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Good day, and welcome to Modiv Inc.'s Fourth Quarter and Full Year 2024 Conference Call. Today's call, management will provide prepared remarks and then we'll open up the call for questions. Please note this conference is being recorded. I would now like to turn the conference over to your host, John Raney, Chief Operating Officer and General Counsel. Please go ahead, sir.

Thank you, Rob, and thank you everyone for joining us. Modiv Inc.'s fourth quarter and full year 2024 earnings call. We issued an earnings release before market open 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'll 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 phrases. Statements that are not historical facts such as statements about our expected acquisitions or 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 Form 10-Q. With that said, I would like to turn the call over to Aaron. Aaron, please go ahead.

Thanks, John. Hello, everyone. Welcome. What a great day to come out with earnings, same day we got tariffs going. We timed these things perfectly for your entertainment. I am going to have some comments this time. But let's first jump to Ray, and then I'll make comments after that, and then we'll do Q&A.

Right. Thank you, Aaron. I'll begin with an overview of our fourth quarter operating results. Revenue for the fourth quarter was $11.7 million. Fourth quarter adjusted funds from operations or AFFO was $4.1 million. On a per share basis, AFFO was $0.37 per diluted share for this quarter, which is $0.08 above the average of the analyst estimates, compared to $0.40 per diluted share in the prior year period. I'll now discuss our full year operating results. Rental income for the full year was $46.5 million. AFFO for the full year was $14.99 million and AFFO per fully diluted share was $1.34 for 2024. The $400,000 revenue decrease from property sold in the first quarter of 2024 was offset by a corresponding decrease in straight-line rents. The increase in AFFO reflects a full year of decreased property expenses following the disposition of 14 properties in late 2023, many of which were not triple net leases, and a $300,000 decrease in G&A primarily due to reduced employee compensation. Now turning to our portfolio, annualized base rent from our 43 properties totals $39.6 million as of December 31, 2024, with 39 industrial properties representing 78% of ABR and non-core properties representing 22% of ABR. Our portfolio has an attractive weighted average lease term of 13.8 years and approximately 32% of our tenants or their parent companies have an investment-grade rating from a recognized credit rating agency of BBB- or better. Now turning to our balance sheet and liquidity. As of December 31, 2024, total cash and cash equivalents were $11.5 million and we had $280 million of debt outstanding, which consists of $31 million of mortgages on two properties, and $250 million of outstanding borrowings on our term loan. Based on interest rate swap agreements we entered into in January 2025, 100% of our indebtedness as of December 31, 2024, is at a fixed interest rate with a weighted average interest rate of 4.27%. Based on our leverage ratio of 47.6% at year-end, we also have $30 million of availability on our revolver, which we reduced from $150 million in December 2024 in order to save $300,000 per year in unused fees. As previously seen now, our board of directors declared a cash dividend for common shareholders of approximately $0.0975 per share for the months of January, February, and March 2025, representing an annualized dividend rate of $1.17 per share of common stock. This represents a yield of 7.5% based on the $15.55 closing price of our common stock as of March 3, 2025. I'm now gonna turn the call back over to Aaron.

