those silent until after the fact.

Speaker #4: Suffice it to say, we have slightly over $400,000 of earned money that's gone hard. And this has been a process we've given them along; this was not a fast deal.

Speaker #4: It was an organized, methodical one. And so, once it closes, I'll inform you of what it was. And I'll tell you right now, just to be clear, what we don't have right now—and we're working on that—we don't have a replacement property identified yet.

Speaker #4: We don't need to worry about this one, so that's okay in terms of the tax sensitivity. Why is that? Well, because we're selling Calera.

Aaron Halfacre: We don't need to worry about this one, so that's okay in terms of the tax sensitivity. Why is that? Well, because we're selling Calera, and let's just all be honest, we took a loss on Calera, and so that creates a tax loss that shelters the gain on this one. We have a little bit of time to be thoughtful about the redeployment of that. It's scheduled to close in Q2. Once it closes, well, we will absolutely tell you what happened on it, once it closes.

Speaker #4: And let's just all be honest. We took a loss on Calera, and so that creates a tax loss that shelters the gain on this one.

Speaker #4: So, we have a little bit of time to be thoughtful about the redeployment of that. But it's scheduled to close in the second quarter.

Speaker #4: And once it closes, which my guess is we’ll—well, we will absolutely tell you what happened on it once it closes.

Speaker #7: Okay. And any of this Calera, the former Calera property in mind, can you remind us what the kind of, I guess, cost of carry was for that in Q4?

John Massocca: Okay. With Calera, the former Calera property in mind, can you remind us what the kinda, I guess, cost of carry was for that in Q4 or kind of the OpEx cost associated with that asset in Q4 that's gonna go away now that you sold it in January?

Speaker #7: Or kind of the OPEX costs associated with that asset in Q4 that's going to go away now that you sold it in January? Like, roughly?

Aaron Halfacre: Uh.

John Massocca: Like roughly.

Aaron Halfacre: Ray, do you know roughly off the top of your head? It wasn't terrible, to be honest with you.

Speaker #4: Do you know roughly, off the top of your head? It wasn't terrible, to be honest with you. But yeah.

Ray Pacini: Yeah. I mean, I think it was running about, you know, $20,000 to $30,000 a month.

Speaker #7: Yeah. I mean, I think for the I think it was running about 20, 30 grand a month.

Speaker #4: Okay, that's it for me. And Ray, I appreciate all the help over the years. I miss you on these calls. Thanks.

John Massocca: Okay. That's it for me. Ray, appreciate all the help over the years, with me on these calls. Thanks.

Speaker #1: Thank you. There are no further questions at this time. Please proceed.

Operator 1: Thank you. There are no further questions at this time. Please proceed.

Speaker #4: Hi, everyone. Thank you so much. I know we came out a little bit later—that was because of the aforementioned offers. Don't like to come out as late.

Aaron Halfacre: Everyone, thank you so much. You know, I know we came out a little bit later. That was because of, you know, the aforementioned offers don't like to come out as late, but it didn't seem. You know, we are a pebble causing a ripple in the ocean that is raging right now. Appreciate all that you did join. Wishing you the best of luck for your families and your portfolios, and talk to you again next quarter. Thanks so much.

Speaker #4: But it didn't seem we are a pebble in causing a ripple in the ocean that is raging right now. So, appreciate all that did join.

Speaker #4: Wishing you the best of luck for your families and your portfolios. I'll talk to you again next quarter. Thanks so much.

Operator 1: This concludes today's call. Thank you for participating. You may all disconnect.

Q4 2025 Modiv Industrial Inc Earnings Call

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