Generation Income Properties, Inc. (GIPR) Q2 2023 Earnings Report, Transcript and Summary

Greetings. Welcome to the Generation Income Properties Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Emily Cusmano, Chief of Staff. Thank you. You may begin.

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. [Technical Difficulty] 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. 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.

Thank you, Emily, and good morning, everyone. For the past several quarters, we have been reporting to our shareholders and the overall market that fundamental financial dynamics were forcing us to be disciplined and patient as it related to our acquisition strategies. While it wasn’t always easy to continually adhere to those principles, we’re happy to report that as of August 10, 2023, Generation Income Properties has almost doubled its portfolio size with the purchase of a 13-property 202,000 square foot, $42 million single tenant net lease acquisition that perfectly fits the investment thesis that we have laid out for our shareholders. The cap rate for this transaction was 7.55%, and the portfolio was financed with approximately $21 million in mortgage debt, $9 million in cash and $12 million in newly issued redeemable preferred shares. This morning, we released earnings for the second quarter of 2023 as well as filed a press release and an 8-K outlining the transaction in which I referenced. There are many positive attributes of this transaction that we feel need to be highlighted. But first, I want to publically thank the seller, Modiv Inc., a New York Stock Exchange listed net lease REIT and its CEO, Aaron Halfacre ad Modiv’s Board of Directors and its team who have epitomized professionalism throughout this process. This portfolio is 76% investment-grade tenancy or its equivalent inclusive of 11 national retailer credit tenanted assets and two office assets, one, GSA occupied and guaranteed building in California as well as a mission-critical property in the Orlando, Florida market, which is fully occupied with mandated attendance by an international engineering company, EXP which services amusement parks and entertainment clients, hence the reason for their major Orlando presence. Immediately following our recent portfolio acquisition, our weighted average remaining lease term is now approximately 5.2 years, reflecting our short-term lease thesis. By adding these high-quality properties to our portfolio, we increased our retail asset distribution to 55% and achieved one of our near-term goals of being landlords to over $100 million in gross asset value. We have always said that being a small cap net lease REIT allows each accretive transaction the opportunity to provide us with meaningful external growth. However, the GIPR team has taken that philosophy a step further and increased the property count of our company by 2x with one transaction. We also accomplished this feat in a very challenging market where most companies are struggling to find opportunities of this magnitude for the respective portfolios. One of the core values at GIPR is being relational, and this transaction is proof that it has served all parties, most importantly, our shareholders, very well. The fact that two small public net lease REITs developed a relationship over time and found a way to work with each other, especially in a down market, is a testament to the motivation of how that relational core value has, well, value. Aaron and I want the best for our respective shareholders, and we found a way to identify a transaction, negotiate with fair terms and execute in this market, which is a telltale sign that we can be creative, responsive and to emphasize this word, patient, when the right opportunities are identified. Generation Income Properties now has 26 assets in 13 states. And while we’re not providing going forward guidance, we do believe that the market may be turning in our favor in order to allow us to continue our external growth plans. While the positive impact of the acquisition is clear for our Company’s portfolio metrics, we believe this transaction shows shareholders and the market alike that we are focused on growth for the Company and have the ability to execute large transactions. As the wider market is continuing to experience challenges, we believe this is just the beginning of a greater buying opportunity and we’ll continue to focus on acquiring shorter-term high-quality assets to our portfolio. Being a small cap net lease REIT has its challenges, but this acquisition is a transformative deal for our company of our size, and we’re pleased to be able to show the market that we have the ability to source, underwrite and execute transformative deals, even amidst market uncertainty. With that good news, I turn the call over to Allison Davies, GIPR CFO.

Thank you, David. In addition to announcing our new portfolio acquisition this morning, we also issued a press release announcing our financial and operating results for the quarter. Total revenue from operations was $1.3 million during the quarter, which represents a slight year-over-year decrease, driven by our one tenant vacancy in one of our two Norfolk, Virginia properties. Operating expenses for the quarter ended were $2 million, remaining flat as compared to the same period last year as we continue to focus on reducing operating expenses in this rising interest rate environment. Net operating income was $1 million as compared to $1.1 million during the same period last year, also due to our one tenant vacancy. Net loss attributable to common stockholders for the quarter was $881,000 as compared to $1 million for the same period last year, which is directly related to the loss on debt extinguishment incurred in April of ‘22 related to our portfolio refinance. Core AFFO was a loss of $33,000 as compared to income of $36,000 for the same period last year. The core AFFO decrease is also directly attributable to our one tenant vacancy. We believe our balance sheet is also in a good position to continue to withstand the market uncertainty, specific to commercial real estate that we’re experiencing. We have a healthy cash balance and our next mortgage debt maturity isn’t until 2024. With that, I’ll turn it back over to David.

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

We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Michael Diana with Maxim Group. Please proceed with your questions.

Good morning. Congratulations. Now the -- I think it’s said in the release that it closed on August 10th. Does that mean you own these properties then?

That’s correct. We currently own them.

Okay. So, they’ll produce income immediately then, right?

That’s exactly right.

Right. Okay. And what’s the prospect given this of the dividend of the earnings from the accretion here covering the dividend?

Hey Michael, this is Allison. I can take that. We are still working on that. While we still won’t cover our dividends after this transaction, we are confident with our continued growth will anticipate being able to in the near term. So certainly, this is progress.

Okay. Great. So, I think David referred to, you think this could be the beginning of a buying opportunity. So, given the size of this deal, do you have the management capacity to pursue other transactions pretty quickly, or is it going to be a digestion period?

Yes. We feel like our management team and just the way that we overall operate, which is in a fairly frugal manner is going to allow us to increase the number of assets that we have in our portfolio with our current infrastructure. So, we feel like we can continue to grow without adding any staff or incurring meaningful additional expenses.

Okay. That’s great. So, we’ll look forward to the next one. Okay. Congratulations.

Thank you, Michael.

Thank you. There are no further questions at this time. I would like to turn the floor back over to David Sobelman for any closing comments.

Just thank you, everyone, and have a great week.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.