SEC Form 10-Q filed by Generation Income Properties Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The registrant had
GENERATION INCOME PROPERTIES, INC.
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Generation Income Properties, Inc. Consolidated Balance Sheets
(unaudited)
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As of March 31, |
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As of December 31, |
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2024 |
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2023 |
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Assets |
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Investments in real estate |
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Land |
$ |
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$ |
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Building and site improvements |
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Acquired tenant improvements |
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Acquired lease intangible assets |
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Less: accumulated depreciation and amortization |
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( |
) |
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( |
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Net real estate investments |
$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Deferred rent asset |
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Prepaid expenses |
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Prepaid guaranty fees - related party |
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Accounts receivable |
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Escrow deposits and other assets |
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Held for sale assets |
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Right of use asset, net |
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Total Assets |
$ |
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$ |
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Liabilities and Equity |
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Liabilities |
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Accounts payable |
$ |
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$ |
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Accrued expenses |
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Accrued expense - related party |
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Acquired lease intangible liabilities, net |
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Insurance payable |
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Deferred rent liability |
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Lease liability, net |
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Other payable - related party |
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Loan payable - related party |
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Mortgage loans, net of unamortized debt discount of $ |
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Derivative liabilities |
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Total liabilities |
$ |
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$ |
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Redeemable Non-Controlling Interests |
$ |
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$ |
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Preferred Stock - Series A Redeemable Preferred stock, net, |
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$ |
$ |
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$ |
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Stockholders' Equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Total Generation Income Properties, Inc. Stockholders' Equity |
$ |
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$ |
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Non-Controlling Interest |
$ |
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$ |
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Total equity |
$ |
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$ |
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Total Liabilities and Equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Generation Income Properties, Inc. Consolidated Statements of Operations
(unaudited)
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Three Months ended March 31, |
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2024 |
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2023 |
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Revenue |
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Rental income |
$ |
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$ |
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Other income |
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Total revenue |
$ |
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$ |
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Expenses |
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General and administrative expense |
$ |
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$ |
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Building expenses |
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Depreciation and amortization |
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Interest expense, net |
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Compensation costs |
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Total expenses |
$ |
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$ |
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Operating loss |
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( |
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( |
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Other expense |
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( |
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Gain on derivative valuation, net |
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Income on investment in tenancy-in-common |
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Loss on held for sale asset valuation |
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( |
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Net loss |
$ |
( |
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$ |
( |
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Less: Net income attributable to non-controlling interests |
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Net loss attributable to Generation Income Properties, Inc. |
$ |
( |
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$ |
( |
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Less: Preferred stock dividends |
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Net loss attributable to common shareholders |
$ |
( |
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$ |
( |
) |
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Total Weighted Average Shares of Common Stock Outstanding – Basic & Diluted |
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Basic & Diluted Loss Per Share Attributable to Common Stockholders |
$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Generation Income Properties, Inc. Consolidated Statements of Changes in Equity, Redeemable Preferred Stock, and Redeemable Non-Controlling Interests
(unaudited)
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Common Stock |
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Additional |
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Accumulated Deficit |
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Stockholders' Equity |
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Non-Controlling Interests |
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Total Equity |
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Redeemable Preferred Stock |
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Redeemable Non-Controlling Interests |
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Shares |
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Amount |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
- |
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$ |
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Restricted stock unit compensation |
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- |
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- |
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- |
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- |
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Cashless exercise of warrants |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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Issuance of Redeemable Non-Controlling Interests |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Redemption of Redeemable Non-Controlling Interests |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Distribution on Non-Controlling Interests |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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- |
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( |
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Dividends paid on common stock |
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- |
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- |
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( |
) |
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- |
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( |
) |
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- |
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( |
) |
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- |
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- |
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Net (loss) income for the quarter |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
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( |
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- |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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$ |
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$ |
- |
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$ |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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$ |
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$ |
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$ |
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Restricted stock unit compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock issuance costs |
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- |
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- |
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( |
) |
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- |
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( |
) |
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- |
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( |
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- |
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- |
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Cashless exercise of warrants |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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Conversion of preferred stock to Common stock |
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- |
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- |
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( |
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- |
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Distribution on Non-Controlling Interests |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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- |
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( |
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Dividends on preferred stock |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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Dividends paid on common stock |
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- |
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- |
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( |
) |
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- |
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( |
) |
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- |
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( |
) |
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- |
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- |
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Net (loss) income for the period |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Balance, March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Generation Income Properties, Inc. Consolidated Statements of Cash Flows
(unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to cash used in operating activities |
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Depreciation of building and site improvements |
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Amortization of acquired tenant improvements |
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Amortization of in-place leases |
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Amortization of above market leases |
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Amortization of below market leases |
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( |
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( |
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Amortization of above market ground lease |
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( |
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( |
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Amortization of debt issuance costs |
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Restricted stock unit compensation |
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Non-cash ground lease expense |
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Income on investment in tenancy-in-common |
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( |
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Gain on derivative valuation, net |
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( |
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Loss on held for sale asset valuation |
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Changes in operating assets and liabilities |
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Accounts receivable |
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( |
) |
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( |
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Escrow and other assets |
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( |
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Deferred rent asset |
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( |
) |
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Prepaid expenses |
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( |
) |
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( |
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Prepaid guaranty fees - related party |
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( |
) |
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Accounts payable |
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( |
) |
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( |
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Accrued expenses |
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( |
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Lease liability |
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Deferred rent liability |
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( |
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( |
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Net cash provided by (used in) operating activities |
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$ |
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$ |
( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Escrow return for purchase of properties |
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( |
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Net cash used in investing activities |
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$ |
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$ |
( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of redeemable non-controlling interests |
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Redemption of redeemable non-controlling interests |
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( |
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Repayment on other payable - related party |
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( |
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( |
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Mortgage loan repayments |
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( |
) |
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( |
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Equity issuance costs |
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( |
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Insurance financing borrowings |
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Insurance financing repayments |
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( |
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( |
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Distribution on non-controlling interests |
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( |
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( |
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Dividends paid on preferred stock |
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( |
) |
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Dividends paid on common stock |
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( |
) |
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( |
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Net cash used in financing activities |
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$ |
( |
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$ |
( |
) |
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Net decrease in cash and cash equivalents |
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$ |
( |
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$ |
( |
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Cash and cash equivalents and restricted cash - beginning of period |
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Cash and cash equivalents and restricted cash - end of period |
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$ |
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$ |
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CASH TRANSACTIONS |
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Interest paid |
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$ |
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$ |
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NON-CASH TRANSACTIONS |
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Conversion of Preferred Stock into Common Stock |
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$ |
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$ |
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Stock issued for cashless exercise of Investor Warrants |
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$ |
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$ |
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Deferred distribution on redeemable non-controlling interests |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
GENERATION INCOME PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations
Generation Income Properties, Inc. (the “Company”) was formed as a Maryland corporation on
The Company formed Generation Income Properties L.P. (the “Operating Partnership”) in
The Company places each property in a separate entity which may have a Redeemable Non-Controlling interest as a member.
As of March 31, 2024, the Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis owned
Management’s Liquidity Plans and Going Concern
On August 27, 2014, FASB issued ASU 2014-05, Disclosure of Uncertainties about an Entity’s ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern within one year from financial statement issuance and to provide related footnote disclosures in certain circumstances. In accordance with ASU 2014-05, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying Consolidated Financial Statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below.
For the three months ended March 31, 2024, the Company generated positive operating cash flows of $
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the SEC on April 8, 2024. The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024.
The preparation of the consolidated financial statements in conformity with U.S. GAAP. The Company adopted the calendar year as its basis of reporting. Certain immaterial prior year amounts have been reclassified for consistency with the current period presentation.
7
Consolidation
The accompanying consolidated financial statements include the accounts of Generation Income Properties, Inc. and the Operating Partnership and all of the direct and indirect wholly-owned subsidiaries of the Operating Partnership and the Company’s subsidiaries. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.
The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interests or redeemable non-controlling interest. Non-controlling interests are adjusted each period for additional contributions, distributions, and the allocation of net income or loss attributable to the non-controlling interests. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income or loss.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of commitments and contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change significantly if economic conditions were to weaken.
8
Cash
The Company considers all demand deposits, cashier’s checks and money market accounts to be cash equivalents. Amounts included in restricted cash represent funds owned by the Company related to tenant escrow reimbursements and immediate capital repair reserve.
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As of March 31, |
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As of December 31, |
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2024 |
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2023 |
|
||
Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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Cash and cash equivalents and restricted cash |
$ |
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$ |
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Revenue Recognition
The Company leases real estate to its tenants under long-term net leases which the Company accounts for as operating leases. Those leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. In addition to straight-line rents, deferred rent liability includes $
The Company reviews the collectability of charges under its tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. In the event that uncollectability exists with respect to any tenant changes, the Company would recognize an adjustment to Rental income. The Company’s review of collectability of charges under its operating leases includes any accrued rental revenues related to the straight-line rents. There were no allowances for receivables recorded during three months ended March 31, 2024 or 2023.
