Presidio Property Trust, Inc. — Q2 2021 Form 10-Q
Business context and reporting period: Unaudited results for the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Presidio is an internally managed REIT investing in office, industrial, retail, and triple-net-leased model-home properties. At quarter-end, it reported 11 commercial properties and 92 model homes.
Financial performance and position
- Q2 revenue: $4.85 million, down 21% from $6.12 million. Rental income was $4.55 million versus $5.88 million.
- Q2 earnings: Net income was $1.78 million, versus a $1.61 million loss; common-stockholder income was $754,000, or $0.08 per share, versus a $1.92 million loss, or $0.22 per share. The improvement included a $2.59 million net gain on real estate sales.
- First-half results: Revenue was $10.52 million, down 20% from $13.15 million. Net loss narrowed to $479,000 from $2.54 million; loss attributable to common stockholders was $1.91 million, or $0.20 per share, versus $3.03 million, or $0.34 per share.
- Operating costs and margins: Q2 rental operating costs were $1.49 million, or 30.7% of revenue, compared with $2.00 million, or 32.7%. Segment NOI was $3.36 million for Q2 versus $3.28 million; first-half segment NOI was $6.89 million versus $7.92 million.
- Cash flow: First-half operating cash flow was negative $1.01 million, versus positive $201,000. Investing activities provided $41.08 million, primarily from property-sale proceeds; financing used $22.26 million. Cash, cash equivalents and restricted cash ended at $29.34 million, including approximately $4.1 million restricted.
- Debt and liquidity: Mortgage principal was $90.71 million at June 30 (net carrying amount $89.98 million), down from $120.79 million principal at year-end. The $7.7 million Polar Note was repaid in Q1. The company raised $20.5 million net from its 9.375% Series D preferred offering. Management said available liquidity and refinancing capacity should fund operations for at least 12 months, but financing availability is not assured.
- Other balance-sheet metrics: Total assets were $160.85 million, down from $185.57 million at December 31, 2020; total equity was $65.25 million, up from $50.12 million.
Material changes versus prior period
- Revenue declined mainly because of property dispositions and COVID-related tenant rent workouts. Four commercial properties were sold in the first half, as well as 32 model homes; six model homes were acquired.
- Real estate sale proceeds were $44.34 million in the first half, versus $29.38 million in 2020. The income statement reported a $1.43 million net gain on sales for the half-year, while Q2 reported a $2.59 million gain.
- Mortgage interest expense fell 22% year over year for the first half, to $2.51 million, reflecting lower debt and fewer commercial properties. The weighted-average rate on outstanding debt was 4.2%, versus 4.6% a year earlier.
- The company paid approximately $2.0 million in common dividends during the first half; it paid none in the comparable 2020 period. Series D preferred stock was issued in June, adding a cumulative dividend obligation of 9.375% annually.
Outlook, commentary and risks
- Management said COVID-19 had not significantly affected operating results in the first half. Certain prior tenant amendments involved rent deferrals, abatements, reduced rents or extensions; no new negotiations were initiated in Q1 or Q2. Management did not expect additional commercial-tenant concessions or credit losses to materially affect 2021 revenue or collections, but could not reasonably estimate the pandemic’s future financial impact.
- Management intends to grow the portfolio using capital raised through preferred and common stock offerings. It projected up to $1.9 million of second-half 2021 capital, tenant-improvement and leasing costs, net of lender reserves.
- Approximately $2.61 million of mortgage principal was scheduled for the remainder of 2021. Management expected some model-home sales and mortgage refinancing to help meet these obligations. It stated that dividends may be reduced if operating cash flow is insufficient.
- Key risks include tenant defaults and weaker leasing demand, COVID-19 and future restrictions, refinancing and capital-market access, interest rates, property values and impairments, geographic concentration, construction-cost inflation, cybersecurity, and maintaining REIT qualification. The filing reported no material litigation and no off-balance-sheet arrangements.
- After quarter-end, the company agreed to sell common shares and warrants in a July financing. The filing also reports monthly Series D dividends and the related cash payments.
Important facts for investors to verify
- How much of reported earnings improvement reflects recurring property operations versus property-sale gains, and whether portfolio dispositions will continue.
- Current rent collections, tenant concessions, occupancy and lease expirations, particularly given the revenue decline and COVID-related tenant workouts.
- Cash available for general use after restricted cash, planned capital spending, dividends and scheduled debt payments.
- Mortgage maturities, refinancing terms, collateral values and the company’s capacity to service debt if property sales or refinancing are delayed.
- The effect of the July common-stock and warrant financing on fully diluted share count, future capital needs and per-share results.
- The sustainability of common dividends alongside the cumulative 9.375% Series D preferred dividend obligation.