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. [Operator Instructions] 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.

Thank you, Brian, and 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.

Thanks John. Hey everyone. Hope you're doing well. I guess I'll start off by saying it looks like we're at 32,261 shares traded this morning. We're off $0.25. Let's see what it does. Let's all track it while we're on this call and see what it does be interested to see if it goes up or down. Probably nothing though, because we're right in front of Powell, and we are in a weird time, a time of great uncertainty, a lot of histrionics, a lot of Raleigh motion. The fear and greed and Mr. Market is pretty pronounced, has been really for quite a while. And I think there's probably a lot of fatigue setting in, in the marketplace. As all of you who are probably on this call know your long REITs or you're certainly in the REIT space, REITs are -- they're a bit of a roller coaster, taking it on the chin one day, doing well the next, not a lot of consistency and certainly not a lot of consistency relative to the stability of the asset classes that are underneath those. I think that's true for us. As normal, I tried to lay out a lot of detail in our earnings release. For those people who don't ever dial into the call or who can't make head to tails of the AI auto-enable transcripts, they don't get it quite right, and try to put it out there. So if someone picks it up today, someone picks it up next week, someone picks it up next year, they have a little bit of a historical record of how we see things and how we see things are good. They're stable. They're strong. We've got on a weighted average lease term of roughly 14 years. And if you…

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 $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 and 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 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…

Thanks, Ray. As you just heard from Ray and as I said in the press release, solid quarter, right? Just delivered as we expected. Nothing are shattering but really solid, and I think that's noteworthy. I think also consistent in the sense that it's been several quarters now where we haven't really necessarily been anxious to acquire. If I look at first quarter results, I mean, I think they acquired it, $200 million or something like that, which is really small for them. And I think they take the same approach that there's not a lot of value add. I've seen other REITs announced acquisitions or announce the continued intent of acquisitions. And I think some of them have been punished for it just because of where cost of capital is. I think -- so -- it helps that we are in a market environment that is super volatile, and it doesn't really make sense unless it's really compelling to pull the trigger. I'm not immune to the fact that even if we are in a really robust market, we would have to push the envelope a little bit because I don't like a one of debt. And if you saw from 275,000 shares of preferred that we've retired, we're effectively delevering. And I think that's smart money. But we bought those like $1 less than where it's trading right now. So I think the bloom may be off the rose there. I don't know that we're all that interested in buying at a value that is near par. And I also think that we got a lot more than we thought on that front, almost 14%. We'll look around. We never know its own -- has a large block and they want to come to us and we'll talk…

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

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?

So cap rates, I'd say that right now, we're seeing -- they're a little bit tighter than they were in third and fourth quarter. But -- so I think the sweet spot is to 25%, whereas before, they were probably -- well, they were probably 25-plus basis points higher. We have seen some clear sub-$7.5 we've certainly seen brokers still pushing sort of the low 7s. We got soon yesterday at 7.9. We've seen some that are wider. So look, those work maybe not at $14, but they do certainly work in the 15. But it's not so much the cap rate, right? Because remember, look, the cap rate is not is not necessarily your ongoing yield because most of these have 3% bumps. I think where it is, is just saying -- I think a lot of it is what we're seeing right now is just not that compelling. They're not bad assets. But they're not compelling assets. And what's the point of buying something that's marginal in terms of your motivation behind it, and it's also marginal and yield. In a time where you could either look like a genius or look like an 80, but in that on hindsight. So if we've got a strong -- if we got either really strong real estate or a really strong tenancy, or they're in terms of they're making a very unique product or they're very financially strong or it's a yes just a compelling financial opportunity, then we're kind of just like why? I just -- I've said this before, so many REITs just feel that they have to grow, they have to grow, they have to buy, they have to buy, but we're not really grow stocks. We want to grow. And look, there's enough price depreciation in the REIT industry overall from the depressed level of share pricing right now to get people a pretty good appreciation with yield, And so I'm just not seeing compelling reasons. The other thing I think about that is you always have to think about the motivation. And some of the deals we've seen have been PE led. So why are you firm selling this now in the most volatile time when cap rates are higher. Why? Because you apparently really need the money and you can understand that this is a cheaper form of leverage. Those motivations are not always in line with us as a long-term holder. So I think all that comes into play when we're looking at this. I think the last thing saying is, I got it some of dollars and I'm going to use those dollars. If I don't spend them, yeah, I may not be growing today, but I'm not shrinking. And if I -- so if I do spend them, I want to spend them, so I get the maximum amount of growth.

