GENERATION INCOME PROPERTIES, INC. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section above entitled "Cautionary Note Regarding Forward-Looking Statements and Summary Risk Factors." Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A, "Risk Factors."
Overview
We are an internally managed,Maryland corporation focused on acquiring retail, office and industrial real estate located in majorU.S. markets. We initiated operations during the year endedDecember 31, 2015 and we elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year endingDecember 31, 2021 .
Public Offering and Nasdaq Listing
InSeptember 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 endedDecember 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
•
Creditworthy Tenants. Approximately 64% of our portfolio's annualized rent as ofDecember 31, 2022 was derived from tenants that have (or whose parent company has) an investment grade credit rating from a recognized credit rating agency of "BBB-" or better. Our largest tenants are theGeneral Service Administration ,PRA Holdings, Inc. ,Pratt & Whitney Automation, Inc. , and Kohl's Corporation and contributed approximately 62% of our portfolio's annualized base rent as ofDecember 31, 2022 .
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100% Occupied. Our portfolio is 100% leased and occupied.
•
Contractual Rent Growth. 93% of the leases in our current portfolio (based on
annualized base rent as of
•
Average Effective Annual Rental per Square Foot. Average effective annual rental
per square foot is
Given the nature of our leases, our tenants either pay the real estate 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
35
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Options Contractual
Rentable S&P Credit Remaining (Number x Rent ABR per
Property Type Location Square Feet Tenant Rating (1) Term (Yrs) Yrs) Escalations (7) ABR (2) Sq. Ft.
Retail Washington, 3,000 7-Eleven Corporation A 2 x 5 Yes $ 129,804 $ 43.27
D.C 3.2
Retail Tampa, FL 2,200 Starbucks Corporation BBB+ 5.2 4 x 5 Yes $ 182,500 $ 82.95
Industrial Huntsville, 59,091 Pratt & Whitney A- 2 x 5 Yes $ 684,996 $ 11.59
AL Automation, Inc.(6) 6.1
Office Norfolk, VA 49,902 General Services AA+ N/A Yes $ 926,923 $ 18.57
Administration-Navy 5.7
Office Norfolk, VA 22,247 Maersk Shipping (5) BBB+ 0.1 1 x 5 N/A $ 375,588 $ 16.88
Office Norfolk, VA 34,847 PRA Holdings, Inc. (3) BB+ 4.7 1 x 5 Yes $ 765,136 $ 21.96
Retail Tampa, FL 3,500 Sherwin Williams Company BBB 5.6 5 x 5 Yes $ 126,788 $ 36.23
Office Manteo, NC 7,543 General Services AA+ 1 x 5 Yes $ 161,346 $ 21.39
Administration-FBI 6.1
Office Plant City, 7,826 Irby Construction BBB- 2 x 5 Yes $ 160,437 $ 20.50
FL 2.0
Grand Best Buy Co., Inc.
Retail Junction, 30,701 BBB+ 1 x 5 Yes $ 353,061 $ 11.50
CO 4.2
Medical-Retail
2 x 5 Yes $ 228,902 $ 20.91
Holdings, Inc. 3.8
Retail Tampa, FL 2,642 Starbucks Corporation BBB+ 4.2 2 x 5 Yes $ 148,216 $ 56.10
Retail Tucson, AZ 88,408 Kohl's Corporation BB+ 7.1 7 x 5 Yes $ 823,962 $ 9.32
Tenants -
Consolidated $ 5,067,659
Properties 322,854 $ 15.70
Retail (4) Rockford, 15,288 La-Z-Boy Inc. Not Rated 4 x 5 Yes $ 366,600 $ 23.98
IL 4.8
Tenants - All
Properties 338,142 $ 5,434,259 $ 16.07
(1)
Tenant, or tenant parent, rated entity.
(2)
Annualized cash base rental income in place as of December 31, 2022 . Our leases
do not include tenant concessions or abatements.
(3)
Tenant has the right to terminate the lease on August 31, 2024 subject to
certain conditions.
(4)
The Company's pro-rata share is 50% of the tenancy-in-common investment.
