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spk01: Good morning, ladies and gentlemen, and welcome to the Generation Income Properties third quarter 2021 earnings conference call. At this time, all lines have been placed in listen-only mode. Please note that today's conference call is being recorded. Replay information is included in our November 11th press release, which can be found on the investor section of the company's website at GIPREIT.com, along with the third quarter earnings release. After the speaker's prepared remarks, there will be a question and answer period. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. I will now turn the conference call over to the company's investor relations representative, Mary Jensen.
spk02: Good morning, everyone. I am joined this morning by David Silberman, Chief Executive Officer, and Rick Russell, Chief Financial Officer. David will provide introductory remarks and an overview of business activity and the company's underlying strategy. Rick will summarize our quarterly financial results and capital markets activity. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, our pipeline and planned acquisition activity, anticipated market size, expected consolidation in the industry, future events, and financial performance. These forward-looking statements are subject to 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, the most comparable GAAP measure to these non-GAAP measures, can be found in our earnings release or in the investor presentation available on our website. 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. As such, it is important to note that management comments include time-sensitive information that may only be accurate as of today's date, Monday, November 15th, 2021. Following management's prepared comments, the call will be open for your questions. We request that everyone asks only one question and one follow-up to allow everyone to ask questions. If time permits, we are happy for you to reach you for additional questions. With that, I will now turn the call over to our Chief Executive Officer, David Silvelman.
spk03: Thank you, Mary, and welcome to our earnings call. For those of you not familiar with our company, Generation Income Properties is an internally managed real estate corporation formed in 2015 to opportunistically acquire and own retail, office, and industrial net lease properties with a focus on investment-grade tenants. We intend to elect to be taxed as a real estate investment trust for 2021. We currently have nine assets in our portfolio across five states and the District of Columbia. We specialize in underwriting both the credit of our tenants and the real estate. In particular, we focus on properties across multiple asset classes that have a high probability of either maintaining their current tenancy and or re-tenanting in more densely populated markets. Further, in our acquisition strategy targets occupied commercial properties with lease durations under 10 years, as we believe this market segment is underserved by larger institutions with lower costs of capital, thereby creating a sweet spot of growth opportunity that is resourceful and nimble with a plethora of field sources. We spend a considerable amount of time underwriting a property's salient facts before and during our ownership. We look at dozens of variables that play a role in the short and long-term outlook of a property, as well as the specific market in which it is housed. Our due diligence process focuses on basic and more complex real estate research before we begin to look more closely at a tenant's credit rating. We do this to make sure that if there ever comes a day where our tenant may vacate a property, we will have taken into consideration the factors that go into replacing that tenant within a reasonably short amount of time. While we do put tremendous value on the creditworthiness of the tenant, it is secondary to the real estate factors that we contemplate. This process, however, is done quickly and efficiently so we can make our capital available to sellers in short order. The third quarter was, indeed, a transformative time for GIPR. Central to this was our successful underwritten public offering in early September that generated net proceeds of approximately $14.4 million, including a partial over-allotment. Since then, our team has placed six additional properties, including an upgrade transaction, under contract. With a robust investment pipeline at various stages of negotiation and due diligence, we remain on track to have the majority of the offering proceeds deployed by year end at approximately 50% leverage. Finally, we rounded out the skill sets on our very impressive board of directors by welcoming Gina Chang as a new independent director. Gina is a managing director at Prospect Avenue Partners. specialty capital raising and advisory platform focused on private equity industries. She has more than 20 years of experience in the real estate industry and proven expertise in corporate strategy as well as capital markets. Gina will serve on the governance and compensation committees at Generation Income Properties. In addition, as previously disclosed, Richard Russell, our chief financial officer, has been operating in a part-time role. As such, the company intends to begin the search for a full-time chief financial officer, although a specific timeline has not yet been established. Rick has been instrumental to GIPR's success, in particular in building our capital markets exposure, including overseeing our recent successful public offerings. He is a well-regarded team member, and our board of directors has begun the initial steps to run a formal process to identify full-time CFO candidates. It is important to note, however, that Rick intends to remain in his current capacity until a viable replacement is appointed. We will keep you posted on our progress. Moving to our strategy, we believe it is important to spend some time talking in greater detail about our investment strategy and how it differentiates us. The net lease sector certainly remains very active. Last year saw about $60 billion in transaction volume, and yet the sector remains highly fragmented. Public net lease REITs comprise less than 10% of investors. Thus, private investors represent the vast majority who we believe rarely perform meaningful underwriting diligence. We see this as an incredible opportunity for us to take advantage of a fragmented market and acquire properties that are often overlooked by the vast majority of net lease owners due to the lack of underwriting conducted on assets. Although we are refraining from providing acquisition guidance at this time, given the uncertainty of timing and volume, we can assure you we have a robust investment pipeline in various stages of negotiations and due diligence. Turning to our balance sheet, We ended the quarter with $26.8 million of debt, which demonstrates a debt-to-investment leverage ratio of approximately 72.6%. Our goal is to reduce our leverage over time to be in line with our peers, and this is demonstrated with our recent underwritten leverage for new acquisitions at 50%. Rick will provide more color on our liquidity in his remarks. I'm happy to report that our board declared a cash distribution on common stock and operating partnership units of $0.054 per share that is to be paid on a monthly basis, which, when annualized, is approximately $0.65 per share. Before I turn the call over to our CFO to review our quarterly results in more detail, I wanted to mention a recent notable transaction. Subsequent to the end of the quarter, we have placed six assets under contract and announced a $25 million commitment facility with American Momentum Bank. The facility will be utilized to fund the acquisition of individual income-producing real estate properties and emphasizes our longstanding relationship with A&B as well as their confidence in our growth. This commitment will allow us to perform quickly on the acquisition of new assets, and meaningfully grow our portfolio. With that, I now turn the call over to Rick.
