Good day, and welcome to Modiv Inc. Third Quarter 2025 Conference Call. All 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 then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star then 2. Please note that 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.

Thank you, Chloe, and thank you everyone for joining us for Modiv Inc. Third Quarter 2025 Earnings Call. We issued our earnings release after market close today, it's available on our website at modiv.com. I'm here today with Aaron Scott Halfacre, Chief Executive Officer, and Raymond J. Pacini, Chief Financial Officer. 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-Ks and 10-Q. With that, I'd like to turn the call over to Aaron. Aaron?

Thanks, John. Hello, everyone. Hope you're doing well. This time, we're gonna do it. We are doing everything a little bit differently. Certainly, I had the call on a Friday afternoon. I'm surprised to see if many of you dialed in as you did. Hopefully, you have a cocktail in your hand. But we're not gonna do prepared remarks. I put a little more context into the press release. So we're gonna prefer all questions, but I think what I'll say is kind of an iteration. I you know, it's really grindy, and I really like that. You know, we purposely waited toward the end of the earnings season because some of the early reporters, it was interesting to see them come out like, wow. It's pretty solid. And then, you know, they just got hit in the markets. And I was like, okay. We'll see what else works comes out. And then so it was really I really wanted to spend some time observing because I candidly, doesn't really move the needle when we come out. And typically when we come out, you know, we're you're stacked four deep, and you guys don't have a chance to breathe. And I wanted to give you a chance to breathe. And so that's the only reason. So there's nothing else into it other than that. We won't do this that often. But, you know, I feel, you know, generally optimistic. I mean, look. No one knows where Powell will be in December. You know, are they done or not? But I think we all probabilistically underwrite that, you know, there's gonna be a new Fed regime come May. And so and that regime has a high propensity to be easing. So at some point in the future, we should see easing.…

Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. And if you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star to the number two. We'll pause for a moment as callers join the queue. Our first question comes from the line of Craig Gerald Kucera from Lucid Capital Markets. Your line is open.

So, Craig Yeah. Hey, guys. Good afternoon. Just a few for me. Were there any onetime revenue in your other property income, and how should we think about that going forward?

Yeah. It was a $300,000 fee that we obtained for terminating some ease of rights that are marked for property. And that's it.

So did you be add a little clarity to that? There so our north of property, which is in Melbourne Space Coast, there was a large piece of sort of underutilized near vacant land. And, you know, it was a former, like, I don't know, call it, like, a kids park or something like amusement park. And that's getting redeveloped into a housing project. You know, townhouse type of arrangement. And the prospective buyer had come to us because there were certain easements and they wanted certain rights. And so we negotiated it to a while, candidly. I would say we probably negotiated for nine to twelve months, and they basically gave us a fee for to sign a paper. And so what that that's that's what that was.

Got it. Was that was that all recognized here in the third quarter, or will we expect any other additional fees? Going forward?

One time.

Okay. Yeah. One time. Okay. Got it. It looks like you added another asset to the held for sale bucket. Can you give us some color on on what you're looking to sell here? And are you actively marking that for sale as well?

Yeah. So, obviously, we've had Costco in the help for sale up until this point. And then I guess, about six weeks ago, we formally engaged a broker to sell Clara. So Clara is held for sale. And in the process right now of, I think, our anticipation is that we would try to get this sold either by the end of the year or probably early early January. So that's the other property that's gonna help for sale.

Got it. And speaking of the, the Costco property, I think KB Home was expected to extend a couple times until maybe December. Are you getting any change in sort of their viewpoint on the asset if they still expect it to close?

Yeah. So they they they did extend to December. We've had some conversations recently about they're wanting to time the closing for their for a demolition permit. But, you know, they've they've gotta go through their process. But as it stands right now, per the agreement, you know, we have not been heard if they're gonna extend beyond December 15. So they have one more extension that would take us through to, I think, February 15. But right now, it's through December 15.

Got it. Am I over to bet my bet is is they'll close by then.

Okay. Fair enough. And just one more for me. I feel like last quarter, you were saying you were seeing an increasing number of acquisition opportunities. I'm just sort of curious, based on your opening commentary, it sounds like things are maybe more loosening up, but now sort of seized. What's your that sort of the your viewpoint currently, or do you think things are coming back?

