Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward‑Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained herein. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. Readers should be aware of important factors that, in some cases, have affected, and in the future could affect, actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds derived from operations, cash available for distribution, cash flows, liquidity and prospects include, but are not limited to, the risk factors listed from time to time in our reports with the Securities and Exchange Commission, including, in particular, those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
In this Quarterly Report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or similar terms refer to Generation Income Properties, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Generation Income Properties, L.P., a Delaware limited partnership, which we refer to as our operating partnership (the “Operating Partnership”). As
21
used in this Quarterly Report, an affiliate, or person affiliated with a specified person, is a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
Overview
We are an internally managed, Maryland corporation focused on acquiring retail, office and industrial real estate located in major U.S. markets. We initiated operations during the year ended December 31, 2015 and have elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2021. Substantially all of the Company’s assets are held by, and operations are conducted through, the Operating Partnership and the Operating Partnership’s direct and indirect subsidiaries. The Company is the general partner of the Operating Partnership and as of March 31, 2023 owned 90% of the outstanding common units of the Operating Partnership. The Company formed a Maryland entity GIP REIT OP Limited LLC in 2018 that owns 0.002% of the Operating Partnership.
Public Offering and Nasdaq Listing
In September 2021, the Company closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $10 per share. The common stock and warrants included in the units (which were separated into one share of common stock and one warrant) currently trade on the Nasdaq Capital Market (“Nasdaq”) under the symbols “GIPR” and “GIPRW,” respectively.
Our Investments
The following are characteristics of our properties as of March 31, 2023:
•Creditworthy Tenants. Approximately 62% of our portfolio’s annualized base rent ("ABR") as of March 31, 2023 was derived from tenants that have (or whose parent company has) an investment grade credit rating from a recognized credit rating agency of “BBB-” or better. Our largest tenants are the General Service Administration, PRA Holdings, Inc., Pratt and Whitney, and Kohl’s Corporation and contributed approximately 66% of our portfolio’s annualized base rent.
•% Leased. Our portfolio is 93% leased and occupied.
•Contractual Rent Growth. Approximately 100% of the leases in our current portfolio (based on ABR as of March 31, 2023) provide for increases in contractual base rent during future years of the current term or during the lease extension periods.
•Average Effective Annual Rental per Square Foot. Average effective annual rental per square foot is $15.05.
Given the nature of our leases, our tenants either pay the realty taxes directly or reimburse us for such costs. We believe all of our properties are adequately covered by insurance.
The table below presents an overview of the properties in our portfolio as of March 31, 2023:
22
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Property Type |
Location |
Rentable Square Feet |
|
Tenant |
S&P Credit Rating (1) |
Remaining Term (Yrs) |
|
Options (Number x Yrs) |
Contractual Rent Escalations (6) |
ABR (2) |
|
ABR per Sq. Ft. |
|
Retail |
Washington, D.C |
|
3,000 |
|
7-Eleven Corporation |
A |
|
3.0 |
|
2 x 5 |
Yes |
$ |
129,804 |
|
$ |
43.27 |
|
Retail |
Tampa, FL |
|
2,200 |
|
Starbucks Corporation |
BBB+ |
|
4.9 |
|
4 x 5 |
Yes |
$ |
200,750 |
|
$ |
91.25 |
|
Industrial |
Huntsville, AL |
|
59,091 |
|
Pratt & Whitney Automation, Inc.(5) |
A- |
|
5.8 |
|
2 x 5 |
Yes |
$ |
684,996 |
|
$ |
11.59 |
|
Office |
Norfolk, VA |
|
49,902 |
|
General Services Administration-Navy |
AA+ |
|
5.5 |
|
N/A |
Yes |
$ |
926,923 |
|
$ |
18.57 |
|
Office |
Norfolk, VA |
|
22,247 |
|
Vacant |
N/A |
|
- |
|
N/A |
N/A |
$ |
- |
|
$ |
- |
|
Office |
Norfolk, VA |
|
34,847 |
|
PRA Holdings, Inc. (3) |
