Good day, and welcome to Modiv's first quarter 2023 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks. Then we will open the call up for your questions. To ask a question, analysts may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Margaret Boyce, investor relations for Modiv. Please go ahead, ma'am.
Thank you, Diego, thank you all for joining us today to discuss Modiv first quarter 2023 financial results. We issued our earnings release and investor supplement before market opened this morning. These documents are available in the investor relations section of our website at modiv.com. I'm here today with Aaron Halfacre, Chief Executive Officer, and Ray Buccini, 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'd 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, 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 those forward-looking statements are contained in our SEC filings, including our reports on Forms 10-K and 10-Q. I'd now like to turn the call over to Aaron. Aaron, please go ahead.
Thank you, Margaret. Hello, everybody, and thank you for joining our first quarter conference call. We're going to jump right in with a review of the financial results by Ray Buccini, our CFO, followed by my closing comments before we open the line for Q&A. Ray.
Thank you, Aaron. I'll begin with an overview first quarter operating results. First quarter adjusted funds from operations or AFFO was $3.1 million or $0.30 per diluted share, compared with $3 million or $0.29 per diluted share in the year ago quarter. Revenue for this first quarter increased 7.7% to $10.3 million, compared with $9.6 million in the prior year period, reflecting the benefit of the acquisitions we completed during 2022. The net loss attributable to common stockholders improved $6.4 million for the first quarter, coming in at a loss of $4.7 million or $0.62 per basic and diluted share. This compares to a net loss attributable to common stockholders of $11.1 million or $1.47 per basic and diluted share in the prior year period.
Were it not for two primary offsets, we would have obtained an even stronger improvement in our operating results. The recent quarter results include a $3.5 million real estate impairment charge and a $2.5 million year-over-year increase in interest expense. The real estate impairment charge relates to our property in Nashville, Tennessee, which is leased to Cummins. Since we are planning to dispose of this property later this year, we evaluated its carrying value compared with comparable sales values and reduced the carrying value accordingly. The increase in interest expense includes a $1.7 million of unrealized losses on interest rate swap valuations.
While the swap on the first $150 million of our term loan was treated as a cash flow hedge from July 1st until December 31st, 2022, it did not qualify for hedge accounting treatment for the first quarter of 2023 because the swap was deemed ineffective. The primary reason the swap was deemed ineffective is the potential for a reduced term in the swap that could result from a one-time cancellation option available on December 31st, 2024, compared with the January 2027 maturity date of the term loan. We provided this cancellation option at the time we entered into the swap because it reduced the swap rate by approximately 50 basis points. If there's a significant drop in interest rates in the future, this interest rate swap derivative could potentially qualify again as a cash flow hedge.
The unrealized loss is a non-cash expense that does not impact AFFO, and we continue to benefit from the hedge with the $250 million term loan outstanding today at a weighted average interest rate of 4.3% based on our leverage of 40% as of March 31, 2023. The balance of the increase in interest expense reflects the fact that the weighted average interest rate on our $170 million term loan outstanding as of March 31, 2023 was 4% based on the existing swaps, compared with $150 million outstanding as of March 2022 at a weighted average interest rate of 2.1%. Now turning to our portfolio. During the first 4.5 months of 2023, we continued to focus on acquiring industrial manufacturing properties.
Year to date through May twelfth, we acquired $100.6 million across 10 industrial manufacturing properties. At an attractive blended initial cap rate of 7.7% and a weighted average cap rate of 9.9%. Two of the acquisitions occurred during the first quarter, and following completion of the remaining eight property acquisitions during April and May this year, our portfolio now consists of 56 properties located in 18 states. On a pro forma basis, as of March 31, 2023, the portfolio composition included 37 industrial core properties, representing 67% of the portfolio with a 14.5 year weighted average lease term, or WALT, and a 2.4% annual rent bumps.
Three tactical non-core properties representing 20% of the portfolio with a 15.3 year WALT and 2.3% annual rent bumps. Sixteen other non-core legacy retail and office properties representing 13% of the portfolio. As part of our active investment strategy to acquire industrial manufacturing assets, we've successfully increased our industrial exposure to a super majority allocation from just 39% as of September 30, 2021. Our tactical non-core allocation, as detailed in our Form 8-K filing today, offers Modiv potentially meaningful upside over an interim holding period, while our other non-core allocation, consisting of 16 legacy retail and office assets not acquired by Modiv's management team, presents a near-term capital recycling opportunity as we are now focusing our efforts on selling those properties.
