Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward‑Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained herein. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. Readers should be aware of important factors that, in some cases, have affected, and in the future could affect, actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds derived from operations, cash available for distribution, cash flows, liquidity and prospects include, but are not limited to, the risk factors listed from time to time in our reports with the Securities and Exchange Commission, including, in particular, those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
25
In this Quarterly Report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or similar terms refer to Generation Income Properties, Inc., a Maryland corporation, together with its consolidated subsidiaries, including Generation Income Properties, L.P., a Delaware limited partnership, which we refer to as our operating partnership (the “Operating Partnership”). As used in this Quarterly Report, an affiliate, or person affiliated with a specified person, is a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
Overview
We are an internally managed, Maryland corporation focused on acquiring retail, office and industrial real estate located in major U.S. markets. We initiated operations during the year ended December 31, 2015 and we intend to elect to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2021. Substantially all of the Company’s assets are held by, and operations are conducted through, the Operating Partnership and the Operating Partnership’s direct and indirect subsidiaries. The Company is the general partner of the Operating Partnership and as of June 30, 2022 owned 83% of the outstanding common units of the Operating Partnership. The Company formed a Maryland entity GIP REIT OP Limited LLC in 2018 that owns 0.002% of the Operating Partnership.
Public Offering and Nasdaq Listing
In September 2021, the Company closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock at an exercise price equal to $10 per share. The common stock and warrants included in the units (which were separated into one share of common stock and one warrant) currently trade on the Nasdaq Capital Market (“Nasdaq”) under the symbols “GIPR” and “GIPRW,” respectively.
Our Investments
The following are characteristics of our properties as of June 30, 2022 (excluding our Tenant in Common Property unless otherwise noted):
•Creditworthy Tenants. Approximately 85% of our portfolio’s annualized base rent ("ABR") as of June 30, 2022 was derived from tenants that have (or whose parent company has) an investment grade credit rating from a recognized credit rating agency of “BBB-” or better. Our largest tenants are the General Service Administration, PRA Holdings, Inc., Pratt and Whitney, and Kohl’s, all who have an ‘BB+’ credit rating or better from S&P Global Ratings and contributed approximately 66% of our portfolio’s annualized base rent.
•100% Occupied. Our portfolio is 100% leased and occupied.
•Contractual Rent Growth. Approximately 92% of the leases in our current portfolio (based on ABR as of June 30, 2022) provide for increases in contractual base rent during future years of the current term or during the lease extension periods.
•Average Effective Annual Rental per Square Foot. Average effective annual rental per square foot is $15.53.
Given the nature of our leases, our tenants either pay the realty taxes directly or reimburse us for such costs. We believe all of our properties are adequately covered by insurance.
As of June 30, 2022, we own the following twelve assets (excluding our Tenant in Common property):
•A single tenant retail condo (approximately 3,000 square feet) located at 3707-3711 14th Street, NW, Washington, D.C. that is leased to 7-Eleven Corporation.
•A single tenant retail stand-alone property (approximately 2,200 square feet) located in Tampa, Florida with a corporate Starbucks Coffee as the tenant.
•A single tenant industrial building (approximately 59,100 square feet) located in Huntsville, AL leased to the Pratt & Whitney Automation, Inc.
•A two-tenant office building (approximately 72,100 square feet) in Norfolk, Virginia occupied by the United States General Services Administration and Maersk Line, Limited, an international shipping company, as tenants.
•A single tenant office building (approximately 34,800 square feet) in Norfolk, Virginia that is leased to PRA Holdings Inc.
•A single tenant retail building (approximately 3,500 square feet) leased to The Sherwin-Williams Company and located in Tampa, FL.
26
•A single tenant office building (approximately 7,500 square feet) leased to the General Services Administration and located in Manteo, NC.
•A single tenant office building (approximately 7,800 square feet) leased to Irby Construction Company, a wholly owned subsidiary of Quanta Services Inc. and located in Plant City, FL.
•A single tenant retail building (approximately 30,700 square feet) leased to Best Buy (NYSE: BBY) and located in Boulder Springs, CO.
•A single tenant medical-retail building (approximately 10,900 square feet) leased to Fresenius Medical Care (NYSE: FMS) located in Chicago, IL.