Thanks, Ray. So wanted to go over a couple different areas that, you know, didn't feel like writing them out extensively in the press release, but wanted to talk about them on the call, and it may either prompt following questions or preempt some preliminary questions. I think first, let's look at transactions. Right? Though we and, you know, I think you clearly understand now that we don't feel compelled to do things just for the sake of doing them. We look at a lot of things. But we've, you know, been picking our spots. I'd say when we released third quarter earnings in November to now, we've had quite an opaque economic landscape with a lot of oscillation between fear and euphoria. And so just didn't really see anything. You know, usually how it works in the property market, you know, the available inventory dies down sort of early December, and it starts picking back up sort of mid-late January. And so we saw some. We kicked the tires on some, but just didn't see anything that said, oh, jeez. Let's go, you know, extend ourselves or let's, you know, let's do something just for the sake of doing it. So clearly, we've shown patience. You know? Obviously, we're now probably a year away from the sort of $200 million of equity. But that doesn't mean we're not looking. It doesn't mean we won't do transactions. I just, you know, it's a real lesson in patience. And I think my point about maybe reach our growth stock is the fact that at the end of the day, you know, we have to grow really prudently, and each decision we make on the balance sheet we're living with for a long period of time. And we've all seen others out there who make decisions that are a little bit more near term. And they will either issue out some costly preferred and, you know, public or private. They will, you know, unwind some of their portfolio to redeploy it into other areas, or they'll issue, you know, a large amount of equity that just doesn't really pencil. And I'm not faulting them. They all have their own reasons for doing things like that. But for us, I just think any of those decisions would be a far greater drag on us than it would the benefit from buying a property. So we're just being thoughtful about that. As we look for the course of the year, it does I do not intend to stare at my navel. And as most of you should know, we don't. It just means we're looking, we're diligently working to try to get something up that makes sense. So for a couple reasons, so pipeline-wise, you know, you noticed that we reduced the revolver. And that's a material savings. We had contemplated doing it last year, but last year, you know, early part of the year at least, we were contemplating. We thought about it, but we weren't sure, and we wanted to hold off because there was a lot of battleship conversations, and we needed the revolver for those and then I think as we worked through more of those battleship conversations, which I'll touch on in a second, we realized that we probably wouldn't need the revolver. In fact, that there would be other sources of debt that would probably be more favorable. And so the revolver was a nice to have, but you wouldn't put buy your car with a credit card. Right? And I actually look at the revolver kinda like a credit card. And, you know, for me, for instance, personally, I put everything on my credit card for the month, and I pay it off at the end of the month. So I always view it as it's going to be extinguished right away. And at a $150 million revolver, I mean, that's 100% of our market cap. And so how am I supposed to pay it off if I had it dangling in front of me? So we downsized it to what I thought was a reasonable amount, $30 million. That's 20% of if we ever had to pull off and we found something that was super compelling, it's like, oh, geez. It's a nine cap and, you know, our revolver paper is only a, you know, six and a half, and we're gonna get the spread, and then I gotta backfill back somehow. I didn't want it to be too large of a backfill, but caused us to choke on the chicken bone. So we reduced the revolver that saved money, but that revolver is the I think used for us to think about timing purposes. Right? So if it's a mismatch in timing, we could use that. We don't wanna use the revolver for big acquisitions. We like I said, big acquisitions, there are other we've now identified plenty of other sources of financing that we could use that would be less costly. So it does not foretell that we're not able to grow or that we won't grow. It just means we won't grow with that mechanism. But we'll use that mechanism for its intended purpose. Which is, you know, a lot of times we see revolvers that are billion or one and a half billion dollars is great, but I don't know if they're always used. And we were paying, what, $300,000 a year. For something that wasn't being used. And so we right-sized that, but and I right-sized it very specifically. We have probably comfortably $80 million worth of properties that are in the portfolio right now that we have, you know, have the ability to recycle and we would pick up at least at least 125 basis points on that $80 million in AFFO. And that would be standstill, and that wouldn't require any change of things. And we don't have that model. That wasn't in the $1.37. I don't know that we'll do that. We've had several unsolicited offers on some of these properties. One of the reasons why I am sold now is I just think that better clarity we have in the rate environment, the better pricing is across the board. And that might mean that pricing is tighter on the purchases, but the pricing is also tighter on your sales. And so our view if any one of those properties that we wanted to recycle and we had a mismatch because we wanted to do a 1031, that the revolver would be useful. So we do think that we can use a revolver for acquisitions but they would be ones that we would self-fund or could immediately fund and so that we would not put ourselves in any sort of leverage situation. And I've been pretty adamant that I don't want leverage to really go up unless something that was super significant and positive. And I had a path of line of sight to retire it. As it relates to the balance sheet, conversations, you know, they're not over. I'm not going to get play by plays like I did. I think, you know, we were down the line on that one. It didn't get done. That portfolio is still out there. We have had other balance of conversations. I think I think collectively, us and the other parties all realized that we were a super volatile market. Everyone had to roll into swaps or caps at the end of the year. They had to reset sort of their interest expenses. You know, So I think those portfolios are still there. I still think there's conversations to be had. So those are certainly a potentiality. I think we're receptive to them. I think someone asked a question to me offline. You know? Will how it seems pretty straightforward. Why wouldn't you get one done? You know, the sponsor would just need to take a mark to market hit and then they get your equity and then have huge upside. And I agree with that. On paper, but you gotta get a sponsor to take a mark to market hit. And so I think that's it's a little bit of a time. You know, we're obviously if we were issuing out equity, we'd be doing so below NAV. So we would be taking out a hit. No one's gonna take our equity at $24. And but at the same time, they act too. So I like, I think those could happen. Potentially or one of them could happen, but I'm not cooking that number anywhere. It's not anywhere in our horizon other than it's a I'd say that, you know, we wanna acquire. We just wanna be really balanced because at some point here, I don't know when, and your guys' guess is as good as mine, we're going to we're going to move away from this risk-off trade. This asset class. And it's been sort of bottled oil, you know, on off, on, off, on, on, given the day or given the hour. And at some point, we should we'll start to see activity. Now we're starting to see little tea leaves. You know, you saw BSR, Blackstone thing. We've seen Ackland with, you know, Hughes. You're starting to see a little rumblings of activity. Obviously, NAREIT wants to profess that, you know, IPOs are gonna pick back up even though I think, you know, lying choke to on that one a little bit. So I look. I think once we see better activity and we're better poised and pricing is a more normalized, I wanna be in a right a position to act. I don't wanna act brief before that because about it. What