Modiv Industrial - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered disciplined execution: AFFO rose 22% year-over-year to $4.78M ($0.38 per diluted share), which management stated beat consensus; total revenue was $11.83M and net loss to common was $(2.82)M, driven by a $4.0M impairment on a Minnesota asset.
• Operations strengthened with a 5-year Northrop Grumman lease renewal (Melbourne, FL) with 2% annual escalators and portfolio WALT of 14.4 years; cash interest expense fell versus 2024 on lower fixed rates and rightsized revolver fees.
• Balance sheet remains conservative: 100% fixed-rate debt via swaps at a 4.25% fixed rate on the term loan, leverage ratio at 48.0%, and net debt/Adjusted EBITDA at 6.9x.
• Management highlighted an emerging “lending thaw” and a potential $150M asset recycling program that could add at least 100 bps to AFFO growth in ~12 months if executed, creating medium-term catalysts alongside optionality on M&A and platform bids.

What Went Well and What Went Wrong

What Went Well

• AFFO scale and efficiency: “Second quarter AFFO of $4.8 million, or $0.38 per diluted share, a 22% year-over year increase, beating consensus estimates.” (Aaron Halfacre, CEO).
• Lease renewal and WALT: 5-year Northrop Grumman renewal with 2% escalations; portfolio WALT is 14.4 years, with ~29% tenant/parent investment grade credits ≥ BBB- noted on the call.
• Cash interest and liquidity: CFO cited cash interest expense down ~$255K YoY from lower fixed rates (4.25% vs. 4.53%) and reduced unused revolver fees; $30M revolver availability and no maturities until Jan-2027.

What Went Wrong

• Impairment-driven GAAP loss: A $4.0M impairment on a Saint Paul, Minnesota asset pushed GAAP net loss to $(2.63)M and net loss to common to $(2.82)M; FFO per share declined YoY to $0.36 from $0.41.
• Equity volatility: CEO flagged share price pressure into Russell inclusion and small-cap REIT headwinds; management refrained from issuing equity at depressed levels, citing discipline over dopamine.
• Legacy asset friction: Calera equipment sale/lease challenges—management took impairment and aims to sell and redeploy capital by year-end; Costco Issaquah disposition timing depends on city logistics (rent ~$2.4M).

Transcript

Speaker 3

Today, and welcome to Modiv Industrial Inc.'s second quarter 2025 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks, and then we will open up the call for your questions. To ask a question, analysts may press star and then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John C. Raney, Chief Operating Officer and General Counsel. Please go ahead, sir.

Speaker 0

Thank you, Operator, and thank you everyone for joining us for Modiv Industrial Inc.'s second quarter 2025 earnings call. We issued our 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 Raymond J. Pacini, Chief Financial Officer. As the Operator noted, we issued our earnings. We'll start today's call with 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 results of our operations, may vary materially from those contemplated by such forward-looking statements.

Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I'd like to turn the call over to Aaron Halfacre. Aaron?

Speaker 1

Thanks, John. Welcome everyone to the second quarter 2025 earnings release. I think in past practice, I'll just hand it over to Ray first, and then I'll add some comments, and then we'll just get into questions. I assume we'll have some this quarter. Ray?

Speaker 4

Thank you, Aaron. I'll begin with an overview of our second quarter operating results. Revenue for the second quarter was $11.8 million, compared with $11.4 million in the prior year period. This 4% increase primarily reflects the impact of two industrial manufacturing property acquisitions since June 30, 2024. Second quarter adjusted funds from operations, or AFFO, was $4.8 million, up 22% when compared to the $3.9 million in the year-ago quarter. The $900,000 increase in AFFO reflects a $576,000 increase in cash rents, a $217,000 decrease in G&A, and a $126,000 decrease in preferred stock dividends. AFFO per share increased 12%, from $0.34 per share in the prior year period to $0.38 per share for the second quarter of 2025.