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 waited from doing that?

Look, I think, even though I think the average is -- I forget what the average was exactly there was some of that for the quarter that was actually at the very beginning of the year that rolled over -- that we had tried to do in $1,221 but it settled in January. So that was a little bit lower number, because we were closing out that year. But we did buy quite a bit in ourselves quite a bit in the '16s for the quarter. But to your point, it was like $1,362, and I was like, "Oh, I want to buy that myself." And then, like within a week, it was like $17, but we were already in a blackout. And that, unfortunately, seems to be the case of this. And so, to those hedge funds who seem to play this we tend to -- like right now, we were -- last week, Friday, 16.42 -- I was like, "Okay, I like that. I'll do that." And then, of course, today, we're locking whatever $1.430. So we tend to miss a lot -- a big slot of the window. I think the last period of time where we had robust volume at a good price, while we were open was like in December. And so, just another -- it's like Joe, just constant patience there. But yeah, we look at it. We look at it constantly. And the strategy for the ATM is twofold. Look, I don't like issuing it even at 16 necessarily, because I think that's the steep discount. But it's a balancing act of incremental growth. We're not doing large volume. We're not a big REIT, so we're not doing large ATM, but it's also increasing float, right? Because we understand that what happened on any given day, when you could have 10,000 shares which is what that's nothing in terms of dollar value. 10,000 shares could cause us to move 4% or 5%. And so we understand that we need to, overtime, gradually, consistently increase float. And trading volumes are up substantially. We're probably averaging 40% right now on whatever look you -- it's 40% to 50%, depending on what day count we use. And you contrast that to, like, it was 9,000 two years ago. So we're incrementally doing that. So there's a couple of strategies there. But I think the short answer is, like, if we were doing well, we would issue more. We would never destroy the price to issue, because we have a long game. But I would love to -- I'd love to get more equity out there to do more deals, but I've got to have things lineup.

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 and 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?

Well, they have -- by the lease agreement they have a four-year window to purchase that. They're already 1.5 years, I guess, into that. I will say that they have engaged -- I think, I said this before, but they have engaged their appraisal process. So, that's the first step they have to do is they have to engage a third-party vendor to -- they actually go out, they were RFP for prices, they get those RFPs, they select enterprises and the appraisal starts to process. That has already -- that's already underway, even if they -- and they don't move fast, they just don't move fast and they forward us. I mean we like there's -- one department does a real estate. There's another part of the valuation. There's another part acquisitions. And so it's a government entity. And I'm not saying that they're inefficient. They're just built this way. And so they forewarned us that it takes a long time. That's why they asked for the four-year window. They are taking all the signs to suggest that they are certainly exploring getting the valuation. I think it's laid out in the lease, how that works. And so they'll get a valuation if it's within the parameters, then they can they can proceed as is and they can put it forward to the budget for approval, and then it will catch up for the next year. So, even if they are actually approved it today, which they won't, that it won't even be available -- the monies wouldn't be available until next year. So this is long tail. But for all the tea leaves we see, it's progressing. They're heavily utilizing the property. They put improvements in it, as I remind everyone, it's literally next door to our own headquarters, which is the office emerging services, which has got -- I mean this is where all the natural disasters are happening, which is probably the biggest business in Southern California -- or excuse me, in California. And so we're positive on it, but we have to unfortunately be patient, right? Because if I were to go and say, well, I don't want to be late and I want to go try to flip it. I mean, good luck. I mean, look at all the office REITs, right? So, that's where that stands.

