Presidio Property Trust, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are to the year ended December 31, 2019. This is an annual filing, not a standalone Q4 report. The company is an internally managed REIT operating office, industrial, retail, and model-home properties. Its Series A common stock began trading on Nasdaq under SQFT on October 7, 2020.
Business context and portfolio
At year-end, the company owned or held interests in 15 commercial properties and 118 model homes. Commercial assets comprised approximately 983,000 square feet of office/industrial space and 132,000 square feet of retail space. Commercial occupancy was 84.1%, versus 84.5% a year earlier. The commercial tenant base included about 192 tenants, with an average remaining lease term of approximately 2.9 years. Model homes were concentrated geographically: approximately 81% were in Texas and 95% in Texas and Florida combined.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $24.4 million | $28.6 million |
| Net income (loss) | $(6.3) million | $0.8 million |
| Net loss attributable to common stockholders | $(7.7) million | $(0.6) million |
| Basic and diluted loss per share | $(0.85) | $(0.07) |
| Net cash from operating activities | $3.7 million | $3.8 million |
| Net cash from investing activities | $27.7 million | $12.0 million |
| Net cash used in financing activities | $(30.2) million | $(15.2) million |
Revenue declined 15%, principally due to property sales and slightly lower commercial occupancy. Rental operating costs were $8.8 million, or 36.2% of revenue, versus $10.4 million, or 36.3%, in 2019. General and administrative expense rose 9% to $5.8 million; depreciation and amortization declined 15% to $6.3 million. Segment NOI, a non-GAAP measure, was $14.3 million, down from $18.2 million: office/industrial NOI fell to $9.6 million from $12.2 million, model-home NOI was $4.0 million versus $4.0 million, and retail NOI declined to $0.6 million from $2.1 million.
The company recorded $1.7 million of non-cash impairment charges in 2020—$1.3 million for Waterman Plaza and $0.4 million for Highland Court; none were recorded in 2019. Gains on real estate sales were $1.2 million, down from $6.3 million. A $0.5 million PPP loan was forgiven and recognized as a gain on extinguishment of government debt.
At December 31, 2020, total assets were $185.6 million and total liabilities were $135.4 million. Mortgage debt was $120.8 million gross; the Polar note was reported at $7.5 million net, for approximately $127.5 million of gross debt overall. Cash, cash equivalents and restricted cash totaled $11.5 million, including $7.4 million of available cash and cash equivalents. The company reported $3.5 million of cash restricted for property capital expenditures and other lender reserves. Mortgage debt’s weighted-average interest rate was 3.9%; the commercial-property debt-to-estimated-market-value ratio was 60.6%, and the model-home ratio was 73.5%.
Material changes and notable transactions
- Revenue decreased by $4.3 million year over year, while the company moved from net income to a $6.3 million consolidated net loss.
- The company acquired 28 model homes for $10.2 million, funded with $3.1 million cash and $7.1 million of mortgage notes; it sold 46 model homes for $18.1 million and recognized a $1.6 million gain.
- Commercial-property sales included Centennial Tech Center for approximately $15.0 million, Union Terrace for $11.3 million, and one Executive Office Park building for $2.3 million. Reported results included losses on two of those sales and a gain on Union Terrace.
- The October 2020 IPO sold 500,000 shares at $5.00 per share, generating approximately $2.0 million after underwriting discounts and commissions, before other offering expenses. The company also completed a one-for-two reverse stock split in July 2020.
- The Polar note carried an 8% fixed rate and had a $7.7 million outstanding principal balance at year-end. The company paid it in full in March 2021, primarily using available cash and property-sale proceeds.
- After year-end, Waterman Plaza sold for approximately $3.5 million and Garden Gateway for approximately $11.2 million. A $0.101-per-share dividend was declared in February 2021.
Outlook, risks and contingencies
Management said COVID-19 did not significantly affect 2020 operating results, but amendments with certain financially distressed tenants—including deferrals, abatements, reduced rents or lease extensions—affected short-term cash flows. Management expected further rent deferrals, abatements and credit losses into 2021 and warned these could materially affect rental revenue, collections, leasing and property values. The ultimate pandemic impact could not be reasonably estimated; no quantified earnings or revenue guidance was provided.
Management expected 2021 mortgage principal maturities of $10.2 million for model-home properties and $16.4 million for commercial properties. It planned to use property sales and refinancing to address these maturities, and said near-term operating needs and potential dividends were expected to be funded by portfolio cash flow, partnership distributions and property sales. The company had no revolving credit line. It cautioned that insufficient operating cash could require additional borrowing, asset sales, securities issuance or dividend reductions.
Other key risks include tenant defaults and lease expirations, property and tenant concentration, refinancing and interest-rate exposure, covenant or debt-service pressure, limited access to capital, and the ability to maintain REIT qualification. The company had 48 commercial leases representing 22.6% of annualized commercial rent expiring in 2021; 91 model-home leases representing 80% of model-home rent also expired in 2021, subject to possible builder extensions. Management reported compliance with mortgage covenants. Ordinary-course legal matters were not expected by management to have a material adverse effect, and the company reported no material environmental claim known to it. The auditor identified real estate asset and lease-intangible impairment assessment as a critical audit matter; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Reconcile reported cash and restricted cash with immediately available liquidity, including lender reserve requirements.
- Track refinancing, repayment and maturity status of 2021 mortgage debt, and confirm the use of proceeds from subsequent property sales.
- Review rent collections, tenant concessions, lease renewals and occupancy trends after year-end, especially near-term commercial and model-home expirations.
- Assess the effect of the impairments and post-year-end property sale prices on carrying values and future earnings.
- Confirm the sustainability and funding source of dividends; 2020 dividends were $0.10 per share and were characterized as return of capital for tax purposes.