Yeah. So it's interesting. So I would say that we were seeing, some some stuff in, you know, that sort of July time frame. And then we started throwing out some bids, and then it kind of kind of contracted because we got a little sideways. And I would say we've seen more in the last week and a half than we had probably in the prior month and a half. So I I don't know what it was about it. I mean, if the markets were just volatile, maybe because the end of summer, maybe it was because we knew we had the September decision. I'm I'm not sure. But, you know, it kinda we didn't see much. And now we're starting to see more. Like, now it actually feels look. I'm measuring it by quantity, not quality. It's starting to feel healthier. Like, there's a definitely I mean, I think John C. Raney, I'm thinking we've probably looked at you know, four or five deals in the last week. Right?

Yeah. At least. Quantity is

yeah, quantity is down I mean, quality is still challenging. Right? I mean, we I think the one thing that that I like, you know, if you imagine us as a as a as a steel blade or a knife, you know, we're constantly sort of sharpening and sharpening on a grindstone and getting better at what we want knowing better what we want. And so our box buy box has probably gotten a lot tighter and there's there's stuff that I probably would've you know, been willing to bid on two years ago. I'm like, man. Forget it. I'm out. I don't wanna bother. So we're we've gotten much more selective, but that that said, you know, I it feels right now at least, and they and it's usually odd because, candidly, you don't tend to see a lot at year end. You tend to see them waiting early January. Right? That's where pipeline tends pick up normally. Like, now you would generally think it's gonna slow down because you know, these take anywhere from thirty to sixty ish days to close, and so then you're, smack in the holidays, and you're like so think that's an interesting sign. I think some of I think what we are seeing sort of key lead wise is there's probably more PE activity going on. Which I think is always an indicator an early indicator. Right? PE and hedge funds sometimes can be you you you generally construe them as to be smarter capital, maybe not smart capital, than sort of you know, people who have just know, got long buyers or doing ten thirty ones or something like that where they they're forced by mandate to do something. These guys are looking for for something. So we we have seen a little bit of PE activity pick

Okay. Great. Thank you.

Our next question is from Gaurav Mehta from Alliance Global Partners. Your line is open.

Yeah. Thank you. Following up on your comments on acquisition can you comment on where the cap rates are for the kind of properties you're looking at?

Cap rates are mainly seven handles. That's first year. Right? Some we've seen some eight, but mainly seven handles. Not not necessarily low seven handles, but seven handles. Like, I think brokers are certainly asking for for the moon, and that's their job, and I get it. On a weighted average basis, those are probably, you know, tens. Right? And so now I I I guess fairness, we've seen some wider ones, but you're like, I own that. You know? Have we seen any tighter ones at all?

Know that I have. Right now, to be honest with you.

Okay. Thanks for that color. Second question on I guess, asset recycling as the acquisition market picks up for for your target assets? Should we expect that you may sell more assets to fund those acquisitions?

You should expect that we we will be deliberate and systematic about asset recycling. If you think back, right, so we did the the the asset recycling, the GIPR, which is a large bowl. And so just by for for everyone's education purposes, you know, generally speaking, if you sell if you do seven individual transactions, to seven individual buyers in a given year, that's sort of the limit. For an IRS perspective. If you go over that, you you kind to have to get what is called a private letter ruling to sort of get exemptive relief because otherwise, you might be deemed deemed traitor. You're dealing. Like and so when we sold that big bunch of you know, office and and dollar stores to GIPR, that was one transaction. And then you know, that was sort of kicked it off in earnest. We sold the the the one in Nashville. We sold one out in in California. And then, you know, it gets kinda got really super volatile, and we've been sitting on the KB thing for the Costco purchase for for a while. Looking forward to that closing soon. You know, as I said, OES has this purchase option, so we can't do anything with that until we actually have conversations with them and their process. Is you know, they have time on their clock. So that one is what wasn't gonna happen immediately. And then and then you know, the solar property, we've been with it's been four years of trying to get a to get a lot split. So San Diego is is, like, really difficult to work with in terms of doing anything. That's taken on. So it's felt really, like, long in the tooth. Like, we haven't really shown much recycling. And I…

Okay. Thanks for that color. That's all I had.

Cool.