The increase in AFFO per share was less than the 22% increase in AFFO due to a 1.2 million increase in diluted shares outstanding, which reflects 895,043 Class X operating partnership units issued during the first quarter of 2025 and 344,119 Class C operating partnership units issued in connection with a property acquisition in March 2025. Cash interest expense for the quarter was $255,000 less than the comparable period of 2024, reflecting a decrease in the weighted average fixed rate as set by the respective swap agreements from 4.53% at June 30, 2024 to 4.25% at June 30, 2025, along with a decrease in unused commitment fees that resulted from our decision to reduce the size of our revolver. Now turning to our portfolio, our 43-property portfolio has an attractive weighted average lease term of 14.4 years.

Though the majority of our tenant credits are private, approximately 29% of our tenants or their parent companies have an investment-grade credit rating from a formally recognized credit rating agency of triple B minus or better. Annualized base rent for our 43 properties totals $39 million as of June 30, 2025, with 39 industrial properties representing 81% of AVR and 4 non-core properties representing 19% of AVR. With respect to our balance sheet and liquidity, as of June 30, 2025, total cash and cash equivalents were $5.8 million, and we have $30 million available to draw on a revolver. Our $280 million of debt outstanding consists of $31 million of mortgages on two properties and $250 million of outstanding borrowings on our $280 million credit facility. 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 June 30, 2025, is at a fixed interest rate with a weighted average interest rate of 4.27% based on our leverage ratio of 48% at quarter end. As previously announced, our Board of Directors declared a cash dividend for common shares of $0.975 for the months of July, August, and September 2025, representing an annualized dividend rate of $1.17 per share of common stock. This represents a yield of 8.1% based on the $14.44 closing price of our common stock as of August 6, 2025. I'll now turn the call back over to Aaron.

Speaker 1

Thanks, Ray. I kind of said in the press release this quarter was a little boring. I would say for me personally, it was probably a little frustrating. I think hard work and patience can be frustrating at times. It was boring in a context probably on a relative basis to others, as well as to our past quarter, right? We didn't choose to be very active this quarter. We obviously got the lease extension at Northville. We've been working on some things. We certainly did. We're pursuing a particular property right now, but the process doesn't fit neatly within a quarter. Obviously, you've seen our share price, I think, almost to the day, 60 days before the Russell inclusion, when it's pretty much known and calculable that you're going to get in. We fell off a cliff.

We were in the $16s, and we've been in the $14s now for about 90 days. Our exponential moving averages are now sort of set to those levels. We're not going to be disciplined. We're not going to issue. We didn't issue any at those prices, and we won't. It was a quarter where there was a lot of volatility. There was a lot of opportunities to buy. I think I probably purchased, I don't know, 4,000 or 5,000 shares myself. It's ridiculously cheap. I think some more of the analysts probably have the implied cap rate, but it's like in the mid-8s. There's no way you can buy these properties with any handle for low 7s or mid-7s. Some of them are high 6s. It's comforting in that regard, but it's also frustrating. That's the troubles of being a small-cap name. Patience begets patience, right?

We're playing a long game here. Not much to report. I'm sure we'll talk a little bit about Claire in the questions. I'm sure you'll talk about some of my comments that I've made in the release. It was a solid quarter. I think the decisions we've made repeatedly and consistently are why we had a large beat. The decisions, even the absence of activity this quarter, my belief is that that'll pay dividends in when we're talking this time next year, right? I think the process is just to be really patient, to understand our strengths, understand our weaknesses, be able to maneuver nimbly and quickly as needed. I think there's a real need for what we're offering out there. I think we're starting to consistently build a tribe. It's a retail tribe.

It's increasingly an institutional tribe, but it's largely a retail tribe where people, they like what we're doing. They like the no bullshit. They like the consistency. They like the effort. You know we're seeing traction there, and we like that. Even though I'm a little frustrated with the quarter, I would love to be a bigger REIT. I would love to be able to do more things. I mean, that's, you know, but I don't want to do stupid things. You guys don't pay us to do stupid things. We're going to do smart things, and we're going to keep doing them every day of the week. With that, Operator, open it up to questions.