Since the beginning of 2020, immediately following the acquisition of a non-traded REIT, Modiv's management team has successfully repositioned the portfolio by selling $143 million of non-core legacy assets and completing over $278 million of accretive acquisitions. Annualized base rent based on rates in effect on March 31, 2023 totals $41.8 million on a pro forma basis, reflecting the acquisitions completed in April and May 2023. The portfolio's weighted average lease term is 13.3 years, and approximately 38% of our tenants or their parent companies have an investment-grade rate credit rating from a recognized credit rating agency of BBB- or better. Now turning to our balance sheet and liquidity.
As of March 31, 2023, total cash and cash equivalents were $13.3 million. We had $214.4 million of debt outstanding, consisting of $14.4 million of mortgages and $170 million of outstanding borrowings on our $400 million credit facility. Our leverage ratio was 40% at the quarter end. Based on interest rate swap agreements we entered into during 2022, 100% of our indebtedness as of March 31, 2023 held a fixed interest rate, and the weighted average interest rate was 4.1%. In April of 2023, we drew the remaining $80 million available under our term loan.
We used these funds, along with cash on hand and the issuance of $5.2 million of Class C operating units in our partnership at an agreed-upon price of $18 per share to fund the equity property acquisitions I just mentioned. The weighted average interest rate on the $294.4 million of total debt outstanding as of May 12, 2023, was 4.4% based on the existing swaps and consolidated leverage of 40% as of March 31, 2023. As previously announced, our board of directors declared a cash dividend for common share of approximately $0.095 for the months of April, May, and June 2023, representing an annualized dividend rate of $1.15 per share of common stock.
This represents a yield of almost 9% based on the recent share price of our common stock. I will now turn the call back over to Aaron.
Thanks, Ray. As you just heard, Modiv has been able to produce yet another solid quarter of results. Further, as we detailed in our earnings release, the 10 acquisitions we completed represent an impressive mix of accretive, high quality industrial manufacturing properties. Beyond the financial results, I believe there's a message to take away from this that I would argue is even more important, and that is the ethos or character of the management team that produced the results. Any given REIT in any given quarter can deliver a decent result. As they say, even a stopped watch is right twice a day. Heck, even delivering consistent quarterly financial results is nothing more than a nice confirmation that you made the right initial investment decision.
The investment you are ultimately making, particularly in the net lease sector, is on the caliber and capability of the management team to produce those consistent positive financial results. Picking the right management team is critically important. It's like picking the right horse at the Kentucky Derby, the right team to win the playoffs, or the right soldiers to go to war. Sometimes stats don't tell you the full story, so you have to rely on your instinct. When your gut tells you to choose the underdogs, the warriors, the hardscrabble crew that has no quit, then you know right then and there that you have found something special. Modiv's secret sauce can be summed up in two simple but powerful words, grit and grind. Modiv's grit is exemplified by our focus and perseverance.
Combined with our ability to grind it out every day relentlessly, we are hardwired to achieve our goals. Combined with our decades of REIT and real estate experience, our grit and grind produce results that are both intelligent and compelling. Think about it for a quick moment. Since the beginning of last year, Modiv has grown over 30% by accretively acquiring nearly $300 million of assets without raising any institutional capital. Modiv has transformed its balance sheet with all fixed rate debt with a weighted average interest rate of 4.4%, despite an unprecedented rising rate environment. The Modiv team has done all this while also selling millions of non-core assets and executing impressive new leases and renewals and managing all the financial reporting of our company. We did all that with just 12 people. That takes grit. We had to grind it out.
Let me ask you this: How many CEOs do you know that tour every property acquired? I've been in the REIT industry for over two decades. I've never met another. To find the right acquisitions this quarter, our chief investment officer and I had to take 25 flights with countless winter delays to 18 cities, driving over 1,700 miles between site visits across seven different states. That takes grit and requires you to grind. When we moved our corporate headquarters to Reno late last year to save our shareholders every bit of money we could, our COO and I loaded up the company's office furniture into a 26-foot U-Haul and drove it up over the Sierra Nevada mountains. Grit and grind. This past Saturday, I ran a half marathon trail race in the mountains.
Two weeks ago, to prepare for the race after a rough winter that offered very few good training days, I decided I had to grind out several long runs to get to my goal. In one week, I knocked out four mountain runs for eight miles, 13 miles, 14 miles, and 15 miles, just because it had to be done. Another example of how Modiv is defined by its grit and its ability to grind. Last quarter, we stated our goal to acquire a minimum of $100 million of industrial manufacturing properties. When I stated that publicly, I didn't know when we would accomplish that goal. We got it done sooner than we thought. Our focus has shifted to selling the 16 legacy non-core assets that we inherited through prior M&A.
I don't know how soon we will get them sold. I can promise you this, our grit and grind will make sure it gets done. After we sell those assets, we will then shift to showcasing to everyone how we have become the first pure play industrial manufacturing REIT and how we are focused on becoming the leading investor in industrial manufacturing properties. With every ounce of my perseverance and determination, I'll be spreading the word, even if it requires me to meet every financial advisor in the country and making investors aware of how great an investment opportunity Modiv represents, and in doing so, improve our share price. I encourage all who are listening and all who will read this transcript in the future to know this: With our grit and our ability to grind, Modiv will prosper. Operator, let's open it up to Q&A.
Thank you. Ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Rob Stevenson with Janney. Please state your question.
Good morning, guys. Aaron, how should we be thinking about the size and timing of dispositions besides the Gap Inc. property that I guess is supposed to close later this month? I mean, are you guys out there in the marketplace with stuff under contract or marketing? Is that a more of a back half-ended sort of process?
It's a good question. We haven't, other than the Gap property, formally designated the other properties held for sale. That doesn't mean we haven't done a lot of work to know where we think they're at. There's a bit of a balancing act with the selling of this, and I'll give you my sort of inside baseball on this. I could sell my retail assets, like, right away, attractive cap rates. If I do that, then my weight to office gets disproportionate, right? Then for people who are uninitiated, they're just gonna say, "Oh, you got. You know, your percentage of office went up." We're balancing the disposition of these. I think in ideal context, we would sell them in one fell swoop.
I don't think that's necessarily gonna happen, but I think that would be our ideal context. From there, we're working on it. Timing. Look, my goal is to get it done this year. you know, that said, we've had, you know, a crazy credit market, right? Who knows when the next bank is gonna trip over itself and even further restrict lending. I think individual credit lending is important for some of these asset sales, right? If, you know, if it's a Dollar General, no, it's not. If it's an office asset, yes, it is. Look, I don't have a projection on the timing, but I'd say that, you know, it's our focus. As when I focus on something, it gets a lot of attention.
I think, you know, our goal is to get it executed in a very timely manner. That said, it's a rough market, right? I think we're eyes wide open. If you think about why some transactions don't get done, it's typically because sellers aren't accepting where the market is. We're not naive about that. We're cognizant of it. We're gonna maximize proceeds, but we're at the same time, we're gonna accomplish the goal because at this point, we don't want them in the portfolio. We're gonna recycle, and there's plenty of other things to buy. It's kind of rough hard in the sense that, look, I could continue on focusing on acquisitions. There's lots of assets deals we like out there.
We just need to shift, get this done, so we're gonna make sure it's done in a timely manner.
Okay. I guess to that point, I mean, how should we also be thinking about acquisitions? Are you guys, you know, is it basically from here on out, could it sort of be matched more with disposition proceeds? Is the pipeline good enough and strong enough and you're comfortable enough with the balance sheet that, you know, we could see another $40 million-$50 million worth of acquisitions this year prior to doing any material dispositions?
Yeah, I don't, I don't think I would do that much prior to dispositions. We turned away probably about $40 million-$50 million of deals that we could have closed on. You know, I like where we're at. We haven't pulled on the revolver. We've used up the term loan, you know, so we're not escalating into the spread of Our leverage is still, you know, where we want it to be. We're thoughtful about leverage in the forward environment. I think once I have a better bead on the sales or like the timing of the sales or the surety of the sales, then we could do it. We definitely will acquire more this year.
You know, my view is, look, I'd rather front-loaded it as best we could so we can get the benefit of that, sort things out, on the margin. You know, so I won't. You know, as we stated last quarter, our minimum acquisitions was 100. We've achieved the minimum. We want to do more. We're intending to grow, but we're just trying to be also mindful of the balance sheet. You know, it doesn't do us any good to buy a bunch of assets and then be like 60% levered, because, you know, we're just gonna get beat up for it. We're just being disciplined in the process.
Okay. Then you funded about half the Reading acquisition with OP units at $18. Can you talk a little bit? Was that just a specific circumstance there that they needed tax protection? Is there demand out there from sellers that you're talking to to take OP units today?
I think anyone who wants to take OP Units does have a tax awareness element to what they're doing. I wouldn't say. Generally speaking, you know, cash is king, and particularly if it's you're an institution that's selling it, where they don't have the tax sensitivity. When you have, you know, founders or entrepreneurs who own these things, and sometimes they could have material basis low basis, those tax savings make sense. I think, though, in this situation, was someone who really believed in what we were doing, had opportunities to take OP Units from multiple different REITs and chose us. I think it's a testament to us and our company, but also the spirit of this individual. His name's Gary, and I think he's a great guy.
