Generation Income Properties, Inc. (GIPR) Earnings Call Transcript & Summary

Thanks. Morning, everybody. With me today are David Sobelman, our Chief Executive Officer, and Allison Davies, our Chief Financial Officer. David is going to walk through an overview of the company's growth strategy, the business, and capital markets activities, along with second quarter highlights and subsequent events to date. Allison will then go over our quarterly financial results. Prior to starting, I want to remind you that comments today will include forward-looking statements under federal securities laws. Statements that aren't historical facts, like statements about our expected acquisitions or dispositions, count as forward-looking statements. Our actual financial condition and results of operations could differ materially from what those forward-looking statements contemplate. A discussion of the factors that may cause our results to differ materially from these forward-looking statements appears in our SEC filings, including a report on Form 10-Q; also, certain financial information presented on this call includes non-GAAP financial measures. Please see 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'll now turn the call over to our Chief Executive Officer, David Sobelman.

Thank you, Emily. Hello, everyone, and good morning. Over the last few quarters, we've told our shareholders and the broader market that basic financial forces meant we had to stay disciplined and patient when it came to how we pursued acquisitions. Holding to those principles wasn't always simple, but we're glad to share that on August 10th, 2023, Generation Income Properties has nearly doubled the size of its portfolio by buying a single tenant net lease acquisition consisting of 13 properties, 202,000 square feet, and $42 million, which aligns perfectly with the investment thesis we've presented to our shareholders. This deal carried a cap rate of 7.55%, and funding came through roughly $21 million of mortgage debt, $9 million of cash, and $12 million of newly issued redeemable preferred shares. This morning, we put out earnings for the second quarter of 2023, and we also filed a press release and an 8-K describing the transaction I just mentioned. There are numerous positive features of this transaction that we believe deserve attention. First, I'd like to thank the seller publicly — Modiv Inc., a net lease REIT listed on the New York Stock Exchange, along with its CEO, Aaron Halfacre, and Modiv's board of directors and team, who have demonstrated the utmost professionalism throughout this process. The portfolio's tenancy is 76% investment-grade, or its equivalent, including 11 national retailer credit tenanted assets and two office assets — one GSA occupied and guaranteed building in California, plus a mission-critical property in the Orlando, Florida market, which is fully occupied with mandated attendance by an international engineering company, EXP, which serves amusement parks and entertainment clients, which explains their significant Orlando presence. Right after our recent portfolio acquisition, our weighted average remaining lease term now stands at approximately 5.2 years, which reflects our short-term lease thesis. With these high-quality properties added to our portfolio, we raised our retail asset distribution to 55% and met one of our near-term goals of being landlords to over $100 million in gross asset value. We've always said that as a small cap net lease REIT, every accretive transaction gives us a chance to deliver meaningful external growth. The GIPR team has taken that philosophy further and doubled our company's property count through a single transaction. We also pulled this off in a highly challenging market, where most companies are struggling to locate opportunities of this size for their own portfolios. One of GIPR's core values is being relational. This transaction proves that it has served all parties, and most importantly our shareholders, very well. The fact that two small public net lease REITs built a relationship over time and found a way to work together, particularly in a down market, shows just how motivated that relational core value has, well, value. Aaron and I both want the best for our respective shareholders. We figured out how to spot a deal, work out reasonable terms, and get it done in the current market, which clearly shows we can be inventive, quick to respond, and—to stress this term—patient when the correct opportunities come along. Generation Income Properties currently holds 26 assets across 13 states. Although we aren't giving guidance for future periods, we do think the market could be shifting to benefit us, letting us keep pursuing our plans for growth outside the company. Though the good effect of this acquisition on our portfolio metrics is obvious, we think this deal demonstrates to shareholders and the market alike that we're committed to growing the company and possess the capability to complete sizable transactions. With the broader market still facing difficulties, we think this is merely the start of a bigger chance to buy, and we'll keep concentrating on adding shorter-term, high-quality assets to our portfolio. Being a small cap net lease REIT comes with difficulties, yet this acquisition is a transformative deal for a company our size, and we're happy to demonstrate to the market that we can source, underwrite, and complete transformative deals, even with market uncertainty; with that good news, I hand the call over to Allison Davies, GIPR CFO.

Thanks, David. Along with the announcement this morning about our new portfolio acquisition, we put out a press release covering our financial and operating results for the quarter. Revenue from operations totaled $1.3 million for the quarter, reflecting a modest decline versus last year, caused by the single tenant vacancy at one of our two properties in Norfolk, Virginia. Operating expenses came to $2 million for the quarter that ended, unchanged from the prior-year period, since we remain focused on bringing operating expenses down amid this environment of rising interest rates. Net operating income reached $1 million, compared with $1.1 million in last year's comparable period, again because of that one tenant vacancy. Net loss attributable to common stockholders for the quarter was $881,000, versus $1 million in the same period a year earlier, which ties directly to the loss on debt extinguishment from April of 2022 connected to our portfolio refinance. Core AFFO showed a loss of $33,000, compared with income of $36,000 in last year's same period. That core AFFO decline is likewise directly attributable to our one tenant vacancy. We also believe our balance sheet remains well positioned to keep weathering the market uncertainty specific to commercial real estate that we're seeing. Our cash balance is healthy, and our next mortgage debt maturity does not come until 2024. With that, I'll hand it back to David.

Thank you, Allison. With that, please open the call for questions.

Hi, good morning. Congratulations.

Thank you, Michael.

Right; so, according to what I read in the release, the closing happened on August 10. So is it the case that those properties now belong to you?

Yes, that's right. They are ours at present.

All right — so they start generating revenue right away, is that correct?

Precisely.