Earnings Call Transcript - MDV Q1 2023

Operator, Operator

Good day and welcome to Modiv’s First Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations for Modiv. Please go ahead, ma’am.

Margaret Boyce, Investor Relations

Thank you, Diego, and thank you all for joining us today to discuss Modiv’s first quarter 2023 financial results. We issued our earnings release and investor supplement before the market opened this morning. These documents are available in the Investor Relations section of our website at modiv.com. I am 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 phrases. 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 those forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Aaron. Aaron, please go ahead.

Aaron Halfacre, CEO

Thank you, Margaret. Hello, everybody, and thank you for joining our first quarter conference call. We're going to jump right in with a review of the financial results by Ray Pacini, our CFO, followed by my closing comments before we open the line for Q&A. Ray?

Ray Pacini, CFO

Thank you, Aaron. I'll begin with an overview of first quarter operating results. First quarter adjusted funds from operations or AFFO was $3.1 million or $0.03 per diluted share, compared with $3 million or $0.29 per diluted share in the year ago quarter. Revenue for the first quarter increased 7.7% to $10.3 million, compared with $9.6 million in the prior year period, reflecting the benefit of the acquisitions we completed during 2022. The net loss attributable to common stockholders improved by $6.4 million for the first quarter, coming in at a loss of $4.7 million, or $0.62 for basic and diluted share. This compares to a net loss attributable to common stockholders of $11.1 million, or $1.47 per basic and diluted share in the prior year period. Were it not for two primary offsets, we would have obtained an even stronger improvement in our operating results. The recent quarter results include a $3.5 million real estate impairment charge and a $2.5 million year-over-year increase in interest expense. The real estate impairment charge relates to our property in Nashville, Tennessee, which is leased to Camergon. Since we are planning to dispose of this property later this year, we evaluated its carrying value compared with comparable sales values and reduced the carrying value accordingly. The increase in interest expense includes $1.7 million of unrealized losses on interest rate swap valuations, while the swap in the first $150 million of our term loan was treated as a cash flow hedge from July 1 until December 31, 2022, and did not qualify for hedge accounting treatment for the first quarter of 2023, because the swap was deemed ineffective. The primary reason the swap was deemed ineffective is a potential for a reduced term in swap that could result from a one-time cancellation option available on December 31, 2024, compared with the January 2027 maturity date of the term loan. We provided this cancellation option at the time we entered into this swap because it reduced the swap rate by approximately 50 basis points. If there's a significant drop in interest rates in the future, this interest rate swap derivative could potentially qualify again as a cash flow hedge. The unrealized loss is a non-cash expense; it does not impact AFFO, and we continue to benefit from the hedge with a $250 million term loan outstanding today at a weighted average interest rate of 4.3%. Based on our leverage of 40% as of March 31, 2023. The balance of the increase in interest expense reflects the fact that the weighted average interest rate on our $170 million term loan outstanding as of March 31, 2023, was 4% based on the existing swaps, compared with $150 million outstanding as of March 2022 and a weighted average interest rate of 2.1%. Now, turning to our portfolio, during the first 4.5 months of 2023, we continue to focus on acquiring industrial manufacturing properties. Year-to-date through May 12, we acquired $100.6 million across 10 industrial manufacturing properties at an attractive blended initial cap rate of 7.7% and a weighted average cap rate of 9.9%. Two of the acquisitions occurred during the first quarter, and following the completion of the remaining eight property acquisitions during April and May this year, our portfolio now consists of 56 properties located in 18 states. On a pro forma basis as of March 31, 2023, the portfolio composition included 37 industrial core properties, representing 67% of the portfolio with a 14.5-year weighted average lease term and a 2.4% annual rent bumps. Three tactical non-core properties representing 20% of the portfolio with a 15.3-year wall and 2.3% annual rent bumps, and 16 other non-core legacy retail and office properties representing 13% of the portfolio. As part of our active investment strategy to acquire industrial manufacturing assets, we've successfully increased our industrial exposure to a supermajority allocation from just 39% as of September 30, 2021. Our technical non-core allocation, as detailed in our Form 8-K filing today, offers Modiv potentially meaningful upside over an interim holding period, while our other non-core allocation consisting of 16 legacy retail and office assets that were acquired by Modiv’s management team presents a near-term capital recycling opportunity as we are now focusing our efforts on selling those properties. Since the beginning of 2020, immediately following the acquisition of a non-traded REIT, Modiv’s management team has successfully repositioned the portfolio by selling $143 million of non-core legacy assets and completing over $278 million of accretive acquisitions. Annualized base rent based on rates in effect on March 31, 2023, totals $41.8 million on a pro forma basis, reflecting the acquisitions completed in April and May 2023. The portfolio's weighted average lease term is 13.3 years, and approximately 38% of our tenants or their parent companies have an investment-grade credit rating from a recognized credit rating agency of BBB minus or better. Now turning to our balance sheet and liquidity. As of March 31, 2023, total cash and cash equivalents were $13.3 million, and we had $214.4 million of debt outstanding, consisting of $14.4 million of mortgages and $170 million of outstanding borrowings on our $400 million credit facility. Our leverage ratio was 40% at quarter end, based on interest rate swap agreements we entered into during 2022, 100% of over-indebtedness as of March 31, 2023, held a fixed interest rate, and the weighted average interest rate was 4.1%. In April of 2023, we drew the remaining $80 million available on our term loan. We used these funds along with cash on hand and the issuance of $5.2 million of Class C operating units in our partnership at an agreed-upon price of $18 per share to fund the equity property acquisitions I just mentioned. The weighted average interest rate on the $294.4 million of total debt outstanding as of May 12, 2023, was 4.4% based on the existing swaps and consolidated leverage of 40% as of March 31, 2023. As previously announced, our Board of Directors declared a cash dividend for common shares of approximately $0.95 for the months of April, May, and June 2023, representing an annualized dividend rate of $1.15 per share of common stock. This represents a yield of almost 9% based on the recent share price of our common stock. I'll now turn the call back over to Aaron.

