Presidio Property Trust, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
For the quarter and nine months ended September 30, 2021. Presidio is an internally managed REIT owning office, industrial, retail and triple-net-lease model-home properties. At quarter-end it reported interests in 12 commercial properties and 85 model homes.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $4.38 million | $5.66 million | $14.89 million | $18.81 million |
| Net loss, consolidated | $(0.42) million | $(1.38) million | $(0.90) million | $(3.92) million |
| Net loss attributable to common stockholders | $(1.39) million | $(1.75) million | $(3.30) million | $(4.78) million |
| Basic and diluted loss per share | $(0.13) | $(0.20) | $(0.33) | $(0.54) |
| Segment NOI | $2.96 million | $3.55 million | $9.85 million | $11.48 million |
- For the nine months, operating cash flow was $1.13 million, investing cash flow was $37.28 million and financing cash outflow was $22.13 million. Cash, cash equivalents and restricted cash were $27.82 million at September 30, including $3.8 million restricted.
- Mortgage notes payable, net, totaled $86.26 million, down from $120.03 million at December 31, 2020. The company reported no remaining Polar Note balance and said it was in compliance with material mortgage covenants. Weighted-average interest rate on outstanding debt was 4.2% (versus 3.9% at September 30, 2020).
- Management estimated debt to market value at 58.6% for commercial properties and 59.4% for model homes. The filing does not provide a clear consolidated current-liquidity ratio.
Material changes versus the prior comparable period
- Revenue fell 23% in Q3 and 21% for the nine months, primarily following the sale of four commercial properties; management also cited COVID-related rent workouts.
- Rental operating costs declined, reflecting property sales and a larger proportion of lower-cost model homes. Segment NOI nevertheless decreased, while G&A rose to $4.36 million for the nine months, mainly due to stock compensation and legal costs.
- Mortgage interest expense declined with lower debt and fewer commercial properties. Nine-month gains on real estate sales were $2.06 million, compared with $0.66 million in 2020; the company also recorded a $0.30 million impairment in Q1 2021 related to Highland Court.
- The company issued 920,000 Series D preferred shares, raising approximately $20.5 million net, and issued common stock and related warrants in July, with approximately $8.9 million net common proceeds. It repaid the Polar Note in Q1 and repaid mortgage debt associated with property sales.
- Operating cash flow decreased to $1.13 million from $2.90 million. Investing cash inflow increased, principally reflecting property-sale proceeds.
Outlook, risks and unusual items
- Management said it believes cash on hand, portfolio cash flows and the ability to refinance mortgages will fund operations for at least the next 12 months. This is not a guarantee; financing may be unavailable or available only on unacceptable terms. Approximately $0.94 million of mortgage principal was scheduled for payment in the final three months of 2021.
- Management intends to use recent equity proceeds to grow the portfolio, but said elevated property prices and compressing capitalization rates make acquisitions challenging. It did not provide numerical earnings or revenue guidance.
- Management said COVID-19 had not significantly affected operating results in the first three quarters, but anticipated further commercial-tenant deferrals, abatements or credit losses. It warned that future effects on collections, leasing, asset values and financing remain uncertain.
- Series D preferred stock carries cumulative dividends at 9.375% annually on a $25 liquidation preference, payable monthly. This creates a significant preferred-dividend obligation ahead of common-stock distributions.
- The board authorized up to $10 million of common-stock repurchases; the company repurchased 18,133 shares for $68,396 during September. The company also had outstanding warrants, including warrants for up to 2 million common shares.
- Portfolio and tenant risks include geographic concentration (Colorado represented 52.6% of commercial base annual rent; North Dakota, 29.5%; the Southwest represented 90% of model-home annual rent), tenant credit and refinancing risks, and possible effects of inflation and construction-cost increases. The filing reports no material litigation and no known material environmental liability.
- Subsequent events included the October acquisition of three model homes for about $1.5 million and an agreement to acquire a Baltimore property for about $8.7 million, with an expected late-November closing.
Key facts for investors to verify
- Reconcile rental-revenue and cash-collection trends, including the amount and timing of COVID-related deferrals, abatements and tenant receivables; the filing does not quantify the total exposure clearly.
- Review the mortgage maturity schedule, refinancing assumptions and property-sale dependence, particularly the $12.35 million of scheduled 2022 principal payments.
- Assess cash available after restricted balances, planned capital needs, dividends and repurchases, and compare recurring operating cash flow with these obligations.
- Confirm the Series D dividend burden and the potential dilution from warrants. The filing gives the common-warrant exercise price as $5.50 in its offering terms but later refers to $5.00 when describing potential proceeds; verify the governing warrant documents.
- Check the economics of dispositions and planned acquisitions, including reported sale gains and losses, the held-for-sale World Plaza property, and the status and financing of the proposed Baltimore purchase.