if we had pulled the trigger on something a year ago. We would just would again absolutely drag to the mud and beat about. Right? And the market has been and all of you have been very stern with your capital as it relates to other REITs who don't make good decisions. You punish her. Right? We're still suffering from the same quagmire that we suffer from for three years is that, you know, we don't trade a lot. We don't have a lot following. We have not gotten a big issuance ever. And we're okay with that. Our dividend's solid. Our investors who have been with us for a long time are there. We are adding new and new investors as time goes on. The volume is, you know, up probably if you go back, like, mean, at one point, in our history, public history, we were, like, nine dollars and change. Right? And we were trading maybe two or three thousand shares a day. And now we're, you know, consistently higher volumes, much more stable price. Greater following, certainly a lot of potentiality in the name. And so we're comfortable with that. And we recognize that by not making bad decisions, it preserves us to be able to make good decision when the market environment is conducive to that. And so that's how we're thinking about that. So that may be a little underwhelming for the machine. In terms of we don't have x volume for the quarter, I wanted to share that logic that doesn't mean we're not doing anything. It doesn't mean we're just gonna sort of float around the ocean without a rudder or a motor. We have intent. That intent includes patience, though. Think one of the things I think it's pointing to talk about today given the fact that we now officially have tariffs in place. And then I guess it's a I don't fully understand it, but I guess I kinda understand there's been a lot of concern that, oh, tariffs are bad for someone like us. And so we've actually gone out and talked to our tenants. You know, we get quarterly financials from them, so we use that opportunity to talk to CFOs. And we've asked them how they think about tariffs and how the tariff rhetoric. Now granted, up until now, we don't really have tariffs but all we had is the threat of tariffs. And I would say that there were two instances where they said some of their metals input costs would be higher because of tariffs. But they would simply pass those on. And so they weren't concerned. They did note that some of their input costs as it relates to the metals that they're using would be higher. But they would have no problem passing those on in their contracts to their clients, and so there wasn't concern. That was the only thing we found. That anyone said negatively about tariffs. Some people have said and, like, you know, give you give you an example. Some of some of our things are very domestic manufacture. Some precast concrete. They're a sort of they had no opinion. Like, it doesn't affect them. Right? They sell domestically. They source domestically. No problems there. There's others who said that they've actually found quite a bit of pick up an inquiry. So they have found particularly, some of them that manufacture some things that could be manufactured at Example, in Canada or Mexico, some of those jobs have now people have been coming to them saying we wanna source jobs from you domestically. And so and there's a degree of optimism in that that they think order pick up would come. Most of people view that they will there will be either a slight benefit or agnostic to the tariffs? So we don't see any spear loading as it relates to tariffs. I don't think, you know, we're gonna catch them. A massive win from all these things. I mean, I think that took would take time, and I think you'd have to have real trade shut down, which I don't expect to happen at all. I think this is a lot of positioning and alignment, and I don't think this has anything to do with actual trade systems, you know, grinding to complete holds. But our tenant base does not seem to be bothered at all by tariffs. And in fact, expect a sort of a lease on the interim uplift in order demand. We have do you have two tenants who come to us and ask us to expand their footprints? So physically add on to their sites and so we're talking to them about capping that out and growing, you know, providing dollars to them in a way that increase our rents at a favorable cap rate and allows them to consolidate. So we think that's a positive. It's a know? But it we're basically like a like a real hard rock. You know? The rock doesn't move very fast. It's really a rock hard and solid and it's a good base and good foundation, so we feel good about that. We don't have much concerns about that. If any. The swap let's talk a little bit about the swap. You know, we so three years ago when we put the swaps in place, we elected to take this ability to do an option that could put it back to us. That put option saved us over 50 basis points in rate. So you know, if you look back, our sort of our run rate was sort of 4.52. It would have been well over 5% on a lock basis, so that would have been, you know, roughly $1.25, $1.3 million each year of added interest expense over those last three years, we saved that. It was you know, with options, you're obviously gonna take you know, you've got a delta to play with. And, you know, I don't think anyone underwrote in early 2022 where rates would be. And so as we rolled into third and fourth quarter last year, you know, we actually, it was August when the Fed cut and rates got really low. There was a really good probability that one of our swaps was not gonna get put back to us. And so we had to wait. And we so we had sort of had to wait, and we had established a budget. That budget was the 4.42. Actually, it was slightly more than that that we had budgeted. And that was for just throwing the swaps into flat. Sort of the same sort of 4.53 blended. And we sort of monitor around a daily basis. I wanna thank our banks who, you know, meticulously provided us daily quotes on these swaps. That was tedious. We monitor we monitor you know, rates really, really ran up. The tenure was going crazy. So far was going crazy. And so there was a monetary sort of momentary dip in the rates. We elected to use our budget. That, by doing so, allowed us to pay down a little bit to 4.25. And so I think in that regard, we benefited from it, but we had kind of underwritten this all away. We only did it one year. We could've done year, but you know, our view was is the time we were doing this at the end of the year, beginning of January, that there was gonna be more to shake out. Clearly, the ten years receded quite a bit since then, so that's a good sign. Lot of lot more ground to cover before year-end. So we'll evaluate fresh as it comes to next year. But, you know, our view was didn't wanna float it, wanted to hedge it. We told you prior that we would. We had a little bit of our budget allowed for it, so we took the benefit. So I think that sort of shared. I think that decision along with the revolver was us just being really tight about, you know, the near-term wins and volatility in the market and just being smart about our balance sheet. You know, as you saw, we did issue equity in the fourth quarter on the ATM. You know, it doesn't sound like much compared to some of our peers at 287,000 shares. That was $4.6 million at $16.16. That's 3% of our market cap. So under the radar completely accretively at places that we can come to, you know, the yield on that equity from a common is far below the yield that we could buy a property at. So we knew we could do that. And so we grew the market cap by 3% a quarter with no one really even knowing the difference. And so that's, you know, something that we're proud of. We think that little tiny actions we're making, like, last year when we bought the OP units back at $14.80 that we'd issued at $25. You know, we're doing little transactions like that that again, aren't headline grabbing, aren't big, but each dollar that we were accruing and creating on that is money that's going into our investors' pockets. So I think, you know, discipline-wise, we're excited about where we're at. I think there's gonna be some opportunities here. It feels don't know when, but it feels like there's gonna be some good action in Wheatland. Hope it's in this year. Maybe it rolls in the 26th, but, you know, the status quo, I don't see, for the industry. I think we're gonna see a lot of change, and we're ready for it and receptive to it. So with that, operator, why don't we open up for Q&A?