Aaron Halfacre, CEO

Thanks, Ray. As you just heard, Modiv has been able to produce yet another solid quarter of results. Furthermore, as we detailed in our earnings release, the 10 acquisitions we completed represent an impressive mix of accretive high-quality industrial manufacturing properties. However, beyond the financial results, I believe there's a message to take away from this, which I would argue is even more important. And that is the ethos or character of the management team that produced these results. Any given REIT in any given quarter can deliver a decent result; as they say, even a stopped watch is right twice a day. Heck, even delivering consistent quarterly financial results is nothing more than a nice confirmation that you made the right initial investment decision. But the investment you are ultimately making, particularly in the net lease sector, is on the caliber and capability of the management team to produce those consistent, positive financial results. Picking the right management team is critically important. It's like picking the right horse at the Kentucky Derby, the right team during the playoffs, or the right soldiers to go to war. Sometimes stats don't tell you the full story, so you have to rely on your instinct. And when your gut tells you to choose the underdogs - the warriors, the hardscrabble crew that has no quit - then you know right then and there that you have found something special. Modiv’s secret sauce can be summed up in two simple but powerful words: grit and grind. Modiv’s grit is exemplified by our focus and perseverance, combined with our ability to grind it out every day relentlessly. We are hard-wired to achieve our goals. Combined with our decades of real estate experience, our grit and grind produce results that are both intelligent and compelling. Think about it for a quick moment. Since the beginning of last year, Modiv has rolled over 30% by accretively acquiring nearly $300 million of assets without raising any institutional capital. Modiv has transformed its balance sheet with all fixed-rate debt with a weighted average interest rate of 4.4%, despite an unprecedented rising rate environment. The Modiv team has done all this while also selling millions of dollars of non-core assets, executing impressive new leases and renewals, and managing all the financial reporting of our company. We did all that with just 12 people; that takes grit, we had to grind it out. Let me ask you this: how many CEOs do you know that tour every property acquired? I've been in the REIT industry for over two decades, and I've never met another. To find the right acquisitions this quarter, our Chief Investment Officer and I had to take 25 flights with countless winter delays to 18 cities, driving over 1,700 miles between site visits across seven different states. That takes grit and requires you to grind. When we moved our Corporate Headquarters to REIT only last year to save our shareholders every bit of money we could, our COO and I loaded up the company's office furniture into a 26-foot U-Haul and drove it up over the Sierra Nevada Mountains — grit and grind. This past Saturday, I ran a half marathon trail race in the mountains. Two weeks ago, to prepare for the race after a rough winter that offered very few good training days, I decided I had to grind out several long runs to reach my goal. So in one week, I knocked out four mountain runs for eight miles, 13 miles, 14 miles, and 15 miles just because it had to be done. Another example of how Modiv is defined by its grit and its ability to grind. Last quarter, we achieved our goal to acquire a minimum of $100 million of industrial manufacturing properties. When I stated that publicly, I didn't know when we would accomplish that goal. However, we got it done sooner than we thought. Now, our focus has shifted to selling the 16 legacy non-core assets that we inherited through prior M&A. I don't know how soon we will get them sold, but I can promise you this: our grit and grind will ensure it gets done. After we sell those assets, we will then shift to showcasing to everyone how we have become the first pure-play industrial manufacturing REIT and how we are focused on becoming the leading investor in industrial manufacturing properties. With every ounce of my perseverance and determination, I will be spreading the word, even if it requires me to meet every financial advisor in the country and make investors aware of how great an investment opportunity Modiv represents and, in doing so, improve our share price. I encourage all who are listening and all who will read this transcript in the future to know this: with our grit and our ability to grind, Modiv will prosper. Operator, let's open it up for Q&A.