The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”), insurance, real estate taxes and other operating expenses (“recoverable costs”). A portion of our operating cost reimbursement revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued.
The Company often recognizes above- and below-market lease intangibles in connection with acquisitions of real estate. The capitalized above- and below-market lease intangibles are amortized to rental income over the remaining term of the related leases.
Stock-Based Compensation
The Company records all equity-based incentive grants to employees and non-employee members of the Company’s Board of Directors in compensation costs based on their fair values on the date of grant. Stock-based compensation expense, reduced for estimated forfeitures, is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the outstanding equity awards.
Investments in Real Estate
Acquisitions of real estate are recorded at cost. The Company assigns the purchase price of real estate to tangible and intangible assets and liabilities based on fair value. Tangible assets consist of land, buildings, site improvements, and tenant improvements. Intangible assets and liabilities consist of the value of in-place leases and above- or below- market leases assumed with the acquisition. At the time of acquisition, the Company assesses whether the purchase of the real estate falls within the definition of a business under Accounting Standards Codification (“ASC”) 805 and to date has concluded that all asset transactions are asset acquisitions. Therefore, each acquisition has been recorded at the purchase price whereas assets and liabilities, inclusive of closing costs, are allocated to land, building, site improvements, tenant improvements, and intangible assets and liabilities based upon their relative fair values at the date of acquisition.
The fair value of the in-place leases are estimated as the cost to replace the leases including loss of rent, commissions and legal fees. The in-place leases are amortized over the remaining team of the leases as amortization expense. The fair value of the above- or below-market lease is estimated as the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and the estimated current market lease rate expected over the remaining non-cancelable life of the lease. The capitalized above- or below-market lease values are amortized as a decrease or increase to rental income over the remaining term of the lease inclusive of the renewal option periods that are considered probable at acquisition.
Depreciation Expense
Real estate and related assets are stated net of accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary
9
maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of the buildings, which are generally between
Lease Liabilities
The Company has a certain property within its portfolio that is on land subject to a ground lease with a third party, which is classified as an operating lease. Accordingly, the Company owns only a long-term leasehold in this property. The building and improvements constructed on the leased land are capitalized as investment in real estate and are depreciated over the shorter of the useful life of the improvements or the lease term.
Under ASC 842, the Company recognizes a lease liability for its ground lease and corresponding right of use asset related to this same ground lease which is classified as an operating lease. A key input in estimating the lease liability and resulting right of use asset is establishing the discount rate in the lease, which since the rate implicit in the contract is not readily determinable, requires additional inputs for the longer-term ground lease, including mortgage market-based interest rates that correspond with the remaining term of the lease, the Company's credit spread, and the payment terms present in the lease. This discount rate is applied to the remaining unpaid minimum rental payments for the lease to measure the lease liability.
Impairments
The Company reviews investments in real estate and related lease intangibles for possible impairment when certain events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable though operations plus estimated disposition proceeds. Events or changes in circumstances that may occur include, but are not limited to, significant changes in real estate market conditions, estimated residual values, and an expectation to sell assets before the end of the previously estimated life. Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale. An impairment loss of approximately $
The valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis, analysis of recent comparable sales transactions, and purchase offers received from third parties, which are Level 3 inputs. The Company may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate. Estimating future cash flows is highly subjective and estimates can differ materially from actual results.
Real Estate Held for Sale
The Company executed a contract to sell the property located at 15091 SW Alabama, Huntsville, AL for $
Income Taxes
The Company elected to be taxed as a real estate investment trust (“REIT”) under Section 856 through 860 of the Internal Revenue Code, commencing with our taxable year ending December 31, 2021. To continue to qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its taxable income to its stockholders. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable
10
income that is currently distributed to stockholders. Accordingly, the only provision for federal income taxes in the accompanying consolidated financial statements relates to the Company's consolidated taxable REIT subsidiary of which no income was generated during the three months ended March 31, 2024 and 2023.
The Company also recognizes liabilities for unrecognized tax benefits which are recognized if the weight of available evidence indicates that it is not more-likely-than-not that the positions will be sustained on examination, including resolution of the related processes, if any. As of each balance sheet date, unrecognized benefits are reassessed and adjusted if the Company’s judgment changes as a result of new information.
Earnings per Share
In accordance with ASC 260, basic earnings (loss) per share (“EPS”) is computed by dividing net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury stock method, and convertible debt, using the if-converted method. Diluted EPS excludes all potentially dilutive securities such as warrants and convertible membership units of the Operating Partnership (“GIP LP Units”) if their effect is anti-dilutive. As of the three months ended March 31, 2024 and 2023, all potentially dilutive securities were excluded because the effect was anti-dilutive.
Derivative Financial Instruments
Derivatives are recorded at fair value on the balance sheet as assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to estimates that may change in the future.
Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from independent sources (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the Company's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The three levels of inputs used to measure fair value are as follows:
Note 3 – Acquired Lease Intangible Assets, net
In-place leases, net is comprised of the following:
|
As of March 31, |
|
|
As of December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
In-place leases |
$ |
|
|
$ |
|
||
Accumulated amortization |
|
( |
) |
|
|
( |
) |
In-place leases, net |
$ |
|
|
$ |
|
||
11
The amortization for in-place leases for the three months ended March 31, 2024 and
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
|
$ |
|
|
Above-market leases, net is comprised of the following:
|
As of March 31, |
|
|
As of December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Above-market leases |
$ |
|
|
$ |
|
||
Accumulated amortization |
|
( |
) |
|
|
( |
) |
Above-market leases, net |
$ |
|
|
$ |
|
||
The amortization for above-market leases for the three months ended March 31, 2024 and 2023 was $
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
|
$ |
|
|
Note 4 – Acquired lease intangible liabilities, net
Acquired lease intangible liabilities, net is comprised of the following:
|
As of March 31, |
|
|
As of December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Acquired lessor lease intangible liabilities |
$ |
|
|
$ |
|
||
Accumulated accretion to rental income |
|
( |
) |
|
|
( |
) |
Acquired lessor lease intangible liabilities, net |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Acquired lessee lease intangible liabilities |
$ |
|
|
$ |
|
||
Accumulated amortization to offset building expenses |
|
( |
) |
|
|
( |
) |
Acquired lessee lease intangible liabilities, net |
$ |
|
|
$ |
|
||
The amortization for acquired lessor lease intangible liabilities for the three months ended March 31, 2024 and 2023 was $
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
|
$ |
|
|
12
The amortization for acquired lessee lease intangible liabilities for the three months ended March 31, 2024 and 2023 was $
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
|
$ |
|
|
Note 5 – Leases
Lessor Accounting
All of the Company's leases are classified as operating leases. The Company's rental income is comprised of both fixed and variable income. Fixed and in-substance fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent. The Company’s leases also provide for reimbursement from recoverable costs. A portion of our operating cost reimbursement revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued. Income for these amounts is recognized on a straight-line basis. Variable lease income includes the tenants' contractual obligations to reimburse the Company for their portion of recoverable costs incurred.
|
2024 |
|
|
2023 |
|
||
Rental income |
|
|
|
|
|
||
Fixed and in-substance fixed lease income |
$ |
|
|
$ |
|
||
Variable lease income |
|
|
|
|
|
||
Other related lease income, net: |
|
|
|
|
|
||
Amortization of above- and below-market leases, net |
|
( |
) |
|
|
|
|
Straight line rent revenue |
|
|
|
|
|
||
Total rental income |
$ |
|
|
$ |
|
||
For the three months ended March 31, 2024 and 2023, we had
|
2024 |
|
|
2023 |
|
||
General Services Administration - Norfolk, VA, Manteo, NC & Vacaville, CA |
|
% |
|
|
% |
||
Pre-K - San Antonio, TX |
|
% |
|
N/A |
|
||
Dollar General - multiple locations |
|
% |
|
N/A |
|
||
PRA Holdings, Inc. - Norfolk, VA |
< |
|
|
|
% |
||
Pratt & Whitney Automation, Inc. - Huntsville, AL |
< |
|
|
|
% |
||
Kohl's Corporation - Tucson, AZ |
< |
|
|
|
% |
||
The following table presents future minimum rental cash payments due to the Company over the next five calendar years and thereafter as of December 31:
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
$ |
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
|
$ |
|
|
On March 29, 2024, the
Lessee Accounting
13
The Company acquired
The following table summarizes the undiscounted future cash flows for subsequent years ending December 31 attributable to the lease liability as of March 31, 2024 and provides a reconciliation to the lease liability included in the accompanying Consolidated Balance Sheets as of March 31, 2024.
