# Generation Income Properties, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Generation Income Properties, Inc.](/companies/gipr.md) (CIK 1651721)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:02 ET
- Period: 2023-09-30
- Accession: 0000950170-23-063679
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1651721/000095017023063679/gipr-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1651721/000095017023063679/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $1.8m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $4.5m | us-gaap:Revenues |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$2.6m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$1.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.70 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.70 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 2,618,077 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 2,591,956 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $18.5k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $32.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $909.8k | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-09-30 | $4.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $110.8m | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $74.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $6.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,820 characters.

**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, 2022.*

*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 have elected 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 September 30, 2023 owned 91% 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 September 30, 2023:

- *Creditworthy Tenants*. Approximately 68% of our portfolio’s annualized base rent ("ABR") as of September 30, 2023 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, Dollar General,

City of San Antonio (Pre-K), and Kohl’s Corporation and contributed approximately 49% of our portfolio’s annualized base rent.

- *Percent Leased*. Our portfolio is 96% leased.
- *Contractual Rent Growth*. Approximately 84% of the leases in our current portfolio (based on ABR as of September 30, 2023) 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 $16.02.

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.

The table below presents an overview of the properties in our portfolio as of September 30, 2023:

| Property Type | Location | Rentable Square Feet | Tenant | S&P Credit Rating (1) | Remaining Term (Yrs) | Options (Number x Yrs) | Contractual Rent Escalations (3) | ABR (2) | ABR per Sq. Ft. |
| --- | --- | ---: | --- | --- | ---: | --- | --- | ---: | ---: |
| Retail | Washington, D.C. | 3,000 | 7-Eleven Corporation | A | 2.5 | 2 x 5 | Yes | $129,804 | $43.27 |
| Retail | Tampa, FL | 2,200 | Starbucks Corporation | BBB+ | 4.4 | 4 x 5 | Yes | $200,750 | $91.25 |
| Industrial | Huntsville, AL | 59,091 | Pratt & Whitney Automation, Inc. | A- | 0.3 | N/A | No | $684,996 | $11.59 |
| Office | Norfolk, VA | 49,902 | General Services Administration-Navy | AA+ | 5.0 | N/A | Yes | $926,923 | $18.57 |
| Office | Norfolk, VA | 22,247 | VACANT | N/A | - | N/A | N/A | $- | $- |
| Office | Norfolk, VA | 34,847 | PRA Holdings, Inc. (3) | BB+ | 3.9 | 1 x 5 | Yes | $765,136 | $21.96 |
| Retail | Tampa, FL | 3,500 | Sherwin Williams Company | BBB | 4.8 | 5 x 5 | Yes | $126,788 | $36.23 |
| Office | Manteo, NC | 7,543 | General Services Administration-FBI | AA+ | 5.4 | 1 x 5 | Yes | $161,346 | $21.39 |
| Office | Plant City, FL | 7,826 | Irby Construction | BBB- | 1.3 | 2 x 5 | Yes | $170,865 | $21.83 |
| Retail | Grand Junction, CO | 30,701 | Best Buy Co., Inc. | BBB+ | 3.5 | 1 x 5 | Yes | $353,061 | $11.50 |
| Medical-Retail | Chicago, IL | 10,947 | Fresenius Medical Care Holdings, Inc. | BBB | 3.1 | 2 x 5 | Yes | $228,902 | $20.91 |
| Retail | Tampa, FL | 2,642 | Starbucks Corporation | BBB+ | 3.4 | 2 x 5 | Yes | $148,216 | $56.10 |
| Retail | Tucson, AZ | 88,408 | Kohl's Corporation | BB+ | 6.3 | 7 x 5 | Yes | $823,962 | $9.32 |
| Retail | San Antonio, TX | 50,000 | City of San Antonio (PreK) | AAA | 5.8 | 1 x 8 | Yes | $924,000 | $18.48 |
| Retail | Bakersfield, CA | 18,827 | Dollar General Market | BBB | 4.8 | 3 x 5 | Yes | $361,075 | $19.18 |
| Retail | Big Spring, TX | 9,026 | Dollar General | BBB | 6.8 | 3 x 5 | Yes | $86,040 | $9.53 |
| Retail | Castalia, OH | 9,026 | Dollar General | BBB | 11.7 | 3 x 5 | Yes | $79,320 | $8.79 |
| Retail | East Wilton, ME | 9,100 | Dollar General | BBB | 6.8 | 3 x 5 | Yes | $112,440 | $12.36 |
| Retail | Lakeside, OH | 9,026 | Dollar General | BBB | 11.7 | 3 x 5 | Yes | $81,036 | $8.98 |
| Retail | Litchfield, ME | 9,026 | Dollar General | BBB | 7.0 | 3 x 5 | Yes | $92,964 | $10.30 |
| Retail | Mount Gilead, OH | 9,026 | Dollar General | BBB | 6.8 | 3 x 5 | Yes | $85,920 | $9.52 |
| Retail | Thompsontown, PA | 9,100 | Dollar General | BBB | 7.1 | 3 x 5 | Yes | $86,004 | $9.45 |
| Retail | Morrow, GA | 10,906 | Dollar Tree Stores, Inc. | BBB | 1.8 | 3 x 5 | Yes | $103,607 | $9.50 |
| Office | Maitland, FL | 33,118 | exp U.S. Services Inc. | Not Rated | 3.2 | 1 x 5 | Yes | $835,346 | $25.22 |
| Office | Vacaville, CA | 11,014 | General Services Administration | AA+ | 2.9 | N/A | No | $343,665 | $31.20 |
| Retail | Santa Maria, CA | 14,490 | Walgreens (4) | BBB | 8.5 | N/A | No | $369,000 | $25.47 |
| Retail | Rockford, IL | 15,288 | La-Z-Boy Inc. | Not Rated | 4.1 | 4 x 5 | Yes | $366,600 | $23.98 |
| **Tenants - All Properties** |  | **539,827** |  |  |  |  |  | **$8,647,766** | **$16.02** |

(1) Tenant, or tenant parent, rated entity.

(2) Annualized cash base rental income in place as of September 30, 2023. Our leases do not include tenant concessions or abatements.

(3) Includes rent escalations available from lease renewal options.

(4) Tenant has the right to terminate the lease as of March 31, 2032, March 31, 2037, March 31, 2042, March 31, 2047, March 31, 2052, and March 31, 2057

(5)

### Distributions

From inception through September 30, 2023, we have distributed approximately $3,565,547 to common stockholders.

### Portfolio Acquisition

On August 10, 2023, we and our Operating Partnership entered into an Agreement of Purchase and Sale with Modiv Inc., now known as Modiv Industrial, Inc., a Maryland corporation (“Modiv”) and certain of its indirect subsidiaries(together with Modiv, the “Seller”), pursuant to which we purchased a portfolio of 13 properties from the Seller (the “Portfolio Purchase”) for a purchase price of $42.0 million, excluding estimated transaction costs and expenses of $1.6 million and subject to prorations and credits as set forth in the Agreement of Purchase and Sale, consisting of $30.0 million in cash and 2,400,000 shares of a new series of preferred stock designated as Series A Redeemable Preferred Stock (the "Series A Preferred Stock"), par value $0.01 per share.

We funded the cash portion of the purchase price and the transaction expenses with a combination of cash on hand, $21.0 million in new secured mortgage debt, and a $12.0 million preferred equity investment by LC2-NNN Pref, LLC, a Florida limited liability company and affiliate of Loci Capital Partners (“LC2”), as summarized below:

- We, through a newly formed subsidiary, GIP13 LLC (“GIP Borrower”), entered into a loan agreement with Valley National Bank in the amount of $21.0 million, which is secured by the 13 properties comprising the Portfolio Purchase and eight other properties held by subsidiaries of GIP VB SPE, LLC, a Delaware limited liability company (“GIP SPE”) that had outstanding loans with Valley National Bank. All of the mortgaged properties cross collateralize the loan, and the loan is guaranteed by the Operating Partnership and the subsidiaries of GIP Borrower that hold the properties that comprise the Portfolio Purchase. Payments of interest and principal in the amount of approximately $156,000 are due and payable monthly, with all remaining principal and accrued but unpaid interest due and payable on a maturity date of August 10, 2028. To secure a fixed interest rate on this new debt, we entered into an interest rate swap agreement fixing the interest rate to 7.47% based on 1-month SOFR plus 3.25%. Our Chief Executive Officer, David Sobelman, entered into a guarantee agreement for $7.5 million 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. See Note 9 “Mortgage Loans” to our consolidated financial statements for more information.
- On August 10, 2023, we, through GIP SPE entered into an Amended and Restated Limited Liability Company Agreement (the “Amended and Restated LLC Agreement”) whereas LC2 purchased a preferred equity interest (the "Preferred Interest") in GIP SPE, providing proceeds of an initial capital contribution of $12.0 million, together with a commitment to make an additional $2.1 million contribution upon the acquisition of our tenant-in-common investment. The Company completed the acquisition of such tenant-in-common interest on September 7, 2023, for a purchase price of $1.3 million and LC2 made the additional $2.1 million capital contribution on September 11, 2023. The Preferred Interest has a cumulative accruing distribution preference of 15.5% per year, compounded monthly (the “Preferred Return”), a portion of which in the amount of 5% per annum, compounded monthly, is deemed to be a "Current Preferred Return", and the remainder of which in the amount of 10.5% per annum (compounded monthly) is deemed to be the “Accrued Preferred Return.” We must redeem the Preferred Interest by August 10, 2025, with two options to extend for an additional 12 months upon payment of an extension fee and an increased preferred rate of return of 18%. LC2 also received a 1% equity fee at closing and will receive a .5% equity fee upon redemption of the Preferred Interest . LC2 will have approval rights to major decisions as defined by the Amended and Restated LL Agreement. See Note 7 “Non-Controlling Interests – LC2-NNN Pref, LLC” to our consolidated financial statements for more information.

On August 10, 2023, we filed Articles Supplementary (the "Articles Supplementary"), with the State Department of Assessments and Taxation of the State of Maryland, to our Articles of Amendment and Restatement, as amended, classifying and designating 2,400,000 shares of our authorized capital stock as shares of Series A Redeemable Preferred Stock. We issued 2,400,000 shares of Series A Preferred Stock to Modiv on August 10, 2023, to fund a portion of the purchase price of the Portfolio Purchase. As set forth in the Articles Supplementary, the Series A Preferred Stock ranks, with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up, senior to all classes or series of our common stock, par value $0.01 per share (the “Common Stock”). Holders of Series A Preferred Stock, when, as and if authorized by our board of directors and declared by us out of funds legally available for the payment of dividends, are entitled to cumulative cash dividends at the rate of 9.5% per annum of the $5.00 liquidation preference per share, equivalent to a fixed annual amount of $0.475 per share, which shall increase to a rate of 12.0% of the $5.00 liquidation preference per share per annum, equivalent to a fixed annual amount of $0.60 per share, beginning on September 15, 2024. Dividends are payable monthly in arrears on or about the 15th day of each month, beginning on September 15, 2023. Dividends will accrue and be cumulative from and including August 10, 2023, the first date on which shares of the Series A Preferred Stock were issued. See Note 7 “Non-Controlling Interests — Modiv — Series A Preferred Stock” to our consolidated financial statements included in this report for more information regarding the terms of our Series A Preferred Stock.

Concurrent with the closing of the Portfolio Purchase as described above, we entered into certain redemption agreements for the following redeemable non-controlling interests in certain special purpose entities that own properties:

- On August 8, 2023, we and the Brown Family Trust entered into an agreement to redeem Brown Family Trust's preferred equity interest of $500,000 and a distribution of $1,250 paid on August 10, 2023.
- On August 8, 2023, we and Irby Prop Partners entered into an agreement to redeem Irby Prop Partners' preferred equity interests of $950,000 and a distribution of $90,070 paid on August 10, 2023.
- On August 8, 2023, we and Richard Hornstrom entered into an agreement to redeem Richard Hornstrom's preferred equity interest of $650,000 and a distribution of $57,780 paid on August 10, 2023.

On September 7, 2023, we entered into a purchase agreement pursuant to which we purchased the remaining tenancy-in-common ("TIC") interest in its Rockford, IL property leased by La-Z-Boy for $1,318,367 and incurred closing costs of $37,034 for total consideration of $1,355,401. We recorded the acquisition under the cost accumulation method. Pursuant to the Amended and Restated Limited Liability Company Agreement for GIP SPE, entered into by the Operating Partnership and LC2, LC2 was obligated to make an additional $2.1 million capital contribution in GIP SPE upon completion of the acquisition of the Rockford TIC Interest. This additional capital contribution was made on September 11, 2023.

### Recent Developments

### Dividends

On October 3, 2023, we announced that our Board of Directors authorized a distribution of $0.0396 per share monthly cash distribution for shareholders of record of our common stock as of October 15, 2023, November 15, 2023, and December 15, 2023. October distributions were paid on October 31, 2023 and we expect to pay November and December distributions on or about November 30, 2023 and December 31, 2023, respectively. The Operating Partnership common unit holders received the same distribution.

On October 26, 2023, our Board of Directors authorized a distribution of $0.0396 per share monthly cash distribution for shareholders of record of our preferred stock as of October 30, 2023 which was paid November 14, 2023.

### Warrant Exercises

Subsequent to September 30, 2023 but before the filing of this Quarterly Report on Form 10-Q, 2,750 Investor Warrants were exercised on a cashless basis for 10% of the shares of Common Stock underlying the Investor Warrant, as the volume-weighted average trading price of the Company’s shares of Common Stock on Nasdaq was below the then-effective exercise price of the Investor Warrant for 10 consecutive trading days as of the date the Investor Warrants became exercisable. As such, 275 shares of common stock were issued upon exercise.

### Amendment of Secured Promissory Note

On July 21, 2023, we, through the Operating Partnership, amended and restated its previously disclosed Secured Promissory Note, dated October 14, 2022, payable to Brown Family Enterprises, LLC (the "Lender"), and the related Security Agreement with the Lender, dated October 14, 2022 (the “Security Agreement”), to reflect an increase in the Note and the loan evidenced thereby (the “Loan”) from $1.5 million to $5.5 million and extend the maturity date thereof from October 14, 2024 to October 14, 2026. Except for the increase in the amount of the Loan and Note and the extension of the maturity date thereof, no changes were made to the original Note and Security Agreement.

### Results of Operations

### Operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022:

### Revenue

During the three months ended September 30, 2023, total revenue from operations was $1,844,148 as compared to $1,474,085 for the three months ended September 30, 2022. Revenue increased primarily due to the revenues generated from the acquisitions during the quarter offset by the move out of one tenant in January 2023.

### Operating Expenses

During the three months ended September 30, 2023, we incurred total operating expenses of $3,060,136 as compared to $1,957,293 for the three months ended September 30, 2022 as per below.

|  | Three Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| General and administrative expense | $530,538 | $408,570 | $121,968 |
| Building expenses | 431,359 | 269,781 | 161,578 |
| Depreciation and amortization | 981,419 | 561,510 | 419,909 |
| Interest expense, net | 770,624 | 382,440 | 388,184 |
| Compensation costs | 346,196 | 334,992 | 11,204 |
| Total expenses | $3,060,136 | $1,957,293 | $1,102,843 |

31

- General and administrative costs increased due to the increase in legal expenses for corporate matters.
- Building expenses and Depreciation and amortization increased due to the property acquisitions made during the quarter.
- Interest expense, net increased primarily due to the interest and guarantee fee expense incurred on the new mortgage loans entered into in conjunction with the property acquisitions during the quarter.

### Other expenses

- During the three months ended September 30, 2022, we incurred $45,660 in dead deal expense related to acquisition costs incurred in from assets we are no longer pursuing for acquisition.

### Net loss

During the three months ended September 30, 2023 and 2022, we generated a net loss of $1,213,265 and $512,117, respectively.

### Net income attributable to non-controlling interests

During the three months ended September 30, 2023 and 2022, net income attributable to non-controlling interest was $425,637 and $126,803, respectively. The increase is primarily related to the preferred equity investment made by LC2.

### Net loss attributable to common shareholders

During the three months ended September 30, 2023 and 2022, we generated a net loss attributable to our common shareholders of $1,828,902 and $638,920, respectively, driven by the variances described above.

### Comprehensive loss attributable to common shareholders

During the three months ended September 30, 2023 and 2022, we generated a comprehensive loss attributable to our common shareholders of $1,749,933 and $638,920, respectively, driven by the variances described above and a gain on derivative instrument.

### Operating results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022:

### Revenue

During the nine months ended September 30, 2023, total revenue from operations was $4,510,065 as compared to $4,035,123 for the nine months ended September 30, 2022. Revenue increased primarily due to the revenues generated from the acquisitions during the quarter offset by the move out of one tenant in January 2023.

### Operating Expenses

During the nine months ended September 30, 2023, we incurred total operating expenses of $7,082,645 as compared to $5,636,231 for the nine months ended September 30, 2023, as per below.

|  | Nine Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| General and administrative expense | $1,233,674 | $1,222,986 | $10,688 |
| Building expenses | 1,065,214 | 848,373 | 216,841 |
| Depreciation and amortization | 2,096,970 | 1,551,079 | 545,891 |
| Interest expense, net | 1,706,585 | 1,088,361 | 618,224 |
| Compensation costs | 980,202 | 925,432 | 54,770 |
| Total expenses | $7,082,645 | $5,636,231 | $1,446,414 |

- General and administrative costs increased due to the increase in legal expenses for corporate matters.
- Building expenses and Depreciation and amortization increased due to the property acquisitions.
- Interest expense, net increased primarily due to the interest and guarantee fee expense incurred on the new mortgage loans entered into in conjunction with the property acquisitions.
- Compensation costs increased due to an increase in stock based compensation expense from accelerated vesting of the restricted stock.

### Other expenses

- During the nine months ended September 30, 2023, we accrued approximately $506,000 relating to the potential reimbursement of federal, state and local income taxes incurred by a remaining partner in one of our partnerships pursuant to a tax protection agreement.
- During the nine months ended September 30, 2023 and 2022, we incurred $109,569 and $153,031, respectively, in dead deal expense related to acquisition costs incurred in from assets we are no longer pursuing for acquisition.
- During the nine months ended September 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 nine months ended September 30, 2023 and 2022, we generated a net loss of $3,156,015 and $1,874,327, respectively.

### Net income attributable to non-controlling interests

During the nine months ended September 30, 2023 and 2022, net income attributable to non-controlling interest was $681,916 and $386,947, respectively. The increase is primarily related to the preferred equity investment made by LC2.

### Net loss attributable to common shareholders

During the nine months ended September 30, 2023 and 2022, we generated a net loss attributable to our common shareholders of $4,027,931 and $2,261,274, respectively.

### Comprehensive loss attributable to common shareholders

During the three months ended September 30, 2023 and 2022, we generated a comprehensive loss attributable to our common shareholders of $3,948,962 and $2,261,274, respectively, driven by the variances described above and a gain on derivative instrument in the current year.

### 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 September 30, 2023, we had total cash (unrestricted and restricted) of $4,372,672, properties with a gross cost basis of $104,966,403 and outstanding mortgage loans with a principal balance of $58,452,166.

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, we entered into a Commitment Letter with American Momentum Bank (the “Lender”) for a $25 million master commitment 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 year. On May 9, 2022, we amended the Facility with the Lender, by entering into a new Facility, to increase the available borrowings from $25.0 million to $50.0 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. On September 9, 2022, we and the Lender combined the prior commitment letters entered into in October 2021 and May 2022 into a single Commitment Letter, and have amended the rate index used for borrowing to be a variable rate equal to the 30-Day CME Term SOFR Rate, plus a margin of 2.40%, adjusted monthly, subject to a floor interest rate of 3.25% per year. All other terms under the prior commitment letters remained materially the same. As of September 30, 2023 and December 31, 2022, we did not have an outstanding balance on the Facility.

On April 1, 2022, we entered into two mortgage loan agreements with an aggregate balance of $13.5 million to refinance seven of our properties. The loan agreements consist of one loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value, and one loan in the amount of $2.1 million on the property previously held in the tenancy-in-common investment at an interest rate of 3.85% from April 1, 2022 through and until March 31, 2027. In conjunction with the LC2 Investment to purchase the remaining interest in the tenancy-in-common interest discussed above, we assumed the original $2.1 million loan on the property with a balance as of September 30, 3023 of $2,079,178 and recognized a discount of $383,767. 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%. Our CEO entered into a guarantee 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.

On August 10, 2023, we entered into a $21.0 million loan agreement with Valley National Bank ("Valley") to finance the acquisition of the Modiv Portfolio. The outstanding principal amount of the loan bears interest at an annual rate for each 30-day interest period equal to the compounded average of the secured overnight financing rate published by Federal Reserve Bank of New York for the thirty-day period prior to the last day of each 30-day interest rate for the applicable interest rate period plus 3.25%, with interest payable monthly after each 30-day interest period. However, we entered into an interest rate swap to fix the interest rate at 7.47% per annum. Payments of interest and principal in the amount of approximately $156,000 are due and payable monthly, with all remaining principal and accrued but unpaid interest due and payable on a maturity date of August 10, 2028. The loan may generally be prepaid at any time without penalty in whole or in part, provided that there is no return of loan fees and prepaid financing fees. The loan is secured by first mortgages and assignments of rents in the properties comprising the Modiv Portfolio and eight other properties held by subsidiaries of GIP SPE that had outstanding loans with Valley. All of the mortgaged properties cross collateralize the loan, and the loan is guaranteed by the Operating Partnership and the subsidiaries that hold the properties subject to the acquisition of the Modiv Portfolio. The loan agreement requires a minimum debt-service coverage ratio 1.50:1 on a trailing twelve-month basis, tested as of December 31, 2024 and annually thereafter. Our President and CEO also entered into a personal, full recourse guarantee with a $7,500,000 cap.

