Modiv, Inc. (NYSE:MDV) Q2 2022 Earnings Conference Call August 11, 2022 11:00 AM ET
Company Participants
Megan McGrath – IR, Financial Profiles, Inc.
Aaron Halfacre – CEO
Ray Pacini – CFO
Conference Call Participants
Gaurav Mehta – EF Hutton
Bryan Maher – B. Riley Securities
Operator
Good day and welcome to the Modiv’s Second Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions].
On today’s call, management will provide prepared remarks and then we will open up the call for your questions. [Operator Instructions.] Participants may also ask a question by emailing ir@modiv.com. Please note this event is being recorded.
I would now like to turn the conference over to Megan McGrath, Investor Relations for Modiv. Please go ahead, ma’am.
Megan McGrath
Thank you, Operator, and thank you all for joining us today to discuss Modiv’s second quarter 2022 financial results.
We issued our earnings release and investor supplements before market open 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 of Modiv; and Ray Pacini, Chief Financial Officer.
On today’s call, management will provide prepared remarks and then we will open up the call for your questions. Participants may also ask a question by emailing ir@modiv.com.
Before we begin, I would like to remind you that today’s comments will include forward-looking statements under federal securities law. Forward-looking statements are identified by words such as will, be, intends, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions or disposition are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including a report on Form 10 Q.
With that, I would now like to turn the call over to Aaron Halfacre, Modiv’s Chief Executive Officer. Aaron, please go ahead.
Aaron Halfacre
Thank you, Megan. Hello, everyone and thank you for joining our second quarter earnings call. Joining me today is Ray Pacini, our CFO, who will cover our financial results in detail following my opening remarks. Then I will close with a few more thoughts on the market before we open the line for Q&A.
First, some highlights from the quarter. We grew our second quarter adjusted funds from operations by 18% to $3.6 million, while our total revenues grew by 14% to $10.4 million, driven by growth in our portfolio. We maintained a lean and disciplined cost structure and remain laser-focused on our goal of transforming and growing our portfolio while driving attractive long-term shareholder returns.
We approach the second quarter with patience and discipline. On last quarter’s earnings call we mentioned the disruption in the real estate transaction markets, characterized by delays and deal cancellations as buyers and sellers adjusted to the extreme volatility in interest rates and inflation. From a yield perspective, it’s been a slow summer, with both buyers and sellers pausing in the marketplace to find an equilibrium. Since we are not encumbered by specific acquisition targets or liquidity concerns requiring us to buy or sell properties, we were patient, remains committed to our investment discipline and paste our transaction activity until we found opportunities in the latter part of the quarter.
Early in the second quarter, we completed one acquisition Lindsay Precast for $56 million at an 8.5% weighted average cap rate, which we outlined for you on last quarter’s call. We also completed the disposition of one office property during the quarter EMCOR for $6.5 million at a 7.8% cap rate. Following the close of the quarter when we felt the market had achieved a more balanced posture, we completed two additional acquisitions in the industrial manufacturing space and have signed an agreement for another office property disposition, our property in Williams Sonoma, which we expect to close later this month.
Year-to-date, we have made great progress executing on our long-term strategy to exit non-core office properties and shift into industrial and select retail assets. The Modiv team has completed $162 million in acquisitions at an 8.2% blended weighted average cap rate and has completed four offices dispositions for total proceeds of $47 million excluding the anticipated Williams Sonoma disposition.
I am proud of the progress we continue to make on the strategic repositioning of our portfolio. Even during these volatile times, we continue to punch above our weight and remain heads down on execution. We remain focused on diversifying our assets, increasing our walls, growing our portfolio, and generating long-term earnings power for our shareholders. We have made significant headway on these goals in a short amount of time and we know that these results will over time resonate with the investment community and eventually be reflected in our share price.
