Executive Summary / Key Takeaways

• Presidio Property Trust is an internally managed, diversified REIT strategically reshaping its portfolio by divesting non-core assets and targeting acquisitions in stable/growth markets, alongside managing its capital structure through equity raises, debt refinancing, and share repurchases.
• Recent financial performance for Q1 2025 reflects portfolio changes, with total revenue decreasing year-over-year primarily due to property sales, while G&A expenses saw a notable reduction.
• The company faces significant near-term debt maturities, including a defaulted loan on the Dakota Center property slated for sale, requiring successful refinancing or asset dispositions to manage liquidity.
• SQFTP operates in a competitive landscape against larger, more specialized REITs and alternative investment vehicles, relying on its diversification and niche model home business as key differentiators rather than proprietary technology.
• Management believes current liquidity and refinancing capabilities are sufficient for the next twelve months, with a focus on optimizing the existing portfolio and selectively pursuing acquisitions when market conditions are favorable.

A REIT Reshaping: Strategy, Portfolio, and Competitive Stance

Presidio Property Trust operates as a diversified real estate investment trust, managing a portfolio spanning office, industrial, retail, and a unique segment of triple-net leased model homes. Its journey, marked by a reincorporation to Maryland and REIT election in 2000, and becoming publicly traded in October 2020, has been one of active portfolio management. The core strategy revolves around acquiring stabilized or near-stabilized properties in specific geographic markets, deliberately avoiding the volatility often associated with major metropolitan hubs like New York or Los Angeles. Instead, Presidio targets regions characterized by stable or growing employment bases, often linked to universities, government, or specific industries, as well as the Sun Belt states for its model home operations.

This diversification across property types and geographies is a foundational element of Presidio's approach, intended to mitigate the risks inherent in real estate cycles and tenant-specific challenges. While larger, more specialized REITs like Prologis (PLD) in industrial, Realty Income (O) and Simon Property Group (SPG) in retail, and Vornado Realty Trust (VNO) in urban office command significant scale and market share, Presidio competes by focusing on its specific market niches and maintaining an internally managed structure, which can offer cost efficiencies compared to externally advised peers. The competitive landscape also includes private equity funds and increasingly, technology platforms offering alternative investment avenues or operational efficiencies that larger rivals can leverage (e.g., PLD's automated logistics systems, O's scale efficiencies, SPG's tech integration for foot traffic, VNO's operational efficiencies). Presidio's competitive edge does not appear to stem from proprietary technology in the traditional sense; its operational focus is on property management and portfolio optimization rather than technological innovation in building systems or tenant interfaces, beyond standard industry practices and the Strategic Committee's oversight of cybersecurity risks.

A key differentiator for Presidio is its significant model home portfolio. These properties are acquired and leased back to homebuilders on a triple-net basis, meaning the tenant is responsible for most operating expenses. Management views this segment as vital to the homebuilding process, providing a distinct revenue stream and investment opportunity. This niche allows Presidio to operate in a less directly competitive space compared to the broader office, industrial, or retail markets where it faces off against much larger players. The company's history includes strategic shifts, such as the decision to exit California retail properties (except its headquarters) based on management's assessment of better investment returns elsewhere, and the proactive management of assets like the Shea Center II following the departure of its largest tenant, Halliburton (HAL).

Performance Reflecting Strategic Shifts and Market Headwinds

Presidio's financial performance in the first quarter of 2025 reflects the ongoing strategic portfolio adjustments and prevailing market conditions. Total revenue for the three months ended March 31, 2025, stood at approximately $4.13 million, a decrease from $4.79 million in the same period of 2024. This decline was primarily driven by lower rental income and transaction fees from the model home segment, coupled with the impact of selling two commercial properties (Union Town Center and Research Parkway) in February 2025 for a combined $16.95 million, which generated a net gain of approximately $4.2 million.

Segment-wise, Office/Industrial properties saw a slight decrease in total revenues to $2.92 million from $2.96 million year-over-year, with NOI declining by 8.5% to $1.30 million. The Retail segment experienced a significant revenue drop to $263,278 from $553,389, and NOI fell by over 60% to $162,710, directly attributable to the aforementioned property sales. The Model Home segment's total revenues decreased by 28.1% to $913,767, and NOI fell by a similar percentage to $865,610. Adjusted NOI for Model Homes, which includes gains/losses on sales and impairments, saw a substantial decrease to $1.08 million from $3.15 million, primarily due to a lower gain on property sales in Q1 2025 compared to Q1 2024 ($0.2 million vs. $2.0 million).

