Presidio Property Trust, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Presidio is a self-managed REIT with office, industrial, retail and model-home properties. At quarter-end it reported 149 model homes and commercial properties concentrated primarily in California, Colorado and North Dakota.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior period |
|---|---|---|
| Total revenue | $8.225 million | $8.247 million |
| Net loss | $1.151 million | $0.944 million |
| Net loss attributable to common stockholders | $1.318 million; $0.07 per share | $1.014 million; $0.06 per share |
| Cash from operations | $0.736 million | $1.207 million |
| Cash and restricted cash | $6.101 million | $8.311 million at December 31, 2017 |
| Mortgage notes payable | $165.846 million principal; $164.096 million net carrying value | $162.006 million principal at December 31, 2017 |
| Series B mandatorily redeemable preferred stock | $30.604 million liability; 14% preferred return | $30.585 million at December 31, 2017 |
Rental operating costs were $2.650 million, or 32.2% of revenue, versus $2.637 million, or 32.1%, a year earlier. General and administrative expenses were $1.333 million (15.8% of revenue), versus $1.257 million (15.8%). Depreciation and amortization was $2.339 million, down 8.0%. Mortgage interest expense rose 5.3% to $1.983 million; Series B interest expense declined 21.4% to $1.094 million. The filing reports a 4.6% weighted-average rate on outstanding debt. It reports segment NOI of $5.575 million versus $5.609 million; same-store commercial NOI was $4.509 million, down 1.5%.
Investing used $7.803 million, principally for $7.284 million of model-home acquisitions and $1.205 million of property additions; financing provided $4.858 million, including $5.092 million of mortgage proceeds and $1.018 million of noncontrolling-interest contributions. The quarter’s net cash decrease was $2.209 million. The filing states that approximately $2.0 million of cash was intended for property capital expenditures. It had no revolving credit facility, though management was exploring one.
Material changes and operating developments
- Presidio acquired 19 model homes for approximately $7.3 million, funded with about $2.2 million cash and $5.1 million of mortgage debt. It sold two model homes for approximately $905,000, recording a $74,000 gain.
- Model-home segment revenue increased to $1.124 million from $0.830 million; office/industrial revenue and retail revenue declined. Compared with Q1 2017, prior-period results included sales of a medical building and retail center, as well as two model homes.
- Same-store commercial rental revenue rose 0.3%, but operating costs increased 3.6%; management attributed much of the increase to approximately $200,000 of Colorado property-tax reassessments. Same-store occupancy was reported at 87.1%, versus 90.9% a year earlier.
- Management reported 10 comparable leases signed during the quarter, with an average rental-rate increase of 5.3% on a cash basis and 7.3% on a straight-line basis. It cited lost major tenants at Shea and World properties as offsetting rent increases.
- No common dividends were paid in Q1 2018. The company said it suspended dividends in Q3 2017. Series B preferred stock redemption was extended to August 1, 2019.
Outlook, risks and unusual items
Management described leasing conditions as improved but said it remained cautiously optimistic. It projected annual spending of up to $2.0 million, net of lender-held reserves, for capital improvements, tenant improvements and leasing costs; this is not full-year earnings or revenue guidance. Management said future liquidity may come from operating cash flow, property sales, new or refinanced mortgages, and potential equity or debt issuance, and cautioned that inability to obtain financing or raise capital could constrain acquisitions and other objectives.
Key risks identified include tenant defaults or nonrenewals, vacancy and rent declines, rising interest and operating costs, financing and capital-raising constraints, property-market and geographic concentration, and maintaining REIT qualification. Colorado represented approximately 56.5% of commercial portfolio base annual rent. Model-home mortgage principal was $32.747 million, secured by 146 homes; those notes generally mature in 2018–2020. Scheduled total principal payments include $17.309 million in 2019 and $32.489 million in 2020. The filing says the company was in compliance with material mortgage covenants. It reported no impairment charge, off-balance-sheet arrangements or legal proceedings; disclosure controls were assessed as effective.
FFO was $1.114 million versus $1.018 million, while MFFO was $1.267 million versus $1.301 million. These are non-GAAP supplemental measures, not substitutes for GAAP results or cash available for distributions.
Important facts for investors to verify
- The MD&A says revenue fell by approximately $100,000, or 1.2%, but the statement of operations shows a decline of approximately $22,000, or 0.3%. Reconcile this discrepancy.
- The same-store table reports occupancy of 87.1% versus 90.9%, while its variance column appears inconsistent with those figures. Confirm the occupancy comparison and its effect on leasing and NOI.
- Assess liquidity against restricted cash, operating cash generation, planned property spending, and scheduled mortgage maturities—particularly the 2019–2020 payments—and confirm refinancing availability.
- Evaluate the suspended common dividend and the 14% Series B preferred return, including the company’s capacity to meet the preferred redemption obligation due August 1, 2019.
- Monitor tenant retention and vacancy, especially the cited major tenant losses, Colorado property-tax costs, geographic concentration, and model-home debt and lease exposures.