Good morning, ladies and gentlemen and welcome to the Generation Income Properties First Quarter 2022 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. Please note that today’s conference call is being recorded.

Replay information is included in our May 12 press release, which can be found on the Investor Relations section of the company’s website at gipreit.com, along with the first quarter earnings release. After the speaker’s prepared remarks, there will be a question-and-answer period..

Thank you, operator. Good morning, everyone. I am joined this morning 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, first quarter highlights and subsequent events to-date.

Allison will review our quarterly financial results and balance sheet. Today’s conference call includes forward-looking statements that reflect the company’s current views with respect to among other things, our planned acquisition activity, anticipated market size, future events and financial performance.

These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements.

New risks and uncertainties arise over time and it is not possible for the company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements. During this call, we will refer to FFO, core FFO, AFFO and core AFFO, which are each non-GAAP financial measures.

Reconciliations of net income to the most comparable GAAP measure to these non-GAAP measures can be found in our earnings release or in our investor presentation.

We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections, including the risk factors included in our Form 10-K for the 2021 fiscal year filed with the SEC.

As such, it is important to note that management’s comments include time-sensitive information that may only be as accurate as of today’s date Friday, May 13, 2022. Following management’s prepared comments, this call will be open for your questions.

We request that you ask only one question and one follow-up to allow ample time for everyone to ask questions. If time permits, we welcome you to re-queue to ask additional questions. With that, I will now turn the call over to our Chief Executive Officer, David Sobelman..

Thank you, Emily and welcome to our earnings call.

For those of you not familiar with our company, Generation Income Properties is a NASDAQ listed real estate corporation formed in 2015 to opportunistically acquire and own retail, industrial and office net lease properties located in densely populated submarkets, with a focus on investment grade credit tenants.

Our diversified portfolio currently consists of 13 assets across 8 states and the District of Columbia. We differentiate ourselves by specializing in underwriting, primarily investment grade tenants, with remaining primary lease durations of under 10 years, coupled with strong real estate fundamentals.

We believe this combination typically correlates to a higher probability of tenants either maintaining their current tenancy beyond their lease expiration or the opportunity to retenant the asset in future years.

Our comprehensive underwriting process has determined that stabilized investment grade credit tenanted assets with shorter lease terms are oftentimes attractive opportunities overlooked by large institutional investors.

We focus on this segment, because in our view shorter lease terms provide flexibility to realize attractive rental rate increases higher long-term values and resilience to economic fluctuations. As we mentioned in our year end earnings call, 2021 was a transformational year for GIPR.

We uplisted our common shares to NASDAQ, raising over $14 million in gross proceeds and providing greater liquidity to our shareholders. And we added to our talent base with the additions to our Board of Directors, and more recently, our executive team.

Our work last year set the foundation for us to continue executing our investment thesis in the first quarter of this year. During the first quarter, we acquired three assets valued in the aggregate of $12.6 million.

The weighted average first year yield for these assets was 7.2%, 135 basis points higher than the average cap rates for all retail, industrial and office net lease transactions in the first 3 months of 2022 per the Boulder Group.

Additionally, all assets that GIPR recently added were investment grade credit or with the tenant parent company having investment grade credit as rated by one of the major credit rating agencies like Standard & Poor’s and Moody’s. The new assets added in the first quarter are occupied by Starbucks, Fresenius Medical and Kohl’s.

In fact, 92% of GIPR’s portfolio is investment grade or equivalent, which we believe is the highest proportion of investment grade tenants in our peer group. What we have worked hard to achieve is the potential internal growth opportunities that come with increased contractual rents with our tenants.

To-date, our portfolio consists of 92% of annualized base rent having fixed or CPI rent increases during the primary lease term as well as within the tenants’ renewal options, which provides us with approximately 180 basis points of annual same-property rent growth over the same period last year.

One asset contributed to our portfolio in the first quarter through our UPREIT program was the Starbucks occupied property in Tampa, Florida, one of the country’s highest growth markets, which was put under agreement with roughly 6 months remaining on the primary lease term.

While that is an abnormally short lease term, we were confident in the assets corner location, the density surrounding the property, and of course, the creditworthiness of the tenants.

Our underwriting determined that the rent was below market and if by some circumstance, Starbucks decided to leave, we would be able to replace that tenant likely at a higher rent.

Ultimately, Starbucks exercised their contractual renewal option to extend their lease for another 5 years, increased their rent by 10%, and have since invested up to $450,000 to renovate the location, which is currently underway.

