Presidio Property Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Presidio is an internally managed REIT with office, industrial, retail and model-home properties. Its portfolio included 12 commercial properties and 82 model homes. The consolidated statements also include Murphy Canyon Acquisition Corp. (SPAC), which Presidio consolidated as its primary beneficiary.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $4.32 million | $4.85 million | $8.89 million | $10.52 million |
| Consolidated net income (loss) | $0.42 million | $1.78 million | $0.80 million | $(0.48) million |
| Net income (loss) attributable to common stockholders | $(0.83) million | $0.75 million | $(4.65) million | $(1.91) million |
| Basic and diluted EPS | $(0.07) | $0.08 | $(0.39) | $(0.20) |
| Net cash from (used in) operations | Not presented by quarter | $(0.46) million | $(0.32) million |
- Q2 revenue fell about 11% year over year; first-half revenue fell about 15%. Management attributed the decreases primarily to prior-year property and model-home sales, and the March 2022 sale of World Plaza.
- First-half segment NOI, a non-GAAP measure, was $5.96 million versus $6.89 million. Q2 NOI was $2.97 million versus $3.36 million.
- First-half real estate sale gains were $2.75 million, compared with $1.43 million a year earlier. Q2 gains were $1.23 million versus $2.59 million. These gains materially affected reported earnings.
- At June 30, cash, cash equivalents and restricted cash totaled $21.1 million, including $4.3 million restricted. Mortgage debt was $94.7 million gross principal ($93.9 million net of loan costs); total liabilities were $103.8 million and total equity was $56.6 million.
- Assets were $289.1 million, up from $161.2 million at year-end 2021, largely reflecting the consolidated SPAC: $135.1 million of investments held in trust and $128.6 million of SPAC shares classified outside permanent equity as redeemable. These balances should not be read as ordinary unrestricted operating liquidity.
- Commercial mortgage principal was $73.7 million, with a weighted-average rate of about 4.53%; model-home mortgage principal was $20.9 million, averaging about 3.77%. The company reported compliance with material mortgage covenants.
Material changes and unusual items
- Murphy Canyon raised $132.25 million in its February 2022 IPO. Presidio consolidated the SPAC and its trust account; the transaction drove substantial balance-sheet growth and a large investing cash outflow. Presidio held about 23.5% of the SPAC at IPO and committed to fund possible extension payments if needed.
- Presidio sold World Plaza for approximately $10.0 million, recognizing an approximately $0.3 million loss, and sold 18 model homes for approximately $10.0 million, recognizing an approximately $3.0 million gain. It acquired eight model homes for approximately $4.6 million.
- Common-stockholder results included $1.08 million of Series D preferred dividends for the first half and a $2.46 million Series A warrant dividend. The warrant dividend contributed to the difference between consolidated earnings and the loss attributable to common stockholders.
Liquidity, outlook and risks
- Management said working capital and its ability to refinance commercial and model-home mortgages were expected to fund operations for at least the next 12 months. This depends in part on refinancing and property-sale proceeds; the filing cautions that additional financing may not be available on acceptable terms.
- Approximately $3.95 million of mortgage principal was scheduled for 2022, including $3.24 million related to model homes. Management expected some properties to be sold and related debt repaid, and other loans to be refinanced. The $2.2 million 300 N.P. maturity was paid in May 2022.
- Management projected up to $2.9 million of capital improvements, tenant improvements and leasing costs for the remainder of 2022. It also noted possible higher future capital spending from rising construction costs.
- No new COVID-related tenant rent negotiations began in the first half of 2022. Management anticipated further rent deferrals, abatements or credit losses during the remainder of 2022, but did not expect existing arrangements to materially affect rental revenue or collections. It cautioned that the pandemic’s future financial impact could not be reasonably estimated.
- Management said elevated property prices and compressed capitalization rates made acquisitions challenging. It did not provide numerical earnings, revenue or dividend guidance. Future dividends remain subject to Board approval; Series D preferred stock carries a cumulative 9.375% annual dividend rate.
- Key risks include tenant payment and lease-renewal risk, refinancing availability and interest costs, property values and occupancy, economic conditions and inflation, geographic concentration, REIT qualification, and the SPAC’s ability to complete a business combination. The SPAC sought a real-estate-related acquisition with an estimated enterprise value of $300 million to $1.2 billion and aimed to complete a transaction within one year of its IPO.
Important facts for investors to verify
- How much of the reported $21.1 million cash balance is available for Presidio’s property operations, separate from restricted cash and SPAC trust assets?
- Whether scheduled mortgage maturities are repaid through property sales or refinanced, and on what terms.
- Whether operating cash flow improves enough to support debt service, planned capital needs and common and preferred dividends.
- How tenant collections, occupancy, lease renewals and potential concessions develop, particularly given the portfolio’s geographic and property-type exposures.
- The SPAC’s redemption levels, extension-funding requirements, costs and progress toward a business combination.
- The effect of warrant issuance and potential exercise on common-share dilution and per-share results.