BB+ |
|
4.4 |
|
1 x 5 |
Yes |
$ |
765,136 |
|
$ |
21.96 |
|
Retail |
Tampa, FL |
|
3,500 |
|
Sherwin Williams Company |
BBB |
|
5.3 |
|
5 x 5 |
Yes |
$ |
126,788 |
|
$ |
36.23 |
|
Office |
Manteo, NC |
|
7,543 |
|
General Services Administration-FBI |
AA+ |
|
5.9 |
|
1 x 5 |
Yes |
$ |
161,346 |
|
$ |
21.39 |
|
Office |
Plant City, FL |
|
7,826 |
|
Irby Construction |
BBB- |
|
1.8 |
|
2 x 5 |
Yes |
$ |
170,865 |
|
$ |
21.83 |
|
Retail |
Grand Junction, CO |
|
30,701 |
|
Best Buy Co., Inc. |
BBB+ |
|
4.0 |
|
1 x 5 |
Yes |
$ |
353,061 |
|
$ |
11.50 |
|
Medical-Retail |
Chicago, IL |
|
10,947 |
|
Fresenius Medical Care Holdings, Inc. |
BBB- |
|
3.6 |
|
2 x 5 |
Yes |
$ |
228,902 |
|
$ |
20.91 |
|
Retail |
Tampa, FL |
|
2,642 |
|
Starbucks Corporation |
BBB+ |
|
3.9 |
|
2 x 5 |
Yes |
$ |
148,216 |
|
$ |
56.10 |
|
Retail |
Tucson, AZ |
|
88,408 |
|
Kohl's Corporation |
BB+ |
|
6.8 |
|
7 x 5 |
Yes |
$ |
823,962 |
|
$ |
9.32 |
|
Tenants - Consolidated Properties |
|
|
322,854 |
|
|
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|
$ |
4,720,749 |
|
$ |
14.62 |
|
Retail (4) |
Rockford, IL |
|
15,288 |
|
La-Z-Boy Inc. |
Not Rated |
|
4.6 |
|
4 x 5 |
Yes |
$ |
366,600 |
|
$ |
23.98 |
|
Tenants - All Properties |
|
|
338,142 |
|
|
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|
|
$ |
5,087,349 |
|
$ |
15.05 |
|
(1)Tenant, or tenant parent, rated entity.
(2)Annualized cash base rental income in place as of March 31, 2023. Our leases do not include tenant concessions or abatements.
(3)Tenant has the right to terminate the lease on August 31, 2024 subject to certain conditions.
(4)The Company’s pro-rata share is 50% of the tenancy-in-common investment.
(5)Tenant has the right to terminate the lease on January 31, 2024 subject to certain conditions.
(6)Includes rent escalations available from lease renewal options.
Distributions
From inception through March 31, 2023, we have distributed approximately $2,953,234 to common stockholders.
Recent Developments
On April 3, 2023, we announced that our Board of Directors authorized a distribution of $0.039 per share monthly cash distribution for shareholders of record of our common stock as of April 15, 2022, May 15, 2022, and June 15, 2022. April distributions were paid on May 1, 2023 and we expect to pay May and June distributions on or about May 30, 2023 and June 30, 2023, respectively. The Operating Partnership common unit holders received the same distribution.
Subsequent to March 31, 2023 but before the filing of this Quarterly Report on Form 10-Q, 49,720 Investor Warrants were exercised on a cashless basis for 10% of the shares of Common Stock underlying the Investor Warrant, as the volume-weighted average trading price of the Company’s shares of Common Stock on Nasdaq was below the then-effective exercise price of the Investor Warrant for 10 consecutive trading days as of the date the Investor Warrants became exercisable. As such, 4,972 shares of common stock were issued upon exercise.
Results of Operations
Operating results for the three months ended March 31, 2023 compared to the three months ended March 31, 2022:
Revenue
During the three months ended March 31, 2023, total revenue from operations was $1,326,707 as compared to $1,181,935 for the three months ended March 31, 2022. Revenue increased during the three months ended March 31, 2023 by $144,772 from the acquisition of three additional properties during the three months ended March 31, 2022.
Operating Expenses
During the three months ended March 31, 2023, we incurred total operating expenses of $2,035,794 as compared to $1,636,000 for the three months ended March 31, 2022. Operating expenses increased by $399,794 as follows:
23
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Three months ended March 31, |
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2023 |
|
2022 |
|
Change |
|
General and administrative expense |
|
344,147 |
|
|
341,680 |
|
|
2,467 |
|
Building expenses |
|
313,600 |
|
|
253,391 |
|
|
60,209 |
|
Depreciation and amortization |
|
557,550 |
|
|
430,893 |
|
|
126,657 |
|
Interest expense, net |
|
469,210 |
|
|
330,294 |
|
|
138,916 |
|
Compensation costs |
|
351,287 |
|
|
279,742 |
|
|
71,545 |
|
Total expenses |
$ |
2,035,794 |
|
$ |
1,636,000 |
|
$ |
399,794 |
|
•General, administrative and organizational costs decreased by $2,467 which is consistent with the three months ended March 31, 2022.