|
As of March 31, |
|
|
|
2024 |
|
|
2024 (9 months remaining) |
|
|
|
2025 |
|
|
|
2026 |
|
|
|
2027 |
|
|
|
2028 |
|
|
|
Thereafter |
|
|
|
Total undiscounted liability |
$ |
|
|
Present value discount |
|
( |
) |
Lease liability |
$ |
|
|
Discount rate |
|
% |
|
Term Remaining |
|
||
Note 6 – Non-Controlling Interests
Redeemable Non-Controlling Interests (Temporary Equity)
Operating Unit Holders
LMB Owenton I LLC
As part of the Company’s acquisition of
Norfolk, VA Partnership
As part of the Company’s acquisition of
14
received notice from another Operating Partnership common unit holder to redeem
Preferred Equity Partners
Brown Family Trust and Brown Family Enterprises, LLC
As part of the Company’s acquisition of a property for approximately $
On February 8, 2023, the Operating Partnership entered into new Amended and Restated Limited Liability Company Agreements for the Norfolk, Virginia properties, GIPVA 2510 Walmer Ave, LLC ("GIPVA 2510") and GIPVA 130 Corporate Blvd, LLC ("GIPVA 130"), in which the Operating Partnership, as the sole member of GIPVA 2510 and GIPVA 130, admitted a new preferred member, Brown Family Enterprises, LLC, through the issuance of preferred membership interests in the form of Class A Preferred Units of GIPVA 2510 and GIPVA 130. GIPVA 2510 and GIPVA 130 (the “Virginia SPEs”) hold the Company’s Norfolk, Virginia properties. In addition, both of the Virginia SPEs and Brown Family Enterprises, LLC entered into Unit Purchase Agreements in which GIPVA 2510 issued and sold
Irby Prop Partners
As part of the Company’s acquisition of a property for approximately $
15
Richard Hornstrom
As part of the Company’s investment in a tenancy-in-common for approximately $
LC2-NNN Pref, LLC
In connection with the acquisition of the Modiv Portfolio, the Operating Partnership and LC2 entered into an Amended and Restated Limited Liability Company Agreement for GIP SPE (the “GIP SPE Operating Agreement”) pursuant to which LC2 made a $
The Preferred Interest is required to be redeemed in full by the Company on or before August 10, 2025 for a redemption amount equal to the greater of (i) the amount of the LC2 Investment plus the accrued preferred return, and (ii) the Make-Whole Amount. Upon a failure to timely redeem the Preferred Interest, the preferred return will accrue at an increased rate of 18% per annum, compounded monthly.
Under the GIP SPE Operating Agreement, GIP SPE is also required to pay to Loci Capital, an affiliate of LC2, an equity fee of 1.5% of the LC2 Investment, with 1% having been paid upon the execution and delivery of the GIP SPE Operating Agreement and the
Due to the redemption right, the Preferred Interest is presented as temporary equity at redemption value of $
Each of the preferred members described above may redeem their interest on or after the Redemption date (second year anniversary of the closing of the acquisition), at the discretion of such preferred member, as applicable, all or a portion thereof, of such preferred member’s pro-rata share of the redemption value in the form of the units of the Operating Partnership ("GIP LP Units"). Such GIP LP Units shall be subject to all such restrictions, such as with respect to transferability, as reasonably imposed by the Operating Partnership. The number of GIP LP Units issued to any preferred member shall be determined by dividing the total amount of the redemption value that such preferred member shall receive in GIP LP Units by a
Non-Controlling Interest (Permanent Equity)
16
As part of the Company’s acquisition of
Following these transactions as of March 31, 2024, the Company owned
|
Brown Family Trust and Brown Family Enterprises, LLC |
|
Irby Prop Partners |
|
Richard Hornstrom |
|
LMB Owenton I LLC |
|
GIP LP (Former Greenwal, L.C. and Riverside Crossing, L.C. Members) |
|
LC2-NNN Pref, LLC |
|
Total Redeemable Non-Controlling Interests |
|
Non-Controlling Interests - Former GIP Fund 1 Members |
|
||||||||
Balance, December 31, 2022 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
- |
|
$ |
|
$ |
|
|||||||
Issuance of Redeemable Non-Controlling Interests |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|||||||
Redemption of Redeemable Non-Controlling Interests |
|
|
|
|
|
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
|
|
||||
Distribution on Non-Controlling Interests |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
|
- |
|
|
( |
) |
|
( |
) |
Net income (loss) for the quarter |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
( |
) |
||||||
Balance, March 31, 2023 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
- |
|
$ |
|
$ |
|
|||||||
Balance, December 31, 2023 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Distribution on Non-Controlling Interests |
|
( |
) |
|
|
|
|
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
||
Net income (loss) for the quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||||
Balance, Match 31, 2024 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Note 7 – Equity
Authorized Equity
The Company is authorized to issue up to
Issuance of Equity Securities
For the three months ended March 31, 2024, the Company recorded approximately $
In January 2024, the Company declared and paid final preferred stock dividends of $95,000 to holders of its Series A Preferred Stock shares. In January 2024, the Company also paid another $95,000 dividend declared in December 2023 and accrued as of December 31, 2023.
Warrants
Private Placement Warrants
17
On April 25, 2019, the Company raised $
On November 13, 2020, the Company raised $
Investor Warrants
On September 8, 2021, the Company issued and sold, in an underwritten public offering (the “Public Offering”),
Investor Warrants may be exercised on a cashless basis if there is no effective registration statement available for the resale of the shares of common stock underlying such warrants. In addition, after
Representative Warrants
In addition, the Company issued to Maxim Group LLC (or its designee) warrants to purchase an aggregate of 149,850 shares of common stock, which is equal to an aggregate of 9% of the number of shares of common stock sold in the Public Offering (the “Representative’s Warrants”). The Representative’s Warrants have an exercise price equal to $12.50, may be exercised on a cashless basis and became exercisable six months following the closing date and until September 2, 2026.
The Company has
|
As of March 31, |
|
|
Issue Date |
2024 |
|
|
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
|
|
|
Warrants |
|
|
Weighted Average Price |
|
|
Weighted Average Remaining Life |
|
|||
As of December 31, 2023 |
|
|
|
$ |
|
|
|
|
|||
Exercised |
|
( |
) |
|
|
|
|
|
|
||
As of March 31, 2024 |
|
|
|
$ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Warrants exercisable |
|
|
|
$ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Warrants |
|
|
Weighted Average Price |
|
|
Weighted Average Remaining Life |
|
|||
As of December 31, 2022 |
|
|
|
$ |
|
|
|
|
|||
Exercised |
|
( |
) |
|
|
|
|
|
|
||
As of March 31, 2023 |
|
|
|
$ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Warrants exercisable |
|
|
|
$ |
|
|
|
|
|||
18
Stock Compensation
Generation Income Properties, Inc. 2020 Omnibus Incentive Plan
In connection with the Public Offering, the Company's Board of Directors adopted and stockholders approved, the Generation Income Properties, Inc. 2020 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), which became effective upon the completion of the Public Offering. The Omnibus Incentive Plan reserves
Restricted Common Shares issued to the Board and Employees
The following is a summary of restricted shares for the three months ended March 31, 2024 and 2023:
|
2024 |
|
|
2023 |
|
||
Number of Shares Outstanding at beginning of period |
|
|
|
|
|
||
Restricted Shares Issued |
|
|
|
|
|
||
Restricted Shares Vested |
|
( |
) |
|
|
( |
) |
Number of Shares Outstanding at end of period |
|
|
|
|
|
||
The Company recorded stock based compensation expense of $
Cash Distributions
While the Company is under no obligation to do so, the Company expects to continue to declare and pay distributions to its common stockholders and Operating Partnership unit holders for the foreseeable future. The issuance of a distribution will be determined by the Company's board of directors based on the Company's financial condition and such other factors as the Company's board of directors deems relevant. The Company has not established a minimum distribution, and the Company's charter does not require that the Company issue distributions to its stockholders other than as necessary to meet REIT qualification standards.
