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Good day, and welcome to Modiv Industrial, Inc. Fourth Quarter 2023 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Rainey, Chief Operating Officer and General Counsel. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining us for Modiv's Industrial's Fourth Quarter 2023 Earnings Call. We issued our earnings release before market opened this morning, and it's available on our website at modiv.com. I'm here today with Aaron Halfacre, Chief Executive Officer; and Ray Pacini, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open up the call for your questions. 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 and phases. Statements that are not historical facts, such as statements about our expected acquisitions or dispositions 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 said, I would like now to turn the call over to Aaron. Aaron, the mic is yours.

Thank you, John. Hello, everybody. Thanks for joining our fourth quarter conference call. For those who don't know John, he's our COO and General Counsel and with the release of these financial results, we'll formally make him a named executive officer, which means he'll be subject to Form [ 4 ] filings alongside myself and Ray and our Board of Directors. Speaking of Ray, since I said a ton in our earnings press release, how about we jump right to hear more details on our financial results and I'll come back before the end to take questions. Ray?

Thank you, Aaron. I'll begin with an overview of our fourth quarter operating results. Revenue for the fourth quarter was $12.3 million compared with $13.8 million in the prior year period, which included a $3.8 million early termination fee from Sutter Health in advance of our signing a new lease for our Rancho Cordova property with the state of California. Excluding the 2022 lease termination fee, revenue increased 23% compared to the prior year period. The revenue increase reflects the impact of 12 industrial manufacturing property acquisitions during the first 7 months of 2023, partially offset by 14 noncore property dispositions in August 2023. Fourth quarter adjusted funds from operations, or AFFO, was $4.5 million, up 41% when compared with the $3.82 million in the year ago quarter after excluding the 2022 lease termination fee. The increase in AFFO reflects the revenue increase, along with decreases in G&A and property expenses, which were partially offset by increases in straight-line rents and interest expense. On a per share basis, AFFO was $0.40 per diluted share for this quarter, which is $0.05 above the average of our 3 analyst estimates, even after accounting for an increase of 1 million shares and the weighted average number of fully diluted common shares outstanding. G&A decreased by $850,000 compared with the year ago quarter, reflecting the absence of a relocation reserve accrued in the year ago quarter, lower professional fees due to timing differences and a decrease in D&O insurance. Property expenses decreased $807,000 compared with the year ago quarter, primarily reflecting the disposition of properties with modified gross leases and double net leases in August. Excluding the impact of swap valuations, cash interest expense increased by approximately $1.3 million, reflecting greater borrowings outstanding during 2023 given that during the year ago quarter, we only had an average of $157 million outstanding on our credit facility. I'll now discuss our full year operating results. Revenue for the full year was $46.9 million compared to $40 million in the prior year, excluding the $3.8 million early termination fee, for an increase of 17%. AFFO was $14.7 million, up 14% when compared with the $12.9 million in the prior year after excluding the 2022 lease termination fee. AFFO per fully diluted share was $1.33 for the full year compared with $1.26 per fully diluted share after excluding the 2022 lease termination fee in the prior year. The 6% increase in AFFO per diluted share is less than the percentage increase in AFFO, due to an increase of 842,000 shares in a weighted average number of fully diluted common shares outstanding. The increase in AFFO reflects the $6.9 million revenue increase offset by a $3 million increase in straight-line rents. A $1.2 million decrease in G&A, a $1.4 million decrease in property expenses and $475,000 of dividend income also contributed to the increase in AFFO. The decrease in G&A reflects lower head count. The absence of the 2022 relocation reserve, decreases in D&O insurance and technology costs, partially offset by an increase in professional services. The decrease in property expenses again relates to the disposition of properties with modified gross leases and double net lease in August. These positive variances were partially offset by a $5.1 million increase in cash interest expense, which primarily reflects the increase in average borrowings outstanding during 2023 compared to 2022. The $475,000 of dividend income was earned by the investment in preferred stock or Generation Income Property, Inc that we received as partial consideration for the disposition of 13 properties last August. GIPR redeemed the preferred stock for common stock on January 31, 2024, and we immediately distributed the majority of the GIPR common stock to our common stockholders and holders of Class C units in our operating partnership. Now turning to our portfolio. Following the January and February dispositions of 2 assets held for sale, our 42-property portfolio has an attractive weighted average lease term of 14 years and approximately 33% of our tenants or their parent companies of an investment-grade credit rating from a recognized credit rating agency of BBB minus or better. Annualized base rent from these 42 properties totals $39 million as of December 31, 2023, with 38 industrial properties representing 76% of ABR, 1 retail property representing 11% of ABR and 3 office properties representing 13% of ABR. Now turning to our balance sheet and liquidity. As of December 31, 2023, total cash equivalents were $3.1 million, and we had $280 million of debt outstanding after repaying the $3 million remaining balance of the mortgage on our Sacramento property in December. Our debt consists of $31 million of mortgages on 2 properties and $250 million of outstanding borrowings on our $400 million credit facility. Based on interest rate swap agreements we entered into during 2022 a 100% of our indebtedness as of December 31, 2023, held a fixed interest rate with a weighted average interest rate of 4.52% based on our leverage ratio of 48% at year-end. As previously announced, our Board of Directors declared a cash dividend per common share of approximately [indiscernible] from the months of January, February and March 2024, representing an annualized dividend rate of $1.15 per share of common stock. This represents a yield of 7.5% and based on the closing price of $15.39 on our common stock as of March 1, 2024. I'll now turn the call back over to Aaron.