I want to take a moment to discuss our three most recent acquisitions. Lindsay Precast, Producto and Valtir and how they are a great representation of the type of property Modiv is focused on. All three of these companies are involved in industrial manufacturing.
Lindsay, as previously mentioned, on our last call, is an industry-leading precast concrete manufacturer and steel fabricator. Producto with its two locations in Upstate New York is a precision manufacturer for the medical semiconductor, aerospace and defense markets. And Valtir, with locations in Ohio, South Carolina, Texas and Utah, manufactures commercial highway products, such as guardrails and barriers.
When we evaluate opportunities in the industrial manufacturing space, we focus on mission critical properties where value is being created on site. We look for manufacturing products, where demand is consistent and relatively defensive in nature, such as infrastructure and components.
Another key factor is that the property location is vital to the manufacturing business and is positive economic contributor to the local community, all contributing to the sticky nature of the property and the long-term value of the real estate. We believe there is and will continue to be a trend toward reassuring of manufacturing in the U.S., especially following the supply disruptions witnessed from the global pandemic and recent armed conflicts. Additionally, we believe this subsector of industrial assets is far more resilient to speculative overbuilding, thereby metering the supply that comes online. As a result, we believe it is reasonable to expect to see continued opportunities in industrial manufacturing that are valuable and accretive.
Finally, some thoughts on the market as we continue to navigate uncertain economic times. While we do not have a crystal ball into the economy, we are more convicted than ever in our decision to continue to transform our portfolio with a focus on longer leases and sustainable long-term industries that can perform throughout economic cycles. We believe that the market will continue to seek clarity from the Fed, as we make our way through the summer and into the fall. We anticipate that the overall deal volume is likely to pick back up in September, allowing cap rates and funding rates to level off as volatility recedes.
We’re continually evaluating a robust pipeline of small and large acquisition opportunities that we believe will create meaningful long-term value for our shareholders. In fact, though we are reaffirming our 2022 AFFO guidance for the year, we do believe we will exceed the $50 million acquisition target we announced last quarter, potentially by as much as $25 million of late fourth quarter acquisitions.
In summary, in the second quarter Modiv continue to execute on our strategy during a meaningfully volatile period of time in the markets. Our patience and strong work ethic have allowed us to deliver on our long-term strategic plan, while also driving adjusted funds from operation growth for our shareholders. I have the utmost confidence in our experienced management team who have successfully navigated multiple economic cycles in the past and continue to find attractive opportunities that meet our strategic goals.
I will now turn the call over to Ray Pacini for his remarks.
Ray Pacini
Thank you, Aaron, and hello, everyone.
I will now discuss our operating results for the second quarter and first half of 2022, provide an update on our portfolio, and cover our balance sheet and liquidity.
As Aaron mentioned, second quarter AFFO increased 18% to $3.6 million or $0.35 per diluted share from AFFO of $3 million or $0.34 per diluted share in the second quarter of 2021. AFFO for the first half of 2022 increased 25% to $6.6 million or $0.64 per diluted share from AFFO $5.3 million or $0.59 per diluted share in the first half of 2021. The primary drivers of the increase are recent accretive acquisitions and the rent bumps of the portfolio.
Total second quarter revenue increased 14% to $10.4 million from $9.1 million in the year ago quarter. Total revenue for the first half of the year increased 11% to $20 million from $18.1 million for the first half of 2021. These revenue increases largely reflect the rental income, contribution from the property acquisitions made during the second half of 2021, and first half of this year, partially offset by the decrease in rental income from five dispositions during 2021 and four dispositions in February 2022.
On the expense side, G&A costs were $1.6 million in the second quarter, down from $1.9 million in the second quarter of last year as the company continues to focus on maximizing efficiency in our operations and undertaking process improvements, G&A costs were $3.7 million for the first half of the year, down from $4.6 million for the first half of last year. These reductions in G&A also reflect the impact of our exit from the crowdfunding business.
