Generation Income Properties, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. The company is an internally managed REIT investing mainly in single-tenant retail, office and industrial properties. It owned 26 properties at year-end, up from 12 properties plus a partial interest in one property a year earlier.
Financial and operating performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $7.63 million | $5.43 million |
| Operating loss | $3.46 million | $2.47 million |
| Net loss | $4.44 million | $2.75 million |
| Net loss attributable to common shareholders | $6.19 million | $3.24 million |
| Basic and diluted loss per share | $2.46 | $1.40 |
| Cash from operating activities | $12,345 | $583,884 |
| Cash used in investing activities | $33.31 million | $13.28 million |
| Cash from financing activities | $32.70 million | $5.83 million |
Revenue increased 40.5%, principally reflecting the August 2023 acquisition of 13 properties from Modiv. Expenses also rose, including depreciation and amortization, building expenses and interest. The company reported negative operating and net margins; calculated as operating loss and net loss divided by revenue, respectively. Core FFO was $534,272 (versus $156,865), while Core AFFO was $705,540 (versus $426,034). These are non-GAAP measures and do not represent cash available for distribution.
At December 31, 2023, total assets were $108.69 million, cash and restricted cash were $3.15 million, total liabilities were $74.17 million, and mortgage loans were $56.82 million net of discounts and issuance costs. Contractual mortgage principal was $58.14 million before those deductions. Portfolio annualized base rent was $8.65 million; occupancy was 96%, 68% of annualized rent came from investment-grade tenants, and 84% of leases provided for contractual rent increases.
Material changes and unusual items
- The Modiv portfolio purchase closed August 10, 2023 for $42.0 million, plus approximately $1.9 million of estimated transaction costs. Consideration included $30.0 million cash and $12.0 million of Series A preferred stock; financing included a $21.0 million mortgage loan and LC2 preferred equity.
- Cash from operations fell to $12,345, while the company’s net loss widened. Management attributed the operating-cash decline largely to increases in receivables, escrow and other assets, and prepaid expenses following portfolio growth.
- The company recognized $401,782 of derivative valuation loss and $506,639 of other expense in 2023. It also incurred approximately $290,000 of CEO guaranty-fee expense, and accrued approximately $506,000 related to a potential tax-protection reimbursement.
- After year-end, on January 29, 2024, all 2.4 million Series A preferred shares were exchanged for 2,794,597 common shares. This removed the preferred shares but increased common-share dilution.
- On March 28, 2024, the company agreed to sell its Huntsville, Alabama property for $6.15 million, subject to customary closing conditions and due diligence.
Liquidity, debt, distributions and outlook
The independent auditor’s report includes a going-concern paragraph, and management disclosed substantial doubt about the company’s ability to continue as a going concern. The company had recurring losses, only $3.15 million of cash and restricted cash at year-end, and two BayPort Credit Union mortgages of approximately $7.3 million and $4.6 million maturing in September and October 2024. Management planned to refinance them and reported active discussions with the lender, but gave no assurance of success or acceptable terms. The filing states that anticipated liquidity is insufficient to cover these maturities without refinancing or other funding.
The company reported a project-level debt-service coverage covenant shortfall for 2510 Walmer Ave. (1.17:1 against a 1.25:1 minimum), associated with vacancy. The lender had indicated no intention to act; a new lease was executed March 28, 2024 and was expected to restore occupancy upon commencement. The $21.0 million Valley National Bank loan is fixed through a swap at 7.47%, cross-collateralized across 21 properties, and matures in August 2028. The company also had $5.5 million of related-party debt due in 2026 and $1.81 million of related-party redemption payable scheduled for 2024.
LC2’s $14.1 million preferred investment carries a cumulative 15.5% annual return, compounded monthly, and is redeemable by August 10, 2025; extensions may raise the rate to 18%. LC2 also has approval rights over significant decisions affecting assets held by GIP SPE, which includes 21 properties. The filing describes a 1.3-times investment make-whole provision and priority claims on distributions.
The board authorized monthly common distributions of $0.039 per share for January through March 2024. The company has not generated a cumulative profit and disclosed that distributions to date were funded from prior capital raises. It reported $1.22 million of common-stock dividends paid in 2023. The filing does not provide a profitability or acquisition forecast; management says results may change as the portfolio grows and cites refinancing, capital availability, interest rates and tenant performance as important factors.
Key risks and investor verification points
- Refinancing and going concern: Verify the status and terms of refinancing the September and October 2024 maturities, and whether liquidity is adequate if refinancing is delayed or unavailable.
- Covenant and occupancy: Confirm commencement of the new 2510 Walmer Ave. lease and cure of the DSCR shortfall; verify the post-year-end status of the Pratt & Whitney tenant, which vacated in January 2024.
- LC2 obligations and control: Review the preferred return accrual, redemption funding plan, extension conditions, make-whole amount and LC2 consent rights.
- Distribution sustainability: Assess distributions against operating cash flow and earnings, given the company’s losses and disclosure that past distributions were funded from capital raises.
- Portfolio concentration and lease rollover: Review tenant concentration, lease termination rights and upcoming expirations. The filing identifies substantial reliance on a limited number of tenants and single-tenant assets.
- Sale and capital structure: Verify closing of the proposed $6.15 million Alabama property sale and assess the impact of the 2.79 million shares issued in the Series A exchange on dilution and per-share economics.