Earnings Call Transcript - MDV Q1 2025

Operator, Operator

Ladies and gentlemen, greetings, and welcome to Modiv Industrial Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Raney, Chief Operating Officer and General Counsel of Modiv Industrial. Please go ahead.

John Raney, COO

Thank you, everyone, for joining us for Modiv Industrial's first quarter 2025 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'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 10-Q. With that said, I would like to turn the call over to Aaron. Aaron, please go ahead.

Aaron Halfacre, CEO

Thanks, John. Hello everyone. I hope you’re all doing well. To start, we have 32,261 shares traded this morning, which is down $0.25. Let's keep an eye on it during the call to see how it performs; it will be interesting to see if it increases or decreases. However, it may not change much since we’re in a time of uncertainty with a lot of market sentiment fluctuations. The emotions of fear and greed in the market are quite evident and have been for some time, leading to a sense of fatigue among investors. As many of you know, if you’re involved in REITs, it can be a bit unpredictable, with days of losses followed by gains, lacking consistency compared to other stable asset classes. I attempted to provide detailed information in our earnings release for those who might not be able to join the call or who find it difficult to understand the automated transcripts. This way, anyone who looks at it today, next week, or next year will have a historical reference of our perspective, which is that we’re stable and strong, with a weighted average lease term of about 14 years, and over 20 years for the manufacturing portfolio. Our tenants have rent costs that are a small fraction of their overall expenses, and they are performing quite well even during this challenging economic period. While observing market fluctuations can be amusing or frustrating, it is certainly interesting. For example, there was a significant sell-off yesterday, with around 143,000 to 144,000 shares sold before our earnings release. I find myself curious about what information led them to make that decision. Are they simply acting out of fear, or do they have a different thesis? Did they buy shares at $13.62 on April 7 and are now taking profits? It’s hard to determine, but it raises interesting questions. I believe there will be better days ahead. It would be easier to operate as a private company considering the stability of our asset class, but we have faith in the public market and see opportunities here. Yesterday marked one of the largest trading volume days we’ve had since we started, though it wasn't the biggest drop we’ve experienced. We've been through fluctuations before, and while I don’t expect immediate recovery, I feel confident at these price points, and I think others will too. With that, let’s turn it over to Ray for a look at the financials, and then I’ll return for more commentary and see if we can address some questions. Ray?

Ray Pacini, CFO

Thank you, Aaron. I'll begin with an overview of our first quarter operating results. Rental income for the first quarter was $11.7 million compared with $11.9 million in the prior year period. This 2% decrease reflects the disposition of two properties with expiring leases during the first two months of 2024, partially offset by acquisitions of industrial and manufacturing properties in July 2024 and March 2025. First quarter adjusted funds from operations, or AFFO was $3.9 million, up 18% compared with $3.3 million in the year-ago quarter. The increase in AFFO primarily reflects a $195,000 increase in cash rental income, a $200,000 decrease in cash interest expense and a $140,000 decrease in property expenses. On a per share basis, AFFO was $0.03 per diluted share for this quarter, which reflects an increase of 483,000 shares in the weighted average number of fully diluted common shares outstanding compared to $0.29 per diluted share in the year-ago quarter. The increase in fully diluted shares is attributable to the common shares issued in our ATM, Class X OP units issued to employees during the first quarter of 2025, and shares issued during March 2025 in connection with the property acquisition through an UPREIT transaction. The decrease in cash interest expense reflects the new swaps we put in place in January, which are 28 basis points lower than the swaps that were canceled at the end of December 2024. The decrease in property expenses primarily reflects the disposition of an office property in February 2024. General and administrative expenses remain constant at $2 million for each of the three months ended March 31, 2025, and 2024, which includes approximately $200,000 in the current quarter of non-recurring separation pay. General and administrative expenses are expected to be lower in future quarters since the first quarter of each year includes higher costs for legal, audit and tax professional fees, along with higher social security taxes for employees who reached the Social Security maximum during the first quarter upon payment of bonuses for the prior year. We also reduced our headcount from 12 employees to 9 employees in April 2025 and Aaron's Seaton salary effective April 1, 2025 in connection with his grant of Class X OP units, which will vest over the next five years. Now turning to our portfolio. Our 43 property portfolio has an attractive weighted average lease term of 14.2 years after including the lease amendments executed in April for our ticket is in Santa Clara, California. Annualized base rent for our 43 properties totaled $39.4 million as of March 31, 2025, with 39 industrial properties representing 80% of ABR, and four non-core properties representing 20% of ABR. Approximately 30% of our tenants or their parent companies have an investment-grade credit rating from a recognized credit agency of BBB or better. With respect to our balance sheet and liquidity, as of March 31, 2025, total cash and cash equivalents were $6.2 million, and we had $280 million of debt outstanding. Our debt consists of $31 million of mortgages on 2 properties and $250 million of outstanding borrowings on our $280 million credit facility. And we do not have any debt maturities until January 2027. Based on interest rate swap agreements we entered into during January 2025, 100% of our indebtedness as of March 31, 2025 is at a fixed interest rate with a weighted average interest rate of 4.27% based on our leverage ratio of 47.6% at quarter end. As previously announced, our Board of Directors declared a cash dividend for common shares of $0.0975 for each of the months of April, May, and June 2025, representing an annualized dividend rate of $1.17 per share of common stock. This represents a yield of 8% based on the $14.58 closing price of our common stock yesterday. I'll now turn the call back over to Aaron.