•A single tenant retail stand-alone property (approximately 2,600 square feet) located in Tampa, Florida with a corporate Starbucks Coffee (NASDAQ: SBUX) as the tenant.
•A leasehold interest in a ground lease and corresponding assignment of a single tenant retail stand-alone property (approximately 88,400 square feet) located in Tucson, Arizona with a corporate Kohl’s as the tenant.
We also own a 50% tenancy in common interest in one property:
•A single tenant retail building (approximately 15,300 square feet) leased to La-Z-Boy Company located in Rockford, IL.
The table below presents an overview of the twelve properties in our portfolio as of June 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type |
Location |
Rentable Square Feet |
|
Tenant |
S&P Credit Rating (1) |
Remaining Term (Yrs) |
|
Options (Number x Yrs) |
Contractual Rent Escalations |
ABR (2) |
|
ABR per Sq. Ft. |
|
Retail |
Washington, D.C |
|
3,000 |
|
7-Eleven Corporation |
A |
|
3.8 |
|
2 x 5 |
Yes |
$ |
129,804 |
|
$ |
43.27 |
|
Retail |
Tampa, FL |
|
2,200 |
|
Starbucks Corporation |
BBB+ |
|
5.7 |
|
4 x 5 |
Yes |
|
182,500 |
|
$ |
82.95 |
|
Industrial |
Huntsville, AL |
|
59,091 |
|
Pratt & Whitney Automation, Inc.(6) |
A- |
|
- |
|
2 x 5 |
Yes |
|
684,996 |
|
$ |
11.59 |
|
Office |
Norfolk, VA |
|
49,902 |
|
General Services Administration-Navy |
AA+ |
|
6.2 |
|
N/A |
Yes |
|
882,476 |
|
$ |
17.68 |
|
Office |
Norfolk, VA |
|
22,247 |
|
Maersk Shipping |
BBB |
|
0.5 |
|
1 x 5 (5) |
N/A |
|
386,795 |
|
$ |
17.39 |
|
Office |
Norfolk, VA |
|
34,847 |
|
PRA Holdings, Inc. (3) |
BB+ |
|
- |
|
1 x 5 |
Yes |
|
742,850 |
|
$ |
21.32 |
|
Retail |
Tampa, FL |
|
3,500 |
|
Sherwin Williams Company |
BBB |
|
6.1 |
|
5 x 5 |
Yes |
|
120,750 |
|
$ |
34.50 |
|
Office |
Manteo, NC |
|
7,543 |
|
General Services Administration-FBI |
AA+ |
|
6.6 |
|
1 x 5 |
Yes |
|
161,346 |
|
$ |
21.39 |
|
Office |
Plant City, FL |
|
7,826 |
|
Irby Construction |
BBB- |
|
2.5 |
|
2 x 5 |
Yes |
|
171,667 |
|
$ |
21.94 |
|
Retail |
Grand Junction, CO |
|
30,701 |
|
Best Buy Co., Inc. |
BBB+ |
|
4.8 |
|
1 x 5 |
Yes |
|
353,061 |
|
$ |
11.50 |
|
Medical-Retail |
Chicago, IL |
|
10,947 |
|
Fresenius Medical Care Holdings, Inc. |
BBB- |
|
4.3 |
|
2 x 5 |
Yes |
|
224,414 |
|
$ |
20.50 |
|
Retail |
Tampa, FL |
|
2,642 |
|
Starbucks Corporation |
BBB+ |
|
4.7 |
|
2 x 5 |
Yes |
|
148,216 |
|
$ |
56.10 |
|
Retail |
Tucson, AZ |
|
88,408 |
|
Kohl's Corporation |
BBB- |
|
7.6 |
|
7 x 5 |
Yes |
|
823,963 |
|
$ |
9.32 |
|
Consolidated Properties |
|
|
322,854 |
|
|
|
|
|
|
|
$ |
5,012,838 |
|
$ |
15.53 |
|
Retail (4) |
Rockford, IL |
|
15,288 |
|
La-Z-Boy Inc. |
NR |
|
5.3 |
|
4 x 5 |
Yes |
|
360,100 |
|
$ |
23.55 |
|
All Properties |
|
|
338,142 |
|
|
|
|
|
|
|
|
5,372,938 |
|
$ |
15.89 |
|
(1)Tenant, or tenant parent, rated entity.