Operator, Operator

Our first question comes from Rob Stevenson with Janney. Please state your question.

Rob Stevenson, Analyst

Good morning, guys. Aaron, how should we be thinking about the size and timing of dispositions besides the Gap property that I guess is supposed to close later this month? Maybe you guys out there in the marketplace with stuff under contract or marketing? Is that more of a back-half ended sort of process?

Aaron Halfacre, CEO

It's a good question. Aside from the Gap property, we haven't formally designated the other properties we have for sale. However, we have conducted significant work to understand our situation. There's a balancing act involved in selling these assets. I could sell my retail assets quickly at attractive cap rates, but doing so would make our office holdings too prominent. For those not familiar, they might simply notice an increased percentage of office properties. Therefore, we are carefully managing the sales process. Ideally, we would like to sell everything in one go, though that might not be realistic. Our goal is to complete this within the year, but the unpredictable credit market adds uncertainty. The timing is hard to predict, but it's a priority for us. When I concentrate on an issue, it receives a lot of attention, and we aim to execute this efficiently. Nevertheless, the market is challenging. Typically, transactions fall through because sellers may not agree with current market conditions, and we're aware of that. Our goal is to optimize proceeds while ensuring we accomplish our objectives, as we would prefer to remove these properties from our portfolio and reinvest elsewhere. There are many acquisition opportunities available, and while we have attractive deals in sight, we need to focus on completing this current task efficiently.

Rob Stevenson, Analyst

Okay. And I guess to that point, I mean, how should we also be thinking about acquisitions? Are you guys, is it basically from here on out? Because it sort of be matched more with disposition proceeds? Or is the pipeline good enough and strong enough? And you're comfortable enough with the balance sheet that we could see another $40 million or $50 million worth of acquisitions this year, prior to doing any material dispositions?

Aaron Halfacre, CEO

I don't think I will make any significant moves before the dispositions. We turned down approximately $40 million to $50 million in deals that we could have closed. I'm satisfied with our current position; we haven't tapped into the revolver, and we've utilized the term loan, so we aren't increasing our leverage, which remains at a desired level. We are being cautious about leverage in the current environment. Once I have a clearer understanding of the sales timing and certainty, we will certainly look to acquire more this year. I prefer to frontload our acquisitions to maximize benefits while managing the margins. As mentioned last quarter, our minimum for acquisitions was 100, which we have achieved, but we aim to do more. We intend to grow while being mindful of our balance sheet. Accumulating assets while being excessively leveraged is counterproductive, so we are maintaining discipline throughout this process.

