Generation Income Properties, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2021, compared with the same 2020 periods. The internally managed real estate company acquires and operates net-leased retail, office and industrial properties. It intended to elect REIT status beginning with tax year 2021. At quarter-end, its portfolio was 100% leased and occupied; approximately 78% of annualized rent came from tenants or parent companies rated investment grade, while a few tenants contributed a substantial share of rent.
Financial performance and position
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $1.03 million for Q3; $2.96 million for nine months | $0.87 million and $2.63 million, respectively, in 2020 |
| Net income (loss) | $656,000 for Q3; $16,000 for nine months | $(403,000) and $(997,000), respectively, in 2020 |
| Net income (loss) attributable to the Company | $456,000 for Q3; $(393,000) for nine months | $(555,000) and $(1.33) million, respectively, in 2020 |
| Basic and diluted EPS | $0.49 for Q3; $(0.56) for nine months | $(1.06) and $(2.54), respectively, in 2020 |
| Operating cash flow | $173,000 for nine months | $177,000 in 2020 |
| Cash and restricted cash | $14.23 million | $1.12 million at December 31, 2020 |
| Mortgage debt, net of issuance costs | $26.77 million | $29.46 million at December 31, 2020 |
| Total assets | $52.41 million | $40.68 million at December 31, 2020 |
Q3 operating loss was $272,000; nine-month operating loss was $911,000. The filing does not present a conventional operating margin measure. Nine-month Core FFO was $539,000 and Core AFFO was $423,000; these are non-GAAP measures and should not be treated as cash available for distribution.
Material changes versus prior comparable periods
- Revenue rose 19% for Q3 and 12% for the first nine months, primarily because properties acquired since November 2020 contributed rent.
- Q3 GAAP net income included a $923,000 gain on the August sale of the Cocoa Beach Walgreens property. Without that gain, the reported profit would not reflect the company’s recurring operating result.
- The company sold the Cocoa property for approximately $5.2 million, repaid its associated $3.4 million mortgage and redeemed $1.2 million of preferred interest. It acquired properties in Manteo, North Carolina and Plant City, Florida, and acquired a 36.8% interest in a Rockford, Illinois tenancy-in-common property.
- September’s public offering of 1.665 million units, each comprising a share and warrant, generated approximately $14.4 million in net proceeds. The share count increased materially; 2,160,200 common shares were outstanding as of November 11, 2021.
- Cash from financing activities was $11.9 million, compared with net financing cash use of $756,000 in 2020, chiefly reflecting offering proceeds and redeemable non-controlling interest contributions.
Outlook, risks and unusual items
- Management said cash, operating revenue, offering proceeds and expected facility availability should be sufficient for funding needs for at least 12 months. This is forward-looking and not a guarantee.
- After quarter-end, the company entered a commitment letter for a $25 million master credit facility for acquisitions. It carries a variable rate with a 3.25% floor, a 24-month interest-only term for each loan, and a two-year maturity. Availability is subject to conditions, covenants and lender termination rights.
- Subsequent-event acquisition agreements covered properties in Colorado, Illinois, Florida and Texas; they were subject to customary closing conditions, due diligence and financing. The Texas portfolio’s stated annual base rent was approximately $1.1 million, with approximately $511,000 of annual ground rent.
- The company reported compliance with all existing debt covenants at September 30. Its president personally guaranteed repayment of approximately $14.6 million of specified loans and provided non-recourse carve-out guarantees related to approximately $12.8 million of Norfolk debt.
- Management stated that distributions have been made from offering proceeds because the company had not generated cumulative profit. Future dividends are discretionary; the company has no minimum dividend obligation beyond REIT qualification requirements. A monthly $0.054-per-share distribution for October through December 2021 was announced after quarter-end.
- Tenant and lease concentration, refinancing and variable-rate exposure, future acquisition funding, and the company’s cumulative losses are key considerations. The company reported no material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls as of September 30, 2021.
Key facts for investors to verify
- How much of reported earnings and per-share results is attributable to the one-time $923,000 property-sale gain, and what recurring earnings or cash flow the portfolio generates.
- Whether the $25 million credit facility became available and on what terms; verify acquisition closings, funding mix and any resulting debt or dilution.
- Debt maturities, interest-rate terms, covenant headroom and personal guarantees, particularly the scheduled $13.0 million of principal payments in 2024 shown in the filing.
- Tenant concentration and lease rollover exposure, including Maersk’s lease expiration in 2022 and PRA Holdings’ conditional 2024 termination right.
- Whether operating cash flow can support distributions and growth without continued equity offerings, preferred capital or additional borrowing.