Generation Income Properties, Inc. (GIPR) is a High-Risk, High-Reward Bet
Their high leverage presents a boom or bust scenario for the common shareholders
This company is very interesting at first glance as it appears they are trading well below their NAV. My issue is that their leverage creates a scenario where both the upside and downside is amplified, which is something I generally avoid.
Their assets are of a high enough quality where I think the upside case of making 2-3x the current price is more likely than the downside case of getting wiped out, but as I’ll get into, the common stock sits behind the debt and expensive preferred equity they took on over the years so a small shift in asset value for the worse could be catastrophic.
On the flip side, any repricing of their assets for the better could result in big upside. If you have a strong opinion that interest rates will drop soon, I would read on as this would almost certainly gain a lot of value if that were to happen.
Background
GIPR was founded in 2015, traded publicly OTC from some point after this, and then uplisted to NASDAQ in late 2021. It has pretty much been a train wreck since then as you can see from their stock price.
Their value creation strategy is sound, which is to buy NNN single-tenant properties with shorter lease terms, and then work to get the tenant to sign longer term leases. By doing this, they can buy at higher cap rates, and once a longer lease is in place these properties likely command a lower cap rate, meaning a higher price.
The problem is that they went on a buying spree during the Covid years when rates were low and values were high. To make this even worse, they used very expensive preferred equity to come up with the funds for these purchases.
Pref equity was a common thing during the late 2010’s until rates jumped up. It is a way for real estate developers to bridge the gap between debt and common equity. If I’m buying a property and can get 75% leverage plus 15% preferred equity = 90%, then I only need to come up with 10% of the capital stack.
Like any kind of leverage, it works great and amplifies returns as long as the music is playing. But when the music stops it can get ugly. And when the music stopped circa 2022 when the Fed began raising rates, it got really ugly for GIPR.
One acquisition of 13 properties from another public REIT in 2023 was particularly disastrous, as they used insanely expensive pref equity. Due to what has happened and the agreement in place with the pref equity provider, Loci Capital, the rate for this equity, calculated on about $18.5 million as of 8/10/25 becomes 18%. There is no conceivable way you can be successful in the long run paying 18% for your capital. And to make things worse, the part of this payment that accrues (they are unable to make the full payment) is added to the principal amount and compounds monthly. Ouch.
What they own and NAV calculation
GIPR has great assets leased to great tenants. To give an idea, some of their tenants include 7/11, U.S. Navy, YMCA, Starbucks, Best Buy, Dollar General, Walgreens and Tractor Supply. Most of their tenants are investment grade. My estimation of total asset value (only including their real estate….no cash, receivables, etc.) is $117.55 million.
On the liabilities side, they also have good debt. The vast majority of their debt is termed out until 2028, and a meaningful chunk of it is below 4% and doesn’t start to mature until 2031. Total debt is $62.18 million.
Also on the liabilities side is their pref equity. This is to be treated as debt, essentially. If we add about $1.5 million to their $18.5 million owed to Loci to account for about 6 months of payments from 8/10/25, they have a total of $30.88 million owed to pref equity holders.
When we net all this out, and account for the REIT owning 99.6% of the OP, their NAV is $24.39 million, or $4.48/share. Here is my bespoke NAV calc, listing all properties, lease terms, etc:
Recent developments and worst case
With a market cap around $7 million, the break-even asset value here is about $100 million, while I have calculated $117.5 million as being accurate, if not, conservative.
I thought on this for a while and just can’t get comfortable with their balance sheet and the looming debt/pref equity maturities over the next couple years. In 2 years, slightly over $40 million is due, with 75% of it being pref equity.
Now, pref equity is not debt and there is no recourse (that I’m aware of) which means that they can likely keep kicking the can down the road with these guys, as they have been doing recently. The issue is that the piece from Loci compounds monthly at 18% and just puts them in a death spiral where they are simply a melting ice cube as time goes on. Warren Buffett has a quote about time being the friend of the great business, but the enemy of the bad business….they are certainly in the latter category and time is not their friend here.
In May, they announced a strategic alternatives review after getting some pressure and a lowball offer from an activist:
The Company further announces that its Board of Directors (the "Board") has initiated a review of strategic alternatives for the Company (the "Strategic Review") to identify opportunities to maximize value for the Company’s shareholders. The Strategic Review will be led by a Special Committee of the Board which is comprised solely of independent directors (the "Special Committee").
The Special Committee has determined to initiate the process to review strategic alternatives for the Company following inbound expressions of interest. The Board will consider a broad range of opportunities and evaluate the credibility and viability of those opportunities to maximize shareholder value, and such opportunities may include, but not be limited to, a sale, merger, or other strategic or financial transaction.
Now, it is my opinion that this activist is not credible based on their history with another public REIT, but it seemed like the strategic alts announcement was more to placate shareholders than to actually sell.
The reason I hold that opinion is based on a conversation I had with the founder and CEO of GIPR on 7/31. Suffice it to say it does not seem like they are trying to market themselves for sale in a serious manner, and my impression is that they are more just trying to “buy time” until interest rates drop. IF that happens and rates fall, their problems will essentially disappear as their asset values should rise, cost of capital should fall, and they can likely get rid of the expensive pref equity.
However, that is very speculative and rooted in a deep optimism/hope of that outcome happening, which is outside of everyone’s control. That sounds more like gambling than investing, to me.
A liquidation makes the most sense
The reason I think a liquidation makes sense is because they can immediately begin to shore up their balance sheet and get rid of the pref equity, incrementally. This stops the bleeding and makes it a much more attractive scenario.
Also, their properties are highly fungible and relative to a liquidation of office assets or JC Penneys (I’m well aware of how that plays out) this should be a lot quicker and smoother.
Their shell is also worth something that I have not factored in. If they liquidate property by property, they may also be able to offer a buyer the ability to assume their lower-than-market mortgages, if the lender allows a loan assumption. This would almost certainly put them in a position to command a higher price, all things considered, for those properties.
Summary
My hope is that the board realizes this is a ticking time bomb with their pref equity, before it is too late. An orderly liquidation seems to make the most sense given their situation.
They have great assets, but a horrible capital structure that is self-inflicted. Trying to survive without a major strategic shift makes little sense to me as they are the definition of a melting ice cube and the market is essentially pricing in complete failure.
This one is certainly outside my comfort zone, but might get interesting if a credible activist comes along to try to push them along in the right direction. Due to its size, this is unlikely though!
Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions.