Generation Income Properties, Inc. (NASDAQ:GIPR) Q3 2022 Earnings Conference Call November 15, 2022 9:00 a.m. ET
Emily Cusmano – IR
David Sobelman – CEO
Allison Davies – Chief Financial Officer
Conference call participants
Gaurav Mehta – EF Hutton
Michael Diana – Maxim Group
Good morning ladies and gentlemen and welcome to Generation Income Properties’ Third Quarter 2022 Earnings Conference Call. At this time, all lines have been placed in listen-only mode. Please note that today’s conference is recorded. Following the comments prepared by management, the call will be open for your questions. [Operator Instructions]
I will now turn the floor over to the company’s Chief of Staff, Emily Cusmano. Please continue.
Thank you and hello everyone. With me today are David Sobelman, CEO; and Allison Davies, Chief Financial Officer. David will provide an overview of the company’s growth strategy, business operations and capital markets, third quarter highlights and subsequent events to date, Allison will review our quarterly financial results. Before I 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 regarding our planned acquisitions or divestitures, are considered forward-looking statements. Our actual financial condition and results of operations may differ materially from those contemplated by these forward-looking statements. A discussion of factors that could cause our results to differ materially from these forward-looking statements is contained in our filings with the SEC, including a report on Form 10-Q.
In addition, certain financial information presented in this call includes non-GAAP financial measures. Please refer to our earnings release for definitions, GAAP reconciliations and an explanation of why we believe these non-GAAP financial measures are useful to investors.
With that, I will now pass the call to our Chairman and CEO David Sobelman.
Thanks, Emily. And hello everyone. While the macroeconomic news is widespread, we are pleased to say that we are in a stable position with regard to our 100% rent collection, our fixed debt ratios which are well below the interest rates of the market today, as well as the high creditworthiness of our tenants. We are pleased with the consistent performance of our existing portfolio even as market volatility becomes more prevalent globally.
During the third quarter, we focused on maximizing organic growth and growing our
pipeline in order to better navigate the uncertainty that prevails in today’s market. By positioning ourselves to take advantage of market imbalances, we will seek to acquire assets opportunistically when the time is right.
While we are acutely aware and recognize the need for external growth to propel long-term stock price appreciation, we remained patient throughout the third quarter. We will not succumb to pressure to buy assets when there are huge dislocations in the market with assets being priced out of proportion to today’s interest rates.
History has proven that it’s never a good long-term decision to make acquisitions when interest rates are higher than most cap rates we see trading today. We will remain disciplined and make our acquisitions when there is a clear path that the asset or assets will provide long-term benefits to GIPR shareholders.
As mentioned, we have continued to be diligent about organically growing our portfolio and are pleased to report that we are maintaining contractual base rent increases that are within 92% of annualized base rent for our wallets. We either have fixed increases to our lease rates or what has worked for our shareholders benefits this year the consumer price index, CPI increases over the life of the head lease. Our NOI net operating income increased within our current portfolio benefiting from rent increases in our solvent portfolio. These rent increases have provided us with approximately 3% annual growth in comparable rents compared to the same period last year and we continue to seek assets that can also provide growth within the portfolio for years to come.
With that, I’m delighted to turn the call over to our Chief Financial Officer, Allison Davies.
Thanks David. Last night we issued a press release announcing our financial and operating results for the quarter. Total operating revenue was $1.5 million in the quarter, representing a 43% year-over-year increase driven by property acquisitions and increase in recoverable income and rental growth. Operating expenses for the same period were $2 million and $1.3 million respectively. This increase is explained by an increase in general and administrative expenses, recoverable expenses, depreciation and compensation costs.
Net operating income was $1.2 million compared to $838,000 in the same period last year, a 44% increase primarily due to natural increases in rents through CPI or contractual rent milestones, in addition to lower construction spending. We believe this increase is indicative of our disciplined underwriting focus on accretive investing and the benefits of an internally managed portfolio.
Net loss attributable to common shareholders for the quarter was $639,000 compared to net profit of $456,000 for the same period last year. This is directly related to the increase in expenses mentioned previously, as well as offset by the gain recorded on the sale of a property during the same quarter last year. The base AFFO was $358,000 compared to $150,000 for the same period last year. The increase in base AFFO is directly attributable to an increase in non-cash expenses.
The weighted average residual duration of GIPR’s leases is 5.6 years as of September 30, which reflects our short-term lease theory. We have a lease expiring at the end of 22 and our team is in active discussions with other potential tenants.
Our balance sheet is also well positioned to withstand the market uncertainty we are currently experiencing. We have a healthy cash balance and our next mortgage debt maturity is not until 2024. As David mentioned earlier, we are positioned to act as soon as acquisition opportunities arise. We remain in constant contact with the brokerage community and continue to seek out off-market investments, especially those interested in pre-program success.
Additionally, our JV program remains active and ready to deploy capital when these opportunities present themselves at the right time.
With that, I forward the call to David.
Thanks Allison. We have realized that these are uncertain times in global markets, but we are sticking to our principles and believe we are on the threshold of greater visibility. In short, we will remain patient and disciplined because our work has only just begun. And we’re focused on building generational wealth, as our company name suggests. We believe we are well positioned to weather the current economic environment and seize the opportunities that may arise.
With this operator, please open the call for questions.
Thanks. At that time, we will conduct a question and answer session. [Operator Instructions] Our first question comes from Gaurav Mehta’s lineage with EF Hutton. Please continue with your question.
Thanks. Hello. David, can you give us a bit more color on the trading market? I think in your prepared remarks you said that cap rates seem to be lower than interest rates. Can you tell us where the CapEx are compared to the beginning of this year and what are your expectations for the future?
Hello, Gaurav. Good to hear from you. Yes, openly traded cap rates are still below the threshold in which we would trade at scale. However, we find that cap rates gradually increase over time. And our pipeline is, shall we say, very robust with assets that are similar to our current portfolio and approach the cap rates in which we need to trade.
OK. Second question about the expiration of your 4Q lease. I think you talked about it a bit. In the prepared remarks, I think you said maybe looking for other tenants. Can you maybe provide some color on this property and expect to release it this year?
Sure. We are in constant communication with this tenant, which is Maersk. We are in constant communication with all of our tenants. However, they did not give us written notice as to their termination date and they revealed to us that they would be in a situation of excess rent. But we are ready for them to leave at some point in the first quarter. And we are already in discussions with tenants who are actively looking at our space.
OK. Finally, can you explain your decision to reduce your dividend distribution in the 4th quarter?
Yeah, that’s something we’ve spent a lot of time with, with our board. We wanted to put ourselves in a position to be as successful as possible as soon as possible. And so the board and management made the decision to cut our dividend to still be above the market compared to what our peers are currently paying. However, to put us in a place where we can grow the business faster.
OK. Thanks. It is all I have.
Thanks. [Operator Instructions] Our next question comes from Michael Diana’s line with Maxim Group. Please continue with your question.
Hi there. In fact, all my questions have been answered. I was going to ask you about the environment, the lease expiration, and the dividend, which I think you covered well. So thanks.
OK. Thank you, Michael.
Thanks. [Operator Instructions] Ladies and gentlemen, that concludes our question and answer session. I’ll go back to Mr. Sobelman for his final comments.
Thank you everyone. Have a great week and happy Thanksgiving.
Thanks. This concludes today’s conference. You can disconnect your lines at this time. Thank you for your participation.