(2)Annualized cash rental income in place as of June 30, 2022. Our leases do not include tenant concessions or abatements.
(3)Tenant has the right to terminate the lease on August 31, 2024 subject to certain conditions.
(4)The Company’s pro-rata share is 50% of the tenant in common investment.
(5)Tenant did not exercise the renewal option as of the required exercise date of April 1, 2022.
(6)Tenant has the right to terminate the lease on January 31, 2024 subject to certain conditions.
Distributions
From inception through June 30, 2022, we have distributed approximately $1,976,893 to common stockholders.
Recent Developments
On July 20, 2022, the Company received a notice of redemption from an Operating Partnership common unit holder exercising his right to redeem 25,000 units at $20 per unit under the Operating Partnership’s Contribution and Subscription Agreement, dated July 16, 2019, and the Contribution and Subscription Agreement, dated June 19, 2019. Such notice further stated the unit holder’s intent to redeem his remaining 180,615 units in the Operating Partnership before October 31, 2023. On August, 9, 2022, the Company and Operating Partnership entered a Redemption Agreement with the unit holder providing for the revocation of his July 2022 redemption notice and providing that the his common units in the Operating Partnership would be redeemed by the Operating Partnership as follows: (i) on or before September 15, 2022, 16,250 of the units would be redeemed for an aggregate of $325,000 in cash (which is $20 per unit, as
27
provided in the applicable Contribution Agreements) and 60,000 of the units would be redeemed in exchange for the issuance of 200,000 shares of the Company’s common stock, and (ii) the remaining 129,365 units would be redeemed for $20 per unit in cash in one tranche of 16,250 units on March 15, 2023 and five tranches of 22,623 units each on September 15, 2023, March 15, 2024, June 15, 2024, September 15, 2024, and December 15, 2024.
Results of Operations
Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021
Revenue
During the three months ended June 30, 2022, total revenue from operations was $1,379,103 as compared to $988,190 for the three months ended June 30, 2021. Revenue increased $390,913 from the acquisition of five additional properties partially offset by the revenue generated from one property sold in August 2021.
Expenses
During the three months ended June 30, 2022, we incurred total expenses of $2,042,938 as compared to $1,305,855 for the three months ended June 30, 2021. Operating expenses increased by $737,083 as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30, |
|
|
|
|
2022 |
|
2021 |
|
Change |
|
General, administrative and organizational costs |
$ |
472,736 |
|
$ |
251,825 |
|
$ |
220,911 |
|
Building expenses |
|
325,201 |
|
|
163,722 |
|
|
161,479 |
|
Depreciation and amortization |
|
558,676 |
|
|
397,186 |
|
|
161,490 |
|
Interest expense, net |
|
375,627 |
|
|
337,432 |
|
|
38,195 |
|
Compensation costs |
|
310,698 |
|
|
155,690 |
|
|
155,008 |
|
Total expenses |
$ |
2,042,938 |
|
$ |
1,305,855 |
|
$ |
737,083 |
|
•General, administrative and organizational costs increased by $220,911 due to an increase in legal and audit expense, an increase in corporate filing fees incurred for the Company's first annual report and shareholders' meeting, an increase in insurance expense, and an increase in investor relations expense offset by a decrease in consulting services.
•Building expenses increased by $161,479 due to an increase in tenant reimbursable expenses incurred by the Company on behalf of tenants from the acquisition of five additional properties. Reimbursement revenues included in Rental income offset this Building expense.
•Depreciation and amortization increased by $161,490 from the acquisition of five additional properties offset in part by the expense incurred by one property sold in August 2021.
•Interest expense, net increased by $38,195 due to interest on the mortgage loans from the five additional properties offset by the reduction in interest expense due from the mortgage loans refinanced or adjusted to a lower interest rate which is further offset in part by the interest expense from the mortgage loan associated with the one property sold in August 2021.
•Compensation costs increased by $155,008 primarily due to an increase in restricted stock unit compensation expense related to additional stock granted in addition to an increase in salary expense.
