Business context and reporting period
The supplied filing is NetREIT, Inc.’s Form 10-K for the fiscal year ended December 31, 2015—not a filing under the name Presidio Property Trust, Inc. The company operated as a self-managed REIT investing primarily in office, industrial and retail properties, as well as leased model homes. At year-end it reported 26 commercial properties and 64 model homes; commercial properties were concentrated in California, Colorado and North Dakota.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $24.0 million | $16.5 million |
| Rental operating costs | $8.5 million | $5.7 million |
| General and administrative expenses | $4.7 million | $4.6 million |
| Depreciation and amortization | $7.8 million | $5.4 million |
| Net loss | $2.0 million | $0.9 million |
| Net loss attributable to common stockholders | $3.8 million | $4.0 million |
| Net cash from operating activities | $3.8 million | $4.2 million |
| FFO / MFFO | $(0.3) million / $1.9 million | $1.0 million / $1.5 million |
- Revenue rose 45.5%, principally reflecting acquisitions; same-property rental revenue increased 5.1% and same-property NOI increased 7.4%. Same-property year-end occupancy improved to 81.6% from 79.1%.
- Year-end total assets were $257.9 million, total equity $65.2 million, and mortgage debt $144.7 million. Commercial mortgage debt was $135.6 million at a weighted-average rate of about 4.7%; reported debt-to-current-estimated-value was 56.5% for those properties. Debt was predominantly fixed-rate.
- Cash and cash equivalents were $6.6 million and restricted cash was $6.8 million. Management estimated about $12 million of potential borrowing capacity on unencumbered properties or through refinancing, but had no committed credit facility or financing arrangement for that capacity.
- The company declared $6.8 million in common dividends; about $2.6 million was reinvested, leaving approximately $4.1 million in cash distributions. The annual per-share distribution declined to $0.40 from $0.4706, and 2015 distributions were characterized as return of capital for tax purposes.
Material changes versus the prior comparable period
- The company acquired commercial properties and model homes, with total real-estate acquisitions of $67.9 million in 2015 versus $59.1 million in 2014. It sold all seven self-storage facilities in April 2015 for a net sales price of about $34 million, generating a $4.7 million gain and approximately $17 million in net proceeds after selling costs and associated mortgage repayment.
- Revenue increased, but operating costs and depreciation also rose with the larger portfolio. Mortgage interest expense increased to $6.0 million from $4.4 million. Series B preferred-stock interest expense increased to $4.8 million from $1.2 million as the financing balance grew.
- GAAP net loss widened to $2.0 million from $0.9 million, while common-stockholder loss narrowed to $3.8 million from $4.0 million. FFO fell from $1.0 million to a loss of $0.3 million, in part reflecting gains excluded from FFO and the changed portfolio; MFFO rose to $1.9 million from $1.5 million.
- Same-property occupancy and NOI improved. No real-estate impairment was recorded in 2015, compared with a $950,000 impairment in 2014.
Outlook, risks and unusual items
- Management expected acquisitions made in late 2014 and 2015 to contribute to 2016 operating cash flow, and estimated approximately $3.0 million of 2016 capital improvements, tenant improvements and leasing costs. It stated that current portfolio cash flow and anticipated acquisitions should support near-term costs, debt service and distributions at the current rate, but said distributions could be reduced if cash flow or financing proved insufficient. No formal earnings or distribution guidance was provided.
- The $35 million Series B preferred stock carries a 14% return, with 10% paid monthly and 4% accruing and compounding. It is mandatorily redeemable, generally by the third anniversary, with an option to extend redemption by up to two years. The filing describes investor consent rights over significant company actions and potential control remedies upon default.
- Approximately $8.1 million of scheduled mortgage principal payments were due in 2016, including about $7.2 million on company properties and $0.9 million on model homes. The filing separately identifies the Havana/Parker loan’s $2.5 million principal and deferred interest due July 2016, with a one-year extension option subject to a $100,000 payment.
- Risks include reliance on refinancing and external capital, substantial debt and preferred-stock obligations, limited liquidity in the unlisted common stock, tenant and lease-expiration exposure, geographic concentration, property-market and interest-rate changes, and REIT qualification requirements. The company said it had no material litigation or known material environmental liability and was in compliance with mortgage covenants.
- The filing contains a cash-flow inconsistency: its cash-flow statement and liquidity discussion report 2015 operating cash flow of approximately $3.8 million, while the dividend discussion cites $5.0 million. The filing also describes the total dividend declaration as $6.8 million but indicates that cash payouts depended on reinvestments and external funding.
Most important facts to verify
- Confirm the issuer identity: the filing text names NetREIT, Inc., whereas the request metadata names Presidio Property Trust, Inc.
- Reconcile the $3.8 million versus $5.0 million operating-cash-flow figures and confirm the cash-flow coverage of dividends.
- Review the Series B preferred-stock redemption schedule, 14% return, investor consent provisions and default remedies.
- Confirm the 2016 mortgage maturities, balloon obligations and available refinancing or borrowing capacity, which management described as potential rather than committed.
- Assess lease expirations: 21.8% of commercial annual rent was scheduled to expire in 2016, and 68.7% of model-home lease rent was scheduled to expire in 2016, subject to developer extensions and home sales.