Modiv Industrial Q4 2025 Earnings Call - Recycling the Portfolio, Targeting a Pure-Play Manufacturing REIT in 24 Months

Operator: 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.

Sarah Grisham, Chief Accounting Officer, Modiv Industrial: 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 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.

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.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Thanks, Sarah. Hello, everyone. Hope you’re doing well. Crazy times. I know I’m looking forward to this call. 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.

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.

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’ll do my best. First, let’s let Ray have the stage and do his thing. Ray.

Ray Pacini, Chief Financial Officer, Modiv Industrial: Thank you, Aaron. I’ll begin with an overview of our fourth quarter operating results. Rental income for the fourth quarter 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 December 15th, 2025. An 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. Fourth quarter adjusted funds from operations, or AFFO, was $4 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. 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. 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.

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 December 31, 2025, total cash and cash equivalents were $14.4 million, and we had $30 million available to draw on our 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 December 31, 2025, 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. 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 and the January amendment to our credit facility. I’ll now turn the call back over to Aaron.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Thanks, Ray. Operator, let’s just go to questions. This will be easier.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star four pound one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star four pound 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.

Gaurav Mehta, Analyst, Alliance Global Partners: Yeah, thank you. I wanted to ask you, I think in your 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.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: I figured you’d ask that and, 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’s just that, you know, 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 gonna get what they’re gonna get. You know, it was just a process.

I think that it was a generally positive exchange, and 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 didn’t see a secure path forward, and we stepped back from discussions.

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

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: 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 might be going to, you know, 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.

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, but it’s not any different than before. 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.

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 the fourth quarter. 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.

The reason why we haven’t sold it yet, or the flip side, the reason why we haven’t leased it, is that 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 refining parcel maps. I mean, the little things like ADA slopes on things. 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, you know, 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 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.

My guess right now, if you were to put a gun to my head, that’s like, call it $7 million-$8 million, right? So it’s not a huge number. The other office property is OES. OES has this purchase option. Talking to them, 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. We don’t. You know, if we’d sold it 2 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, but 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. So that’s the obvious part. People ask about the Kia dealership. It’s a non-core asset. 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. 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, I mean, excuse me, an operating transaction from about five years ago, so 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, 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. That would be generative, 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, and then you would be left with a short window to ten thirty-one designate. We’re. 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 WALT.

Our short WALT philosophy is this. We will do our darndest to see if they will extend. We will have conversations with them. We are starting to have those conversations. If they’re willing to extend, and not just extend like, you know, two 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 WALT. 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, they exercise five-year renewals. They exercise their option periods.

That’s normal. We have a period of time right now that we can positively take positive arb by selling certain assets, even if they’re shorter WALT, and creating, you know, more AFFO by reallocating them into a longer WALT and having a more solid portfolio. We’ll spend time this year looking at Northrop. Northrop was one of those properties. We got an unsolicited offer that came in. It was worth our time. It was worth our energy. 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. That’s a property that, look, it’s a short WALT. We got an offer that was compelling, and we took it. That’s 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, and so they would, 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.

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 course of this year.

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. 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. It could happen pretty quickly, and a lot of brokers are ready to go.

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 terms of you want really good manufacturing products. The products that they’re manufacturing, it’s got to be really good, and 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.

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, but we don’t have to right now, and we’ve been patient. The pipeline has been episodic. It’s been erratic.

We started to see pipeline come out in January, and some of it’s just like 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 gonna get. This is a stable ground, and that they go out in the market, they’re gonna execute on what they think they are, and it’s not gonna 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. 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. 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, 6 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.

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, 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, and public real estate is just taking it on the chin repeatedly. We’re we understand that. That $22.19 NAV, I think round numbers is a 6. It’s an implied 6.8 cap rate. You know, at first you’re just like, "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. It doesn’t mean it’s transactional, but it’s in the range of possible.

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 gotta find the right thing. Sometimes you’ll find something. If something is 7.5% and it’s just dog doo doo, you don’t wanna pay 7.5%.

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, it’s a little bit of a strobe light effect. When you see it, sometimes it’s there, sometimes it’s not, and 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%-7.75%. 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.