Income Tax Benefit
We did not record an income tax benefit for the three months ended June 30, 2022 and 2021 because we have been in a cumulative net loss situation since inception and have recorded a valuation allowance to offset any tax benefits generated by the cumulative operating losses.
Loss on investment in tenancy-in-common
During the three months ended June 30, 2022, our share of earnings on our investment in tenancy in common acquired in August 2021 and accounted for under the equity method generated a loss of $1,462.
Other expenses:
•During the three months ended June 30, 2022, we incurred $107,371 in dead deal expense related to acquisition costs incurred in from a portfolio of assets we are no longer pursuing for acquisition.
28
•During the three months ended June 30, 2022, we incurred a loss on debt extinguishment of $144,029 related to the write off of unamortized debt issuance costs previously incurred on mortgage loans that were refinanced in addition to a prepayment penalty incurred of $21,000.
Net Loss
During the three months ended June 30, 2022 and 2021, we generated a net loss of $916,697 and $317,665, respectively.
Net Income Attributable to Non-controlling Interests
During the three months ended June 30, 2022 and 2021, net income attributable to non-controlling interest was $130,181 and $52,434, respectively. The variance is attributable to an increase from additional redeemable non-controlling interests issued to finance the acquisition of properties in 2021 and 2022 offset by a decrease in the redeemable non-controlling interest for the property sold in August 2021.
Net Loss Attributable to Shareholders
During the three months ended June 30, 2022 and 2021, we generated a net loss attributable to our shareholders of $1,046,878 and $369,989, respectively.
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Revenue
During the six months ended June 30, 2022 total revenue from operations was $2,561,038 as compared to $1,925,078 for the six months ended June 30, 2021. Revenue increased $635,960 from the acquisition of five additional properties partially offset by the revenue generated from one property sold in August 2021.
Expenses
During the six months ended June 30, 2022, we incurred total expenses of $3,678,938 as compared to $2,564,446 for the six months ended June 30, 2021. Operating expenses increased by $1,114,492 as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, |
|
|
|
|
2022 |
|
2021 |
|
Change |
|
General, administrative and organizational costs |
$ |
814,416 |
|
$ |
440,242 |
|
$ |
374,174 |
|
Building expenses |
|
578,592 |
|
|
344,275 |
|
|
234,317 |
|
Depreciation and amortization |
|
989,569 |
|
|
776,697 |
|
|
212,872 |
|
Interest expense, net |
|
705,921 |
|
|
692,421 |
|
|
13,500 |
|
Compensation costs |
|
590,440 |
|
|
310,811 |
|
|
279,629 |
|
Total expenses |
$ |
3,678,938 |
|
$ |
2,564,446 |
|
$ |
1,114,492 |
|
•General, administrative and organizational costs increased by $374,174 due to an increase in legal and audit expense, an increase in corporate filing fees incurred for the Company's first annual report and shareholders' meeting, an increase in insurance expense, and an increase in investor relations expense offset by a decrease in consulting services.
•Building expenses increased by $234,317 due to an increase in tenant reimbursable expenses incurred by the Company on behalf of tenants from the acquisition of five additional properties. Reimbursement revenues included in Rental income offset this Building expense.
•Depreciation and amortization increased by $212,872 from the acquisition of five additional properties offset in part by the expense incurred by one property sold in August 2021.
•Interest expense, net increased by $13,500 due to interest on the mortgage loans from the five additional properties offset by the reduction in interest expense due from the mortgage loans refinanced or adjusted to a lower interest rate which is further offset in part by the interest expense from the mortgage loan associated with the one property sold in August 2021.
•Compensation costs increased by $279,629 primarily due to an increase in restricted stock unit compensation expense related to accelerated vesting of the restricted stock granted to the former CFO and also issuance of additional stock granted. The increase in Compensation Costs also resulted from an increase in salary expense.
Income Tax Benefit
29
We did not record an income tax benefit for the six months ended June 30, 2022 and 2021 because we have been in a cumulative net loss situation since inception and have recorded a valuation allowance to offset any tax benefits generated by the cumulative operating losses.
Income on investment in tenancy-in-common
During the six months ended June 30, 2022, our share of earnings on our investment in tenancy in common acquired in August 2021 and accounted for under the equity method generated income of $7,090.
