UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had
GENERATION INCOME PROPERTIES, INC.
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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34 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Generation Income Properties, Inc. Consolidated Balance Sheets
(unaudited)
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As of March 31, |
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As of December 31, |
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2023 |
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2022 |
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Assets |
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Investments in real estate |
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Land |
$ |
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$ |
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Building and site improvements |
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Tenant improvements |
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Acquired lease intangible assets |
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Less: accumulated depreciation and amortization |
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( |
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( |
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Net real estate investments |
$ |
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$ |
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Investment in tenancy-in-common |
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Cash and cash equivalents |
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Restricted cash |
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Deferred rent asset |
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Prepaid expenses |
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Accounts receivable |
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Escrow deposits and other assets |
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Right of use asset, net |
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Total Assets |
$ |
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$ |
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Liabilities and Equity |
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Liabilities |
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Accounts payable |
$ |
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$ |
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Accrued expenses |
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Accrued expense - related party |
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Acquired lease intangible liabilities, net |
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Insurance payable |
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Deferred rent liability |
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Lease liability, net |
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Other payable - related party |
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Loan payable - related party |
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Mortgage loans, net of unamortized debt issuance costs of $ |
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Total liabilities |
$ |
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$ |
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Redeemable Non-Controlling Interests |
$ |
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$ |
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Stockholders' Equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total Generation Income Properties, Inc. Stockholders' Equity |
$ |
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$ |
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Non-Controlling Interest |
$ |
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$ |
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Total equity |
$ |
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$ |
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Total Liabilities and Equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Generation Income Properties, Inc. Consolidated Statements of Operations
(unaudited)
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Three Months ended March 31, |
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2023 |
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2022 |
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Revenue |
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Rental income |
$ |
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$ |
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Other income |
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Total revenue |
$ |
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$ |
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Expenses |
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General and administrative expense |
$ |
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$ |
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Building expenses |
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Depreciation and amortization |
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Interest expense, net |
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Compensation costs |
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Total expenses |
$ |
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$ |
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Operating loss |
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( |
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( |
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Other expense |
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( |
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- |
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Income on investment in tenancy-in-common |
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Net loss |
$ |
( |
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$ |
( |
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Less: Net income attributable to non-controlling interests |
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Net loss attributable to Generation Income Properties, Inc. |
$ |
( |
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$ |
( |
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Total Weighted Average Shares of Common Stock Outstanding – Basic & Diluted |
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Basic & Diluted Loss Per Share Attributable to Common Stockholders |
$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Generation Income Properties, Inc. Consolidated Statements of Changes in Equity
(unaudited)
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Common Stock |
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Additional |
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Accumulated Deficit |
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Stockholders' Equity |
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Non-Controlling Interest |
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Total Equity |
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Redeemable Non-Controlling Interest |
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Shares |
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Amount |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Restricted stock unit compensation |
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- |
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- |
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- |
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Stock issuance costs |
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- |
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- |
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( |
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- |
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( |
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( |
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Cashless exercise of warrants |
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( |
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- |
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- |
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- |
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- |
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- |
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Issuance of Redeemable Non-Controlling Interest for property acquisition |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Distribution on Non-Controlling Interest |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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( |
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Dividends paid on common stock |
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- |
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- |
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( |
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- |
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( |
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- |
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( |
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- |
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Net (loss) income for the quarter |
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- |
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- |
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- |
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( |
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( |
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( |
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( |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Restricted stock unit compensation |
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- |
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- |
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- |
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Cashless exercise of warrants |
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( |
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- |
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- |
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- |
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- |
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- |
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Issuance of Redeemable Non-Controlling Interest |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Redemption of Redeemable Non-Controlling Interest |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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Distribution on Non-Controlling Interest |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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( |
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Dividends paid on common stock |
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- |
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- |
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( |
) |
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- |
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( |