(5)
Tenant did not exercise the renewal option as of the required exercise date of
April 1, 2022 and vacated on January 31, 2023 .
(6)
Tenant has the right to terminate the lease on January 31, 2024 subject to
certain conditions.
(7)
Includes rent escalations available from lease renewal options.
Recent Developments
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OnJanuary 3, 2023 , we announced that our Board of Directors authorized a distribution of$0.039 per share or per unit monthly cash distribution for shareholders and unitholders of record of our common stock and partnership units, respectively, as ofJanuary 15, 2023 ,February 15, 2023 andMarch 15, 2023 . January and February distributions were paid onJanuary 30, 2023 andFebruary 28, 2023 respectively, and we expect to pay March dividends on or aboutMarch 30, 2023 . • Subsequent toDecember 31, 2022 but before the filing of this Annual Report on Form 10-K, 106,480 Investor Warrants were exercised on a cashless basis for 10% of the shares of Common Stock underlying the Investor Warrant, as the volume-weighted average trading price of the Company's shares of Common Stock on Nasdaq was below the then-effective exercise price of the Investor Warrant for 10 consecutive trading days as of the date the Investor Warrants became exercisable. As such, 10,648 shares of common stock were issued upon exercise. •
Agreements with
OnFebruary 8, 2023 , theOperating Partnership entered into new Amended and Restated Limited Liability Company Agreements for GIPVA 2510Walmer Ave, LLC ("GIPVA 2510") and GIPVA 130Corporate Blvd, LLC ("GIPVA 130") in which theOperating Partnership , as the sole member of GIPVA 2510 and GIPVA 130, admitted a new member,Brown Family Enterprises, LLC (the "Purchaser"), through the issuance to Purchaser of 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'sNorfolk, Virginia properties. Also onFebruary 8, 2023 , both of the Virginia SPEs and the Purchaser entered into Unit Purchase Agreements in which GIPVA 2510 issued and sold to the Purchaser 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 to the Purchaser 120,000 Class A Preferred units at a price of$10.00 per unit for 36 -------------------------------------------------------------------------------- an aggregate price of$1,200,000 . The Purchaser will be paid an annual 7% preferred return on the preferred units of the Virginia SPEs (the "SPE Preferred Units"), payable on a monthly basis, and will share in approximately 16% of the equity in each of the Virginia SPEs. The Purchaser and the respective SPEs will both have the right to redeem the SPE Preferred Units after two (2) years for cash in the amount of the Purchaser's unreturned capital contribution and accrued but unpaid preferred return (the "Redemption Price"), provided that Purchaser will have the right to take the Redemption Price (or any portion thereof) in common units of theOperating Partnership at a conversion price equal to 85% of the average trading price of the Company's common stock during the 30 trading days preceding redemption. The proceeds from the sale of the SPE Preferred Units were distributed to theOperating Partnership to fund theOperating Partnership's redemption obligations from two members of theOperating Partnership who redeemed a total of 123,965 units both onJanuary 27, 2023 at$20 per unit in the aggregate amount of$2,479,301 and to fund general corporate expenses of theOperating Partnership . We funded the redemption obligations per the terms of the contribution agreement onFebruary 9, 2023 . As a result of this transaction, the Company may be required to reimburse federal, state and local income taxes incurred by the remaining partner as per a tax protection agreement although the Company is continuing to evaluate such impact, if any.
•
Agreement with
OnFebruary 7, 2023 , theOperating Partnership entered into a Unit Issuance Agreement and Amendment to Contribution and Subscription Agreement (the "LMB Agreement") withLMB Owenton I LLC , the contributor of the Company'sTampa Starbucks property located at 10002 N Dale Mabry (the "Contributor"), in which theOperating Partnership and the Contributor agreed to delay the Contributor's right to require the redemption of the Contributor's common units in theOperating Partnership until the third anniversary of the closing of the contribution of the Tampa Starbucks property,January 14, 2025 , and for a reduced redemption price of$7.15 per common unit. Such agreement was made in consideration of the issuance to Contributor of an additional 44,228 common units in theOperating Partnership (the "Additional OP Units"), resulting in Contributor owning an aggregate of 157,771 common units in theOperating Partnership . • Purchase and Sale Agreement OnFebruary 10, 2023 , theOperating Partnership entered into a Purchase and Sale Agreement withHarbor Terrace Limited Partnership to acquire an approximately 48,000 square foot single-tenant retail building inOverland Park, KS for total consideration of$8,200,000 , which is expected to be funded with approximately 50% mortgage debt and 50% equity. The building is occupied by Best Buy, Inc., who holds an investment grade credit rating of BBB+ on the S&P scale, and has approximately two years remaining on the current lease term, with one additional five year renewal option. The annual rent for the property is$630,994 . The transaction is subject to customary closing conditions and due diligence.