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

Yes. So, I think there's a question someone had asked why is it showing a Peters. The held for sale test as you think will you have a reasonable to believe that it will sell within 12 months and that's the test for gap. It's on the market. We have had numerous tours. I think they picked up now that winter is passing, really rough to go to an empty industrial building and a dead winner in St. Paul. So, tours are picking up. We are having conversations for both lease and sell. I just -- I think this -- when we underwrote and engage the broker, the broker said this is going to be a 10-plus month marketing process and enclosing. So, that's why it doesn't trigger the help your sales standard 12 months. We're going to keep monitoring it. I don't -- look, I'm receptive to selling it, I'm receptive to leasing it. I'm probably more receptive to selling it candidly. And look, I think my hope is that we will have resolution on that or at least progressive resolution on that this calendar year.

Okay. That's helpful. Then last one for me. Ray, the stock -- the G&A commentary was helpful. The stock compensation expense was only $484,000 this quarter versus $1.4 million last year. What does that trend look like over the course of 20 -- the remainder of 2025? Is it in that sort of $400 to $500 a quarter range? Does it spike at some point? How should we be thinking about that line item as we run through our models for 2025?

The run rate will be about $750,000 for the OP units and then Directors and the other roughly $60,000. So the round number is about $800,000 a quarter. The reason it was lower in the first quarter is the units weren't granted until February and March. So you've only got that roughly 2/3 or so, a little less than that. I would add that -- so that non-cash stock comp will be -- that will be...

Okay. That's super helpful.

That you can model that for the next numerous years. There's not going to be any volatility in that $750 million component because that's how we designed it. It's bridged out over, like, for instance, my comp is five years, et cetera, et cetera. So that's going to be very stable, whereas if you go back and look historically when we had the other types of the other units that had the earn-out provision, the variability, we saw it spiked materially. So year-over-year comparisons are not valid. So just think about the $750 million plus the stock -- I mean, the director comp is sort of a steady state.

Okay. Thanks guys. Appreciate the content.

Sure. Thanks.

Thank you. The next question comes from the line of Craig Kucera from Lucid Capital Markets. Please go ahead. Craig, if you can please unmute from your end. Ladies and gentlemen, Craig has left the question queue. We move on to our next question, which is from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead.

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 turbine?

Yeah. So Costco, we have calls with them. So the buyer, KB Homes, we have calls with them approximately every four to six weeks. We had one about two weeks ago. They -- everything is moving forward. They have another meeting with the city. Right now, we think we see -- well, they're hard quite a bit of money. And so that's moving on track. And so we see nothing to suggest that doesn't go on the time line that we've already suggested. I'll point out that they do have the right for extensions. And if they do those extensions, that's really just a matter of their logistics of finalizing approvals, scraping the property, when they want to get that teed up, things like that. And there is economic benefit to those extensions. So in some ways, if they extended, we'd be fine with that because we'd actually pick up -- in the first extension, half of it goes towards purchase price, the other half is in our pocket, right? And then the subsequent extensions are just in our pocket. So we're kind of comfortable with them. We're working with them. They're great. They're very savvy people. They're very sophisticated. So that feels moving along. As it relates to solar, we are actually in conversations with solar. They probably need to extend a few more months. We're working out the punch list. They're definitely leaving, but they just need a little bit more time to restore the property back to sort of original flex space. And so we're working through that. We'll probably know more by the next earnings, but they wouldn't need much more than, call it, two months if they needed at all. And then concurrent with that, as we've stated before, the solar and WSP property are actually on one parcel. And we've been -- this has been -- literally since 2021, we've been working to split this parcel. And this shows the challenges of working with municipalities and in particular, Southern California municipalities, but we are almost there. My gut is these will line up fairly close where we'll have the formal parcel split towards the end of the year, the tenant will be out towards the end of the year. And then our intent is as we stated before, for the solar property itself is to market it to an owner user, ideally for sell, we're receptive to tenancy, but ideally for a sell and we think the owner user market in that San Diego submarket is pretty robust. We've seen prints greater than $300 a foot. And so that was just going to take time, unfortunately. But if we get a couple more months out of them, that's great, they get it cleaned up for us. That's great. It's moving according to plan.

