Presidio Property Trust, Inc. — 2013 Q3 Form 10-Q Summary
Entity and period: The supplied filing is for NetREIT, Inc., for the quarter and nine months ended September 30, 2013; it does not identify Presidio Property Trust, Inc. as the registrant. Confirm that this is the intended filing before relying on the figures below.
Business context
NetREIT operated as a self-administered REIT with office, industrial, retail, self-storage, mortgage and model-home investments. At quarter-end, its portfolio included 11 office buildings and one industrial building, four retail centers, seven self-storage facilities and 77 model homes. Its commercial properties were concentrated mainly in Southern California and Colorado; model homes were located across multiple states.
Financial performance and position
| Metric | Q3 2013 / September 30, 2013 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $4.79 million for Q3; $14.82 million for the first nine months | Q3 2012: $4.60 million; nine months 2012: $12.96 million |
| Net loss attributable to common stockholders | Q3: $2.22 million, or $0.14 per share; nine months: $2.67 million, or $0.16 per share | Q3 2012: $0.38 million; nine months 2012: $1.38 million |
| Operating income | Q3: $0.58 million; nine months: $2.37 million | Q3 2012: $0.90 million; nine months 2012: $2.01 million |
| Operating cash flow | $3.14 million for the first nine months | $3.64 million for the first nine months of 2012 |
| Cash and restricted cash | $8.61 million cash; $1.44 million restricted cash | December 31, 2012: $10.75 million cash; $1.11 million restricted cash |
| Total assets / equity | $180.92 million / $86.18 million | December 31, 2012: $185.13 million / $87.38 million |
| Mortgage notes payable | $89.25 million | December 31, 2012: $92.48 million |
Rental operating costs were 35.3% of rental income in Q3 2013 versus 32.6% a year earlier, and 32.7% of rental and fee income for the first nine months versus 32.1%. The filing reports a 5.21% weighted-average mortgage interest rate at September 30, 2013, compared with 5.59% at September 30, 2012. It reports no current ratio or other clear current-liquidity measure.
Investing activities used $0.13 million in the first nine months, compared with $15.25 million used in the 2012 period. Financing activities used $5.15 million, versus $10.68 million provided in 2012. Cash declined by $2.14 million during the 2013 period. The company paid $3.86 million of interest.
Material changes and unusual items
- Nine-month revenue increased 14.3%, mainly from properties acquired in 2012 and 2013 and higher model-home rental income. Q3 revenue rose 4.1%.
- Net loss worsened year over year, principally reflecting a $1.5 million Q3 impairment charge on the Havana/Parker property, compared with $358,000 of impairment in the 2012 quarter. The company was seeking a loan modification; any reduction in debt service or extension was uncertain.
- Nine-month gains on real-estate sales were $1.03 million, versus $181,000 in 2012. Sales included 23 model homes and the Casa Grande apartments; the model-home sales generated approximately $704,000 of gain, and Casa Grande generated approximately $322,000.
- The company acquired a Lancaster, California self-storage facility for approximately $3.65 million; it was 65% occupied at acquisition. It also acquired five model homes for approximately $1.7 million. It sold Casa Grande for approximately $1.8 million.
- Operating cash flow was below cash dividends paid. Management described distributions as return of capital in the periods presented and said distributions could be reduced or eliminated if cash sources prove insufficient.
- The January 2013 acquisition of related-party property manager CHG Properties was completed through issuance of 200,000 NetREIT shares valued at $1.9 million. Management estimated annual savings of approximately $300,000; the transaction included $600,000 allocated to customer relationships and approximately $1.3 million to goodwill.
Liquidity, debt, outlook and risks
Management estimated approximately $28 million of available liquidity: about $8 million in cash and an estimated $20 million of potential mortgage capacity on unencumbered properties or through refinancing. The borrowing capacity was not committed, and the company had no revolving credit line. Management said current cash flow and financing sources were expected to cover near-term costs and cash distributions, but acknowledged it might borrow or reduce distributions if cash flows were inadequate.
In early 2013, the company refinanced approximately $18.4 million of loans. The replacement loans had a weighted-average rate of 4.85%, compared with 6.04% on the refinanced debt, and maturities in 2020. Management estimated first-year interest savings of approximately $200,000 and annual debt-service reductions of approximately $600,000. The filing states the company was in compliance with its mortgage covenants. Scheduled principal payments include approximately $17.5 million in 2015 for company properties; model-home debt maturities generally fall between 2014 and 2017.
Management anticipated acquiring 30–50 model homes for approximately $18 million in Q4 2013 and was discussing potential property acquisitions of $15–$20 million for early 2014. These were expectations, not commitments. The company was also exploring $35–$50 million of unsecured debt or preferred financing, but reported no completed financing arrangement.
Management characterized the economic recovery as slow and uneven. Key risks discussed include tenant ability to pay, vacancy and lease-renewal conditions, competition in self-storage, regional market concentration, rising interest rates and borrowing costs, refinancing availability, and the possibility that distributions or planned acquisitions could require additional capital. The filing reports no off-balance-sheet arrangements, legal proceedings or defaults. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Supplemental non-GAAP measures showed Q3 FFO of $99,719, down from $771,704, and nine-month FFO of $1.75 million, up from $1.59 million. Nine-month MFFO was reported as $1.78 million, compared with $771,442. These measures are not substitutes for GAAP earnings or cash available for distributions.
Most important facts to verify
- Confirm the registrant: the filing names NetREIT, Inc., while the request names Presidio Property Trust, Inc.
- Reconcile the Q3 2012 loss-per-share figures: the financial statements show $0.02 loss per share, while MD&A refers to $0.03.
- Check the model-home sale disclosures: the filing gives differing counts and proceeds in separate sections (23 versus 24 homes, and approximately $7.1 million versus $7.9 million net proceeds).
- Verify the status and terms of the Havana/Parker loan modification and the assumptions underlying the $1.5 million impairment.
- Assess whether the estimated, uncommitted mortgage capacity and prospective financing could support debt maturities, acquisitions and distributions; review the related maturity schedule.
- Evaluate distribution coverage against operating cash flow, since the company reported losses and characterized distributions as return of capital.