Good day, and welcome to Modiv Industrial, Inc.'s Q2 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star followed by zero. On today's call, management will provide the prepared remarks, and then we will open up the call for your questions. To ask a question, analysts may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key, and 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 Raney, Chief Operating Officer and General Counsel. Please go ahead. Thank you, operator, and thank you everyone for joining us for Modiv Industrial's second quarter 2024 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 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, joint ventures and strategic partner discussions 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 Halfacre. Aaron? Thanks, John. Hello, everybody. Thanks for joining our second quarter conference call. Most of you would rather be tracking the stocks on your watch list in this volatile market, so our goal is to try to make this a snappy one. I said all my prepared remarks like I normally do in our earnings release, so let's just jump straight to Ray, and then we'll go to Q&A. Ray? Thank you, Aaron. I'll begin with an overview of our second quarter operating results. Rental income for the second quarter was $11.3 million, compared with $11.8 million in the prior year period. This 4% decrease primarily reflects a decrease in tenant reimbursements related to 13 properties sold to GIPR in August 2023, which included properties with modified gross leases and double net leases. Rental income for the quarter also reflects the impact of 12 industrial manufacturing property acquisitions during 2023, partially offset by 16 dispositions of noncore properties from August 1, 2023, to February 28, 2024. Second quarter adjusted funds from operations, or AFFO, was $3.9 million, up 17% when compared to the $3.3 million in the year ago quarter. The increase in AFFO primarily reflects an $834,000 decrease in property expenses and a $179,000 decrease in G&A, which were partially offset by the $493,000 decrease in rental income. The increase in AFFO was impacted on a per share basis by a 781,000 increase in diluted shares outstanding, resulting in AFFO per share of $0.34, compared with $0.31 in the prior year period. The current period AFFO includes non-recurring state and property tax refund, refunds of $138,000, or $0.01 per share, and a decrease in G&A expenses of approximately $179,000, or $0.02 per share, due to the timing of expenses that will be reflected in the third quarter. If our repurchase of 780,000 shares from First City Investment Group on August first, that occurred at the beginning of the quarter, pro forma AFFO would have been $0.37 per fully diluted share. Cash interest expense for the quarter was approximately $25,000 greater than the comparable period of 2023, when we drew the final $80 million of our term loan in mid-April 2023. The current period expense included $550,000 of unrealized non-cash net losses on swap valuations, which increased interest expense, while the prior year period included $3.7 million of unrealized gains on swap valuations, which decreased interest expense. Now, turning to our portfolio. Following the July 20, 2024 acquisition of a photonics manufacturing property located in the Tampa MSA, our 43-property portfolio has an attractive weighted average lease term of 13.6 years. Though the majority of our tenant credits are private, approximately 34% of our tenants or their parent companies have an investment-grade rating from a formaly recognized credit agency of BBB- or better. Annualized base rent for our 43 properties totals $40.5 million on a pro forma basis as of June 30, 2024, with 39 industrial properties representing 76% of ABR and 4 noncore properties representing 24% of ABR. With respect to our balance sheet and liquidity, as of June 30, 2024, total cash and cash equivalents were $18.9 million. ... and we had $280 million of debt outstanding. Our Tampa property acquisition and a repurchase of 780,000 shares from First City reduced our cash position to $3.2 million following quarter end. Our debt consists of $31 million of mortgages on two consolidated properties and $250 million of outstanding borrowings on our $400 million credit facility, and we do not have any debt maturities until January 2027. Based on interest rate swap agreements we entered into during 2022, 100% of our indebtedness as of June 30, 2024, held a fixed interest rate with a weighted average interest rate of 4.52% based on our leverage ratio of 47% at quarter end. We are actively evaluating the changing interest rate environment and presently intend to enter into new swap agreements on or before December thirty-first, 2024, to continue our full cash hedge position. As previously announced, our board of directors declared a cash dividend per common share of approximately $0.095 for the month of July, August, and September 2024, representing an annualized dividend rate of $1.15 per share of common stock. This represents a yield of 7.79% based on the $14.76 closing price of our common stock as of yesterday. I'll now turn the call back over to Aaron. Thanks, Ray. Okay, and the fun part begins here, where you guys get to ask your questions, and I tend to talk too much. But before we do jump