Aaron Halfacre, CEO

Thanks, Ray. As you heard from Ray and as I mentioned in the press release, we had a solid quarter, right? It performed as we expected. Nothing groundbreaking, but solid, and I think that’s important. It’s also consistent with the fact that we haven't felt the need to acquire recently. Looking at the first quarter, I believe they made a $200 million acquisition, which is quite small for them. They seem to share the mindset that current options lack significant value. While I've seen other REITs announcing acquisitions or intentions to acquire, some have faced backlash due to the current capital costs. This means we are in a highly volatile market, and it doesn’t make sense to engage unless the opportunity is compelling. Even in a strong market, we would need to take some risks because I'm cautious about debt. If you noticed, we retired 275,000 shares of preferred stock, which means we're effectively reducing our leverage. I think that’s a smart move. We purchased those shares for about a dollar less than their current trading price. So, the appeal there may have diminished. We’re not particularly interested in acquisitions at prices near par. However, we’ve seen returns better than anticipated, almost 14%. We’ll keep an eye out for opportunities. We never know when someone with a large block will approach us, and we’ll talk. Unfortunately, our preferred shares are performing well while our equities are not, but that seems normal for this environment, right? We’re in a challenging market, making it tough to determine our capital strategies. I believe what we are achieving is remarkable: delivering results, tightening expense controls, and allowing our portfolio to realize its natural growth rate. Regarding our pipeline, we’ve had several discussions with potential partners about equity deals involving property contributions. I’m not certain about moving forward at today’s prices. We'll see how that develops. We are identifying opportunities and passing on many options because, as noted in our previous statements, we aim for very specific criteria in manufacturing investments focused on risk management. To do this, we stay disciplined and selective. Many deals do not fit our criteria and might be better suited for larger firms with more properties. I want to clarify that I’m not dismissing those other assets, but they just don’t align with our strategy unless there’s a truly compelling opportunity. As mentioned in our press release, we’ve communicated with tenants, but I didn’t speak to L3 or Northrop—they wouldn’t share details anyway since they are public companies. We have one asset among many, which complicates things. While it's challenging to get insights from these firms, we do understand finance figures and have engaged meaningfully with other tenants. We have had extensive discussions with middle market credits, which proved enlightening. We discussed how supply chains are affected and how they anticipate future developments. These conversations were beneficial, leading to the agreement to reconvene in the next quarter. It's an isolated environment; if you're working with a specific type of manufacturing, the intricacies of those operations are often not transparent. Having middle market sponsors involved enriched our discussions with insights and cooperation. However, I caution investors against panicking. We faced market fluctuations, and some panic led to sales at lower prices. I reminded them that capital markets can react more emotionally than physical markets, which progress slower. Thus, many uncertainties exist with varying headlines offering little detail. Furthermore, the global supply chain remains intricate and specialized, and broad generalizations don’t apply. The distribution networks have become highly specialized over the past few decades. Legislative influences, like changes following NAFTA and the USMCA, have also shaped these dynamics. I referenced a suggestion from Ackman about easing tariffs gradually, allowing time for businesses to adapt. The idea is that permanent tariff implementation could create uncertainty for firms, especially concerning the political climate in four years. We need to be cautious about making drastic changes risk to the supply chain for a short timeframe. We acknowledge current prices but question their sustainability. Markets are shifting as new developments unfold, reflecting enhanced communication around tariffs and their implications. Standards of uncertainty remain in our stock and the overall market. Still, we’re committed and confident in our strategy, knowing I’ve invested deeply. We have a robust portfolio delivering strong results, reflecting our asset strategy effectively. While we face volatility and geopolitical issues, we also seek clarity in interest rates. Recent expectations about rate cuts have shifted dramatically, creating uncertainty. Many don’t know what to anticipate. I wouldn't want to be in Powell's position; it’s a challenging role requiring thoughtful responses. Our tenants show resilience, though steel and aluminum prices, which affect many of our critical operations, remain under pressure. Yet, businesses are managing supply chain costs effectively. Some have inventories that allow them to weather current price increases without impacting margins now. Overall, businesses are navigating challenges and adapting. We’re closely monitoring our limited properties, ensuring we are vigilant. I feel optimistic about our positioning and remain focused. Though the future holds many unknowns, our metrics, such as rent coverage and dividend coverage, remain solid. We are maintaining a tight control over expenses and remain patient. If we can avoid unnecessary expenditures, we will. While this strategy may appear dull, in the long run, it could yield significant returns for those who invest wisely now. Day traders exploiting current volatility might find opportunities for short-term gains, which can benefit our stock in the interim. Now, I'll stop my lengthy remarks and open the floor for questions. Let’s see what interests come up.