This asset was contributed to our portfolio and a first year yield of approximately 6.5%, now that tenant has renewed their lease and is renovating the property. And based on current market conditions, we estimate the cap rate to be closer to 4.75% or 175 basis points lower than the value at which the property was contributed.

This demonstrates how our thorough and disciplined underwriting strategy allows us to continue to find value in a stabilized asset class. As announced, we recently closed on a long-term refinance of approximately $13.5 million from Valley Bank for roughly half of the properties in our portfolio.

It’s worth noting that we accomplished our goal of securing long-term stabilized debt for our assets, to provide us with 10-year debt for seven of our properties, all of which have debt maturities beyond the primary lease term for each asset.

As of today, approximately 85% of our portfolio is encumbered by debt where the maturity exceeds the primary lease expiration and we have no debt expiring until mid-2024. We have reduced our debt exposure from 69% as of March 31, 2021 to approximately 61% of the gross asset value of our portfolio, which is a remarkable 8 percentage point reduction.

In addition, we brought the balance on our $25 million loan commitment from American Momentum Bank to zero, allowing us to secure an increased debt commitment from them for up to $50 million for new acquisitions, representing a 10x increase in their commitment over the past 5 years.

This increase commitment will become effective contingent upon GIPR completing a future capital raise of $25 million or more. And prior to such time, the current $25 million commitment will remain in place.

We are encouraged by American Momentum Bank’s confidence in us to grow GIPR as we remain focused on strengthening our balance sheet during shifting market dynamics. As we outlined, we are focused on both internal and external growth strategies to maximize long-term shareholder value.

We are keenly aware of changing market dynamics and are constantly gauging our portfolio, macroeconomic indicators and topical information to stay ahead of the various circumstances that may influence our company’s future.

As of today, GIPR’s gross asset value, including the property held in a tenant in common stands at approximately $61 million based on the acquisition cost and our investment strategy is the driving force to differentiate us from others in our industry.

The net lease sector remains very active, but we are confident that our short-term lease thesis is one that will serve us well in the years ahead and will continue to generate long-term value for all stakeholders in GIPR.

As we previously announced and ultimately initiated in the first quarter of this year, we replaced our part time CFO with a full time CFO, Allison Davies, who joined us from senior leadership at Regency Centers, a $12 billion public shopping center REIT, where she had been for the past 15 years.

Allison has already begun implementing much of her institutional background into GIPR’s accounting and reporting processes in preparation for our continued growth and we are honored to be able to call her our colleague. With that, I am delighted to turn over the call to our CFO, Allison Davies..

Thank you, David. I am truly privileged to be a part of this exceptional team and I am excited about the opportunity to help forge its future. As David mentioned, GIPR’s high credit quality tenant base in well located real estate assets continue to keep the GIPR portfolio, relatively insulated from shifting economics.

The portfolio weathered the pandemic beyond our strongest hopes. We continue to collect 100% of our base rents and have done so since our inception, including the years in COVID-19 forced tenants to ask for abatements and concessions.

To emphasize this point, we have never haven’t missed base rent payment or specific concession requests from any of our tenants throughout our company’s history. Each of our assets remained open and operating from the peak of the pandemic until today continuously reminding us of the importance of underwriting quality tenants.

Occupancy has remained 100% since inception. GIPR’s weighted average remaining lease term is 6.1 years reflecting our short-term lease duration thesis. We have one lease expiring in ‘22. And our team is in ongoing lease renewal discussions with that tenant, while also looking for alternative tenancy.

Given the high quality asset and demand in that market, we are confident we will be able to successfully renew or retenant. Further, we don’t have any leases expiring in ‘23. Regarding our portfolio, tenant health is strong with above average performing sales at all of our retail properties.

And while at challenge we believe our tenants are successfully managing inflation, supply chain constraints and labor shortages.

Thankfully, as a net lease company, we are relatively protected from these market concerns in terms of direct impact on our operations that we realized you are clearly not out of the woods as it relates to other world events in the economic fluctuations that are top of mind for us all.

Last night, we issued a press release announcing our financial and operating results for the quarter. I am pleased to share that our first quarter of ‘22 has us heading in the right direction.

Total revenue was $1.2 million during the quarter, which represents a year-over-year increase of 26% driven by the acquisition of properties and increase in recoverable expenses and contractual rent increases. Operating expenses, including G&A for the same periods were $1.6 million and $1.3 million respectively.

This increase was driven primarily by an increase in recoverable expenses, legal expenses, audit fees and insurance, much of it arising from our first year as a public company.

