Business Overview and History
Presidio Property Trust, Inc. (NASDAQ: SQFTP) is an internally managed, diversified real estate investment trust (REIT) with a portfolio spanning office, industrial, retail, and single-family model home properties. The company has maintained a presence in the commercial real estate market for over two decades, weathering industry challenges and positioning itself for future growth.
Presidio Property Trust was incorporated in the State of California on September 28, 2000, and later 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 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 approximately 823,000 rentable square feet, as well as 83 model home residential properties totaling 251,600 square feet. The company's commercial properties are located in Colorado, North Dakota, California, Texas, and Maryland, while the model homes are situated in Arizona, Florida, and Texas.
In 2021, Presidio sponsored a special purpose acquisition company (SPAC) called Murphy Canyon Acquisition Corp. In 2023, Murphy Canyon Acquisition Corp. completed a business combination with Conduit Pharmaceuticals Limited, and the SPAC's shares were reclassified into shares of the combined company, Conduit Pharmaceuticals Inc.
The company has faced some challenges over the years. In 2022, Presidio received a notice from Nasdaq notifying it that it had failed to meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market. The company was granted an additional 180-day period to regain compliance, which it was able to do by the end of 2023.
Additionally, Presidio has had to navigate changes in the commercial real estate market, including dealing with tenant move-outs and lease expirations. For example, in 2022, the company's largest tenant, Halliburton, did not renew its lease, leaving Presidio to fill a significant amount of vacant space.
Financial Performance and Liquidity
Presidio's financial performance has been mixed in recent years. For the fiscal year ended December 31, 2023, the company reported total revenue of $17.64 million, a decrease from $17.76 million in the prior year. Net income from continuing operations, including noncontrolling interests, was $13.18 million in 2023, a significant improvement from a net loss of $1.46 million in 2022.
For the most recent quarter ended September 30, 2024, Presidio reported revenue of $4.72 million, representing a year-over-year growth of 5.36%. However, the company experienced a net loss of $6.06 million for the quarter, primarily due to a $3.93 million loss on its investment in Conduit Pharmaceuticals marketable securities and a $697,150 impairment charge related to the Dakota Center property in Fargo, ND, and a few model homes.
As of September 30, 2024, Presidio had total assets of $145.85 million, with cash and cash equivalents of $7.20 million. The company's total debt stood at $102.32 million, resulting in a debt-to-equity ratio of 3.46. Presidio's current ratio and quick ratio, measures of liquidity, were both 1.35 as of the same date, indicating the company's ability to meet its short-term obligations.
The company's cash flow performance has shown improvement, with operating cash flow of $822,660 in the third quarter of 2024. Free cash flow, defined as operating cash flow minus capital expenditures, was $1.86 million for the same period.
Presidio's Board of Directors has approved a monthly cash dividend of $0.20 per share on the company's Series D Preferred Stock for the fourth quarter of 2024. The company has not declared a cash dividend on its Series A Common Stock since the third quarter of 2023.
Diversified Portfolio and Acquisition Activity
Presidio's portfolio diversification across office, industrial, retail, and model home properties has helped the company mitigate risks associated with any single real estate sector. The company operates across three main real estate property segments: Office/Industrial Properties, Retail Properties, and Model Home Properties.
The Office/Industrial Properties segment includes eight office buildings and one industrial property, totaling approximately 758,170 rentable square feet. This segment generated $9.13 million in rental, fees, and other income for the nine months ended September 30, 2024, accounting for 64.8% of the company's total revenue. The net operating income (NOI) for this segment was $5.04 million for the same period. Key Office/Industrial properties owned by the company include Genesis Plaza, Dakota Center, Grand Pacific Center, Arapahoe Center, and Shea Center II.
The Retail Properties segment consists of three retail shopping centers totaling 65,240 rentable square feet. This segment contributed $1.54 million in rental, fees, and other income, or 10.9% of total revenue, for the nine months ended September 30, 2024. The NOI for the Retail Properties segment was $1.10 million. The company's key retail properties are Union Town Center and Research Parkway.
