Generation Income Properties, Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. The company is an internally managed REIT-focused real estate owner, with 12 consolidated properties and a 36.8% interest in one additional property at quarter-end.
Financial results and liquidity
- Revenue: Rental income was $1.182 million, up 26% from $937,000 in Q1 2021, primarily from properties acquired since April 2021.
- Expenses and profit: Total expenses rose to $1.636 million from $1.259 million. Operating loss was $454,000 versus $322,000; consolidated net loss was $446,000 versus $322,000. Net loss attributable to the company was $581,000 versus $473,000. Loss per share improved to $0.26 from $0.82, while weighted-average shares increased to 2.20 million from 580,000 following the 2021 public offering.
- Margins: Operating margin was approximately negative 38% versus negative 34% a year earlier. General and administrative costs and compensation increased, partly offset by lower interest expense.
- REIT operating measures: FFO was negative $15,000 versus positive $58,000; Core FFO was $113,000 versus $171,000; AFFO was negative $6,000 versus positive $40,000; and Core AFFO was $88,000 versus $123,000. These are non-GAAP measures and are not substitutes for cash flow or GAAP results.
- Cash flow: Operating activities used $211,000, investing activities used $12.7 million, and financing activities provided $6.9 million. Cash and restricted cash totaled $4.64 million at quarter-end, down from $10.62 million at year-end 2021.
- Debt and liquidity: Mortgage loans, net of unamortized discount, were $35.0 million, versus $29.0 million at December 31, 2021. Total liabilities were $43.0 million; redeemable non-controlling interests were $10.7 million. Management said cash, facility availability, property revenue, and debt proceeds should meet funding needs for at least 12 months. Current mortgage payments due within 12 months were approximately $1.9 million.
- Dividends: $335,000 of common-stock dividends were paid in the quarter. The company reported no cumulative profit since inception and said distributions have been funded from offering proceeds.
Material changes and developments
- The company acquired three properties in Q1: Fresenius in Chicago, Starbucks in Tampa, and a Kohl’s leasehold property in Tucson, for approximately $12.8 million net of acquired lease liabilities. Acquisitions were funded with debt, cash, and $1.1 million of redeemable non-controlling interests.
- Real estate investment carrying value increased to $53.9 million from $41.3 million. The company reported 100% occupancy; approximately 85% of annualized rent was from tenants or parent companies rated investment grade, and approximately 92% of leases included future contractual rent increases.
- On April 1, 2022, the company entered into approximately $13.5 million of refinancing loans at a fixed 3.85% rate through March 31, 2027, with a later rate reset subject to a 3.85% floor. The loans refinance seven properties and mature in 2032.
- A May 2022 amendment increased a master credit facility’s potential capacity from $25 million to $50 million, conditional on a future capital raise of at least $25 million; the existing commitment remains in place until that condition is met. Borrowings under the facility were approximately $7.6 million at March 31.
Outlook, risks, and other notable items
- Management expects available cash, facility availability, property revenue, and debt financing to provide sufficient liquidity for at least the next 12 months. The filing provides no earnings or acquisition guidance.
- Interest-rate exposure includes variable-rate mortgage debt and a prime-rate master facility. Debt agreements include debt-service coverage requirements; the company reported compliance with all covenants at March 31, 2022.
- The CEO personally guaranteed approximately $22.1 million of specified loan principal, in addition to providing a non-recourse carve-out guaranty for Norfolk property loans.
- Tenant concentration and lease events warrant attention: the GSA, Kohl’s, and PRA Group together represented approximately 52.3% of annualized base rent; the Maersk lease expires in December 2022, and PRA has a conditional termination right in August 2024.
- Several preferred and operating-partnership interests have redemption rights and preferred returns, which may affect cash needs or future equity dilution. No impairments were recorded; the company reported no material legal proceedings or material changes to previously disclosed risk factors.
- Management concluded disclosure controls were effective as of March 31, 2022 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the acquired properties contribute enough rent and operating cash flow to improve recurring results and support distributions.
- Near-term refinancing and repayment requirements, variable-rate debt exposure, facility availability, and compliance with all loan covenants.
- Tenant concentration, the Maersk lease expiration, PRA’s termination option, and the credit quality and rent coverage of major tenants.
- The extent to which distributions continue to rely on offering proceeds or new financing rather than operating cash flow.
- Conditions and timing for the proposed $50 million facility capacity, including completion of the required capital raise, and potential dilution or cash demands from redeemable interests and warrants.