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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

OR

 

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 001-40771

 

GENERATION INCOME PROPERTIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

Maryland

47-4427295

(State or other jurisdiction of

incorporation or organization)

(I.R.S. employer

identification no.)

 

 

401 E. Jackson Street

Suite 3300

Tampa, FL

33602

(Address of principal executive offices)

(Zip code)

 

Registrant’s telephone number, including area code: 813-448-1234

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading symbol

 

Name of each exchange on which registered

Common Stock par value $0.01 per share

 

GIPR

 

The Nasdaq Stock Market LLC

 

Warrants to purchase Common Stock

 

GIPRW

 

The Nasdaq Stock Market LLC

 

 

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.    Yes      No  

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).    Yes      No  

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.:

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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      No  

The registrant had 2,250,756 shares of Common Stock, par value $0.01 per share, outstanding as of May 11, 2022.

 


GENERATION INCOME PROPERTIES, INC.

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Generation Income Properties, Inc. Consolidated Balance Sheets
March 31, 2022 (unaudited) and December 31, 2021

3

 

 

 

 

Generation Income Properties, Inc. Consolidated Statements of Operations
Three Months Ended March 31, 2022 and 2021 (unaudited)

4

 

 

 

 

Generation Income Properties, Inc. Consolidated Statements of Cash Flows
Three Months Ended March 31, 2022 and 2021 (unaudited)

5

 

 

 

 

Generation Income Properties, Inc. Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)

6

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II.

OTHER INFORMATION

30

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

31

 

 

 

Item 5.

Other Information

31

 

 

 

Item 6.

Exhibits

32

 

 

SIGNATURES

34

 

2


PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Generation Income Properties, Inc. Consolidated Balance Sheets

 

 

As of March 31,

 

 

As of December 31,

 

 

2022

 

 

2021

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in real estate

 

 

 

 

 

 

 

Property and improvements

$

52,267,674

 

 

$

41,025,309

 

Tenant improvements

 

907,382

 

 

 

482,701

 

Acquired lease intangible assets

 

4,677,928

 

 

 

3,304,014

 

Less accumulated depreciation and amortization

 

(3,943,236

)

 

 

(3,512,343

)

Total investments

 

53,909,748

 

 

 

41,299,681

 

Investment in tenancy-in-common

 

733,635

 

 

 

725,082

 

Cash and cash equivalents

 

4,607,952

 

 

 

10,589,576

 

Restricted cash

 

34,500

 

 

 

34,500

 

Deferred rent asset

 

174,364

 

 

 

156,842

 

Prepaid expenses

 

494,709

 

 

 

237,592

 

Deferred financing costs

 

26,023

 

 

 

-

 

Accounts receivable

 

95,414

 

 

 

88,661

 

Escrow deposit and other assets

 

197,486

 

 

 

288,782

 

Right of use asset, net

 

6,297,087

 

 

 

-

 

Total Assets

$

66,570,918

 

 

$

53,420,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Accounts payable

$

94,816

 

 

$

201,727

 

Accrued expenses

 

305,964

 

 

 

134,816

 

Acquired lease intangible liabilities, net

 

718,864

 

 

 

577,388

 

Insurance payable

 

288,693

 

 

 

33,359

 

Deferred rent liability

 

247,746

 

 

 

228,938

 

  Right of use liability, net

 

6,313,954

 

 

 

-

 

Mortgage loans, net of unamortized discount of $682,898 and $637,693 at March 31, 2022 and December 31, 2021, respectively

 

35,027,836

 

 

 

28,969,295

 

Total liabilities

 

42,997,873

 

 

 

30,145,523

 

 

 

 

 

 

 

 

 

Redeemable Non-Controlling Interests

 

10,746,509

 

 

 

9,621,159

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Common stock, $0.01 par value, 100,000,000 shares authorized;

2,247,768 shares issued and outstanding at March 31, 2022 and 2,172,950 issued and outstanding at December 31, 2021

 

22,477

 

 

 

21,729

 

Additional paid-in capital

 

18,804,217

 

 

 

19,051,929

 

Accumulated deficit

 

(6,000,158

)

 

 

(5,419,624

)

Total Generation Income Properties, Inc. stockholders' equity

 

12,826,536

 

 

 

13,654,034

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$

66,570,918

 

 

$

53,420,716

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


Generation Income Properties, Inc. Consolidated Statements of Operations (unaudited)

 

 

 

Three Months ended March 31,

 

 

 

 

2022

 

2021

 

 

Revenue

 

 

 

 

 

 

 

 

Rental income

 

$

1,181,935

 

$

936,888

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

General, administrative and organizational costs

 

 

341,680

 

 

188,417

 

 

Building expenses

 

 

253,391

 

 

180,553

 

 

Depreciation and amortization

 

 

430,893

 

 

379,511

 

 

Interest expense, net

 

 

330,294

 

 

354,989

 

 

Compensation costs

 

 

279,742

 

 

155,121

 

 

Total expenses

 

 

1,636,000

 

 

1,258,591

 

 

Operating loss

 

 

(454,065

)

 

(321,703

)

 

Equity in income of investment in tenancy-in-common

 

 

8,552

 

 

-

 

 

Net Loss

 

$

(445,513

)

$

(321,703

)

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to non-controlling interest

 

 

135,021

 

 

150,826

 

 

Net Loss attributable to Generation Income Properties, Inc.

 

$

(580,534

)

$

(472,529

)

 

 

 

 

 

 

 

 

 

 

Total Weighted Average Shares of Common Stock Outstanding – Basic

 

 

2,196,056

 

 

579,642

 

 

Total Weighted Average Shares of Common Stock Outstanding – Diluted

 

 

2,196,056

 

 

579,642

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Share Attributable to Common Stockholders

 

$

(0.26

)

$

(0.82

)

 

Diluted Loss Per Share Attributable to Common Stockholders

 

$

(0.26

)

$

(0.82

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


Generation Income Properties, Inc. Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

CASHFLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(445,513

)

 

$

(321,703

)

Adjustments to reconcile net loss to cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation

 

 

316,901

 

 

 

277,311

 

Amortization of acquired lease intangible assets

 

 

113,992

 

 

 

102,200

 

Amortization of debt issuance costs

 

 

33,673

 

 

 

31,103

 

Amortization of below market leases

 

 

(23,841

)

 

 

(33,161

)

Amortization of above market ground lease

 

 

(43

)

 

 

-

 

Common stock issued for services

 

 

-

 

 

 

33,000

 

Restricted stock unit compensation

 

 

93,926

 

 

 

49,471

 

Ground lease amortization

 

 

7,247

 

 

 

-

 

Equity in earnings on investment in tenancy-in-common

 

 

(8,553

)

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,753

)

 

 

(6,360

)

Other assets

 

 

(83,704

)

 

 

(39,673

)

Deferred rent asset

 

 

(17,522

)

 

 

9,377

 

Prepaid expenses

 

 

(257,117

)

 

 

(252,584

)

Accounts payable

 

 

(106,911

)

 

 

(50,579

)

Accrued expenses

 

 

145,290

 

 

 

(6,370

)

Right of use liability

 

 

9,620

 

 

 

-

 

Deferred rent liability

 

 

18,808

 

 

 

(9,741

)

Net cash used in operating activities

 

 

(210,500

)

 

 

(217,709

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of land, buildings, other tangible and intangible assets

 

 

(12,775,600

)

 

 

(1,758,322

)

Escrow return (deposit) for purchase of properties

 

 

75,000

 

 

 

(25,000

)

Net cash used in investing activities

 

 

(12,700,600

)

 

 

(1,783,322

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable interest

 

 

1,109,570

 

 

 

500,000

 

Mortgage loan borrowings

 

 

6,250,000

 

 

 

1,275,000

 

Mortgage loan repayments

 

 

(146,254

)

 

 

(88,021

)

Stock issuance costs

 

