Presidio Property Trust, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This annual filing reports full-year results, not standalone fourth-quarter results. Presidio is an internally managed REIT with office/industrial, retail and model-home properties.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $17.64 million | $17.76 million |
| Rental operating costs | $5.96 million; 33.8% of revenue | $5.84 million; 32.9% of revenue |
| General and administrative costs | $6.79 million; 38.5% of revenue | $6.16 million; 34.7% of revenue |
| Net income | $13.18 million | $1.49 million |
| Net income (loss) attributable to common stockholders | $8.03 million; $0.68 per share | $(6.74) million; $(0.57) per share |
| Cash provided by operating activities | $1.49 million | $0.93 million |
| Cash, cash equivalents and restricted cash | $6.51 million, including $3.7 million restricted | $16.52 million, including $4.4 million restricted |
| Mortgage debt, gross principal | $108.47 million | $97.75 million |
Net income includes a $40.32 million gain from deconsolidating the SPAC, partly offset by a $23.36 million loss on Conduit securities. The company also recorded $3.25 million of non-cash impairment charges. These items substantially affect the year-over-year earnings comparison; revenue declined about 1%.
Net operating income, as defined by the company, was $9.27 million versus $11.92 million. Office/industrial NOI fell to $4.38 million from $7.55 million; model-home NOI rose to $3.54 million from $2.81 million; and retail NOI declined to $1.35 million from $1.56 million.
Portfolio, changes and capital allocation
- At year-end, the company owned or held interests in 12 commercial properties and 110 model homes. Model homes represented about 35% of real estate assets, up from 27% in 2022.
- It acquired 40 model homes for $21.9 million, financed with $6.6 million cash and $15.3 million of mortgage notes. It sold 22 model homes for about $11.7 million, recognizing a $3.2 million gain.
- Commercial-property occupancy was 81.0% at year-end. Shea Center II occupancy was 67.1%, following Halliburton’s non-renewal; about 20% of the former Halliburton space was leased during 2023. Dakota Center occupancy declined to 58.1% after a tenant’s lease expired.
- Common distributions declared fell to $0.091 per share from $0.252 in 2022. Series D preferred distributions remained $2.34372 per share for the year, at a stated annual rate of 9.375% on the $25 liquidation preference.
- The company repurchased 23,041 Series D preferred shares in 2023 for approximately $0.2 million and no common shares. A new authorization permits up to $6 million of common and $4 million of preferred repurchases through November 2024.
Liquidity, debt and outlook
- Operating cash flow was modest relative to debt service and distributions. Cash and restricted cash declined by $10.0 million during 2023. The filing cites $1.2 million planned for property capital, tenant improvements and leasing costs over the following 12 months.
- Scheduled 2024 mortgage principal payments total approximately $23.5 million: $10.4 million for commercial properties and $13.1 million for model homes. Four commercial loans totaling about $26.1 million have maturity dates within the next 12 months, according to management; the filing’s principal-payment schedule and maturity discussion describe different measures.
- Management is pursuing extensions, restructuring or refinancing, and may sell properties if refinancing or other funding is unavailable. The Dakota Center loan, with approximately $9.2 million principal, matures in July 2024; management also identified selling or surrendering the property as possible alternatives if it cannot resolve the maturity.
- Management said available cash, operating cash flow, partnership distributions and expected property sales should fund operations, planned capital expenditures and required dividends for at least 12 months. This outlook depends in part on refinancing and property-sale proceeds; the company cautioned that financing may not be available on acceptable terms.
- Management reported no suitable commercial acquisitions in 2023 amid higher financing costs and challenging valuations, but expects to continue evaluating commercial and model-home investments. It anticipated model-home sales would generate a net gain in first-quarter 2024; this is not a quantified forecast.
Material risks, contingencies and unusual items
- Refinancing and leverage: Gross mortgage debt increased to $108.5 million; refinancing needs and higher borrowing costs pose liquidity and default risks. The weighted-average mortgage rate was 5.18%, versus 4.57% in 2022.
- Occupancy and concentration: Office exposure, vacant space at Shea Center II and Dakota Center, and regional concentration create leasing and property-value risks. About 91% of model-home annual rent came from the Southwest region.
- Conduit investment: The company owns approximately 6.3% of Conduit and reported a year-end carrying value of $18.3 million, with cost basis of about $7.5 million. It reported a $23.36 million fair-value loss during 2023. The filing also describes the investment’s “value” as approximately $7.56 million elsewhere; investors should clarify this apparent distinction between carrying value and cost basis.
- Impairments: The $3.25 million total charge included about $2.0 million for One Park Center, $0.4 million for eight model homes and $0.8 million for goodwill. Management attributed the model-home impairment to builders changing product types in specific neighborhoods.
- Financial reporting controls: Management concluded internal control over financial reporting was ineffective at year-end because of a material weakness in review and controls over the income-tax provision, including matters related to the Conduit transaction. Remediation was underway but incomplete. The auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- Other developments: Nasdaq notified the company in June 2023 that it was below the minimum bid-price requirement; the company regained compliance in December 2023. In March 2024, a stockholder announced plans to solicit votes for director nominees. The company reported no material litigation and no material environmental liability known to it.
Most important facts for investors to verify
- Progress and final terms for 2024 loan maturities, especially Dakota Center and the other commercial loans, and the sources available to meet scheduled principal payments.
- Actual leasing progress and rent recovery at Shea Center II and Dakota Center, including whether the remaining vacant Shea Center II space is leased.
- Conduit’s current market value, the company’s realizable proceeds from its holding, and reconciliation of the filing’s $18.3 million carrying value with its $7.5 million cost basis.
- Whether operating cash flow can support debt service, capital needs and common and preferred distributions without additional borrowing or asset sales.
- Whether management remediates the income-tax control weakness and whether subsequent filings report any control issues or financial-statement corrections.