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from the line of Rob Stevenson from Janney Montgomery Scott. Please go ahead.

Rob Stevenson, Analyst

Good morning, guys. Aaron, can you talk about the cap rates that you're seeing on deals? Are you not finding the quality industrial manufacturing assets with good tenants still selling at the A cap to be able to pull the trigger there? Or is it now the cost of equity at 14% versus '15, '16, almost 17 and change before that's keeping you on the sidelines at this point?

Aaron Halfacre, CEO

Currently, cap rates are somewhat tighter than what we observed in the third and fourth quarters. The optimal range seems to be around 25%, compared to the previous levels which were likely over 25 basis points higher. We've noted some deals under $7.5 million, and brokers are still targeting the lower 7% range. Recently, we encountered a rate of 7.9%. There are instances where rates are wider. While these deals can work, perhaps not at $14 million, they could perform well at $15 million. However, the cap rate itself isn't the main concern. It's important to remember that cap rates don't automatically equate to ongoing yield, especially since many involve 3% increases. The reality is that many current opportunities aren't particularly attractive. They aren't poor assets, but they lack compelling features. The question arises: what's the justification for acquiring something that doesn't strongly motivate you, especially when the yield is also marginal? In today's market, where decisions can drastically change perceptions, if we encounter strong real estate, reliable tenants, unique products, or enticing financial situations, we might reconsider. However, I've noticed many REITs feel pressured to grow and make purchases, but we don't see ourselves purely as growth stocks. While we aim to expand, the current depressed share prices in the REIT sector offer reasonable appreciation alongside yield. Therefore, I'm not finding sufficient incentives. Additionally, motivations play a crucial role; several recent deals have been led by private equity. It raises the question of why firms are selling now, during this volatile period with higher cap rates. The implication is that they might urgently need liquidity, viewing this as a less expensive borrowing option. Such motivations don't usually align with our strategy as long-term investors. These considerations factor heavily into our evaluations. Lastly, I have access to certain funds that I plan to utilize. If I hold onto them, I may not experience immediate growth, but I won't be diminishing in size either. If I do invest these resources, I intend to do so in a way that maximizes growth potential.

Rob Stevenson, Analyst

Okay. That's helpful. And then I guess as a follow-up to that, I mean, I don't know whether or not you were blacked out or not. But I mean, were you guys thinking about doing stuff under the ATM a few weeks ago when you guys were in the 16s? Given the fact that you said that a lot of these deals would work for you in the 15s to be able to do hit the ATM in the 16s. I mean, was that attractive to you at that point? Or at that point, the volatility in the marketplace still had you just waiting from doing that?