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 onetime sort of opportunistic repurchase

Well, as sort of alluded in the opening comments, I'm pleased that we acquired them. We acquired what, 13.8% of the shares outstanding at a very favorable price. That price -- on the blended price is like $1 less than where it's trading at right now. When the share price is -- the preferred is closer to par. I don't see a lot of -- I'm not as compelled, right? I would say -- and when I mentioned the bloom is a little bit off the road. So look, if someone reaches out to us and they have -- I think the thing is it's very illiquid, right? It's trading up at whatever it is 24.50, 24.60, but it trades like 900 shares, right? And so if you think about -- if we were to buy 900 shares in the market every day, is it even traded every day. That would take a long time to get 275,000. So I don't want to bang my head against the wall. We'll see people -- I think also there's a little bit of play here in interest rates, right, where people think things are going. And so like, opportunistically, sure. I think reducing leverage on the margin. We bought those. That was in lieu of a property acquisition, and that's a yield like I have no underwriting costs, I don't have any debt deal cost, I know, I can guarantee my downside and I know my upside by acquiring that. And in total, I think that was $6.5 million, it would be really hard to find a $6.5 million manufacturing property that did the exact same thing. So it made sense. So it's a way for us to take action when there's not much action to be taken, and it reduces our effective leverage from some people's perspective, it increases AFFO because now we're saving over $400,000 a year in preferred dividends. But I mean, I think the signal should be to the market, we're not going to go -- we're not trying to take this down, right? We have the right to call it. I don't know that we would even call it next year if we wanted to. We've already taken off some of the steam. So I think it's -- like we look at all things at all times, and we're trying how do we place money, how do we be smart about this money regardless of what Mr. Market thinks on any given day, we're trying to do the right thing for our shareholders who are long term, who care about the dividend and care about the long-term price shares?

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

Thanks.

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

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 may be viewing it as an opportunity given they're in the business of manufacturing in the United States.

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?

Yes, pretty much.

So I have answered that question. And I think for good operators, just like for good capital allocators that are just in the investment management space, it's a really hard time to try to place capital because you just don't -- it's too much volatility. So I think collectively like us, they got to be on what other people are doing and seeing opportunities and they're looking around for things, but they're not rushing to do that. I think the thesis could form to be very attractive. We talked to some of the PE sponsors of this and they're the same mine. It's like, look, there could be some unique opportunities. I think a lot of the strategies in these spaces are roll-ups, where you're taking very specific, like this particular CNC skill with this particular stamping skill and this -- and then you're rolling them up and you're getting order book synergies. And so I think that's on the horizon, I think though that everyone needs capital and with a very volatile debt market, you're not super motivated. And the flip side is, if you say a super, super compelling opportunity other than if it's a liquidity concern, like if someone just -- they're exiting because it's an end-of-life type of situation or whatever, and so they're willing to take market because they want cash and like cash now. Normally great buying opportunities are wrapped in distress. And so that distress could be really amplified in this environment. So I think there's a patient quotient going on right now. But look, I think you could see it. I think you see that -- I think, candidly, though, there's probably a balancing act between the extension of existing -- so almost all of our properties have space. And the way these are designed is it could be easier to pilfer another company's production lines once they've hit if they were to fall in hard times. Like one of our camera tools bought a press, it was like a $2 million press that took six trucks to be shipped, and they got it from Canada and they ship it down and they built a building around it and added it added -- I mean, it paid for itself within like 6 months, right? And so that was an example where far easier just to expand your existing line because your workforce is already there, things like that. So it will be interesting to see. Look I think it's fair to say that depending on how everything shakes out with sort of sort of supply chain that you should see transaction opportunities.

