UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of Registrant as specified in its charter)
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(I.R.S. employer identification no.) |
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Securities registered pursuant to Section 12(b) of the Act:
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The
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The |
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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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Generation Income Properties, Inc. Consolidated Balance Sheets
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As of March 31, |
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As of December 31, |
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2022 |
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2021 |
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(Unaudited) |
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Assets |
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Investment in real estate |
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Property and improvements |
$ |
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$ |
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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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Total investments |
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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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Deferred financing costs |
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- |
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Accounts receivable |
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Escrow deposit and other assets |
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Right of use asset, net |
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- |
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Total Assets |
$ |
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$ |
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Liabilities and Stockholders' 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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Acquired lease intangible liabilities, net |
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Insurance payable |
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Deferred rent liability |
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Right of use liability, net |
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- |
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Mortgage loans, net of unamortized discount of $ |
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Total liabilities |
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Redeemable Non-Controlling Interests |
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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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Total Generation Income Properties, Inc. stockholders' equity |
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Total Liabilities and Stockholders' 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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2021 |
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Revenue |
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Rental income |
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$ |
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$ |
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Expenses |
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General, administrative and organizational costs |
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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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Operating loss |
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Equity in income of investment in tenancy-in-common |
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- |
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Net Loss |
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$ |
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$ |
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Less: Net income attributable to non-controlling interest |
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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 |
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Total Weighted Average Shares of Common Stock Outstanding – Diluted |
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Basic Loss Per Share Attributable to Common Stockholders |
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$ |
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Diluted Loss Per Share Attributable to Common Stockholders |
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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 Cash Flows
(unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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CASHFLOWS 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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Amortization of above market ground lease |
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- |
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Common stock issued for services |
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- |
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Restricted stock unit compensation |
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Ground lease amortization |
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- |
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Equity in earnings on investment in tenancy-in-common |
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- |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Other assets |
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Deferred rent asset |
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Prepaid expenses |
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Accounts payable |
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Accrued expenses |
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Right of use liability |
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- |
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Deferred rent liability |
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Net cash used in operating activities |
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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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Escrow return (deposit) for purchase of properties |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of redeemable interest |
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Mortgage loan borrowings |
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Mortgage loan repayments |
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Stock issuance costs |
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- |
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Deferred financing costs |
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Debt issuance costs |
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Insurance financing borrowings |
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Insurance financing repayments |
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Distribution on redeemable non-controlling interests |
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Dividends paid on common stock |
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Net cash generated from financing activities |
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Net decrease in cash and cash equivalents |
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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 accrued liabilities |
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- |
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Deferred distribution on redeemable non-controlling interests |
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- |
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Right of use asset and liability for ground lease related to property acquisition |
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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 Changes in Stockholders’ Equity
(unaudited)
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Common Stock Shares |
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Common Stock Amount |
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Additional Paid-In- Capital |
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Accumulated Deficit |
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Generation Income Properties, Inc. Stockholders' Equity |
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Redeemable Non- Controlling Interest |
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Balance - December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common stock issued for services |
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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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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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Distribution on 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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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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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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Balance - March 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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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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Restricted stock unit compensation |
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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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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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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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Distribution on 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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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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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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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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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
The Company places each property in a separate entity which may have a Redeemable Non-Controlling interest as a member.
As of March 31, 2022, 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 18, 2022. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
The Company adopted the calendar year as its basis of reporting. Certain 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.
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 held by the Company related to tenant escrow reimbursements and immediate repair reserve.
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March 31, |
|
December 31, |
|
|
2022 |
|
2021 |
|
Cash and cash equivalents |
$ |
|
$ |
|
Restricted cash |
|
|
|
|
Total cash and cash equivalents and restricted cash |
$ |
|
$ |
Revenue Recognition
We have determined that all of our leases should be accounted for as operating leases. The Company leases real estate to its tenants under long-term net leases which we account for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Certain leases also provide for additional rent based on tenants’ sales volumes. These rents are recognized when determinable after the tenant exceeds a sales breakpoint.
Recognizing rent escalations on a straight-line method results in rental revenue in the early years of a lease being higher than actual cash received, creating a straight-line rent asset. Conversely, when actual cash collected is greater than the amount recognized on a straight-line basis, the difference is recognized as a liability. To the extent any of the tenants under these leases become unable to pay their contractual cash rents, the Company may be required to write down the straight-line rent receivable from those tenants, which would reduce rental income. Deferred rent asset as of March 31, 2022 and December 31, 2021 was approximately $
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 collectability exists with respect to any tenant changes, the Company recognizes 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 method of reporting rental revenue. There were no allowances for receivables recorded for the three months ended March 31, 2022 or 2021.
The Company’s leases provide for reimbursement from tenants for certain common area maintenance (“CAM”) expenses, insurance, and real estate taxes. A portion of our operating cost reimbursement revenue and expense is estimated each period and is recognized as rental income and building expenses 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 over the remaining term of the related leases inclusive of the renewal option periods that are considered probable at acquisition.
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 in the Company’s Consolidated Statements of Operations based on their fair values determined 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.
Real Estate
Acquisitions of real estate are recorded at cost.
Real Estate 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, buildings 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. The Company assessed whether the purchase of the building falls within
8
the definition of a business under Accounting Standards Codification (“ASC”) 805 and concluded that all asset transactions were an asset acquisition, therefore it was recorded at the purchase price, including capitalized acquisition costs, which is 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 lease is the estimated cost to replace the leases (including loss of rent, estimated commissions and legal fees paid in similar leases). The capitalized 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 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.
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 Obligations
The Company has a certain property within its consolidated real estate 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 in the accompanying Consolidated Balance Sheets and are depreciated over the shorter of the useful life of the improvements or the lease term.
Under ASC Topic 842, the Company recognizes Lease liabilities on its Consolidated Balance Sheets 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 operating lease liability.
Income Taxes
The Company intends to operate and be taxed as a real estate investment trust (“REIT”) under Section 856 through 860 of the Internal Revenue Code (“Code”), commencing with our taxable year ending December 31, 2021. 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.
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur.
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 judgement changes as a result of new information.
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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 potentially dilutive securities such as warrants, options and restricted stock units if their effect is anti-dilutive. As of March 31, 2022 and 2021, all potentially dilutive securities were excluded because the effect was anti-dilutive.
Impairments
The Company reviews real estate investments 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 which is a Level 3 input and analysis of recent comparable sales transactions or 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.
Note 3 – Investments in Real Estate
Acquisitions:
During the three months ended March 31, 2022, the Company acquired
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|
Fresenius -Chicago, IL |
|
|
Starbucks -Tampa, FL |
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|
Kohl's -Tucson, AZ |
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|
Total |
|
||||
|
Property and improvements |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Tenant improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired lease intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less acquired lease intangible liabilities |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total investments, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Fresenius - Chicago, IL: On
Starbucks - Tampa, FL: On
|
Kohl’s - Tucson, AZ: On |
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During the three months ended March 31, 2021, the Company acquired
|
|
GSA- Manteo, NC |
|
|
|
Property |
$ |
|
|
|
Tenant improvements |
|
- |
|
|
Acquired lease intangible assets |
|
|
|
|
Total investments |
|
|
|
|
Less acquired lease intangible liabilities |
|
( |
|