Presidio Property Trust, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. Presidio is an internally managed REIT investing in office, industrial, retail and triple-net-leased model homes.
Business context and portfolio
At quarter-end, the company owned or held interests in 12 commercial properties and 105 model homes. Commercial properties totaled approximately 822,065 square feet; model homes totaled approximately 319,236 square feet. The company also consolidates Murphy Canyon Acquisition Corp. (a SPAC) and its trust assets and liabilities.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $4.54 million | $4.32 million | $8.67 million | $8.89 million |
| Net income (loss), consolidated | $(0.20) million | $0.42 million | $(0.81) million | $0.80 million |
| Net loss attributable to common stockholders | $(1.83) million | $(0.83) million | $(3.36) million | $(4.65) million |
| Basic and diluted loss per share | $(0.15) | $(0.07) | $(0.28) | $(0.39) |
| Net cash used in operating activities | — | $(1.60) million | $(0.46) million |
Q2 rental income was $4.33 million. Six-month rental income was $8.27 million, down from $8.64 million. The quarter’s consolidated loss contrasted with prior-year income; higher general and administrative expense and mortgage interest contributed, while noncontrolling interests and preferred dividends affect the amounts attributable to common stockholders. Six-month common-stockholder loss was smaller than in 2022, when a $2.46 million Series A warrant dividend was recorded.
Segment NOI (a non-GAAP measure) was $3.14 million for Q2, versus $2.97 million; for the first half it was $5.69 million, versus $5.96 million. Q2 NOI increased at model homes and retail but declined at office/industrial properties. The filing reports Q2 G&A of $1.81 million, or 39.9% of revenue, versus $1.21 million, or 28.1%; first-half G&A was $3.78 million, or 43.6% of revenue, versus $2.80 million, or 31.5%.
At June 30, cash, cash equivalents and restricted cash were $8.70 million, including $3.7 million restricted. Mortgage notes payable were $103.34 million net ($104.18 million principal); total liabilities were $115.57 million and equity was $46.73 million. Six-month investing cash flow was $105.26 million provided, largely reflecting SPAC trust withdrawals for redemptions; financing cash flow was $111.47 million used, principally reflecting those redemptions. These SPAC-related flows substantially affect comparisons and should not be read as property-level operating cash generation.
Changes, outlook and risks
- The SPAC redeemed 11,037,272 shares in February 2023, returning approximately $114.1 million; its trust balance was approximately $23.3 million at June 30. Murphy Canyon’s proposed merger with Conduit Pharmaceuticals remained pending, with its deadline extended to February 7, 2024. Presidio had loaned the SPAC $750,000 and committed to provide additional funds if needed.
- Presidio acquired 23 model homes for approximately $12.9 million and sold 10 for approximately $5.0 million in the first half. It recognized a $1.54 million net gain on real estate sales.
- The Halliburton lease at Shea Center II expired December 31, 2022; it represented approximately 8.4% of 2022 annual base rent. Approximately 20% of the space had been leased by June 30, 2023. Management had placed approximately $1.1 million in a lender reserve for potential mortgage payments.
- Management estimated approximately $3.7 million of remaining-2023 property capital expenditures, net of construction financing. It expected working capital and the ability to refinance commercial and model-home mortgages to fund operations for at least 12 months, but warned financing may not be available on acceptable terms. Management said model-home sales, refinancing and operating cash flows would support debt payments and liquidity.
- Approximately $3.8 million of mortgage principal was due in the second half of 2023, including $3.1 million tied to model homes. A $9.3 million Dakota Center mortgage matures July 6, 2024; management was assessing refinancing, repayment, sale or other funding options. West Fargo Industrial’s rate reset to 6.70% on August 5, 2023. The company noted new borrowing may carry higher rates.
- Commercial mortgage debt had a 4.65% weighted-average rate and estimated debt-to-market value of 54.0%; model-home debt had a 5.24% weighted-average rate and estimated debt-to-market value of 73.5%. The filing states the company was in compliance with material mortgage covenants.
- Series A common dividends were $0.045 per share for the first half, down from $0.211 in 2022. Series D preferred dividends continued at $0.19531 monthly per share, equivalent to a 9.375% annual rate on the $25 liquidation preference. Future dividends are not guaranteed; management said it could reduce them if operating cash flow is insufficient.
- A $1.14 million estimated excise-tax liability was recorded in connection with SPAC redemptions. The filing says it may be offset by future share issuance and would not be due if the SPAC liquidated before December 31, 2023. No material litigation or defaults were reported. Management identified interest rates, refinancing availability, tenant demand and credit, property-market conditions, inflation, and SPAC completion as risks.
Important facts for investors to verify
- Reconcile revenue commentary: reported Q2 revenue increased to $4.54 million from $4.32 million, although MD&A describes a decrease; confirm the intended comparison and explanation.
- Track Shea Center II leasing progress and the income and debt-service impact of the Halliburton vacancy.
- Monitor the Dakota Center 2024 maturity, model-home maturities and refinancing terms, and the post-quarter West Fargo interest-rate reset.
- Assess whether operating cash flow, property sales and refinancing can fund capital needs, dividends and debt service without additional financing.
- Follow the Conduit merger, SPAC extension funding and any further redemptions or sponsor support; separate SPAC trust movements from property operations when evaluating liquidity.
- Confirm future common and preferred dividend declarations, the excise-tax treatment, and the effect of outstanding warrants and restricted-stock awards on potential dilution.