Speaker 3

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Remember, should you have a question, please press the star key followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. One moment, please, for your first question. Your first question comes from Gaurav Mehta of Alliance Global Partners. Your line is now open.

Speaker 2

Thank you. Good morning.

Speaker 1

Morning.

Speaker 2

Good morning.

Speaker 1

Hey.

Speaker 2

I wanted to ask you on some of the remarks that you made in the earnings release about asset recycling. It seems like the environment is getting better for you guys. We're getting closer to sell some of those assets. Can you maybe provide some more color on, I guess, in what you're seeing as far as recycling and then the $150 million asset that you mentioned? What kind of assets is it going to be, 20% non-core that you would sell?

Speaker 1

Yeah, it's a good question. The assets that we would sell would be largely legacy assets. These could be core and non-core. A bunch of the non-core is in process, right? As you know, KB Home is under contract to buy Costco. We expect them to extend at least one extension. That one is itself in process. It's just a matter of timing. The reason why they would extend is that they're just finalizing the paperwork with the city. It's a reminder that I think they're $1.7 million hard money already. That one is one of the non-cores that's in the process of liquidating. We've mentioned in the past, OES has an option to purchase the property. They are in the throes of their very lengthy appraisal process. We don't think that would even self-liquidate at the earliest until next year anyway, just given the process.

This has always been known to us and always communicated. Those, I'm not talking about, those candidly are not going to be accretive spread. We can liquidate them. They'll produce cash, but you know you're probably treading water after you sell them and replace them. Some of the other ones we're talking about, these are, I'm not going to call them out specifically because you know we have to be strategic about when we take them to market. There are some assets that don't quite fit our box. Most of them are industrial. They're legacy assets. They would be very accretive. They would be selling in the high fives, low sixes, and we were redeploying these in the sevens. They're fairly liquid. There are also properties that we've received unsolicited offers on in the past.

We've kind of gauged the unsolicited offers because if someone goes out of their way to make you an offer, then they clearly find the property attractive. Not every property, no one's doing that for Clara, so we understand the difference. We've been able to note over a period of time how those cap rates that have been unsolicited have tightened. We think that in the broader picture of this pivot point that I talked about, we're starting to see a little bit more fluidity in people's desires to do things. Now maybe we're approaching the time to start doing that. That's probably, I think, in fairness, we talk about that at a big level, that call it $150 million of proceeds, which I think could generate close to 100 basis points, if not more than 100 basis points of accretion, has given us calm, right?

If we didn't have some of that, and we're trading in the 14s, and we're not issuing, we'd be like really in a box, right? I don't feel the pressure to be in a box because I know I have these things. We're still shaving off expenses, we're getting tighter, we're growing AFFO, we're doing all the things that we need to do. We just may not be acquiring a ton right now, which is like the cocaine of the real world. We're not doing that, but we feel comfortable that we have additional levers to pull. I don't feel any despair. I don't feel the frustration I talked about earlier, it's just because I just like to grind. I like to do shit, right? That's the frustration. It's not like, oh, we don't have any options. We have options. We're being patient. We're being disciplined.

I think that's why we don't worry about the share price right now. We're not, you know, reclamped. I believe that we will see that recover. I think the recycling of those assets will help do that. Me mentioning it means that we're poised. We're thinking a lot about it. We've been thinking about it, but we're thinking the timing is right. Just to be clear, it does not mean I've already launched something, right? If I do a recycling, you will know it. I will tell you when it's done. We're getting to that next stage, which I think is probably over the course of the next year or so, that makes the right time to do that.

Speaker 2

Okay, thanks for that perspective. Maybe a follow-up. I think you also made some comments about the lending market. It seems like you are exploring even though the term loan is not expiring until 2027. You have been exploring different options. Just wondering, you know, I know you said there's lending available, but just wondering what kind of terms and rates are you seeing in the market?