Because he recognized the inherent value of our company and was able to take shares or OP Units that are above our current screen price. We get opportunities from time to time to look at that. We're not gonna take every one, right? Because we treat them as partners, and, you know, they're significant shareholders. I, you know, I don't wanna be a slush fund just to get OP Unit transactions because sometimes you see that, particularly in sort of legacy non-traded kind of environments. We pick our partners carefully. In this case, it was a situation that works for both parties and we're happy about it.
Okay. Last one for me. You extended the Levens property lease by about 16 months. Are they moving out and just needed a short-term extension? Something else going on? Is the tenant still likely to occupy that asset after the end of next year?
Yeah. I think they're likely to occupy after the next year. They wanted. What they did is they made another acquisition. They were doing a little bit of consolidation. They wanted, they just wanted to bridge. You know, 'cause we. The rate increase was high, right. They had really below-market rents. They just wanted to do a reset. We're also doing some. They're doing some LED light work in there and stuff like that, in terms of swapping out things. They've put in probably, I'd say, over $1 million of improvements over the last 18 months. They seem to be sticky. You know, they just wanted to bridge one because they're focused on acquisitions and their clock was running out.
We said, "Fine, let's just do that," 'cause we're fine with that. If you notice, we've done that with our solar assets and things like that. I think maybe what they were thinking is like, "Let's just do a short-term one. We'll take the higher rate increases, but maybe the markets will stabilize. So when we do a longer-term lease, it may not be as costly for us.
Okay, that's helpful. Thank you. Appreciate the time this morning.
Sure.
Our next question comes from Gaurav Mehta with EF Hutton. Please state your question.
Yeah. Thanks. Good morning. I wanted to ask on acquisitions. In your prepared remarks, you said the pace of acquisition was faster than what you expected. Just wanted to get some color on, you know, what drove that, you know, achieving $100 million of acquisitions, I guess, in the first four months. I guess, you know, trying to understand what the state of transaction market is and what you guys saw that led to that in execution and in faster time.
Yeah. You know, a little backstory. When we originally secured our term loan, I think it was, correct me if I'm wrong, Ray, it was September or October of last year, the term loan extension. We had been underwriting a portfolio. It was an institutional portfolio, had been a legacy STORE portfolio, that a former colleague of mine was the GP on. It's a great portfolio. Would have loved to transact on it, the cap rate that they wanted just didn't. We were very concerned about that cap rate going into, you know, the environment that we were in. We tried to negotiate. We just couldn't get it done. Maybe we'll get it done down the road, who knows? That was a sizable one. That would have increased our leverage.
It was over $200 million transaction. We didn't close on that, and so we had to shift gears. The pipeline, even in as early as mid-January or late January, the pipeline was thin, right? We had bid on several deals in November, December that the sellers just pulled. They couldn't accept the pricing in the market, and they just pulled, and they never did the deal. In sort of late January, the deal volume started to pick up. We passed on a lot of deals. We bid on a lot of deals that we didn't win. You know, that, for instance, the American Roller deal that Gladstone did was a great asset. We just, you know, we didn't get it.
The other ones we did. As I mentioned, you know, just a minute ago, we did there was a couple of deals we had under LOI that we just ultimately we didn't, you know, didn't close on. You know, the market has shifted, and we had outs, and we took some of those outs. You know, they're either their credit got weaker or something like that. We've been disciplined. It wasn't like we were just feeding at the trough. We could easily do, you know, we could easily do another $100 billion. It wouldn't be hard to do. You know, we have constraints, right? We gotta manage our balance sheet and be thoughtful about that. That was our goal to get it done.
I think it's good to get it done in that manner. As you look at the acquisition dates and the finance, I mean, last one just closed last week. These were. Some of these were, you know, they were pretty fast process. You know, we have historically gone like, we'll go out, I'll fly out with Bill, we'll go look at a property, we'll get order thirds if they don't have thirds done right away. We will move fast, so it's not like we've been sitting on these for months. There are deals that take a while. Pipeline is like sort of real-time. Like I see a lot of assets out there. I don't see a lot of seller acceptance on some of the prices, like for instance, legacy assets.
There's some attractive opportunities out there, I think in terms of the quality of the assets that people have already bought, so these aren't de novo sale-leasebacks. The sellers aren't there yet, right? They're still in the high sixes or low sevens, and the market has moved on from that. You know, if they have favorable financing, they can sit it out and wait. If they don't, then their time will come, and they'll have to do something. From the sale-leaseback perspective, I think a lot of the brokers in the community have recognized the pricing has shifted. What we saw that was the beginning of the year, people said, "Okay, I need to get sale-leasebacks done, or I wanna get sale-leasebacks done, and I'm willing to accept market pricing." That's what we saw.
