Business context and reporting period
The filing is NetREIT, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. NetREIT describes itself as a self-administered REIT owning office, industrial, retail and model-home leaseback properties. The request metadata names Presidio Property Trust, Inc.; the filing itself identifies the registrant as NetREIT, Inc., so the entity match should be verified.
Financial performance and position
| Metric | Three months ended Sep. 30, 2016 | Nine months ended Sep. 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Total revenue | $7.85 million | $24.09 million | $6.11 million; $17.08 million |
| Net income (loss) | $(1.91) million | $(3.90) million | $(1.45) million; $0.88 million |
| Net loss attributable to common stockholders | $(1.99) million | $(4.01) million | $(1.55) million; $(0.54) million |
| Net operating income (segment measure) | $5.28 million | $16.46 million | $4.21 million; $11.20 million |
| Operating cash flow | Not separately stated | $3.78 million | $2.04 million |
For the nine-month period, cash used in investing was $8.65 million and cash provided by financing was $2.95 million. Cash and cash equivalents declined $1.92 million to $4.70 million; restricted cash was a further $3.77 million. Total assets were $254.27 million and total equity was $57.96 million at September 30, 2016.
Mortgage notes payable were $154.68 million principal ($152.72 million net of loan costs), versus $144.69 million principal at year-end 2015. The filing reports a 4.6% weighted-average rate on mortgage debt and approximate debt-to-estimated-value ratios of 58.0% for the company’s properties and 56.5% for model homes. The Series B preferred stock is classified as a liability: it carries a 14% return, with $32.7 million face value outstanding after $2.3 million was redeemed. Reported Series B interest expense was $4.55 million for the nine months.
Changes versus the prior comparable period
- Nine-month revenue rose 40.9%, driven mainly by office and industrial properties acquired in 2015, higher same-store rents and occupancy, and a $376,000 lease-termination fee. Quarterly revenue rose 29.5%.
- Nine-month common-stockholder loss widened to $4.01 million from $0.54 million. The 2015 period included $4.60 million of income from discontinued self-storage operations, including a $4.73 million sale gain.
- Nine-month same-store NOI increased 12.3%; quarterly same-store NOI increased 4.5%. Management attributes improvement to rents and occupancy, with the nine-month comparison also including the termination fee.
- Mortgage debt increased, while reported cash fell from $6.63 million at December 31, 2015. Rental operating costs, depreciation and mortgage interest also rose, substantially reflecting the larger property base.
Outlook, risks and unusual items
Management said existing portfolio cash flow and recent acquisitions should cover near-term operating costs, capital spending, debt service and cash distributions at the current rate. It cautioned that if operating cash flow is inadequate, the company may borrow more or reduce distributions. It had no revolving credit facility and was exploring one; longer-term growth depends on access to mortgages, refinancing, property sales or securities issuance. No specific earnings or revenue guidance was provided.
Management cited interest-rate and capital-market uncertainty, financing availability, regional economic conditions, tenant credit and leasing risk, and potential construction-cost increases. It recorded a $700,000 impairment on World Plaza in the quarter. During the nine months it acquired 46 model homes for $15.8 million (partly financed with $11.0 million of promissory notes) and sold 17 model homes, the Havana Parker Complex and a Yucca Valley parcel/building. A contract to sell Shoreline Medical Building for $8.2 million was signed after quarter-end, with closing expected in the first quarter of 2017. A $2.0 million mortgage on Research Parkway closed November 4, 2016.
Cash dividends were paid at an annualized rate of $0.40 per share; the filing says distributions for the periods were expected to be return of capital because of taxable losses. The filing states the company was in compliance with mortgage covenants, had no off-balance-sheet arrangements, and reported effective disclosure controls. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the registrant’s identity: the supplied metadata says Presidio Property Trust, while this filing names NetREIT, Inc.
- Review the Series B redemption timetable and extensions: the filing describes scheduled payments of $14.3 million in 2017 and $18.4 million in 2018, with extension options, alongside a 14% return.
- Assess liquidity and funding needs against $4.70 million of cash, upcoming debt and preferred-stock obligations, capital spending, and distributions; management’s sufficiency assessment is not a guarantee.
- Check the occupancy comparison: the narrative gives 91.4% versus 86.6%, while the same-store table reports 91.4% versus 96.6% for the nine-month comparison.
- Evaluate the recurring earning power beneath gains on property sales, the World Plaza impairment, and the lease-termination fee; FFO and MFFO are non-GAAP measures and do not represent cash available for distributions.