Speaker 1

Yeah, you know, I like to work. I'm just very blue-collar. I just like to work. I never really developed any other habits other than maybe running and working out a little bit, but I don't golf. I just like to work. In a quarter where you have to be patient and there's not a lot of grindy stuff to do necessarily, I'm going to spend that time thinking, you know, 12 and 18 and 24 and 36 months down and just iterating, iterating what could go here, what could go there. As you guys all know, I'm a big fan of capital market history. I know what REITs have done in the past. I love this industry. I've been in it for a long time. I spent a lot of time. There's certain things, you know, we're not reinventing the wheel here.

During this quarter, I spent a lot of time. One of the natural things to do is to say, okay, we've got on our event horizon, we have a term loan maturity, a credit facility maturity. Let's get started talking earlier. We've talked to, obviously, our bank syndicate, and we've talked to others. We are seeing that the environment for a new term loan/credit facility would be the same or better than what we had. I think that helps the fact that we've shown tremendous AFFO growth over the last three years. The balance sheet has become very solid. Remember when we put that first term loan on, it was pre-listing, and we still had a shit ton of office. We've really transformed. I think the lenders feel good. I think we're exploring the full gamut of how to finance, right? Because to me, I like data. I like optionality.

I like to understand what are all the choices. What if I do this now? What does that mean later? We feel encouraged. We're going to be taking more steps towards that. I think the wildcard clearly for anyone here is, what are the broader, what's the Fed going to do, right? Are we going to see Treasuries come down? Are we going to see SOFR come down? Are we going to see that? That's going to drive the needle. You see it. We're a robustly levered small-cap name. There's a Fed fart in the news, and we whipsaw, right? If we do find rates coming down, which I think everyone's going to make their own bets over the course of the next 12 to 18 months, that's going to be a positive, right?

As it relates to the terms and the structure, we do not see anything negative in our conversations. If something comes up that changes that, you're going to hear it from me. Right now, we feel encouraged by it. We are early, I think. I don't feel any pressure about, you know, I know some people get really sort of contemplative about maturities that are 18 months out, but I feel really good about this. We're in, you know, we've got 14 plus weighted average lease term, and that includes things like two months on solar, and that included the shortening of Costco. You remove those things, our weighted average lease term is more like an 18 or 19-year weighted average lease term. The real core portfolio is solid with bumps and growing, and it's very attractive to the lenders.

Speaker 2

Okay, thank you. That's all I had.

Speaker 1

Thanks.

Speaker 3

Our next question comes from Craig Gerald Kucera from Lucid Capital Markets LLC. Your line is now open.

Speaker 1

Good morning, guys. You had a pretty sizable pickup in income recognized from your joint venture, or your TIC interest, I should say. Can you give us some color there and what to expect going forward?

Speaker 4

Ready?

Speaker 1

Hello?

Speaker 4

Yeah, that reflects the impact of extending the lease. The way straight-line rent works is, you know, you're in the early years of a lease, you're picking up rent that's going to be received down the road. That was a 10-year increase in the lease term with 3% annual bumps. That's what's driving it.

Speaker 1

Okay. I would say that, as we've noted in prior quarters, we are in active dialogue and discussion with our TIC partner. It's important for us that we, in a timely manner, end the TIC. There's a variety of ways to end that TIC, but TICs are a throwback of probably the pre-GFC construct, and you don't see a lot of TICs anymore, even though there are some around, and they're just not as fluid for a beat. Our goal longer term, and again, longer term is longer than this month, is to get rid of that TIC. We will get that done one way or another. That will change a little bit of the dynamic, but there shouldn't be any more pickup after now that we signed the lease. I got it. That's helpful. Changing gears, you took the impairment charge.

It looks like that was taken on the Calera equipment. I guess, are you moving closer to maybe a sale there versus trying to lease it, or is that just to, yeah, how are you thinking about that asset?