•
Restricted Stock Issuances
OnMarch 1, 2023 , the board granted and the Company issued 98,593 restricted shares to directors, officers and employees effectiveMarch 1, 2023 valued at$5.68 per share that vest one-third on each anniversary of the grant date. The vested share restrictions will be removed upon the first annual anniversary of the award. Results of Operations Our management team's evaluation of operating results includes an assessment of our ability to generate cash flow necessary to pay operating expenses, general and administrative expenses, debt service, and to fund dividends to our stockholders. As a result, our management team's assessment of operating results gives less emphasis to the effects of unrealized gains and losses and other non-cash charges, such as depreciation and amortization and impairment charges, which may cause fluctuations in net income for comparable periods but have no impact on cash flows. Our management team's evaluation of our potential for generating cash flow includes on-going assessments of our existing portfolio of properties, our non-stabilized properties, long-term sustainability of our real estate portfolio, our future operating cash flow from anticipated acquisitions, and the proceeds from the sales of our real estate assets. In addition, our management team evaluates our portfolio and individual properties' results of operations with a primary focus on increasing and enhancing the value, quality and quantity of properties in our real estate holdings. Our management team focuses its efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals and rental rates. Properties that have reached goals in occupancy and rental rates are evaluated for potential added value appreciation and, if lacking such potential, are sold with the equity reinvested in properties that have better potential without foregoing cash flow. Our ability to increase assets under management is affected by our ability to raise borrowings and/or capital, coupled with our ability to identify appropriate investments. 37 -------------------------------------------------------------------------------- Our results of operations for the twelve months endedDecember 31, 2022 and 2021 are not indicative of those expected in future periods, as we expect that rental income, interest expense, rental operating expense, general and administrative expense, and depreciation and amortization will significantly change in future periods as a result of growth through future acquisitions of real estate related investments.
Results of Operations for the Years Ended
Revenue
For twelve months endedDecember 31, 2022 , total revenue from operations was$5,432,462 as compared to$3,900,096 for the twelve months endedDecember 31, 2021 . Revenue increased by$1,532,366 for the twelve-months endedDecember 31, 2022 from the acquisition of four additional properties partially offset by the revenue generated from one property sold inAugust 2021 .
Expenses
During the twelve months endedDecember 31, 2022 and 2021 expenses incurred were as follows: Twelve months ended December 31, 2022 2021 Change General and administrative expense$ 1,647,987 $ 1,111,029 $ 536,958 Building expenses 1,208,192 768,182 440,010 Depreciation and amortization 2,110,975 1,508,340 602,635 Interest expense, net 1,620,237 1,310,950 309,287 Compensation costs 1,310,796 849,701 461,095 Total expenses$ 7,898,187 $ 5,548,202 $ 2,349,985 • General and administrative expense increased by$536,958 due to an increase in legal and audit expense, an increase in corporate filing fees incurred for our first annual report and shareholders' meeting, an increase in insurance expense, and an increase in investor relations expense offset by a decrease in consulting services.
•
Building expenses increased by$440,010 due to an increase in tenant reimbursable expenses incurred on behalf of tenants from the acquisition of four additional properties. Reimbursement revenues included in Rental income offset related Building expense.
•
Depreciation and amortization increased by$602,635 from the acquisition of four additional properties offset in part by the expense incurred by one property sold inAugust 2021 .