Rob Stevenson, Analyst

Okay. And then you funded about half the Reading acquisition with OP Units at 18. Can you talk a little bit? Was that just of specific circumstance there that they needed tax protection? Is there demand out there from sellers that you're talking to, to take OP Units today?

Aaron Halfacre, CEO

I believe that anyone considering OP Units tends to have some awareness of the tax implications involved. Generally, cash is preferred, especially for institutions that are less sensitive to tax issues. However, when founders or entrepreneurs, who might have either a significant or low tax basis, are involved, tax savings can be advantageous. In this particular case, someone who truly values our work had the option to take OP Units from several REITs but decided to choose us. This reflects well on our company and on this individual, Gary, who is fantastic and saw the intrinsic value in our company and opted for shares or OP Units at a price above our current market level. Occasionally, we have opportunities like this, but we are selective because we see these individuals as partners and want to treat them as significant shareholders. We are not interested in just facilitating OP Unit transactions indiscriminately, as that can lead to undesirable situations, especially in a legacy non-traded setting. In this instance, it turned out to be a mutually beneficial arrangement, and we are pleased with it.

Rob Stevenson, Analyst

Okay. And then last one for me, you extended the Levins property lease by about 16 months; are they moving out and just needed a short-term extension? Something else going on? Is that, you know, lease still is the tenant still likely to occupy that asset after the end of next year?

Aaron Halfacre, CEO

Yes, I believe they are likely to continue occupying the space after next year, but they recently made another acquisition, which involved some consolidation. They needed a temporary solution because the recent rate increase was substantial, and their rents were below market rates. They aimed to reset this situation. Additionally, they are upgrading the property with LED lighting and have invested over a million dollars in improvements over the past 18 months. They seem committed to staying; they just needed a temporary arrangement as they focus on acquisitions and are under time constraints. We agreed to this approach, and we are optimistic about it. If you look at our solar assets, you'll see we've taken similar steps. Perhaps they are considering that a structured model will withstand the higher rate increases, with the hope that the markets will stabilize. When we extend the lease long-term, the costs may not be as high for us.

Rob Stevenson, Analyst

Okay, that's helpful. Thank you. Appreciate the time this morning.

Operator, Operator

The next question comes from Gaurav Mehta with EF Hutton, please state your question.

Gaurav Mehta, Analyst

Thanks. Good morning. I wanted to ask about acquisitions. In your prepared remarks, you mentioned that the pace of acquisitions was quicker than anticipated. I’m looking for some insight into what contributed to achieving $100 million in acquisitions in the first four months. I'm trying to understand the current state of the transaction market and what factors influenced your ability to execute more quickly.

Aaron Halfacre, CEO

Yes, for some background, when we initially obtained our term loan, it was around September or October of last year, and we were pursuing an institutional portfolio that was part of a legacy store owned by a previous colleague. It was a desirable portfolio that I would have loved to work on, but the cap rate they were asking for didn’t align with our expectations given the current environment. We attempted to negotiate but couldn’t reach an agreement, although there might be an opportunity to revisit it later. Unfortunately, we had to change our approach as our pipeline was relatively thin by mid to late January. We missed out on several deals in November and December when sellers backed out due to market pricing. Deal volume began to improve in late January, but we still passed on many opportunities and bid on several others, like the American Roller deal which went to Gladstone. We had a few deals under letter of intent that we ultimately decided not to proceed with due to shifts in the market and weakening credit conditions. Our strategy has been disciplined; we could easily take on another $100 million if we wanted, but we need to manage our balance sheet thoughtfully. Closing deals quickly has been part of our process historically, and we’ve been active in looking at properties. However, there are still challenges in terms of seller acceptance of pricing, especially with legacy assets. Some attractive asset opportunities exist, but many sellers remain resistant to current market shifts and financing conditions. There has been a noticeable decrease in the number of buyers, with several influential players being less active compared to before as they rely heavily on bank funding, which is now more restricted. Consequently, the buyer pool is tighter and more selective, leading us to avoid deals with unattractive cap rates since we don’t feel the need to chase after assets. Our acquisition strategy reflects this focus on our goals, and we believe the pricing we achieved was appropriate for the risks we were taking.