Thank you. At this time, we'll be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. One moment please while we poll for questions. Our first question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.

Good morning. Aaron, any updates on the timing of the sale of the Costco asset in the solar turbine split and sale?

At this point? Yeah. Yeah. So Costco, you know, we expect it to close on its original thing, which I don't wanna say it's correct me wrong. Right. It's July. They do have three options. And the three options the first option, they get I think it's split where half the if they pay the extension option, the half of it goes towards their purchase price, the other half we keep. The other two options, we get to keep fully. We've had conversations with them a couple weeks ago and back. But look, everything looks like a go. The only reason they might delay a little bit would be just because of logistics with the city. But everything looks to be fine. In the scenario where they do extend, you know, they're so just to be clarify, they're $1.7 million hard. Already, so they can't get that back. And if they do hit their extensions, that's $650,000 additional in our pocket. So, you know, in some ways, we'd be fine if they extend it. But I don't think they will. As it relates to solar and WSP split, we're going through that with the city. It's been a long process. I think we're getting near that end. There is a potential. We don't know for sure, but solar at said they might want to have a little bit longer on the lease to clean things up. So they might add three or four months to that lease just to kick it out a little bit longer for them to do what they need to do in their move out. But we've had several actually unsolicited offers on that property, but we're waiting to get it split, and we think there's gonna be more value objection from that because the solar property would be, you know, an owner our user? Most likely, flex space, and then the woods the WSP property, which already has already has an in-place lease that we recently renewed. So we're moving forward with that. I'd like to see that that happens in six months, but, you know, you don't know how to handicap municipalities. They're just a different beast.

