Participants

John Raney; Chief Operating Officer, General Counsel; Modiv Industrial Inc

Aaron Halfacre; President, Chief Executive Officer, Director; Modiv Industrial Inc

Raymond Pacini; Chief Financial Officer, Executive Vice President, Treasurer, Secretary; Modiv Industrial Inc

Robert Stevenson; Analyst; Janney Montgomery Scott LLC

Gaurav Mehta; Analyst; Alliance Global Partners

Stephen Chick; Analyst; Sebis Garden Capital LLC

Presentation

Operator

Good day and welcome to Modiv Industrial Incorporated fourth quarter and full year 2024 conference call. (Operator Instructions) Please note this conference is being recorded.
I would now like to turn the conference over to your host, John Raney, Chief Operating Officer and General Counsel. Please go ahead, sir.

John Raney

Thank you, Rob, and thank you everyone for joining us for Modiv Industrial's fourth quarter and full year 2024 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 result 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 Form 10-Q.
With that said, I would like to turn up the call over to Aaron. Aaron, please go ahead.

Aaron Halfacre

Thanks, John. Hello, everyone. Welcome. What a great day to come out with earnings. The same day we've got tariffs going. We time these things perfectly for your entertainment. I am going to have some comments this time, but let's first jump to Ray, and then I'll make comments after that and then we'll do Q&A. Ray?

Raymond Pacini

Thank you, Aaron. I'll begin with an overview of our fourth-quarter operating results. Revenue for the fourth quarter was $11.7 million. Fourth-quarter adjusted funds from operations or AFFO was $4.1 million. On a per share basis, AFFO was $0.37 per diluted share for this quarter, which is $0.08 above the average of the analyst estimates compared with $0.40 per diluted share in the prior year period.
I'll now discuss our full year operating results. Rental income for the full year was $46.5 million. AFFO for the full year was $14.99 million and AFFO for a fully diluted share was $1.34 for 2024.
The $400,000 revenue decrease in properties sold in the first quarter of 2024 was offset by a corresponding decrease in straight line rents. The increase in AFFO reflects a full year of decreased property expenses following the disposition of 14 properties in late 2023, many of which were not triple net leases, and a $300,000 decrease in G&A, primarily due to reduced employee compensation.
Now turning to our portfolio, annualized base rent from our 43 properties totals $39.6 million as of December 31, 2024, with 39 industrial properties representing 78% of ADR and nine core properties representing 22% of ABR.
Our portfolio has an attractive weighted average lease term of 13.8 years, and approximately 32% of our tenants or their parent companies have an investment grade rating from a recognized credit rating agency of BBB minus or better.
Now turning to our balance sheet and liquidity. As of December 30, 2024, total cash and cash equivalents were $11.5 million and we had $280 million of debt outstanding, which consists of $31 million of mortgages on two properties and $250 million of outstanding borrowings on our term loan.
Based on interest rate swap agreements we entered into in January 2025, 100% of our indebtedness is the December 31, 2024, of the fixed interest rate with a weighted average interest rate of 4.27%. Based on our leverage ratio of 47.6% a year end. We also have a $30 million of availability on a revolver, which we reduced from $150 million in December 2024 in order to save $300,000 per year in unused fees.
As previously announced, our Board of Directors declared a cash dividend for common shareholders of approximately $9.75 per share for the month of January, February, and March 2025, representing an annualized dividend rate of $1.17 per share of common stock. This represents a yield of 7.5% based on the $15.55 closing price of our common stock as of March 3, 2025.
I'm now going to call back over to Aaron.

