Presidio Property Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company is an internally managed REIT with office, industrial, retail and triple-net model-home properties. At quarter-end, it owned or held interests in 12 commercial properties and 102 model homes.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $4.48 million | $4.39 million | $13.15 million | $13.29 million |
| Net income | $22.16 million | $0.35 million | $21.35 million | $1.15 million |
| Net income (loss) attributable to common stockholders | $20.96 million | $(1.30) million | $17.60 million | $(5.96) million |
| Net cash provided by operating activities | Not presented quarterly | Not presented quarterly | $0.49 million | $1.89 million |
- Reported earnings included a $40.3 million gain on deconsolidation of Murphy Canyon/Conduit and a $17.7 million loss on Conduit marketable securities. These unusual, non-property items drove reported net income; they do not reflect recurring property operations.
- Segment net operating income (NOI), a company-defined non-GAAP measure, was $3.01 million for Q3 versus $2.96 million; for nine months it was $8.70 million versus $8.92 million. Q3 NOI was about 67% of revenue, broadly in line with the prior-year quarter.
- At September 30, total assets were $177.9 million, down from $291.4 million at year-end 2022, primarily following the SPAC deconsolidation. Total equity was $68.1 million versus $52.8 million.
- Mortgage principal was $103.3 million ($102.5 million net of unamortized loan costs), compared with $97.8 million principal at year-end. Weighted-average debt interest rate was 5.06%, up from 4.40% at September 2022.
- Cash, cash equivalents and restricted cash totaled $7.8 million, including $3.7 million restricted, versus $16.5 million at year-end. Operating cash flow fell to $0.49 million. Investing cash inflow of $128.2 million chiefly reflected SPAC trust-account redemptions; financing cash outflow was $137.4 million, also chiefly reflecting those redemptions.
Changes and operating developments
- Nine-month revenue declined slightly. Management cited the December 2022 expiration of the Halliburton lease at Shea Center II and the 2022 sale of World Plaza, partly offset by growth in model homes and other real estate assets.
- Halliburton represented about 8.4% of 2022 annual base rent. By September 30, 2023, approximately 20% of the vacated space had been leased.
- Nine-month general and administrative expense rose to $5.4 million from $4.3 million; management attributed much of the increase to SPAC costs incurred before deconsolidation. The company acquired 25 model homes for about $13.7 million and sold 15 for about $7.8 million during the nine-month period.
- Common dividends declared for the first nine months were $0.068 per share, down from $0.231 in 2022. Series D preferred dividends continued at $0.19531 monthly per share, equivalent to a 9.375% annual rate on the $25 liquidation preference.
Outlook, liquidity and risks
- Management said cash on hand, portfolio cash flows, joint-venture distributions and property sales were expected to fund operations, planned capital expenditures and required dividends for at least 12 months. It cautioned that refinancing or new financing may not be available on acceptable terms and that spending or dividends could be reduced if funding is inadequate.
- About $3.4 million of principal payments were scheduled for Q4 2023, including $3.1 million on model-home properties. A further $22.0 million was scheduled for 2024, including a $9.3 million Dakota Center mortgage maturing July 2024. Management was assessing refinancing, repayment, sale or other capital options for that loan.
- The company estimated approximately $4.2 million of tenant improvements and other capital expenditures on existing properties for the rest of 2023, net of construction financing. A $2.7 million construction loan for Grand Pacific Center improvements had not been drawn at quarter-end; the related 10-year KLJ Engineering lease was expected to begin after improvements, estimated for Q1 2024.
- In September, the board formed an independent Special Committee to consider strategic alternatives, including a business combination, asset sale, joint venture or restructuring. No outcome or timetable was assured. Management also cited elevated commercial property prices and compressed capitalization rates as constraints on acquisitions.
- Key risks include tenant non-renewals or defaults, property-market and occupancy weakness, refinancing and interest-rate risk, reliance on property sales and financing, REIT qualification, and exposure to concentrated geographies and tenants. The company reported compliance with material mortgage covenants and no material litigation.
Most important facts for investors to verify
- How much of reported earnings is recurring: assess the $40.3 million deconsolidation gain and $17.7 million Conduit securities loss separately from property results.
- Conduit exposure and valuation: the company held about $24.0 million of Conduit shares and warrants at September 30, subject to a lock-up through March 20, 2024. The common stock closed at $5.97 on September 30 and $1.24 on November 10, 2023; confirm subsequent valuation and potential liquidity impacts.
- Liquidity and debt rollover: monitor the Dakota Center July 2024 maturity, other scheduled maturities, refinancing terms, and cash available after restricted balances and planned capital spending.
- Leasing and distributions: track progress re-leasing Shea Center II, commencement of the KLJ lease, and whether operating cash flow supports future common and preferred dividends.
- Strategic alternatives: determine whether the Special Committee announces a transaction or other material action; the filing provides no assurance that one will occur.