Yeah, so it's on the market, and we've had a variety of things, people going through. What I think we've learned increasingly, one is I don't, I just don't know that I want to lease it. I just kind of, I think we want to sell it and free up our capital and get redeploy it. I think that what we've learned over time is that there's as many different types of growing technologies as there are growers, as there are leafy greens. The growing technology that was in this equipment is now regressively several years older, and we're finding less of a market for it unless you find that particular growing style. We decided to take the impairment against that. It doesn't mean that we might not find a buyer that values it, have some residual value, but we just figured that was a cleaner way to go.

Our goal is to, my ideal context is that property's gone. If I have any powers within me to get rid of that property by the end of the year.

Got it. When the tariffs first started being announced, you had mentioned that your discussions with them indicated that they really thought the impact would be limited. I'm curious, as they've been shifting around in the marketplace and you're looking at their financials, are you seeing that case? Do you have the discussions with your tenants?

Yeah, we're just now gathering, there's always a little bit of lag. We're just now gathering second quarter financials from them and doing our analysis. The ones that we have seen, and it's a good chunk of them, it's, well, one I'd say too is we really haven't, I mean, the tariff dance has just kind of been kicked down the street this summer. We have really not seen a ton of definitive tariffs until, like, as early as last week. The impact has been as we underwrote, right? I think there's not been any cuff squeeze. There's not been anything like that.

What we have, the commentary we've noticed, and it's a forward-looking, so you don't see it in the numbers, is some of them are saying that some of the bigger capital decisions that the clients are opining on or deciding on are a little bit delayed because everyone is waiting to see, well, what does the world look like, right? That seems normal to me. The conversations are, it's not that their clients aren't pulling the trigger. They're just not ready to pull the trigger yet, right? We haven't seen it. I think this, again, I still don't know exactly where Canada shakes out on this. The countries that have announced, we don't really have exposures to. I think the China deal, if it gets solidified the way we think it's going to get solidified, I think that's probably a win.

I just don't see an issue on tariffs for our particular set. It doesn't mean that they're not going to be impacted, but they're not going to be disproportionately impacted from what we can see.

Got it. I want to circle back to Costco. You know, that lease was scheduled to expire at the end of July. Can you give us a sense of the annual rent they were paying? Did you receive the first extension fee from KB Home?

KB hasn't until August 15. We've been in conversations with them. They have told us that they will be doing at least one extension. They may be doing two. They're targeting possibly closing in December. The reason is purely logistics with the city. It is not sort of a contemplative thing from what we've gathered. It's just the city has got a process. They have personnel that have been taking vacations and doing this and that. That process is taking longer than you can't push a string. They have another eight days before they need to officially do the extension. We expect them to do that. The rent, Ray, do you have the rent on hand that Costco's paying?

Speaker 2

Yeah, it was running about $2.4 million.

Speaker 1

Got it. Finally, for me, late last year, you're looking at a number of transformational transactions deeded and closed, but they were still potentially out there and made them back. Are you looking at anything out there that's similar or any other large portfolio transactions?

I would say that transformer transactions are still definitely on the table. I think for all parties, it just needs to be the right environment. It feels like we could be getting closer to environments that are conducive to those. There are still conversations, but the last first half of the year, they've been sort of more checking in conversations, right? Because a lot of moving parts. It's just really hard for teams and balance sheets across the spectrum to pull triggers and make decisions without maybe a few data points a little bit more solidified. I'd say they're still on the table. I think they have to be too, right? We can't just stroll down the lane and do this little bitty stuff forever, right? We're too small of a REIT, so we have to do something transformational at some point.

I don't think it has to be today, but if we're a $150 million market cap REIT in five years, then you should shoot us, right? This is not how the capital markets work, right? They never do work that way, right? Unless it's someone who's not interested in shareholders, unless someone who's just, that's not us, right? We care about our shareholders. That's all I am as a shareholder, even though I'm the CEO. All my compensation is shares, right? We're completely aligned in that regard. Transformative transactions probably will never be done. Just not going to bring them up unless they are baked this time.

Got it. I appreciate your candor. That's it for me. Thanks.