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? And then no, it’s now extended. And then, you know, we’ve gotten 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. 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. 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.

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. It’s not sexy. I wish I was an AI company. That would be fun, but we’re not. Sorry for the long-winded answer. I hope that helps.

Gaurav Mehta, Analyst, Alliance Global Partners: No, thanks for those details. I appreciate it. That’s all I had.

Operator: Thank you. Your next question comes from the line of Stephen Chick from Cantor Fitzgerald. Please go ahead.

Stephen Chick, Analyst, Cantor Fitzgerald: 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. 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, 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?

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Yeah, I do. Because I always like to under promise and over deliver, whatever the phrase is. So that 24 months, look, I think if things are rosy and the market starts to hit 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 our portfolio, I could. 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?

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. 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, and then you could take your assets out to market, they would all be reverse 1031 exchange or forward 1031 exchange 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.

Stephen Chick, Analyst, Cantor Fitzgerald: 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?

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: 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 really 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. You know, 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. 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. 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, and we’ve seen a fair number of those things. Once that starts happening, people start looking, right?

Once you decide you’re a seller, then you’re potentially a seller, so that attracts buyers. If you’re solely 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 and in global economic pictures is frustrating on the margin. Again, I don’t think it’s changing directionally where things are at, 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.

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 do 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 don’t, I can’t, you know, off the top of my head, I would think our share price is, 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.

You got manufacturing tenants that don’t have obsolete. There are arguably the 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.

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 sold off, which means rates going up. If you think longer term that we’ll have a yield curve that suggests that long duration assets with low leakage in terms of NOI, then 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 pool of portfolio. We are synergistic, right? Which I’ll give you the color. The people looking at us were not looking for the team.

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. 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. But we’re gonna do the right thing, and the right thing will come about. In the meantime, we’re gonna pay that $0.10 per share per month and get it done.

I think the interest is because there’s really good value coupled with there’s 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. 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.

Stephen Chick, Analyst, Cantor Fitzgerald: Okay. Well, all helpful commentary and perspective. Thanks, Aaron. I’ll stop it there.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Okay.

Operator: Thank you once again. Your next question comes from the line of John Massocca from B. Riley Securities. Please go ahead.

John Massocca, Analyst, B. Riley Securities: Good afternoon.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Hey.

John Massocca, Analyst, B. Riley Securities: I know we kinda talked a lot about the inbound interest after the January 20 update. I guess given that you’ve seen that, does that maybe spark an interest in running a kinda strategic alternatives process earlier than that? 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.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: 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 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 shackles. 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.

No, no investor in their right mind or buyer in the right mind is gonna do that. That’s. 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.

Let’s think about where we’re at right now. We’re in a super crazy rate environment. Right? Where the 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.

That’s $2.40 of income in the next 2 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 strategic alternatives process, to be clear. It would suggest 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.

If an opportunity comes along that closes the value gap and you say, "Oh, well, okay, this is pretty good. This is gonna give them a chance to redeploy their capital, or this is going to be 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 and 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. 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 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, but why would you try to sell?

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

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: The terms are well known, but out of respect to that buying party, and out of 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 one. 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. We’re working on it, and we don’t have a replacement property identified yet.

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 the second quarter, and once it closes, well we will absolutely tell you what happened on it, once it closes.

John Massocca, Analyst, B. Riley Securities: 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 4Q or kinda the OpEx cost associated with that asset in 4Q that’s gonna go away now that you sold it in January?

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Uh.

John Massocca, Analyst, B. Riley Securities: Like roughly.

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: Ray, do you know roughly off the top of your head? It’s not, it wasn’t terrible, to be honest with you. But

Ray Pacini, Chief Financial Officer, Modiv Industrial: Yeah. I mean, I think it was running about, you know, $20,000-$30,000 a month.

John Massocca, Analyst, B. Riley Securities: Okay. That’s it for me. Ray, I appreciate all the help over the years and making sure these calls. Thanks.

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

Aaron Halfacre, Chief Executive Officer, Modiv Industrial: 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, we 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.

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