Other expenses:
•During the six months ended June 30, 2022, we incurred $107,371 in dead deal expense related to acquisition costs incurred in from a portfolio of assets we are no longer pursuing for acquisition.
•During the six months ended June 30, 2022, we incurred a loss on debt extinguishment of $144,029 related to the write off of unamortized debt issuance costs previously incurred on refinanced mortgage loans that in addition to a prepayment penalty incurred of $21,000.
Net Loss
During the six months ended June 30, 2022 and 2021, we generated a net loss of $1,362,210 and $639,368, respectively.
Net Income Attributable to Non-controlling Interests
During the six months ended June 30, 2022 and 2021, net income attributable to non-controlling interest was $260,144 and $198,504, respectively. The variance is attributable to an increase from additional redeemable non-controlling interests issued to finance the acquisition of properties in 2021 and 2022 offset by a decrease in the redeemable non-controlling interest for the property sold in August 2021.
Net Loss Attributable to Shareholders
During the six months ended June 30, 2022 and 2021 we generated a net loss attributable to our shareholders of $1,622,354 and $837,872, respectively.
Liquidity and Capital Resources
We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from offerings of our equity securities, cash flow from operations and borrowings under credit facilities. As of June 30, 2022, we had total cash (unrestricted and restricted) of $3,683,665, properties with a cost basis of $56,847,641 and outstanding debt with a principal balance of $36,242,002.
In September 2021, we closed an underwritten public offering of 1,665,000 units at a price to the public of $10 per unit generating net proceeds of $13.8 million including issuance costs incurred during the years ended December 31, 2021 and 2020.
On October 26, 2021, the Operating Partnership entered into a Commitment Letter with American Momentum Bank (the “Lender”) for the $25 million master credit facility (the “Facility”) to be used for the acquisition of income producing real estate properties. Borrowings under the Facility will accrue interest at a variable rate equal to the Wall Street Journal Prime rate, adjusted monthly, subject to a floor interest rate of 3.25% per annum. At each loan closing under the Facility, the borrower shall pay the Lender a commitment fee equal to 0.50% of the applicable loan amount. Each loan will have an interest-only payment term for twenty-four months from the applicable loan closing date and all interest and principal outstanding shall be due and payable in full two years from the applicable loan closing date. Each loan will be secured by the real estate property acquired and the associated rental income and payment will be guaranteed by the Operating Partnership. The Company’s CEO, will be required to execute a non-recourse guarantee in connection with each loan that is subject to standard “bad-boy” carve out provisions. Each loan agreement under the Facility will require the borrower to maintain a debt service coverage ratio of not less than 1.50 to 1.00 over the term of the loan and will contain customary affirmative covenants, negative covenants and events of default. Should any event of default occur, the loan commitments under the Facility may be terminated and any outstanding borrowings, together with accrued interest, could be declared immediately due and payable. All loans under the Facility must close by October 26, 2023. The Facility is voidable at the option of the Lender in specified circumstances, including a material adverse change in the Company’s financial condition and upon any changes in management of the Company that are unacceptable to the Lender. On May 9, 2022, the Operating Partnership amended the current Commitment Letter with the Lender, by entering into a new Commitment Letter, to increase the available Borrowings under the
30
Facility from $25 million to $50 million to be used for the acquisition of income producing real estate properties under the same terms as provided by the agreement entered into on October 26, 2021. The new Commitment Letter will become effective contingent upon the Company completing a future capital raise of $25.0 million or more, and prior to such time, the current Commitment Letter will remain in place. As of June 30, 2022 the Company did not have an outstanding balance on the Facility, compared to an outstanding balance of approximately $2.4 million as of December 31, 2021 under the Facility.
We currently obtain the capital required to primarily invest in and manage a diversified portfolio of commercial net lease real estate investments and conduct our operations from the proceeds of equity offerings, debt financings, preferred minority interest obtained from third parties, issuance of Operating Partnership units and from any undistributed funds from our operations.
We anticipate that our current cash on hand and availability under the Facility combined with the revenue generated from investment properties and proceeds from debt arrangements will provide sufficient liquidity to meet future funding commitments for at least the next 12 months.
As of June 30, 2022 and December 31, 2021, we had total current liabilities which consists of accounts payable, accrued expenses, insurance payable of $628,316 and $369,902, respectively. The increase is primarily attributable to the $203,326 accrued expense for an Operating Partnership unit redemption.
On April 1, 2022, the Company entered into two loan agreements with an aggregate balance of $13.5 million as of June 30, 2022 to refinance seven of the Company's properties. The loan agreements consist of one loan in the amount of $11.4 million secured by six properties, and one loan in the amount of $2.1 million on the property held in the tenant in common investment at an interest rate of 3.85% from April 1, 2022 through and until March 31, 2027. Effective April 1, 2027 and through the maturity date of March 31, 2032, the interest rate adjusts to the 5-year Treasury plus 2.5% and is subject to a floor of 3.85%. The Company’s CEO entered into a guaranty agreement pursuant to which he guaranteed the payment obligations under the promissory notes if they become due as a result of certain “bad-boy” provisions, individually and on behalf of the Operating Partnership. During the three months ended June 30, 2022, we incurred a loss on debt extinguishment of $144,029 related to the write off of unamortized debt issuance costs previously incurred on these mortgage loans that were refinanced in addition to a prepayment penalty incurred of $21,000.
The Company had the following promissory notes outstanding as of June 30, 2022 and December 31, 2021, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Secured By (Tenant-Location) |
|
Loan Amount |
|
|
Interest Rate |
|
|
Maturity Date |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Debt Service Coverage Ratios ("DSCR") Required |
|
7-11 - Washington, DC; Starbucks-South Tampa, FL; and Pratt & Whitney-Huntsville, AL |
|
$ |
11,287,500 |
|
* |
|
4.17 |
% |
|
3/6/2030 |
|
$ |
11,054,353 |
|
|
$ |
11,150,130 |
|
|
|
1.25 |
|
GSA & Maersk - Norfolk, Virginia |
|
|
8,260,000 |
|
|
|
3.50 |
% |
|
9/30/2024 |
|
|
7,691,504 |
|
|
|
7,805,524 |
|
|
|
1.25 |
|
PRA Holdings, Inc. - Norfolk, Virginia |
|
|
5,216,749 |
|
|
|
3.50 |
% |
|
10/23/2024 |
|
|
4,809,481 |
|
|
|
4,889,670 |
|
|
|
1.25 |
|
Sherwin-Williams - Tampa, Florida |
|
|
1,286,664 |
|
|
|
3.72 |
% |
*** |
8/10/2028 |
|
|
1,286,664 |
|
|
|
1,286,664 |
|
|
|
1.20 |
|
GSA - Manteo, North Carolina |
|
|
928,728 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
928,728 |
|
|
|
1,275,000 |
|
|
|
1.50 |
|
Irby Construction - Plant City , Florida |
|
|
928,728 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
928,728 |
|
|
|
850,000 |
|
|
|
1.50 |
|
Best Buy - Grand Junction, Colorado |
|
|
2,552,644 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
2,552,644 |
|
|
|
2,350,000 |
|
|
|
1.50 |
|
Fresenius - Chicago, Illinois |
|
|
1,727,108 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
1,727,108 |
|
|
|
- |
|
|
|
1.50 |
|
Starbucks - North Tampa, Florida |
|
|
1,298,047 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
1,298,047 |
|
|
|
- |
|
|
|
1.50 |
|
Kohls - Tucson, Arizona |
|
|
3,964,745 |
|
|
|
3.85 |
% |
** |
3/31/2032 |
|
|
3,964,745 |
|
|
|
- |
|
|
|
1.50 |
|
|
|
|
37,450,913 |
|
|
|
|
|
|
|
|
36,242,002 |
|
|
|
29,606,988 |
|
|
|
|
|
|
|
|
|
|
|
|
Less Debt Issuance Costs |
|
|
(786,490 |
) |
|
|
(637,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,455,512 |
|
|
|
28,969,295 |
|
|
|
|
*Loan subject to prepayment penalty
**Adjustment effective April 1, 2027 equal to 5-year Treasury plus 2.5% and subject to a floor of 3.85%
We amortized debt issuance costs during the six months ended June 30, 2022 and 2021 to interest expense of approximately $61,606 and $63,922, respectively. We paid debt issuance costs for the six months ended June 30, 2022 and 2021 of approximately $354,432 and $39,991, respectively.