Aaron Halfacre, CEO

I think that even though I can't recall the exact average, there were some numbers for the quarter that came from the very start of the year that carried over. We had aimed to do something at $1,221, but it finalized in January, resulting in a slightly lower number since we were closing out the previous year. However, we did make significant purchases ourselves in the '16s during that quarter. To your point, it was around $1,362, and I thought it was a good opportunity to buy. Unfortunately, within a week, it dropped to $17, but we were already in a blackout period. This seems to be a recurring issue for us. Last week, I saw it at 16.42 and thought, "Okay, I’m interested," but today it went to around $1.430. We often miss out on key opportunities due to timing. The last time we had substantial volume at a favorable price while we were open was back in December. It requires constant patience. We are continuously monitoring the situation. Our strategy for the ATM is twofold; I don’t like issuing at 16 since that feels like a steep discount. However, it’s a balancing act for incremental growth. We're not a large REIT, so we’re not dealing with massive ATM volumes, but we are focused on increasing our float. We recognize that even on any given day, a small number of shares, like 10,000, can cause a significant price swing. Over time, we understand the need to gradually and consistently increase liquidity. Our trading volumes have increased significantly; we’re averaging around 40% now, compared to 9,000 two years ago. We are making incremental progress. The short answer is that if we were performing well, we would issue more shares. We would never jeopardize the price to issue shares since we have a long-term strategy. I would love to get more equity out there for further deals, but everything needs to align first.

Rob Stevenson, Analyst

Okay, that's helpful. And then a couple of questions on some of the individual assets any clarity on a timeframe for OES to exercise our purchase option? I saw the comments in the footnotes, but just curious as to whether or not you guys think that that's any closer to a resolution in the near-term?

Aaron Halfacre, CEO

They have a four-year window to make the purchase according to the lease agreement, and they are already 1.5 years into that period. They have started the appraisal process, which is the first step they need to take by engaging a third-party vendor. This involves a request for proposals to get pricing, selecting vendors, and starting the appraisal process. That process is currently underway, although it doesn't move quickly. They have warned us that it takes a long time, which is why they requested the four-year window. They are clearly exploring the valuation based on the indicators we see. The details of this process are outlined in the lease, and if the valuation falls within the set parameters, they can move forward with approval and it will reflect in next year’s budget. So, if they were to get approval today—which is unlikely—the funds would only be available next year. This is a long-term process. However, signs indicate progress. They are actively using the property and have made improvements, as it is very close to our headquarters, which is crucial for our services, especially given the frequency of natural disasters in California. We remain optimistic about this, but we must be patient. Trying to expedite this process could be risky, especially considering the current state of office REITs. That is the situation at this time.

Rob Stevenson, Analyst

Okay. And then latest thoughts on the vacant Minneapolis or Minnesota asset. Is that looking like a sale or a lease at this point?

Aaron Halfacre, CEO

Yes, someone asked why it's categorized as held for sale. The GAAP test requires us to reasonably believe it will sell within 12 months, and it is on the market. We've had many property tours, and now that winter is ending, interest is picking up. We've had discussions about both leasing and selling. When we engaged the broker, they indicated it would take at least 10 months to market and close the sale, which is why it doesn't meet the 12-month sale standard. We'll continue to monitor the situation. Personally, I'm open to both selling and leasing, but I’m more inclined to sell. I hope to have some resolution, or at least progress, on this matter within the calendar year.

Rob Stevenson, Analyst

Okay, that's helpful. For my last question, Ray, the G&A commentary was useful. The stock compensation expense was $484,000 this quarter compared to $1.4 million last year. What does that trend look like for the rest of 2025? Is it expected to stay in the $400 to $500 range per quarter? Will it increase at any point? How should we approach that line item as we analyze our models for 2025?

Ray Pacini, CFO

The run rate will be around $750,000 for the OP units and approximately $60,000 for Directors, totaling about $800,000 per quarter. The first quarter was lower because the units were granted in February and March, so we only saw around two-thirds of that amount. Non-cash stock compensation will be stable and can be projected for the coming years. The $750 component will not show volatility as it is structured over a period of five years, making it very stable. In the past, with other units that had earn-out provisions, we experienced significant variability, so year-over-year comparisons are not accurate. Just consider the $750 along with the director compensation as a steady figure.

Rob Stevenson, Analyst

Okay. That's super helpful.

Aaron Halfacre, CEO

Sure. Thanks.

Operator, Operator

Thank you. The next question comes from the line of Craig Kucera from Lucid Capital Markets. Please go ahead.

Gaurav Mehta, Analyst

Thank you. Good morning. I wanted to ask you on some of your non-core properties. Is there any update on the sale of Costco properties? And any expectations for solar turbines?

