Presidio Property Trust, Inc. (NASDAQ:SQFT) is an internally managed, diversified real estate investment trust (REIT) that has established a strong presence in the commercial and residential real estate markets. With a focus on office, industrial, retail, and model home properties, the company has strategically positioned itself to capitalize on various opportunities within the dynamic real estate landscape.
Business Overview and History
Presidio Property Trust was incorporated in the State of California on September 28, 1999, and reincorporated as a Maryland corporation in August 2010. In October 2017, the company changed its name from NetREIT, Inc. to Presidio Property Trust, Inc. The company operates as an internally managed, diversified REIT, with primary holdings in office, industrial, retail, and triple-net leased model home properties located across the United States.
As of September 30, 2024, Presidio owned or had an equity interest in 12 commercial properties, comprising eight office buildings, one industrial property, and three retail shopping centers, totaling approximately 823,420 square feet of rentable space. Additionally, the company owned 83 model home residential properties, totaling approximately 251,600 square feet, which are leased back to homebuilders on a triple-net basis.
The company's geographical footprint is diverse, with properties located in Colorado, North Dakota, California, Texas, and Maryland. This diversification helps mitigate risk and provides the company with exposure to various economic and real estate market conditions.
In June 2021, Presidio completed a secondary offering of 800,000 shares of its Series D Preferred Stock, raising approximately $18.1 million in net proceeds. The company used these proceeds for general corporate and working capital purposes, including acquiring additional properties. More recently, in June 2024, the company issued an additional 109,054 shares of its Series D Preferred Stock, generating gross proceeds of approximately $1.74 million.
Over the years, Presidio has faced various challenges, including the economic impact of the COVID-19 pandemic, tenant bankruptcies, and the need to maintain and improve its properties to attract and retain tenants. In 2023, the company's largest tenant, Halliburton, did not renew its lease, resulting in a significant loss of rental income. Presidio has since worked to fill the vacant space and has successfully leased approximately 35% of it to a new tenant. Additionally, the company has had to navigate the complexities of managing a portfolio of model homes leased back to homebuilders, including dealing with fluctuations in the housing market and changes in builder preferences.
Financials and Liquidity
Presidio Property Trust has maintained a relatively stable financial position, with total assets of $175.96 million as of December 31, 2023, compared to $291.35 million as of December 31, 2022. The company's total liabilities, net of minority interest, stood at $114.66 million as of December 31, 2023, down from $108.10 million as of December 31, 2022.
For the fiscal year 2023, Presidio reported total revenue of $17.64 million and net income of $10.15 million. The company's operating cash flow (OCF) and free cash flow (FCF) for 2023 both stood at $1.49 million. This significant improvement in net income can be attributed to the company's successful navigation of the challenging real estate market conditions, as well as its strategic acquisitions and dispositions.
Presidio's liquidity position remains solid, with cash and cash equivalents of $6.51 million as of December 31, 2023, compared to $16.52 million as of December 31, 2022. The company's current ratio, a measure of short-term liquidity, stood at 2.16 as of December 31, 2023, indicating the company's ability to meet its short-term obligations.
As of September 30, 2024, the company's liquidity metrics show a debt-to-equity ratio of 3.46, cash and cash equivalents of $7.20 million, and both current and quick ratios of 1.35. The total assets as of this date were $145.85 million, with $131.42 million in net real estate assets. Presidio Property Trust financed its portfolio with $102.32 million in mortgage notes payable, net of unamortized loan costs.
Quarterly Performance
For the three months ended September 30, 2024, Presidio reported total revenues of $4.72 million, compared to $4.48 million for the same period in 2023, representing a 5.36% increase. The company's net loss for the three months ended September 30, 2024, was $6.06 million, compared to a net income of $22.16 million for the same period in 2023. This decrease in net income was primarily due to a $697,150 impairment charge on certain real estate assets.
During the nine months ended September 30, 2024, Presidio reported total revenues of $14.10 million, compared to $13.15 million for the same period in 2023, a 7.22% increase. The company's net income for the nine months ended September 30, 2024, was $20.82 million, compared to a net income of $21.35 million for the same period in 2023.
The increase in quarterly and year-to-date revenues can be attributed to the company's strategic management of its commercial and model home properties, as well as its ability to secure new leases and renew existing ones. However, the decrease in net income for the three and nine months ended September 30, 2024, was primarily due to the impairment charges related to the Dakota Center property and certain model homes, as well as the loss on the company's investment in Conduit Pharmaceuticals.
Product Segments and Performance
Presidio Property Trust operates three main product segments: OfficeIndustrial Properties, Model Home Properties, and Retail Properties.
The OfficeIndustrial Properties segment includes eight office buildings and one industrial property, totaling approximately 758,170 rentable square feet. This segment generated rental, fees, and other income of $9.13 million and net operating income of $5.04 million for the nine months ended September 30, 2024. The office and industrial properties are located across Colorado, North Dakota, Maryland, and Texas.
The Model Home Properties segment consists of 83 model home residential properties, totaling approximately 251,600 square feet. During the nine months ended September 30, 2024, this segment generated rental, fees, and other income of $3.43 million and net operating income of $3.31 million. The model homes are leased back on a triple-net basis to homebuilders and are located in Arizona, Florida, and Texas.