31
Each promissory note requires the Company to maintain certain debt service coverage ratios as noted above. In addition, one promissory note, encumbered by six properties, requires the Company to maintain a 54% loan to value ratio. As of June 30, 2022, we were in compliance with all covenants.
The Company’s President has personally guaranteed the repayment of the $11.1 million due under the 7-11 - Washington, DC; Starbucks-South Tampa, FL; and Pratt & Whitney-Huntsville, AL loan as well as the $1.3 million loan secured by the Company's Sherwin-Williams - Tampa, Florida property. In addition, the Company’s President has also provided a guaranty of the Borrower’s nonrecourse carveout liabilities and obligations in favor of the lender for the Norfolk, Virginia property loans (the “Bayport loans”) with an aggregate principal amount of $12,500,985. The Company modified the Bayport loans in March 2021 for no fees and reduced the associated interest rate from 4.25% to 3.50%. The Company determined that the debt modification was not substantial under ASC 470-50.
Minimum required principal payments on the Company’s debt as of June 30, 2022 are as follows:
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2022 |
|
2022 |
|
$ |
291,328 |
|
2023 |
|
|
785,524 |
|
2024 |
|
|
12,427,090 |
|
2025 |
|
|
546,280 |
|
2026 |
|
|
568,514 |
|
Thereafter |
|
|
21,623,266 |
|
|
|
$ |
36,242,002 |
|
Funding of acquisitions in the six months ended June 30, 2022 and 2021 were as follows:
•The acquisition of the Chicago, IL property in January 2022 was funded with debt financing of approximately $1.6 million and cash.
•The acquisition of the Tampa, FL property in January 2022 was funded with a Redeemable Non-Controlling Interest contribution to one of our subsidiaries of $1.1 million and by debt financing of approximately $1.1 million.
•The acquisition of the Tucson, AZ property in March 2022 was funded with debt financing of approximately $3.7 million and cash.
•The acquisition of the Manteo, North Carolina property in February 2021 was funded with a Redeemable Non-Controlling Interest contribution to one of our subsidiaries of $0.5 million and by debt financing of approximately $1.3 million.
•The acquisition of the Plant City, Florida property in April 2021, was funded with a Redeemable Non-Controlling Interest contribution to one of our subsidiaries of approximately $1.0 million and by debt financing of approximately of approximately $0.9 million.
The primary objective of our financing strategy is to maintain financial flexibility using retained cash flows, long-term debt and common and perpetual preferred stock to finance our growth. We intend to have a lower-leveraged portfolio over the long-term after we have acquired an initial substantial portfolio of diversified investments. During the period when we are acquiring our current portfolio, we will employ greater leverage on individual assets (that will also result in greater leverage of the current portfolio) in order to quickly build a diversified portfolio of assets.
Cash from Operating Activities
Net cash used in operating activities was $127,247 and $38,238 for the six months ended June 30, 2022 and 2021, respectively.
Cash from Investing Activities
Net cash used in investing activities was $13,161,569 and $3,530,810 during the six months ended June 30, 2022 and 2021, respectively. The increase is primarily due to $12,705,680 for the purchase of three properties including the escrow deposit return in addition to purchasing an additional interest in our investment in tenancy in common of $455,889 during the six months ended June 30, 2022 as compared to one property purchased for $3,530,810 during the six months ended June 30, 2021.
Cash from Financing Activities
32
Net cash generated from financing activities was $6,348,405 and $3,055,476 for the six months ended June 30, 2022 and 2021, respectively. The change is primarily related to $4,735,340 increase in net Mortgage loan borrowings, offset by a $314,441 increase in debt issuance costs related to the mortgage loans refinancing, and an increase in dividends paid of $563,680.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Non-GAAP Financial Measures
Our reported results are presented in accordance with GAAP. We also disclose funds from operations ("FFO"), adjusted funds from operations ("AFFO"), core funds from operations ("Core FFO") and core adjusted funds of operations ("Core AFFO") all of which are non-GAAP financial measures. We believe these non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
FFO and related measures do not represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income or loss as a performance measure or cash flows from operations as reported on our statement of cash flows as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.