Aaron Halfacre, CEO

We have regular updates with KB Homes, typically every four to six weeks, with our last call happening about two weeks ago. Everything appears to be progressing as planned. They have another meeting with the city, and while they are not receiving substantial funding at the moment, the timeline remains intact as previously indicated. It's worth noting that they have the option for extensions, which mainly hinges on their logistical process of securing approvals and preparing the property. There is financial advantage to these extensions, and if they choose that route, it could be beneficial. For the first extension, half of the funds go towards the purchase price, with the remainder going to us, and any following extensions would solely benefit us. We feel positive about our collaboration with them, as they are knowledgeable and skilled. On the solar front, we are currently in discussions that may require a few additional months. We’re finalizing the details, and while they are definitely vacating, they need some time to return the property to its original condition. We should have more clarity by the next earnings update; however, I anticipate they wouldn’t require more than about two months. Additionally, the solar property and the WSP property are part of the same parcel, which we've been attempting to split since 2021. This process highlights the complexities of dealing with municipal regulations, particularly in Southern California, but we're nearing completion. I believe the formal parcel division will occur towards the end of the year, coinciding with the tenant vacating. Our intention for the solar property is to market it primarily to an owner-user, preferably for sale, while remaining open to leasing options. The owner-user market in the San Diego area appears strong, with prices exceeding $300 per foot. Although this process takes time, receiving a couple more months for them to clean up the property will be advantageous, and everything is progressing as intended.

Gaurav Mehta, Analyst

Okay. And then second question I wanted to ask you was on the preferred share repurchases. Is that something that we should expect more of going forward? Or was this like a one-time sort of opportunistic repurchase?

Aaron Halfacre, CEO

I'm pleased to share that we acquired 13.8% of the outstanding shares at a very favorable price, which is about $1 less than its current trading value. With the preferred shares closer to par, I'm not particularly motivated to make further purchases. If approached, it's important to note that the shares are quite illiquid, trading only about 900 shares at prices around 24.50 to 24.60. If we were to buy 900 shares daily, it would take a long time to accumulate 275,000 shares, which is not something I want to pursue aggressively. There are also interest rate considerations influencing market perceptions. We bought those shares instead of acquiring a property, providing a yield without any underwriting or debt deal costs, allowing us to better manage our downside and know our upside. The total cost was around $6.5 million, and finding a property with that value that would yield similar benefits would be challenging. This acquisition enables us to act when other opportunities are scarce and reduces our effective leverage, while also increasing AFFO by saving over $400,000 annually in preferred dividends. However, I want to clarify that we are not pursuing a buyout. We have the option to call it, but even if we chose to, it's unclear if that will happen next year. We've already made some progress, and we continuously evaluate how to invest wisely, irrespective of market fluctuations, with a focus on the interests of our long-term shareholders who value dividends and share price growth.

Gaurav Mehta, Analyst

Okay. Thank you. That's all I have.

Aaron Halfacre, CEO

Thanks.

Operator, Operator

Thank you. The next question comes from the line of John Massocca from B. Riley Securities. Please go ahead.

John Massocca, Analyst

Good morning. Maybe kind of think big picture, and you talked about having conversations with multiple kind of your mid-market tenants. What's kind of their view on transaction activity given the macro uncertainty? And I mean I'm just thinking that potentially drives some potential deal flow for you. Are they tightening up because of all the uncertainty? Or are they maybe viewing it as an opportunity given they're in the business of manufacturing in the United States?

Aaron Halfacre, CEO

Yes, good question. I think what you're asking is, are they seeing opportunities to consolidate or expand or how they are looking at their respective transaction markets? Is that the question?

John Massocca, Analyst

Yes, pretty much.

Aaron Halfacre, CEO

I think I have addressed that question. For effective operators, much like skilled capital allocators in the investment management sector, it's a challenging time to invest due to significant volatility. Collectively, they must observe what others are doing, seek opportunities, but they aren't rushing to act. The investment thesis appears promising. We've engaged with some private equity sponsors who share this perspective, recognizing possible unique opportunities. Many strategies in these areas involve roll-ups, where specific skills are combined to create synergies. However, the need for capital is prevalent, and the volatile debt market diminishes motivation. On the other hand, a truly compelling opportunity usually emerges from distress. In this context, there may be heightened distress, creating a need for cash swiftly. Typically, great buying opportunities arise when there's distress, which could be more pronounced in the current environment. Therefore, a cautious approach is necessary right now. However, you can foresee potential developments. There's a balancing act between extending existing capacities. Most of our properties have additional space. The design allows easier integration of another company's production lines if they experience difficulties. For example, one of our facilities acquired a $2 million press, which was delivered from Canada and quickly proved profitable within six months. This illustrates that expanding existing lines is often simpler since the workforce is already in place. It'll be intriguing to monitor how things unfold, particularly concerning supply chain dynamics, as this may lead to transaction opportunities.