Okay. And then what about the schedule a quote.

The scheduled closing date is August 15th for Costco.

Okay. And then what about the OES purchase option exercise? Is that increasingly likely given the commentary in the supplemental? How are you guys feeling about that? And what would be the timing on that likely at this point?

You know, so they've informed us that they started their process to get an appraiser. And so which is the first step. We have not gotten an update as to that, but they would get in and obtain a third-party appraiser service. They would get an appraisal. They would evaluate that appraisal relative to the contractual prices set forth. If they're in parameters and they decide they want to purchase it, then they put it forward into their budget. It gets and then that budget would get approved for the following year. So this has always been contemplated as a long-tailed process. We knew they couldn't start the process in earnest last year until after their budget cycle had started. You know, I think some of the wild cards that could go both ways, and this is, again, in front of retail leases. You know, obviously, the state of California has a fairly large budget deficit for, you know, so does that weigh on their decision to purchase? Or the timing of when it at the flip side, I think we just saw new mandate that government workers go back to their office. Which is an interesting signal for that state. But the other thing is you know, this is the office of emergency services. This is the department that received both state and federal funding for natural disasters, which just got one done in the Palisades, and there's quite a few of these at hand. So this is if there are budget constraints in the broader California budget, this is one that probably is still well funded because of the severity of natural disasters and the impact that they have on life. So we feel comfortable, but we are going to be, you know, flying blind because it is a government process, and they have their procedures that they can follow. So my guess is we probably won't know anything if we do know anything at all until summer. And then it would and even if that was the case, then it would probably be, you know, they probably they always signaled that they were gonna purchase it. It would be it would be within that first four-year window. That's how the right is to do so. But right now, nothing to suggest that they're not doing it. We're waiting to hear back from them on their selecting their appraisal, which I think is a good sign because if they didn't wanna do it, they wouldn't engage in that process.

Okay. That's helpful. And then in the K, you guys indicated that Fujifilm exercise or lease option there. Is that just a standard increase or is there anything abnormal about that option exercise that would impact earnings more than or less than what we would think?

So they yeah. So they have two seven-year options. It is a the seventy we have to establish mutually. Oh, we have to agree upon a rent. That rent is established at 95% of fair market value. So that's the mechanism in that place. So it's not a it's not a contractually predefined dollar amount. So the process will start to, you know, obviously, both sides have different opinions of what fair market value is and we have to sort of come to a compromise and there's a mechanism to do that. And then once we do, that'll be the rent going forward for the next seven-year option. They're, you know, they're a fantastic tenant. They have been in that building for a while. They have, you know, put a lot of their own capital into that, and we'd love not be more to see them stay longer. We would have loved to have a longer-term lease, but, you know, the option is seven-year, and I get it. Given the financial world and how most CFOs, like, seven or five years typically. And so we look forward to having that resolved here quickly.

Okay. So that'll be a flat lease, not no bumps once you establish a price. Off that.

No. There they no. There's a mechanism for bumps as well.

Okay. And then with that Fujifilm lease done, you know, what are recent conversation with Northrop Grumman, who I think is the other significant expiration you have over the next couple of years? That's not on the in the disposition file?

