Presidio Property Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing. The company is an internally managed, non-traded REIT focused on office, industrial, retail and model-home properties.
Business context and portfolio
- At year-end, the company owned or held interests in 17 commercial properties and 136 model homes. Commercial properties were concentrated in Colorado, North Dakota and Southern California; approximately 73% of model homes were in Texas.
- Commercial occupancy was 84.5%, up from 83.4% a year earlier. Same-property occupancy was 84.8%, versus 80.8% in 2018. The largest commercial tenant accounted for about 6.1% of annualized base rent; the ten largest accounted for 19.6%.
- The common stock had no public trading market. The company reported approximately 17.8 million Series A shares outstanding at year-end.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $28.6 million | $32.3 million |
| Net income (loss) attributable to common stockholders | $(0.6) million; $(0.03) per share | $3.4 million; $0.19 per share |
| Net operating income (segment basis) | $18.2 million | $21.5 million |
| Net cash provided by operating activities | $3.8 million | $0.4 million |
| Cash, cash equivalents and restricted cash at year-end | $10.4 million | $9.8 million |
| Mortgage debt principal at year-end | $143.5 million | $151.1 million |
- Revenue declined 11.4%, mainly due to property sales. Rental operating costs fell 4.4% to $10.4 million, but increased to 36.3% of revenue from 33.7%. General and administrative costs rose 16.2% to $5.3 million.
- Depreciation and amortization was $7.4 million, down from $9.1 million. Interest expense was $10.6 million, including $2.2 million on Series B preferred stock and $1.1 million on the Polar note. The company recorded $6.3 million of gains on property sales, compared with $12.2 million in 2018.
- FFO was $1.8 million, versus $1.9 million; MFFO was $3.3 million, versus $2.2 million. These are non-GAAP measures and should not be treated as substitutes for cash flow or net income.
- Operating cash flow increased by $3.4 million. Investing activities provided $12.0 million, while financing activities used $15.2 million. The company reported $5.7 million of available cash and about $4.7 million of restricted cash.
- Mortgage debt had a weighted-average rate of 4.6%; one commercial mortgage was variable-rate. The company also had a $14 million Polar note bearing 8% interest, due October 1, 2020, with a possible extension to March 31, 2021. Its year-end carrying value was $12.2 million, net of discount and financing costs.
- Mortgage principal maturities in 2020 totaled approximately $29.2 million: $16.9 million on commercial properties and $12.3 million on model homes. Management expected to refinance or sell properties to address maturities. The company had no revolving credit facility.
Material changes and significant transactions
- The company acquired 33 model homes for $13.0 million in 2019, funded with $3.9 million cash and $9.1 million of mortgage notes; it acquired 45 for $17.3 million in 2018.
- 2019 dispositions included the Presidio office building, Morena Office Center, land and 41 model homes. Net gains on sales were $6.3 million, versus $12.2 million in 2018. A 43% interest in Genesis Plaza was also transferred in a 1031 exchange; the company remained a guarantor of the property debt.
- The company used the Polar loan proceeds to redeem all remaining Series B preferred stock, which had carried a 14% dividend rate. The transaction replaced that preferred financing with 8% debt, but added a near-term repayment obligation and lender rights over specified company actions.
- After year-end, Centennial Tech Center was sold on February 5, 2020 for approximately $15.0 million, with a reported gain of approximately $4.3 million.
Outlook, risks and other notable items
- No specific earnings or operating guidance was provided. Management said near-term liquidity was expected to come from portfolio cash flow, model-home partnership distributions and property sales; it warned that insufficient operating cash could require additional borrowing, asset sales or lower dividends.
- Management noted that 2020 maturities and repayment of the Polar note were significant funding needs. Polar’s agreements provide consent rights over numerous material actions; an event of default could give Polar the ability to designate six directors and exercise other remedies.
- Lease rollover is material: 19.8% of commercial annual rent was scheduled to expire in 2020 and 21.3% in 2021. Model-home leases representing 74.2% of model-home rent were scheduled to expire in 2020, subject to builder extensions; the homes are generally sold at lease-end.
- For comparable leases signed during 2019, cash rental rates increased 3.2% on average, while straight-line rents increased 18.5%. In the fourth quarter, comparable lease cash rents declined 6.9%, despite a 10.5% straight-line increase.
- The filing identifies tenant defaults, regional concentration, refinancing access, property values, competition, REIT qualification and dividend capacity as key risks. It specifically discusses potential COVID-19 effects on tenants, homebuilders and property operations. Management reported no material litigation or known material environmental liability.
- Common dividends were $0.06 per share for 2019, totaling about $1.1 million declared; cash dividends paid during the year were $2.2 million, including the prior-year declared dividend. Future dividend amounts and timing were not assured.
Important facts for investors to verify
- Whether the company refinanced or repaid the 2020 mortgage maturities and Polar note, and whether property-sale proceeds were sufficient.
- Current cash availability, restricted-cash requirements, debt covenants and Polar’s continuing consent or governance rights.
- Subsequent occupancy, rent collections, tenant renewals and realized cash rents against the substantial commercial and model-home lease expirations.
- Whether dividends are supported by recurring operating cash flow, given the 2019 common-stockholder loss and reliance on asset-sale proceeds.
- The post-sale portfolio, debt and gains following the February 2020 Centennial Tech Center disposition, and any further effects of COVID-19 on tenants and homebuilders.