Property expenses were $2 million in the second quarter, an increase from $1.9 million in the prior year period and were $4.7 million the first half of the year, up from $3.6 million for the first half of last year, reflecting higher property and other taxes due to growth in our portfolio. Property expenses for the first half of both 2022 and 2021 were 1% of average real estate assets during their respective periods. Most of these expenses are reimbursed by tenants with at least 80% reimbursed each year. 53% of the increase in property expenses for the first six months of 2022 compared to the same period of 2021 reflects the one-time write-off of $587,000 related to the cancelled acquisition of 10 properties leased to Walgreens in the first quarter, given changes in market conditions and the failure of the mortgage servicer to approve our assumption of the related CMBS loan prior to the contract termination date of February 18, 2022.
Now turning to our portfolio. As Aaron stated in his remarks, we continue to focus on acquisitions primarily in the industrial manufacturing sector, while keeping an opportunistic eye on the retail sector as we continue to execute on our long-term strategic plan to reduce our office exposure. During the second quarter, we acquired an eight property portfolio leased to Lindsay Precast for total 56.1 million at an initial cap rate of 6.65% and a weighted average cap rate of 8.52%. These properties are located in Colorado, Ohio, Florida, and North and South Carolina. As Aaron mentioned, following the close of the quarter, we completed two industrial manufacturing acquisitions in sale and leaseback transactions with productive holdings in Valtir, LLC, which was formerly known as Trinity Highway Products, for a total purchase price of $28.7 million and a blended weighted average cap rate of 9.55%. The productive acquisition comprise two properties in Upstate New York and the Valtir acquisition included for properties located in South Carolina, Texas, Utah, and Ohio. The productive acquisition has a 20-year lease term, and annual lease escalations of 2%. The Valtir acquisition includes a 25-year lease term for the South Carolina and Ohio properties, with a 15-year lease term for the Texas and Utah properties, and annual rent escalations of 2.25%. Including these transactions our year-to-date acquisition activity totals $162 million at a weighted average cap rate of 8.2%. We have a strong pipeline of potential acquisitions under review, and we will continue to patiently pursue accretive opportunities that make sense for our portfolio and our shareholders.
Now, I’ll provide some color on our portfolio management activities, which are also a key component of our ability to generate long-term returns for our shareholders. During the second quarter, we sold one office property for $6.5 million. We’re also under contract to sell an addition office property, which we expect to close by the end of this month. When including the successful closure of our two pending sales, on a year-to-date basis we’ll have sold five office properties and one flex property as we execute on our plan to reduce non-core assets in our portfolio. The exit cap rate for the five office assets sales was 7.69%.
Taking into account these recent acquisitions, and the pending disposition, as of today’s date our portfolio consists of 48 properties located in 19 states. The portfolio is comprised of 26 industrial properties, which represent approximately 51% of the portfolio based on annual base rent, 13 retail properties representing approximately 90% of the portfolio, and nine office properties representing approximately 30% of the portfolio. We expect to continue to opportunistically sell office properties for the portfolio, but we’ll remain patient and disciplined in this process.
Now turning to our balance sheet and capital markets activities. As of June 30, 2022, we had total cash and cash equivalents of $11.7 million and $201.4 million of outstanding indebtedness consisting of $44.6 million in mortgages and $156.8 million outstanding under our credit facility, including $6.8 million on the revolver. The company’s leverage ratio as of June 30 was 38% and 42% when including the recent acquisitions, but not including the pending property sale.
In accordance with the terms of our KeyBank credit facility, we defined leverage ratio is debt as a percentage of the aggregate fair value of our real estate properties, plus the company’s cash and cash equivalents. We are targeting leverage of 40% or lower over the long-term, once we achieve scale of roughly $1 billion or more in assets. However, we will consider higher leverage in the near term, if we identify attractive acquisition opportunities in advance of completing dispositions for raising additional equity.