to Q&A, I want to address two things. Mr. Maher, I know, my missives tend to be dramatic, but they're not meant to be. They're meant to be cryptic, though. And the reason is, is that, you know, there are a lot of constituents out there, and so there may be some messaging in those. They're so cryptic, though, that sometimes they can be confusing. So to that end, Mr. Stevenson, I want to point out that the portfolio in the JV is not focused on the city of Miami. Just to be clear, it is, it is diversified in its geography. So with that, operator, let's go to Q&A. Great. Thank you. Ladies and gentlemen, just to reiterate, to ask a question, press star one on your keypad, and you'll hear a confirmation tone. To withdraw your question, please press star, then two, and if you're using speaker equipment, you may need to pick up your handset before pressing the keys. Our first question comes from the line of Gaurav Mehta with Alliance Global Partners. Please proceed. Yeah, thank you. Good morning. I wanted to ask you on the JV, wondering if you were willing to disclose any more details on what's the size of the JV? And do you expect to derive any management fee, property management fee, once you get into the JV? So appreciate the question. Figured you'd get it. You should generally assume that I'll try to tell you everything I can. So I will not tell you statistics on that portfolio at this stage. And I have my reasons, so you ought to trust me on that. As it relates to the JV fee, though, we do not, we're not doing this as sort of a fee generation thing, so this is a participation. So we will ratably be participating in the income and expenses, and we're not, we are not looking to make any fees on it at all. Okay. Second question may be big picture. Any color on what you guys are seeing in the transaction market for industrial manufacturing? Yeah, just... I mean, you're seeing one-offs continue. This whole year, it's been one-offs, where you'll get something comes up, and, you know, sometimes the cap rates look attractive, but there's a reason they look attractive. They're, but they're not really attractive. It's the credit's pretty thin, or they're desperate for cash or something like that. Other times, on the more solid ones, you know, they're not, and they're not in a rush to sell, then the cap rates are too tight. So it hasn't been. It's been a really, you know, not unlike our stock, it's been a really choppy market for industrial manufacturing. Remember, we're pretty picky. You know, I, I don't, I don't look and deem sort of light assembly as manufacturing. I don't, you know, I don't look at flex space as, you know, as, as manufacturing. We're looking for things that are really durable in terms of their products, in terms of where they are in their market segment, so that narrows the universe. But it's been a pretty choppy, as you can expect. I mean, it's just been. I mean, if you like, for instance, on the, on the Tampa-based deal we did, you know, the reason why we were comfortable doing that one, and obviously, it had, you know, a good client list that were buying their products. They were making something that was sort of very durable and needed for infrastructure-based needs. But more importantly, the money from the sale-leaseback went, and we tied it to this to make an acquisition overseas that did the same thing. So by doing this acquisition, they were more than doubling their top line and really getting synergies. So to us, that was a smart use of capital, versus if it had been a PE shop who was just stripping out cash. And so there's so many different motivations into why we choose or why we think is there's a good market or a bad market for assets, and right now, it's just been hit or miss. So we look, but you know, there's not a lot of volume. It's not like you're buying Walgreens or something. Okay, thank you. That's all I had. Thanks. The next question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please proceed. ... Good morning. Aaron, can you talk about the expected timing on the non-Miami centric battleship deal? Is this likely a third quarter event if it happens? Yes. Okay. I think if it pulls together on the pace we're working on, it'll happen before the Q, is my guess. Okay, perfect. And then, can you talk about what is your role? Are you gonna be in charge of managing these assets? Is it essentially a passive sort of ownership interest? Like, how should we be thinking about these and your involvement? Yeah, we'll plug them into our ecosystem, we'll manage them. The PE sponsor, we'll actually be stepping into the position of a prior joint venture partner that had or has a much smaller percentage than right now than what we are anticipating acquiring. So it'll be a more equitable partner relationship. But we will do the management on a day-to-day basis, including, you know, property management, accounting, you know, all those aspects. And the private equity sponsor will continue in what I would characterize as more of a passive role. Okay. The materiality of the deal isn't such that given your current size, that you'd need to get any type of approvals other than from the board, for the share issuance? That is correct. Okay. And then sort of switching gears here a bit, how should we be thinking about First City going forward? Or