Aaron Halfacre

Thanks, Ray. So wanted to go over a couple different areas that -- I didn't feel like writing them out extensively in the press release but wanted to talk about them on the call and it may either prompt following questions or preempt some preliminary questions.
I think first, let's look at transactions, right? So we have -- I think you clearly understand now that we don't feel compelled to do things just for the sake of doing them. We look at a lot of things, but we've been picking our spots. I'd say when we released third-quarter earnings in November to now we've had -- it's been a quite opaque economic landscape with a lot of vacillation between fear and euphoria and so just didn't really see anything.
Usually how it works in the property markets, the available inventory dies down sort of early December and it starts picking back up sort of mid later January and also, so we saw some, we kicked the tires on some but just didn't see anything that said, oh jeez, let's go extend ourselves or let's do something just for the sake of doing it.
So clearly, we've shown patience, obviously, we're now probably a year away from the sort of $200 million of acquisitions we had done in aggregate in sort of a 12-month timeframe, so we've kind of slowed it down, but that doesn't mean we're not looking, it doesn't mean we won't do transactions. It's a real lesson in patience, and I think my point about maybe reach on growth stocks is the fact that at the end of the day, we have to grow really prudently and each decision we make on the balance sheet. we're living with for a long period of time.
And we've all seen others out there who make decisions that are a little bit more near term and they will either issue out some costly preferred and public or private. They will unwind some of their portfolio to redeploy it into other areas or they'll issue a large amount of equity that just doesn't really pencil. I don't fault them. They all have their own reasons for doing things like that. But for us, I just think any of those decisions would be a far greater drag on us than it would to benefit from buying a property. So we're just being thoughtful about that.
But as we look for the course of the year, I do not intend to stare at my navel and as most of you should know, we don't. It just means we're diligently working to try to get something up that makes sense. So for a couple of reasons. So pipeline wise you notice that we reduced the revolver and that's the material savings. We had contemplated doing it last year but last year -- early part of the year, at least we were contemplating, we thought about it but we weren't sure, and we wanted to hold off because there was a lot of battleship conversations that would we need the revolver for those.
I think as we worked through more of those battleship conversations, which I'll touch on in a second, we realized that you probably wouldn't need the revolver. In fact, there would be other sources of debt that would probably be more favorable. And so the revolver was a nice to have, but you wouldn't put buy your car with a credit card, right?
And I actually look at the revolver kind of like a credit card, and for me, for instance, personally, I put everything on my credit card for the month and I pay it off at the other month. So I always view it as it's going to be extinguished right away. And at a $150 million revolver, I mean, that's 100% of our market cap. And so how am I supposed to pay it off if I have it dangling in front of me?
So we downsized it to what I thought was a reasonable amount, $30 million. That's 20% of -- if we ever had to pull off and we found something that was super compelling, it's like, oh jeez, it's a 9 cap and our revolver paper is only a. 6.5 and we're going to get the spread and then I got to backfill that somehow. I didn't want it to be too large of a backfill that caused us to choke on a chicken bone.
So we reduced the revolver that saved money, but that revolver is, I think, used for us to think about timing purposes, right? So if it's a mismatch in timing, we could use that. We don't want to use the revolver for big acquisitions. Like I said, big acquisitions, there are other -- we've now identified plenty of other sources of financing that we could use that would be less costly, so it does not foretell that we're not able to grow or that we won't grow.
It just means we won't grow with that mechanism, but we'll use that mechanism for its intended purposes, which is, a lot of times we see revolvers that $1billion dollars or $1.5 billion which is great, but I don't know if they're always used and we were paying $300,000 a year for something that wasn't being used.
And so we rightsized that and I rightsize it very specifically. We have probably, comfortably $80 million worth of properties that are in the portfolio right now that we have the ability to recycle and we would pick up at least 125 basis points on that $80 million in AFFO, and that would be standstill and that wouldn't require any change of things and we don't have that model that wasn't in the $137 million.
I don't know that we'll do that. We've had several unsolicited offers on some of these properties. One of the reasons why I haven't sold now is I just think that the better clarity we have in the rate environment, the better pricing is across the board, and that might mean that pricing is tighter on the purchases, but the pricing is also tighter on yourselves.
And so our view, if any one of those properties that we wanted to recycle and we had a mismatch because we wanted to do a 1031, that the revolver would be useful. So we do think that we can use a revolver for acquisitions. But they would be ones that we would self-fund or could immediately fund and so that we would not put ourselves in any sort of leverage situation and I've been pretty adamant that I don't want leverage to really go up unless it's something that was super significant and positive and I had a path of a line of sight to retire it.
As it relates to the battleship conversations, they're not over. I'm not going to get play by play like I did. I think we were down the line on that one. They didn't get done. That portfolio is still out there. We have had other battleship conversations. I think collectively, us and the other parties all realized that we are in a super volatile market. Everyone had to roll into swaps or caps at the end of the year. They had to reset sort of their interest expenses, so I think those portfolios are still there. I still think there's conversations to be had.
Those are certainly a potentiality. I think we're receptive to them. I think someone asked the question to me offline, it seems pretty straightforward. Why wouldn't you get one done? The sponsor would just need to take a mark-to-market hit and then they get your equity and they have huge upside, and I agree with that on paper, but you got to get a sponsor to take a mark to market hit and so I think that's it's a little bit of a time, we're obviously -- if we were issuing out equity would be doing so below NAD, so we would be taking out a hit.
No one's going to take our equity at $24. But at the same time, they have to, so I think those could happen potentially or one of them could happen, but I'm not cooking that number anywhere. It's not anywhere in our horizon other than it's a potentiality. I'd say that we want to acquire, we just want to be really balanced because at some point here, I don't know when and you guys' guess is as good as mine, we're going to move away from this risk off trade in this asset class.
And it's been sort of bottled soil, on, off, on, off, on, given the day or given the hour. And at some point, we'll start to see activity. We're starting to see little tea leaves, you saw the BSR Blackstone thing, we've seen Ackman with cues, you're starting to see a little rumblings of activity. Obviously, [Navy] wants to profess that IPOs are going to pick back up even though I think, lying choked it on that one a little bit.
So I think once we see better activity and we're better poised and pricings are more normalized, I want to be in a right position to act. I don't want to act before that because think about it. What if we had pulled the trigger on something a year ago? You would just would have been absolutely dragged through the mud and beat about, right? And the market has been -- and all of you have been very stern with your capital as it relates to other REITs who don't make good decisions.