•
Interest expense, net increased by$309,287 due to interest on the mortgage loans from the four additional properties offset by the reduction in interest expense due from the mortgage loans refinanced or adjusted to a lower interest rate and further offset by the interest expense from the mortgage loan associated with the one property sold inAugust 2021 . Additionally, during the twelve months endedDecember 31, 2022 , we incurred a guaranty fee expense payable to our President and CEO of$128,901 which was recorded to interest expense. No guaranty fee expense was incurred during the twelve months endedDecember 31, 2021 .
•
Compensation costs increased by
Gain on Disposal of Property
OnAugust 31, 2021 we sold our 15,000-square-foot, single tenant Walgreens inCocoa Beach, Florida purchased inSeptember 2019 for total net consideration of approximately$5.2 million and recognized a gain on the sale of$923,178 .
Net Loss
For the twelve months ended
Income on Investment in Tenancy in Common
For the twelve months endedDecember 31, 2022 and 2021, our share of earnings on our investment in tenancy in common acquired in August of 2021 and accounted for under the equity method generated income of$37,298 and$12,495 , respectively. 38
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Net Loss Attributable to Non-controlling Interests
For the twelve months endedDecember 31, 2022 and 2021, we allocated net income attributable to non-controlling interest of$490,462 and$513,581 , respectively. The decrease is attributable to a decrease in the redeemable non-controlling interest for the property sold inAugust 2021 and a reduction for partners who redeemed certain non-controlling interests during the year. The decrease was offset by an increase from additional redeemable non-controlling interests issued to finance the acquisition of properties.
Net Loss Attributable to Common Shareholders
For the twelve months ended
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 ofDecember 31, 2022 , we had total cash (unrestricted and restricted) of$3,752,996 , properties with a cost basis of$56,917,321 and outstanding debt of$36,733,878 . InSeptember 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 endedDecember 31, 2021 and 2020. OnOctober 26, 2021 , theOperating Partnership entered into a Commitment Letter withAmerican Momentum Bank (the "Lender") for a$25 million master commitment credit facility (the "Facility") to be used for the acquisition of income producing real estate properties. Borrowings under the Facility will accrue interest at a variable rate equal to the Wall Street Journal Prime rate, adjusted monthly, subject to a floor interest rate of 3.25% per annum. OnMay 9, 2022 , theOperating Partnership amended the Facility with the Lender, by entering into a new Facility, to increase the available borrowings from$25.0 million to$50.0 million to be used for the acquisition of income producing real estate properties under the same terms as provided by the agreement entered into onOctober 26, 2021 . The new Commitment Letter will become effective contingent upon the Company completing a future capital raise of$25.0 million or more, and prior to such time, the current Commitment Letter will remain in place. OnSeptember 9, 2022 , we and the Lender combined the prior commitment letters entered into inOctober 2021 andMay 2022 into a single Commitment Letter, and have amended the rate index used for borrowing to be a variable rate equal to the 30-Day CME Term SOFR Rate, plus a margin of 2.40%, adjusted monthly, subject to a floor interest rate of 3.25% per annum. All other terms under the prior commitment letters remained materially the same. As ofDecember 31, 2022 we did not have an outstanding balance on the Facility and as ofDecember 31, 2021 we had borrowed approximately$2.4 million , respectively, under the Facility. OnApril 1, 2022 , we entered into two loan agreements with an aggregate balance of$13.5 million as ofDecember 31, 2022 to refinance seven of the Company's 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 held in the tenancy-in-common investment at an interest rate of 3.85% fromApril 1, 2022 through and untilMarch 31, 2027 . EffectiveApril 1, 2027 and through the maturity date ofMarch 31, 2032 , the interest rate adjusts to the 5-yearTreasury plus 2.5% and is subject to a floor of 3.85%. During the twelve months endedDecember 31, 2022 , the Company incurred a loss on debt extinguishment of$144,029 related to the write off of unamortized debt issuance costs previously incurred on refinanced mortgage loans including a