•Building expenses increased by $60,209 due to an increase in tenant reimbursable expenses incurred by the Company on behalf of tenants from the acquisition of three additional properties during the three months ended March 31, 2022. Reimbursement revenues included in Rental income offset this Building expense.
•Depreciation and amortization increased by $126,657 from the acquisition of three additional properties during the three months ended March 31, 2022.
•Interest expense, net increased by $138,916 due to interest on the mortgage loans from the acquisition of three additional properties during the three months ended March 31, 2022 offset by the reduction in interest expense due from the mortgage loans refinanced in April 2022. The additional increase is a result of the guarantee fee expense to the Company's CEO of $60,493 recorded to interest expense. No guaranty fee expense was incurred during the three months ended March 31, 2022.
•Compensation costs increased by $71,545 primarily due to an increase in salary and bonus expense offset by a decrease in stock compensation expense.
Net loss
During the three months ended March 31, 2023 and 2022, we generated a net loss of $1,190,353 and $445,513, respectively.
Other expense
During the three months ended March 31, 2023, we accrued $506,000 relating to the potential reimbursement of federal, state and local income taxes incurred by a remaining partner in one of our partnerships pursuant to a tax protection agreement.
Net income attributable to non-controlling interests
During the three months ended March 31, 2023 and 2022, net income attributable to non-controlling interest was $127,214 and $129,963, respectively. The variance is attributable to an increase from additional redeemable non-controlling interests issued offset by a decrease in the Operating Partnership unit holders who have redeemed their interest in 2022 and 2023.
Net loss attributable to common shareholders
During the three months ended March 31, 2023 and 2022, we generated a net loss attributable to our shareholders of $1,317,567 and $575,476, respectively.
Liquidity and Capital Resources
We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from offerings of our equity securities, cash flow from operations and borrowings under credit facilities. As of March 31, 2023, we had total cash (unrestricted and restricted) of $2,771,645, properties with a gross cost basis of $56,913,125 and outstanding mortgage loans with a principal balance of $35,799,632.
In September 2021, we closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020.
On October 26, 2021, we entered into a Commitment Letter with American Momentum Bank (the “Lender”) for a $25 million master commitment credit facility (the “Facility”) to be used for the acquisition of income producing real estate properties. Borrowings under
24
the Facility will accrue interest at a variable rate equal to the Wall Street Journal Prime rate, adjusted monthly, subject to a floor interest rate of 3.25% per year. On May 9, 2022, we amended the Facility with the Lender, by entering into a new Facility, to increase the available borrowings from $25.0 million to $50.0 million to be used for the acquisition of income producing real estate properties under the same terms as provided by the agreement entered into on October 26, 2021. The new Commitment Letter will become effective contingent upon the Company completing a future capital raise of $25.0 million or more, and prior to such time, the current Commitment Letter will remain in place. On September 9, 2022, we and the Lender combined the prior commitment letters entered into in October 2021 and May 2022 into a single Commitment Letter, and have amended the rate index used for borrowing to be a variable rate equal to the 30-Day CME Term SOFR Rate, plus a margin of 2.40%, adjusted monthly, subject to a floor interest rate of 3.25% per year. All other terms under the prior commitment letters remained materially the same. As of March 31, 2023 and December 31, 2022, we did not have an outstanding balance on the Facility.
On April 1, 2022, we entered into two mortgage loan agreements with an aggregate balance of $13.5 million as of March 31, 2023 to refinance seven of our properties. The loan agreements consist of one loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value, and one loan in the amount of $2.1 million on the property held in the tenancy-in-common investment at an interest rate of 3.85% from April 1, 2022 through and until March 31, 2027. Effective April 1, 2027 and through the maturity date of March 31, 2032, the interest rate adjusts to the 5-year Treasury plus 2.5% and is subject to a floor of 3.85%. Our CEO entered into a guarantee agreement pursuant to which he guaranteed the payment obligations under the promissory notes if they become due as a result of certain “bad-boy” provisions, individually and on behalf of the Operating Partnership.