Thanks, Ray. As you all know, I much rather prefer open dynamic dialogue. So instead of providing any more can response, how about we dive into Q&A. Operator?

[Operator Instructions] And our first question today will be coming from the line of Rob Stevenson with Janney.

How much NOI do we need to be backing out for the $15 million of [indiscernible] incoming sales when we're thinking about projecting our models for '24?

Yes. That was -- Ray, you have the...

Well, I was going to say that's already factored in, in the $39 million of ABR excludes [indiscernible].

Okay. That's helpful. And then what is the most likely timing on the Costco sale closing. I assume that they wanted to get that rezoned for single family before closing any other major contingent issues that needs to be resolved before that deal could close?

So good question. The way the deal is structured is they have a contingency window through April 1 and assuming -- in that process, they're doing their feasibility. And if they come back on April 1 and they're comfortable, then they'll put $1 million hard money down. And then we both picked the date of no later than August of next year because we have this remaining lease term and we negotiated say, like, we're going to benefit from this rent. There is ability that should they get their stuff done sooner, we can approach Costco for a lease termination and close it sooner. But as it's contemplated right now, we wanted to give them plenty of time to finish out their approvals. What they're contemplating building here is a series of town homes. And so they -- and this particular builder -- and there were 3 -- they got 3 bids from 3 builders actually. And one of them was actually a higher bid. But we thought this one was more solid because they had done this homework on this property before Costco had ever moved into the property. So they have been studying this property for close to a decade. And so they're pretty dialed in. So we remain optimistic, but stands now the next milestone will be April 1, and then after that, we could close sooner than 2025. But in either scenario, we're going to get the rental to Costco.

Okay. That's helpful. I guess another one here is, do you guys -- you talked about distributing the GIPR shares. How much shares do you guys still have? And what are the plans for those?

Ray will get you the number here in just a second, the plan is we are going to sell those off in an orderly fashion. We have like less than 5% of the stake that we got, we retained for running purposes. Ray what's the actual share count?

171,000 shares.

Okay. All right. That's helpful.

We'll move those up.

Okay. And where was occupancy in the portfolio after taking consideration the [indiscernible] vacancy?

98%.

That's helpful. And then when do you get full control of that asset back the -- I think, Aaron, you talked in the release about that, that there was still some stuff going on there. Can you talk about that and when the expected timing for being able to release that asset would be?

We've been waiting sort of on a daily basis for now for about 6 weeks. They keep saying it's going to get finalized in the courts and finalized in the courts, it hasn't yet. So we keep thinking any day. We don't know exactly what the hangup is. It's an okay process. But we negotiated with them. And so we -- probably soon is my guess. We did receive one LOI for the property already at rents that were substantially higher. But that said, we're not negotiating with anyone until we're fully released. I've heard [indiscernible], and I think it's not a rule of probability that they may come back to us and say they don't want to reject it, but all signs now indicate that they will. That's what we're underwriting, and we're prepared for that. As soon as we do have it in hand, then we will start the process, which is kind of good because right now, it's -- you're in St. Paul in the winter, it's dead season anyway. So as we roll into spring, that's going to be the more opportune time.