We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude extraordinary items (as defined by GAAP), net gains from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets, and real estate related depreciation and amortization, including the pro rata share of such adjustments of unconsolidated subsidiaries. We then adjust FFO for non-cash revenues and expenses such as amortization of deferred financing costs, above and below market lease intangible amortization, straight line rent adjustment where the Company is both the lessor and lessee, and non-cash stock compensation to calculate Core AFFO.
FFO is used by management, investors, and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. We believe that AFFO is an additional useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by other non-cash revenues or expenses. FFO and AFFO may not be comparable to similarly titled measures employed by other companies. We believe that Core FFO and Core AFFO are useful measures for management and investors because they further remove the effect of non-cash expenses and certain other expenses that are not directly related to real estate operations. We use each as measures of our performance when we formulate corporate goals.
As FFO excludes depreciation and amortization, gains and losses from property dispositions that are available for distribution to stockholders and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, providing a perspective not immediately apparent from net income or loss. However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties which could be significant economic costs and could materially impact our results from operations. Additionally, FFO does not reflect distributions paid to redeemable non-controlling interests.
33
The following tables reconcile net income (net loss), which we believe is the most comparable GAAP measure, to FFO, Core FFO, AFFO and Core AFFO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2022 |
|
2021 |
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
$ |
(916,697 |
) |
$ |
(317,665 |
) |
|
$ |
(1,362,210 |
) |
$ |
(639,368 |
) |
Depreciation and amortization |
|
558,676 |
|
|
397,186 |
|
|
|
989,569 |
|
|
776,697 |
|
Funds From Operations |
$ |
(358,021 |
) |
$ |
79,521 |
|
|
$ |
(372,641 |
) |
$ |
137,329 |
|
Amortization of debt issuance costs |
|
27,933 |
|
|
32,819 |
|
|
|
61,606 |
|
|
63,922 |
|
Non-cash stock compensation |
|
124,118 |
|
|
50,278 |
|
|
|
218,044 |
|
|
132,749 |
|
Adjustments to Funds From Operations |
$ |
152,051 |
|
$ |
83,097 |
|
|
$ |
279,650 |
|
$ |
196,671 |
|
Core Funds From Operations |
$ |
(205,970 |
) |
$ |
162,618 |
|
|
$ |
(92,991 |
) |
$ |
334,000 |
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
$ |
(916,697 |
) |
$ |
(317,665 |
) |
|
$ |
(1,362,210 |
) |
$ |
(639,368 |
) |
Depreciation and amortization |
|
558,676 |
|
|
397,186 |
|
|
|
989,569 |
|
|
776,697 |
|
Amortization of debt issuance costs |
|
27,933 |
|
|
32,819 |
|
|
|
61,606 |
|
|
63,922 |
|
Above and below-market lease amortization, net |
|
(26,297 |
) |
|
(42,431 |
) |
|
|
(50,181 |
) |
|
(75,592 |
) |
Straight line rent, net |
|
17,160 |
|
|
(12,271 |
) |
|
|
16,060 |
|
|
(27,989 |
) |
Adjustments to Net Loss |
$ |
577,472 |
|
$ |
375,303 |
|
|
$ |
1,017,054 |
|
$ |
737,038 |
|
Adjusted Funds From Operations |
$ |
(339,225 |
) |
$ |
57,638 |
|
|
$ |
(345,156 |
) |
$ |
97,670 |
|
|
|
|
|
|
|
|
|
|
|
Dead deal expense |
|
107,371 |
|
|
- |
|
|
|
107,371 |
|
|
- |
|
Loss on debt extinguishment |
|
144,029 |
|
|
- |
|
|
|
144,029 |
|
|
- |
|
Non-cash stock compensation |
|
124,118 |
|
|
50,278 |
|
|
|
218,044 |
|
|
132,749 |
|
Adjustments to Adjusted Funds From Operations |
$ |
375,518 |
|
$ |
50,278 |
|
|
$ |
469,444 |
|
$ |
132,749 |
|
Core Adjusted Funds From Operations |
$ |
36,293 |
|
$ |
107,916 |
|
|
$ |
124,288 |
|
$ |
230,419 |
|
Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. See our audited consolidated financial statements included herein for a summary of our significant accounting policies.