The following is a summary of monthly distributions to common stockholders and Operating Partnership unit holders:
Authorized Date |
Record Date |
|
Per Share/Unit |
|
|
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
|
$ |
|
|||
19
Note 8 – Mortgage Loans
The Company had the following mortgage loans outstanding as of March 31, 2024 and December 31, 2023, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Occupying Tenant |
|
Location |
Original Loan Amount |
|
|
Interest Rate |
|
Maturity Date |
3/31/2024 |
|
12/31/2023 |
|
Debt Service Coverage Ratios ("DSCR") Required |
|||
7-Eleven Corporation & Starbucks Corporation |
|
Washington, D.C., Tampa, FL, and Huntsville, AL |
$ |
|
(a) |
|
$ |
|
$ |
|
||||||
General Services Administration-Navy & Vacant Unit |
|
Norfolk, VA |
|
|
|
|
|
|
|
|
||||||
PRA Holdings, Inc. |
|
Norfolk, VA |
|
|
|
|
|
|
|
|
||||||
Sherwin Williams Company |
|
Tampa, FL |
|
|
|
(b) |
|
|
|
|
||||||
General Services Administration-FBI |
|
Manteo, NC |
|
|
(c) |
(d) |
|
|
|
|
||||||
Irby Construction |
|
Plant City , FL |
|
|
(c) |
(d) |
|
|
|
|
||||||
La-Z-Boy Inc. |
|
Rockford, IL |
|
|
|
(d) |
|
|
|
|
||||||
Best Buy Co., Inc. |
|
Grand Junction, CO |
|
|
(c) |
(d) |
|
|
|
|
||||||
Fresenius Medical Care Holdings, Inc. |
|
Chicago, IL |
|
|
(c) |
(d) |
|
|
|
|
||||||
Starbucks Corporation |
|
Tampa, FL |
|
|
(c) |
(d) |
|
|
|
|
||||||
Kohl's Corporation |
|
Tucson, AZ |
|
|
(c) |
(d) |
|
|
|
|
||||||
City of San Antonio (PreK) |
|
San Antonio, TX |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General Market |
|
Bakersfield, CA |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Big Spring, TX |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Castalia, OH |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
East Wilton, ME |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Lakeside, OH |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Litchfield, ME |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Mount Gilead, OH |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar General |
|
Thompsontown, PA |
|
|
(e) |
(b) |
|
|
|
|
||||||
Dollar Tree Stores, Inc. |
|
Morrow, GA |
|
|
(e) |
(b) |
|
|
|
|
||||||
exp U.S. Services Inc. |
|
Maitland, FL |
|
|
(e) |
(b) |
|
|
|
|
||||||
General Services Administration |
|
Vacaville, CA |
|
|
(e) |
(b) |
|
|
|
|
||||||
Walgreens |
|
Santa Maria, CA |
|
|
(e) |
(b) |
|
|
|
|
||||||
|
|
|
$ |
|
|
|
|
|
$ |
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
Less Debt Discount, net |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Less Debt Issuance Costs, net |
$ |
( |
) |
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||||||||
(a) Loan subject to prepayment penalty
(b) Fixed via interest rate swap
(c) One loan in the amount of $
(d) Adjustment effective April 1, 2027 equal to 5-year Treasury plus
(e) One loan in the amount of $21.0 million secured by 13 properties and allocated to each property based on each property's appraised value.
20
The Company amortized debt issuance costs and debt discount during the three months ended March 31, 2024 and 2023 to interest expense of approximately $
Each mortgage loan requires the Company to maintain certain debt service coverage ratios as noted above. In addition,
On April 1, 2022, the Company entered into two mortgage loan agreements with an aggregate balance of $
On August 10, 2023, GIP13, LLC, a Delaware limited liability company and wholly owned subsidiary of GIP SPE ("GIP Borrower"), entered into a Loan Agreement with Valley pursuant to which Valley made a loan to the Company in the amount of $
The Company’s President and CEO also has personally guaranteed the repayment of the $
On August 9, 2022 the Company and Operating Partnership entered a Redemption Agreement with a unit holder. As such, the Company recorded an Other payable - related party in the amount of $
On October 14, 2022, the Company entered into a loan transaction that is evidenced by a secured non-convertible promissory note to Brown Family Enterprises, LLC, a preferred equity partner and therefore a related party, for $
21
2024, and bears a fixed interest rate of
Minimum required principal payments on the Company’s debt for subsequent years ending December 31 are as follows:
|
Mortgage Loans |
|
|
Other Payable - Related Party |
|
|
Loan Payable - Related Party |
|
Total as of March 31, 2024 |
|
||||
2024 (9 months remaining) |
|
|
|
|
|
|
|
|
|
|
||||
2025 |
|
|
|
|
|
|
|
|
|
|
||||
2026 |
|
|
|
|
|
|
|
|
|
|
||||
2027 |
|
|
|
|
|
|
|
|
|
|
||||
2028 |
|
|
|
|
|
|
|
|
|
|
||||
Thereafter |
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
||||
Note 9 – Related Party
As disclosed previously, on August 9, 2022 the Company and Operating Partnership entered a Redemption Agreement with a unit holder. As such, the Company recorded an other payable - related party in the amount of $
As disclosed previously, on October 14, 2022, the Company entered into a loan transaction that is evidenced by a secured non-convertible promissory note to Brown Family Enterprises, LLC, a preferred equity partner and therefore a related party, for $
On November 30, 2020, the Company acquired an approximately
During the three months ended March 31, 2024 and 2023 the Company incurred a guaranty fee expense to the Company's CEO of $
Note 10 – Derivative Financial Instruments and Fair Value Measurements
On August 10, 2023, as previously disclosed, the Company entered into a loan agreement for $
In November 2020, the Company entered into a $
22
The Company has not elected hedge accounting and has reported periodic changes in derivative valuations in Gain on derivative valuation, net for $
The fair value of the Company's interest rate derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. All inputs are considered Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts and estimated fair values of our financial instruments are as follows:
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
||||
Note 11 – Subsequent Events
On April 4, 2024 and May 3, 2024, we announced that our Board of Directors authorized a distribution of $
Subsequent to March 31, 2024 but before the filing of this Quarterly Report on Form 10-Q,
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward‑Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained herein. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. Readers should be aware of important factors that, in some cases, have affected, and in the future could affect, actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds derived from operations, cash available for distribution, cash flows, liquidity and prospects include, but are not limited to, the risk factors listed from time to time in our reports with the Securities and Exchange Commission, including, in particular, those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
In this Quarterly Report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or similar terms refer to Generation Income Properties, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Generation Income Properties, L.P., a Delaware limited partnership, which we refer to as our operating partnership (the “Operating Partnership”). As used in this Quarterly Report, an affiliate, or person affiliated with a specified person, is a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
Overview
We are an internally managed, Maryland corporation focused on acquiring retail, office and industrial real estate located in major U.S. markets. We initiated operations during the year ended December 31, 2015 and have elected to be taxed as a REIT for federal income
23
tax purposes commencing with our taxable year ending December 31, 2021. Substantially all of the Company’s assets are held by, and operations are conducted through, the Operating Partnership and the Operating Partnership’s direct and indirect subsidiaries. The Company is the general partner of the Operating Partnership and as of March 31, 2024 owned 95.3% of the outstanding common units of the Operating Partnership. The Company formed a Maryland entity GIP REIT OP Limited LLC in 2018 that owns 0.001% of the Operating Partnership.
Public Offering and Nasdaq Listing
In September 2021, the Company closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $10 per share. The common stock and warrants included in the units (which were separated into one share of common stock and one warrant) currently trade on the Nasdaq Capital Market (“Nasdaq”) under the symbols “GIPR” and “GIPRW,” respectively.
Our Investments
The following are characteristics of our properties as of March 31, 2024:
Given the nature of our leases, our tenants either pay the realty taxes directly or reimburse us for such costs. We believe all of our properties are adequately covered by insurance.