Our President and CEO has also personally guaranteed the repayment of the $10.9 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, FL property. In addition, our President and CEO has also provided a guaranty of the Borrower’s nonrecourse carveout liabilities and obligations in favor of the lender for the GSA and PRA Holdings, Inc. - Norfolk, VA mortgage loans ("Bayport loans") with an aggregate principal amount of $12,005,274.

During the three and nine months ended September 30, 2023, we incurred a guarantee fee expense to our CEO of $81,022 and $196,304, respectively, recorded to interest expense and $57,641 and $57,641 was incurred during the three and nine months ended September 30, 2022.

On August 9, 2022, we entered a Redemption Agreement with a unit holder. As such, we recorded an other payable - related party in the amount of $2,912,300 upon execution of the Redemption Agreement entered into July 20, 2022 and made the first and second installment payments of $325,000 each on September 13, 2022 and March 8, 2023, respectively, and third payment of $452,460 on September 14, 2023 with a balance of $1,809,840 outstanding as of September 30, 2023.

On October 14, 2022, we entered into a loan transaction that is evidenced by a secured non-convertible promissory note to Brown Family Enterprises, LLC, a preferred equity partner and therefore a related party, for $1.5 million that is due on October 14, 2024, and bears a fixed interest rate of 9%, simple interest. Interest is payable monthly. The loan may be repaid without penalty at any time. The loan is secured by the Operating Partnership’s equity interest in its current direct subsidiaries that hold real estate assets pursuant to the terms of a security agreement between the Operating Partnership and Brown Family Enterprises, LLC. On July 21, 2023, we amended and restated the loan and the related security agreement with Brown Family Enterprises, LLC to reflect an increase in the note and the loan evidenced thereby from $1.5 million to $5.5 million and extend the maturity date thereof from October 14, 2024 to October 14, 2026. Except for the increase in the amount of the loan and note and the extension of the maturity date thereof, no changes were made to the original note and security agreement.

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 from the date the financial statements are issued.

As of September 30, 2023 and December 31, 2022, we had total current liabilities which consists of accounts payable, accrued expenses, and insurance payable of $1,531,077 and $714,354, respectively.

Outstanding mortgage loans payable consisted of the following as of September 30, 2023 and December 31, 2022, respectively:

| Mortgage Loans Secured By | Location | Original Loan Amount |  | Interest Rate |  | Maturity Date | 9/30/2023 | 12/31/2022 | Debt Service Coverage Ratios ("DSCR") Required |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | ---: | ---: |
| 7-Eleven Corporation, Starbucks Corporation, and Pratt & Whitney Automation, Inc. | Washington, D.C., Tampa, FL, and Huntsville, AL | $11,287,500 | (a) | 4.17% |  | 3/6/2030 | $10,808,489 | $10,957,829 | 1.25 |
| General Services Administration-Navy & Vacant Unit | Norfolk, VA | 8,260,000 |  | 3.50% |  | 9/30/2024 | 7,401,027 | 7,578,304 | 1.25 |
| PRA Holdings, Inc. | Norfolk, VA | 5,216,749 |  | 3.50% |  | 10/23/2024 | 4,604,247 | 4,728,462 | 1.25 |
| Sherwin Williams Company | Tampa, FL | 1,286,664 | (b) | 3.72% | (b) | 8/10/2028 | 1,286,664 | 1,286,664 | 1.2 |
| General Services Administration-FBI | Manteo, NC | 928,728 | (c) | 3.85% | (d) | 3/31/2032 | 919,519 | 928,728 | 1.5 |
| Irby Construction | Plant City , FL | 928,728 | (c) | 3.85% | (d) | 3/31/2032 | 919,519 | 928,728 | 1.5 |
| La-Z-Boy Inc. | Rockford, IL | 2,100,000 |  | 3.85% | (d) | 3/31/2032 | 2,079,178 | - | 1.5 |
| Best Buy Co., Inc. | Grand Junction, CO | 2,552,644 | (c) | 3.85% | (d) | 3/31/2032 | 2,527,334 | 2,552,644 | 1.5 |
| Fresenius Medical Care Holdings, Inc. | Chicago, IL | 1,727,108 | (c) | 3.85% | (d) | 3/31/2032 | 1,709,983 | 1,727,108 | 1.5 |
| Starbucks Corporation | Tampa, FL | 1,298,047 | (c) | 3.85% | (d) | 3/31/2032 | 1,285,176 | 1,298,047 | 1.5 |
| Kohl's Corporation | Tucson, AZ | 3,964,745 | (c) | 3.85% | (d) | 3/31/2032 | 3,925,434 | 3,964,745 | 1.5 |
| City of San Antonio (PreK) | San Antonio, TX | 6,444,000 | (e) | 7.47% | (b) | 8/10/2028 | 6,438,827 | - | 1.5 |
| Dollar General Market | Bakersfield, CA | 2,428,000 | (e) | 7.47% | (b) | 8/10/2028 | 2,426,051 | - | 1.5 |
| Dollar General | Big Spring, TX | 635,000 | (e) | 7.47% | (b) | 8/10/2028 | 634,490 | - | 1.5 |
| Dollar General | Castalia, OH | 556,000 | (e) | 7.47% | (b) | 8/10/2028 | 555,554 | - | 1.5 |
| Dollar General | East Wilton, ME | 726,000 | (e) | 7.47% | (b) | 8/10/2028 | 725,417 | - | 1.5 |
| Dollar General | Lakeside, OH | 567,000 | (e) | 7.47% | (b) | 8/10/2028 | 566,545 | - | 1.5 |
| Dollar General | Litchfield, ME | 624,000 | (e) | 7.47% | (b) | 8/10/2028 | 623,499 | - | 1.5 |
| Dollar General | Mount Gilead, OH | 533,000 | (e) | 7.47% | (b) | 8/10/2028 | 532,572 | - | 1.5 |
| Dollar General | Thompsontown, PA | 556,000 | (e) | 7.47% | (b) | 8/10/2028 | 555,554 | - | 1.5 |
| Dollar Tree Stores, Inc. | Morrow, GA | 647,000 | (e) | 7.47% | (b) | 8/10/2028 | 646,481 | - | 1.5 |
| exp U.S. Services Inc. | Maitland, FL | 2,950,000 | (e) | 7.47% | (b) | 8/10/2028 | 2,947,632 | - | 1.5 |
| General Services Administration | Vacaville, CA | 1,293,000 | (e) | 7.47% | (b) | 8/10/2028 | 1,291,962 | - | 1.5 |
| Walgreens | Santa Maria, CA | 3,041,000 | (e) | 7.47% | (b) | 8/10/2028 | 3,041,012 | - | 1.5 |
|  |  | $60,550,913 |  |  |  |  | $58,452,166 | $35,951,259 |  |
|  |  |  |  |  |  | Less Debt Discount, net | (383,767) | - |  |
|  |  |  |  |  |  | Less Debt Issuance Costs, net | $(990,268) | $(717,381) |  |
|  |  |  |  |  |  |  | 57,078,131 | 35,233,878 |  |