You punish them, right? We're still suffering from the same quagmire that we've suffered from for three years is that we don't trade a lot, we don't have a lot of following, we have not done a big issuance ever, and we're okay with that. Our dividends are solid, our investors who have been with us for a long time are there. We are adding new and new investors as time goes on. The volume is up probably, I mean, if you go back -- I mean, at one point in our history, public history, we were like $9 in change, right? And we were trading maybe 2,000 or 3,000 shares a day.
And now we're consistently higher volumes, much more stable price, greater following, certainly a lot of potentiality in the name and so we're comfortable with that and we recognize that by not making bad decisions, it preserves us to be able to make a good decision when the market environment is conducive to that. And so that's how we're thinking about that.
So that may be a little underwhelming for the machine in terms of we don't have extra volume for the quarter, but I wanted to share that logic that that doesn't mean we're not doing anything. It doesn't mean we're just going to sort of float around the ocean without a rudder or a motor. We have intent. That intent includes patience, though.
I think one of the things -- I think it's a point to talk about today, given the fact that we now officially have tariffs in place, and then I guess it's a -- I don't fully understand it, but I guess I kind of understand there's been a lot of concern that, oh, tariffs are bad for someone like us. And so we've actually gone out and talked to our tenants. We get quarterly financials from them, so we use that opportunity to talk to CFOs, and we've asked them how they think about tariffs and the tariff rhetoric.
Now granted up until now we haven't really have tariffs, but all we have is the threat of tariffs, and I would say that there were two instances where they said some of their metals input costs would be higher because of tariffs. But they would simply pass those on, and so they weren't concerned. They did note that some of their input costs as it relates to the metals that they're using would be higher, but they would have no problem passing those on in their contracts to their clients and so there wasn't a concern.
That was the only thing we found that anyone said negatively about tariffs. Some people have said -- and like, give you an example, some of our things are very domestic manufacturing productions, right? So guard rails and some precast concrete, they're sort of -- they had no opinion like it doesn't affect them, right? They sell domestically, they source domestically, no problems there.
There's others who said that they've actually found quite a bit of a pickup in inquiry. So they have a lot -- they found particularly some of them that manufacture some things that could be manufactured example in Canada or Mexico. Some of those jobs have now -- the people have been coming to them saying, we want to source jobs from you domestically.
There's a degree of optimism in that that they think order pickups would come. Most people view that there will be either a slight benefit or agnostic to the tariffs. So we don't see any fear and loathing as it relates to tariffs. I don't think we're going to catch a massive wind from one of these things. I mean, I think that would take time and I think you'd have to have real trade shutdown, which I don't expect to happen at all.
I think this is a lot of political positioning and alignment, and I don't think this has anything to do with actual trade systems grinding to complete halts. But our tenant base does not seem to be bothered at all by tariffs and in fact expects a sort of at least an interim uplift in order demand. We have two tenants who have come to us and asked us to expand their footprints to physically add on to their sites. And so we're talking to them about capping that out and growing, providing dollars to them in a way that increase our rent at a favorable cap rate and allows them to consolidate.
So we think that's a positive. We're basically like a real hard rock, the rock doesn't move very fast, but it's really a rock hard and solid and it's a good base and good foundation, so we feel good about that. We don't have much concerns about that, if any.
The swap, let's talk a little bit about the swap. So three years ago when we put the swaps in place, we elected to take this ability to do an option that could put it back to us -- that put option saved us over 50 basis points in rate so if you look back, our sort of run rate was sort of 452. It would have been well over 5% on a lock basis, so that would have been roughly $1 million, $1.25 million, $1.3 million each year of added interest expense over those last three years.
We saved that. With options, you're obviously going to take -- you've got a delta to play with and I don't think anyone underwrote in early '22 where rates would be. And so as we rolled into third and fourth quarter last year -- actually, it was August when the Fed cut and rates got really low. There was a really good probability that one of our swaps was not going to get put back to us. And so we had to wait, so we had sort of that wait and we had established a budget, that budget was the 442, actually it was slightly more than what we had budgeted and that was for just throwing the swaps into flat, sort of the same sort of 453 blended and we sort of monitored on a daily basis.
I want to thank our banks who meticulously provided us daily quotes on these swaps that was tedious. We monitor, we monitored, rates really ran up. The tenure was going crazy, SOFR was going crazy. And so there was a monetary -- sort of momentary dip in the rates, we elected to just use our budget that by doing so, allowed us to pay down a little bit quarter to quarter. So I think in that regard, we benefited from it, but we had kind of underwritten this all away.
We only did a one year, we could have done a two-year, but our view was the time we were doing this at the end of the year, beginning of January, that there was going to be more to shake out. Clearly, the 10 years receded quite a bit since then, so that's a good sign. A lot more ground to cover before year end, so we'll evaluate fresh as it comes to next year.
But our view was we didn't want to float it, wanted to hedge it. We told you prior that we would. We had a little bit of -- our budget allowed for it, and so we took the benefit. So I think that sort of shared. I think that decision along with the revolver was us just being really tight about the near-term wins and volatility in the market and just being smart about our balance sheet.
As you saw, we did issue equity in the fourth quarter on the ATM. It doesn't sound like much compared to some of our peers, I think (inaudible) 287,000 shares. That was $4.6 million at [1616]. That's 3% of our market cap. So under the radar, completely, accretively at prices that we can come to the yield on that equity from a common is far below the yield that we could buy a property at. So we knew we could do that.
And so we grew the market cap by 3% in a quarter with no one really even knowing the difference. And so that's something that we're proud of. We think that little tiny actions we're making like last year when we bought the OP units back at 1,480 that we've issued at '25, we're doing little transactions like that. Again, aren't headline grabbing aren't big, but each dollar that we're accruing and accreting on that is money that's going into our investors' pockets.
So I think discipline wise, we're excited about where we're at. I think there's going to be some opportunities here. It feels, I don't know when, but it feels like there's going to be some good action in the REIT land. I hope it's in this year. Maybe it rolls into '26, but the status quo, I don't see for the industry. I think we're going to see a lot of change and we're ready for it and receptive to it.
So with that, operator, why don't we open up for Q&A?