 

(6,091

)

 

 

-

 

Deferred financing costs

 

 

(165

)

 

 

(14,000

)

Debt issuance costs

 

 

(78,878

)

 

 

(22,662

)

Insurance financing borrowings

 

 

288,693

 

 

 

277,059

 

Insurance financing repayments

 

 

(33,359

)

 

 

(83,743

)

Distribution on redeemable non-controlling interests

 

 

(119,241

)

 

 

(150,826

)

Dividends paid on common stock

 

 

(334,799

)

 

 

(114,373

)

Net cash generated from financing activities

 

 

6,929,476

 

 

 

1,578,434

 

Net decrease in cash and cash equivalents

 

 

(5,981,624

)

 

 

(422,597

)

Cash and cash equivalents and restricted cash - beginning of period

 

 

10,624,076

 

 

 

1,122,364

 

Cash and cash equivalents and restricted cash - end of period

 

$

4,642,452

 

 

$

699,767

 

 

 

 

 

 

 

 

 

 

CASH TRANSACTIONS

 

 

 

 

 

 

 

 

Interest Paid

 

$

284,569

 

 

$

317,003

 

NON-CASH TRANSACTIONS

 

 

 

 

 

 

 

 

Stock issued for accrued liabilities

 

 

-

 

 

 

11,000

 

Deferred distribution on redeemable non-controlling interests

 

 

15,780

 

 

 

-

 

Right of use asset and liability for ground lease related to property acquisition

 

 

6,304,334

 

 

 

-

 

 

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)

 

 

Common Stock Shares

 

 

Common Stock Amount

 

 

Additional

Paid-In- Capital

 

 

Accumulated

Deficit

 

 

Generation Income Properties, Inc. Stockholders' Equity

 

 

Redeemable Non-

Controlling

Interest

 

Balance - December 31, 2020

 

 

576,918

 

 

$

5,770

 

 

$

5,541,411

 

 

$

(4,177,142

)

 

$

1,370,039

 

 

$

8,684,431

 

Common stock issued for services

 

 

2,200

 

 

 

22

 

 

 

43,978

 

 

 

 

 

 

44,000

 

 

 

 

Restricted stock unit compensation

 

 

3,749

 

 

 

37

 

 

 

49,434

 

 

 

 

 

 

49,471

 

 

 

 

Issuance of Redeemable Non-Controlling Interest for property acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

Distribution on Redeemable Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(150,826

)

Dividends paid on common stock

 

 

 

 

 

 

 

 

(114,373

)

 

 

 

 

 

(114,373

)

 

 

 

Net (loss) income for the quarter

 

 

 

 

 

 

 

 

 

 

 

(472,529

)

 

 

(472,529

)

 

 

150,826

 

Balance - March 31, 2021

 

 

582,867

 

 

$

5,829

 

 

$

5,520,450

 

 

$

(4,649,671

)

 

$

876,608

 

 

$

9,184,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2021

 

 

2,172,950

 

 

$

21,729

 

 

$

19,051,929

 

 

$

(5,419,624

)

 

$

13,654,034

 

 

$

9,621,159

 

Restricted stock unit compensation

 

 

47,142

 

 

 

471

 

 

 

93,455

 

 

 

 

 

 

93,926

 

 

 

 

Cashless exercise of warrants

 

 

27,676

 

 

 

277

 

 

 

(277

)

 

 

 

 

 

 

 

 

 

Stock issuance costs

 

 

 

 

 

 

 

 

(6,091

)

 

 

 

 

 

(6,091

)

 

 

 

Issuance of Redeemable Non-Controlling Interest for property acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,109,570

 

Distribution on Redeemable Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119,241

)

Dividends paid on common stock

 

 

 

 

 

 

 

 

(334,799

)

 

 

 

 

 

 

(334,799

)

 

 

 

Net (loss) income for the quarter

 

 

 

 

 

 

 

 

 

 

 

(580,534

)

 

 

(580,534

)

 

 

135,021

 

Balance - March 31, 2022

 

 

2,247,768

 

 

$

22,477

 

 

$

18,804,217

 

 

$

(6,000,158

)

 

$

12,826,536

 

 

$

10,746,509

 

 

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 September 19, 2015. The Company is an internally managed real estate investment company focused on acquiring and managing income-producing retail, office and industrial properties net leased to high quality tenants in major markets throughout the United States.

