Pursuant to Rule 424(b)(3)&(c)
File No. 333-72404
GEN-NET LEASE INCOME TRUST, INC.
A Real Estate Investment Trust Offering
$25,000,000
2,500,000 Shares of Common Stock
$10.00 Per Share
Supplement No. 3 to Prospectus Dated October 10, 2002
as previously supplemented by a Supplement dated December 16, 2002
and a Supplement No. 2 dated January 8, 2003
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ATTENTION PROSPECTIVE INVESTORS
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The statements in this Supplement should be read carefully and
considered in connection with your review of the prospectus, as previously
supplemented by a Supplement dated December 16, 2002 and a Supplement No. 2
dated January 8, 2003, the receipt of which must precede or accompany this
Supplement.
Gen-Net's Directors have unanimously approved a property purchase as
described below. The following information supplements the description of
Gen-Net's properties throughout the prospectus, as previously supplemented.
PROPERTY ACQUISITION.
Description. On January 2, 2003, Gen-Net's Board of Directors unanimously
approved entering into a contract to purchase the real estate and
improvements located at 7400 Schirra Court Bakersfield, CA 93310. The
property consists of a 2.09 acre, rectangular shaped parcel. The
improvements consist of a two-story 20,000 square foot office building
together with 15 secure parking spaces. The building was constructed in
November, 2000. The property is presently leased to the USDEA, pursuant to
a long-term Net Lease (the "USDEA Lease"). The building serves as the
USDEA's regional headquarters and the Drug Enforcement Agency Clandestine
Laboratory and Enforcement for the Southern Central Valley. The Board of
Directors has determined that the USDEA, an agency of the United States
government, meets all of Gen-Net's established criteria with respect to
prospective tenants, as described in the prospectus.
Lease. The USDEA Lease is for a term of 10 years commencing November 27,
2000, and will expire on November 25, 2010, unless terminated pursuant to
an early termination clause on November 27, 2008. The annual rent is
$310,660. Included as rent is an amount calculated by the lessor to cover
the building's operating costs, and base year real estate taxes. The tenant
pays any increase over the base year real estate taxes through a direct
dollar-for-dollar reimbursement payment to the lessor. The lease also
provides for an annual adjustment in the portion of rent attributable to
operating costs based on the percent of change in the Cost of Living Index,
which is measured by the U.S. Department of Labor revised Consumer Price
Index ("CPI"). In evaluating the USDEA Lease prior to acquiring the
property, Gen-Net determined that the portion of the rent attributable to
operating costs, coupled with the CPI escalator, was sufficient to protect
Gen-Net from absorbing the building's operating costs in the same way that
a triple-net lease would operate. Although Gen-Net bears the responsibility
for the portion of any change that exceeds the percent of change in the
CPI, Gen-Net believes the risk of such an occurrence is low in light of the
substantial estimates initially used to determine the portion of rent
attributable to such costs. Based upon the foregoing, Gen-Net has
determined that the USDEA Lease functions as a Net Lease.
Terms of Acquisition. The transaction closed on January 6, 2003. The
aggregate purchase price of the property was $2,350,000, or $117 per square
foot. The purchase was subject to a 75% loan to value line of credit
withdrawal from Citizens First Savings Bank of Port Huron, Michigan. The
terms of the line of credit include a $1,645,000 principal balance,
interest at 4.3% per annum, and interest-only payments for the 6 month
term. Genesis receive compensation totaling $23,500 or 1% of the purchase
price.
PRO FORMA FINANCIAL INFORMATION. The tables attached to this supplement as
Exhibit A present unaudited pro forma financial information for Gen-Net, giving
effect to the acquisition of the property described above. As noted on Exhibit
A, the pro forma financial information also includes information on the property
described in the first supplement to the prospectus dated December 16, 2002, the
purchase of which was consummated as described in that supplement.
Dated as of January 17, 2003.
