Generation Income Properties, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company owns and operates net-leased retail, office and industrial properties. At quarter-end it held 12 consolidated properties and a 50% interest in one additional property.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1.379 million | $0.988 million | $2.561 million | $1.925 million |
| Operating loss | $(0.664) million | $(0.318) million | $(1.118) million | $(0.639) million |
| Net loss | $(0.917) million | $(0.318) million | $(1.362) million | $(0.639) million |
| Net loss attributable to company | $(1.047) million | $(0.370) million | $(1.622) million | $(0.838) million |
| Basic and diluted loss per share | $(0.46) | $(0.63) | $(0.73) | $(1.44) |
- Revenue increased approximately 40% for Q2 and 33% for the six-month period, mainly reflecting acquisitions, partly offset by a property sold in August 2021.
- Total expenses rose to $2.043 million in Q2 and $3.679 million for the six months. Management cited higher corporate costs, tenant-reimbursable building expenses, depreciation and compensation; Q2 interest expense also increased.
- Six-month cash used in operating activities was $127,247, versus $38,238 in 2021. Investing activities used $13.162 million, primarily for acquisitions and an additional TIC investment; financing activities provided $6.348 million.
- Cash and cash equivalents were $3.649 million, plus $34,581 restricted cash, at June 30, down from $10.590 million and $34,500, respectively, at year-end 2021.
- Mortgage principal was $36.242 million ($35.456 million net of unamortized issuance costs). Total assets were $65.299 million. The company reported $628,316 of current liabilities and compliance with debt covenants.
- Management’s non-GAAP Core AFFO was $36,293 for Q2 and $124,288 for the six months, compared with $107,916 and $230,419, respectively, in 2021. These measures are not substitutes for GAAP earnings or operating cash flow.
Material developments and unusual items
- Three properties were acquired in 2022: Fresenius Medical Care in Chicago, Starbucks in Tampa, and a Kohl’s leasehold property in Tucson. The April refinancing included two loans totaling approximately $13.5 million; the new loans carry a 3.85% rate through March 2027, then adjust to the five-year Treasury rate plus 2.5%, subject to a 3.85% floor.
- Q2 included $107,371 of expenses on an abandoned acquisition and a $144,029 debt-extinguishment loss, which included a $21,000 prepayment penalty and write-off of unamortized issuance costs.
- Debt principal payments due in 2024 total $12.427 million. The company also has personal guarantees by its president on specified loans and nonrecourse carve-out obligations.
- A $50 million master credit commitment was approved in May, but the increase from the existing $25 million facility is conditional on a future capital raise of at least $25 million. The facility had no outstanding balance at quarter-end.
- Management said cash on hand, facility availability, property revenue and debt proceeds were expected to provide sufficient liquidity for at least the next 12 months. No formal earnings or operating guidance was provided.
- After quarter-end, the company agreed to redeem an operating-partnership holder’s units through cash payments and issuance of 200,000 common shares, with further cash redemptions scheduled through December 2024. The agreement creates potential cash and dilution impacts.
- The company authorized monthly distributions of $0.054 per share for July through September 2022. Distributions are not guaranteed and remain subject to board approval and financial condition.
- Management disclosed an immaterial correction to prior-period financial statements involving classification of a partnership interest between redeemable and permanent non-controlling interests. The correction did not change total assets or liabilities.
Portfolio, risks and other disclosures
- Management reported the portfolio was 100% leased and occupied; approximately 85% of annualized base rent was from tenants or parent companies rated investment grade. The four largest tenants accounted for approximately 66% of annualized base rent.
- Tenant concentration and lease events warrant attention: Maersk’s remaining term was listed as 0.5 years and it had not exercised its renewal option by the required date. PRA Holdings and Pratt & Whitney have conditional termination rights in 2024.
- The company identified no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective; no material change in internal control was reported.
- The company recorded no income tax benefit, citing cumulative losses and a valuation allowance. No real estate or TIC investment impairment was reported for the six-month period.
Most important facts for investors to verify
- Whether the company can sustain distributions given operating cash outflows, ongoing losses and reduced cash balances.
- Near-term tenant lease exposure, particularly Maersk’s non-renewal status and termination rights held by certain tenants.
- Funding and refinancing plans for the $12.427 million of principal due in 2024, and the conditions attached to the expanded credit facility.
- The timing and final cash and share impact of the post-quarter unit redemption agreement.
- Whether acquisition growth improves recurring operating results enough to offset higher expenses, debt costs and dilution.