Generation Income Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company is a REIT focused on net-leased retail, office and industrial properties. At quarter-end it owned 12 properties and a partial interest in one additional property; its portfolio was 93% leased and occupied.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $1.329 million | $1.379 million | $2.666 million | $2.561 million |
| Operating expenses | $1.987 million | $2.043 million | $4.023 million | $3.679 million |
| Net loss | $0.752 million | $0.917 million | $1.943 million | $1.362 million |
| Net loss attributable to common stockholders | $0.881 million | $1.047 million | $2.199 million | $1.622 million |
| Basic and diluted loss per share | $(0.34) | $(0.46) | $(0.85) | $(0.73) |
- Q2 revenue decreased $50,225, primarily following a tenant move-out in January 2023. Six-month revenue rose $104,879, reflecting 2022 acquisitions, partly offset by that vacancy.
- Six-month operating expenses increased $343,571. Interest expense rose $230,040, including CEO guarantee fees; depreciation and amortization rose $125,982, and building costs increased $55,263. Lower corporate legal costs partly offset these increases.
- Six-month results included a $506,000 accrual for potential reimbursement of a partner’s income taxes under a tax protection agreement, and $109,569 of dead-deal costs. No real estate impairment was recorded.
- Cash and cash equivalents were $2.105 million at June 30, 2023, down from $3.718 million at year-end; including restricted cash, period-end cash was $2.140 million. Total assets were $62.045 million and total liabilities $47.225 million. Stockholders’ equity was $8.057 million; redeemable non-controlling interests were $6.343 million.
- Six-month operating cash flow was negative $528,151, versus negative $127,247 in 2022. Investing used $188,854, while financing used $896,099; cash declined $1.613 million overall. Common-stock dividends paid were $603,470.
- Mortgage principal was $35.618 million at quarter-end ($34.959 million net of issuance costs). Additional related-party obligations included a $1.500 million loan and $2.262 million payable. The filing’s scheduled 2024 payments total $15.737 million, including $12.427 million mortgage principal, $1.810 million related-party payable and the $1.500 million related-party loan.
Material changes, outlook and risks
- Compared with Q2 2022, quarterly net loss narrowed, mainly as general and administrative costs fell and the prior-year debt-extinguishment loss did not recur. For the six-month period, net loss widened, reflecting higher expenses and the $506,000 tax-protection accrual.
- Management said cash on hand, facility availability, property revenue and debt financing should provide sufficient liquidity for at least 12 months after issuance of the financial statements. The American Momentum Bank facility had no outstanding balance at June 30, 2023. The filing also states all mortgage covenants were met.
- Management did not provide numerical earnings or revenue guidance. It expects to continue monthly common distributions, subject to board approval and financial condition; $0.039 per share was authorized for July, August and September 2023. The company reported that approximately 62% of annualized base rent came from investment-grade tenants, while its four largest tenants accounted for approximately 66%.
- Tenant concentration and lease events warrant attention: Pratt & Whitney could terminate its lease on January 31, 2024 upon payment of a fee, and PRA Holdings may terminate on August 31, 2024 subject to conditions. The GSA and PRA Norfolk mortgages mature in September and October 2024, respectively.
- Subsequent events: On July 21, 2023, the related-party Brown Family Enterprises loan was increased from $1.5 million to $5.5 million and its maturity extended to October 2026. On August 10, the company acquired 13 properties for $42.0 million plus estimated transaction costs of $1.6 million. Funding included $21.0 million of mortgage debt bearing a fixed 7.47% rate, $12.0 million of preferred equity with a 15.5% cumulative annual return (and a further $2.1 million contribution commitment), and 2.4 million Series A preferred shares issued to the seller. Those shares carry cumulative dividends of 9.5%, increasing to 12% in September 2024. These transactions occurred after quarter-end and are not reflected in June 30 balances.
- Concurrent with the acquisition, the company agreed to redeem certain preferred interests for $2.1 million in total, plus deferred distributions. Management identified forward-looking risks generally, but reported no material changes to the risk factors in its 2022 Form 10-K, no material legal proceedings, and effective disclosure controls as of June 30.
Important facts for investors to verify
- Whether the January 2024 Pratt & Whitney termination option is exercised, and the status of the PRA lease termination right and Norfolk mortgage maturities.
- How the company will fund 2024 scheduled payments and maintain liquidity given low cash, negative operating cash flow and its stated reliance on financing and facility availability.
- The final costs, property-level leasing and operating performance, and cash-flow contribution of the August 2023 portfolio acquisition.
- The terms, cumulative return accrual and redemption funding requirements of the new LC2 preferred equity and Series A preferred stock, alongside other preferred-interest redemptions.
- The amount and timing of any tax-protection reimbursement, and whether common distributions remain sustainable while the company reports losses and negative operating cash flow.