Our next question is from John James Massocca from B. Riley Securities. Your line is open.

Good afternoon. Hey. So as we think about maybe going? As we think about maybe over a longer time horizon, you know, the outlook for for, like, true gross. What's kind of interesting maybe as the the Fed dynamic changes a little bit in terms of sources of capital perspective. And I just maybe hop in on you know, your preferred stocks had a little bit of a run, There's been some smaller REITs that have been out there in the preferred market. But that would in some people's mind, be a leveraging transaction if you did raise in that market. So just kinda curious where we should be thinking about sources of kind of external growth capital in the future if and when the market gets a little more accommodative?

Well, I think when we know the market is accommodative, I think that that'll be a better time to ask that question. I think for us, and I've kind of alluded to this, is that, like, I that question predates that we have to grow, and we have to find sources for it. Right? And I kinda rebel against that question in general right now, and I don't I know I don't I know the answer is underwhelming. Like, well, if don't have external growth capital, you can't really grow. And I was like, yeah. I don't you know, we I have several assets that are you're gonna you know, can trade low sixes, and then we can rotate them into mid to high sevens. And so that's growth. Right? And that's something to do in the near term. Until it makes it clear that we're the trend know, you think about we're in a downward trend in REITs, or we have been, generally speaking, and, you know, it's correlated to rates. And so until we have clarity on where rates are, then I think we'll start to see you know, where pricing is. And another way I think a couple ways I think about it. Right? And I'll talk the preferred stuff too in a second. But you know, look at o or w b care. I mean, I think their dividend yields are, high fives. Right? Mid fives, high fives. You know? And we're, what, eight. So we're roughly 200 base 50 basis points off of them, two hundred two hundred fifty basis points. That doesn't seem terrible to me. I don't like it. I think we're certainly undervalued. Right, from a standpoint. But, arguably, everyone is. Right? I mean, it was always forever. It was, you know,…

With the in place portfolio, just kinda broadly, what's the feeling amongst tenants as you reach out you know, given maybe we have a little more certainty even versus the last earnings call around the tariff outlook and it's still some uncertainty, but just kind of curious how they're feeling and if there's anything maybe notable from a tenant credit perspective worth calling out.

No. I look.

Most of these operators, you know, quarters don't move that Right? They they're they look annually. They look at cycles. They're getting orders. I think the tariff news is if anything, it's old. Right? I mean, the volatility certainly tempered. I mean, you tell me, I don't think we've heard of the the verdict yet on the supreme court. And even if we do, there's two other tariffs that he can implement. And so no one knows. Right? But what we do know is it hasn't there's there's no been there's no blood in the streets. And and and our businesses are operating. I mean, most of our businesses buy US and sell US. Right? We we own a lot of durable businesses. So we haven't seen anything we haven't seen anything new on the radar. Says, oh oh, no. This is you know, tariffs are are are gonna squeeze us. I think look. People would love to have clarity on tariffs. I think tariffs do economic impact you. But the near term noise is there's not really been anything. And, like, we kinda said, I think two quarters ago, that most of our the vast majority of our tenants learned from COVID and then the first Trump administration. You know, it's not the first time he's talked about tariffs. That they didn't wanna have dependencies on places that could get squeezed, aka China. Right? And and so a lot of the meds over the ensuing years have mitigated that risk in as this is good business practice, And that happens to look like a good reaction to the near term conversations about tariffs, but I we haven't heard anything recently. Or or at all. Since our first conversation, I think everyone was alarmed because, like, liberation day, people are, like, charged. Right? And now it's, like, yeah. Okay. Let's let's wait till we actually know something else, and then maybe that's then we maybe we can then sort of reforecast. But nothing yet.

K. And then on just kind of a line item by line item basis, you know, probably more likely into 2026, what's the potential impact to property operating expense maybe even typically like a net property operating expense from completing the former Costco headquarters transaction and even maybe even the Clara if you're able to sell Clara's former property.