Gaurav Mehta, Analyst

Okay. Great. That’s a great insight. I also wanted to ask about your disposition efforts. Can you share your perspective on office properties? And how soon do you anticipate being able to exit those office assets considering the current state of the office real estate market?

Aaron Halfacre, CEO

I believe that office spaces are currently viewed negatively by many. While there are valid concerns, it's important to recognize that not all office properties are the same. If I owned a Class B multi-tenant urban office, I would be concerned due to low occupancy and high costs, whereas owning a Class A office in a major market would be more reassuring despite some challenges. There’s been a significant shift in our perspective on office spaces, but I don't believe they are obsolete. For instance, I manage a hybrid company where our accounting team works remotely successfully, while the rest of us are constantly in the office. It can be difficult not having everyone present, and communication can be challenging through electronic means. Therefore, I think there’s still a place for offices. The market is quite fickle; 20 years ago, many properties were built, and now there’s widespread negativity towards them. Our office portfolio is unique, featuring properties that still serve their tenants well. We are experiencing some adjustments—tenants are hesitant to commit to long-term leases due to uncertainty, leading them to delay decisions. Personally, I would prefer to dispose of office properties; I haven't purchased any and don't have much interest in them, though I respect those who manage them effectively. In the past, REITs often bought office spaces for yield without considering the complexities involved. Our office assets remain valuable, and I'm not in a hurry to sell them. We're noticing increased activity in the market, more than I anticipated, especially after the quiet fourth quarter. While focusing on acquisitions, we've prioritized bringing in properties that generate revenue. We’re now starting to shift our attention towards the office sector, looking for creative solutions to manage our assets. My goal is to address these office properties efficiently, ideally being in a position next year where office leases are not a focal point for us.

Gaurav Mehta, Analyst

Great. Thanks for all the color.

Operator, Operator

Our next question comes from John Massocca with Ladenburg Thalmann, please state your question.

John Massocca, Analyst

Good morning. Maybe kind of any deal you can provide on cap rate trends over the course of that kind of March to May acquisition window. I think it may be kind of how wide were those kind of cap rate bands on some of the acquisitions you were seeing subsequent to quarter end?

Aaron Halfacre, CEO

They are around 7.5 to 8. What we've noticed as more deals have emerged, including some recent ones, is that brokers are presenting more competitively priced deals. In December, they were suggesting low sevens, thinking it might clear sub seven, but it would end up at 7.5. Now, they're estimating mid to high sevens, and I could make an initial bid of eight in the first round and still lead in the second round. It's important to note that we are specifically focused on industrial manufacturing properties. There are brokers who excel in this area and have a strong understanding of it, leading to successful transactions. Conversely, other brokers, who may only have a general knowledge of industrial or sporadic manufacturing assets, have struggled to close deals because they haven't focused on the right aspects. The cap rate is just one component of the equation. When I refer to it, I mean how the bidding process functions; brokers might claim there are numerous bidders, whether it's five or ten, but you don't really know the actual numbers. They encourage bidding to establish the cap rate, and then the specifics come into play — the assignment language, credit quality, and other negotiation details can lead to issues. When we pass on deals that initially seem fair based on our risk-adjusted price but later reveal undesirable terms like lack of assignment language or flexibility, it forces us to reassess the deal. That can impact the credit quality perception, and we may communicate that the cap rate needs to reflect that. Occasionally, they agree because circumstances may dictate it. Therefore, we consider the cap rate range to be about 50 basis points, between mid-sevens to just below eight, and sometimes reaching eight. I often question whether an 8.5 cap rate means I'm actually getting something closer to a 7 or 7.55, or if it's truly an 8.5 with some risks attached. We're being cautious about our approach. However, I believe that I could effectively operate with $300 million in that cap rate range consistently.