) |
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- |
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( |
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- |
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Net (loss) income for the quarter |
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- |
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- |
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- |
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( |
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( |
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( |
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( |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Generation Income Properties, Inc. Consolidated Statements of Cash Flows
(unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to cash used in operating activities |
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Depreciation |
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Amortization of acquired lease intangible assets |
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Amortization of debt issuance costs |
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Amortization of below market leases |
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( |
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( |
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Amortization of above market ground lease |
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( |
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( |
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Restricted stock unit compensation |
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Non-cash ground lease expense |
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Income on investment in tenancy-in-common |
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( |
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( |
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Changes in operating assets and liabilities |
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Accounts receivable |
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( |
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( |
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Other assets |
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( |
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Deferred rent asset |
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( |
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( |
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Prepaid expenses |
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( |
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( |
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Accounts payable |
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( |
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( |
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Accrued expenses |
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Lease liability |
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Deferred rent liability |
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( |
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Net cash used in operating activities |
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$ |
( |
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$ |
( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of land, buildings, other tangible and intangible assets |
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$ |
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$ |
( |
) |
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Escrow (deposit) return for purchase of properties |
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) |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of redeemable non-controlling interest |
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$ |
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$ |
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Redemption of redeemable non-controlling interests |
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( |
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Repayment on other payable - related party |
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( |
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Mortgage loan borrowings |
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Mortgage loan repayments |
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( |
) |
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( |
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Debt issuance costs |
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( |
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Stock issuance costs |
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( |
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Deferred financing costs |
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( |
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Insurance financing borrowings |
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Insurance financing repayments |
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( |
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( |
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Distribution on non-controlling interests |
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( |
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( |
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Dividends paid on common stock |
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( |
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( |
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Net cash (used in) provided by financing activities |
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$ |
( |
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$ |
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Net decrease in cash and cash equivalents |
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$ |
( |
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$ |
( |
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Cash and cash equivalents and restricted cash - beginning of period |
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Cash and cash equivalents and restricted cash - end of period |
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$ |
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$ |
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CASH TRANSACTIONS |
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Interest paid |
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$ |
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$ |
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NON-CASH TRANSACTIONS |
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Stock issued for cashless exercise of Investor Warrants |
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$ |
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$ |
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Deferred distribution on redeemable non-controlling interests |
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Recognition of ROU asset and lease liability for ground lease related to property acquisition |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
GENERATION INCOME PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations
Generation Income Properties, Inc. (the “Company”) was formed as a Maryland corporation on
The Company formed Generation Income Properties L.P. (the “Operating Partnership”) in
As of March 31, 2023, the Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis owned
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2023. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.
The preparation of the consolidated financial statements in conformity with U.S. GAAP. The Company adopted the calendar year as its basis of reporting. Certain immaterial prior year amounts have been reclassified for consistency with the current period presentation.
Consolidation
The accompanying consolidated financial statements include the accounts of Generation Income Properties, Inc. and the Operating Partnership and all of the direct and indirect wholly-owned subsidiaries of the Operating Partnership and the Company’s subsidiaries. All significant inter-company balances and transactions have been eliminated in the consolidated financial statements.
The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interests or redeemable non-controlling interest. Non-controlling interests are adjusted each period for additional contributions, distributions, and the allocation of net income or loss attributable to the non-controlling interests. Investments in entities for which the Company has the ability to exercise significant influence over, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or losses) of these entities are included in consolidated net income or loss.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of commitments and contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change significantly if economic conditions were to weaken.
7
Cash
The Company considers all demand deposits, cashier’s checks and money market accounts to be cash equivalents. Amounts included in restricted cash represent funds owned by the Company related to tenant escrow reimbursements and immediate capital repair reserve.
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As of March 31, |
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As of March 31, |
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2023 |
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2022 |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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Cash and cash equivalents and restricted cash |
$ |
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$ |
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Revenue Recognition
The Company leases real estate to its tenants under long-term net leases which the Company accounts for as operating leases. Those leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. In addition to straight-line rents, deferred rent liability includes $
The Company reviews the collectability of charges under its tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates, and economic conditions in the area where the property is located. In the event that uncollectability exists with respect to any tenant changes, the Company would recognize an adjustment to Rental income. The Company’s review of collectability of charges under its operating leases includes any accrued rental revenues related to the straight-line rents. There were no allowances for receivables recorded during three months ended March 31, 2023 or 2022.
The Company’s leases provide for reimbursement from tenants for common area maintenance (“CAM”), insurance, real estate taxes and other operating expenses (“recoverable costs”). A portion of our operating cost reimbursement revenue is estimated each period and is recognized as rental income in the period the recoverable costs are incurred and accrued.
The Company often recognizes above- and below-market lease intangibles in connection with acquisitions of real estate. The capitalized above- and below-market lease intangibles are amortized to rental income over the remaining term of the related leases.