Yeah.

Speaker 3

Your next question comes from John James Massocca from B. Riley Securities Inc. Your line is now open.

Speaker 1

Good morning.

Morning.

Yeah, so it's kind of a difficult question to ask in this context, but I think given the answers you gave to the last question and some of the commentary on the earnings call, do you think there's maybe an opportunity given some of the loosening of capital broadly out there in the markets to maybe market Modiv in its entirety as kind of a portfolio and platform or either/or? I've talked about this before. Look, we, and I think I did it in the context when we released our appraisal. Every year we get our portfolio appraised. The tradition we had when we were pre-public as a non-traded REIT, right? I'm not like a Blackstone REIT or a Starwood REIT where they have liquidity windows. That's what we used to have. We used to have sort of liquidity windows, and we would have set arm's length of appraisal.

We've continued that tradition on. Even though there's a little bit of cost to it, I think it's been useful. I think the last two years, it's been roughly $24 a share, $23.75, $24, something like that. Look, that's done by Cushman Wakefield, very respectable. If you look at sort of NCREIF indices, you look at relative to NCREIF, we know there's lags. I'm not here to suggest to you that I know for a fact that we're worth $24 a share. I sure as fuck know we're worth more than $14. We're going to work diligently to close that loop with the actions that we can take. I've said, and I think I stated this in February, if someone comes over the top and can close that value gap definitively, then we have to listen. That's our duty. That's our job. Are we going to go solicit that?

I don't think that would make the most sense right now because candidly, if I was going to solicit and go sort of, and again, it's just the board decision, and I'm just one member of that board, soliciting that would mean that we're waving a flag that we think that we capitulated. I don't want to see predatory sort of characters coming into play, right? I can remember back when we were at $9.53 and we had like 3,000 shares trading. It was a mess, right? This was in late 2022. We had a lot of people sniffing then, but they wanted to go pay $10 a share. It was like flying a kite, right? Because in four years of dividends, that's like half the value you're saying. We understand that this is a tough time in the broader market, small-cap REITs in particular.

You know, we're holding up relatively well. If you look at us compared to some of the other small-cap REITs, for various reasons, I look at Playmason, I look at Good, I look at Pine, and I look at Frontview, and I look at these guys. You know, we're holding, other than when we fell off a cliff right before the Russell announcement, we've been holding up pretty well. I think that resonates with the tribe. Our view is we're going to keep climbing that mountain. We're going to keep delivering dividends, and we're going to try to close that value gap. Smart money will know that if they want to close that value gap sooner, we're going to listen, right?

I think that's the approach we're going to take because I think our investors deserve us to fight, for them not to be, not to have hubris, not to be egoist. I think like if I lose my job tomorrow, so be it. That's how I set this up, right? It's so hard to do things in REIT land. We're going to be smart about it, and we're not going to be obstinate about it, but we're not also going to be, you know, begging.

Okay. How do you kind of think about the understanding that in the volatile capital markets and, you know, talk of capital moving around, you have to be mindful of that and the impact that acquisitions and the like have on bottom line results? How are you thinking about maybe weighing that against the positive impacts of increased scale either on your valuation as a public company or maybe even based on what you kind of talked before about maybe being more attractive as something for private capital to come in and look at?

Could you repeat that question a little bit simpler? I couldn't follow your question. What is the question?

Obviously, you've passed in a lot of acquisitions. You're trying to make smart transactions given kind of where your cost of capital is. There's also an argument to be made that part of the reason why your cost of capital is where it is is because you're kind of subscale. How are you kind of weighing those two against each other? I guess that'll maybe impact your attractiveness based on kind of what we were previously talking about.

Got it. Yeah. I think our attractiveness, if we continue to do our job, which is to increase value, will only continue to be attractive, right? If we do what's right for the shareholders, which is don't make stupid decisions, grow the money, protect the money, protect the house, get it to be more valuable, then those will always mean that we'll be attractive. We could triple in size tomorrow, and we're still bite-sized, right? I think on the from public or private spectrum, we are going to be in that box of always someone's, you know, appetizer for a quarter or the, you know, the meal for the year, depending on the size of the other bucket. We're always going to be on that thing until such time that we are not.