is this just a staggered sort of deal, or they wanna sell out of their remaining shares and units, and going forward now, do they own primarily shares or units at this point? Great questions. First City is a wonderful investor. We think highly of them, and, you know, have had a dialogue with them for the last 2 years or 2+ years. They're very smart investors, so even though on the surface, you know, this was smart for Modiv, they have a history of making money in the space that they deal with, which tends to be in the automotive dealership space. So, they now have only common shares. They are still a significant shareholder. So, you know, they have a meaningful size. They have had those shares that were not, you know, they were converted from OP units to shares back, I wanna say, in January. So they've had those at their possession, so they're those are freely tradable. They, they're allowed to do what they, what they want. You know, obviously, I, I don't, you know, ask them about their business, so, you know, but they, if they are gonna stay longer term, I don't know. We, we hope they, they do. We think the world of them. And this was just a transaction that, you know, met the needs of, of both parties. So, they have no more OP units, though, and this, this ended the OP units, which, which was the original cycle of the 721 transaction. Okay, that's helpful. And then how are you thinking about the most appropriate time to monetize the Kia asset? Is that a 2024 event at some point in time? Is that a wait for rates to come down and probably more likely a 2025 event? How should we be thinking about that in the current market environment? Yeah, I think, you know, you know, that is a great property with a great lease, with a great tenant. And in my view, in this rate environment, you would only get punished. You wouldn't get the credit that you're due. I think, you know, it's a natural candidate along with our, you know, Costco and OES as recycling because they are non-core. You know, Costco is, as we know, we just previously disclosed, is underway. The other tenant, OES, has indicated that they are, as I mentioned before, interested in exercising their option, purchase option. It's an arduous process for them as a government entity, so we don't know until we know. But those are probably their natural first candidates. And then, you know, at the right time, we would execute on Kia. And I think because there's a substantial embedded gain in that, we'd have to be very. It'd have to be tied very much to a 1031 exchange. And so, you know, that could be new assets out there, another portfolio. It could be, you know, the second half of this aforementioned JV. I think there's a lot of opportunities to naturally sequence that. But I don't. I have zero expectations that it's in the near term. Okay. And then speaking of Costco, at this point, given the way that the city is moving, what's the sense as the earliest that that deal closes for you guys? It's really up to their zoning, you know, and the final permits. But like, we're earmarking sort of mid-next year. And right now we don't see any reason why that would be earlier. It, there is provisions for it to be earlier. I don't think it would be earlier than February of next year, so it's definitely a 2025 event. All right. And then the last one for me. You mentioned in your comments that Adam and Curtis are leaving the board, so you're losing your chairman and your lead director. ... How are you thinking, and the board thinking about that going forward? Will the board shrink? Is there anyone on the board currently gonna step up and take on those roles? And how committed are you and the company keeping the CEO and chairman roles separate at this point? CEO and chairman role will be separate. There's. That's best practice. There's nothing there. We will, by the time we file a proxy, have all those items addressed in a thorough manner. And so we've, you know, we have put thought towards it. And I'd say, you know, we're not, we're not ready for, you know, to get our proxy out yet. That'll be soon. We wanted to get this, you know, get this JV due diligence underway. And so by the time we do that, it'll be we'll be fully vetted and out with it. But, you know, we'll maintain the same sort of professional integrity that we've always done with our board. And, you know, it's disappointing to have, you know, rotation, but, you know, it's been five years. It's been a long time and, you know, they've got other things to do. So, I'm very grateful for their service and, you know, when, you know, whoever comes on next, it'll look, you know, they'll have a high bar to measure to. All right, thanks. Thanks, Rob. Appreciate the time this morning. Yep. Mm-hmm. The next question comes from the line of Bryan Maher with B. Riley Securities. Please proceed. Hi, this is Brandon on for Bryan, but I will certainly pass along the message. Most of our questions have been answered, but two quick ones from us. So, first one was just the probability on, kind of the current strategic partnership going forward versus, kind of the probability of the other, strategic partnership option, if you can delve into that. Yeah. So I think, you know, there's some logic to sequencing them. And this one is one that we could fast track a little bit