As we reported during last quarter’s call, in May we executed a five-year interest rate swap on our $150 million term loan, resulting in a fixed rate of 3.858% when our leverage ratio was less than or equal to 40%. Based on the current balance sheet, approximately 93% of the company’s indebtedness now holds a fixed interest rate.
As previously announced, our Board of Directors declared dividends for common shares of approximately $0.096 for the month of July, August and September, representing an annualized dividend rate of $1.15 per share of common stock. Based on recent trading prices, this dividend equates to a greater than 7.4% annual dividend yield.
As Aaron mentioned, we have reaffirmed our 2022 annual AFFO guidance in the range of $1.26 to a $1.36 per diluted share. The upper end of this range assumes that we complete an additional $22 million of acquisitions between now and the end of the year.
I’ll now turn the call back over to Aaron.
Aaron Halfacre
Thank you, Ray.
Before we turn to Q&A, I would like to share some thoughts on Modiv’s share price. The summer months have not been overly kind to net lease stocks overall, but particularly unkind for a thinly traded small cap rate with a still too large allocation to the office sector. Modiv’s current trading prices remain well below fair value should you measure it on either NAV or the multiple Research Analyst price targets. Heck, we even trade below book value. Despite these rather depressed prices, the management team and Board of Directors do not feel panic. We understand that at some point our story will resonate with a broader institutional investor base and our share price will regain normalcy.
That said, being patient is not the same as being idle. And Modiv continues to take deliberate action to deliver results that will resonate with institutional investors. In less than 10 months, since September 30, 2021, we have increased our wealth from under six years to over 11 years. We reduced our office exposure from 50% to only 30% of the portfolio, and increased our annual base rental revenue by $7 million to $36 million. These are impressive statistics and we believe we will be able to deliver even more results in the near future. The quality, resilience, and long-term earnings power of our portfolio continues to improve.
As a longtime participant in the REIT markets, I know all too well the perils of the small cap conundrum Modiv is currently presented with. Some small cap REITs are really the management teams that run them, stay small cap REITs forever, finding that their skills could only bring them public, but we’re not sufficient to bring them to scale. Other small cap management teams in an emotional or egoistic desire to be bigger, chase scale with poor capital allocations that either destroy their balance sheet or parentally lock them into a dilution spiral. REIT history has shown us that small cap REITs can emerge as attractive scalable enterprises. Agri, Essential and NETSTREIT are just a few examples of this. For us here at Modiv, we are ardent students of the marketplace, both past and present. And we combine our acumen with patience, knowing full well that at the right time we will be able to advance beyond the small cap conundrum into a realm of greater and greater investor following. We continue to look at all opportunities big or small, knowing that the right opportunity will present itself and we have the expertise to capitalize upon it.
With that, I’d like to thank everyone for joining us today, and will now turn the call over to the operator for questions.
Question-and-Answer Session
Operator
Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions].
Our first question comes from line of Gaurav Mehta with EF Hutton. Please go ahead.
Gaurav Mehta
Thank you. Good morning. I wanted to go back to your prepared remarks on transaction market where you talked about some slowdown in 2Q and then achieving balance after 2Q. I was wondering if you could maybe provide some color on how much have the cap rates moved before the interest rate hike cycle and what your expectations are going forward?
Aaron Halfacre
Hey, Gaurav, this is Aaron. Yes, sure. I think one way to cast this is thinking about all the activity that we have gone through our investment committee where we have submitted LOIs, where we’ve been seeing cap rates, go those that we’ve been willing to win, others that we’ve been willing to pass on. And just I was going to talk about in — sort of in a quarter context with fourth quarter of last year sort of being the baseline. So we’ve been probably on over $100 billion of deals in the fourth quarter of last year and we saw cap rates in the mid to high fives for a lot of the deals. And then as we went into the first quarter, we were obviously busy with the IPO. We did that takedown the KIA, which was an off market transaction and Kalera. But then the other ones that we’ve been on, we have — I can say we’ve been on a little bit less volume because I think that the supply started to slow in February and March of that quarter. But we saw things largely hold up; maybe they were low sixes, six, 6.25 kind of timeframe. And by the way, I’m characterizing mainly in industrial manufacturing because that’s what we’ve been focused on buying.