(a) Loan subject to prepayment penalty

(b) Fixed via interest rate swap

(c) One loan in the amount of $11.4 million secured by six properties and allocated to each property based on each property's appraised value.

(d) 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 three months ended September 30, 2023 and 2022 to interest expense of $46,260 and $27,758, respectively. We amortized debt issuance costs during the nine months ended September 30, 2023 and 2022 to interest expense of $103,990 and $89,364, respectively. We paid debt issuance costs of $376,877 during the three and nine months ended September 30, 2023 and $330,177 during the three and nine months ended September 30, 2022.

Each promissory note requires us to maintain certain debt service coverage ratios as noted above. In addition, two mortgage loans, encumbered by seven properties and requiring a 1.50 DSCR, requires us to maintain a 54% loan to fair market stabilized value ratio. Fair market stabilized value shall be determined by the lender by reference to acceptable guides and indices or appraisals from time to time at its discretion. As of September 30, 2023, we were in compliance with all covenants.

Minimum required principal payments on our debt as of September 30, 2023 are as follows:

|  | Mortgage Loans | Other Payable - Related Party | Loan Payable - Related Party | Total as of September 30, 2023 |
| --- | ---: | ---: | ---: | ---: |
| 2023 (3 months remaining) | $308,281 | $- | $- | $308,281 |
| 2024 | 12,780,776 | 1,809,840 | - | 14,590,616 |
| 2025 | 926,633 | - | - | 926,633 |
| 2026 | 976,467 | - | 5,500,000 | 6,476,467 |
| 2027 | 1,033,322 | - | - | 1,033,322 |
| Thereafter | 42,426,687 | - | - | 42,426,687 |
|  | $58,452,166 | $1,809,840 | $5,500,000 | $65,762,006 |

On February 8, 2023, we entered into new Amended and Restated Limited Liability Company Agreements for the Norfolk, Virginia properties, GIPVA 2510 Walmer Ave, LLC ("GIPVA 2510") and GIPVA 130 Corporate Blvd, LLC ("GIPVA 130"), in which we, as the sole member of GIPVA 2510 and GIPVA 130, admitted a new preferred member, Brown Family Enterprises, LLC, through the issuance of preferred membership interests in the form of Class A Preferred Units of GIPVA 2510 and GIPVA 130. GIPVA 2510 and GIPVA 130 (the “Virginia SPEs”) hold our Norfolk, Virginia properties. In addition, both of the Virginia SPEs and Brown Family Enterprises, LLC entered into Unit Purchase Agreements in which GIPVA 2510 issued and sold 180,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,800,000, and GIPVA 130 issued and sold 120,000 Class A Preferred Units at a price of $10.00 per unit for an aggregate price of $1,200,000. The Operating Partnership is the general manager of the subsidiary while Brown Family Enterprises, LLC is a preferred equity member. Pursuant to the agreement, we are required to pay the preferred equity member a 7% IRR paid on a monthly basis and will share in 16% of the equity in each of the Virginia SPEs upon a capital transaction resulting in distributable proceeds. After 24 months, Brown Family Enterprises, LLC has the right to redeem the preferred equity at redemption value. Because of the redemption right, the non-controlling interest is presented as temporary equity at an aggregated redemption value of $3,000,000 as of September 30, 2023.

The cash portion of the purchase price for the Portfolio Purchase was financed, in part, with the proceeds of the sale of the Preferred Interest in GIP SPE to LC2. The Preferred Interest is required to be redeemed in full by GIP SPE on or before August 10, 2025, provided that the Operating Partnership may extend the redemption date for two consecutive 12-month extension periods, subject to satisfaction of certain conditions and payment of an increased return on the Preferred Interest and additional fees. See Note 7 “Non-Controlling Interests – LC2-NNN Pref, LLC” to our consolidated financial statements for more information.