spk04: Thank you, David. Hello, everyone. I'm very happy to be participating in GIP's earnings call. We issued a press release earlier this morning with our financial and operating results for three and nine months ended September 30th, 2021. Net cash provided by operations for the nine months ended September 30th, 2021 was $173,000. This is due to our robust real estate portfolio with high credit quality tenants. We believe our tenant base and the well-located real estate assets that comprise our portfolio kept GIPR relatively insulated from shifting economic headwinds and potential impacts from future pandemics. Nothing demonstrates this better than our portfolio's optimacy remaining steady at 100% throughout the COVID-19 crisis and resulting economic slowdown. Moving on to our capital market activities, net cash generated by financing activities was $11.9 million for the nine months into September 30, 2021. This compares favorably to the $756,000 of cash used in the same period last year. As David mentioned earlier, we closed on a successful underwritten public offering Together with the partial exercise by the underlying of the overall allotment, the offering generated approximately $14.4 million in net proceeds to the issuance of approximately 1.7 million shares of our common stock and about 1.7 million horns. In concert with that offering, we uplifted our common shares to trade on NASDAQ, under the ticker GIPR, which we believe creates greater liquidity for our shareholders, and will ultimately help improve our cost of capital. In addition, we received 2.1 million proceeds from the issuance of redeemable monthly home interest and mortgage loan borrowing of $2.1 million. These financing activities, in concert with cash flows generated by our portfolio and the sale of our property, allowed us to reduce outstanding mortgage debt by $3.8 million pay off a $1.1 million related party loan, redeem a $1.2 million redeemable non-controlling interest, and pay our common and operating unit distribution, as well as support other corporate activities. We are well positioned to continue executing on our investment pipeline, which we believe will continue to positively impact our cash flows. I am thrilled with the headway made by the company since my appointment, and I am excited to follow their progress and assist in the search for full-time CFOs who can help propel this company to the next stage. With that, the operator will now open the call for questions.
spk01: Please wait a moment while we assemble the roster. Our first question is from Michael Diana with Maxim Group. Please proceed with your question.
spk05: Hey, David. How are you?
spk03: Hi, good morning.
spk05: Good morning. So thank you very much for going through reviewing your strategy and what goes into your due diligence, which I think is very important. Maybe you could apply those principles for us by discussing, first of all, the sale of the Walgreens property. In other words, what went into that decision. And then for each of the acquisitions you've done or have under contract, Just briefly tell us what it was in particular that you found attractive about each of those situations in light of your strategy. And then finally, you announced your 65-cent annual dividend. And I'm sure you didn't pick that number randomly. So could you just tell us what considerations went into that?
spk03: Thank you. Sure. You may have to go back and remind me of some of the latter. Sure. I'll start at the beginning. And so an opportunity presented itself for us to sell the Walgreens property. So we took advantage of that opportunity. We felt like the real estate metrics that we put so much emphasis on were shifting for that specific location. While Walgreens still maintains an investment-grade credit rating, we weren't so sure that we wanted to be long-term owners of that specific site. Coupled with the opportunity that presented itself to sell that property, we took advantage of that opportunity. So that was the motivation to sell that property. If you can remind me of the next question.
spk05: Sure, if you could just go through the one acquisition you've made and then the seven that you have pending. Just briefly on each one, what did you find particularly attractive in light of your strategy about each of those?
spk03: So to emphasize the point about our underwriting, our real estate underwriting, is we do look at the real estate first. So we were happy about the long-term prospects of owning these assets. Irregardless of who the tenant may be, they just so happen to have investment grade credit tenants in them currently. So we like each of them for their real estate attributes and their investment grade credit ratings. Specifically, we purchased a Lazy Boy property that While they don't have an investment grade credit rating, they don't have a credit rating at all, but they're a public company with, I believe, about a $1.5 billion market cap with no material debt on their books. We would give that an investment grade equivalent in our underwriting, so we were happy to add that asset We have a Starbucks asset that we will be up reading in Tampa, Florida. Again, very strong real estate and an investment grade credit. The other acquisitions that we have announced are a Fresenius in Chicago, a Best Buy in Colorado, and three 711s in Austin, Texas. It's a portfolio transaction. So all investment-grade credit, all very replaceable real estates, and they are cap rates that are commensurate with our kind of strategy, which are between 7% and 8%. So we're really happy with not just the real estate, but also the credit quality and the long-term aspects of the geography for each of these locations.
spk05: Great. Okay, great. Thank you. And then what considerations went into choosing 65 cents as the appropriate level of the dividend?
spk03: Rick, I'd like him to answer that. It was a big discussion with our board of directors, but I'll let Rick go into the details of that.
spk04: Thank you, Dave. So the 65 cents is the board decided to do a 6.5% return on the, when it went public at the $10 price. And that's what the board has committed to as a payout, as a distribution for this quarter.
spk05: Okay. And how does that relate to the earnings that you, well, you haven't yet ramped up you know, your portfolio and spend all the proceeds to the offer. Right. So, when that's fully done, what do you envision the, you know, the relationship there?
spk04: Well, you know, we intend to, you know, do the re-election this year also. So, we intend to follow the REIT rules and push out as much of a distribution to AFFO as possible. to be covered in that manner. And that's what the board will be looking at, especially once it's fully ramped up and we have all of our acquisitions, hopefully by the end of this year, if not January, depending on due diligence.
spk05: Okay, great. Thank you very much.
spk01: This concludes the Q&A portion of today's call. I will turn the call back to Mr. Solberman for closing remarks.
spk03: Thank you for joining us today. We look forward to speaking with you again next quarter, and we will keep you apprised of any meaningful developments. Thank you again.
spk01: That concludes today's call. You may now disconnect.
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