Operating expenses showed mixed trends. Rental operating costs remained relatively stable at approximately $1.61 million, although as a percentage of total revenue, they increased due to the revenue decline. General and administrative expenses decreased notably to $1.66 million from $2.08 million, benefiting from lower consulting and legal fees and fewer new restricted stock grants. Interest expense on mortgage notes was consistent at approximately $1.51 million, despite a higher weighted average interest rate on outstanding debt (5.83% in Q1 2025 vs. 5.23% in Q1 2024), reflecting a lower overall debt balance ($94.4 million vs. $102.3 million). The loss from the investment in Conduit Pharmaceuticals (CDT) marketable securities significantly narrowed to $0.2 million in Q1 2025 from $3.9 million in Q1 2024. Income attributable to non-controlling interests decreased substantially to $0.1 million from $1.5 million, tied directly to the lower gains on model home sales in affiliated partnerships.

Overall, the company reported net income attributable to common stockholders of $1.69 million, or $0.13 per share, for the three months ended March 31, 2025, a significant improvement from a net loss of $5.76 million, or $0.47 per share, in the prior-year period. This swing was largely influenced by the gain on commercial property sales and the reduced loss from the Conduit investment, offsetting the decline in rental income.

Liquidity remains a critical focus. As of March 31, 2025, cash, cash equivalents, and restricted cash totaled approximately $12.0 million. Anticipated liquidity sources include existing cash, operating cash flows, refinancing, future sales, and potential new borrowings or equity/debt issuances. Management projects spending up to $1.8 million on capital improvements, tenant improvements, and leasing costs over the next 12 months. A significant portion of future capital needs is dedicated to servicing and repaying debt.

Navigating Debt Maturities and Future Outlook

A key challenge for Presidio is managing its debt obligations, particularly upcoming maturities. Approximately $28.2 million in commercial property loans are set to mature within the next twelve months. The non-recourse loan on the Dakota Center property, with a balance of approximately $9.1 million, matured in July 2024 and is now in default, requiring a default interest rate and lender expense payments. Management has agreed with the lender to sell the property to settle the debt, but purchase offers are subject to lender approval, and there is no guarantee the sale price will cover the full loan balance, although the non-recourse nature limits the company's exposure. Refinancing efforts are underway for other maturing loans, including Genesis Plaza and One Park Centre, but obtaining financing on acceptable terms is not assured and new debt is expected to be at higher interest rates.

The company's Model Home segment also carries mortgage notes totaling $27.1 million as of March 31, 2025, with maturities ranging from 2025 to 2030 and interest rates from 6% to 8%. Management expects to sell certain model homes to pay off associated debt and refinance others, consistent with historical practice.

Despite these debt challenges, management believes that the combination of existing working capital and the ability to refinance mortgages will fund operations for at least the next twelve months. The company intends to continue paying monthly dividends on its Series D Preferred Stock (cash permitting), which totaled approximately $0.60 million in Q1 2025, but has not yet decided when to resume common stock dividends.

The strategic outlook centers on continued portfolio optimization through selective acquisitions and dispositions. Management is actively evaluating opportunities, focusing on properties that align with their yield-driven, stable, longer-term lease criteria in target markets. The pace of Model Home acquisitions is expected to pick up as market conditions for homebuilders stabilize.

Risks beyond debt maturities include the successful re-leasing of the significant vacancy at Shea Center II (45,535 sq ft, 46% still available), potential impairments on model homes due to market changes or short hold periods, and broader macroeconomic factors such as interest rate fluctuations, inflation (which could outpace rent increases), and geopolitical events impacting real estate fundamentals. The company also monitors risks related to financial market volatility and potential actions by activist stockholders, although a cooperation agreement was reached with a group in 2024.

Conclusion

Presidio Property Trust is at a pivotal juncture, actively managing its portfolio and capital structure to enhance long-term value. The first quarter of 2025 highlighted the impact of strategic property sales on revenue while demonstrating expense control and significant gains from dispositions. The core investment thesis hinges on the success of its diversified strategy, particularly the performance and growth potential of the model home segment and the ability to acquire accretive assets in targeted commercial markets.

However, the company faces material near-term risks, most notably the management of upcoming debt maturities and the successful re-leasing of vacant space. The ability to refinance or strategically sell assets under favorable terms will be critical for maintaining liquidity and funding future initiatives. While lacking the scale and technological moats of larger competitors, Presidio's focus on niche markets and disciplined acquisition approach, coupled with proactive capital management actions like the recent tender offer, define its path forward in a challenging real estate environment. Investors should closely monitor the company's progress on debt refinancing, leasing activity, and the execution of its acquisition strategy as key indicators of its ability to navigate current headwinds and unlock embedded value.