Question and Answer Session

Operator

(Operator Instructions) Rob Stevenson, Janney Montgomery Scott.

Robert Stevenson

Good morning. Aaron, any updates on the timing of the sale of the Costco asset and the solar turbine splitting sale at this point?

Aaron Halfacre

Yeah, so Costco, we expected to close on its original thing, which I want to say, correct me if I'm wrong, July. They do have three options and the three options, the first option they get, I think it's split where half if they pay the extension option, the half of it goes towards their purchase price, the other half we keep, the other two options, we get to keep fully. We've had conversations with them a couple weeks ago. In fact, everything looks like a go.
The only reason they might delay a little bit would be just because of logistics of the city, but everything looks to be fine. In the scenario where they do extend, so just to be clarified, they're $1.7 million hard already, so they can't get that back and if they do hit their extensions, that's $650,000 additional in our pocket. So in some ways, we'd be fine if they extended. But I don't think they will.
As it rates to solar and WSP split, we're going through that with the city. It's been a long process. I think we're getting near and near that end. There is a potential, we don't know for sure, but solar said they might want to have a little bit longer on the lease to clean things out, so they might add three or four months to that lease just to kick it out a little bit longer for them to do what they need to do and then move out.
But we've had several unsolicited offers on that property, but we're waiting to get it split, and we think there's going to be more value extraction from that because the solar property would be an owner user, most likely flex space, and then the woods, the WSP property which already has an in-place lease that we recently renewed. So we're moving forward with that. I'd like to see that happens in six months, but I don't know how to handicap municipalities. They're just a different beast.