John Massocca, Analyst

Okay. And then I know it's kind of early days, but any kind of change or impacted deal flow caused by some of the recent turmoil we've seen in the regional banking market? I imagine that's kind of a common financing avenue for some of your potential tenants and even current tenants?

Aaron Halfacre, CEO

Not deal flow, but I think the buyer pool. Yes. So I think, I mean, I think the people were coming out are talking about sort of where markets are at, and they're looking to get a transaction. I think if you look at the sale leaseback; it's a form of financing. So I think in some ways, it may be a little bit more assured than bank financing. But most of these deals require bank financing to have some sort. I think the buyer pool is what's changed the most; I mean, the individual buyers, the small, you know, private equity type, you know, one to two-man shops; those guys are gone because it just doesn't pencil.

John Massocca, Analyst

Okay. And then can you talk about any impact from the Kalera bankruptcy in April? Is that tenant kind of paying rent in full? And has there been any indication from them if they're going to reaffirm or reject the lease?

Aaron Halfacre, CEO

So, as you'll see in our disclosures and the Q that’s filed, they are going through their 363 process. They secured debt financing and are now in the process of selling the company. The results of that process are expected by June 9, if I remember correctly.

Ray Pacini, CFO

Yes, that’s correct. The auction takes place on June 9.

Aaron Halfacre, CEO

Yes. That timeframe applies to all their properties regarding acceptance or rejection. Their rent is up to date. They weren't operating in the building yet, but they were preparing to go online. The asset's status is fine. I've visited the site four times in the last five months and everything looks good. We're awaiting the process to unfold and remain hopeful. However, I realize I wouldn't pursue another pre-revenue deal like this again—it's a lesson learned. We've received numerous inquiries about the property, particularly from marijuana growers, especially since there's legislation progressing in the state senate to legalize marijuana. Our property stands out because it was constructed over an aquifer, providing its own reliable water source, crucial for cultivation. Therefore, we’re optimistic, but we don’t expect any updates until the process is completed.

John Massocca, Analyst

I have a quick question regarding the property that had its lease extended during the quarter. Should I interpret your comments to mean that if a longer lease is pursued, it might be at a rate lower than the recently extended one, considering the short-term nature of the arrangement? Or is it that the rate has been adjusted to reflect current market conditions?

Aaron Halfacre, CEO

Yes, they had been in that space for a long time. The rent increased significantly, around 64%, which came as a shock to them since they hadn't been paying much before. They are a busy company, managing multiple distributors and other ventures. Our discussions with them only began about two weeks before their deadline, which contributed to their surprise. They had been unaware of how much rents had escalated over time due to their long tenure in the property. They are also consolidating other businesses and likely prefer shorter leases, as a long-term commitment would be more challenging for them. They needed to finalize something quickly without conducting a thorough budget review since this was off-cycle for them. While I believe there’s a good chance they will stay, if they leave, I'm not particularly concerned. The property, located near the 80s in a logistical area, might be better suited for distribution purposes in the long term. Ultimately, they experienced a significant shock from the new market rate, and while they secured a 16-month lease to utilize the space, they are likely aiming to adjust their needs over a longer timeframe.

John Massocca, Analyst

Okay, that's very helpful color. And that's it for me. Thank you very much.

Operator, Operator

Our next question comes from Bryan Maher with B. Riley. Please state your question.

Bryan Maher, Analyst

Great. Good morning, Aaron and Ray. Aaron, you talked; most of my questions have already been asked. But you talked about earlier in the call holding off on selling retail until you can then lend some office. But when we think about it, we think who owns your shares in those of us and institutional investors who are focused on it. I mean, we get it, and many retail people may not look at it; may not care, why not just sell the retail if you can? I think the market gives you guys a path; I'm holding the office to you sell it. And then you could redeploy that into more industrial manufacturing, which then kind of balances out the ratio anyway.