As a newly public company, we recognized the impact of professional services required to ensure compliance and we are looking forward to limiting the need for such services as we continue to grow the company. Net operating income was $929,000 as compared to $756,000 during the same period last year, a 23% increase.

This increase is clearly indicative of our disciplined underwriting and focus on the creative investments. During the quarter we incurred compensation costs of $280,000 compared to $155,000 in the same period last year.

This $125,000 increase was due to increased costs associated with higher compensation expense of $80,000 and higher stock based compensation from additional restricted stock grants and accelerated vesting of our former CFO’s remaining shares prior to his departure.

Net loss attributable to GIPR first quarter was $446,000 as compared to a loss of $322,000 for the same period last year. FFO for the same period was a loss of $14,000 as compared to income of $58,000 in the prior year. Core AFFO was $88,000 as compared to $123,000 for the same period last year.

These decreases are directly attributable to the increases in depreciation and amortization expense related to recent property acquisitions and the increase in G&A I mentioned earlier. I am very pleased with where we ended the quarter.

We have a healthy cash balance and an even stronger balance sheet, which we believe positions us to withstand this market uncertainty. We are hyper focused on prudent capital allocation and ensuring that both our debt and equity opportunities grow GIPR in a most accretive manner.

Now, that we have secured a long-term refinancing for a portion of our mortgage debt, converting all of our rates from variable to fixed, we have structured our debt maturities to not only manage cash requirements, but also hedge against the continued expected increases in interest rates.

Our acquisitions and underwriting team are in a great position to continue growing our asset base. Our investment pipeline remains strong, and we believe we positioned ourselves well for future growth.

Lastly, please check out our updated investor deck posted on our website highlighting more of our focus thesis, exceptional portfolio, and more importantly, fantastic management team. With that, I will turn the call back over to David..

Thank you, Allison. Before opening the call for your questions, I wanted to remind you that the name Generation Income Properties was derived from our ethos of generating income, not just for today, but for the generational long-term.

It is our philosophy that multigenerational families benefit from making decisions affecting not only those who begin the legacies, but for those that come after. It has also been our goal to be a part of that effort for all stakeholders of GIPR. And we thank you for the confidence you have placed in us for your generations.

With that operator, please open the call for questions..

Our first question is from Michael Diana with Maxim Group. Please continue with your question..

Okay. Thank you. So, David, you had a very active quarter there. I just want to understand where you are right now, make sure I understand.

So, the Starbucks renewal, did that kick in during the first quarter or in the fourth quarter?.

Good morning, Michael. It actually kicked in the first quarter.

So, yes?.

Yes. Okay.

So, I guess the point I am getting at, so for second quarter, you are going to have four properties, the three required during the quarter plus the Starbucks with a higher rate, or a higher contribution than you had in the first quarter, is that right?.

Not exactly. So, we added a property, I believe is December 28th of 2021, which was Best Buy. And then we added three additional properties in the third quarter..

Okay.

But I guess so the Best Buy contributed during the whole quarter or did not?.

Yes, we received rent from Best Buy for the entire quarter..

Okay, great. Okay. So, in other words, you should have a number of properties.

So, they contribute during the whole quarter during the second quarter?.

That’s exactly right. Yes..

Okay.

Then secondly, on the acquisition front, I want to just stay on both the pipeline and your capacity to buy, so how does the acquisition pipeline look now, given the economic environment?.

Our acquisitions team is doing a tremendous job of making sure that we are prepared to execute on properties that fit our thesis directly. So, we feel like we have a very robust pipeline to support the capital that we have available to us at any point..

Okay.

And then so at the end of the quarter you had $4.6 million in cash, on the American Momentum commitment, you have an existing $25 million commitment, which could go up to $50 million, are there conditions on the first $25 million? In other words, can you tap the American Momentum line right now without satisfying any other conditions, either that they have or that Valley has?.

Yes. It is still in full force and effect. And we have access to the entire $25 million as it stands today..

Okay. So, you have lots and lots of capacity. It sounds great. Okay, great. Thank you very much..

There are no further questions at this time. I will now turn the call back to Mr. Sobelman for his closing remarks..

We realized this is a crucial time in our company’s history, and we are at this threshold of a greater profile. In short, our work is really just beginning. And we are focused on creating generational wealth as our company name implies.

We think we have positioned ourselves well to weather the current economic environment and seize the opportunities that may come as a result. Thank you for joining us. Have a great weekend. And we look forward to speaking with you again next quarter..

This concludes today’s call. You may now disconnect..