Robert Stevenson

Okay, and then what about the --

Raymond Pacini

The closing date is August 15 for Costco.

Robert Stevenson

Okay, and then what about the OES purchase option exercise? Is that increasingly likely, given the commentary in the supplemental? How are you guys feeling about that and what would be the timing on that likely at this point?

Aaron Halfacre

So they've informed us that they started their process to get an appraiser, and so which is the first step. We have not gotten an update as to that, but they would obtain a third-party appraiser service. They would get an appraisal. They would reevaluate that appraisal relative to the contractual prices set forth. If they're in parameters and they decide they want to purchase it, then they put it forward into their budget. And then that budget would get approved for the following year.
So this has always been contemplated as a long tail process. We knew they couldn't start the process in earnest last year until after the budget cycle started. I think some of the wild cards that could go both ways, and this is again I'm trying to read tea leaves is, obviously the state of California has a fairly large budget deficit. So does that weigh on their decision to purchase or the timing of when it? At the flip side, I think we just saw news some mandate that government workers go back to the office, which is an interesting signal for that state.
The other thing is, this is the Office of Emergency Services. This is the department that received both state and federal funding for natural disasters, which we just got one done in the Palisades and there's quite a few of these at hand. So this is -- if there are budget constraints in the broader California budget, this is one that probably is still well funded because of the severity of natural disasters and the impact that they have on lives.
So we feel comfortable, but we are going to be flying blind because it is a government process and they have their procedures that they can follow. So my guess is we probably won't know anything if we do know anything at all until summer. And then it would -- and even if that was the case, then it would probably be, they probably -- they always signaled that they were going to purchase it. It would be within that first four-year window and that's how the right is to do so. But right now, nothing to suggest that they're not doing it.
We're waiting to hear back from them on their selecting or appraisal, which I think is a good sign because if they didn't want to do it, they wouldn't have engaged in that process.

Robert Stevenson

Okay, that's helpful. And then in the K, you guys indicated that Fujifilm exercise or lease option there. Is that just a standard increase or is there anything abnormal about that option exercise that would impact earnings more or less than what we would think?

Aaron Halfacre

So yeah, so they have two-, seven-year options. We have to establish a mutually -- we have to agree upon a rent. That rent is established at 95% of fair market value, so that's the mechanism in that place. So it's not a contractually predefined dollar amount. So the process will start to -- obviously, both sides have different opinions of what their market value is, and we have to sort of come to a compromise and a mechanism to do that.
And then once we do that, there will be the rent going for the next seven-year option. They're a fantastic tenant. They have been in that building for a while. They have put a lot of their own capital into that, and we'd love nothing more to see them stay longer. We would have loved to have a longer-term lease, but the option is seven years and I get it, given the financial world and how most CFOs like seven or five years typically, and so we look forward to having that resolved here quickly.

Robert Stevenson

Okay, so that'll be a flat lease, no bumps once you establish a price off that?

Aaron Halfacre

No, there's a mechanism for bumps as well.

Robert Stevenson

Okay. And then with that Fujifilm lease done, what are recent conversations with Northrop Grumman, who I think is the other significant expiration you have over the next couple of years that's not in the disposition file?

Aaron Halfacre

Yeah, too soon to have conversations about renewals or things like that. They're coming up, so that said, I mean, you kind of look at what has been done. There was just a million dollars put in to replace the generator into that property. They also went to us and told us that they -- every time they make a change they have to like interior change, they have to notify us. They don't have to get our approval but they have to notify us and so they have been expanding and doing more buildout, so they do classified primary electronics in there.
And so they've expanded some of their -- they've retrofitted additional space. Originally when I think when we bought it, well, we didn't buy it, the legacy. The team had bought it. It was largely like an engineering office slash HR slash -- it was kind of like an office. And during COVID, they cleared all that out and then increasingly what they've been doing is they've been putting lab space in there.
So they'll get a contract, they'll add 10,000 feet, they'll retrofit that for a lab, they'll do more and more. So they've increasingly added more and more lab space into that space. We're not even allowed to go in. We don't know what they're doing exactly because they don't you have to have top secret clearance. But they have put in quite a bit of money in the last 12 months into their property, and they recently expanded some more.
So those suggest to us that they probably are here to stay. We're going to have a very open conversation with them as we get closer to that. That's probably not going to be until the end of year or early next, just by the nature of how these work. But other than that, we don't see -- candidly, if they left, we wouldn't be -- we won't cry. We've had a lot of interest, believe it or not, someone would like to develop that in that whole space into apartments, but so we're okay, but we think they're staying.