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EXHIBIT A
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA INFORMATION
Pro Forma Pro Forma
As As
Historical Adjusted(1) Historical Adjusted(1)
------------------------- ----------- ------------- -----------
Year ended December 31, For the eight months ended August 31,
------------------------------------ -------------------------------------
(unaudited)
1999 2000 2001 2001 2001 2002 2002
-------- ------ -------- ---------- ------ ---------- -----------
Rental income $ - $ - $ - $ 593,986 $ - $ - $ 466,093
-------- ------ -------- ---------- ------ ---------- -----------
Operating Expenses:
Utilities 25,917 20,203
Telephone 1,386 829
Property taxes 30,295 16,504
Legal & accounting 2,386 -
Repairs 21,260 37,340
Bank fees 8,720 -
Insurance 2,858
Depreciation - - - 156,033 - - 104,022
-------- ------ -------- ---------- ------ ---------- -----------
Total operating
expenses - - - 245,997 - - 181,756
-------- ------ -------- ---------- ------ ---------- -----------
Income from
operations - - - 347,989 - - 284,337
-------- ------ -------- ---------- ------ ---------- -----------
Other Income Expense)
Dividend income - - 1,340 1,340 - 93 93
Interest expense - - - (238,156) - - (168,982)
-------- ------ -------- ---------- ------ ---------- -----------
Total other income
(expense) - - 1,340 (236,816) - 93 (168,889)
-------- ------ -------- ---------- ------ ---------- -----------
Income before taxes - - 1,340 111,173 - 93 115,448
Income taxes - - 725 - - 51 -
-------- ------ -------- ---------- ------ ---------- -----------
Net income $ - $ - $ 615 $ 111,173 $ - $ 42 $ 115,448
======== ====== ======== ========== ====== ========== ===========
Net income
per share $ - $ - $ .06 $ .36 $ - $ .00 $ .37
======== ====== ======== ========== ====== ========== ===========
Weighted Average Number of Common Shares
Outstanding - - 10,000 310,000 - 10,000 310,000
======== ====== ======== ========== ====== ========== ===========
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August 31, 2002
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Pro Forma
Historical As Adjusted(1)
-------------- --------------------
Balance Sheet Data:
Working capital (58,495) (482,888)
Total assets 262,612 8,035,750
Long-term debt, net of current portion - 3,061,002
Shareholders' equity 204,117 3,220,081
(1) Pro forma to reflect (i) as if sale of the minimum number of shares under
this offering which was 300,000 shares of common stock was sold and
application of net proceeds therefrom as if it had occurred at January 1,
2001 (additional shares will be sold) and the Company became a REIT at that
time, therefore there are no income taxes shown (ii) an acquisition of a
building for $4,382,600 (closing costs included) which has a Net Lease of
$363,440 per year (same as prior owner's lease) through February 29, 2016
with two five year renewal options, the purchase used $1,182,600 from sale
of shares and $3,200,000 from a mortgage at 5.70% annual interest rate,
with a seven year term and twenty-seven year amortization, the purchase and
mortgage are as if they occurred January 1, 2001 (iii) an acquisition of a
building in 2003 for $2,378,813 (closing costs included) which has a Net
Lease of $310,660 per year (before actual operating expenses). The first
year (2001) of the lease had three months of free rent. The above pro forma
includes historical information (except interest which is based on the
financing obtained in 2003) for 2001 and estimated historical information
for the eight months ended, August 31, 2002. The lease is through November
27, 2010 which may be terminated by the lessee after November 27, 2008. The
purchase used $733,813 from sale of shares and $1,645,000 from a loan at
4.30% annual interest due on June 30, 2003. The purchase and loan are as if
they occurred on January 1, 2001 (iv) as if the buildings are depreciated
over thirty-nine years with a cost for the buildings of $6,085,272 and the
remaining cost being attributed to land. The pro forma financial
information is unaudited and may not be indicative of the results that
actually would have occurred if the acquisition had occurred January 1,
2001.
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