David Sobelman
Analyst · EF Hutton. Please proceed with your question
Thank you, Emily. Good morning, everyone. And thank you for joining Generation Income Properties year-end earnings call. In a few minutes, Allison Davies, our CFO, will be reviewing our financial results for 2022. Until then, I’m happy to report that our patients proved to be a good strategy for our shareholders as we’re now showing meaningful signs of the net lease market leading more towards our favor and pricing of assets is expected to allow us to more actively grow our company. However, before we recount some of the milestones we accomplished in our first full calendar year as a NASDAQ company, let us remind you of how GIPR differentiates itself from its net lease REIT peers. As our name suggests, we not only generate income, but we think generationally, that translates into having an investment philosophy that puts the underlying real estate first. This increases the likelihood of both renewals with the current tenant and the ability to efficiently re-tenant an asset. This protects our downside risk, as well as gives our shareholders the best chance to have stabilized and, hopefully, increasing rents from our properties. Additionally, to create value for shareholders and stabilized assets, we seek out net lease properties that are typically overlooked by the majority of investors by targeting short-term leased properties. By focusing on this segment of the market, we were able to purchase assets at what is traditionally a higher cap rate than the same assets with over 10 years remaining. This, coupled with our active management of our portfolio allows us to increase value in the assets by recognizing rental rate increases quicker, extending the lease terms of our assets and gaining a deeper understanding of the specific sites performance. As we all know, 2022 put an end to what was an ever-increasing bull market pertaining to net lease valuations. Public REITs suffered last year as they continue to today. But in the face of a tremendous adversity, we believe that GIPR is weathering these challenges well. While the spike in interest rates led to the ultimate dislocation between seller’s pricing expectations and our underwritten valuation of assets and made us paused our acquisitions beginning in April 2022, we were by no means stagnant in our efforts to grow the company. Some of the milestones we achieved last year included 100% rent collection. We averaged 3.5% same-property rent growth year-over-year. Our large portfolio refinance resulting in all debt for the portfolio being fixed at approximately 35% lower interest rates than today’s rates. Our $25 million debt commitment from American Momentum Bank remains in place and has a zero balance in order to opportunistically use when needed. Our hands-on asset management and relational approach that we value proved to be beneficial with the increase in direct communication with our tenants. We added additional experience and governance to our accounting team by hiring a 15-year REIT accounting professional as our new CFO in addition to our first full-time corporate controller. And we qualified as a REIT, as defined by the IRS, which has been a goal of ours since our inception. So the question that most people will have as it pertains to our short-term and long-term goals is, how does GPR grow? Subsequent to year-end measures, 2023 has proven to be somewhat of a launching pad for the company. We had one tenant Maersk Shipping hold over in their space before they vacated, which provided us the opportunity to negotiate to its final form a lease with the Department of Defense funded contractor at an increased rental rate, which we hope to execute in the near term. Additionally, we have executed an engagement agreement with Baird, one of the premier middle market investment banks to advise the company on implementing growth strategies in various forms. Lastly, we recently signed a contract to purchase a retail asset occupied by an investment-grade credit tenant at a cap rate that correlates with today’s interest rates and is directly in line with our overall value investment thesis of well-located, high credit and shorter term net lease properties. The portfolio remains stable and we are, as our investment thesis lends itself to consistently contemplating potential risks. Our 13 assets are well positioned in their specific markets and the tenant’s performance at these locations is providing them with ample revenue to continue paying their rents as originally planned. The distribution between asset classes is currently 46% retail, 17% industrial and 36% office. We believe that a diversified high credit portfolio will be able to weather markets well. While we’re not providing guidance for 2023, we hope we are clearly conveying that we are being patient, while working diligently to not only add value to our current portfolio, but also to externally grow by traditional acquisitions, contributions through our successful UPREIT program, our proven joint venture JV structure, as well as keeping our options open for alternative opportunities. I and our Board believe that GIPR has set the proverbial table to capitalize on our long-term value investing strategy that has been working well since our inception. It will not come without some bumps in the road as we’re all experiencing now. But as Charlie Munger, Vice Chairman of Berkshire Hathaway has stated in the past, I think, the record shows the advantage of a peculiar mindset, not seeking action for its own sake, but instead combining extreme patients with extreme decisiveness. With that, I’m pleased to introduce my colleague, GIPR CFO, Allison Davies.