To me, in this market, I think that unless you are a billion-dollar market cap or larger, you're on the food chain, right? I'm cognizant that our existence is going to be one where we are always going to be, you know, a rabbit, and people are always going to check on us unless, you know, the REIT gods line up and we kind of suddenly are, you know, huge. I don't have any ego to do that. My sole purpose is to increase the value. What we do during the day-to-day is we make sure we take decisions that increase the value. If we, you know, recycle legacy assets, and you know, we have, I think, one or two double net leases that we didn't acquire.

If we recycle, if we shorter WALT stuff, and we end up being a very, you know, ironclad battleship of, you know, a WALT of 18 years and a clean balance sheet, and we're operating well and we're smooth, that's just going to make us even more attractive and more valuable. In the meantime, while we're doing that, our investors are getting paid a dividend. I'll give you an example. Let's just say, you know, Wild Blue REIT came tomorrow and said, "We want to buy you for $15 a share." We'll be like, "That's not much of a premium." You know, and they wanted to pay cash. I imagine our investors would say no. They'd say no because chances are in two or three years, we could at the very least be worth $15, if not more, and we'd also have made over $3.50 worth of dividends.

That economic value becomes $18 or $19 or $20. I think for us, you know, we're going to stay our course. If we keep doing the right thing, we're going to continue to be more valuable. We will get there. I don't think it's a matter of we're not. I bring this up on the office thing, and even the office people are getting bidded, but we're not office, right? We have actually a very attractive portfolio, and we're cognizant of that. Our mission is solely to do right by our shareholders. If we do that, everything else would get taken care of.

Okay. On a much more kind of micro basis, you know, the property in Washington with KB Home, is there any risk that the city doesn't zone that for KB Home? Is there some kind of regulatory reason that falls out? I'm just thinking, is the delay purely kind of bureaucratic inactivity, or is there some kind of debate going on in the municipality as to whether to greenlight that project or not?

Speaker 4

It is purely the bureaucracy of the city. I mean, they have entitlement rights that the city can't just disregard. It's zoned to allow additional housing.

Speaker 1

Yeah, the zoning is already there. This is sort of a plan approval. I believe it's bureaucracy and logistics. That said, there's always, I think until the, you know, what I do know for sure is there's $1.7 million that they can't get back. Do I have concerns that they're not going to close? I don't. Probabilistically, there's some small probability weighting that that is an outcome until it's done, right? I think about all probabilistic weightings. I don't think it's, I think it's, you know, it's an unknown tail. There's a lot of kurtosis in that assumption, but I don't think it's happening.

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

Great. Thanks.

Speaker 3

I have no further questions at this time. I will now turn the call back over to Aaron Halfacre, Chief Executive Officer. Please continue.

Speaker 0

Danny, it looks like we do have a question from Stephen Chick. Do you want to go ahead and get that?

Speaker 3

Yep. One more question from Stephen Chick of Sebis Garden Capital LLC. Please, your line is open.

Speaker 1

Hey, thanks. Just to clarify on the $150 million of recyclable assets that you kind of saw circled, the Costco property, the $25 million you're expecting from Costco isn't in that. Can you kind of highlight how many properties that refers to?

Speaker 0

No, I cannot. Or I will not. I surely can, but I won't because, and the reason is if you're taking these properties to market, you want to preserve a little bit of the, because we are a public company, right? Anyone can go read up on us. We like to preserve a little bit of that optionality. Suffice to say, they're legacy properties, and they are properties that don't quite fit our box, but they're very attractive properties. That's what I will say. It does not include the KB or the Costco, excuse me. The Costco one, yeah, the Costco one is like, you know, it's great that they're buying it. If you recall, there were other home builders that bid on that process. They were the top bid. The destiny of that property is to be, you know, a housing for people in a housing-constrained market.

