Presidio Property Trust, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The company is a diversified REIT with office, industrial, retail, and model-home properties. At quarter-end it reported 15 commercial properties and 128 model homes; four commercial properties and one model home were classified as held for sale.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $5.66 million | $7.00 million | $18.81 million | $21.30 million |
| Net income (loss), consolidated | $(1.38) million | $2.95 million | $(3.92) million | $0.91 million |
| Net income (loss) attributable to common stockholders | $(1.75) million | $2.54 million | $(4.78) million | $(0.45) million |
| Basic earnings (loss) per share | $(0.20) | $0.29 | $(0.54) | $(0.05) |
| Segment net operating income (NOI) | $3.55 million | $4.47 million | $11.48 million | $13.48 million |
- Q3 revenue fell 19%; nine-month revenue fell 12%. Management attributed the decline mainly to property sales and COVID-related tenant rent amendments, including abatements and deferrals.
- Q3 rental operating costs were 37.2% of revenue, versus 36.2% a year earlier. For the nine-month period, the ratio improved to 34.5% from 36.7%, reflecting portfolio changes and a higher share of lower-cost model homes.
- At September 30, total assets were $191.8 million, total liabilities $139.5 million, and total equity $52.3 million. Cash, cash equivalents and restricted cash totaled $10.0 million, including $6.8 million of cash and cash equivalents available for general use.
- Mortgage notes payable were $124.4 million principal ($123.5 million net of loan costs); the Polar note had $8.8 million outstanding principal ($8.4 million net). The company reported a 3.9% weighted-average interest rate on outstanding debt and mortgage debt-to-estimated-property-value ratios of 59.9% for commercial properties and 73.3% for model homes.
- Nine-month operating cash flow was $2.9 million, versus $2.4 million in 2019. Investing activities provided $22.2 million, largely reflecting property-sale proceeds; financing activities used $25.4 million. Ending cash and restricted cash decreased by $0.4 million from year-end 2019.
Material changes and unusual items
- The company sold Centennial Tech Center for about $15.0 million, recognizing an approximately $0.9 million loss; sold Union Terrace for about $11.3 million, recognizing an approximately $0.7 million gain; and sold 33 model homes for about $12.6 million, recognizing an approximately $0.9 million gain.
- It acquired 25 model homes for about $9.0 million, funded with approximately $2.7 million cash and $6.3 million of mortgage debt.
- A second-quarter $845,674 noncash impairment was recorded on Waterman Plaza after lease-renewal discussions indicated a lower rental rate. The lease amendment was executed in Q3; no additional Q3 impairment was recorded.
- The 8% Polar note maturity was extended to March 31, 2021; the company paid a 4% renewal fee on the unpaid balance. The note is due in full at maturity, including accrued interest. Series B preferred stock had been fully redeemed in 2019, eliminating the related preferred-stock interest expense in 2020.
- The company paid no common-stock dividends during the first nine months of 2020, compared with approximately $2.2 million in 2019. On November 3, the board declared a $0.10-per-share dividend payable November 30, 2020.
Liquidity, outlook and risks
- Management said working capital and the ability to refinance commercial and model-home mortgages were expected to fund operations for at least 12 months from issuance of the statements. This depends on refinancing and property sales; management cautioned that additional financing might not be available on acceptable terms.
- Mortgage principal maturities were approximately $1.6 million in the remainder of 2020 and $27.7 million in 2021. The separate Polar note balance of $8.8 million is also due March 31, 2021. Management expected some debt to be repaid from property sales and other maturities to be refinanced.
- On October 6, 2020, after quarter-end, the company completed an IPO of 500,000 shares at $5.00 each. Proceeds were $2.3 million after underwriting discounts and commissions, before approximately $775,000 of other offering expenses. Intended uses included working capital, potential acquisitions, and debt reduction.
- Management said COVID-19 had not significantly affected operating results through the first three quarters, but warned that further rent deferrals, abatements, credit losses, reduced leasing activity and lower property values could materially affect future results and cash collections. The ultimate impact could not be reasonably estimated.
- Other risks include refinancing and near-term debt repayment, tenant defaults or nonrenewals, property vacancy and valuation, concentrated geographic exposure, interest rates, and maintaining REIT qualification. The filing reported compliance with material mortgage and Polar-note covenants, no material legal proceedings, and effective disclosure controls.
Investor facts to verify
- Subsequent rent collections, tenant concessions, delinquencies and occupancy, particularly among commercial tenants.
- Progress on the Polar note repayment and refinancing or payoff of 2020–2021 mortgage maturities, including the properties held for sale.
- Actual IPO proceeds after all expenses and the use of proceeds, alongside the ability to fund the declared dividend from recurring cash flow.
- Whether Waterman Plaza’s amended lease and held-for-sale valuations support the reported carrying values, and whether further impairments are required.
- Model-home portfolio exposure, debt guarantees, and the sustainability of cash flows under continued COVID-related disruption.