Presidio Property Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. 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 98 model homes. The consolidated statements also include Murphy Canyon Acquisition Corp. (the SPAC), which Presidio consolidates.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $4.12 million | $4.57 million; down about 10% |
| Rental income | $3.94 million | $4.45 million |
| General and administrative expense | $1.96 million; 47.7% of revenue | $1.58 million; 34.6% of revenue |
| Net income (loss) | $(0.61) million | $0.38 million |
| Net loss attributable to common stockholders | $(1.53) million; $(0.13) per share | $(3.82) million; $(0.32) per share |
| Segment NOI | $2.55 million | $2.99 million; down about 15% |
| Operating cash flow | $(1.63) million | $(0.98) million |
| Cash, cash equivalents and restricted cash | $11.89 million | $16.52 million at December 31, 2022 |
| Mortgage debt | $100.38 million principal; $99.55 million net of loan costs | $97.75 million principal at December 31, 2022 |
| Total assets / total equity | $176.97 million / $49.62 million | $291.35 million / $52.84 million at December 31, 2022 |
Rental operating costs were roughly flat at $1.57 million. Mortgage interest expense declined to $0.87 million from $1.02 million, while interest and other income rose to $0.74 million, largely reflecting SPAC trust-account earnings. Real estate sale gains were $0.42 million, versus $1.52 million in Q1 2022. The filing does not provide a company-wide operating margin measure.
Material changes and notable transactions
- Revenue fell mainly because the Halliburton lease at Shea Center II expired at year-end 2022 and World Plaza was sold in March 2022. Halliburton had represented about 8.4% of 2022 annual base rent; about 20% of the vacated space was leased as of March 31, 2023.
- Office/industrial NOI declined to $1.40 million from $1.77 million; retail NOI fell to $0.32 million from $0.54 million. Model-home NOI increased to $0.82 million from $0.68 million.
- Presidio acquired nine model homes for about $5.0 million, funded with about $1.5 million cash and $3.5 million of mortgage debt, and sold three model homes for about $1.6 million, recognizing a gain of about $0.4 million.
- SPAC stockholders redeemed 11,037,272 shares for approximately $114.1 million in February 2023. The SPAC trust balance was about $24 million at quarter-end, versus $136.9 million at December 31, 2022. This major change drove the decline in reported total assets and contributed to substantial cash movements that are not representative of property operations.
- Q1 investing cash flow was positive $109.6 million, chiefly reflecting SPAC trust withdrawals; financing cash flow was negative $112.5 million, chiefly reflecting SPAC redemptions. These flows are distinct from the company’s negative $1.63 million operating cash flow.
Liquidity, debt, outlook and risks
- Management expects cash on hand, portfolio cash flows, model-home partnership distributions, refinancing and property sales to fund operations, planned capital expenditures and required dividends for at least 12 months. This is an expectation, not a guarantee; management says unavailable financing could require reduced plans or discretionary spending.
- Scheduled mortgage principal payments total about $4.4 million for the remainder of 2023, including about $3.3 million on model-home properties. Approximately $24.3 million is scheduled for 2024 and $36.8 million for 2025. Management expects to sell certain model homes and refinance other loans.
- Management estimated up to $5.2 million of tenant improvements, capital improvements and leasing costs for the rest of 2023, net of construction financing. About $5.2 million of tenant-related property expenditures was also estimated for the remainder of the year.
- Commercial-property debt had a weighted-average rate of about 4.53%; model-home debt, about 4.98%. The overall weighted-average debt rate was reported as 4.66%. Management expects new borrowing to cost more than existing weighted-average rates. Certain loans have potential interest-rate resets in August and September 2023.
- On May 5, 2023, Presidio refinanced Grand Pacific Center debt and obtained a construction loan for tenant improvements. Both loans carry a 6.35% rate for the first 60 months, subject to a reset in year five.
- The SPAC’s proposed merger with Conduit Pharmaceuticals remained subject to closing conditions and stockholder approval. An amendment dated May 11, 2023 extended the merger outside date to February 7, 2024. Presidio had committed to provide SPAC support, including possible additional funding; it had loaned the SPAC $300,000 in March and $200,000 in April and could lend up to $1.5 million in total.
- The SPAC redemptions generated a recorded $1.14 million excise-tax liability under the Inflation Reduction Act. The filing says future share issuances may offset the liability and it would not be due if the SPAC liquidates before December 31, 2023.
- Presidio declared and paid about $0.3 million of common dividends in Q1, down from $1.3 million a year earlier. Series A common distributions were $0.022 per share versus $0.105. Series D preferred distributions remained $0.19531 per share monthly; the preferred stock carries a 9.375% annual cumulative dividend. Future dividends remain subject to board approval.
- Principal risks include tenant non-renewals and credit quality, commercial real estate demand and occupancy, concentrated geographic exposure, refinancing availability and higher rates, debt service, capital needs, REIT qualification, and SPAC execution and funding. Six model homes were classified as held for sale. No material litigation was reported; the company said it was in compliance with material mortgage covenants.
Important facts for investors to verify
- Progress leasing the former Halliburton space, its effect on occupancy and rental income, and any related tenant-improvement costs.
- Availability and terms of refinancing for upcoming maturities and rate-reset loans, particularly the 2024–2025 payments.
- Cash available for property operations after distinguishing restricted cash, SPAC trust assets and SPAC obligations from operating liquidity.
- Whether the Conduit merger closes, whether additional sponsor funding is required, and the ultimate treatment of SPAC redemptions and excise tax.
- Whether operating cash flow and property performance support planned capital spending and continued common and preferred dividends.
- The filing gives differing descriptions of the company’s jurisdiction of incorporation in different sections; verify the entity details and related excise-tax disclosure against the full filing.