The Model Home Properties segment includes 83 model home residential properties totaling approximately 251,600 square feet, which are leased back on a triple-net basis to homebuilders. This segment generated $3.43 million in rental, fees, and other income, representing 24.2% of the company's total revenue for the nine-month period. The NOI for the Model Home Properties segment was $3.31 million. The model home properties are located in Arizona, Florida, and Texas.
During the nine months ended September 30, 2024, Presidio acquired 19 model homes for approximately $9.70 million, financed through a combination of cash and mortgage notes. Additionally, the company sold 46 model homes for a total of $22.30 million, net of sales costs, recognizing a gain of $3.20 million.
In the commercial property segment, Presidio did not acquire any new properties during the nine months ended September 30, 2024. However, the company is in the process of selling two of its commercial properties, Union Town Center and Research Parkway, for a total of approximately $11.10 million. These sales are expected to be completed by the end of 2024.
Challenges and Risks
Presidio faces several challenges and risks that could impact its future performance. The company's exposure to the volatile commercial real estate market, particularly in the office and retail sectors, could result in fluctuations in occupancy rates, rental income, and property values. Additionally, the company's reliance on the model home business, which is subject to the cyclical nature of the housing market, poses a risk to its overall financial stability.
The company's ability to refinance maturing mortgages and secure new financing, particularly in a rising interest rate environment, is also a concern. As of September 30, 2024, Presidio had five commercial property loans totaling approximately $28.40 million that will mature within the next 12 months.
Furthermore, the company's investment in Conduit Pharmaceuticals Inc. (NASDAQ: CDT), which it acquired through the deconsolidation of its former special purpose acquisition company (SPAC) subsidiary, Murphy Canyon Acquisition Corp., has been subject to significant volatility. As of September 30, 2024, Presidio's investment in Conduit Pharmaceuticals was valued at $0.50 million, down from $18.30 million as of December 31, 2023.
The company's high debt-to-equity ratio of 3.46 and lack of an available credit line could pose challenges in terms of financial flexibility and ability to respond to market opportunities or challenges.
Outlook and Strategy
Despite the challenges facing the commercial real estate industry, Presidio remains cautiously optimistic about its future prospects. The company's focus on diversifying its portfolio and actively managing its assets has helped it navigate the evolving market landscape.
In a recent statement, Presidio's Chief Investment Officer, Gary Katz, commented, "During the first and second quarters, we entered into 10 leases with new tenants totaling nearly 36,000 sf. Our tenant retention activity has been particularly noteworthy, as we successfully renewed 78% of expiring square footage during this same period. Our overall leasing outlook is positive."
To address the impending maturity of its commercial property loans, Presidio is exploring various options, including refinancing, restructuring, and potentially selling the affected properties. The company's management team is closely monitoring the situation and is committed to finding the most favorable solutions to maintain the company's financial stability.
Presidio's investment in Conduit Pharmaceuticals, while volatile, represents a strategic move to diversify its asset base and capitalize on the growth potential of the healthcare sector. The company will continue to closely monitor this investment and evaluate its long-term viability in the context of its overall portfolio strategy.
The company's geographic concentration in Colorado (47.3% of total annual base rent) and North Dakota (30.6% of total annual base rent) provides both opportunities and risks. While this concentration allows for focused management and potential economies of scale, it also exposes the company to regional economic fluctuations.
Conclusion
Presidio Property Trust's diversified REIT model has provided a measure of resilience in the face of industry challenges. The company's focus on active asset management, portfolio diversification, and strategic investments has positioned it to navigate the evolving commercial real estate landscape. However, Presidio must address the impending maturities of its commercial property loans, manage the volatility associated with its Conduit Pharmaceuticals investment, and improve its debt-to-equity ratio to ensure its long-term success.
The company's ability to generate positive cash flow and maintain a stable liquidity position are positive indicators, but the recent quarterly net loss highlights the ongoing challenges in the market. Presidio's success in leasing activities and tenant retention demonstrates its capability to manage its properties effectively, even in a competitive environment.
As Presidio continues to execute its strategy, investors will closely monitor the company's ability to improve its financial performance, successfully refinance or restructure its maturing debt, and capitalize on opportunities in its various property segments. The company's performance in the coming quarters will be crucial in determining its trajectory and ability to deliver consistent returns to shareholders in the dynamic commercial real estate market.