The cash portion of the purchase price for the Portfolio Purchase was also financed, in part, with a new $21.0 million secured debt facility from Valley National Bank. Payments of interest and principal under the loan agreement in the amount of approximately $156,000 are due and payable monthly, with all remaining principal and accrued but unpaid interest due and payable on a maturity date of August 10, 2028. To secure a fixed interest rate on this new debt, we entered into an interest rate swap agreement fixing the interest rate to 7.47% based on 1-month SOFR plus 3.25%. The loan agreement requires the borrower to maintain a minimum debt-service coverage ration of 1.50:1 on a trailing twelve-month basis, tested as of December 31, 2024, and annually thereafter. The loan agreement also provides for customary events of default and other customary affirmative and negative covenants, including reporting covenants and restrictions on investments, additional indebtedness, liens, sales of properties, certain mergers, and certain management changes. See Note 9 “Mortgage Loans” to our consolidated financial statements for more information.

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 provided by operating activities was $18,537 and $275,717 for the nine months ended September 30, 2023 and 2022, respectively.

### Cash from Investing Activities

Net cash used in investing activities was $33,314,973 and $13,279,054 during the nine months ended September 30, 2023 and 2022, respectively. The increase is primarily due to the acquisition of properties.

### Cash from Financing Activities

Net cash provided by financing activities was $33,916,112 during the nine months ended September 30, 2023 and net cash provided by financing activities was $5,001,430 during the nine months ended September 30, 2023. The increase is primarily due to the debt and equity financing to acquire several properties.

### 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 U.S. generally accepted accounting principles (“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 non-recurring or 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 non-recurring or 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.

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 September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net loss** | **$(1,213,265)** | **$(512,117)** | **$(3,156,015)** | **$(1,874,327)** |
| Other expense | 639 | - | 506,639 | - |
| Depreciation and amortization | 981,419 | 561,510 | 2,096,970 | 1,551,079 |
| **Funds From Operations** | **$(231,207)** | **$49,393** | **$(552,406)** | **$(323,248)** |
| Amortization of debt issuance costs | 46,260 | 27,758 | 103,990 | 89,364 |
| Non-cash stock compensation | 119,380 | 110,869 | 287,067 | 328,913 |
| Adjustments to Funds From Operations | 165,640 | 138,627 | 391,057 | 418,277 |
| **Core Funds From Operations** | **$(65,567)** | **$188,020** | **$(161,349)** | **$95,029** |
| **Net loss** | **$(1,213,265)** | **$(512,117)** | **$(3,156,015)** | **$(1,874,327)** |
| Other expense | 639 | - | 506,639 | - |
| Depreciation and amortization | 981,419 | 561,510 | 2,096,970 | 1,551,079 |
| Amortization of debt issuance costs | 46,260 | 27,758 | 103,990 | 89,364 |
| Above and below-market lease amortization, net | 20,398 | (26,297) | (81,957) | (76,478) |
| Straight line rent, net | 20,942 | 13,203 | 61,383 | 29,263 |
| Adjustments to net loss | $1,069,658 | $576,174 | $2,687,025 | $1,593,228 |
| **Adjusted Funds From Operations** | **$(143,607)** | **$64,057** | **$(468,990)** | **$(281,099)** |
| Dead deal expense | $- | $45,660 | $109,569 | $153,031 |
| Loss on debt extinguishment | - | - | - | 144,029 |
| Write off of deferred financing costs | - | 137,522 | - | 137,522 |
| Non-cash stock compensation | 119,380 | 110,869 | 287,067 | 328,913 |
| Adjustments to Adjusted Funds From Operations | $119,380 | $294,051 | $396,636 | $763,495 |
| **Core Adjusted Funds From Operations** | **$(24,227)** | **$358,108** | **$(72,354)** | **$482,396** |
| **Net loss** | **$(1,213,265)** | **$(512,117)** | **$(3,156,015)** | **$(1,874,327)** |
| Net income attributable to non-controlling interests | (425,637) | (126,803) | (681,916) | (386,947) |
| **Net loss attributable to Generation Income Properties, Inc.** | **$(1,638,902)** | **$(638,920)** | **$(3,837,931)** | **$(2,261,274)** |
| Preferred stock dividends | (190,000) | - | (190,000) | - |
| **Net loss attributable to common shareholders** | **$(1,828,902)** | **$(638,920)** | **$(4,027,931)** | **$(2,261,274)** |

### 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 unaudited consolidated financial statements included herein for a summary of our significant accounting policies.

## Controls and procedures

As filed, 1,546 characters.

#### (a) Evaluation of disclosure controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2023.

#### (b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 9,266 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition and/or results of operations. Except as set forth below and to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022. The risk factors set forth below update certain risks associated with (i) our business and properties to reflect the issuance of the Preferred Interest to LC2 and (ii) our debt financing to reflect the terms of additional debt incurred by us, in each case during the quarter covered by this report, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The risks as described in our Annual Report on Form 10-K and below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

### Risks Related to Our Business and Properties

**The Amended and Restated Limited Liability Company Agreement for GIP SPE, entered into by the Operating Partnership and LC2, contains provisions that could significantly impede our operations and our ability to efficiently manage our business and that could materially and adversely affect our financial condition, results of operations and cash flows, the trading price of our common stock and our ability to pay dividends to our common stockholders in the future.**

