Generation Income Properties, Inc. (NASDAQ:GIPR) Q3 2023 Earnings Call Transcript

Generation Income Properties, Inc. (NASDAQ:GIPR) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Generation Income Properties Third Quarter 2023 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. Please note that today’s conference is being recorded. Following management’s prepared comments, the call will be open for your questions. [Operator Instructions] I will now turn the conference call over to the company’s Chief of Staff, Emily Cusmano. Please go ahead.

Emily Cusmano: Thank you and good morning, everyone. I am joined today by David Sobelman, Chief Executive Officer; and Allison Davies, Chief Financial Officer. David will provide an overview of the company’s growth strategy, business, and capital markets activities, second quarter highlights, and subsequent events to-date. Allison will review our quarterly financial results. Before we begin, I would like to remind you that today’s comments will include forward-looking statements under Federal Securities law. Statements that are not historical facts, such as statements about our expected acquisitions or dispositions are considered forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements.

Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our 2022 Form 10-K, previously filed with the SEC, our Form 8-K and our report on Form 10-Q. In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to our earnings release for definitions, GAAP reconciliations, and an explanation of why we believe such non-GAAP financial measures are useful to investors. With that, I will now turn the call over to our Chief Executive Officer, David Sobelman.

David Sobelman: Good morning from Tampa, Florida, and thank you for joining us this morning. We have several updates for our shareholders, and public at large, but feel it appropriate to start with an expression of gratitude to our Chief Financial Officer, Allison Davies. This will be her last earnings season with GIPR, and we’re happy to report that her involvement in the growth of our company is something that should be highlighted and celebrated. We are very grateful for the contributions that Allison made to the team on behalf of our shareholders. We are looking forward to watching her career blossom in the future. As we reported in the beginning of the third quarter of this year, we purchased a $42 million net lease portfolio in August that included 13 properties in eight states.

This transaction, which was completed off-market with the New York Stock Exchange REIT, Modiv Industrial, increased almost every key metric in our portfolio to the benefit of our shareholders. GIPR now owns 26 net lease assets, a 100% increase from the prior quarter, almost 540,000 square feet of commercial properties, a 60% increase. Occupancy is now 96%, a 3% increase. The portfolio average lease term is 4.5 years, an 8% increase. And almost most importantly, our adjusted base rent at the end of the third quarter is now approximately $8.6 million, a 70% increase. We were able to accomplish all of these feats, while not materially changing the investment-grade credit makeup of our portfolio, which currently sits at 68%, one of the highest levels of IG credit as compared to our net lease REIT peers.

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Q&A Session

While we are laded for these meaningful improvements in our portfolio’s metrics, unfortunately, we believe that they are not reflected in our current share price. We think and plan in generations and not strictly to appease a single quarter. Warren Buffett has said, someone is sitting in the shade today because someone planted a tree a long time ago. We have clearly set the foundation or planted our tree for what we believe to be a tremendous opportunity to add assets and increase the value of our company. We will continue to focus on disciplined growth and creating long-term value for shareholders that we hope will be recognized over time by the wider market. This transaction brings our total gross asset value to over $100 million, which was one of our goals for 2023 and which was recognized by NASDAQ on the Times Square Tower, that is known throughout the globe.

However, we recognize that even monumental transactions are in the past and the team at GIPR is continually monitoring the net lease and capital markets in order to find the best opportunities in which to begin buying on a regular basis. One of the main barometers we use to gauge when to reenter the acquisition market is a capitalization rate or cap rate, the yield in which the property producers based on the relationship between the purchase price and the net rent received from the tenant. Cap rates are going up. Yields are getting higher and the reality is setting in that there are now far fewer buyers to purchase a net lease property than there were over the last decade or so. With fewer transactions, higher interest rates, less 1031 exchange buyers, and an industry that has recently been based on primarily selling to less sophisticated private investors, REITs seem to be positioned very well to take advantage of the dislocations that have crept into our industry over the last year.

In my 20-year career, focusing almost exclusively on net lease properties, I’ve seen cap rates climb at this exaggerated rate only once before, between the years of 2008 to 2011 and the great financial crisis. I have heard from many professionals within our industry, the famous last words of this time, it’s different. But the data is the data, and we plan to follow the data and not anecdotes that distract us from taking advantage of our circumstances. We have been patient. Our patience was rewarded with the Modiv acquisition, which we believe has accelerated the trajectory of our company. The next step of growth will also require patience as we focus all of our efforts on finding the right balance between pricing and current market conditions.

We have a long-term outlook for our shareholders, one in which we believe we can continue building a portfolio that provides stable and above-market returns and one in which we also believe will outpace other fixed income investments. However, we made a promise and commitment to our shareholders to be prudent and not reactive. We look forward to reporting the next stage of growth for our company but we can’t do so without methodically calculating the best opportunities for all the shareholders that are counting on us. For an update on our operations, GIPR has recently engaged Ron Cook, through the Tampa, Florida-based accounting firm, ONE10. Ron will serve as the company’s Vice President of Accounting and will serve as our company’s Principal Finance and Accounting Officer, and along with our current controller, Beth Sedgwick and the litany of professionals in the ONE10 team, together with the governance oversight of the Audit Committee of our Board of Directors, we are confident that he will effectively lead the company’s accounting team and are excited to have him assist us in our next stage of growth.

I think it should also be mentioned that while we’re in the growth period of our company, we made financial adjustments that reduced our general and administrative expenses, G&A, by 6%, excluding the approximately $88,000 in legal costs associated with the preferred equity investment by Loci in connection with the Modiv transaction in order to embrace a lean and efficient REIT model that can not only substantially grow but also sustain itself through down markets. This prudent and frugal mindset runs throughout our company as we look for more opportunities to be mindful of how we spend shareholder capital on things will provide us the highest returns over the longest period. Lastly, as a subsequent event to the third quarter of 2023, we held a special meeting for shareholders last week in order to vote in accordance with NASDAQ requirements on the issuance of shares of the company’s common stock to redeem the preferred shares issued to Modiv Industrial and we are pleased to report that with over 50% of shareholders voting and 94% of those shareholders voting for the proposal.

The proposal was approved. This approval is one part of two conditions that must be met in order to redeem company’s redeemable Series A preferred stock that was issued to Modiv industrial as part of the previously mentioned portfolio acquisition. The second condition is to obtain effectiveness with the SEC of a registration statement for such shares. We anticipate being able to satisfy the second condition required to effectuate the redemption for GPR common shares and the ultimate distribution of those shares to Modiv shareholders. This would increase GIPR’s investor base and increase our public float by approximately 100%. Before I turn things over to Allison to provide us a financial update for the third quarter. I’d like to tell our shareholders that our pipeline for acquisitions is very strong, and our relationships reputation and communication within the net lease industry is well above where a small REIT would ordinarily be.