The table below presents an overview of the properties in our portfolio as of March 31, 2024:
24
Property Type |
Location |
Rentable Square Feet |
|
Tenant |
S&P Credit Rating (1) |
Remaining Term (Yrs) |
|
Options (Number x Yrs) |
Contractual Rent Escalations (5) |
ABR (2) |
|
ABR per Sq. Ft. |
|
||||
Retail |
Washington, D.C. |
|
3,000 |
|
7-Eleven Corporation |
A |
|
2.0 |
|
2 x 5 |
Yes |
$ |
129,804 |
|
$ |
43.27 |
|
Retail |
Tampa, FL |
|
2,200 |
|
Starbucks Corporation |
BBB+ |
|
3.9 |
|
4 x 5 |
Yes |
$ |
200,750 |
|
$ |
91.25 |
|
Industrial |
Huntsville, AL |
|
59,091 |
|
VACANT (4) |
N/A |
|
- |
|
N/A |
N/A |
$ |
- |
|
$ |
- |
|
Office |
Norfolk, VA |
|
49,902 |
|
General Services Administration-Navy(7) |
AA+ |
|
4.5 |
|
N/A |
Yes |
$ |
926,923 |
|
$ |
18.57 |
|
Office |
Norfolk, VA |
|
22,247 |
|
VACANT(7) |
N/A |
|
- |
|
N/A |
N/A |
$ |
- |
|
$ |
- |
|
Office |
Norfolk, VA |
|
34,847 |
|
PRA Holdings, Inc. (3) |
BB+ |
|
3.4 |
|
1 x 5 |
Yes |
$ |
765,136 |
|
$ |
21.96 |
|
Retail |
Tampa, FL |
|
3,500 |
|
Sherwin Williams Company |
BBB |
|
4.3 |
|
5 x 5 |
Yes |
$ |
126,788 |
|
$ |
36.23 |
|
Office |
Manteo, NC |
|
7,543 |
|
General Services Administration-FBI |
AA+ |
|
4.9 |
|
1 x 5 |
Yes |
$ |
161,346 |
|
$ |
21.39 |
|
Office |
Plant City, FL |
|
7,826 |
|
Irby Construction |
BBB- |
|
0.8 |
|
2 x 5 |
Yes |
$ |
170,865 |
|
$ |
21.83 |
|
Retail |
Grand Junction, CO |
|
30,701 |
|
Best Buy Co., Inc. |
BBB+ |
|
3.0 |
|
1 x 5 |
Yes |
$ |
353,061 |
|
$ |
11.50 |
|
Medical-Retail |
Chicago, IL |
|
10,947 |
|
Fresenius Medical Care Holdings, Inc. |
BBB |
|
2.6 |
|
2 x 5 |
Yes |
$ |
228,902 |
|
$ |
20.91 |
|
Retail |
Tampa, FL |
|
2,642 |
|
Starbucks Corporation |
BBB+ |
|
2.9 |
|
2 x 5 |
Yes |
$ |
148,216 |
|
$ |
56.10 |
|
Retail |
Tucson, AZ |
|
88,408 |
|
Kohl's Corporation |
BB |
|
5.8 |
|
7 x 5 |
Yes |
$ |
823,962 |
|
$ |
9.32 |
|
Retail |
San Antonio, TX |
|
50,000 |
|
City of San Antonio (PreK) |
AAA |
|
5.3 |
|
1 x 8 |
Yes |
$ |
924,000 |
|
$ |
18.48 |
|
Retail |
Bakersfield, CA |
|
18,827 |
|
Dollar General Market |
BBB |
|
4.3 |
|
3 x 5 |
Yes |
$ |
361,075 |
|
$ |
19.18 |
|
Retail |
Big Spring, TX |
|
9,026 |
|
Dollar General |
BBB |
|
6.3 |
|
3 x 5 |
Yes |
$ |
86,040 |
|
$ |
9.53 |
|
Retail |
Castalia, OH |
|
9,026 |
|
Dollar General |
BBB |
|
11.2 |
|
3 x 5 |
Yes |
$ |
79,320 |
|
$ |
8.79 |
|
Retail |
East Wilton, ME |
|
9,100 |
|
Dollar General |
BBB |
|
6.3 |
|
3 x 5 |
Yes |
$ |
112,440 |
|
$ |
12.36 |
|
Retail |
Lakeside, OH |
|
9,026 |
|
Dollar General |
BBB |
|
11.2 |
|
3 x 5 |
Yes |
$ |
81,036 |
|
$ |
8.98 |
|
Retail |
Litchfield, ME |
|
9,026 |
|
Dollar General |
BBB |
|
6.5 |
|
3 x 5 |
Yes |
$ |
92,964 |
|
$ |
10.30 |
|
Retail |
Mount Gilead, OH |
|
9,026 |
|
Dollar General |
BBB |
|
6.3 |
|
3 x 5 |
Yes |
$ |
85,920 |
|
$ |
9.52 |
|
Retail |
Thompsontown, PA |
|
9,100 |
|
Dollar General |
BBB |
|
6.6 |
|
3 x 5 |
Yes |
$ |
86,004 |
|
$ |
9.45 |
|
Retail |
Morrow, GA |
|
10,906 |
|
Dollar Tree Stores, Inc. |
BBB |
|
1.3 |
|
3 x 5 |
Yes |
$ |
103,607 |
|
$ |
9.50 |
|
Office |
Maitland, FL |
|
33,118 |
|
exp U.S. Services Inc. |
Not Rated |
|
2.7 |
|
1 x 5 |
Yes |
$ |
835,346 |
|
$ |
25.22 |
|
Office |
Vacaville, CA |
|
11,014 |
|
General Services Administration |
AA+ |
|
2.4 |
|
N/A |
No |
$ |
343,665 |
|
$ |
31.20 |
|
Retail |
Santa Maria, CA |
|
14,490 |
|
Walgreens (6) |
BBB |
|
8.0 |
|
N/A |
No |
$ |
369,000 |
|
$ |
25.47 |
|
Retail |
Rockford, IL |
|
15,288 |
|
La-Z-Boy Inc. |
Not Rated |
|
3.6 |
|
4 x 5 |
Yes |
$ |
366,600 |
|
$ |
23.98 |
|
Tenants - All Properties |
|
|
539,827 |
|
|
|
|
|
|
|
$ |
7,962,770 |
|
$ |
14.75 |
|
|
Distributions
From inception through March 31, 2024, we have distributed $4,397,141 to common stockholders.
Recent Developments
On April 4, 2024, we announced that our Board of Directors authorized a distribution of $0.039 per share monthly cash distribution for shareholders of record of our common stock as of April 15, 2024. April distributions were paid on May 1, 2024 and we anticipate May distributions to be paid on or around May 31, 2024. The Operating Partnership common unit holders receive the same distribution.
Results of Operations
Operating results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023:
Revenue
During the three months ended March 31, 2024, total revenue from operations was 2,433,173 as compared to $1,337,039 for the three months ended March 31, 2023. Revenue increased by $1,096,134 during the three months ended March 31, 2024 compared with the three months ended March 31, 2023 driven by the integration of the acquired 13 property portfolio from Modiv.
Operating Expenses
25
During the three months ended March 31, 2024, we incurred total operating expenses of $3,633,825 as compared to $2,035,794 for the three months ended March 31, 2023. Operating expenses increased by $1,598,031 as follows:
|
Three months ended March 31, |
|
|
|
|||||
|
2024 |
|
2023 |
|
Change |
|
|||
General and administrative expense |
$ |
449,797 |
|
$ |
344,147 |
|
$ |
105,650 |
|
Building expenses |
|
654,667 |
|
|
313,600 |
|
|
341,067 |
|
Depreciation and amortization |
|
1,226,605 |
|
|
557,550 |
|
|
669,055 |
|
Interest expense, net |
|
1,020,741 |
|
|
469,210 |
|
|
551,531 |
|
Compensation costs |
|
282,015 |
|
|
351,287 |
|
|
(69,272 |
) |
Total expenses |
$ |
3,633,825 |
|
$ |
2,035,794 |
|
$ |
1,598,031 |
|
Net loss
During the three months ended March 31, 2024 and 2023, we generated a net loss of $1,879,096 and $1,190,353, respectively.
Other expense
During the three months ended March 31, 2024 and 2023, we accrued $0 and $506,000 relating to the potential reimbursement of federal, state and local income taxes incurred by a remaining partner in one of our partnerships pursuant to a tax protection agreement.
Net income attributable to non-controlling interests
During the three months ended March 31, 2024 and 2023, net income attributable to non-controlling interest was $946,124 and $127,214, respectively. The variance is attributable to additional redeemable non-controlling interests established during the second half of fiscal year 2023 to facilitate acquisitions, namely the acquisition of the 13 property Modiv portfolio in August 2023.
Net loss attributable to common shareholders
During the three months ended March 31, 2024 and 2023, we generated a net loss attributable to our shareholders of $2,920,220 and $1,317,567, respectively.
Liquidity and Capital Resources
We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from offerings of our equity securities, cash flow from operations and borrowings under credit facilities. As of March 31, 2024, we had total cash (unrestricted and restricted) of $1,690,320, properties with a gross cost basis of $96,539,788 and outstanding mortgage loans with a principal balance of $57,823,894.
In September 2021, we closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020.
On April 1, 2022, we entered into two mortgage loan agreements with an aggregate balance of $13.5 million to refinance seven of our properties. The loan agreements consist of one loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value, and one loan in the amount of $2.1 million on the property previously held in the
26
tenancy-in-common investment at an interest rate of 3.85% from April 1, 2022 through and until March 31, 2027. In conjunction with the LC2 Investment to purchase the remaining interest in the tenancy-in-common interest discussed above, the Company assumed the original $2.1 million loan on the property with a remaining balance of $2,079,178 and recognized a discount of $383,767. Effective April 1, 2027 and through the maturity date of March 31, 2032, the interest rate adjusts to the 5-year Treasury plus 2.5% and is subject to a floor of 3.85%. Our CEO entered into a guarantee agreement pursuant to which he guaranteed the payment obligations under the promissory notes if they become due as a result of certain “bad-boy” provisions, individually and on behalf of the Operating Partnership.
