Business context and reporting period
This is NetREIT, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2015. The request metadata identifies Presidio Property Trust, Inc., but the filing itself names NetREIT, Inc. The company operated as a self-administered REIT, with office, industrial, retail and model-home properties. It sold its seven-property self-storage portfolio in April 2015.
Key financial metrics
| Metric | Q3 2015 / Sept. 30, 2015 | Comparable period / Dec. 31, 2014 |
|---|---|---|
| Revenue | $6.11 million for Q3; $17.08 million for nine months | $4.25 million and $12.01 million, respectively, in 2014 |
| Net income (loss) | Q3 consolidated loss: $1.45 million; nine-month consolidated income: $0.88 million. Net loss attributable to common stockholders: $1.55 million for Q3 and $0.54 million for nine months. | Common-stockholder losses were $1.85 million for Q3 and $3.31 million for nine months in 2014. |
| Cash flow | Nine-month operating cash flow $2.47 million; investing cash outflow $10.62 million; financing cash inflow $13.65 million. | Operating cash flow was $4.01 million, investing outflow $15.51 million and financing inflow $13.18 million in 2014. |
| Cash and liquidity | Cash and equivalents $11.15 million; restricted cash $6.59 million. | Cash and equivalents $5.64 million at Dec. 31, 2014. |
| Debt and preferred financing | Mortgage notes payable $128.21 million; Series B mandatorily redeemable preferred stock recorded as a $30.0 million liability. | Mortgage notes payable, including debt classified as held for sale, totaled $123.90 million at Dec. 31, 2014; Series B liability was $16.6 million. |
| Assets and equity | Total assets $238.04 million; total equity $69.13 million. | $220.62 million and $71.54 million, respectively, at Dec. 31, 2014. |
Revenue increased 41.9% in Q3 and 42.5% for the first nine months year over year, primarily reflecting acquisitions. Q3 rental operating costs were 31.7% of rental and fee income, versus 36.0% a year earlier; general and administrative costs were 19.3% of revenue versus 28.2%. Same-property NOI rose 10.3% for Q3 and 10.1% for the nine months, according to the table. Reported portfolio occupancy was 82.5% at September 30, compared with 80.0% a year earlier; a separate same-property measure reported 79.9%.
Material changes and transactions
- Acquired five commercial properties in August and 17 model homes during the nine-month period; reported acquisition spending was $42.53 million.
- Sold the self-storage portfolio for approximately $34 million net, repaid approximately $16.9 million of associated mortgage debt and recognized a $4.73 million gain. Also sold a Yucca Valley parcel and building for approximately $1.5 million, recognizing a gain of about $1.1 million.
- Mortgage debt increased from year-end as acquisitions and refinancing expanded the portfolio. Management reported a 4.75% weighted-average mortgage rate at September 30, down from 5.10% a year earlier.
- Series B preferred financing carries a 14% preferred return: 10% paid monthly and 4% accrued and compounded monthly. It is mandatorily redeemable, generally by the third anniversary, with an option to extend up to two years. The filing says an additional $5 million was funded on November 4, 2015, after quarter-end.
Outlook, commentary and risks
- No specific earnings or distribution guidance is provided. Management expected rental income, operating costs, interest expense and depreciation to rise as recently acquired properties contributed for full periods and as the company pursued further acquisitions.
- Management said short-term needs were expected to be met from cash and operating flows, but cautioned that inadequate cash flow could require additional borrowing or a reduction in distributions. Cash dividends were described as return of capital for the periods presented; nine-month cash dividends were $0.471 per share on an annualized basis.
- The company had no revolving credit facility and no committed financing for unencumbered properties. Management’s acquisition plans depend on access to debt and equity financing, property-sale proceeds and suitable investments. It identified geographic concentration, tenant leasing and renewal risk, vacancy downtime, interest rates, capital-market conditions and construction costs as risks.
- On November 10, 2015, the company entered into an agreement to acquire a 121,000-square-foot Colorado office building for approximately $25 million, expected to close in December. The filing also refers to acquisition funds being in escrow.
- The company reported compliance with mortgage covenants, no off-balance-sheet arrangements and effective disclosure controls. It reported no legal proceedings or defaults.
Important facts for investors to verify
- Confirm issuer identity: the supplied metadata says Presidio Property Trust, while the filing cover and financial statements name NetREIT, Inc.
- Review the high-cost Series B redemption obligations, remaining funding and repayment timing, including the post-quarter $5 million issuance.
- Assess debt maturities and refinancing needs: scheduled mortgage principal payments include $8.21 million in 2016 and $7.73 million in 2018; the filing lists $103.80 million thereafter.
- Compare cash generation with distributions and planned acquisitions; nine-month operating cash flow was $2.47 million while cash dividends paid were approximately $3.29 million.
- Reconcile occupancy and same-property NOI disclosures: the filing gives different occupancy scopes and its narrative cites nine-month same-property NOI growth of 12.7%, while the table reports 10.1%.
- Confirm the status, funding and closing conditions of the approximately $25 million subsequent acquisition, and the timing and financing of planned portfolio growth.