Presidio Property Trust, Inc. — Q3 2019 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2019; filed November 8, 2019. Presidio is a diversified REIT with office, industrial, retail and model-home properties. At quarter-end it reported 12 office buildings, one industrial property, four retail centers and 127 model homes. Four commercial properties were classified as held for sale.
Financial performance and position
| Metric | Q3 2019 / September 30, 2019 | Comparable period / change |
|---|---|---|
| Revenue | $7.00 million | $8.28 million in Q3 2018, down 15.5% |
| Net income (loss) | $2.95 million consolidated; $2.54 million attributable to common stockholders, or $0.14 per basic share | $1.60 million consolidated loss; $1.88 million attributable loss, or $(0.11) per basic share |
| Revenue, nine months | $21.30 million | $24.67 million in 2018, down 13.7% |
| Net income (loss), nine months | $0.91 million consolidated; $0.45 million loss attributable to common stockholders | $5.25 million consolidated loss; $6.10 million attributable loss |
| Operating cash flow, nine months | $2.38 million | $2.26 million in 2018 |
| Cash from investing, nine months | $17.25 million | $9.55 million used in 2018 |
| Cash and restricted cash | $11.07 million, including $7.4 million cash and cash equivalents | $9.78 million total at December 31, 2018 |
| Debt at carrying value | $140.0 million mortgage debt and $11.6 million note payable | $149.7 million mortgage debt and no note payable at December 31, 2018 |
| Equity | $55.36 million total | $56.14 million at December 31, 2018 |
Q3 consolidated profit included a $4.85 million gain on property sales; the nine-month gain was $6.24 million. Q3 rental operating costs were 36.2% of revenue versus 32.8% a year earlier; for the nine-month period, they were 36.7% versus 32.5%. Same-store NOI declined 7.0% for nine months, to $9.82 million. Occupancy was 83.1%, versus 82.5% a year earlier.
Material changes versus prior period
- Revenue declined mainly because of property sales in late 2018 and 2019; higher occupancy partly offset the reduction.
- Q3 earnings turned positive, principally reflecting larger sale gains, lower depreciation and amortization, and lower interest expense. The company remained loss-making for the first nine months on a common-stockholder basis.
- Presidio redeemed all remaining Series B preferred stock for $16.9 million, funded with a September 2019 Polar loan. The loan has $14.0 million principal, an 8% fixed rate, monthly interest-only payments and a stated October 1, 2020 maturity, extendable to March 31, 2021. Its balance-sheet carrying value was $11.6 million after original issue discount and debt issuance costs.
- Property sales generated $29.2 million in net cash proceeds from investing activities; acquisitions and property improvements used cash. The company also paid $2.2 million in common dividends in the first nine months.
Outlook, risks and unusual items
- Management said existing portfolio cash flow, partnership distributions and 2019 property sales should cover near-term operating costs, capital expenditures and future dividends that may be paid. It noted that additional borrowing, property sales or a dividend reduction may be needed if operating cash flow is insufficient. No specific earnings or dividend guidance was provided.
- Mortgage maturities include $2.3 million for model homes in the remainder of 2019; $11.6 million for model homes and $15.4 million for commercial properties in 2020. Management expects to sell properties or refinance debt as needed.
- The company reported compliance with mortgage covenants and the Polar note’s debt-to-property-fair-value limit of 75%. It reported commercial and model-home debt-to-estimated-property-value ratios of 58.4% and 61.8%, respectively.
- Management cited a major tenant loss at Genesis Plaza, lower Waterman Plaza rental rates, higher operating costs and snow-removal expense as factors weighing on same-store NOI. It described leasing trends cautiously optimistically; lease downtime and rent concessions can delay cash-flow benefits.
- Material risks include refinancing and capital-raising access, tenant defaults or nonrenewals, vacancies and rent levels, geographic concentration, interest costs, property-sale execution, and maintaining REIT status. The company remained a guarantor of debt related to the Genesis Plaza ownership-interest transaction. Management said ordinary-course litigation and environmental matters were not expected to have a material adverse effect.
Important facts for investors to verify
- How sale-dependent Q3 earnings are, and whether future operating cash flow can support dividends without further asset sales or borrowing.
- The timing, pricing and proceeds of the four properties held for sale and planned dispositions or refinancings for upcoming mortgage maturities.
- The Polar note’s full repayment terms, extension conditions, redemption fee provisions and impact of its 8% rate and original issue discount.
- Whether the Genesis Plaza tenant loss, Waterman Plaza rent levels and higher property expenses continue to pressure occupancy, revenue and same-store NOI.
- The company’s available unrestricted cash after property reserves and planned capital spending; total cash includes restricted amounts.