I think the number of buyers has gone down on the margin. You still have, you know, you know, if you look about sort of institutional buyers, you know, you definitely have Gladstone. You have, you know, on the margin Bridge, which is the legacy Gladstone team. You have Broadstone here and there, Spirit here and there. You know, they're diversified, so they don't necessarily. They're not focused quite the same way. You have some private guys like Fundamental and Tenet, which we haven't seen recently, or MAG Capital or AIC, excuse me. There are a few buyers, but there used to be more. I think the other buyers that were out there needed bank lending a lot more, and they're not there. It's not there.
There's I think the buyer pool is a little bit tighter, but I also think the buyer pool has also gotten pickier, right? There are deals that we, you know, they go seven and a quarter cap, and we're like, "no, thanks." We don't want to because we don't have to. There's no need to chase an asset. I think our acquisition volume is just reflective of we are focused on a goal. We're getting it done. We didn't think we were taking a adverse risk. The pricing was right, and we got it done.
Okay. Great. That's great color. I also wanted to ask you on your disposition efforts, can you provide some color on what your view is on office and, you know, how soon, I guess, you know, you could get exit the office properties, given, you know, what's going on with office real estate?
Look, I think office is a six-letter curse word right now, and people just, you know. It, you know, it's the new thing to hate. You know, go back, what, four years ago, and it was strips, centers, and things like that. Everyone loves to hate office now and look, and for good reason. I think office is not one homogeneous bucket. I think if people really dig into it, there are a lot of gradations to what you own in terms of office. If I had, you know, Class B multi-tenant urban office, I would be sweating it, right? Because I would have low vacancy, high TI cost, and I would have property that no one really wanted.
If I had Class A, you know, major market, you know, high, you know, newer vintage office, I would be okay, right? Yeah, you'll have some noise and things like that. I think what I found, and I think increasingly what I found, is that, look, we have had a sort of seismic shift in how we think about office, but I don't think office is obsolete. I think for us, for me, running a company that has been sort of hybrid. We have our accounting staff works remotely. They've been remote since COVID. It works fine. There's certain. Our accountants, they know what they need to do. They don't need to see some people every day, and they communicate.
The rest of us, the real estate folks and the, you know, CFO and, you know, legal officer, we've been in our office all the time. As we transition to Reno, some of us got up here earlier, some of us are still coming. I found it hard. I think it's hard sometimes not to have people in an office. I think. And you see increasing rhetoric. Some of it's, you know, probably got some other motivations, but ultimately, as a leader, it's hard to communicate with people sometimes with electronic devices, and you want them to be able to convene, not every day, but often. I think office as whole has some legs. I think it's gonna shift.
I think, you know, if you go back just 20 years ago, you know, Maguire Properties was building a ton of stuff because it was relatively new. Now we all hate it, right? You know, I think there's a little bit of fickleness in the market today. That being said, our office portfolio is very unique. We still have single tenant, you know, office buildings that were designed. Some of them are in markets that if you looked at it generically like a multi-tenant office, you'd say, "Well, that's no good." It's germane to that tenant. You know, our walls are getting shorter. That's partly for, you know, two things. One is some of these people are not sure what they wanna do.
Two, why would you go out and ask a tenant right now to do a 20-year lease? They're going to rake you over the coals. If I have three or four years left, I'll wait three or four years because I think we're gonna be in a better environment then. That said, I wanna get rid of office. I didn't buy any of these office properties. I wouldn't buy office properties. I don't really like office properties. No offense to, you know, all the people who run them because they know how to do it, but it takes a real skill to run a multi-tenant office. A single-tenant office doesn't. Historically, REITs have just bought office because it's a guild play, it's a credit play. They never really thought about, you know, a lot of the other problems.
Our office assets in our OES lease is golden. I'm not in a rush to sell that. I think, you know, I think that there's a high probability the state will execute its purchase option, that, you know, that will be a self-liquidating vehicle. Our Costco one, I don't even really think about it as an office. It was converted from flex to office to house Costco. When Costco leaves, we're gonna probably redevelop it, sell it to a redeveloper or JV with a redeveloper. I think there's upside there. The rest of the stuff is not really super strategic to us, we will get rid of it. I'd like to get rid of it, like I said, first, if I could. We're cognizant of cap rates. I think, you know, you need to find the right buyers.