Our President and CEO has also personally guaranteed the repayment of the $11.0 million due under the 7-11 - Washington, DC; Starbucks-South Tampa, FL; and Pratt & Whitney-Huntsville, AL loan as well as the $1.3 million loan secured by the Company's Sherwin-Williams - Tampa, FL property. In addition, our President and CEO has also provided a guaranty of the Borrower’s nonrecourse carveout liabilities and obligations in favor of the lender for the GSA and PRA Holdings, Inc. - Norfolk, VA mortgage loans ("Bayport loans") with an aggregate principal amount of $12,206,031.
During the three months ended March 31, 2023, we incurred a guarantee fee expense to our President and CEO of $60,493 recorded to interest expense. No guaranty fee expense was incurred during the three months ended March 31, 2022.
On August 9, 2022, we entered a Redemption Agreement with a unit holder. As such, we recorded an other payable - related party in the amount of $2,912,300 upon execution of the Redemption Agreement entered into July 20, 2022 and made the first and second installment payments of $325,000 each on September 13, 2022 and March 8, 2023, respectively, with a remaining balance of $2,262,300 outstanding as of March 31, 2023.
On October 14, 2022, we entered into a loan transaction that is evidenced by a secured non-convertible promissory note to Brown Family Enterprises, LLC, a preferred equity partner and therefore a related party, for $1.5 million that is due on October 14, 2024, and bears a fixed interest rate of 9%, simple interest. Interest is payable monthly. The loan may be repaid without penalty at any time. The loan is secured by the Operating Partnership’s equity interest in its current direct subsidiaries that hold real estate assets pursuant to the terms of a security agreement between the Operating Partnership and Brown Family Enterprises, LLC.
We currently obtain the capital required to primarily invest in and manage a diversified portfolio of commercial net lease real estate investments and conduct our operations from the proceeds of equity offerings, debt financings, preferred minority interest obtained from third parties, issuance of Operating Partnership units and from any undistributed funds from our operations.
We anticipate that our current cash on hand and availability under the Facility combined with the revenue generated from investment properties and proceeds from debt arrangements will provide sufficient liquidity to meet future funding commitments for at least the next 12 months.
25
As of March 31, 2023 and December 31, 2022, we had total current liabilities which consists of accounts payable, accrued expenses, insurance payable of $1,227,184 and $714,354, respectively.
Outstanding mortgage loans payable consisted of the following as of March 31, 2023 and December 31, 2022, respectively:
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Mortgage Loans Secured By (Tenant-Location) |
Loan Amount |
|
|
Interest Rate |
|
|
Maturity Date |
2023 |
|
2022 |
|
Debt Service Coverage Ratios ("DSCR") Required |
|
7-11 - Washington, DC; Starbucks-South Tampa, FL; and Pratt & Whitney-Huntsville, Alabama |
$ |
11,287,500 |
|
(a) |
|
4.17 |
% |
|
3/6/2030 |
$ |
10,906,937 |
|
$ |
10,957,829 |
|
|
1.25 |
|
GSA - Norfolk, Virginia |
|
8,260,000 |
|
|
|
3.50 |
% |
|
9/30/2024 |
|
7,518,613 |
|
|
7,578,304 |
|
|
1.25 |
|
PRA Holdings, Inc. - Norfolk, Virginia |
|
5,216,749 |
|
|
|
3.50 |
% |
|
10/23/2024 |
|
4,687,418 |
|
|
4,728,462 |
|
|
1.25 |
|
Sherwin-Williams - Tampa, Florida |
|
1,286,664 |
|
|
|
3.72 |
% |
(b) |
8/10/2028 |
|
1,286,664 |
|
|
1,286,664 |
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|
1.20 |
|
GSA - Manteo, North Carolina |
|
928,728 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
928,728 |
|
|
928,728 |
|
|
1.50 |
|
Irby Construction - Plant City , Florida |
|
928,728 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
928,728 |
|
|
928,728 |
|
|
1.50 |
|
Best Buy - Grand Junction, Colorado |
|
2,552,644 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
2,552,644 |
|
|
2,552,644 |
|
|
1.50 |
|
Fresenius - Chicago, Illinois |
|
1,727,108 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
1,727,108 |
|
|
1,727,108 |
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|
1.50 |
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Starbucks - North Tampa, Florida |
|
1,298,047 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
1,298,047 |
|
|
1,298,047 |
|
|
1.50 |
|
Kohls - Tucson, Arizona |
|
3,964,745 |
|
(c) |
|
3.85 |
% |
(d) |
3/31/2032 |
|
3,964,745 |
|
|
3,964,745 |
|
|
1.50 |
|
|
$ |
37,450,913 |
|
|
|
|
|
|
$ |
35,799,632 |
|
$ |
35,951,259 |
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|
Less Debt Issuance Costs, net |
|
(688,516 |
) |
|
(717,381 |
) |
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$ |
35,111,116 |
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$ |
35,233,878 |
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(a) Loan subject to prepayment penalty
(b) Fixed via interest rate swap
(c) One loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value.