Then we entered into the second quarter. And what we saw was a lot of deals come back that we wouldn’t chase though they, at certain cap rates, we just don’t love them and we didn’t chase them. And we saw these deals come back from the brokers. And we saw several deals that had been tied up, that had fell apart. In fact, the Valtir transaction is one of those where they — we have seen it the first time, we did not like the pricing. We liked the asset, didn’t like the pricing. It had been tied up. There was a REIT — a series of retreats going on and the sponsor did not — they want to go in a different direction. We got another look. We were very much a straight cam tutor. We said, hey, here’s the cap rates we’re at for this asset and we got something done.
The productive one was one where this was a sponsor who was closing on these properties and the acquisition of the businesses as well. And so the sell leaseback financing was timed to it. And, I think, candidly, the timing of their closing didn’t really coincide very well with where the rates were at. And so, I think, that deal had been marketed a much tighter cap rate, but there were a whole lot of buyers who are willing to execute in a timeframe that made sense for them.
And so the cap rates that we saw on these deals, I think, we saw a lot of opportunities with seven handles. Not all of them were worth sevens, but we saw a lot of them. So we saw what we thought was a pretty significant jump in cap rate. I’d say that I — in the last, I — and I give you this is fresh off the presses, the last two weeks we’ve been on quite a bit of other assets. And I won’t talk to you what we have about under LOI right now, but I will say that we have seen some deals go back to the entire. There we’ve seen clearing prices back in the sixes, something in the low sixes, which to me a first launch is a little bit of a head scratcher, but, I knew — I do know that rates have backed in a little bit, so there’s — financing is a little bit more affordable. But it’s the sense that I get and it’s not nearly as bad as is — there’s just so much money that has to go work that people are back to chasing deals, they panic for a couple of months. And sort of in August really — late July and August, we’re seeing people starting to just dig aggressively, like we saw in the fourth quarter and first quarter to the point where sometimes I just — I just — it doesn’t make sense to me. I’m not saying the wrong; it just doesn’t make sense to me.
We also have seen a lot more deals come back on the pipeline. These are new deals, these are deals that we had been — had rumored that were going to come on. I’d say in the last week, I’ve probably seen six more. And there was like crickets for most of July. So there — it is, I think, we’re still finding our way in filling it out. I haven’t had a chance right now to sort of read all the other net lease peers and where they were in acquisitions I’ve read some of them. But it — I know that some of the people that are bidding on these are our peers, some of them are private. But — and so right now the cap rates actually feel as if you were to take a temperature — ask me to take a temperature today, they feel a little bit tighter than they were a month ago. They’re still wide from where they were in the first quarter, so, I think, that’s logical and conducive given what we’ve seen in rate movement. But some of the pricing feels competitive in a way that feels more desperate than opportunistic.
Gaurav Mehta
Okay. That’s — that’s great color. Thank you. And maybe I have one more question on Valtir 1. The cap rate on that acquisition is over 9%. Can you provide some color on that specific property, why the cap rate is higher on that property?
Aaron Halfacre
On which one? I’m sorry.
Gaurav Mehta
Valtir 1.
Aaron Halfacre
Oh, yes. So Valtir 1 is the 15-year term. These assets are the ones in Texas and Utah. The entire portfolio was available. Those two assets after we had done — and I along with our Bill Broms, our Chief Investment Officer, I cite through all our assets. And we cite through the assets, and we just thought that the facilities in those were a little more tired, a little less critical on the margin, but the land was in the path of development. They’re in really nice areas, industrial areas that are growing. And so we went to them and said, look, we’d rather structure a shorter lease on these and adjust the pricing appropriately, compared to the other ones. And they were receptive, they wanted to close the deal, and we were thoughtful about how we structured it. And, I think, that’s our approach we take. We’re very methodical in looking at the math. But we — then we go in and structure something holistically that wins for both parties.