Okay. And that -- was that in mind, I mean was how you are thinking about utilizing more leverage versus maybe doing some capital recycling out of things that are I guess in the core today. I know there are still some more noncore wood to chop, but just longer term, how do you kind of view running capital versus leverage versus obviously you see the capital market?

Yes. We had several properties that are industrial in our core buckets that are distribution properties and not manufacturing properties that would catch lower cap rates and so it can be recycled accretively and we are -- but I think that -- I will do that all day long before I want to sort of seek more leverage. I don't -- look, right now, I like where my leverage profile is, I mean, I'd like it to be lower, but I like where it is. I just don't see much benefit until we have a clear line of sight on rates to play with that box, but we have definitely recycling opportunities. And I think that's why we're calling. I mean, we have enough recycling opportunities, place at the right time that will sustain us -- we don't need capital to continue to grow in our models.

That’s it from me. I appreciate the for stump -- referenced earlier in the call

Sure.

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

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?

I kind of -- it's still muddy waters. Some have -- some are steady on capital that they raised previously, sort of, you go back, step back a little bit. 2022 we saw rates go. We saw volatility, but there was still a lot -- there was an optimism in the general market that we might have sort of a hard and then -- or the rates would kind of revert back pretty quickly. That didn't happen. Then we got into a bit of a malaise in late 2022 or early 2023, we're looking what's going on. But then there was a bit of resurgency certainly in 23 heading into elections heading into August rate cut. And there was a lot of capital, I think, that was raised around that time frame. I think that's slowed down because these haven't played out quite with anyone that's excited, right? And so I think there's capital on the sideline, certainly, some of them talk to have capital. They have a window to deploy that capital. And so they're comfortable comfortably in that window to deploy. So it's not like there's an immediate ticking time bomb. And I think they're looking -- but they haven't necessarily deployed it for the same reasons we haven't, right? It's just that it's still pretty murky and so buddy. And look, there's a general view that there may be better pricing. At the same time, just being thoughtful about what other opportunities. Maybe it's the same pricing, maybe it's not better pricing, but it's a better asset. So that's interesting to note. And I think also to dovetail on that, the balance ship conversations, we still have been speaking to two of those battle ships. And look, they're doing what we're doing. They're just taking a pause. They have not made any sort of finite decisions about their existence because it's just -- it's really choppy time. And I think the near-term focus for a lot of people is the balance sheet in terms of refinancing and less about -- it's sort of more of a defensive posture than a aggressive project.

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?

So a lot of the properties have landed that you wouldn't necessarily carve out because they would -- they have ideas to expand footprints. We have other properties. And I'd say one, two, three, probably four, five specific assets that we think there's good redevelopment opportunities or development opportunities, I should say, not into redevelopment development. So there's additional land that they don't need that we think could be developed. We are looking at one right now. We're speaking to sort of a build-to-suit operator about doing that. I think the process for these is you'd have to -- if you really sort of want to monetize them, you have to sort of first go through a partial split then you had -- once you've gone through the feasibility study, you got to go through a parcel split and then you can build them. So we are actively looking at that. And I think that's a value add. I don't put a whole lot of attention to it, because I think -- I don't put a lot of mention to it, but a lot of attention to, I mentioned, it is because it's early days, but I think there is some there. On inbound, not a ton. And the reason is, is you got to think about most of the industrial building was warehouse space, speculatively built supply got too high. They've come up, they're having absorption issues. And a lot of those operators are dealing with a much higher cost of capital with the construction loans. So I think a lot of the spec builders who would be the kind that would call you and say, hey, look, I want to build on your parcel. They've kind of gone -- they're either sitting on their hands or they're looking at wounds. There are some. We get an increase probably about a month ago about one of our -- they wanted to buy our parcel. But I think it just was a reinforcement to us that those parcels, we can do that, if we want to or partner with someone to do that. And over the long-term, that will generate even more return for our investors.