(d) Adjustment effective April 1, 2027 equal to 5-year Treasury plus 2.5% and subject to a floor of 3.85%
We amortized debt issuance costs during the three months ended March 31, 2023 and 2022 to interest expense of approximately $28,865 and $33,673, respectively. We incurred debt issuance costs of $78,878 for the three months ended March 31, 2022.
Each promissory note requires us to maintain certain debt service coverage ratios as noted above. In addition, one mortgage loan, encumbered by six properties and requiring a 1.50 DSCR, requires us to maintain a 54% loan to fair market stabilized value ratio. Fair market stabilized value shall be determined by the lender by reference to acceptable guides and indices or appraisals from time to time at its discretion. As of March 31, 2023, we were in compliance with all covenants.
Minimum required principal payments on our debt as of March 31, 2023 are as follows:
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Mortgage Loans |
|
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Other Payable - Related Party |
|
|
Loan Payable - Related Party |
|
Total as of March 31, 2023 |
|
2023 (9 months remaining) |
$ |
633,897 |
|
|
$ |
452,460 |
|
|
$ |
- |
|
$ |
1,086,357 |
|
2024 |
|
12,427,090 |
|
|
|
1,809,840 |
|
|
|
1,500,000 |
|
|
15,736,930 |
|
2025 |
|
546,280 |
|
|
|
- |
|
|
|
- |
|
|
546,280 |
|
2026 |
|
568,514 |
|
|
|
- |
|
|
|
- |
|
|
568,514 |
|
2027 |
|
591,656 |
|
|
|
- |
|
|
|
- |
|
|
591,656 |
|
Thereafter |
|
21,032,195 |
|
|
|
- |
|
|
|
- |
|
|
21,032,195 |
|
|
$ |
35,799,632 |
|
|
$ |
2,262,300 |
|
|
$ |
1,500,000 |
|
$ |
39,561,932 |
|
On February 8, 2023, we entered into new Amended and Restated Limited Liability Company Agreements for the Norfolk, Virginia properties, GIPVA 2510 Walmer Ave, LLC ("GIPVA 2510") and GIPVA 130 Corporate Blvd, LLC ("GIPVA 130"), in which we, as the sole member of GIPVA 2510 and GIPVA 130, admitted a new preferred member, Brown Family Enterprises, LLC, through the issuance of preferred membership interests in the form of Class A Preferred Units of GIPVA 2510 and GIPVA 130. GIPVA 2510 and GIPVA 130 (the “Virginia SPEs”) hold our Norfolk, Virginia properties. In addition, both of the Virginia SPEs and Brown Family
26
Enterprises, LLC entered into Unit Purchase Agreements in which GIPVA 2510 issued and sold 180,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,800,000, and GIPVA 130 issued and sold 120,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,200,000. The Operating Partnership is the general manager of the subsidiary while Brown Family Enterprises, LLC is a preferred equity member. Pursuant to the agreement, we are required to pay the preferred equity member a 7% IRR paid on a monthly basis and will share in 16% of the equity in each of the Virginia SPEs upon a capital transaction resulting in distributable proceeds. After 24 months, Brown Family Enterprises, LLC has the right to redeem the preferred equity at redemption value. Because of the redemption right, the non-controlling interest is presented as temporary equity at an aggregated redemption value of $3,000,000 as of March 31, 2023.
The primary objective of our financing strategy is to maintain financial flexibility using retained cash flows, long-term debt and common and perpetual preferred stock to finance our growth. We intend to have a lower-leveraged portfolio over the long-term after we have acquired an initial substantial portfolio of diversified investments. During the period when we are acquiring our current portfolio, we will employ greater leverage on individual assets (that will also result in greater leverage of the current portfolio) in order to quickly build a diversified portfolio of assets.
Cash from Operating Activities
Net cash used in operating activities was $850,964 and $210,500 for the three months ended March 31, 2023 and 2022, respectively. The change is primarily due to an increase in depreciation and amortization, deferred rent asset, prepaid expenses, accounts receivable and a decrease in the deferred rent liability offset by an increase in accrued expenses.