We feel good about that. I don't think the proceeds from that, you know, they don't move the needle, candidly. After we pay back the loan, there's just not a ton of proceeds. It should be good to be free of it and move on because that would get an office. These other ones we're talking about are, these are things that we, again, received unsolicited offers for in the past. They would be construed as very liquid. That sensitivity on a recycling, and so which no one's asked really is, and because these are legacy properties, they all have very low tax bases. You have to think about them in terms of 1031 exchanges. To do a 1031 exchange so you don't incur a tax liability, which is a no-no for a REIT, you have to be very thoughtful and very aligned things up.

Part of that is, you know, what is the, what do you replace them with? It's just as important. I think that the decision to sell them is an easy one to do. It is not one that will take long. I do not think that, you know, we'll be wringing our hands worried about, you know, the resulting cap rates that we get for them. I think the more thought comes in is, okay, how do we sequence and place them into something that's really going to make the portfolio more valuable? That's the other part of this equation that, you know, we're starting to see come into play is that, you know, you go back to the fourth quarter of last year, first quarter of this year, there was just not much inventory being available to acquire. Certainly not like we like.

I mean, certain deals are getting done, but some of the deals look like crap. I don't want to buy a crap deal just for a crap deal. I think what we're seeing is a little bit of a fall. I'm also starting to see people say, "Hey, we're willing to go put our properties out again." Now it's giving us the other side of the equation because we could have sold these $150 million of properties a year ago, probably wouldn't have suffered that much on the cap rate side, but we would have had trouble deploying. I think it's a balancing act there. Suffice to say, legacy properties, valuable properties, things that should move fast.

Speaker 1

Okay, that's very helpful. Second, if I could, in your comments about the numerous unsolicited overtures you've received for your properties, you also say and beyond. I'm just curious. I don't want to look into that too closely, but does that mean the market around you, or have you gotten overtures that are beyond just your properties?

Speaker 0

You read it pretty accurately.

Speaker 1

Okay, great. Thank you. Yeah.

Speaker 0

There was no double entendres there. It doesn't mean there doesn't, it's increase, right? Sniffing, that's how I would describe it.

Speaker 1

Obviously, if there's something that was very, very specific and very formal, then that would be a different type of disclosure. Right. Okay. Thanks. Thanks, Jeff.

Speaker 0

All right, Danny, I think we're there. I will run with it now. Everyone, thank you so much. You know, it's so much more enjoyable to just answer questions. I've been reading so many claims releases, the transcripts. I can't suffer going on people's calls anymore because all they do is read things, and it just, they just regurgitate what was in the queue. I know that's protocol, and I know that's probably the best way to go, but it just does not work with my personality. I prefer these questions because there's more insight. The job for me to have a dialogue with an analyst or an investor is to help create understanding. Again, our balance sheet is pretty straightforward. There's only 43 properties. Most of you guys have the numbers down. What you're trying to do is get into my head, right?

And to the head of Ray and the head of John and everyone here to see how do these people, because you know, what are my motivations? What are our proclivities? What's our past history? How all these things that everyone has that makes up who they are make the impact of decisions, right? As a reminder, I think I'm like an 8.9% shareholder of the company. I have put all my eggs in this basket. I watch this basket 24/7. I love thinking about it all the time. I want to do, I treat every dollar that's in there as if it was my, like my grandmother's, God bless her soul, she's not here anymore, my grandmother's money, right? Damned if I'm not going to screw that up. That's how we think about it. I think it's refreshing. It's refreshing to me.

I know increasingly we get comments from people that, you know, Wall Street people are looking forward to seeing what Aaron's going to say. Look, I'm a bit uncharacteristic in my writing style and maybe my speaking style, but I hope it resonates. I'm preaching to deaf ears on one side and a tribe on the other, but let's just get this done. Great grind. Back to the grindstone. We'll see what comes with the next quarter. Thanks, everyone.

Speaker 3

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.