We're seeing activity out there a little bit more than I would have thought. It was dead in the fourth quarter. We didn't focus on it until now is because, you know what? Let's get the acquisitions done. Let's get revenue-generating property in the door, then we'll shift our focus. There's only so many of us here who can do things. The GAP property that we've had under contract, you know, it's an owner occupant, owner user. They are getting SBA financing. It was just taking a little bit longer for the banks, they kept ponying up money. I mean, think about it. They're $125,000, you know, spent on this property, it's not a big purchase price. We're giving more time because, look, we are focused on acquisitions.
They're willing to enter into a long-term lease. We're just like, "Eh, let's just get it done, get it sold." We're now shifting our focus to these other assets, like I said. Looking very creatively at ways to get it done. Confident we'll get it done. You know, I'd like to be in a spot this time next year where we're not talking about office, at least as it relates to Modiv.
Great. Thanks for all the color.
Thanks.
Our next question comes from John Massocca with Ladenburg Thalmann. Please state your question.
Good morning.
Good morning.
Maybe kind of any detail you can provide on kind of cap rate trends over the course of that kind of March to May acquisition window? You know, again, maybe kind of how wide were those kind of cap rate bands on some of the acquisitions you were seeing subsequent to quarter end?
Yeah. They're roughly 7.5 to 8, I'd say. I'd say that what we found as more deals have come out, even some of the deals recently, is that the brokers are coming out with deals priced better. Like in December, they would be like, "Oh, yeah, we're looking at low 7s. We think this is gonna clear maybe sub-7." It would. It would go at a 7.5 , right? Now they're coming out and they're saying, "Yeah, we think it's, you know, you know, mid to high 7s." You know, where someone might bid eight in the first round and still be able to bid in the second round. I think, you know, I will qualify that.
We're focused on industrial manufacturing properties. That's all we look at. There are certain brokers who are. They're really excellent at what they're doing, and they have a really good bead on it. Those individuals or those shops have gotten transactions done. There's others who've gotten listings who maybe they're generalist industrial or maybe they do a manufacturing asset here or there, and they have had trouble getting it done because they have not really drilled in on the right things. Cap rate is just one aspect, right? When I say that is, you know how these work is they get you to bid. They have, you know, They could have 10 people bidding or five people bidding. You don't really ever know, but they always sound like there's a lot.
You get them to bid, you get the cap rate, and then the devil is in the details. It's on assignment language, it's on credit quality, it's on all these things that, you know, the negotiation of the, you know, the minutiae and the lease. That's where, you know, erosion can happen, right? We pass on deals where we bid a cap rate that we thought, okay, based on what we know, risk-adjusted price, this is fair and equitable, we'll get it done. Then find out that they want, like, they don't want any assignment language, or they wanna be able to kick something out or do this.
It's like, okay, really what you're doing is you had us bid first and now you're eroding the credit quality, we'll walk or we'll go to them and say, "Look, if you really want us to do this cap rate's now wider." Sometimes they say yes because, you know, I think the cap rate range, though, to give that range, was probably around 50 basis points, mid-7s to just under eight. Sometimes you see 8s.
I think, you know, what I always ask myself, if I see an 8.5 cap rate out there, is it a 7.75 that I'm getting at 8.5 or is it a 10 cap that I'm buying at 8.5? We're being thoughtful about it. I like. I think you could do, you know, $300 million in the 7s all day long.
Okay. Then I know it's kind of early days, but any kind of change or impact to deal flow caused by some of the recent turmoil we've seen in the regional banking market? I mean, I'd imagine that's kind of a common financing, you know, avenue for some of your, you know, potential tenants and even current tenants.
Not deal flow, but I think buyer pool. Yeah. I think, I mean, I think the people who are coming out are cognizant of where markets are at, and they're looking to get a transaction. I think, you know, you know, if you look at a sale-leaseback, it's a form of financing, so I think in some ways it's maybe a little bit more assured than bank financing. Most of these deals require bank financing too of some sort. I think the buyer pool is what's changed the most. I mean, the individual buyers, the small, you know, private equity type, you know, 1 and 2-man shops, those guys are gone because it just doesn't pencil.
Okay. Can you talk about any impact from the Kalera bankruptcy in April? Is that tenant kind of paying rent in full, and has there been any indication from them if they're gonna reaffirm or reject the lease?
As you'll see in our disclosures when the Q gets filed, you know, they are going through their Section 363 process. They got debt financing. They're now going through a process of selling the company so that those results are not until I believe it's June 9th. Is that right, Ray? Or is it June 6th?
Yeah, that's correct.
Well.
That's when the.
Yeah.
The auction takes place on June 9th.