On August 10, 2023, GIP13, LLC, a Delaware limited liability company and wholly owned subsidiary of GIP SPE ("GIP Borrower"), entered into a Loan Agreement with Valley pursuant to which Valley made a loan to the Company in the amount of $21.0 million to finance the acquisition of the Modiv Portfolio. The outstanding principal amount of the loan bears interest at an annual rate for each 30-day interest period equal to the compounded average of the secured overnight financing rate published by Federal Reserve Bank of New York for the thirty-day period prior to the last day of each 30-day interest rate for the applicable interest rate period plus 3.25%, with interest payable monthly after each 30-day interest period. However, the Company entered into an interest rate swap to fix the interest rate at 7.47% per annum. Payments of interest and principal in the amount of approximately $156,000 are due and payable monthly, with all remaining principal and accrued but unpaid interest due and payable on a maturity date of August 10, 2028. The loan may generally be prepaid at any time without penalty in whole or in part, provided that there is no return of loan fees and prepaid financing fees. The loan is secured by first mortgages and assignments of rents in the properties comprising the Modiv Portfolio and eight other properties held by subsidiaries of GIP SPE that had outstanding loans with Valley. All of the mortgaged properties cross collateralize the loan, and the loan is guaranteed by the Operating Partnership and the subsidiaries of the Company that hold the properties that comprise the Modiv Portfolio. The loan agreement also provides for customary events of default and other customary affirmative and negative covenants that are applicable to GIP Borrower and its subsidiaries, including reporting covenants and restrictions on investments, additional indebtedness, liens, sales of properties, certain mergers, and certain management changes. The Company's President and CEO also entered into a personal, full recourse guarantee with a $7,500,000 cap.
Our President and CEO has also personally guaranteed the repayment of the $10.7 million due under the 7-11 - Washington, DC; Starbucks - South Tampa, FL; and vacant - Huntsville, AL loan as well as the $1.3 million loan secured by the Company's Sherwin-Williams - Tampa, FL property. In addition, our President and CEO has also provided a guaranty of the Company’s nonrecourse carveout liabilities and obligations in favor of the lender for the GSA and PRA Holdings, Inc. - Norfolk, VA mortgage loans ("Bayport loans") with an aggregate principal amount of $11.8 million.
During the three months ended March 31, 2024, we incurred a guaranty fee expense to our President and CEO of $97,898 recorded to interest expense. A guaranty fee expense of $60,493 incurred during the three months ended March 31, 2023.
On August 9, 2022, we entered a Redemption Agreement with a unit holder. As such, we recorded an other payable - related party in the amount of $2,912,300 upon execution of the Redemption Agreement entered into July 20, 2022 and has since made installment payments of $1,554,920 to date with a remaining balance of $1,357,380 outstanding as of March 31, 2024.
On October 14, 2022, we entered into a loan transaction that is evidenced by a secured non-convertible promissory note to Brown Family Enterprises, LLC, a preferred equity partner and therefore a related party, for $1.5 million that is due on October 14, 2024, and bears a fixed interest rate of 9%, simple interest. Interest is payable monthly. On July 21, 2023, the Company amended and restated the promissory note to reflect an increase in the loan to $5.5 million and extend the maturity date thereof from October 14, 2024 to October 14, 2026. Except for the increase in the amount of the Loan and Note and the extension of the maturity date thereof, no changes were made to the original note. The loan may be repaid without penalty at any time. The loan is secured by the Operating Partnership’s equity interest in its current direct subsidiaries that hold real estate assets pursuant to the terms of a security agreement between the Operating Partnership and Brown Family Enterprises, LLC.
We currently obtain the capital required to primarily invest in and manage a diversified portfolio of commercial net lease real estate investments and conduct our operations from the proceeds of equity offerings, debt financings, preferred minority interest obtained from third parties, issuance of Operating Partnership units and from any undistributed funds from our operations.
As a result of our recurring losses, our projected cash needs, and our current liquidity, substantial doubt exists about the Company’s ability to continue as a going concern one year after the date that these financial statements are issued. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plan to improve the Company’s liquidity and profitability. Our current and anticipated liquidity is less than the principal balance of these obligations. As a result of our recurring losses, our projected cash needs, and our current liquidity, substantial doubt exists about the Company’s ability to provide sufficient liquidity to meet future funding commitments for at least the next 12 months.
27
Outstanding mortgage loans payable consisted of the following as of March 31, 2024 and December 31, 2023, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Occupying Tenant |
|
Location |
Original Loan Amount |
|
|
Interest Rate |
|
Maturity Date |
3/31/2024 |
|
12/31/2023 |
|
Debt Service Coverage Ratios ("DSCR") Required |
|||
7-Eleven Corporation & Starbucks Corporation |
|
Washington, D.C., Tampa, FL, and Huntsville, AL |
$ |
11,287,500 |
|
(a) |
4.17% |
|
3/6/2030 |
$ |
10,705,459 |
|
$ |
10,757,239 |
|
1.25 |
General Services Administration-Navy & Vacant Unit |
|
Norfolk, VA |
|
8,260,000 |
|
|
3.50% |
|
9/30/2024 |
|
7,281,369 |
|
|
7,341,804 |
|
1.25 |
PRA Holdings, Inc. |
|
Norfolk, VA |
|
5,216,749 |
|
|
3.50% |
|
10/23/2024 |
|
4,520,121 |
|
|
4,562,722 |
|
1.25 |
Sherwin Williams Company |
|
Tampa, FL |
|
1,286,664 |
|
|
3.72% |
(b) |
8/10/2028 |
|
1,278,844 |
|
|
1,286,664 |
|
1.20 |
General Services Administration-FBI |
|
Manteo, NC |
|
928,728 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
908,118 |
|
|
913,958 |
|
1.50 |
Irby Construction |
|
Plant City , FL |
|
928,728 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
908,118 |
|
|
913,958 |
|
1.50 |
La-Z-Boy Inc. |
|
Rockford, IL |
|
2,100,000 |
|
|
3.85% |
(d) |
3/31/2032 |
|
2,053,584 |
|
|
2,066,604 |
|
1.50 |
Best Buy Co., Inc. |
|
Grand Junction, CO |
|
2,552,644 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
2,495,997 |
|
|
2,512,050 |
|
1.50 |
Fresenius Medical Care Holdings, Inc. |
|
Chicago, IL |
|
1,727,108 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
1,688,781 |
|
|
1,699,642 |
|
1.50 |
Starbucks Corporation |
|
Tampa, FL |
|
1,298,047 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
1,269,241 |
|
|
1,277,404 |
|
1.50 |
Kohl's Corporation |
|
Tucson, AZ |
|
3,964,745 |
|
(c) |
3.85% |
(d) |
3/31/2032 |
|
3,878,651 |
|
|
3,901,694 |
|
1.50 |
City of San Antonio (PreK) |
|
San Antonio, TX |
|
6,444,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
6,394,286 |
|
|
6,416,362 |
|
1.50 |
Dollar General Market |
|
Bakersfield, CA |
|
2,428,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
2,409,212 |
|
|
2,417,587 |
|
1.50 |
Dollar General |
|
Big Spring, TX |
|
635,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
630,086 |
|
|
632,277 |
|
1.50 |
Dollar General |
|
Castalia, OH |
|
556,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
551,698 |
|
|
553,615 |
|
1.50 |
Dollar General |
|
East Wilton, ME |
|
726,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
720,382 |
|
|
722,886 |
|
1.50 |
Dollar General |
|
Lakeside, OH |
|
567,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
562,612 |
|
|
564,568 |
|
1.50 |
Dollar General |
|
Litchfield, ME |
|
624,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
619,171 |
|
|
621,324 |
|
1.50 |
Dollar General |
|
Mount Gilead, OH |
|
533,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
528,876 |
|
|
530,714 |
|
1.50 |
Dollar General |
|
Thompsontown, PA |
|
556,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
551,698 |
|
|
553,615 |
|
1.50 |
Dollar Tree Stores, Inc. |
|
Morrow, GA |
|
647,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
641,993 |
|
|
644,225 |
|
1.50 |
exp U.S. Services Inc. |
|
Maitland, FL |
|
2,950,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
2,927,172 |
|
|
2,937,348 |
|
1.50 |
General Services Administration |
|
Vacaville, CA |
|
1,293,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
1,282,995 |
|
|
1,287,454 |
|
1.50 |
Walgreens |
|
Santa Maria, CA |
|
3,041,000 |
|
(e) |
7.47% |
(b) |
8/10/2028 |
|
3,015,430 |
|
|
3,027,958 |
|
1.50 |
|
|
|
$ |
60,550,913 |
|
|
|
|
|
$ |
57,823,894 |
|
$ |
58,143,672 |
|
|
|
|
|
|
|
|
|
|
Less Debt Discount, net |
|
(383,446 |
) |
|
(383,767 |
) |
|
|
|
|
|
|
|
|
|
|
Less Debt Issuance Costs, net |
$ |
(895,136 |
) |
$ |
(942,595 |
) |
|
|
|
|
|
|
|
56,545,312 |
|
|
56,817,310 |
|
|
||||||
(a) Loan subject to prepayment penalty
(b) Fixed via interest rate swap
(c) One loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value.
(d) Adjustment effective April 1, 2027 equal to 5-year Treasury plus 2.5% and subject to a floor of 3.85%
(e) One loan in the amount of $21.0 million secured by 13 properties and allocated to each property based on each property's appraised value.