Cash from Investing Activities
Net cash used in investing activities during the three months ended March 31, 2023 was a $50,000 escrow deposit paid to purchase a property. Net cash used in investing activities was $12,700,600 during the three months ended March 31, 2022. The decrease in cash used in investing activities is due to the acquisition of three additional properties during the three months ended March 31, 2022 offset by a deposit paid to acquire a property.
Cash from Financing Activities
Net cash used in financing activities was $80,387 for the three months ended March 31, 2023 and net cash provided by financing activities was $6,929,476 for the three months ended March 31, 2022. The change is primarily related to the mortgage loan borrowings to acquire three additional properties during the three months ended March 31, 2022 offset by an increase in proceeds from issuance of redeemable non-controlling interest.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Non-GAAP Financial Measures
Our reported results are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We also disclose funds from operations ("FFO"), adjusted funds from operations ("AFFO"), core funds from operations ("Core FFO") and core adjusted funds of operations ("Core AFFO") all of which are non-GAAP financial measures. We believe these non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
FFO and related measures do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income or loss as a performance measure or cash flows from operations as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.
We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude non-recurring or extraordinary items (as defined by GAAP), net gains from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets, and real estate related depreciation and amortization, including the pro rata share of such
27
adjustments of unconsolidated subsidiaries. We then adjust FFO for non-cash revenues and expenses such as amortization of deferred financing costs, above and below market lease intangible amortization, straight line rent adjustment where the Company is both the lessor and lessee, and non-cash stock compensation to calculate Core AFFO.
FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that AFFO is an additional useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO and AFFO may not be comparable to similarly titled measures employed by other companies. We believe that Core FFO and Core AFFO are useful measures for management and investors because they further remove the effect of non-cash expenses and certain other expenses that are not directly related to real estate operations. We use each as measures of our performance when we formulate corporate goals.
As FFO excludes depreciation and amortization, gains and losses from property dispositions that are available for distribution to stockholders and non-recurring or extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, providing a perspective not immediately apparent from net income or loss. However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties which could be significant economic costs and could materially impact our results from operations. Additionally, FFO does not reflect distributions paid to redeemable non-controlling interests.
The following tables reconcile net income (net loss), which we believe is the most comparable GAAP measure, to FFO, Core FFO, AFFO and Core AFFO:
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
|
|
|
|
Net loss |
$ |
(1,190,353 |
) |
$ |
(445,513 |
) |
Other expense |
|
506,000 |
|
|
- |
|
Depreciation and amortization |
|
557,550 |
|
|
430,893 |
|
Funds From Operations |
$ |
(126,803 |
) |
$ |
(14,620 |
) |
Amortization of debt issuance costs |
|
28,865 |
|
|
33,673 |
|
Non-cash stock compensation |
|
90,648 |
|
|
93,926 |
|
Adjustments to Funds From Operations |
|
119,513 |
|
|
127,599 |
|
Core Funds From Operations |
$ |
(7,290 |
) |
$ |
112,979 |
|
|
|
|
|
|
Net loss |
$ |
(1,190,353 |
) |
$ |
(445,513 |
) |
Other expense |
|
506,000 |
|
|
- |
|
Depreciation and amortization |
|
557,550 |
|
|
430,893 |
|
Amortization of debt issuance costs |
|
28,865 |
|
|
33,673 |
|
Above and below-market lease amortization, net |
|
(26,297 |
) |
|
(23,884 |
) |
Straight line rent, net |
|
18,738 |
|
|
(1,100 |
) |
Adjustments to net loss |
$ |
1,084,856 |
|
$ |
439,582 |
|
Adjusted Funds From Operations |
$ |
(105,497 |
) |
$ |
(5,931 |
) |
|
|
|
|
|
Non-cash stock compensation |
$ |
90,648 |
|
$ |
93,926 |
|
Adjustments to Adjusted Funds From Operations |
$ |
90,648 |
|
$ |
93,926 |
|
Core Adjusted Funds From Operations |
$ |
(14,849 |
) |
$ |
87,995 |
|
|
|
|
|
|
Net loss |
$ |
(1,190,353 |
) |
$ |
(445,513 |
) |
Net income attributable to non-controlling interests |
|
(127,214 |
) |
|
(129,963 |
) |
Net loss attributable to Generation Income Properties, Inc. |
$ |
(1,317,567 |
) |
$ |
(575,476 |
) |
|
|
|
|
|
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Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. See our audited consolidated financial statements included herein for a summary of our significant accounting policies.