Business context and reporting period
Presidio Property Trust, Inc. is an internally managed, diversified REIT with office, industrial, retail and model-home properties. This Form 10-Q covers the three and six months ended June 30, 2020. At quarter-end, the company reported 15 commercial properties and 132 model homes; three commercial properties and four model homes were classified as held for sale.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $6.12 million | $7.12 million | $13.15 million | $14.30 million |
| Net loss attributable to common stockholders | $1.92 million | $1.26 million | $3.03 million | $2.99 million |
| Basic and diluted loss per share | $0.22 | $0.14 | $0.34 | $0.34 |
| Net cash from operating activities | Not stated for quarter | Not stated for quarter | $0.20 million | $2.41 million |
At June 30, total assets were $194.2 million, down from $220.8 million at year-end 2019. Cash, cash equivalents and restricted cash totaled $8.66 million, including approximately $6.0 million of cash and cash equivalents and $2.7 million restricted cash. Net mortgage debt was $125.5 million and the net note payable was $8.25 million. The Polar Note carries an 8% fixed rate and matures October 1, 2020, with a possible extension to March 31, 2021. Management reported compliance with the debt covenants. The company reported debt-to-estimated-property-value ratios of approximately 57.7% for both commercial and model-home properties.
Q2 segment NOI was $3.28 million, compared with $4.59 million a year earlier; retail recorded a $0.30 million NOI loss. Same-store commercial NOI, a non-GAAP measure, rose 5.4% in Q2 and 10.4% for the six-month period. Same-store occupancy was 83.2%, versus 81.1% a year earlier. Rental operating costs were 32.7% of total revenue in Q2 and 33.3% for the first half.
Material changes versus prior comparable periods
- Q2 revenue declined 14.0%; first-half revenue declined 8.0%, mainly reflecting property sales and COVID-related tenant rent abatements and deferrals.
- Q2 common-stockholder loss widened to $1.92 million from $1.26 million. The quarter included a non-cash $845,674 impairment at Waterman Plaza after renewal discussions indicated lower market rents.
- First-half operating cash flow fell to $0.20 million from $2.41 million, reflecting working-capital timing and reduced tenant cash collections, including COVID-related concessions.
- First-half investing cash flow was $20.61 million, driven largely by property-sale proceeds; financing cash outflow was $22.55 million, including mortgage and Polar Note repayments. Cash and restricted cash declined by $1.73 million.
- Mortgage interest expense decreased, but the company incurred $1.66 million of note-payable interest expense in the first half, including discount accretion and financing-cost amortization. No cash dividends were paid in the first half of 2020.
- During the first half, the company sold two commercial properties and 21 model homes, acquired 17 model homes, and exchanged 59,274 shares for limited-partnership interests. A one-for-two reverse stock split was effected July 29, 2020 and reflected retroactively in the filing.
Outlook, risks and unusual items
Management said COVID-19 had not significantly affected reported first- or second-quarter operating results, but warned that further rent deferrals, abatements, credit losses and weaker leasing could materially affect future revenue, cash collections and property values. The company was negotiating lease amendments with some financially distressed tenants. Management could not reasonably estimate the pandemic’s ultimate financial impact.
Management expected working capital and refinancing or sales of properties to support operations for at least 12 months from issuance of the interim statements. This outlook depends on refinancing, property dispositions and rent collections; management cautioned that additional financing may not be available on acceptable terms. Mortgage principal payments due include approximately $7.0 million in the remainder of 2020 and $29.1 million in 2021. The Polar Note’s near-term maturity is an additional liquidity consideration. The company had no revolving credit line and was seeking one.
The company received a $10,000 Economic Injury Disaster Loan advance, which was not required to be repaid, and a $462,000 Paycheck Protection Program loan, potentially forgivable if program conditions are met. Other risks include tenant defaults or bankruptcies, declining rents and occupancy, refinancing and interest-rate risk, concentrated geographic exposure, and maintaining REIT qualification. Management reported effective disclosure controls and no material litigation or off-balance-sheet arrangements.
Important facts for investors to verify
- Progress and terms of repayment, extension or refinancing of the Polar Note, and refinancing or repayment of upcoming mortgage maturities.
- Actual rent collections, tenant concessions, delinquencies and any subsequent impairment or credit-loss charges related to COVID-19.
- Whether planned property sales occur on expected timelines and prices, and how proceeds are applied to debt and liquidity needs.
- Conditions and forgiveness status of the PPP loan, and the company’s capacity to fund operations and any future dividends.
- Performance of Waterman Plaza and other held-for-sale properties, including the effect of lower rents and occupancy on asset values.