And so we were comfortable with shorter term leases here because candidly that provides us some marginal optionality, they have ability to extend if they want to, but if our — my hypothesis is right, that this is marginally less critical to them, it’s in the path of development and that land value is far greater for us, 15 years from now. And so it’s a way to balance the risk profile and seize an opportunity.
Operator
Thank you. Our next question comes from Bryan Maher with B. Riley Securities. Please go ahead.
Bryan Maher
Good morning, Aaron and Ray.
Aaron Halfacre
Hi.
Bryan Maher
Was hoping to drill down a little bit more on the, kind of, manufacturing industrial properties versus industrial warehouse, which just seems like everybody wants to bid on. And given that some of those assets that you’re buying are different — different layouts, et cetera, that are just not a big metal box. What kind of a premium on a cap rate basis you expect to get in general for those types of assets over just buying big box warehouses, like so many REITs are doing?
Aaron Halfacre
I think it’s a significant premium. I couldn’t quantify it because we simply don’t look at distribution assets. Most of them are — the cap rates are much tighter, if they’re good quality. And you’re absolutely right, everyone wants to be in distribution. And I — there’s a lot of players who can do a great job and there’s a lot of — there’s a plethora of good assets.
I just have two sort a semi-cynical views of it. As one is, I think, Prologis is going to do it better than anyone. But aside from that, we’ve been in Prologis can’t serve all math of all clients. And two is, my cost of capital, our cost capital doesn’t work, right? I can’t buy 5.50% cap, distribution assets, just because I love them.
I think the other element to it is, the stuff that we could buy, that stuff that is — let’s call it, I think our guidance underwrites a 6.25%, which we could — we have clearly exceeded in terms of the cap rates. But, let’s say, we could buy it at 6.25% or we could buy it at a 6% and we can hold our nose. It tends to be the older outdated stuff, that people — just because it has a single term net — triple net lease in it, it’s trading to too tight of a cap rate, it just doesn’t make sense to me.
I remember this many years ago and I used to live in Pennsylvania, and I forget what turnpike actually was and there was a developer I had lunch with in, he’s developed this much concrete tilt up warehouse off one of the turnpikes and signed a 10-year lease with it and some — I don’t know, it was a food distributor or whatever, I can’t remember who it was. And then he told his story about 15 years — and 12 years later he went down to the next county, got a tax abatement on the next — on the same turnpike another exit and build another one and move the tenant. And when you can do that kind of stuff and you can spec build and you can move people down the road and it doesn’t really impact their business, how is that sticky for me? Where’s my leverage, right? I think if I look at it for Prologis model where they’re actually really providing logistics solutions to clients, then it’s not just a box. But a lot of times the older stuff is our boxes. And I just don’t know where I have a lever to pull when it comes to lease negotiations.
I don’t — I — in some ways I liken it on the margin, and the guess we have this big the eCommerce demand overall and distribution demand, but on the margin, it’s the same conundrum you have with office, right? If there is no demand, if that demand is not there, then you have hardly any levers. And so when I contrast its industrial manufacturing, but you can’t back build a factory, most of these have been around for 20 plus years or greater and so they’re — and it is a function of the private equity model typically, where they’re doing a sale leaseback and so it’s really the — I see a lot of manufacturing assets that we pass on. Like, I don’t need someone that makes dog’s food because I don’t know what the demand for dog food is, right, or candles or something like that. I want things that are really sort of germane to the — to our economy.