Yeah. So, I mean, too soon to have conversations about renewals or extra, you know, things like that. They're coming up. So that said, I mean, you know, you kind of look at what has been done. There was just we just there was just a million dollars of T dollars put in to replace the generator into that property. They also went to us and told us that they every time they make a change, they have to like, in interior change, they have to let notify us. They don't have to get our approval, but they have to notify us. And so they have been expanding and doing more build-out. So they do classified Let's Primary Electronics in there? And so they've expanded some of their they've retrofitted additional space. Originally, when I think when we bought it well, we didn't buy the legacy team had bought it. It was largely like, an engineering office slash HR slash it was kind of like a like an office. They during COVID, they cleared all that out. Then increasingly, what they've been doing is they've been putting lab space in there. So they'll get a contract, they'll add, you know, ten thousand feet. They'll retrofit that for a lab. They'll do more and more. So they've increasingly added more and lab space into that space. We're not even allowed to go in. We don't know what they're doing exactly because they don't you have to top secret clearance. So but they have put in quite a bit of money in the last twelve months into their property, and they, you know, recently expanded some more. So those suggest to us that they probably are here to stay. We're gonna have a very, you know, open conversation with them as we get closer to that. That's probably not going to be until end of year or early next. Just by the nature of how these work. But other than that, we don't see candidates, if they left, we wouldn't be we won't we won't cry. We've had a lot of interest believe it or not, someone would like to develop that in that whole space into apartments. But so we're okay. But we think they're staying.

Okay. That's helpful. And then last one for me. Ray, how should we be thinking about G&A in 2025? So you've got you know, especially, I guess the first place to start is the noncash G&A. You've got these Class X OP units to management. Is that just being ratably amortized there over the next five years? And so what should I be looking for versus the $1.6 million that you did in noncash or stock compensation expense in 2024? For 2025.

Yeah. Those will be amortized over the service period. So, you know, in round numbers, I think it's around and a half million a year. And then the cash G&A will go down. Because, you know, I don't know if you saw it in the 10-K, but Sandra Sudow, our chief accounting officer, is gonna retire at the end of the month? So she'll be leaving and then her financial reporting person is also gonna be leaving at the end of the month, and then we have one other person leaving at the end of April. So we're gonna reduce the staff size by three. We'll have nine employees. So that'll provide savings in the G&A part as well.

Okay. And then I assume that Aaron not getting a salary or bonus will also Yes. Sort of go to subtract out from the $6.3 million that you guys had this year?

Right.

Okay. So noncash goes up two and a half million. Per year to call it in the neighborhood of four-ish and then cash goes down.

No. You misinterpreted me. It two and a half million is the absolute number, not the increase.

Okay. So that's two and a half, and then the cash will go down. For the departures and for Aaron moving from cash to noncash stock.

Correct. Yes.

Okay. And then the last one on that, are you guys still running sort of thirty percent of the year in the first quarter? Is that still you know, the way that all of it sort of flushes out with this stuff in terms of the accruals and everything? But it all is gonna still happen in the first quarter. And so big number and then subsequently smaller numbers throughout the year.

Yeah. I mean, the first quarter includes the, you know, the bulk of the audit expense. And then it includes a lot of tax consulting because we, you know, have to issue pay one this month. And get ready to substantially file the tax return. So, yeah, it will be front-loaded again. I'm not sure exactly if it's exactly thirty percent, but it'll include those additional professional fees which are higher than the rest of the year.

Okay. Guys. Appreciate the time this morning.

Thanks.

Our next question comes from Gaurav Mehta with Alliance Global Partners. Please proceed with your question.

Thank you. Good morning. I wanted to ask you on the $600,000 acquisition that I think you have under contract. I think in the press release, you talked about identifying the development opportunity in a land parcel. Is that something you guys plan to do yourself, or is that something for the future?

Yeah. So just to give clarity, so, you know, obviously, we had alluded to this, pre-transaction, prior quarter. We had signed an agreement. We were going through due diligence. When we got there, we were like, well, there's a very large attached parcel to it. We wanted a little bit more time to explore. We actually had a conversation with the tenant. The tenant has the existing tenant on the built portion has expressed an interest to take down a we could build approximately a 60,000 to 100,000 square foot facility next door. And they expressed to take an interest in having some of that space so that they could consolidate their operations in one location because they have a they're leasing somewhere else. And we've, you know, we so we spent time talking to them. We spent time talking to some local industrial brokers in the market. We also spent some time looking at sort of developers. So we definitely think there's an opportunity there. It doesn't mean we're gonna pull it today, you know, but how we would do that, we would you know, we have experience in here. We would typically work with a turnkey builder. That, you know, would work with us all the way through. So, you know, we're not the contractor on this, obviously, and have it developed concurrent with leasing activity. So we think that's something that we'll do. When we do it, we're gonna have to huddle. We're having an off-site strategic team meeting here in April. We're gonna discuss that, some other ones. And it also highlights we actually have four of those three others of those types of possibilities, there's a lot of the properties that we've acquired have large land footprints and, you know, we for instance, we have an asset in the Carolinas who we've been approached for a carve-out to build an industrial facility. So we're looking at those. Those are ways to obviously generate AFFO growth without necessarily simply buying something. And so we'll look at those strategically over the course of this year for sure and decide which ones we wanna pull the trigger on.