Robert Stevenson

Okay, that's helpful. And then last one for me, Ray, how should we be thinking about G&A in 2025? So you've got -- especially I guess the place first place to start is the non-cash G&A. You've got these Class X OP units to management. Is that just being ratably amortized there over the next five years? And so what should I be looking for versus the $1.6 million that you did in non-cash or stock compensation expense in '24 for '25, given that?

Raymond Pacini

Yeah, those will be amortized over the service period, so in round numbers I think it's around $2.5 million a year, and then the cash D&A will go down because -- I don't know if you saw it in the 10-K, but, Sandra Sciutto, our Chief Accounting Officer, is going to retire at the end of this month, so she'll be leaving and then her financial reporting person is also going to be leaving at the end of the month and then we have one other person leaving at the end of April.
So we're going to reduce the staff size by three. We'll have nine employees, so that'll provide savings in the G&A fund as well.

Robert Stevenson

Okay, and then I assume that Aaron is not getting a salary or bonus will also sort of go to subtract out from the $6.3 million that you guys had this year?

Raymond Pacini

Right.

Robert Stevenson

Okay, so non-cash goes up $2.5 million per year to call it in the neighborhood of 4ish and then cash goes down?

Raymond Pacini

No, you misinterpreted me. $2.5 million is the absolute number, not the increase.

Robert Stevenson

Okay, so that's $2.5 million and then the cash will go down for the departures and for Aaron moving from cash to non-cash stock?

Raymond Pacini

Correct, yes.

Robert Stevenson

Okay. And then the last one on that, are you guys still running sort of 30% of the year in the first quarter? Is that still the way that all of it sort of flushes out with this stuff in terms of the accruals and everything that it all is going to still happen in the first quarter and so big number and then subsequently smaller numbers throughout the year?

Raymond Pacini

Yeah, I mean, the first quarter includes the bulk of the audit expense, and then it includes a lot of tax consulting because we have to issue pay one this month, and get ready to substantially file the tax return, so yeah, it will be front-loaded again. I'm not sure exact if it's exactly 30%, but it'll include those additional professional fees, which are higher than the rest of the year.

Robert Stevenson

Okay, thanks, guys. I appreciate the time this morning.

Aaron Halfacre

Thanks.

Operator

Gaurav Mehta, Alliance Global Partners.

Gaurav Mehta

Yeah, thank you, good morning. I wanted to ask you on the $6 million acquisition that I think you have on the contract. I think in the press release you talked about identifying the development opportunity in a land parcel. Is that something you guys plan to do yourself or is that something for the future?

Aaron Halfacre

Yeah, so just to give clarity, so obviously, we had alluded to this transaction prior quarter. We had signed an agreement. We were going through due diligence. When we got there we were like, there's a very large attached parcel to it. We wanted a little bit more time to explore. We actually had a conversation with the tenant. The tenant has -- the existing tenant on the built portion has expressed an interest to take down.
We could build approximately a 60,000 to 100,000 square foot facility next door, and they expressed to take an interest in having some of that space so that they could consolidate their operations in one location because they're leasing somewhere else. So we spent time talking to them, we spent time talking to some local industrial brokers in the market. We also spent some time looking at sort of developers.
We definitely think there's an opportunity there. It doesn't mean we're going to pull it today, but how we would do that, we have experience in here. We would typically work with a turnkey builder that would work with us all the way through, so we're not the contractor on this obviously, and have it developed concurrent with leasing activity. So we think that's something that we'll do.
When we do it, we're going to have to huddle. We're having an off-site strategic team meeting here in April. We're going to discuss that and some other ones, and it also highlights -- we actually have four of those -- three others of those types of possibilities because a lot of the properties we've acquired have large land footprints and we, for instance, we have an asset in the Carolinas so we've been approached for a carve out to build an industrial facility.
So we're looking at those. Those are ways to obviously generate AFFO growth without necessarily simply buying something, and we'll look at those strategically over the course of this year for sure and decide which ones we want to pull the trigger on.

