Presidio Property Trust, Inc. quarterly report, Q1 FY2016

Presidio Property Trust, Inc. — 2016 Q1 Form 10-Q Summary

Issuer-name caveat: The supplied filing is for NetREIT, Inc., not Presidio Property Trust, Inc. It covers the quarter ended March 31, 2016 and was signed May 12, 2016. Confirm the issuer and filing match the intended company before relying on this summary.

Business context

NetREIT operated as a self-managed REIT, owning or holding interests in office, industrial, retail, and leased model-home properties. At quarter-end its portfolio included 20 office and industrial properties, six retail centers, and 84 model homes. Commercial properties were concentrated primarily in Southern California and Colorado, with four properties in North Dakota.

Financial performance and position

Metric	Q1 2016	Q1 2015 / prior period
Revenue	$8.46 million	$5.38 million; up 57.4%
Net loss attributable to common stockholders	$1.10 million; loss per share $0.07	$1.96 million; loss per share $0.11
Net cash from operating activities	$1.11 million	$0.41 million
Net cash used in investing activities	$6.52 million	$5.47 million
Net cash from financing activities	$4.15 million	$3.90 million
Cash and cash equivalents at quarter-end	$5.37 million	$6.63 million at December 31, 2015

Rental income increased to $8.25 million from $5.34 million. The filing attributes the increase to acquisitions, higher same-property rents, and a $376,000 early lease termination fee.
Rental operating costs were $2.47 million, or 28.2% of rental and fee income versus 36.0% a year earlier. Management said this ratio would have been 32.4% without the termination fee and other revenue effects.
Same-property occupancy was 83.6%, down from 84.8%. Same-property NOI rose 31.9% to $3.98 million, partly reflecting the termination fee and lower operating costs.
FFO was $1.32 million and MFFO was $1.54 million, compared with $0.12 million and $0.48 million, respectively, a year earlier. These are non-GAAP measures and are not substitutes for cash flow or GAAP earnings.
Total assets were $257.27 million and total equity was $63.94 million at March 31, 2016. Mortgage principal was $148.94 million ($146.92 million net of unamortized loan costs); the filing reports a 4.7% weighted-average mortgage rate and approximately 63% debt to book value on the company’s mortgaged properties.
Series B preferred stock is classified as a liability: $35 million face amount, carrying value $33.65 million, and a 14% preferred return treated as interest expense. Total liabilities reported were $193.33 million.

Material changes and transactions

The company acquired 24 model homes in Texas for $7.4 million, funded with approximately $2.2 million cash and $5.2 million in promissory notes.
It sold four model homes for approximately $1.3 million, repaid about $460,000 of associated mortgage debt, and recorded a $175,000 gain.
Mortgage principal rose to $148.94 million from $144.69 million at year-end, while cash fell by $1.25 million during the quarter. The company invested $7.40 million in acquisitions and received $5.11 million of net mortgage proceeds.
After quarter-end, the company agreed to borrow $4.0 million against Waterman Plaza on a rate that resets annually, subject to a 4.25% floor. It also agreed to sell one Yucca Valley building for $1.25 million and the Havana/Parker Complex for $3.3 million; the latter sale was expected in the third quarter.
The self-storage portfolio had been sold in April 2015. Q1 2015 included $30,000 of discontinued-operations income; Q1 2016 did not.

Outlook, risks, and unusual items

Management said it expected rental income, interest expense, operating costs, and depreciation to increase as recent acquisitions contributed for full periods. It expressed cautious optimism about leasing and rental-rate trends but gave no specific earnings or revenue guidance.
Management estimated up to $2.0 million in annual capital improvements, tenant improvements, and leasing costs, net of lender-held reserves. It said near-term operating cash flow and distributions from model-home partnerships were expected to cover operating costs, capital spending, debt service, and cash distributions at the current rate; if cash flow is inadequate, it may borrow or reduce distributions.
Q1 operating cash flow of $1.11 million was below the approximately $2.0 million of principal debt service and cash distributions cited by management. Approximately $2.0 million of cash was earmarked for property capital spending.
Mortgage maturities include $8.00 million of scheduled principal payments for the remaining nine months of 2016. The Havana/Parker loan matures July 1, 2016 and the Bismarck loan October 1, 2016.
The $35 million Series B preferred financing carries a 14% return and is scheduled for redemption by the third anniversary of issuance, with two one-year extension options. The filing describes scheduled payments of $16.6 million in 2017 and $18.4 million in 2018.
Management cited economic and financing uncertainty, potential higher interest rates, regional market concentration, tenant credit and leasing risks, and dependence on external financing for acquisitions. Model-home mortgage notes are guaranteed by the company.
The filing reported compliance with mortgage covenants, no off-balance-sheet arrangements, no legal proceedings, and effective disclosure controls. It stated that no impairment reserve was considered necessary in the quarter.

Important facts for investors to verify

Whether this NetREIT filing is the intended filing for Presidio Property Trust, Inc.
Near-term mortgage maturities, refinancing plans, and the terms and closing status of the post-quarter Waterman loan and announced property sales.
The timing and funding plan for Series B preferred redemption, including whether extension options will be used.
Whether recurring operating cash flow can support distributions and capital needs, given the termination fee’s contribution and Q1 cash-flow coverage.
Current occupancy, tenant rollover and credit exposure, and the sustainability of reported same-property NOI growth.