prepayment penalty incurred of$21,000 . Our President and CEO has personally guaranteed the repayment of the$11.0 million due under the 7-11 -Washington, DC ; Starbucks-South Tampa, FL ; and Pratt & Whitney-Huntsville, AL loan as well as the$1.3 million loan secured by our Sherwin-Williams -Tampa, FL mortgage loan. In addition, our President and CEO has also provided a guaranty of the Borrower's nonrecourse carveout liabilities and obligations in favor of the lender for the GSA &MAERSK andPRA Holdings, Inc. -Norfolk, VA mortgage loans with an aggregate principal amount of$12.3 million as well as six mortgage loans secured by the remaining properties within the portfolio with an aggregate principal amount of 11.4 million. The Company's CEO entered into a guaranty 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 theOperating Partnership . During the twelve months endedDecember 31, 2022 , we incurred a guaranty fee expense payable to our President and CEO of$128,901 recorded to interest expense. No guaranty fee expense was incurred during the twelve months endedDecember 31, 2021 . OnAugust 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 intoJuly 20, 2022 and made the first installment payment of$325,000 onSeptember 13, 2022 with a remaining balance of$2,587,300 outstanding as ofDecember 31, 2022 . OnOctober 14, 2022 , we entered into a loan transaction that is evidenced by a secured non-convertible promissory note toBrown Family Enterprises, LLC , a preferred equity partner and therefore a related party, for$1.5 million that is due onOctober 14, 2024 , and bears a 39 -------------------------------------------------------------------------------- fixed interest rate of 9%, simple interest. Interest is payable monthly. The loan may be repaid without penalty at any time. The loan is secured by theOperating Partnership's equity interest in its current direct subsidiaries that hold real estate assets pursuant to the terms of a security agreement between theOperating Partnership andBrown 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 ofOperating Partnership units and from any undistributed funds from our operations. We anticipate that our current cash on hand and availability under the Facility combined with the revenue generated from investment properties and proceeds from debt arrangements will provide sufficient liquidity to meet future funding commitments for at least the next 12 months. As ofDecember 31, 2022 andDecember 31, 2021 , we had total current liabilities that consists of accounts payable, accrued expenses, insurance payable of$714,354 and$369,902 , respectively. Outstanding indebtedness consisted of the following as ofDecember 31, 2022 andDecember 31, 2021 : Debt Service Coverage Ratios Mortgage Loans Secured By ("DSCR") (Tenant-Location) Loan Amount Interest Rate Maturity Date 2022 2021 Required 7-11 -Washington, DC ; Starbucks-South Tampa, FL;$ 11,287,500 (a) 4.17 % 3/6/2030$ 10,957,829 $ 11,150,130 1.25 and Pratt & Whitney-Huntsville, Alabama GSA & Maersk - Norfolk, 8,260,000 7,578,304 7,805,524 1.25 Virginia 3.50 % 9/30/2024 PRA Holdings, Inc. - 5,216,749 3.50 % 10/23/2024 4,728,462 4,889,670 1.25 Norfolk, Virginia Sherwin-Williams - Tampa, 1,286,664 (b) 1,286,664 1,286,664 1.20 Florida 3.72 % 8/10/2028 GSA - Manteo, North Carolina 928,728 (c) 3.85 % (d) 3/31/2032 928,728 1,275,000 1.50 Irby Construction - Plant 928,728 (c) 3.85 % (d) 3/31/2032 928,728 850,000 1.50 City , Florida Best Buy - Grand Junction, 2,552,644 (c) 3.85 % (d) 3/31/2032 2,552,644 2,350,000 1.50 Colorado Fresenius - Chicago, 1,727,108 (c) 3.85 % (d) 3/31/2032 1,727,108 - 1.50 Illinois Starbucks - North Tampa, 1,298,047 (c) 3.85 % (d) 3/31/2032 1,298,047 - 1.50 Florida Kohls - Tucson, Arizona 3,964,745 (c) 3.85 % (d) 3/31/2032 3,964,745 - 1.50$ 37,450,913
Less Debt Issuance Costs, net (717,381 ) (637,693 )
(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 effectiveApril 1, 2027 equal to 5-yearTreasury plus 2.5% and subject to a floor of 3.85% We amortized debt issuance costs to interest expense during the twelve months endedDecember 31, 2022 and 2021 of$118,930 and$120,343 , respectively. We paid debt issuance costs for the twelve months endedDecember 31, 2022 and 2021 of$342,647 and$69,780 , respectively. Each promissory note requires us to maintain certain debt service coverage ratios as noted above. In addition, one promissory note, encumbered by six properties and requiring a 1.50 DSCR, requires us 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 ofDecember 31, 2022 , we were in compliance with all covenants.