Gaurav Mehta

Okay, great. Second question, Aaron, I wanted to ask you around your comments on the acquisition market, I guess, what are some other indicators you're looking at to get more active in the acquisition market? Is it like you need like better cap rates or more product floor, maybe better cost of capital to do a few different acquisitions?

Aaron Halfacre

Yeah. We've honed and rehoned our strategy as time goes on. I think now, whereas before we bought some smaller assets, $5 million to $6 million assets. I think now you have to be really sterling white for me to get smaller, not because I don't have a problem with smaller assets, it's because I think just generally speaking, they don't appear as institutional, so we're sort of looking more for that $10 million to $30 million size.
You get above $30 million if it's a single asset, it feels just way too big. Candidly, $30 million is probably too big unless it's something beneficial. If it's a portfolio of assets like, multiple assets and so they all break up, but it's sort of that $10 million to $25 million, I guess would probably be the sweet spot. So that's been a filter that we kind of looked at.
And right now in this environment, looking at some of the deals that are coming out, they're P/E led and you're like, okay, why are you selling this in such a s***** rate environment? And the answer probably is they don't care, they just want the money and they're going to do something else with it. And that's not necessarily a good reason for a landlord to buy, right?
And so I think we've been -- that's motivation, is a big part of it. It's like, okay, why are you selling it probably one of the darkest hours, you have the absolute most clarity and you're wanting to try -- you just bought this company and I get it, it's a cash out strategy. But it could be a very expensive one, and so we think, worry about, hey, that might be on -- that might be price talk of $7.5 million or $7.25 million in the quarter, but that might really be a $9 million and you won't find out until afterwards.
And so we want to be careful of that because, look, you have to be cognizant that in the manufacturing space, you have the binary risk is much larger than it is than say a Walgreens, right? Reletting is going to be a lot harder, so you have to have more scrutiny. So I think some of it candidly the inventory we've seen just hasn't been super compelling that says yeah screw it, we're going to go get it.
If there's one that looks good and we want to buy, we're willing to buy, it's just that there's no sense in just buying something that doesn't seem really compelling because. Look, my net worth is tied to this. All our investors' network are tied to this. There's a lot of people who aren't institutional who aren't owner name, who don't pay attention to what you publish, and they don't look at the stock market, but they care very deeply about the sanctity of what they own.
And that's how we've got to be mindful, right, that this is real people's money and that we have to protect it and protecting it is not the same necessarily as always growing it for the sake of growth that we do want to grow, we do want to make it more valuable, but we have to protect the house. And sometimes the best way to do that is not put new s*** in the house that isn't good. And or is it really compelling?
And so look, cost of capital certainly matters, I think right now, it's been a thin pipeline of activity. I think we'll see it more robust and there'll be a lot more choice because the really smart folks are going to probably who want to sell their properties are going to wait a little bit if I were them, just like we're waiting a little bit. So that's kind of how we think about it.

Gaurav Mehta

All right, thanks for that color. That's all I had.

Aaron Halfacre

Thank you.

Operator

Stephen Chick, Sebis Garden Capital.

Stephen Chick

Hey, thanks. Aaron, we appreciate the patience and I'm glad you discussed the upbeat transaction head on in the press week so it's helpful. I have some questions, numbers questions, maybe for Ray.
The ADR for at the end of the year, it was a little lower than last quarter despite the same number of properties. I'm assuming there's kind of some assumptions in there for maybe Costco and [Endi], but can you just kind of reconcile that? That'd be helpful. And then maybe actually what you're anticipating for within your AFFO guidance for 2025 for ADR?

Raymond Pacini

So the decrease reflects the fact that Costco, their lease expires at the end of July. And Solar's lease also expires at the end of July. So those are the things that are driving the decrease, they're partially offset by ongoing rent bumps, but that's basically the driver. And what was the other part of your question?

Aaron Halfacre

I don't know that we've given ADR for guidance.

Stephen Chick

Well, just, I guess is Endicott in there as well? The small sale?

Raymond Pacini

Yes, it was, but it really is a small number.

