Presidio Property Trust, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018; filed August 9, 2018. Presidio is a self-managed REIT with office, industrial, retail and model-home properties. At quarter-end it reported 22 commercial properties and 145 model homes. Amounts below are in U.S. dollars.
Financial results and position
- Q2 revenue: $8.16 million, down 3.5% from $8.52 million a year earlier. Rental income was nearly flat at $7.84 million; fee and other income declined to $321,000 from $723,000.
- Q2 earnings: Consolidated net loss was $2.50 million versus net income of $165,000. Net loss attributable to common stockholders was $2.90 million, or $0.16 per share, versus income of $19,000. Results included a $1.51 million charge for deferred offering costs.
- First-half results: Revenue was $16.39 million, down 2.2% from $16.76 million. Consolidated net loss was $3.65 million versus $780,000; loss attributable to common stockholders was $4.22 million, or $0.24 per share, versus a $994,000 loss.
- Operating performance: Q2 segment NOI was $5.50 million versus $5.88 million. Model-home NOI rose to $1.14 million from $895,000, while office/industrial NOI declined to $3.75 million from $4.24 million and retail NOI to $615,000 from $747,000. Same-store commercial NOI fell 2.9% in Q2 and 2.2% in the first half. Same-store occupancy was 86.3%, compared with 89.9% a year earlier.
- Cash flow: First-half operating cash flow was $720,000, down from $2.03 million. Investing used $8.14 million, chiefly for model-home acquisitions; financing provided $11.56 million. Cash, cash equivalents and restricted cash totaled $12.45 million at June 30, including $6.4 million of restricted cash.
- Balance sheet and debt: Total assets were $261.28 million and total equity was $49.57 million. Mortgage debt principal was $172.39 million ($170.62 million net of loan costs), versus $162.01 million at year-end 2017. The weighted-average mortgage rate was approximately 4.6%; the company reported compliance with material loan covenants. Mortgage principal maturities include $16.60 million in 2019, $38.29 million in 2020 and $20.96 million in 2021.
- Preferred stock liability: The 30,700 outstanding Series B shares carry a 14% preferred return and a $30.62 million net carrying value. In July 2018, after quarter-end, the company extended the redemption date to August 1, 2019.
Changes versus the prior period
- Lower revenue reflected rent lost from properties sold in 2017 and the absence of approximately $450,000 in insurance-claim proceeds, partly offset by higher model-home rents and property-tax recoveries.
- Same-store NOI weakened as Colorado real estate taxes rose following property reassessments; management also cited the loss of a major tenant at the Shea and World properties. Leasing-rate increases partly offset lower occupancy and revenue.
- First-half property sales generated a $429,000 gain on 13 model homes, versus a $2.03 million gain in the first half of 2017, which included sales of commercial properties. First-half 2018 acquisitions comprised 26 model homes for approximately $10.2 million, funded with about $3.1 million cash and $7.1 million of mortgage notes.
- First-half mortgage interest expense increased to $4.02 million from $3.86 million as model-home debt grew. Series B interest expense fell to $2.20 million from $2.76 million, reflecting prior-period redemptions and amortization of financing costs.
Outlook, risks and unusual items
- Management gave no quantified earnings or revenue guidance. It said it was cautiously optimistic about leasing trends and anticipated spending up to $2.0 million annually on capital improvements, tenant improvements and leasing costs, subject to circumstances.
- Management identified liquidity needs that include operating costs, debt service, preferred returns, property investment and future mortgage repayments. It cited cash, operating cash flow, refinancing, property sales and possible securities offerings as potential funding sources; the company had no revolving credit line and was exploring one.
- The $1.51 million deferred-offering-cost charge resulted from expensing previously deferred costs for a Form S-11 offering because its timing was uncertain. The filing warns that inability to obtain financing or sell securities could constrain acquisitions and long-term objectives.
- Key disclosed risks include tenant defaults or non-renewals, vacancy and rent pressure, higher interest and operating costs, geographic concentration, real-estate market and financing conditions, natural disasters, and maintaining REIT qualification. The company reported no impairment charge, no off-balance-sheet arrangements and no legal proceedings.
- Management stated that disclosure controls were effective at quarter-end and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- How the company plans to fund the $30.7 million Series B redemption obligation and upcoming mortgage maturities, particularly the 2020–2021 amounts.
- Whether occupancy and same-store NOI stabilize, including the effects of the Shea and World tenant losses and higher property taxes.
- Whether operating cash flow can support debt service, property investment and other liquidity needs, given the $720,000 first-half operating cash flow.
- The status, timing and potential financing impact of the contemplated Form S-11 offering and any credit-line plans.
- Whether model-home acquisitions and sales continue to produce adequate returns, considering the related mortgage borrowing and noncontrolling interests.