Minimum required principal payments on our outstanding debt for subsequent years
ending
40
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Other Payable Loan Payable Total as of
- Related - Related December 31,
Mortgage Loans Party Party 2022
2023 $ 785,524 $ 777,460 $ - $ 1,562,984
2024 12,427,090 1,809,840 1,500,000 15,736,930
2025 546,280 - - 546,280
2026 568,514 - - 568,514
2027 591,656 - - 591,656
Thereafter 21,032,195 - - 21,032,195
$ 35,951,259 $ 2,587,300 $ 1,500,000 $ 40,038,559
On February 8, 2023 , the Operating Partnership entered into new Amended and
Restated Limited Liability Company Agreements for GIPVA 2510 and GIPVA 130 in
which the Operating Partnership , as the sole member of GIPVA 2510 and GIPVA 130,
admitted a new member, Brown Family Enterprises, LLC (the "Purchaser"), a
preferred equity partner and therefore a related party, through the issuance to
Purchaser of 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.
Also on February 8, 2023 , both of the Virginia SPEs and the Purchaser entered
into Unit Purchase Agreements in which GIPVA 2510 issued and sold to the
Purchaser 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 to the Purchaser
120,000 Class A Preferred units at a price of $10.00 per unit for an aggregate
price of $1,200,000 . The Purchaser will be paid an annual 7% preferred return on
the preferred units of the Virginia SPEs (the "SPE Preferred Units"), payable on
a monthly basis, and will share in approximately 16% of the equity in each of
the Virginia SPEs. The Purchaser and the respective SPEs will both have the
right to redeem the SPE Preferred Units after two (2) years for cash in the
amount of the Purchaser's unreturned capital contribution and accrued but unpaid
preferred return (the "Redemption Price"), provided that Purchaser will have the
right to take the Redemption Price (or any portion thereof) in common units of
the Operating Partnership at a conversion price equal to 85% of the average
trading price of the Company's common stock during the 30 trading days preceding
redemption. The proceeds from the sale of the SPE Preferred Units were
distributed to the Operating Partnership to fund the Operating Partnership's
redemption obligations from two members of the Operating Partnership who
redeemed a total of 123,965 units both on January 27, 2023 at $20 per unit in
the aggregate amount of $2,479,301 and to fund general corporate expenses of the
Operating Partnership . We funded the redemption obligations per the terms of the
contribution agreement on February 9, 2023 .
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 Operations Activities
Net cash provided by operations was$583,884 and used in operations was$173,762 during the twelve months endedDecember 31, 2022 and 2021, respectively. The change is primarily due to an increase in accrued expenses as well as an increase in non-cash adjustments such as depreciation and amortization and the gain on sale of property inAugust 2021 .
Cash from Investing Activities
Net cash used in investing was$13,281,248 and$3,930,685 for the twelve months endedDecember 31, 2022 and 2021, respectively. The change is primarily due to the acquisition of three properties in 2022 for$12,850,360 as compared to the acquisition of three properties in 2021 for$8,288,954 offset by the proceeds of$5,245,856 from the sale of one property during the twelve months endedDecember 31, 2021 .
Cash from Financing Activities
Net cash provided by financing activities was$5,826,284 and$13,606,159 for the twelve months endedDecember 31, 2022 and 2021, respectively. The decrease is primarily due to the net proceeds from debt financing in 2022 of$7,844,271 as compared to the proceeds from the issuance of common stock and warrants in 2021 of$14,375,857 . 41
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Future Rental Payments
The following table presents future minimum rental cash payments due to the
Company over the next five calendar years and thereafter as of
As of December 31,
2022
2023 $ 4,759,066
2024 4,785,452
2025 4,635,711
2026 4,513,724
2027 3,919,117
Thereafter 5,210,921
27,823,991
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.