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 at as a core asset?

So yes, I do think it has the potential.

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?

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.

Okay. Great. Thanks for the time.

Sure.

Thank you. The next question comes from the line of Steve Chick from Sebis Garden Capital. Please go ahead.

Hi. Thanks. The stat you guys cite, the 30% of your portfolio ABR, that's leased by investment-grade tenants. I'm assuming that like many of your tenants aren't even rated. And so I'm wondering if you kind of have -- I mean that might be like 100% of the loans that are rated. I mean do you have some you…

So that is -- just those are rated. A lot of -- having been in the net lease space for a long time, there's a lot of -- there's been a long history of people doing implied or look through ratings, which they're trying to bolster that. We don't do that. It's got a rating and it's investment grade, that's what we're showing. Because otherwise, I think it's kind of bullshit. Yes, a lot of the companies that we look at financially would probably be rated. But look, I'm not a rating agency, and they don't have a rating. So I don't want to blow any smoke up your rear. And so the 30% is just hard coated, they got a real rating -- the rest. And look, we do that with a view that, hey, on the margin, people like, "Oh, well, you don't have -- you don't have -- you don't have enough investment grade, so why don't you do a look through and so it props up your numbers. I just -- look, let's just be honest and let's be where it is, just because they're not rated -- all that means is they didn't -- they don't -- they're not actually in the public debt markets, and so they don't need a rating, right? And I think there's a view that if you're not rated, then you must be subpar. There's a lot of people -- there's a lot of private companies who don't go public equity and because it's a lot of a brain average. There's a lot of cost. Like the reason why we bought our preferred back is because it's not rated. We rated it when we listed it because that was a requirement. But the rating agency wanted like $80,000 just to reprint the thing, I'm not spending $80,000 a year for something that's already issued. And so we had some insurance companies who they bought it with a rating, they want -- and so they get a different reserve treatment. So that's why we got the shares back. Rating agencies are a wonderful industry if you need that type of paper, but they're not everything. So that's a long way of saying, the 30% is just simply the real rated ones. The other ones are good companies, but they're not rated.

Yes. Yes. No, that's kind of what I figured. I mean with your due diligence and know in their financials, and you'd probably say that percentage of your portfolio was a lot higher. So it's almost our -- the metric is almost irrelevant for you guys, it seems like. But -- and then the second thing I want to ask on the Santa Clara tenant and common property. The distribution yields you guys have been really realizing on that as have been very attractive. I mean, the cash has been higher than your proportionate income. And I'm just wondering maybe why and does that continue? I mean it's paying our dividends like $1 billion a year or $200 million -- or sorry, 200,000 plus a quarter. Does that continue, I guess, my question?

I'm not quite following the question. Ray, do you have a follow-up question?

Yes. He's referring to the distribution through getting off of the tick. And generally, it will continue, but there'll be a slowdown for the next few months because we're going to have to pay a lease commission. We won't be distributing for the next four months to basically generate cash to pay a lease commission. But after that, it will kick back in.

Yes. Got you. Okay. No, it's clearly a pretty good asset for you guys. So – Okay. I appreciate it. Thanks.

Thanks.

Thank you. [Operator Instructions] As there are no further questions

Everyone’s gone. – Hey everyone. Yes. Thanks, Ryan. So one of the call, here's a verdict. It's 46,413 shares, so 10,000 shares traded over the class hour, and we're down -- so clearly, I pissed off more investors today, but I just think that's a compelling buying opportunity. So that's -- there's some investors out there bought $46,000 -- 46,000 shares, excuse me, at a very attractive price. And I'm in support of that. I think that's favorable. And so we have more news, be well, hold on tight kiss your children and your wives and talk next time.

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