Generation Income Properties, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company is an internally managed REIT focused on net-leased commercial real estate. At quarter-end it owned 12 properties and a 50% interest in one tenancy-in-common property; its consolidated portfolio was reported as 100% leased and occupied.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $1.474 million | $1.033 million | $4.035 million | $2.959 million |
| Total expenses | $1.957 million | $1.306 million | $5.636 million | $3.870 million |
| Operating loss | $(483,208) | $(272,100) | $(1.601) million | $(911,468) |
| Consolidated net income (loss) | $(512,117) | $655,828 | $(1.874) million | $16,460 |
| Net income (loss) attributable to GIP shareholders | $(638,920) | $455,551 | $(2.261) million | $(382,321) |
| Basic and diluted EPS | $(0.28) | $0.48 | $(1.00) | $(0.55) |
Revenue rose approximately 43% in Q3 and 36% for the nine-month period, mainly reflecting property acquisitions. Expenses grew faster, driven by higher general and administrative costs, compensation, depreciation and building expenses. The prior-year nine-month results included a $923,178 gain on a property sale; 2022 included $153,031 of dead-deal costs and a $144,029 debt-extinguishment loss. No real estate impairments were recorded in either nine-month period.
Operating margin was approximately negative 32.8% in Q3 2022, compared with negative 26.3% in Q3 2021; for the first nine months it was approximately negative 39.7%, compared with negative 30.8% in 2021.
Cash flow, nine months: Operating activities provided $275,717, investing activities used $13.279 million, and financing activities provided $5.001 million. Cash and cash equivalents were $2.588 million at quarter-end, plus $34,500 restricted cash, versus $10.590 million cash at year-end 2021.
Balance sheet and debt: Total assets were $63.809 million, total liabilities $45.716 million, total equity $12.319 million, and redeemable non-controlling interests $5.774 million. Mortgage principal was $36.099 million ($35.365 million net of issuance costs), up from $29.607 million at December 31, 2021. A separate $2.587 million related-party payable was recorded for a unit redemption. Mortgage covenants were reported in compliance. Principal maturities include $12.427 million in 2024; $21.566 million is due thereafter.
Supplemental non-GAAP measures: Q3 FFO was $49,393 and Core FFO $325,542; nine-month FFO was negative $323,248 and Core FFO $232,551. The company cautions that these measures are not substitutes for GAAP earnings or operating cash flow.
Material changes, outlook and risks
- 2022 acquisitions included Fresenius Medical Care, Starbucks and a Kohl’s leasehold property. Management attributed revenue growth to acquisitions, partly offset by the 2021 sale of a Walgreens property.
- Approximately 85% of portfolio annualized base rent came from investment-grade-rated tenants or their parents; four major tenants accounted for approximately 66% of annualized base rent. Approximately 92% of leases had contractual rent increases.
- April 2022 refinancing added two loans with an aggregate quarter-end balance of approximately $13.5 million. Their 3.85% rate resets after March 2027 to the five-year Treasury rate plus 2.5%, subject to a 3.85% floor. The company also has a $25 million acquisition facility; its commitment was amended to reference 30-day CME Term SOFR plus 2.40%, subject to a 3.25% floor. No facility balance was outstanding at quarter-end.
- Management stated that cash on hand, facility availability, property revenue and debt proceeds were expected to support funding needs for at least the next 12 months. This outlook is subject to financing availability and operating risks; the filing gives no earnings or revenue guidance.
- After quarter-end, the board authorized monthly distributions of $0.039 per share for October–December 2022, down from the $0.054 monthly rate declared earlier in 2022. Also after quarter-end, the company borrowed $1.5 million from a related party at 9% fixed interest, due October 2024 and secured by subsidiary equity interests.
- Tenant concentration, the 2024 loan maturities, low cash relative to debt, variable-rate exposure, and related-party redemption and financing arrangements merit attention. Management disclosed no material legal proceedings and no material changes to previously reported risk factors.
- The filing corrected an immaterial prior-period accounting classification error involving non-controlling interests; management said previously issued statements were not materially misstated. Disclosure controls were assessed as effective as of September 30, 2022.
Important facts for investors to verify
- Property-level rent rolls, lease expirations and tenant renewal or termination rights, particularly for major tenants and the Maersk lease.
- Liquidity projections, availability and conditions under the American Momentum Bank facility, and the company’s ability to meet 2024 debt maturities.
- Debt covenants, reset terms, guarantees and exposure to interest-rate changes.
- Cash distributions relative to operating cash flow and the rationale and sustainability of the reduced post-quarter distribution.
- Payment schedule and terms of the $2.587 million related-party redemption payable, and terms and collateral of the subsequent $1.5 million related-party loan.
- Reconciliation of GAAP losses to FFO/AFFO and the cash costs excluded from those non-GAAP measures.