better. Look, during the course of the summer, it's just been... We've had... I mean, we were— our share price was at $15.75, it was at $13.95. You know, we had, you know, so much market and rate volatility that, you know, it makes it hard to negotiate if you're trying to engineer a certain outcome, and so patience is key, and that's kind of what I talked about. This one, though, is of the two... And they're both great opportunities, and they're both very strategic, but they're different in terms of the composition. And so this one is one that we can execute faster. And I think it also only dovetails. So I think it, if anything, doing this one first helps strengthen the opportunity for the second one. So that's how I would describe it. I don't. It wasn't an either/or decision. In my ideal world, it'll be, you know, the combination of the three battleships. Got it. And, you've talked about your kind of acquisitions, but I was just curious on the disposition pipeline, whether you're receiving offers on existing properties or underperforming properties, any, any color there? And that's all for me. Thanks, Brandon. There are no properties held for sale right now. Look, you know, we've clearly signaled that, you know, non-core assets, particularly the office assets, are a natural recycling candidate. You know, we have some industrial assets that are less manufacturing and more distribution that could be candidates down the road, but right now, nothing's for sale. You know, we did a big transaction last year with the 13-property portfolio. We obviously sold 2 earlier this year. So I think, you know, we're always able to sell, and if we find the right opportunity, we will execute. That said, if you've got, you know, a good property with good operations or the... And you don't wanna necessarily sell into this market, is 'cause you're just gonna get cut off at the knees, unless you have to. And so we don't feel any urgency to have to do anything, and so we'll continue to be smart. Thanks. The next comes from the line of Cullen. Please proceed. Hey, Aaron, good morning. Curious if there's any specific watch list changes for you guys from a tenant credit exposure perspective. And then secondarily, hearing a lot of talk in the market about pricing between investment grade and non-investment grade assets. Just would love to hear how you and your team think about pricing assets depending on credit profile. Sure. I think the credit profile, IG, non-IG frame of mind is highly conducive to sort of traditional net lease. And what I mean by traditional net lease is, you know, I think of NNN or, or O, or Agree, or NETSTREIT. They're buying a lot of retail and, you know, there is a wide spectrum of credit quality. And, you know, that's—and that way of thinking about it is built into a lot of other net lease product types, and I think for good reason, right? Because these are, you know, not unlike bonds, and so the credit matters. I think when it pertains to industrial manufacturing, it's hard to fit that square peg into a round hole. And what I mean by that is you have a lot of private middle-market credits-... Typically, you know, we're not buying, you know, Intel manufacturing fabs. That would be, like, 4 times our market cap just to buy one of those. And so we're buying, you know, really durable infrastructure-based manufacturers that have typically been around for a long time. They could either be individually owned, some of them are public. I think our look-through base is on rated credits that are investment grade is 34% of the portfolio. I think O's is, like, 37%, but it's completely apples and oranges, right? There's no real comparison. So for us, if we can find someone that's investment grade, and it makes sense, and that's the actual guarantor on the lease, that's fantastic. Will we buy a crappy manufacturing poor location just because it's investment grade? No. We gotta make sure that it's a durable tenant in terms of it's been around for a long time, what they're making is essential, that they have a good market share of what they do make. Hopefully, all or at least a majority of their manufacturing is in our facility, so it makes it very, very low likelihood of rejection, right? Because rejection, in our case, is a real dire outcome. Not like a Linens 'n Things, where I can just go rebox it. And so, so we think about it differently. It's certainly important. We run internal and external credit every time we do a deal, but the IG thing doesn't always necessarily fit. As terms of pricing, you know, you know, well, like, kind of what I alluded to, to go off, you know, we're not seeing a ton out there. The pricing is, you know, it's either wide, and because they're desperate, and they're trying to bait someone into taking it. So they'll say, "Hey, it's an 8 cap or 8.5 cap," but it's really probably a 10 cap if you looked at the true risk. Or it's a really good pro- portfolio, and they know it, and say, market is prevailing market, it might be 7.5, and they want 6.5. And you're like, "Well, that was two years ago." And so it's, you know, it's kinda choppy. There's not a whole lot. Ours is really a case-by-case thing. There's not a lot of observations to be to draw a trend line from. So sorry, I can't answer that better. Oh, great. That's helpful, Cullen. Appreciate it.