Yeah. That's their window that they have for all their properties to accept or reject. You know, their rent is current. You know, they weren't in the building. They were still getting it ready to go online, so it's not like there were people in it to begin with. You know, the status of the asset is fine. I've been out there four times in the last five months, checked on it, everything's good. We're waiting for their process to go through. You know, we're hopeful and optimistic, but we understand how these go. I don't think I would do another, you know, pre-revenue type of deal like that again. Lesson learned there.
had a lot of inbound inquiries on the property. Two, I didn't even pay attention to this, I guess there's a bill in the state senate there. It passed the House. It goes to the Senate to legalize marijuana. We've had some marijuana growers reach out to us. Our property is unique in the sense that it was built on top of an aquifer, so it has its own robust source of water, which is really important to growing things, and that's why it was strategic to Kalera. We remain optimistic, but we don't have any really news until after they finish their process.
Okay. Just a quick one on the property that was kind of, the lease was extended during the quarter. I mean, is it kind of fair to interpret those comments as being that if they were gonna do a longer lease that it might be at a rate lower than kind of where it was extended to, just given the short-term nature of what you did? Is it, you know, Was it reset to market, I guess?
Yeah. They had been in there for a long time, and the rent, I think it. I don't remember the math. It was 659% or 64% increase in rent. It was sticker shock for them because they hadn't really been paying. They're a busy company. They're spread thin. They've been buying a lot of these, you know, distributors and stuff like that. I think when it came time to the conversations, and candidly, they were like, you know. We didn't start talking to them until like, I would say two weeks before their window closed. Because they just, you know, we'd ping them, they'd ping us back, and then we'd never connect. I think if part of it was, wow, that's.
The rents have really gone up in this market. We hadn't paid attention because they've been there a long time. They are consolidating some other businesses and the other things. They asked to do this one. I think their view. Again, I don't know for sure, but based on what our two leases are, that if they wanted to do a long-term lease, they would, you know, that's a bigger nut to swallow. They had a short window to get something signed, and I think it was in the confines of what they could do without having a deep dive budget review, because they kind of did this off cycle. They like the asset. They've been there. I think, you know, there's a good chance that they'll stay. If they don't, I'm not worried about it.
I mean, that's, you know, right off the 80. It's infill location. It's, you know, it's warehouse. Long term, I don't know that I really even want it, to be candid. It's better held by someone who's doing distribution. I think what it was is just it was a lot of sticker shock. They had to get the medicine to get used to being market rate, and they just did it for 16 months because they know they need to use the property, but they wanna rightsize things on a longer term basis.
Okay. That's very helpful color. That's it for me. Thank you very much.
Thanks.
Thanks.
Thank you. A reminder to ask a question, press star one. To remove yourself from the queue, press star two on your phone. Our next question comes from Bryan Maher with B. Riley. Please state your question.
Great. Good morning, Aaron and Ray. Aaron, you talked Most of my questions have already been asked, but you talked about earlier in the call, holding off on selling retail, you know, until you can unload some office. When we think about it, we think who owns your shares, and those of us and institutional investors who are focused on it, I mean, we get it. You know, many of the retail people, you know, may not look at it, may not care. Why not just sell the retail if you can? You know, I think the market gives you guys a pass on holding the office till you sell it. Then you could redeploy that into more industrial manufacturing, which then kind of balances out the ratio anyway.
Yeah. Look, that's a fair point. It's not just the optics that I'm talking about. I think some of it is sort of a logistics sequencing. If you think about 16 properties, you could either sell 16 individually, you could sell some of them in a portfolio, the DG's probably naturally make a portfolio. There's a couple of things to think about. If you, if you wanna take them out and you think that the property's sort of a little bit of an odd duck and you're better off with a 1031 buyer, then that's a different route than what you do with a, you know, a more institutional buyer property.
you know, as a 1031 listed asset, having known selling some of these odd ducks before is you know, you get a slew of these offers, and they look too good to be true because most of them are, because they're just designating properties, and you have to go through it. That can be a little bit of time suck. I guess what we're at is we're getting ready to go. We're getting, you know, we're getting BOVs done, we're getting price discovery done. We're getting ready to go to things to market. I'd like to get our office up and running first because I think it's a longer tail process.
I think it's just gonna take longer to sell some office, but get all that legwork done, then shift to getting the legwork done on retail, knowing that retail will move faster. I don't know that. You know, I'm not controlling when they'll sell. I think retail will sell faster, but in terms of activity or the process in which we're getting ready to do it, we're focused first on, you know, finding everything out, right? Pull the trigger on the office to get them up and running, then pull the trigger on retail and then figure out. It's off to the races and you get what you get.
