Presidio Property Trust, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The company is a self-managed REIT with office, industrial, retail and model-home properties. At quarter-end it reported 18 office/industrial and retail properties and 136 model homes.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $7.12 million | $8.16 million | $14.30 million | $16.39 million |
| Net loss attributable to common stockholders | $1.26 million | $2.90 million | $2.99 million | $4.22 million |
| Loss per common share | $0.07 | $0.16 | $0.17 | $0.24 |
| Net cash from operating activities | — | $2.41 million | $0.72 million |
- Q2 revenue fell 12.8% year over year, mainly reflecting property dispositions and occupancy declining to 81.7% from 84.0%. Six-month revenue also declined 12.8%.
- For the first six months, rental operating costs were $5.29 million, general and administrative expense was $3.18 million, depreciation and amortization was $3.96 million, and mortgage interest expense was $3.76 million. Series B preferred-stock interest expense was $1.28 million.
- Six-month segment NOI was $9.01 million, down from $11.08 million. Same-store NOI decreased 5.6% to $7.05 million; same-store rental revenue decreased 1.3%, while operating costs rose 5.2%.
- FFO was $0.53 million for the first six months, versus $0.53 million in 2018; MFFO was $1.49 million versus $0.80 million. These are non-GAAP measures and are not substitutes for GAAP results.
Balance sheet and liquidity at June 30, 2019
- Total assets were $227.7 million; total liabilities were $174.7 million; total equity was $53.1 million.
- Mortgage debt, net, was $148.1 million, including $31.7 million secured by model homes. The company reported compliance with material mortgage covenants. Weighted-average rates were approximately 4.6% on commercial-property mortgages and 4.9% on model-home mortgages.
- Cash and restricted cash totaled $11.65 million, including approximately $5.1 million of cash equivalents available for general use and $6.6 million restricted for property-related purposes.
- Operating cash flow was $2.41 million. Investing activities provided $3.41 million, including property-sale proceeds; financing activities used $3.95 million. Cash increased $1.88 million over the six months.
- Four properties were classified as held for sale at quarter-end. The company had $6.17 million of scheduled mortgage principal payments for the remainder of 2019 and $28.43 million for 2020.
Material changes, outlook and risks
- Series B preferred-stock default after quarter-end: The $16.0 million Series B balance was due for redemption on August 1, 2019 and was not redeemed then. The sole holder, PFP III Sub II, LLC (Prime), notified the company of an event of default and demanded immediate payment. The default increased the annual cash dividend rate from 14% to 24%, effective August 1. Prime’s contractual remedies include rights relating to property management, asset sales, refinancing and board appointments, among others. Prime had not waived the default or indicated it would exercise those additional remedies as of the filing.
- On August 14, the company redeemed $2.0 million of Series B shares, leaving $14.0 million outstanding. Management was pursuing financing and property sales and expected to complete financing and redemption before September 30, 2019, but cautioned there was no assurance it could do so on favorable terms—or at all.
- Management also planned to sell model homes or refinance a significant portion of their mortgages: $5.2 million matured in the remaining six months of 2019 and $11.5 million in 2020. No revolving credit line was in place; the company was working to obtain one.
- Subsequent property transactions: The Presidio office building was sold July 31 for approximately $12.3 million, with a reported gain of $4.5 million. On July 1, the company transferred a 43% tenancy-in-common interest in Genesis Plaza for $5.6 million through a 1031 exchange; it remained a guarantor of the related debt.
- First-half dispositions included Morena Office Center, Nightingale land and 26 model homes; the company acquired 18 model homes. The statement of operations reported a $1.39 million six-month net gain on real estate sales.
- Management cited lower occupancy, the loss of a major Genesis Plaza tenant, lower Waterman Plaza rents, higher operating costs and snow-removal expense as pressures. It remained cautiously optimistic about leasing trends. The company estimated annual capital, tenant-improvement and leasing spending of up to $2.0 million, net of lender reserves.
- Key risks include the unresolved preferred-stock default and redemption funding, refinancing and debt maturities, tenant defaults or non-renewals, vacancies and rent levels, regional property-market concentration, and the ability to maintain REIT qualification. Management reported no impairment charge for the first half and no material environmental liability known to it; ordinary-course litigation was not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether the remaining $14.0 million Series B preferred balance was refinanced or redeemed by the stated September 30 target, and whether Prime waived or pursued default remedies; confirm the continuing 24% rate and related cash burden.
- Available unrestricted cash and the actual proceeds and debt repayment from the July and any subsequent property sales, including the remaining Genesis Plaza guarantee exposure.
- How the company addressed model-home mortgage maturities and whether it obtained a credit facility or other financing.
- Whether occupancy, same-store NOI and leasing performance improved after June 30, especially at Genesis Plaza and Waterman Plaza.
- The filing reported disclosure controls as effective and no material internal-control changes for the quarter; verify subsequent filings for any updates to these statements or the liquidity outlook.