So I would give you characteristics that, you know, right now, as we roll, we're I'd say that cost delta on operating expense vis a vis the fee. Right, so the extension fees, is we're probably running we're probably bleeding a about $40,000 a month. On that. On that property. Right? So you're not gonna so there's a there's a fairly amount of CapEx, but we have also gotten, you know, these extension fees that sort of offset that. From from an AFFO perspective. But there's probably about $40,000 a month bleed on that. How we think about it in sort of third quarter, Yeah. Cholera actually is know, it's been lumpy. It's, you know, know, you you got security fences in there. Things like that. I like, if we get that flushed out, I don't think you're gonna see, like, don't Ray, you correct me wrong. I don't think we're gonna see world changing property expenses go down just because those clear out. We we're fairly neutral on that, but, I mean, there's a little bit of movement. In in 2026. I think, you know, as we get rid of some of we have a hand like I said, a small handful of non absolute triple nets. I think on the margin that that could that could reduce property expense next year.

Well, I I think it'll go down a bit, you know, maybe a 100 k or so. But I think as we sell some of the other properties, as we do the recycling, There are some others that where there's some leakage. And so over time, it'll probably go down a little bit further.

That help?

Yeah. It's very helpful. Appreciate all the detail. That's it for me. Thank you very much.

Thanks.

Our next question is from Stephen Chick from Sabis Garden Capital. Your line is open.

Hey. Thanks. Guys. I'm wondering if you could or if you know of what the same store rental income would be, You know, rental income is down 2%, but I think there's an overhang, obviously, from Costco and solar is probably in there as well. Do you calculate what same store rental income would be? Or a figure like that?

It's we don't. And and I think the general view reason why because our there's so much movement in our portfolio that we have, you know, So but I think it's fair that once we complete a recycling that that would be and we think we're largely baked, particularly if we don't have external growth capital. I think it's fair that we would start implementing same store You know, we may try to run that for you and polish that sometime and before your end or something like that, but I I don't think we have it handy. Right? Do you

No. But I'd say that I you know, our overall average is two and a half percent rent growth a year just based on escalations in the leases. That gives you some idea of what's happening there.

Yep. And I I would care Okay. Characterize it.

As we we recycle those, a lot of the legacy ones have the low lower bumps. Right? They're they're twos or or they're every five kinda thing. Every five years. So I think, you know, I think that if you look at there's a pie chart on our website, shows kind of the weighting of those. A lot of the the pro stuff that we put in the last two years or last three years to their average north of two and a half percent. But I think over time, that could you know, or same store could could trend that way.

Okay. That's helpful. And then I can you say I I didn't catch it. On solar, did you say when you thought that property would would be resolved or sold?

We're a lot lot closer than we ever were. I mean, so we literally started this process in 2021. We engaged consultants and went through the process. And it's we're four years into it. We were doing some blast, so we had to, you know, to get the split and negotiate certain easements and then have the city look at it. And what ultimately I don't have the details a 100%, but at a high level, we had to we had to do some some modest construction work to the entrance of the driveway to be meet the new ADA compliance standards of the city. And so it took us a while to get them to give us the green light to do the construction. The construction is now underway. Asking which is, you know, not a very long job. It's probably a couple weeks But then we have to go back and then get approval of all that stuff. But, you know, my guess right now like, I'm like, it's been a debate internally. There are some people who think we can get it done by year end, and I generally sort of hedge the downside. So I think it's a first quarter event. Ideally, it's a early first quarter event, but who knows? But once it's once we're, like, locked and loaded, then then we'll we'll we'll that property will be taken to market, so that'll be another held for sale. And it's like, the tenant is just finished You know, they they left in September. They ended their lease in September. They cleaned it all out. It's a beautiful box inside. You know, it's good. You know, we've had people we've had brokers know, come and looking at it. You know, our intent is not to lease it, but it's to sell it to an owner user. And we think that's the best the best end result for that property.

Okay. Alright. Thanks. That's helpful. Appreciate it.

There are no questions at this time. I would now like I would now like to turn the conference back to Aaron Scott Halfacre. Please go ahead.

Great. Thank you, everyone. Appreciate what you've for you dialing and listening. We look forward to giving you updates as time goes ahead. Hope you have a great weekend. I hope you can all rest up for the for the Thanksgiving holiday, and for those who who are curious, we will not be at NAREIT. I don't wanna go to Denver Dallas in in December, and it's just not a you know, not relevant for us, I think, at this point. But, enjoy the conference, and I wish you guys all the best.

This concludes today's conference call. Thank you for participating. You may now disconnect.