Presidio Property Trust, Inc. — Q1 2019 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2019, compared with the same period in 2018. Presidio is a self-managed REIT with office, industrial, retail and model-home properties. At quarter-end, it reported 13 office buildings, one industrial property, four retail centers and 129 model homes.
Key financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $7.18 million | $8.22 million |
| Net loss | $0.96 million | $1.15 million |
| Net loss attributable to common stockholders | $1.73 million | $1.32 million |
| Basic and diluted loss per share | $0.10 | $0.07 |
| Net cash from operating activities | $1.32 million | $0.74 million |
| FFO | $33,902 | $1.11 million |
| MFFO | $649,561 | $1.27 million |
Revenue declined 12.7%, primarily because of lower rental income and recovery revenue following property sales. Rental operating costs were 38.5% of revenue, versus 32.2% a year earlier; G&A was 24.5% of revenue, versus 16.2%. Same-store NOI fell 11.8% to $3.37 million; same-store occupancy was 81.8%, down from 85.3%.
At March 31, total assets were $225.1 million, total liabilities $170.0 million and total equity $55.1 million. Mortgage notes had $147.1 million of principal outstanding ($145.9 million net of loan costs). Cash equivalents and restricted cash totaled $12.84 million, including approximately $5.5 million in cash equivalents and $7.3 million restricted cash. Q1 capital expenditures and tenant improvements were $2.70 million.
Operating cash flow improved year over year. Investing activities provided $7.99 million, mainly from property-sale proceeds; financing activities used $6.24 million, including $7.68 million of mortgage repayments, $1.08 million of dividends and a $0.90 million Series B preferred-stock redemption.
Material changes and notable items
- Presidio sold the Morena Office Center for approximately $5.6 million and 15 model homes for approximately $5.8 million, recognizing a combined net gain of approximately $1.21 million. It made no property acquisitions in Q1 2019; in Q1 2018 it acquired 19 model homes for approximately $7.3 million.
- Rental income and same-store performance weakened. Management attributed the same-store revenue decline to the loss of a major tenant at Genesis Plaza and lower rents at Waterman Plaza; operating costs rose partly because of snow removal, higher wages and other operating costs.
- G&A increased $427,000, mainly due to higher stock compensation, state income taxes and the corporate-office relocation.
- Presidio adopted lease accounting Topic 842 on January 1, 2019, recognizing approximately $514,000 of right-of-use assets and lease liabilities.
- A $0.06-per-share common dividend was declared after quarter-end, payable May 31, 2019 to holders of record April 1.
Liquidity, outlook and risks
Near-term funding risk is significant. The 16,000 outstanding Series B preferred shares are mandatorily redeemable for $16.0 million in cash on August 1, 2019. The company stated that it did not have sufficient cash on hand and did not expect operating cash flow alone to fund redemption. Management intended to seek secured or unsecured borrowing, sell properties, or reduce common dividends. Failure to meet the obligation could trigger default remedies, including investor rights that could result in replacement of a majority of the Board and a change of control.
Model-home mortgage maturities were approximately $6.3 million for the remainder of 2019 and $12.3 million in 2020. Management planned to refinance a significant portion or sell model-home properties. The company reported no revolving credit line, though it was exploring one. It cited an annual capital-improvement, tenant-improvement and leasing-cost estimate of up to $2.0 million, net of lender-held reserves.
Management said it believed portfolio cash flows, partnership distributions and property sales would support near-term operating costs and planned capital needs, while acknowledging reliance on financing, asset sales or dividend reductions if cash flows prove insufficient. Management described leasing trends as cautiously optimistic, but noted that weak tenant payment capacity, vacancies, lease rollovers, rent declines and regional economic conditions could harm results. The portfolio’s concentration in Colorado and North Dakota, and its exposure to Southern California, also leaves it vulnerable to local market changes.
Other disclosed risks include refinancing and interest-rate risk, property operating-cost increases, the ability to renew leases and collect rent, access to capital, REIT qualification, and environmental or litigation matters. Management reported no impairment charge in Q1 and no material environmental liability known to it; it said ordinary-course legal matters were not expected to have a material adverse effect. No formal financial guidance was provided. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- How the company funded the $16.0 million Series B redemption due August 1, 2019, and whether any default, control or dividend consequences followed.
- Whether planned refinancing or sales addressed the 2019–2020 model-home loan maturities, and the terms and collateral of any new debt.
- Current unrestricted cash and operating cash generation, distinguishing these from restricted cash and property-sale proceeds.
- Occupancy, tenant retention, rent trends and progress in re-leasing space, particularly at Genesis Plaza and Waterman Plaza.
- Whether future results are being supported by recurring property operations or by asset dispositions; Q1 FFO and MFFO both declined sharply year over year.
- Dividend sustainability in light of operating cash flow, capital needs and the preferred-stock obligation; review the filing’s non-GAAP definitions before comparing FFO, MFFO or NOI with other REITs.