Stock-Based Compensation
The Company records all equity-based incentive grants to employees and non-employee members of the Company’s Board of Directors in compensation costs based on their fair values on the date of grant. Stock-based compensation expense, reduced for estimated forfeitures, is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the outstanding equity awards.
Investments in Real Estate
Acquisitions of real estate are recorded at cost. The Company assigns the purchase price of real estate to tangible and intangible assets and liabilities based on fair value. Tangible assets consist of land, buildings, site improvements, and tenant improvements. Intangible assets and liabilities consist of the value of in-place leases and above- or below- market leases assumed with the acquisition. At the time of acquisition, the Company assesses whether the purchase of the real estate falls within the definition of a business under Accounting Standards Codification (“ASC”) 805 and to date has concluded that all asset transactions are asset acquisitions. Therefore, each acquisition has been recorded at the purchase price whereas assets and liabilities, inclusive of closing costs, are allocated to land, building, site improvements, tenant improvements, and intangible assets and liabilities based upon their relative fair values at the date of acquisition.
The fair value of the in-place leases are estimated as the cost to replace the leases including loss of rent, commissions and legal fees. The in-place leases are amortized over the remaining team of the leases as amortization expense. The fair value of the above- or below-market lease is estimated as the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and the estimated current market lease rate expected over the remaining non-cancelable life of the lease. The capitalized above- or below-market lease values are amortized as a decrease or increase to rental income over the remaining term of the lease inclusive of the renewal option periods that are considered probable at acquisition.
8
Depreciation Expense
Real estate and related assets are stated net of accumulated depreciation. Renovations, replacements and other expenditures that improve or extend the life of assets are capitalized and depreciated over their estimated useful lives. Expenditures for ordinary maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of the buildings, which are generally between
Lease Liabilities
The Company has a certain property within its portfolio that is on land subject to a ground lease with a third party, which is classified as an operating lease. Accordingly, the Company owns only a long-term leasehold in this property. The building and improvements constructed on the leased land are capitalized as investment in real estate and are depreciated over the shorter of the useful life of the improvements or the lease term.
Under ASC 842, the Company recognizes a lease liability for its ground lease and corresponding right of use asset related to this same ground lease which is classified as an operating lease. A key input in estimating the lease liability and resulting right of use asset is establishing the discount rate in the lease, which since the rate implicit in the contract is not readily determinable, requires additional inputs for the longer-term ground lease, including mortgage market-based interest rates that correspond with the remaining term of the lease, the Company's credit spread, and the payment terms present in the lease. This discount rate is applied to the remaining unpaid minimum rental payments for the lease to measure the lease liability.
Impairments
The Company reviews investments in real estate and related lease intangibles for possible impairment when certain events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable though operations plus estimated disposition proceeds. Events or changes in circumstances that may occur include, but are not limited to, significant changes in real estate market conditions, estimated residual values, and an expectation to sell assets before the end of the previously estimated life. Impairments are measured to the extent the current book value exceeds the estimated fair value of the asset less disposition costs for any assets classified as held for sale. There were
The valuation of impaired assets is determined using valuation techniques including discounted cash flow analysis, analysis of recent comparable sales transactions, and purchase offers received from third parties, which are Level 3 inputs. The Company may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate. Estimating future cash flows is highly subjective and estimates can differ materially from actual results.
A loss in value of investments in real estate partnerships under the equity method of accounting, other than a temporary decline, must be recognized in the period in which the loss occurs. If the Company identifies events or circumstances that indicate that the value of the Company's investment may be impaired, it evaluates the investment by calculating the estimated fair value of the investment by discounting estimated future cash flows over the expected term of the investment. There were no impairments in the Company's investment in tenancy-in-common during the three months ended March 31, 2023 or 2022.
Income Taxes
The Company elected to be taxed as a real estate investment trust (“REIT”) under Section 856 through 860 of the Internal Revenue Code, commencing with our taxable year ending December 31, 2021. To continue to qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its taxable income to its stockholders. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable income that is currently distributed to stockholders. Accordingly, the only provision for federal income taxes in the accompanying consolidated financial statements relates to the Company's consolidated taxable REIT subsidiary of which no income was generated during the three months ended March 31, 2023 and 2022.
The Company also recognizes liabilities for unrecognized tax benefits which are recognized if the weight of available evidence indicates that it is not more-likely-than-not that the positions will be sustained on examination, including resolution of the related processes, if any. As of each balance sheet date, unrecognized benefits are reassessed and adjusted if the Company’s judgment changes as a result of new information.