Presidio Property Trust, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Presidio is an internally managed REIT with office, industrial, retail and triple-net model-home properties. At quarter-end, it owned or held interests in 12 commercial properties and 88 model homes.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $4.79 million | $4.12 million |
| Net loss | $3.74 million | $0.61 million |
| Net loss attributable to common stockholders | $5.76 million; $0.47 per share | $1.53 million; $0.13 per share |
| Net cash used in operating activities | $1.13 million | $1.63 million |
| Cash, cash equivalents and restricted cash | $7.16 million, including $3.1 million restricted | $6.51 million at December 31, 2023 |
| Mortgage debt, net | $102.29 million | $107.71 million at December 31, 2023 |
| Total assets / total equity | $163.48 million / $55.66 million | $175.96 million / $61.30 million at December 31, 2023 |
Rental income was $4.42 million, up from $3.94 million. Total segment net operating income, a company-defined non-GAAP measure, increased to $3.13 million from $2.55 million. Rental operating costs were $1.56 million, or 32.6% of revenue, versus $1.57 million, or 38.2%. General and administrative expense was $2.08 million (43.5% of revenue), and depreciation and amortization was $1.35 million.
Interest expense rose to $1.52 million from $0.87 million; the weighted-average rate on outstanding debt was 5.23% at March 31, 2024, versus 4.66% a year earlier. Investing activities provided $9.42 million, primarily reflecting $12.64 million of net property-sale proceeds. Financing activities used $7.63 million, including $7.86 million of mortgage repayments and $1.60 million of distributions to noncontrolling interests.
Material changes and notable items
- Presidio acquired five model homes for approximately $2.2 million and sold 27 for approximately $12.6 million, recording a $2.0 million gain. In Q1 2023, it acquired nine and sold three model homes, with a gain of $0.4 million.
- A $3.86 million fair-value loss on its Conduit Pharmaceuticals shares and warrants contributed materially to the larger quarterly loss. Their reported fair value declined to $14.46 million from $18.32 million at year-end.
- Presidio recorded a noncash $95,548 impairment on four model homes, associated with lower estimated sale prices after a homebuilder changed product styles in the relevant Texas neighborhoods.
- No Series A common dividend was declared for Q1, compared with $0.022 per share in Q1 2023. Series D preferred dividends continued at $0.19531 per share monthly; the preferred stock carries a 9.375% annual dividend rate.
Outlook, liquidity and risks
- Management expects cash on hand, portfolio cash flows, joint-venture distributions, refinancing and property sales to support operating needs, planned capital spending and required dividends for at least 12 months. It cautions that refinancing or other financing may not be available on acceptable terms.
- Approximately $17.0 million of mortgage principal is scheduled in the remaining three quarters of 2024. Four commercial-property loans totaling approximately $25.9 million mature within 12 months. Management is pursuing extensions, restructuring or refinancing and may sell properties if financing cannot be arranged. The Dakota Center loan, approximately $9.1 million, matures in July 2024; management also raised the possibility of selling the property or surrendering it to the lender if negotiations fail.
- Management estimates approximately $1.0 million of remaining-2024 tenant improvements and other property capital needs. It expects a net gain on model-home sales in Q2 2024. No formal earnings guidance is provided.
- Occupancy and leasing remain important risks: the former largest tenant’s lease at Shea Center II expired, and approximately 80% of the affected space remained to be leased as of March 31, 2024. Management was pursuing a tenant but gave no assurance of success.
- A stockholder activist group announced a proxy challenge. Under a May 9 cooperation agreement, the group withdrew its director nominations and Elena Piliptchak joined the board. The company says related advisory costs may affect results.
- A material weakness in internal control over financial reporting related to the income-tax provision and controls over REIT/non-REIT subsidiaries and the Conduit investment remained unremediated at filing. Management is implementing additional review controls and engaging outside experts.
- Other risks include commercial real-estate and tenant conditions, interest rates and refinancing access, property concentration in certain markets, REIT qualification, and potential capital needs. Management reported compliance with material mortgage covenants at March 31, 2024.
Important facts for investors to verify
- Progress and final terms for the $25.9 million of commercial loan maturities, especially the July 2024 Dakota Center maturity.
- Whether property sales and refinancing generate sufficient liquidity, given restricted cash, scheduled debt service and planned capital spending.
- Changes in the value and liquidity of the Conduit investment, including the subsequent April 2024 lock-up of 2.7 million shares for one year.
- Leasing progress at Shea Center II and the performance of the model-home portfolio following the Q1 sales and impairment.
- Remediation and testing of the disclosed material weakness, and the board’s future decisions on common dividends.