28
We amortized debt issuance costs during the three months ended March 31, 2024 and 2023 to interest expense of approximately $47,780 and $28,865, respectively. The Company did not pay any debt issuance costs during the three months ended March 31, 2024 and 2023.
Each mortgage loan requires the Company to maintain certain debt service coverage ratios as noted above. In addition, two mortgage loans, one encumbered by six properties and requiring a 1.50 DSCR, and another stand alone mortgage loan requiring a 1.50 DSCR, require the Company to maintain a 54% loan to fair market stabilized value ratio. Fair market stabilized value shall be determined by the lender by reference to acceptable guides and indices or appraisals from time to time at its discretion. As of March 31, 2024, we were in compliance with all covenants, with the exception of one project level DSCR covenant for 2510 Walmer Ave. Our Bayport Credit Union loan covenant requires project level, property level and portfolio level DSCR minimum testing. At the project-level, 2510 Walmer Ave tested at a 1.17:1 DSCR, compared with the 1.25:1 project level minimum DSCR, driven by its vacancy since January 2023. According to the governing loan document, failing to meet DSCR coverage requirements is a technical default triggering the risk of forfeiture of the property, accelerating the repayment of the remaining outstanding balance of the loan at the lender's discretion. All other DSCR covenants tested compliant and the lender has indicated no intention of action. Additionally, a new lease was executed for 2510 Walmer Ave. on March 28, 2024 and will restore the property to full occupancy upon commencement on May 1, 2024.
Minimum required principal payments on our debt as of March 31, 2024 are as follows:
|
Mortgage Loans |
|
|
Other Payable - Related Party |
|
|
Loan Payable - Related Party |
|
Total as of March 31, 2024 |
|
||||
2024 (9 months remaining) |
|
12,459,324 |
|
|
|
1,357,380 |
|
|
|
- |
|
|
13,816,704 |
|
2025 |
|
926,633 |
|
|
|
- |
|
|
|
- |
|
|
926,633 |
|
2026 |
|
976,467 |
|
|
|
- |
|
|
|
5,500,000 |
|
|
6,476,467 |
|
2027 |
|
1,033,322 |
|
|
|
- |
|
|
|
- |
|
|
1,033,322 |
|
2028 |
|
21,341,791 |
|
|
|
- |
|
|
|
- |
|
|
21,341,791 |
|
Thereafter |
|
21,086,357 |
|
|
|
- |
|
|
|
- |
|
|
21,086,357 |
|
|
$ |
57,823,894 |
|
|
$ |
1,357,380 |
|
|
$ |
5,500,000 |
|
$ |
64,681,274 |
|
On February 8, 2023, we entered into new Amended and Restated Limited Liability Company Agreements for the Norfolk, Virginia properties, GIPVA 2510 Walmer Ave, LLC ("GIPVA 2510") and GIPVA 130 Corporate Blvd, LLC ("GIPVA 130"), in which we, as the sole member of GIPVA 2510 and GIPVA 130, admitted a new preferred member, Brown Family Enterprises, LLC, through the issuance of preferred membership interests in the form of Class A Preferred Units of GIPVA 2510 and GIPVA 130. GIPVA 2510 and GIPVA 130 (the “Virginia SPEs”) hold our Norfolk, Virginia properties. In addition, both of the Virginia SPEs and Brown Family Enterprises, LLC entered into Unit Purchase Agreements in which GIPVA 2510 issued and sold 180,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,800,000, and GIPVA 130 issued and sold 120,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,200,000. The Operating Partnership is the general manager of the subsidiary while Brown Family Enterprises, LLC is a preferred equity member. Pursuant to the agreement, we are required to pay the preferred equity member a 7% IRR paid on a monthly basis and will share in 16% of the equity in each of the Virginia SPEs upon a capital transaction resulting in distributable proceeds. After 24 months, Brown Family Enterprises, LLC has the right to redeem the preferred equity at redemption value. Because of the redemption right, the non-controlling interest is presented as temporary equity at an aggregated redemption value of $3,000,000 as of March 31, 2024.
In connection with the acquisition of the Modiv Portfolio, the Operating Partnership and LC2 entered into an Amended and Restated Limited Liability Company Agreement for GIP SPE (the “GIP SPE Operating Agreement”) pursuant to which LC2 made a $12.0 million initial capital contribution to GIP SPE, together with a commitment to make an additional $2.1 million contribution upon the satisfactory completion of the acquisition of a tenant-in-common interest held by a third party in the Company’s Rockford, Illinois property (the “LC2 Investment”). The Company completed the acquisition of such tenant-in-common interest on September 7, 2023, for a purchase price of $1.3 million and LC2 made the additional $2.1 million capital contribution on September 11, 2023. LC2 made the LC2 Investment in exchange for a preferred equity interest in GIP SPE (the “Preferred Interest”). The Preferred Interest has a cumulative accruing distribution preference of 15.5% per year, compounded monthly, a portion of which in the amount of 5% per annum (compounded monthly) is deemed to be the “current preferred return,” and the remainder of which in the amount of 10.5% per annum (compounded monthly) is deemed to be the “accrued preferred return.” The GIP SPE operating agreement provides that operating distributions by GIP SPE will be made first to LC2 to satisfy any accrued but unpaid current preferred return, with the balance being paid to the Operating Partnership, unless the “annualized debt yield” of GIP SPE is less than 10%, in which case the balance will be paid to LC2. For this purpose, “annualized debt yield” is calculated as the sum of senior debt and LC2 Investment divided by the trailing three-month annualized adjusted net operating income (as defined in the GIP SPE Operating Agreement) of GIP SPE. The GIP SPE Operating Agreement also provides that distributions from capital transactions will be paid first to LC2 to satisfy any accrued but unpaid preferred return, then to LC2 until the “Make-Whole Amount” (defined as the amount equal to 1.3 times the LC2 Investment) is reduced to zero, and then to the Operating Partnership.
29
The Preferred Interest is required to be redeemed in full by the Company on or before August 10, 2025 for a redemption amount equal to the greater of (i) the amount of the LC2 Investment plus the accrued preferred return, and (ii) the Make-Whole Amount. Upon a failure to timely redeem the Preferred Interest, the preferred return will accrue at an increased rate of 18% per annum, compounded monthly. The Company will have the right to extend the Mandatory Redemption Date for two consecutive 12-month extension periods, provided that (i) LC2 is paid an extension fee of 0.01% of the outstanding amount of the LC2 Investment for each such extension, (ii) the preferred return is increased from 15.5% to 18% of which the accrued preferred return is increased from 10.5% to 13%, (iii) the trailing 6-month annualized adjusted net operating income (as defined in the GIP SPE Operating Agreement) is in excess of $5.0 million, (iv) GIP SPE and its subsidiaries’ senior debt is extended through the end of the extension period, and there are no defaults under the GIP SPE Operating Agreement.
Under the GIP SPE Operating Agreement, GIP SPE is also required to pay to Loci Capital, an affiliate of LC2, an equity fee of 1.5% of the LC2 Investment, with 1% having been paid upon the execution and delivery of the GIP SPE Operating Agreement and the 0.5% payable upon redemption of the LC2 Investment.
Due to the redemption right, the Preferred Interest is presented as temporary equity at redemption value of $14,100,000 plus accrued but unpaid preferred interest of $1,288,726 as of March 31, 2024.
Each of the preferred members described above may redeem their interest on or after the Redemption date (second year anniversary of the closing of the acquisition), at the discretion of such preferred member, as applicable, all or a portion thereof, of such preferred member’s pro-rata share of the redemption value in the form of the units of the Operating Partnership ("GIP LP Units"). Such GIP LP Units shall be subject to all such restrictions, such as with respect to transferability, as reasonably imposed by the Operating Partnership. The number of GIP LP Units issued to any preferred member shall be determined by dividing the total amount of the redemption value that such preferred member shall receive in GIP LP Units by a 15% discount of the average 30-day market price of Generation Income Properties, Inc. common stock. GIP LP Units shall then be convertible into common stock of Generation Income Properties, Inc. on a 1:1 basis in accordance with the partnership agreement of the Operating Partnership. Additionally, the Operating Partnership has the right to redeem the preferred equity at redemption value with cash after the second year anniversary of the closing of the acquisition.
The primary objective of our financing strategy is to maintain financial flexibility using retained cash flows, long-term debt and common and perpetual preferred stock to finance our growth. We intend to have a lower-leveraged portfolio over the long-term after we have acquired an initial substantial portfolio of diversified investments. During the period when we are acquiring our current portfolio, we will employ greater leverage on individual assets (that will also result in greater leverage of the current portfolio) in order to quickly build a diversified portfolio of assets.
Cash from Operating Activities
Net cash provided by operating activities was $25,977 and net cash used in operating activities was $850,964 for the three months ended March 31, 2024 and 2023, respectively. The change is due to the doubling of the number of the Company's income generating assets through the 13 property Modiv acquisition.