Stephen Chick

Yeah, okay, right. And can you remind me, is this kind of steady state ABR number, it doesn't include kind of rent bumps or it's not forward-looking, is it an ABR kind of --

Raymond Pacini

It's the next 12 months, so it's the rent we expect to receive from January 1 to December 31 of this year.

Aaron Halfacre

Yeah, so any bumps that come into play this calendar year are reflective because that. We're basically taking a 12-month rent roll based on how the contractual rent is.

Stephen Chick

Right. Yeah, okay, that's helpful. And then in the assets for sale at year end, on the balance sheet it looks like -- I think it's somewhere in like $22 million. Is Endicott in there and what is in that number?

Raymond Pacini

It's just Costco, and the cost didn't have to come along until after the year ended, closed. The way the gap rules work is you have to be committed to a sale as of the balance sheet date to include it in asset help or sale, so we didn't have discussions with -- the buyer didn't come to us until January, so that's why Endicott's not in that number, so it's just Costco.

Aaron Halfacre

I would point out that for first quarter, yeah, in January this year we did, we have taken (inaudible) to market, so that's out in the process right now, so that will show up for health for sale on first quarter numbers, but it's early innings. I mean we just took it to market less than a month ago.

Stephen Chick

Okay, that was actually my follow-up on that. Are you able to say, with the Cushman valuation, that was the appraisal recently done, how did Calera come out within that, I guess, relative to its book value? Can you speak to that?

Aaron Halfacre

If you're asking if there was an impairment, there was no related impairment associated with the valuation, so it was the valuation that Cushman did remains above. The marketing process that we're having is first focused on strategic growers, of sort of the same ilk, and then from there the second round is sort of marijuana growers which are legalized in Minnesota, and then from there it would be just sort of general industrial use.
So we're running through that process right now, our broker buys it's probably six to nine months sales process. It's hard right now in the winter obviously there, so it's sort of been a little bit of soft marketing, but I don't know what the outcome will be on that. What I can tell you is that whatever dollar value we get out of that, that is dollars that aren't earning AFFO right now, and so we look forward to getting that redeployed and putting that money to work, and we have not made any assumptions that our numbers of that happening, just so you know.

Stephen Chick

No, that's good, fair, because I think the book value is somewhere in the area $9 million to $10 million, so it sounds like you'd be expecting more of that sometime over the next six to nine months assuming the process goes this year?

Aaron Halfacre

I don't have any expectations right now until I -- the market's weird and we're going to see what we get and then we'll go from there. My only desire is to get the most we can get, but I don't know, I don't have an expectation of what or where we are.

Stephen Chick

Okay. A couple more if I could. I wonder if it makes sense, with the preferred coming up in a call in 2026. You don't want to advertise in advance, I guess, but it does it make sense at some point if it's below par value to pick off some of that in the open market? I saw with your credit agreement, with the K, it looks like you've released some commentary on that. You could do that if it was funded by the common stock, but I'm just curious if you could speak to that and any future refinancings as you look out into the '26 and '27?

Aaron Halfacre

So I think in the third quarter commentaries and either on the call or commentary I alluded to a lot of our thinking is going towards that preferred that becomes callable in September of '26 and our debt maturing in January '27. And so we're very much thinking about decisions today that impact those and I think in an ideal context, should we have the means which candidly is going to probably be equity, but if we had the means to retire the preferred, I would -- it was good for us, it served its purpose.
But I think it could be priced better if you ever wanted to do one like in my ideal context in a world that doesn't currently exist, I would be like public storage used to be and I would have preferred as my sort of first lien position and I have common and I would not have any other debt and then that would de-risk the nature of the asset class considerably. And it would make it very much a perpetual income vehicle, but I'm not there.
So to even get there though, if we were ever to be there, we would have to retire this preferred. I think you're right, we wouldn't want to advertise in advance if we're going to be taking things out. We have the flexibility to do so and we'll see.

Stephen Chick

All right, great. Thanks guys. I appreciate it.

Operator

Thank you. (Operator Instructions) There are no further questions at this time. I'd like to turn the call back over to management for closing comments.

Aaron Halfacre

All right, everyone, thanks so much. Talk again soon and we'll keep our nose to the grindstone and keep working things out. Appreciate your support. Take care.

Operator

This includes today's conference. You may disconnect your lines at this time, and we thank you for your participation.