Okay. And then, Ray, when do they stop paying rent on that asset?

They stopped paying in February, but then we had a letter of credit to cover the next 6 months.

Okay. All right. So that hasn't been in the numbers for quite some time. I just wanted to make sure that there wasn't any repayments as things went along or whatever sporadically or anything. All right. Appreciate the time this morning.

[Operator Instructions] The next question is from the line of Bryan Maher with B. Riley Securities.

Just a couple from me this morning. I'm sorry if I missed this on your prepared comments, and I appreciated the commentary you put out there this morning, Aaron. But can you give us a little bit more color on what your pipeline actually looks like? And given your dialogue with private equity and other investors, your likelihood to act upon any of that before maybe coming to some kind of terms with one of them, in fact, that ever happens.

Yes. So it's a good question. Look, as we think about -- if we're going to do something with the strategic partners, it's going to -- we're going to -- my guess is we'll announce that before the end of April, right? Because if it isn't going to get done by then. And when you -- something like that, you wouldn't -- you would spend a lot of time and we're not there yet, but you would spend a lot of time on the DD getting the docs ready because anything like that we're talking about order of magnitude is probably going to require a proxy. And if it requires a proxy, then we'd want to do it in one [indiscernible] because we have an annual proxy that has to come out anyway. And so instead of paying for 2 proxies while we're on Q1. So if we're going to do something in the near term, it's going to be done before April. If we're not going to do something on then, we're probably going to just sit tight. Some of these dialogues have been very constructive. But as we all know, it's kind of a shady time to do things. So we'll see how that goes. To your question, will we deploy before then I think our view is our cash buildup could be useful in one of these transactions. And so we're kind of waiting to see on that. We certainly are seeing individual property deals. And like I said, we we've been participating around and seeing where they're going, making sure we're understanding where pricing is. There was a property that we really liked. We've been following for 1.5 years A year ago, we were bidding on it, and it was in the mid-7s, like 1.5 years ago, I guess, sort of January of last year, December the year before. And they pulled. They came back to market in December, they went down the rounds in January -- the price stock originally was like [ 86 ]. So it obviously had moved. But then when we got to the final round, they were like at [ 8.25 ], and we just did not like the leverage that they had put on it. So we just said, hey, look, we don't need it. Let's wait. So we do see deals a lot. Now it's hard. You don't want to engage too much with anyone that you're not seriously committed to pulling it the trigger. So we're in there. There's always a pipeline. I'd say the pipeline right now is a little bit lighter given that it's still the first quarter rates are jacking people around. So I don't think we would deploy prior to us knowing if we're going to do something with a strategic partner. And the event that we don't support -- do some strategic partner, then we'll quickly deploy that cash and to replace AFFO.

Okay. And I also noticed you sold a few shares during the quarter around kind of November through January. What was that all about? Can you give me a little color on that?

It was just ATM. We had never turned on the ATM. We wanted to test the waters a little bit. So we did really constrained volume and just try to peel off a little bit more flow, grew a little bit more liquidity. We sort of curve out some of the price surges that we're having. So that was really just -- and we probably -- maybe just 8 weeks' worth of work on the ATM just to kind of test the waters. Our goal is to balance equity issuance with liquidity and stuff like that, but that was what that was about.

At this time, we reached the end of our question-and-answer session, and I'll turn the floor over to management for closing remarks.

Thank you, Rob. Thanks, everyone. Obviously, taking a progressively more communicative approach in the press release. I think the logic was laid out why we're doing it. Not everyone's going to like that, I get it. It is where it is. But we think it's -- we've received increasingly more feedback that was positive following our third quarter earnings that this insight helps. We are a small company. There are not a lot of moving parts, particularly right now. And so more and more people who can understand how we're thinking, so that I don't have to make 5000 phone calls is the point here. We hope you like it. I always welcome your feedback. And look, I think we'll have more announcements before our next earnings. Could be an NAV that we're releasing could be something strategic partner size. Probably -- well, I think we're going to have a duty to disclose if we've gone non-contingent on our Costco property. So more to come as the spring rolls on. But thank you all for being with us following us and paying attention.