Generation Income Properties, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 18, 2022. The company is an internally managed real estate investment company focused on U.S. retail, office and industrial properties, generally leased to single tenants. At year-end it owned nine properties and held a 36.8% interest in a separate tenant-in-common property; three additional property acquisitions after year-end brought its portfolio to twelve properties by March 9, 2022.
Financial results and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $3.900 million | $3.520 million |
| Total expenses | $5.548 million | $4.865 million |
| Net loss | $0.712 million | $1.345 million |
| Net loss attributable to shareholders | $1.242 million | $1.832 million |
| Basic and diluted loss per share | $1.16 | $3.44 |
| Net cash from (used in) operations | $(0.174) million | $0.257 million |
| Cash and restricted cash, year-end | $10.624 million | $1.122 million |
| Mortgage loans, net of debt issuance costs, year-end | $28.969 million | $29.457 million |
- Revenue increased about 11%, mainly reflecting properties acquired during 2021, partly offset by the August sale of a Walgreens property; 2021 other income included $45,250 in acquisition-fee revenue.
- The company reported an operating loss of $1.648 million. The $923,178 gain on the Walgreens property sale reduced the reported net loss. Cumulative net loss since inception was approximately $5.4 million.
- Net cash used in investing activities was $3.931 million, including property purchases and the tenant-in-common investment, partly offset by $5.246 million of sale proceeds. Financing activities provided $13.606 million, including proceeds from the public offering, new debt and redeemable non-controlling interests.
- Year-end total assets were $53.421 million, total liabilities $30.146 million, and redeemable non-controlling interests $9.621 million. Cash and restricted cash totaled $10.624 million.
- Debt principal maturities were concentrated in 2023 ($4.240 million) and 2024 ($12.981 million); the filing reports $29.607 million of scheduled principal payments in total. Current mortgage payments due within twelve months were approximately $0.6 million.
- The company had a $25 million master credit facility commitment, with variable-rate borrowings subject to a 3.25% floor; approximately $2.4 million had been borrowed under it at year-end. Management stated available cash, facility availability and expected property revenues should cover funding needs for at least twelve months.
Material changes versus 2020
- Revenue rose by approximately $380,000, while total expenses increased by approximately $683,000. The net loss narrowed by approximately $632,000, aided by the property-sale gain.
- Cash from operations shifted from $257,000 provided in 2020 to $174,000 used in 2021. Cash and restricted cash rose substantially, primarily with the September 2021 public offering.
- The company acquired three properties in 2021, sold the Walgreens property, and completed a public offering of 1.665 million units for approximately $13.8 million in net proceeds. Common stock and warrants began trading separately on Nasdaq in October 2021.
- At December 31, 2021, the portfolio was 100% leased and occupied. Approximately 77% of leases, measured by annualized rent, provided for contractual rent increases; approximately 80% of annualized rent, excluding the tenant-in-common property, came from investment-grade-rated tenants.
Outlook, risks and unusual items
- Management intends to grow the net-lease portfolio and described no specific earnings, revenue or acquisition guidance. It said it was not party to a binding agreement to acquire additional properties as of March 9, 2022.
- The board authorized monthly distributions of $0.054 per share for January through March 2022. The company reported that distributions to date had been funded from prior capital raises because it had not generated cumulative profit; future distributions are discretionary and may depend on operating cash flow, financing or asset sales. The CEO waived his right to distributions.
- Tenant and property concentration are significant risks: the business had a small portfolio, and several tenants accounted for large shares of rent. Maersk’s lease was scheduled to expire in December 2022; PRA had a conditional termination right in August 2024. Tenant default, nonrenewal or lease termination could impair cash flow and distributions.
- Debt-related risks include variable interest rates, covenants and refinancing needs. The CEO personally guaranteed approximately $16.9 million of specified loan principal and provided nonrecourse carve-out guarantees on additional Norfolk loans totaling approximately $12.7 million.
- The company intended to elect REIT taxation beginning with tax year 2021, but qualification depends on meeting ongoing tax tests. Deferred tax assets were fully offset by a valuation allowance; net operating loss carryforwards were approximately $4.623 million.
- Additional risks include inflation and rising interest rates, environmental and casualty exposures, competition, limited operating history and staffing, reliance on external capital, and potential dilution from equity or warrant issuance. Management reported no adverse COVID-19 impact on tenant arrangements to date.
- The audited financial statements received an unqualified opinion. Management reported effective disclosure controls; the filing did not include management’s internal-control assessment or an auditor attestation, citing the newly public company transition period.
Important facts for investors to verify
- Whether operating cash flow improves enough to support expenses, debt service and distributions without relying on offering proceeds or additional borrowing.
- Tenant concentration, upcoming lease expirations and the status of Maersk’s 2022 lease, PRA’s termination right, and contractual rent escalators.
- Debt terms, variable-rate exposure, 2023–2024 maturities, facility availability and compliance with debt-service coverage covenants.
- Whether the company satisfies REIT qualification and distribution requirements for 2021 and subsequent tax years.
- Post-year-end acquisitions, associated financing and ground-lease obligations, including the Tucson property’s land rent and renewal terms.
- Potential dilution and changes in ownership from outstanding warrants, equity awards, and redeemable non-controlling interests.