The Retail Properties segment includes three retail shopping centers, totaling approximately 65,240 rentable square feet. For the nine months ended September 30, 2024, this segment reported rental, fees, and other income of $1.54 million and net operating income of $1.10 million. The retail properties are situated in Colorado.
Overall, the OfficeIndustrial Properties represented 64.8% of the company's total gross revenue for the nine-month period, followed by Model Home Properties at 24.2% and Retail Properties at 10.9%. As of September 30, 2024, the OfficeIndustrial Properties made up 57.5% of the company's total real estate assets, Model Home Properties accounted for 30.5%, and Retail Properties comprised 12.0%.
Geographic Market Performance
Presidio Property Trust's properties are strategically located across several states, contributing to the company's diversified portfolio:
1. California: 1 property, accounting for 7% of total square feet and 13% of total annual rent 2. Colorado: 5 properties, representing 39.4% of total square feet and 47.3% of total annual rent 3. Maryland: 1 property, comprising 3.9% of total square feet and 6.2% of total annual rent 4. North Dakota: 4 properties, making up 48.4% of total square feet and 30.6% of total annual rent 5. Texas: 1 property, accounting for 1.3% of total square feet and 2.9% of total annual rent
This geographic diversification helps the company mitigate risks associated with local market fluctuations and capitalize on various regional economic opportunities.
Recent Developments
In October 2024, Presidio Property Trust agreed with the lender to sell its Dakota Center property in Fargo, North Dakota, to settle the non-recourse loan that matured in July 2024. This decision came after the company was unable to reach an agreement on a loan modification or extension. As a result, the company recorded a $0.70 million impairment charge on this property due to uncertainties in the Fargo market.
Additionally, during the nine months ended September 30, 2024, the company sold 46 model homes for $22.30 million, net of sales costs, and recognized a $3.19 million gain on these sales. This strategic move demonstrates the company's ability to capitalize on market opportunities and optimize its portfolio.
Risks and Challenges
Presidio Property Trust faces several risks and challenges that could impact its long-term performance. These include:
1. Dependence on a limited number of large tenants: A significant portion of Presidio's revenue is derived from a limited number of large tenants, such as Halliburton, which previously occupied a significant portion of the Shea Center II property in Colorado. The loss or non-renewal of leases with these key tenants could have a material adverse effect on the company's financial performance.
2. Exposure to the volatility of the real estate market: As a REIT, Presidio's performance is heavily influenced by the overall health of the real estate market. Fluctuations in occupancy rates, rental rates, and property values can significantly impact the company's financial results.
3. Concentration of properties in certain geographic regions: While Presidio's portfolio is diversified across multiple states, a significant portion of its properties are located in Colorado and North Dakota. This geographic concentration exposes the company to the economic and market conditions in these specific regions, which could be more volatile than the national trends.
4. Potential impairment of real estate assets: As evidenced by the impairment charges related to the Dakota Center property and certain model homes, Presidio is susceptible to the risk of impairment of its real estate assets, which could adversely affect its financial performance.
5. Compliance with REIT regulations: As a REIT, Presidio must comply with various regulations and requirements to maintain its tax-advantaged status. Failure to comply with these regulations could result in the company losing its REIT status and facing significant tax consequences.
Outlook and Future Prospects
Presidio Property Trust has demonstrated its ability to navigate the challenges of the real estate market and maintain a relatively stable financial position. The company's diversified portfolio, strategic acquisitions and dispositions, and focus on high-quality tenants have been key contributors to its performance.
The company's recent performance, including the 5.36% year-over-year revenue growth from Q3 2023 to Q3 2024, indicates a positive trend in its operations. However, the decrease in net income during the same period, primarily due to impairment charges, highlights the ongoing challenges in the real estate market.
Presidio's ability to successfully integrate and manage its acquisitions, as well as its compliance with REIT regulations, will be crucial in determining its future prospects. The company's strategic decisions, such as the sale of the Dakota Center property and the divestment of 46 model homes, demonstrate its proactive approach to portfolio management and value creation.
Conclusion
Presidio Property Trust has demonstrated its ability to navigate the complexities of the real estate industry and maintain a diversified portfolio of commercial and residential properties. While the company faces several risks and challenges, its focus on strategic acquisitions, tenant diversification, and operational efficiency has enabled it to deliver relatively stable financial performance.
The company's performance across its three main product segments - OfficeIndustrial Properties, Model Home Properties, and Retail Properties - showcases its ability to generate revenue and net operating income from diverse real estate assets. Additionally, Presidio's geographic diversification across multiple states provides a buffer against localized market fluctuations.
As Presidio continues to execute its growth strategy and adapt to the evolving real estate landscape, investors will closely monitor the company's ability to mitigate risks, capitalize on emerging opportunities, and deliver long-term value to its shareholders. The company's recent actions, such as the strategic sale of model homes and the resolution of the Dakota Center property loan, indicate a proactive approach to portfolio management that may bode well for its future performance.