Item 1.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Semi-Annual Report on Form 1-SA contains forward-looking statements. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. You should not rely on these forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in the offering circular and the amendments and supplements thereto. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of the offering circular for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We were incorporated as a Maryland corporation on June 6, 2015.  Generation Income Properties, Inc. (“Company”, “we”, “our”, and “us”) is an internally managed, company formed to acquire and own directly or jointly real estate investments focused on retail, office and industrial net lease properties located primarily in major United States cities, with an emphasis on the major coastal markets.  We intend to invest primarily in freestanding, single-tenant commercial retail, office and industrial properties net leased to investment grade tenants.  We will seek geographic diversity in our investments, although attractive opportunities will be more important than geographic mix in our investment activity. We currently own one net lease property and have two under contract.

We intend to make an election to be taxed as a REIT under Section 856(c) of the Code, beginning with our taxable year ending December 31, 2017. In order to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains and income from operations or sales through a TRS). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations.

We intend to acquire properties that we can lease to tenants under net leases. A net lease is a type of lease in which the tenant is generally responsible for all costs and expenses related to the use and operation of the property, such as the cost of repairs, maintenance, property taxes, utilities, insurance and other operating costs, in addition to the tenant’s regular monthly rent.

We are currently offering shares of our common stock to the public pursuant to a qualified offering statement under Regulation A. We intend to use the net proceeds of the offering to acquire additional real estate assets and otherwise fund our operations; concurrent with our offering the Company has commenced acquiring assets. On June 29, 2017 the Company purchased its first asset. The asset is a 3,000 square foot, single tenant retail condo location. The tenant is 7-Eleven and the property is located at 3707-3711 14th Street, NW, in the center of Washington, DC. We paid $2,480,000 plus fees, costs and other expenses in cash and assumed zero debt for this acquisition.

Our offering allows us to offer up to $20,000,000 equal to 4,000,000 shares of our common stock. As of June 30 2017, we had sold 670,800 of our shares of common stock and had 1,670,800 shares outstanding, with proceeds from the offering used to acquire 100% membership interests in single member entities formed by us and subsidiaries of Generation Income Properties, LP.

Our expectation and strategy continues to have our properties provide a stable source of income for our shareholders and to maximize potential returns through appreciation of the real estate and net asset value (“NAV”) growth.

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Generation Income Properties, Inc.

Consolidated Statements of Cash Flows

For the Six-Months Ended June 30, 2017 (unaudited) and June 30, 2016 (unaudited)

Purchase Price Assignment

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 and buildings.  Intangible assets and liabilities consist of the value of in-place leases and below market leases assumed with the acquisition.

The Company engages independent third-party appraisers to perform the valuations used to determine the fair value of these identifiable tangible and intangible assets.  These valuations and appraisals use commonly employed valuation techniques, such as discounted cash flow analyses.  As of the date of this report, the appraisal for the purchase of the 7-Eleven was not completed. Therefore, the purchase price was assigned based on management’s best estimate.  These estimates may be adjusted once the formal appraisal is completed.

The fair value of the below market lease is 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 below market lease values are amortized as an increase to rental income over the remaining term of the lease.

Intangible Assets

Line of Credit Fees

Costs incurred related to line of credit fees have been capitalized and are amortized over the term of the respective agreement using the straight-line method.  Amortization expense related to line of credit fees was $703 for the six-months ended June 30, 2017.

In-Place Leases

The fair value of in-place leases is the estimated present value associated with re-leasing the in-place lease as if the property was vacant.  The fair value represents the estimated tenant improvement allowances, loss of rent, and estimated commissions and legal fees paid in similar leases.  This estimate may be adjusted once the formal appraisal is completed.  Lease costs are amortized over the non-cancelable term of the respective lease.

Earnings per Share

In accordance with ASC 260, basic earnings/loss per share (“EPS”) is computed by dividing net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of warrants), and convertible debt, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.  As of June 30, 2017 and December 31, 2016, there were no common stock dilutive instruments.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This new standard will replace all current U.S. GAAP guidance related to revenue recognition and eliminate all industry- specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning in 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. While the Company is still completing the assessment of the impact of this standard to its consolidated financial statements, management believes the majority of the Company’s revenue falls outside of the scope of this guidance.

During February 2016, the FASB issued ASU No. 2016-02 “Leases.”  This new standard will require lessees to recognize a lease liability and a right-to-use asset for all leases (with the exception of short-term leases).  ASU 2016-02 is affective for annual periods, and interim periods therein, beginning after December 15, 2018.  Management is evaluating the impact of the adopting this new accounting standard.

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