Okay. Great. Second question, I wanted to ask you around your comments on the acquisition market. I guess, are some other indicators, you know, you're looking at to get more active in that the acquisition market? Is it, like, you need, like, better cap rates or more product floor, maybe better cost of capital to do accretive acquisitions?

Yeah. You know, I think as we've honed and re-honed our strategy as time goes on. I think now whereas before we bought some smaller assets, you know, five, six million dollar assets, I think now you have to be really sterling white for me to get smaller. Not because I don't have a problem with smaller assets, just because I think just generally speaking, they don't appear as institutional. So we're sort of looking more for that ten to I would say, thirty million dollar size. If you get above thirty, if it's a single asset, candidly, thirty is probably too big unless it's something, you know, something beneficial. You know, if it's a portfolio of assets, like, you know, our Lindsey is, like, you know, multiple assets, and so there, I'll break up. But sort of that ten to twenty-five, I guess, probably be the sweet spot. So that's been a filter that we kinda look at. And right now, in this environment, you know, looking at some of the deals that are coming out, they're PE-led. And you're like, okay. Why are you selling this? In such a bad rate environment. And the answer probably is they don't care. They just want the money, and they're gonna, you know, do something else with it. And that's not necessarily a good reason for a landlord to buy. Right? And so I think we've been that's motivation is a big part of it. It's like, okay. Why are you selling it probably one of the darkest hours? You have the absolute most clarity. And you're wanting to try you're just little you know, you just bought this company. And I get it. It's a cash-out strategy. But a very it could be a very expensive one. And so we think worry about, hey. That might be on the that might be it might price talk a seven and a half or seven and a quarter, but that might really be a nine cap and you won't find out until afterwards. And so we wanna be careful of that because, you know, look you have to be cognizant that in the manufacturing space, you have the binary risk is much larger than it is than say a Walgreens. Right? The reletting is gonna be a lot harder, so you have to be more scrutiny. So I think some of the candidly, the inventory we've seen just hasn't been super compelling that says, yeah. Screw it. We're gonna go get it. You know, if there's one that looks good and we've, you know, we want to buy. We're willing to buy. It's just that there's no sense in just buying something that doesn't seem really compelling because I'm not I'm buying this look, you know, my net worth is tied to this. All our investors' network tied to this. There's a lot of people who aren't institutional, who aren't owner name, who don't pay attention to what you publish, and they don't look at the stock market. But they care very deeply about the sanctity of what they own. And, you know, that's how we gotta be mindful. Right? That this is real people's money. And that we have to protect it. And protecting it is not the same necessarily as always growing it. For the sake of growth that we do wanna grow it. We do wanna make it more valuable, but we have to protect the house. And sometimes the best way to do that is not put new stuff in the house that isn't good and or is it really compelling. And so look. Cost of capital certainly matters. You know, I think right now, it's been a thin pipeline of activity. I think we'll see it more robust, and there'll be a lot more choice because the really smart folks are gonna probably wanna sell their properties are gonna wait a little bit. If I were them, just like we're waiting a little bit. So that's kinda how we think about it.

Alright. Thanks for that color. That's all I had. Thank you.

Our next question comes from Steve Chick with Sebas Capital. Sebas Garden Capital. Please proceed with your question.

Hey. Thanks. Aaron. We appreciate the patience, and I'm glad you discussed the pre-transaction head-on in the press release. That was helpful. Just have some questions, numbers questions. You know, maybe for Ray. The ADR for at the end of the year, had a was a little lower than last quarter. Despite the same number of properties, I'm assuming there's kind of some assumptions in there for maybe Costco and Endicott, but can you just kind of reconcile that? That'd be helpful. And then maybe actually what you're anticipating for within your AFFO guidance for 2025.

So the decrease reflects the fact that Costco their lease expires at the end of July. And so as lease also expires at the end of July. So those are the things that are driving the decrease. You know, they're partially offset by ongoing rent bumps, but that's basically the driver. And what was the other part of your question?

I don't know that we've given ABR for guidance.

Yeah.

Well, just I guess, is Endicott in there as well? The small sale?