Cash from Investing Activities
Net cash used in investing activities during the three months ended March 31, 2024 was $0. Net cash used in investing activities was $50,000 during the three months ended March 31, 2023 related to an escrow deposit for a property purchase.
Cash from Financing Activities
Net cash used in financing activities was $1,487,603 and $80,387 for the three months ended March 31, 2024 and 2023, respectively. The change is due to several factors comprising the increase of mortgage principal repayments driven by the Modiv acquisition in August 2023, the increase in distributions to non-controlling interests, and dividend payments on both preferred and common stock.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Non-GAAP Financial Measures
30
Our reported results are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We also disclose funds from operations ("FFO"), adjusted funds from operations ("AFFO"), core funds from operations ("Core FFO") and core adjusted funds of operations ("Core AFFO") all of which are non-GAAP financial measures. We believe these non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
FFO and related measures do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income or loss as a performance measure or cash flows from operations as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.
We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude non-recurring or extraordinary items (as defined by GAAP), net gains from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets, and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. We then adjust FFO for non-cash revenues and expenses such as amortization of deferred financing costs, above and below market lease intangible amortization, straight line rent adjustment where the Company is both the lessor and lessee, and non-cash stock compensation to calculate Core AFFO.
FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that AFFO is an additional useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO and AFFO may not be comparable to similarly titled measures employed by other companies. We believe that Core FFO and Core AFFO are useful measures for management and investors because they further remove the effect of non-cash expenses and certain other expenses that are not directly related to real estate operations. We use each as measures of our performance when we formulate corporate goals.
As FFO excludes depreciation and amortization, gains and losses from property dispositions that are available for distribution to stockholders and non-recurring or extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, providing a perspective not immediately apparent from net income or loss. However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties which could be significant economic costs and could materially impact our results from operations. Additionally, FFO does not reflect distributions paid to redeemable non-controlling interests.
31
The following tables reconcile net income (net loss), which we believe is the most comparable GAAP measure, to FFO, Core FFO, AFFO and Core AFFO:
|
Three Months Ended March 31, |
|
|
|
|||||
|
2024 |
|
2023 |
|
|
|
|||
|
|
|
|
|
|
|
|||
Net loss |
$ |
(1,879,096 |
) |
$ |
(1,190,353 |
) |
|
|
|
Other expense |
|
- |
|
|
506,000 |
|
|
|
|
Gain on derivative valuation, net |
|
(380,550 |
) |
|
- |
|
|
|
|
Depreciation and amortization |
|
1,226,605 |
|
|
557,550 |
|
|
|
|
Funds From Operations |
$ |
(1,033,041 |
) |
$ |
(126,803 |
) |
|
|
|
Amortization of debt issuance costs |
|
47,780 |
|
|
28,865 |
|
|
|
|
Non-cash stock compensation |
|
94,935 |
|
|
90,648 |
|
|
|
|
Adjustments to Funds From Operations |
|
142,715 |
|
|
119,513 |
|
|
- |
|
Core Funds From Operations |
$ |
(890,326 |
) |
$ |
(7,290 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Net loss |
$ |
(1,879,096 |
) |
$ |
(1,190,353 |
) |
|
|
|
Other expense |
|
- |
|
|
506,000 |
|
|
|
|
Gain on derivative valuation, net |
|
(380,550 |
) |
|
- |
|
|
|
|
Depreciation and amortization |
|
1,226,605 |
|
|
557,550 |
|
|
|
|
Amortization of debt issuance costs |
|
47,780 |
|
|
28,865 |
|
|
|
|
Above and below-market lease amortization, net |
|
67,786 |
|
|
(26,297 |
) |
|
|
|
Straight line rent, net |
|
4,764 |
|
|
18,738 |
|
|
|
|
Adjustments to net loss |
$ |
966,385 |
|
$ |
1,084,856 |
|
|
|
|
Adjusted Funds From Operations |
$ |
(912,711 |
) |
$ |
(105,497 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Loss on held for sale asset valuation |
$ |
1,058,994 |
|
$ |
- |
|
|
|
|
Non-cash stock compensation |
|
94,935 |
|
|
90,648 |
|
|
|
|
Adjustments to Adjusted Funds From Operations |
$ |
1,153,929 |
|
$ |
90,648 |
|
|
|
|
Core Adjusted Funds From Operations |
$ |
241,218 |
|
$ |
(14,849 |
) |
|
|
|
Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. See our audited consolidated financial statements included herein for a summary of our significant accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to make disclosures under this item.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management, with the participation of our CEO and Principal Accounting Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2024. Based on that evaluation, our management, including our CEO and Principal Accounting Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2024.
(b) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings that are required to be disclosed in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
On September 2, 2021, we entered into an Underwriting Agreement with Maxim Group LLC on behalf of itself and as representative of the underwriters named therein (the “Underwriting Agreement”), pursuant to which the Company issued and sold, in an underwritten public offering (the “Public Offering”), 1,500,000 units consisting of one share of common stock, $0.01 par value per share (“Common Stock”), and one warrant exercisable for one share of Common Stock (the “Investor Warrants”). The units were sold to the public at the price of $10.00 per unit and were offered by the Company pursuant to the registration statement on Form S-11 (File No. 333-235707), which was declared effective on September 2, 2021 (the “Registration Statement”). The shares of Common Stock and Investor Warrants comprising the units began separate trading 31 days from the date the registration statement was declared effective. On September 8, 2021, the Public Offering closed, resulting in gross proceeds to the Company of approximately $15,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses. The Company also granted to the underwriter a 30-day option to purchase up to an additional 225,000 units. On September 30, 2021, the underwriters partially exercised the over-allotment option and purchased an additional 165,000 units, generating gross proceeds of $1,650,000. The Company received total net proceeds in the Public Offering of approximately $13.8 million after deducting underwriting discounts and commissions and other expenses of approximately $2.9 million incurred during the years ended December 31, 2021 and 2020. None of the underwriting discounts and commissions or offering expenses were incurred or paid, directly or indirectly, to any of our directors or officers or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.
The Investor Warrants issued in the Public Offering entitle the holder to purchase one share of common stock at a price equal to $10.00 upon the first separate trading day of the warrants for a period of five years. The Investor Warrants may be exercised on a cashless basis if there is no effective registration statement available for the resale of the shares of common stock underlying such warrants. In addition, after 120 days after the Investor Warrants are issued, any Investor Warrant may be exercised on a cashless basis for 10% of the shares of common stock underlying the Investor Warrant if the volume-weighted average trading price of the Company’s shares of common stock on Nasdaq is below the then-effective exercise price of the Investor Warrant for 10 consecutive trading days.
The Company agreed to an underwriting discount of 9% of the public offering price of the Units sold in the Public Offering. In addition, the Company issued to Maxim Group LLC (or its designee) warrants to purchase 149,850 shares of Common Stock, which is equal to an aggregate of 9% of the number of shares of Common Stock sold in the Public Offering (the “Representative’s Warrants”). The Representative’s Warrants have an exercise price equal to $12.50, which is 125% of the offering price in the Public Offering. The Representative’s Warrants may be exercised on a cashless basis and will be exercisable six months following the closing date and until September 2, 2026.
As of March 31, 2024, the Company has used $1.1 million proceeds from the Public Offering to date for repayment of related party debt.
There has been no material change in the planned use of proceeds from the Public Offering as described in our final prospectus, dated September 2, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following documents are filed as a part of this report or are incorporated herein by reference.
EXHIBIT NUMBER |
DESCRIPTION |
|
|
3.1 |
|
3.1.1 |
|
3.2 |
|
4.1 |
|
4.2 |
|
4.2.1 |
|
4.2.2 |
|
4.3 |
|
4.4 |
|
4.5 |
|
4.6 |
|
4.7 |
|
4.8 |
|
10.1 |
|
10.2 |
|
10.3 |
|
10.4 |
|
10.5 |
|
31.1* |
Rule 13a – 14(a) Certification of the Principal Executive Officer |
31.2* |
Rule 13a – 14(a) Certification of the Principal Financial Officer |
32.1* |
Written Statement of the Principal Executive Officer, Pursuant to 18 U.S.C. § 1350 |
32.2* |
Written Statement of the Principal Financial Officer, Pursuant to 18 U.S.C. § 1350 |
101.INS |
Inline XBRL Instance Document. |
101.SCH |
Inline XBRL Taxonomy Extension Schema. |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase. |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase. |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
|
|
GENERATION INCOME PROPERTIES, INC. |
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|
|
|
|
Date: May 20, 2024 |
|
By: |
/s/ David Sobelman |
|
|
|
David Sobelman |
|
|
|
Chief Executive Officer and Chair of the Board |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: May 20, 2024 |
|
By: |
/s/ Ron Cook |
|
|
|
Ron Cook |
|
|
|
VP Accounting and Finance |
|
|
|
(Principal Financial and Accounting Officer) |
36