John Massocca, Analyst

Okay. Given that, how are you considering the use of more leverage compared to potentially recycling capital from current core assets? I understand there are still some non-core aspects to address, but long term, how do you view the balance between managing capital and leverage, especially with the current capital market situation?

Aaron Halfacre, CEO

We have several industrial properties in our core portfolio that are distribution-focused rather than manufacturing, which tend to have lower cap rates and can be recycled beneficially. I prefer to pursue these opportunities rather than increase leverage. Currently, I am satisfied with my leverage position; I would prefer it to be lower, but I like where it stands now. I don’t see much advantage in adjusting leverage until we have more clarity on interest rates, but we definitely have opportunities for recycling. That’s why we're here; we have sufficient recycling opportunities available at the right time to support our growth without needing additional capital.

John Massocca, Analyst

That's all from me. I appreciate the discussion referenced earlier in the call.

Aaron Halfacre, CEO

Sure.

Operator, Operator

Thank you. The next question comes from the line of Craig Kucera from Lucid Capital Markets. Please go ahead.

Craig Kucera, Analyst

Hi, guys. Sorry, the call dropped on me and I apologize if any of these questions I'm asking. But you mentioned talking to your PE shops and you sourced a lot of deals from them in the past. And I'd be curious, are they able to raise more money right now and maybe looking at accelerating investment in domestic manufacturing? Or is it still too early to tell?

Aaron Halfacre, CEO

It's still unclear. Some capital remains steady from what was previously raised, but if we look back to 2022, we experienced volatility with some optimism that rates would recover quickly; however, that didn’t occur. We entered a slump towards the end of 2022 and into early 2023. Lately, especially in 2023 with the upcoming elections and potential rate cuts in August, there was some resurgence of capital raised, but that momentum seems to have slowed as the situation hasn't played out in an exciting way. There's still a lot of capital on the sidelines, with some investors ready to deploy it but holding back for the same reasons we are—it remains quite uncertain. The general sentiment suggests there could be better pricing in the future, but there's also a careful consideration of alternate opportunities, whether it’s similar pricing or more appealing assets. Additionally, we’re still engaged in discussions with two major companies, who are taking a pause just like us. They haven’t made any definitive decisions yet due to the current turbulence. In the near term, many are focusing on their balance sheets and refinancing, adopting a more defensive rather than aggressive approach.

Craig Kucera, Analyst

Got it. I appreciate that. Changing gears, you've mentioned that you do have large land footprints on the number of assets that you have. I'd be curious, are you getting any increasing number of inbound calls for developing some of those sites or maybe there could be some shared efficiencies between tenants?

Ray Pacini, CFO

Many of our properties have land that likely won’t be sold off because there are plans to expand their use. We have several specific assets that present great opportunities for new development, rather than just redevelopment. There is additional land available that could be developed, and we are currently in discussions with a build-to-suit operator regarding one such opportunity. The process for monetizing these involves several steps, starting with a partial split, followed by a feasibility study and then a parcel split before construction can begin. We are actively pursuing this as a potential value add. While it’s still early in the process, I believe there’s promise here. However, there isn’t a significant amount of inbound interest at this time, primarily because most industrial buildings are warehouse spaces that were built speculatively, resulting in an oversupply and subsequent absorption issues. Many spec builders are now either inactive or reconsidering their options due to higher capital costs associated with construction loans. We recently received an inquiry about purchasing one of our parcels, which reinforced our belief that we can develop these parcels or partner with others to do so. Ultimately, this could yield even greater returns for our investors in the long run.

Craig Kucera, Analyst

Got it. And given that you extended the lease with Fujifilm, does that become a potential disposition candidate now just to clean up the JV interest? Or do you still view that as a core asset?

Aaron Halfacre, CEO

So, yes, I do think it has the potential.

Craig Kucera, Analyst

Okay. One more for me. Just curious, housing has been pretty slow this spring, particularly among the new homebuilders. Has the tone from Kate home changed at all? Or are you still confident that they want to move forward with the purchase?

Aaron Halfacre, CEO

Zero change in tone. I think, look, broad strokes homebuilders have been slow, but we're still massively undersupplied in housing in the United States and in certain markets, we're acutely undersupplied. So the economics in the right submarkets, the economics were all the loss.

Craig Kucera, Analyst

Okay. Great. Thanks for the time.

Aaron Halfacre, CEO

Sure.

Operator, Operator

Thank you. The conference of Modiv Industrial, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.