Yes. It was. But it really is a small number.

Yeah. Yeah. Okay.

Right. And can you remind me, is this, you know, this kinda steady state ABR number, it doesn't include kinda rent bumps or it's not forward-looking. Is it is it an EDR? It's the net it's the next twelve months. So it's the rent we expect to receive from January first to December thirty-first of this year.

Okay. Yeah. So any bumps that come into play this calendar year are reflective because that it's one more days we've taken is a twelve based on how we contractual rent it. Right.

Yeah. Okay. Alright. That's helpful. And then in the assets held for sale at year-end, on the balance sheet, it looks like, I think it's somewhere in, like, twenty-two million. Is Endicott in there, and what is in that number?

It's just Costco. You know, Endicott didn't have some come along until after the year ended. It closed? The way the gap rules work is you have to be committed to a sale as of the balance sheet date. To include it in asset held for sale. So we didn't have discussions with the buyer didn't come to us until January. So that's why it cost not in that number. So it's just Costco.

Gotcha. Yeah. Okay. That's all. I would point out that for the first quarter, yeah, in January this year, we did we have taken Calera to market. That out in the process right now. So that will show up for held for sale? On first quarter numbers.

But it's early. I mean, we just took it to market less than a month ago.

Oh, gotcha. Okay. That was actually my follow-up on that. It's do you have mean, are we able to say, you know, with the Cushman valuation of the appraisal recently done, how did Clara come out within that guess, relative to its book value. Can you speak to that?

No. There was you're asking if there was an impairment, there was no related impairment associated with the valuation. So it was a the valuation that Cushman did was remained above book value. The marketing process that we're having is first focused on strategic growers, of sort of, you know, sort of the same ilk. And then from there, the second round is sort of marijuana growers, which are legalized and in Minnesota. And then from there, it would be just sort of general industrial use. So we're running through that process right now. You know, our broker advice is probably six to nine-month sales process. It's hard right now in the winter, obviously, there. So it's done a little bit of soft marketing, but you know what? Look, I don't know what the outcome will be on that. What I can tell you is that is whatever dollar value we get out of that, that is dollars that are earning AFFO right now. And so we look forward to that redeployed and putting that money to work, and we have not made any assumptions that our numbers of that happening. Just so you know.

No. That's good. It's there. Because I think the book value was somewhere in the area nine to ten million, so it sounds like you'd be expecting the ones that sometime over the next six to nine months assuming the process goes as you.

I don't have any expectations right now until you know, the market's weird, and we're gonna see what we get, and then we'll go from there. But like, my only desire is to get the most we can get but I don't know. I don't have the expectation of.

Okay. A couple more if I could. On I wonder if it makes sense, you know, with the preferred coming up in a callable in 2026, wanna advertise in advance, I guess. But it makes sense at some point, if it's below par value, to pick off some of that the open market. I saw in the in with your credit agreement, you know, under a K, it looks like you've released, you know, some commentary on that. You could do that if it was fun by the common stock. But I'm just curious if you could speak to that and, you know, any future refinancings. As you look out into 2026 and 2027.

So I think in the third quarter, commentaries in either on call or commentary I alluded to, you know, a lot of our thinking is going towards that preferred, that becomes callable in September of 2026, and our debt maturing in January 2027. And so we're very much thinking about decisions today that impact those. And, you know, I think in an ideal context, you know, should we have the means, which candidly is going to probably be equity. But if we had the means to retire the preferred, I would. It was good for us. It served us its purpose, but, you know, I think it could be priced better if you ever wanted to do one. Like, in my ideal context in a world that doesn't currently exist, I would be, like, public storage used to be, and I would have I would have preferred as my sort of first lien position, and I had comment and I would not have any other debt. And then that would derisk the nature of this asset class considerably, and it would make it very much a perpetual income vehicle. But I'm not there. So, you know, to even get there though, if we were ever be there, we would have to retire this preferred. I think you're right. We wouldn't want to advertise in advance if we're gonna be taking things out. We have the flexibility to do so, and we'll see.

Alright. Great. Thanks, guys. I appreciate it.

Thank you. As a reminder, if you'd like to ask. There were no further questions at this time. I'd like to turn the call back over to management for closing comments.

Alright, everyone. Thanks so much. Talk again soon, and we'll keep our nose to the grindstone and keep working things out. Appreciate your support. Take care.