The Company formed Generation Income Properties L.P. (the “Operating Partnership”) in October 2015. Substantially all of the Company’s assets are held by, and operations are conducted through the Operating Partnership. The Company is the general partner of the Operating Partnership and as of March 31, 2022 owned 82.2% 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.

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 12 properties and held partial interests in one additional property through a tenancy-in-common investment.

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. The following table provides a reconciliation of the Company’s cash and cash equivalents and restricted cash that sums to the total of those amounts at the end of the periods presented on the Company’s accompanying Consolidated Statements of Cash Flows:

 

 

March 31,

 

December 31,

 

2022

 

2021

Cash and cash equivalents

$4,607,952

 

$10,589,576

Restricted cash

34,500

 

34,500

Total cash and cash equivalents and restricted cash

$4,642,452

 

$10,624,076

 

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 $174,400 and $156,800, respectively. Deferred rent liability as of March 31, 2022 and December 31, 2021 was approximately $247,700 and $228,900, respectively, of which $202,200 and $188,000 respectively related to prepaid rent.

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 15 and 50 years, site improvements, which are generally between 5 and 6 years, and tenant improvements, which are generally between 2 and 10 years.

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.

9


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 no impairments during the three months ended March 31, 2022 or 2021.

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 three properties. The purchase price of the asset acquisitions was allocated to land, building, tenant improvements, site improvements, and acquired lease intangible assets and liabilities based on management’s estimate.

 

 

Fresenius -Chicago, IL

 

 

Starbucks -Tampa, FL

 

 

Kohl's -Tucson, AZ

 

 

Total

 

Property and improvements

$

2,885,732

 

 

$

2,144,121

 

 

$

6,153,408

 

 

$

11,183,261

 

Tenant improvements

 

55,041

 

 

 

20,504

 

 

 

349,136

 

 

 

424,681

 

Acquired lease intangible assets

 

276,013

 

 

 

112,830

 

 

 

981,203

 

 

 

1,370,046

 

Total investments

 

3,216,786

 

 

 

2,277,455

 

 

 

7,483,747

 

 

 

12,977,988

 

Less acquired lease intangible liabilities

 

(19,864

)

 

 

(13,497

)

 

 

(131,999

)

 

 

(165,360

)

Total investments, net

$

3,196,922

 

 

$

2,263,958

 

 

$

7,351,748

 

 

$

12,812,628

 

 

Fresenius - Chicago, IL: On January 7, 2022, the Company acquired an approximately 10,900 square foot single tenant medical-retail property located in Chicago, Illinois. The acquisition was financed with a $1,550,000 promissory note and the balance with cash on hand.

 

Starbucks - Tampa, FL: On January 14, 2022, the Company acquired an approximately 2,600 square foot single tenant retail property located in Tampa, Florida. The acquisition was financed with the issuance of a redeemable non-controlling interest of $1,109,570, debt of $1,050,000 and the balance with cash on hand.

 

Kohl’s - Tucson, AZ: On March 9, 2022, the Company acquired a leasehold interest in a ground lease and corresponding assignment of an approximately 88,400 square foot single tenant retail property located in Tucson, Arizona with Kohl’s Corporation (NYSE: KSS) as the tenant. The acquisition was financed with a $3,650,000 promissory note and the balance with cash on hand.

10


During the three months ended March 31, 2021, the Company acquired one property.

 

 

GSA- Manteo, NC

 

Property

$

2,149,015

 

Tenant improvements

 

-

 

Acquired lease intangible assets

 

100,379

 

Total investments

 

2,249,394

 

Less acquired lease intangible liabilities

 

(511,620