When we think about your acquisitions, I mean, how are you sourcing those? Are there inbound calls? You know, when we think about, you know, industrial, a lot of people think about an industrial distribution and logistics. We all know who those players are who are out there buying it. Who are you running into as far as, you know, competition for buying industrial manufacturing?
I kind of alluded it to, I think when I was talking to Goff. You know, there's less of these small levered buyers out there. The shops that I think who buy industrial manufacturing, you know, so the ones who are focused on it sort of as this is really what they're buying. You know, I think the two most focused of us in the public space are ourselves and Gladstone. I think, you know, a lot of the Gladstone assets that have been bought, we've bid on, and I'm sure a lot of the assets we've bought, they've bid on. We know we're buying the similar things. You know, Spirit has certainly in the last three quarters made a bigger focus on buying industrial.
I don't think they're doing it just for yield. I think there's an element of yield to it because they are a diversified play , but they, you know, they have really sort of honed their saw and focus on what they wanted to buy. Broadstone has historically been a bidder here and there. I don't think I've seen them too recently. I have to go back and look. I don't think so. They had bought. I think again, part of that is a yield play, and part of that is, you know, they like it. After on the public side, you know, Store was historically a big buyer. They're not there now. We've seen a lot of Store deals come out that they've either rejected or tried to price negotiate.
The private buyers that you won't see publicly are Royal Oak on occasion, a great shop there. AIC historically has been doing this forever. They're probably the leader in the space, they don't source all their own things, so they're very different. They end up being net sellers a lot of times because they'll raise a fund and sell it out, they only buy industrial manufacturing. Tenet, which is a Cerberus backed shop, great guys there. They're former Store guys. Fundamental has bought some on the margin. Again, former Store guys. You know, there's another shop called MAG Capital Partners. Dax is a great guy. He's been focused on it in a smart way. There's not a ton of buyers.
I guess the Bridge Group, you know, the legacy Gladstone guys have been out there, but it's really a small universe to who bought manufacturing. If you think about, there are some shops out there who have exposure. You know, GRA has exposure, Somera Road has exposure, David Scherer has exposure. There are portfolios out there of industrial manufacturing, but they may have bought sort of, you know, at a certain point in time and now they're holders of it. They're not active buyers. I'd say they're probably the most active buyers or at least for public REITs are Gladstone and ourselves. As in terms of how we get. We get a lot of inbound calls now.
We've bought, if you back out, the Kia transaction, you know, we've bought well over $200 million of real estate in the last, you know, 12 months, and it's all been industrial manufacturing. You start to get calls, right? People know that's what we're focused on. We've made it clear. There are some really good shops out there. You know, Ascension, Chelsea at Ascension is great. You know, the Scott's team at SJC is great. There are a lot of great teams out there. You know, Stream is a good shop, industrial manufacturing. There's a lot of good shops out there who know they've got a beat on us, we get calls from them. We get calls. Sometimes it's a marketing process, sometimes it's not.
It just depends on how fast the seller needs to go or how well the seller know. You know, we did the Lindsay transaction. You know, that's another deal we've done by MiddleGround. We've done a lot with MiddleGround as a private equity sponsor. Well, we have a lot of confidence in what they buy, so it helps us in our process. I think they have confidence in how we buy and we execute, so it helps us. You know, I think everything should be marketed. I think it should be, you know, best price discovery for that shop. You know, we get other properties that come across from, you know, maybe it's a random CBRE team, we'll see it. We'll look at everything and, you know, sometimes the bidding process is clunkier, sometimes it works.
You know, what we're not doing is what AIC does or what STORE used to do because we just don't have the manpower. They'll have a team, army of people, and they'll call, you know, sole proprietors of manufacturing or industrial assets and call them up and, you know, pitch them on the idea of a sale-leaseback and then structure a sale-leaseback and then take it. They flip it. We just don't have the bandwidth to do that. I'd love to do that down the road. I do think there's some sourcing opportunities. At the same time, we're trying to get more mainstream assets.
Perfect. Thank you.
Sure.
Thank you. There are no further questions at this time. I'll hand the floor back to Aaron Halfacre for closing remarks.
Well, I don't think there. We beat it up pretty much. Thank everyone for being on the call. We'll put our heads back down and we'll get back to it. You know, I don't think anyone's really paying attention to us, unfortunately, right now. It's a risk-off environment. You know, REITs are topsy-turvy. It's been a crazy 15 months. You know, it could be another crazy 12 months or more. We'll just keep getting things done, and we look forward to brighter days for everyone. Be well. Thanks.
Thank you. That concludes today's conference. All parties may disconnect. Have a good day.