Generation Income Properties, Inc. — Q1 2023 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. The company is a net-lease real estate investment company; it reported 12 owned properties and a partial interest in one additional property. It owned 90% of its operating partnership at quarter-end.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable / prior date |
|---|---|---|
| Total revenue | $1.337 million | $1.182 million in Q1 2022 |
| Rental income | $1.327 million | $1.182 million in Q1 2022 |
| Total expenses | $2.036 million | $1.636 million in Q1 2022 |
| Operating loss | $699,000 | $454,000 loss in Q1 2022 |
| Net loss | $1.190 million | $446,000 loss in Q1 2022 |
| Net loss attributable to company | $1.318 million; $0.52 per share | $575,000; $0.26 per share in Q1 2022 |
| Cash flow from operations | -$851,000 | -$211,000 in Q1 2022 |
| Cash and restricted cash | $2.772 million, including $2.737 million unrestricted cash | $3.753 million at December 31, 2022 |
| Mortgage principal | $35.800 million | $35.951 million at December 31, 2022 |
| Total assets / total liabilities | $63.172 million / $47.241 million | $64.210 million / $47.284 million at December 31, 2022 |
The filing does not provide a clear operating-margin measure. It reports negative operating and net results. No property acquisitions were completed in Q1 2023; the company paid a $50,000 escrow deposit. It terminated an agreement after quarter-end to buy a Kansas retail property for $8.2 million.
Changes versus Q1 2022
- Revenue rose about $145,000, which management attributed to three properties acquired during Q1 2022.
- Expenses rose about $400,000. Interest expense increased $139,000, depreciation and amortization $127,000, building expenses $60,000, and compensation costs $72,000.
- Net loss widened by about $745,000. Q1 2023 included a $506,000 accrual for potential tax-protection-agreement reimbursement to a former partner; no such expense was reported in Q1 2022.
- Operating cash use increased by about $640,000. The company paid $297,000 in common-stock dividends in Q1 2023, versus $335,000 in Q1 2022.
Liquidity, debt, outlook and risks
- Management expects available cash, credit-facility availability, property revenue and debt proceeds to meet funding needs for at least the next 12 months. The $25 million American Momentum Bank facility had no outstanding balance at quarter-end; its stated borrowing rate is variable, with a 3.25% floor.
- Scheduled principal obligations total $39.562 million: $35.800 million mortgage loans, $2.262 million related-party payable and a $1.500 million related-party loan. The schedule lists $15.737 million due in 2024, including $12.427 million of mortgage principal. The GSA and PRA Norfolk mortgages mature in September and October 2024.
- In February, the company raised $3.0 million of preferred equity from Brown Family Enterprises for two Norfolk properties. It carries a 7% IRR paid monthly, includes a 16% share of equity proceeds upon a qualifying capital transaction, and is redeemable after 24 months. Separately, a related-party loan bears 9% interest and is due October 2024.
- Management reported compliance with mortgage covenants. Certain loans have debt-service-coverage requirements; one also has a loan-to-value requirement. The CEO has provided guarantees on specified borrowings, and the company incurred $60,493 of guarantee-fee expense to him in Q1.
- Portfolio occupancy was 93%; investment-grade tenants accounted for approximately 62% of annualized base rent, while the four largest tenants contributed approximately 66%. The filing notes lease-termination rights for Pratt & Whitney and PRA, among other tenant and concentration exposures.
- Distributions of $0.039 per share monthly for April through June 2023 were authorized after quarter-end. The filing gives no earnings or acquisition guidance. Management cautions that results for the quarter are not necessarily indicative of full-year results.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2023.
Important facts for investors to verify
- How the company will fund the substantial 2024 mortgage and related-party obligations, and whether refinancing or other capital is available on acceptable terms.
- Whether operating cash flow can improve enough to support distributions, given the Q1 operating cash outflow and continuing net losses.
- The status and potential amount or timing of the $506,000 tax-protection reimbursement accrual.
- Tenant retention, the 93% occupancy level, and exposure to major tenants and their lease-termination rights.
- Redemption rights and costs associated with preferred equity and operating-partnership interests, including the new Norfolk financing.
- The effect of variable-rate debt after applicable reset dates and the company’s ability to maintain loan covenants and required coverage ratios.