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..

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..

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.

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.

We've positioned ourselves very well to be a high-growth net lease REIT and we're following through on our promises to grow the company in a prudent manner.

When the capital markets and timing of acquisitions put us in the best position to take advantage of what we believe to be a prodigious buying opportunity we will be confident in our choices to reenter the market for GIPR to capitalize on our opportunities.\ With that, I'm pleased to present Allison Davies, GIPR CFO, for her final update..

Thank you, David. Last night, we issued a press release announcing our financial and operating results for the quarter. Total revenue from operations was $1.9 million as compared to $1.5 million in the prior year, primarily driven by rental income from the Modiv portfolio.

Operating expenses for the quarter were $3.1 million, a $1 million increase compared to the same period last year, primarily due to an increase in depreciation and amortization expense from the assets acquired in addition to an increase in interest expense from the financing of the Modiv portfolio.

Net operating income was $1.4 million as compared to $1.2 million during the same period last year, primarily driven by rental income from the acquisition of the Modiv portfolio.

Net loss attributable to both the common stockholders for the quarter was $1.8 million as compared to $639,000 for the same period last year, which is directly related to the income attributable to non-controlling interest of our new preferred equity partners.

After adjusting for non-cash income and expenses, core AFFO was a loss of $29,000 as compared to income of $358,000 in the prior year, primarily related to an increase in interest expense previously discussed and offset by non-cash adjustment last year for the write-off of deferred financing costs.

We believe our balance sheet is in good condition to continue to withstand the market uncertainty specific to commercial real estate that we're experiencing. We have a healthy cash balance in our next mortgage maturity is and until 2024. And finally, before I leave, I too would express my gratitude to GIPR and the Board of Directors.

Thank you for the opportunity to be a part of this amazing company and team. While I'm looking forward to my next chapter, I will always appreciate my time at Generation Income Properties. Thank you, Dave..

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

Hi. Thank you. So Dave, you mentioned that the pipeline was very strong. Could you just give us some indication that like how many properties you're looking at? And I know there's always a lot going on behind the scenes..

Yes, Michael, you're right. I'll give you some context of how we been looking at acquisitions through our investment committee. From January of 2022 to roughly July of -- or August of 2023, we looked at about $2.3 billion in assets, and that was about 300 properties.

And so we're telling you that because we want to show that we have access to a tremendous inventory, potential inventory of net lease properties that fit our investment thesis.

Of those 300 properties that we looked at over that period, we sent out offers on about $140 million worth, and we bought nothing because we couldn't come to terms with the sellers of those properties. Therein lies our patients to purchase assets at the right price at the right time.

And so motive was the right properties, right portfolio of properties and at the right price at the right time. And our pipeline continues to be extremely robust, well above where we are now as a company in terms of number of assets and we feel like we can execute really well when the timing is right for that..

Okay. Okay. Thanks. The dividend coverage of the dividend.

Could you comment on that? And also how, if any, that would change if you redeem the preferred for common stock?.

Yes. Dividend coverage is of primary importance to us. We're really looking at two main factors that are priorities for us going forward. One is coverage, like you mentioned. The other is adding assets altogether. And those correlate specifically with each other. So we need to continue adding assets in order to have 100% coverage.

I can tell you, though, that the motive transaction did allow us to trend higher to 100% dividend coverage. So we're really confident that additional acquisitions will allow us to cover in the future. And just to reiterate this point that is of utmost importance to us..

Okay. And what would be the impact of redeeming the preferred for common..

Yes. Redeeming the preferred like we stated -- we stated -- I'm sorry, like we stated in our remarks – sorry, we are just getting some feedback there. We are -- as we grow the portfolio base, the motive transaction was a prime example of how to meaningfully grow that dividend coverage.

And so it allowed us to kind of prove to ourselves that we will have an increase in potential float of about 100% and also, it will be a 20% reduction after the redemption of the preferred..

Okay. Great. Thank you..

This concludes the Q&A portion of today's call. I will now turn the call back over to Mr. Sobelman for final comments..

Thanks, everyone. We appreciate you listening into GIPR's earnings call, and have a great week..

You may now disconnect your lines at this time. Thank you for your participation..