Aaron Halfacre, CEO

I believe that's a valid point. It's not just about appearances; there's also a logistical aspect to consider. When dealing with 16 properties, you have options: sell them all individually, bundle some in a portfolio, or pursue other strategies that make sense. Some properties may be more suitable for a 1031 buyer, which differs from what you'd do with properties aimed at institutional buyers. Selling listed assets through a 1031 exchange can lead to numerous offers, some of which seem too good to be true, but often are valid because they are designated properties requiring careful consideration, which can be time-consuming. We're in the process of preparing for market activity and establishing pricing. Our initial focus is on getting our office ready, as it may take longer to sell those, while we also prepare for faster retail sales. Although I can't dictate the pace of sales, we aim to ensure everything is in order first. Once we have the office operations set up, we will shift our focus to retail, and then we'll be ready to move forward.

Bryan Maher, Analyst

Okay. And then when we think about your acquisitions, I mean, how are you sourcing those, the inbound calls? When we think about industrial, a lot of people think about industrial distribution logistics. We all know the best players are who are out there buying it, but who are you running into as far as competition for buying industrial manufacturing?

Aaron Halfacre, CEO

Yes, I believe I’ve mentioned before that the market seems to be shifting. There are fewer small, leveraged buyers now. The companies that are actively purchasing in the industrial manufacturing sector are primarily focused on that specifically. In the public space, I think the most prominent players are us and Gladstone. Many assets that Gladstone has acquired were also ones we bid on, and vice versa, indicating we are competing for similar opportunities. In the past three quarters, Spirit has increased its focus on industrial buying, and I don't think their motivation is strictly yield, although that is a consideration as they are a diversified entity. They've really refined their strategy and know what they want to purchase. Broad, historically, has made bids here and there, but I haven’t seen much activity from them recently; I’d have to double-check that. Their past purchases seemed to be partly influenced by the desire for yield and their general affinity for the sector. Store has historically been a significant buyer too, but they seem to be less active currently, having either rejected or negotiated various deals recently. There are private buyers who may not be well-known publicly, like White Oak, which is a reputable firm, and AIC, which has long been a leader in this space. AIC sources their deals independently, differing from others as they often sell assets rather than buy them, focusing solely on industrial manufacturing. Our tenant, which operates in service tax with a background in store, is also making purchases. Fundamental has made some acquisitions recently as well. Another noteworthy firm is MAG Capital Partners, led by Dax, who has been intelligently focused on the sector. Overall, there aren't many buyers in the industrial manufacturing space. Some firms like DRA and certain legacy groups have some exposure, but they don’t appear to be actively buying at the moment. Among public REITs, the most active players appear to be Gladstone and us. Regarding sourcing, we have received numerous inquiries lately. In the past year, excluding key transactions, we’ve invested over $200 million in real estate, all concentrated in industrial manufacturing. As we’ve clarified our focus, it’s led to increased interest from others. There are some excellent firms like Ascensions and Chelsea, whose teams are aware of our activities, and we receive their calls, which can sometimes lead to marketing processes based on the seller’s timeline. We recently completed the Lindsay transaction through Middle Ground, a private equity sponsor we trust, and they rely on our execution ability. We’re committed to ensuring the best price discovery processes for sellers. We review various properties that come our way, even from different brokerage teams, and while bidding processes vary in efficiency, we are not engaging in the same strategies that AIC or Store did due to our limited manpower. We currently have a restricted team and can’t reach out personally to all manufacturers or industrial asset owners for potential sales. I hope to expand our efforts in that direction, but for now, we’re focused on securing more mainstream assets.

Bryan Maher, Analyst

Perfect, thank you.

Aaron Halfacre, CEO

Well, I think we said we beat it up pretty much. Thank everyone for being on the call. We'll put our heads back down and get back to it. I don't think anyone's really paying attention to us, unfortunately right now. But it's a risk-off environment. REITs are topsy-turvy. It's been a crazy 15 months. It could be another crazy 12 months or more. We'll just keep getting things done. We look forward to brighter days for everyone. Do well. Thanks.

Operator, Operator

Thank you. That concludes today's conference. All parties may disconnect. Have a good day.