An example of this is Producto. There’s two assets. One’s in Jamestown, one’s in Endicott. And we went to — I went to the Endicott one, and they were talking to — they are making these, sort of, borescope lens housings for drones. And they make them out of these aluminum tubes. They used to get their aluminum tubes from Ukraine, and they cannot get them now. And they’re — the clients of theirs who cares — needs these aluminum tubes created for the lens housings said, well, you have to find a solution. He goes, “Well, I can buy solid blocks with a tubes of aluminum and I can pour them out, but it’s going to cost you like 2x.” And the client goes, “Great. Do it because I have to get these nails.” And it show that I wouldn’t even thought about the supply chain issue.
And another one in our Lindsay Precast, I was visiting them in South Carolina and they use sand as an aggregate to make concrete. It was — but a part of their pot ash they get is typically comes from Turkey and Turkey doesn’t have the coal that they get from Ukraine to grind up all the stuff to do it. And the supply chain issues are really interesting. So they — their pricing power went up because they could find other sources of it and they can charge the client a lot more. They’re very sticky businesses, they’re dirty businesses though, let’s be clear. Like, I’m not going to win any ESG awards this week on some of these, but they’re really essential to our economy. And most people don’t look at it.
I mean, look what Alex P. did, right. In a rush to get rid of all their stuff, they spun out their industrial manufacturing to Davidson Kempner like a 7.2% cap. I think people are love. The humans tend to be in trends. They love distribution right now, I don’t — and they have no faults with it. I just can’t buy it. And I like these. They fit my blue collar nature and, I think, they’re to their assets that you may not see pretty pictures, you may not be able to — you immediately turn off your thinking because it’s got a CVS or a Walmart investment grade status, you have to look, you have to do the credit homework, which we do, but you have assets that are sort of underappreciated and we’re finding cap rates that are better for them.
Bryan Maher
That’s really helpful. The second question I have is on retail. You’ve not discussed much it seems of late in buying retail or the — you have a decent amount of Dollar General; you bought the Raising Cane’s not too long back. What are your thoughts on that active segment the next year, kind of, two to four quarters?
Aaron Halfacre
Yes. We — so we did the very large Kia this year. So that — I mean, that was a big quantum of retail and that was cost advantage all day long because we issued OP units at 25, and got it at a cap rate wider than the peers. But that was a — in terms of allocation standpoint, that was a big chunk of retail to do.
We haven’t been spending time on sort of smaller retail assets. They’re out there, we get shown them. The cap rates are tight. I think, but I look at retail opportunistically. The Raising Cane’s is an example that we bought July of last year. We bought it, it had six years left. We knew that Raising Cane’s wanted to buy the assets; we knew that there was demand for it, it was the last asset in the insurance company’s portfolio and we bought it probably 100 basis points wide. So we were optimistic.
I think, Kia is an example of that. The reason I’m optimistic in it, and I will look at that, and I’ll look at technically almost all sectors if I — we think we can make our investors’ money, and that’s where we really kind of take sort of a hedge fund approach or an active and asset management approach. But generally speaking, there are a lot of peers that are buying a lot of retail, and they have better cost of capital, and they’re buying in scale. And so how am I adding value if I go by the same things that NETSTREIT or, Essential, or Internet [ph] or Owl or PINE or whoever are buying and made margin and have better cost to capita. I also just — I don’t get overly inspired. I love what we have, it’s fine. But at the same time, if someone wants to pay me a deer cap rate, I’m also cognizant that I can tell it. I just think we’re selective on it. So we haven’t seen anything overly compelling in the retail side that makes sense for us. And it’s not a disparagement of it at all, it’s just it doesn’t seem to fit for us right now, but we always look opportunistically.
Operator
Thank you. [Operator Instructions.]
Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Aaron Halfacre for closing remarks.
Aaron Halfacre
Thank you, Operator. Thank you, everyone for joining us today. It was a pretty straightforward quarter. We matched fund basically. We sold some office we bought, and we bought some industrial. I think that’s a steady rate quarter. Hope to do it again for you in future quarters. And I appreciate your attendance. Thanks so much.
Operator
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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