CRITICAL ACCOUNTING POLICIES
As a company primarily involved in owning income generating real estate assets,
management considers the following accounting policies critical as they reflect
our more significant judgments and estimates used in the preparation of our
financial statements and because they are important for understanding and
evaluating our reported financial results. These judgments affect the reported
amounts of assets and liabilities and our disclosure of contingent assets and
liabilities as of the dates of the financial statements and the reported amounts
of revenue and expenses during the reporting periods. With different estimates
or assumptions, materially different amounts could be reported in our financial
statements. Additionally, other companies may utilize different estimates that
may impact the comparability of our results of operations to those of companies
in similar businesses.
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.
Non-GAAP Financial Measures
Our reported results are presented in accordance withU.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. 42 -------------------------------------------------------------------------------- We compute FFO in accordance with the definition adopted by theBoard of Governors of theNational Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude 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 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.
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:
Twelve Months Ended December 31,
2022 2021
Net loss $ (2,747,178 ) $ (712,433 )
Gain on disposal of property - (923,178 )
Depreciation and amortization 2,110,975 1,508,340
Funds From Operations$ (636,203 ) $ (127,271 ) Amortization of debt issuance costs 118,930
120,343
Non-cash stock compensation 421,882
314,122
Write-off of deferred financing cost 252,256 - Adjustments to Funds From Operations $ 793,068 $ 434,465 Core Funds From Operations $ 156,865 $ 307,194 Net loss$ (2,747,178 ) $ (712,433 ) Gain on disposal of property - (923,178 ) Depreciation and amortization 2,110,975
1,508,340
Amortization of debt issuance costs 118,930
120,343
Above and below-market lease amortization, net (102,775 ) (147,228 ) Straight line rent, net 53,193 (12,633 ) Adjustments to net income (loss)$ 2,180,323 $ 545,644 Adjusted Funds From Operations$ (566,855 ) $ (166,789 ) Dead deal expense 174,722 - Loss on debt extinguishment 144,029 - Non-cash stock compensation 421,882 314,122 Write-off of deferred financing cost 252,256 -
Adjustments to Adjusted Funds From Operations $ 992,889 $ 314,122 Core Adjusted Funds From Operations
$ 426,034 $ 147,333
Net loss$ (2,747,178 ) $ (712,433 ) Net income attributable to non-controlling interests (490,462 ) (513,581 ) Net loss attributable to Generation Income Properties, Inc.$ (3,237,640 ) $ (1,226,014 ) 43
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Jumpstart Our Business Startups Act ("JOBS Act")
InApril 2012 , the Jumpstart Our Business Startups Act ("JOBS Act") was enacted into law. The JOBS Act provides, among other things, exemptions for emerging growth companies from certain financial disclosure and governance requirements for up to five years. In general, under the JOBS Act a company is an emerging growth company if its initial public offering ("IPO") of common equity securities was effected afterDecember 8, 2011 and the company had less than$1.07 billion of total annual gross revenues during its last completed fiscal year. We currently qualify as an emerging growth company, but will no longer qualify after the earliest of:
•
the last day of the fiscal year during which we have annual total gross revenues
of
•
the last day of the fiscal year following the fifth anniversary of the first sale of our common equity securities in an offering registered under the Securities Act;
•
the date on which we issue more than
•
the date on which we become a large accelerated filer, which generally is a
company with a public float of at least
As an emerging growth company, we are eligible to include audited financial statements required for only two fiscal years and limited executive compensation information.
Pursuant to the relief for emerging growth companies under the JOBS Act, our independent registered public accounting firm is not required to file an attestation report on our internal controls over financial reporting and is exempt from the mandatory auditor rotation rules.
In addition, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standard. The decision by companies to "opt out" of the extended transition period for complying with new or revised accounting standards is irrevocable. We are not electing to opt out of the JOBS Act extended accounting transition period. We intend to take advantage of the extended transition period provided under the JOBS Act for complying with new or revised accounting standards. To the extent we take advantage of the reduced disclosure requirements afforded by the JOBS Act, investors may be less likely to invest in us or may view our shares as a riskier investment than a similarly situated company that does not take advantage of these provisions.
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