LC2 has substantial rights under the Amended and Restated Limited Liability Company Agreement for GIP SPE (the “GIP SPE Operating Agreement”). GIP SPE is a subsidiary of our Operating Partnership, which holds, directly and indirectly, 21 of our properties, including the properties comprising the Portfolio Purchase and eight of our other properties (collectively, the “Properties”). Under the GIP SPE Operating Agreement, the following actions, among others, require the approval of LC2:

- the adoption and approval of annual operating budgets for the operations and improvements of the Properties;
- acquiring additional real property or any interest therein;
- selling, leasing, assigning, pledging, conveying, exchanging, encumbering or otherwise disposing of all or a material portion of the assets of GIP SPE or any of its Properties, subject to certain exceptions;
- amending or waiving any provision of, or otherwise modifying the GIP SPE Operating Agreement;
- amending, extending or materially modifying any existing lease relating to any of the Properties or entering into any new lease with respect to any of the Properties;
- admitting, including by assignment of economic rights or permitting encumbrances of membership interests in GIP SPE, any member other than by means of a transfer permitted by the GIP SPE Operating Agreement;
- merging or consolidating GIP SPE with or into another entity, reorganizing GIP SPE, or making a binding commitment to do any of the foregoing;
- making an assignment for the benefit of creditors, filing a petition in bankruptcy, petitioning or applying to any tribunal for the appointment of a custodian, receiver or any trustee for GIP SPE, or a substantial part of any of its properties or assets, or commencing any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction;
- voluntarily dissolving or liquidating GIP SPE;
- causing GIP SPE to loan any of its funds;
- except as specifically provided in the agreement, engaging in any Capital Transaction (as defined in the GIP SPE Operating Agreement), financing or any Approved Loan (as defined in the GIP SPE Operating Agreement), or executing or otherwise entering into any loan, guaranty, indemnity or similar agreement by GIP SPE or modifying in any material

nature, extending, renewing, changing or prepaying in whole or in part any borrowing, financing, refinancing, indemnity or similar agreement, or making any commitments to borrow funds;

- causing GIP SPE to make, revoke or modify any tax election; and
- making any change to GIP SPE’s accounting practices or policies that could be material to either GIP SPE or its members.

GIP SPE’s Preferred Interest has a cumulative accruing distribution preference of 15.5% per year, compounded monthly, a portion of which, in the amount of 5% per annum, is deemed to be the “current preferred return,” and the remainder of which, in the amount of 10.5% per annum, is deemed to be the “accrued preferred return.” The GIP SPE Operating Agreement provides that operating distributions by GIP SPE will be made first to LC2 to satisfy any accrued but unpaid current preferred return, with the balance being paid to the Operating Partnership, subject to certain exceptions. The GIP SPE Operating Agreement also provides that distributions from capital transactions will be paid first to LC2 to satisfy any accrued but unpaid preferred return, then to LC2 until the “Make-Whole Amount” (defined as an amount equal to 1.3 times the LC2 Investment) is reduced to zero, and then to the Operating Partnership.

LC2’s rights under the GIP SPE Operating Agreement may significantly impede our ability to operate our business and manage our Properties. Furthermore, these rights may prevent us from engaging in transactions, including change of control or financing transactions, that otherwise would be attractive to us. The foregoing could adversely affect our financial condition, results of operations and cash flows, the market value of our common stock and our ability to pay dividends to our common stockholders in the future.

### Risks Associated with Debt Financing

**Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to you.**

We make acquisitions and operate our business in part through the utilization of leverage pursuant to loan agreements with various financial institutions. These loan agreements contain standard affirmative and negative covenants, including prohibitions on additional liens on the collateral, financial reporting obligations and maintenance of insurance, in addition to Debt Service Coverage Ratios ("DSCR") covenants. For example, our $21.0 million debt facility with Valley National Bank, which we used to finance a part of the cash purchase price for the Portfolio Purchase, requires the Company to maintain a minimum DSCR of 1.50:1 on a trailing twelve-month basis, tested as of December 31, 2024, and annually thereafter. Loan documents we enter into, including those under our debt facility with Valley National Bank, may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our property manager as well as reporting covenants and restrictions on investments, additional indebtedness, liens, sales of properties, certain mergers, and certain management changes. These covenants, as well as any future covenants we may enter into through further loan agreements, could limit our operational flexibility and/or could inhibit our financial flexibility in the future and prevent distributions to stockholders.

**Lenders may be able to recover against our other properties under our mortgage loans.**

In financing our acquisitions, we will seek to obtain secured nonrecourse loans. However, only recourse financing may be available, in which event, in addition to the property securing the loan, the lender would have the ability to look to our other assets for satisfaction of the debt if the proceeds from the sale or other disposition of the property securing the loan are insufficient to fully repay it. We entered into a loan agreement with Valley National Bank to finance a portion of the cash purchase price for the Portfolio Purchase. The loan agreement is secured by first mortgages and assignments of rents in the properties comprising the Portfolio Purchase and eight other properties held by subsidiaries of GIP SPE that had outstanding loans with Valley National Bank at that time. All of the mortgaged properties cross-collateralize the loan with Valley National Bank, and the loan is guaranteed by the Operating Partnership and our subsidiaries that hold the properties that comprise the Portfolio Purchase. To the extent lenders require us to cross-collateralize our properties, or provisions in our loan documents contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure. Foreclosures of one or more of our properties could have a material adverse effect on us. Also, in order to facilitate the sale of a property, we may allow the buyer to purchase the property subject to an existing loan whereby we remain responsible for the debt.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-063679. Last ingested by Listed: Oct 24, 2026, 15:14 ET. No prices; not investment advice.